Fan-funded companies continue to innovate, but is the sector’s bubble about to burst?

Fan-funding models are not receiving the headlines this year that they did in 2009. However, the sector is continuing to produce innovative business models all based on the concept of getting an artist’s followers to finance musical activities. But with the more-high-profile services showing signs of strain, this business model faces a testing time ahead.

The global financial crisis, coupled with pressures from online file sharing, has put more pressure on all recording companies to achieve a higher success rate when it comes to breaking new artists. Although unsigned artists have always found it difficult to attract investment, the current climate has intensified the difficulties associated with persuading a record company to provide financial backing. Still, the fan-funded model of backing an artist or band continues to result in innovative ways of funding music projects.

According to research published on the blog of fan-funded service Kickstarter, the most popular pledge tier for its successful projects (those artist projects that were fully funded in the specified time limit) is US$100. Although the figure accounted for 9.52% of total pledges, in terms of actual money received it had a 16.36% share. The most popular pledge tier overall, representing 18.41% of actual pledges, is US$25.

Services that are causing waves in the sector are being led by Slicethepie. Just recently, the UK-based company announced an agreement with Fontana Distribution, the independent subsidiary of Universal Music Group Distribution, under which Fontana will recommend the best Slicethepie artists to its network of over 80 labels across the US. To qualify for the program, acts must be either fully financed or be in the process of raising money via the fan-funding platform to produce an EP or album.

Slicethepie is receiving growing interest from record companies, having earlier this year signed one of its bands, UK-based indie sextet Scars on 45, to Chop Shop Records/Atlantic Records on a multialbum deal. When that agreement was concluded, a buyout clause was triggered and shareholders – the fans – were bought out at a 50% premium to the market price, which represented an impressive 800% return on investment for fans who came onboard early in the process.

Scars on 45 launched on Slicethepie in 2008 and managed to generate £15,000 (US$23,700) – the amount earmarked to finance the band’s self-produced debut album – in funding in just a few weeks. A couple of Slicethepie-funded tracks were then placed onto US TV series CSI: NY and The Cleaner, and those appearances drew the attention of leading US music supervisor Alex Patsavas, also with Chop Shop Records, who brokered the record deal.

Slicethepie is working the model hard. The service recently teamed up with a number of leading digital-music firms – among them promotion website Sonicbids, music-download and -merchandise destination Nimbit, music-sharing site SoundCloud and music-delivery and -distribution service Tunecore – with those agreements bringing free membership and additional promotional assistance to fully funded Slicethepie artists.

Innovation continues
There are plenty of twists on the fan-funding model too. UK-based PledgeMusic enables fans to finance an artist’s new album by helping them reach a “pledge target” in the way that Slicethepie does, but the company also gives artists the option of making charitable donations to worthy causes. Last month UK band Funeral for a Friend released a new EP, The Young and Defenseless, using money raised on PledgeMusic, with 10% of the Pledge donated to charities PETA, Teenage Cancer Trust and the Rainbow Trust Children’s Charity. Although the charity-donation program sets PledgeMusic apart from other fan-funded services, the service still charges a flat 15% fee on all money raised. More than 80 artists have managed to reach their fund-raising targets via the platform, which is a pretty impressive hit rate of close to 80%.

Some fan-funded websites are spreading the operational risk by deploying the financing model across a number of creative projects. For example, French service KissKissBankBank aims to raise financing for music, dance, films, video games, photography and publishing. Music artists on the platform include Twenty-One Cigarettes, which is looking to raise €3,000 (US$4,046) to fund 30% of the cost of a debut album, and Scotch & Sofa, which is aiming to attract €9,000 to finance a new album, “Par Petits Bouts”, in its entirety.

Another twist on the business model has been developed by WebCeleb, which offers indie tracks for US$1 each. Purchasers get to download the music, but they also get a share of the song – the artist gets 50% of that dollar, WebCeleb takes 10%, and fans get the remaining 40%, which is split equally among every downloader who has bought the track in a 30-day period. The company also rolled out a live showcase series in the summer, featuring musicians whose appearances are determined by the number of tickets purchased by visitors to the website. WebCeleb has three “Live it Live” events, with a number of punk, indie and reggae acts battling it out to sell the most seats so that they can headline concerts at San Diego’s Sound Wave Music Hall.

A recent entrant to the sector, BuskerLabel, has a different take in that it only enables sponsorship of existing songs, rather than of tracks in preproduction, so financing raised helps ease EP and album release rather than support items such as studio- and sound-engineering time. All of the music distributed through the site is Creative Commons licensed, so it’s free to download for personal, noncommercial use. Fans investing in the music get early access to the tracks, a credit on the album’s sleeve notes and a high-quality download. The artists receive 80% of any cash pledged, while BuskerLabel takes the rest.

Sweden’s TuneRights bills itself as a stock exchange for music where “tunemakers” can post songs and agree on prices for them with online investors who take stakes in tracks. Similar to BuskerLabel, the objective of TuneRights is to facilitate the trading of song-rights ownership, rather than deal in unproduced content. Music owners can do what they want with the money they receive from selling shares in the platform. TuneRights takes a small percentage of each transaction conducted.

In addition to service offerings, some artists are going the fan-funded route themselves. For example, this year US band Joshua Panda turned to its fan base to support the “Grand Busking Tour” by posting a “virtual guitar case” on JoshuaPanda.com to enable followers to make donations, via PayPal, that went toward financing the multicity concert tour.

Pop goes the bubble?
Negative signs have led some to suggest that the fan-funding model’s bubble might be about to burst. Netherlands-based Sellaband, one of the business model’s flagship services, ran into liquidity problems early this year and was forced into bankruptcy and closure before re-emerging under the ownership of a German entrepreneur.

After a revamp, Sellaband.com is still operating, and the service has managed to finance more than 40 artists to the tune of more than US$50,000 each. But it now takes 25% of all artist investment, and its headline signing, rap band Public Enemy, has been promoting itself on the site since October 2009 in an effort to raise US$250,000 but has had to restructure its offering and lower its target to just US$75,000. The Sellaband platform has persuaded visitors to donate about 85% of that total.

The fact that a well-financed startup like Sellaband could struggle suggests that all might not be well with fan funding. For Sellaband, fees were clearly not high enough to cover outgoings, and it’s likely that other platforms are facing the same problem. In that context, Slicethepie’s recent move to get closer to a record company and act as a feeder for talent makes good sense, as do models such as BuskerLabel and KissKissBankBank, where the risk is spread.

Music & Copyright is a fortnightly research service published by Informa Telecoms & Media.

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One comment

  1. David Courtier-Dutton

    Good piece – and spot on about fan funding businesses not being sustainable without innovation. Fan funding cannot survive in a silo. Over at Slicethepie fan funding is only one piece of the puzzle. Reviewers on Slicethepie also power our insight business at http://www.soundout.com, which also identifies the best new talent coming through on Slicethepie and elsewhere. Slicethepie reviewers also power our rapidly growing radio research business (www.soundoutresearch.com). You need a joined up approach to the industry (which despite the rumours will survive, adapt and ultimately flourish), we are at the point where the new world is finally beginning to blend with the old, combining the best of both. Artists need much more than cash and DIY alone rarely gets you a major label deal, a sync placement or mainstream radio play. We’ve got a number of other develoments/partnerships coming done the line that will increasingly build out a fasttrack to commercial opportunity for every artist with genuine talent. Look forward to a world where its what you do, not who you know, that counts. Its a painful transition for the industry to make but one that will make a better and fairer world for artists to the ultimate benefit of consumers.