A Beginners Guide To Crowdfunding Music
In the wake of Amanda Palmer’s recent successful crowdfunding campaign in which she raised over 1 million dollars, we investigate how the huge amount was reached and how other artists can get their hands on the big bucks through fan- based investments.
Musicians have always looked for new and innovative ways to gather funding to produce their next breakout album or track. A band may have fans, but they aren’t able to progress due to lack of funding. The answer? Get the fans to pay for it! We take a look at some of the finer details of crowd funding.
What exactly is it?
In essence, crowdfunding builds a gateway, connecting fans with an artist or band on a more personal level. The system enables musical fanatics to pledge financial assistance to the artist or group, without going through a long drawn-out saga of dealing with labels and management. The process also allows enthusiasts to be involved in the creation process and to feel as though they’ve been a valuable contributor.
Crowdfunding involves an artist or band appealing to supporters for financial help to assist with activities such as recording, marketing, touring and even the purchasing of band equipment. This has opened the floodgates for musicians to come up with innovative and unique ways to fund their next musical mission. While some crowdfunding sites operate under the bravado that if a target amount (set by the band or artist) isn’t reached, no payment from any donor will be taken, it is still a viable means for many artists.
For a nominated amount, fans can forward on financial assistance in exchange for perks; most commonly, a ‘money can’t buy’ commodity such as a signed band t-shirt or a hand-written letter of thanks.
Crowdfunding is mostly effective with bands that have a large, loyal fan base. This often reflects in the groups social media presence with a high percentage of those linked to the band or artist via mediums such as Facebook or Twitter pledging their hard earned dollars to the band, in hopes of contributing to the group or artist’s musical activities.
The arrangement takes money from the fans’ wallet and places it right in the front pocket of the band or artist.
The big players
Launched in 2009, Kickstarter is the most commonly known crowdfunding website. The website claims no ownership over the projects themselves but does take a cut of 5% of the funds raised. Earlier this year, Kickstarter broke its own record by having the first 10 million-dollar project (a smartwatch) come to fruition. Kickstarter also has an emphasis on keeping things hyper-local, meaning it’s easy as pie to see what projects need funding in your immediate area.
Some notable musicians who have used Kickstarter as a means of raising money are Amanda Palmer, Daniel Johnston, Stuart Murdoch (of Belle & Sebastian), and Tom Rush.
Australia’s answer to Kickstarter. Started in mid-2010 Pozible operates under the idea that if a target amount (set by the band or artist) isn’t reached, no payment from any donor will be taken. This means that not all projects put on the site are successful. As of June 2012, Pozible’s success rate is 42% and 1300 projects have been funded. Like Kickstarter, Pozible takes a 5% commission rate.
Unlike the other major crowdfunding sites, UK-based PledgeMusic deals only with music-related crowdfunding. Run by ex-record company. Artists currently using the site are Ian Ball of Gomez, The Boy Least Likely To, Martha Wainwright and Australia’s own Ben Lee. The site takes a 15% commission, which may seem steep in comparison to other sites, but PledgeMusic is entirely made up of music pros who support, guide and offer invaluable contacts and resources and artists retain 100% of their rights over their own music. PledgeMusic also have an extremely high success rate of 82%.
Who’s doing it?
After recently moving to an independent label, American emo-rock group The Spill Canvas recently enlisted the support of fans, appealing for assistance in funding the group’s new album.
The group segregated limited donation amounts, with assistance from crowdfunding specialist kickstarter.com, which would see the donor receive special one-off products for their financial assistance.
Donors who pledged USD $200 (there happened to be 55 of them) received their own hand-signed poster featuring personalised hand written lyrics of their choosing, while one cashed-up fan received a 15 minute Skype call from the band for their USD $500 dollar investment.
The band was fortunate enough to receive a USD $1500 dollar gift from one Spill Canvas enthusiast, who in return was proudly presented with a signed guitar, which was used in one of the band’s music videos.
The system seems flawless, right? Not quite.
Legal Implications/ The ASIC Won’t Let Us Be….
The legalities of this concept have recently been brought to light by government bodies such as the Australian Securities and Investments Commission as a result of the increasing use of services such as kickstarter.com and Pozible, which are designed to connect musicians with fans and conduct the financial exchange.
The main issue shrouding the crowdfunding phenomena is its susceptibility to the likes of fraudsters and unethical operators, who may use services against the goodwill of fans and seek personal gain or who pocket any coin destined for the artist or band. Because Australia is yet to regulate the system, no real policy can be put in place to protect users.
Many have voiced their concern over the lack of regulations, such as ASIC commissioner Greg Tanzer who said in a press release “Crowd funding, as a discrete activity, is not prohibited in Australia nor is it generally regulated by ASIC”.
A report released by ASIC, titled ASIC Guidance On Crowdfunding, outlines the major risks posed by users of crowdfunding and its possible jurisdictional outcomes for certain actions. These are put in place to inform would-be users of the potential risk in entering an unregulated financial agreement.
Tanzer later added “We want to make sure anyone involved in crowd funding is aware of these obligations to ensure they operate within the law and don’t potentially expose themselves to penalties under the Corporations Act or ASIC Act”.
ASIC has contacted a large number of Australian-based operators of crowd funding websites outlining its views on the issue and the circumstances that may impose legal obligations.
However, this act is focussed on larger, most established companies, rather than musicians or artists.
Speaking out on the report released by ASIC, Howard Chen, one fo the founders of Pozible added, “…we aren’t under the Corporations Act because we make it very clear that people get pre-sale benefits for funding projects rather than any sort of financial reward.”
Pozible is Australia’s first and largest crowd funding company. According to Chen, since its launch some 18 months ago, about 1100 projects have gone through the process of getting crowd funding, with $2 million raised on the site.
Chen is an advocate for crowdfunding, and believes that policy makers need to make no mistake in correctly addressing the issue of musicians using crowdfunding.
The US recently passed policy that will allow small businesses to acquire a larger number of would-be investors. However, this new policy also enforces a cap on crowdfunding, limiting the number of total investors.
The regulations fall under the recently christened JOBS ACT, which will be put into place at the conclusion of the Exchange Commission review period in January, 2013. Until then, potential donors will only be able to finance accredited investors in the USA.
Chen believes the recent benchmark set by the USA will eventually sail across the Pacific and be adapted by Australia in its quest to provide an airtight policy for crowdfunding users. “I think Australia will hold on a bit and see how the US goes,” Chen said. “The US is really the world leader in innovation and the rest of the world tries to adopt what it’s doing.”
What does that mean for us?
Australia-based entrepreneur Rui Rodrigues has voiced his concerns over this bill and its potential implications on the Australian market. “It is important to note that while this additional cash availability may be extremely valuable for entrepreneurs, this doesn’t come without risks” Rodrigues said.
Rodrigues announced his unease regarding the new framework that may well be adopted by Australia and labelling the set of regulations as “a significant legal and financial burden on entrepreneurs”.
But these regulations were set in place for investors opting for a financial-based incentive, not for musicians seeking crowdfunding assistance.
Countless success stories has been circulating within the industry, such as Sydney instrumental group Hermitude, who have adapted to a developing market by enlisting the crowdfunding process
The band has recently proven the worth of an effective crowdfunding campaign. The duo’s experimentation with the format saw fans pledge financial assistance to support the vinyl pressing of their recent release, Hyperparadise.
The east coast pair, also known as Luke Dubber and Angus Stuart, sent out a tactical SOS, asking fans for help in funding the LP press. In return, those who contributed in the operation had their name printed within the albums cover.
“We were thinking that people could chuck in a little bit, and then we’ll just make up the rest, because we really wanted to press the album to wax” said Dubber.
The group had an overwhelming response, with some fanatics wilfully handing over AUS $300 of their hard earned cash to the cause.
Dubber was astonished with the support, “The thing that got me was that some people were putting $300 down on a record that they hadn’t heard yet! That’s incredible! That’s such loyalty to what we do, and it was really touching to see how well that did, and how dedicated these people were to helping us get our music on vinyl. It blew us all away – we watched it creep up, just freaking out about how well it was doing. It was a great feeling. And vinyl is still alive and kicking, it seems.”
Former Dresden Doll singer Amanda Palmer astounded the music industry by racking up over 1.1 million dollars in crowdfunding donations as she appealed to fans to assist with the creation of her first “BIG, LEGIT” album.
In a campaign which aimed at raising USD $100,000, fans of the alternative musician handed over USD $1,192,793, completely blowing her original request out of the water.
Crowdfunding has proved its ability to support artists, both upcoming and established. The mechanism has helped artsist and mands fuel their new musical endeavors and once again, the power of the people has spoken, giving industry superiors a reality check. Here’s hoping the listen up.