Alternative Financing for Music

Kieran Garvey

Research Programme Manager

@CambridgeAltFin

Overview

Background History

European Market Data

Alternative Finance Channels & Instruments

Key Drivers Behind Growth of Alternative Finance in Music

Case Studies

Mozart on Crowdfunding Music

1783-85 Mozart had 3-4 subscription concerts

174 subscribers for one of these

Included their names on the manuscripts

His series of six concerts in Mehlgrube

also secured 150 subscribers each (Morrow 1989)

Each person paid an estimated 800 EUR in

today’s currency (Baumol & Baumol 1994)

Modern Era – Why Music?

1997 – Marillion – UK Rock Bank raised US $60,000 - funded by fans:

"The Internet saved us, really. In 1997, our manager said to us we would have to find something else to do. Marillion wasn’t earning enough money,” keyboardist Mark Kelly.

Would you buy the album in advance?

"We then sacked the manager!”

12,000 pre-orders

2001 - Artist Share – Brian Camelio

A Boston musician, founded world’s 1st crowdfunding platform

European Market Data

5

Alternative Finance in Europe - 2014

Cambridge-EY (2015)

Kickstarter - Music Crowdfunding Data

Data Points Total MusicMusic Projects as

Proportion of Total

Total Funds Raised

Successfully$1,690,000,000 $141,620,000 8.38%

Number of Projects

Launched257,997 41,929 16.25%

Number of Projects

Successfully Funded

93,00621,155 22.75%

Success Rate 36.89% 51.25% +14.36%

Average Raise $18,171 $6,694 36.9%

Reward-Based Crowdfunding : Average Donation Remains Small

Crowdfunding Channels

Four key actors:

Creative entrepreneurs (e.g. artists who want to record an album)

Funders (e.g. fans who support their favorite acts with donations)

Crowdfunding platform (provides infrastructure and rules governing the transfer of resources from contributors to project initiators).

Service providers (e.g. video, marketing, PR, project managers)

Channels: Platforms with a Music Focus

PlatformYear

EstablishedHQ

Artist Share 2001 US

Sella Band 2006 Germany

Pledge Music 2009 UK

Oocto 2011 France

Artiste Connect 2012 Philippines

Busking Project 2012 UK

Applications of Alternative Finance: Music

Audio:

e.g. Pledge Music & SellaBand

Technology:

e.g. Kickstarter & Crowdcube

Concerts, gigs, events:

e.g. Living Indie & OpenStage

Scholarships & Research:

e.g. Hubbub & Experiment

Why Fund? Rewards Crowdfunding Motivations

Quality of the campaign

Doing social good

My money making a difference

How the money will be spent

Quality of the team

Supporting a local project

Supporting someone I know

Be part of the creative process

Getting a unique reward

Curiosity

Funding to date

Peer pressure

Musicians - Why Choose Rewards Crowdfunding?

Non-financial benefits – PR/Press

More control over my project

No equity or debt

Unable to get funding elsewhere

Money from real people

Transparency

Unable to find local funds

Raise on my own terms

Speed

Curious

Creative input of funders

Top Challenges Raising Finance Via Crowdfunding

Sourcing funders & marketing

Developing campaign material

Fulfilling & delivering rewards

Communicating with funders

Setting up campaign page

Developing plan and pitch

Finding the right platform

Setting up rewards/tiers

The application process

Benefits of the Crowd

Networking and connections

Marketing/Advocacy

Proof of concept, market validation

Help with project

Their expertise and knowledge

Involvement in creative process

Help with follow on funding

Key Factors Affecting Success

1. Quality

2. Contact and engagement with fans – comments, updates

3. Large social networks associated with success

4. Engaging friends and families

5. Crowdfunding instrument or channel e.g. rewards or equity

6. Rewards or bonuses to enhance active participation

7. Platform dynamics e.g. listed on top 5 priority listing

8. Momentum is key

Changing Dynamics of the Music Industry

Internet and digitalization - has listener-to-listener music exchange easier than ever

New and evolving channels of promotion and distribution

New ways of organizing the relationships between artists and the institutions that release their music

iTunes, Spotify, SoundCloud etc… highly successful without making investments in the production of content

Cuts to state funding in arts and culture

Artists therefore looking for new sources of income with revenues from live performances and music publishing

A Changing Music Industry

Music Marketing and DistributionCommercial success highly unpredictableBanks not willing to finance production – ‘nobody knows property’Record labels have production, distribution and promotion know-how BUT major changes in music marketing

Few changes to the traditional model of financing records Record companies cannot predict what will be successfulMarket research produces few answers. Crowdfunding may be shifting the risk from producers to consumers to

solve the problem of “nobody knows property (Caves 2000, 2003)

Music Financing: An Enabling Infrastructure

Technology infrastructure

Alternative finance platforms

Payments

Digital content, live streaming

Social infrastructure

Social media

Content, content, content

Peer and network marketing – super distribution

Case Studies – Crowdfunded Albums

Maria Schneider’s - Concert in a Garden 2004

Artist Share 2004

Raised $130k

One $10k fan listed as executive producer

Album sold exclusively through Artist Share

Picked up 2005 Grammy for ‘best large jazz ensemble’

Case Study – Amanda Palmer 2012

Theatre is Evil - Amanda Palmer & The Grand Theft Orchestra 2012

24,883 backers

$1,192,793

Most successful music campaign ever

???

Case Studies – Technology

Sunhou.se - KickstarterSensory Drums – organic and synthetic$94,245 USD328 backers

Mind Flood – CrowdcubeMusical Lego $236,000152 Investors19.27% Equity

Pono Music – KickstarterDigital Music Player$6,255,35518,220 backers

Case Studies - Gigs and Concerts

Foo Fighters - Rock 1000

KrowdPop

OpenStage

Case Studies – Research and Scholarships

Hubbub

Send Rosie to Harvard

Experiment

Can music improve memories in patients with brain damage?

Prodigy Finance

Student Finance

Case Study BlockChain & Micropayments

Peer Tracks

PeerTracks – an artist equity trading system for fan engagement and peer-to-peer talent discovery. 

Every artist can create their own, limited edition tokens, bearing their brand and name. 

A sub-cryptocurrency, whose value directly reflects the appeal of the artist.

Fans can buy tokens of unknown artists while they are cheap, speculating on their future potential.

 Artists can influence their tokens' value through a buy-back mechanism.

Trends for the Future

Subscription models

Revenue share

Match Funding – Arts Councils, Creative England

DIY crowdfunding - Brewdog

Cross border funding

Crowdsourced gigs – OpenStage, KrowdPop

The Future: Cambridge Centre for Alternative Finance

Survey launching in Q4 2015 to cover five global regions Americas (launching October 15)

Asia-Pacific

Greater China

UK

Europe

Network of Cambridge research partners in each region Americas: University of Chicago (Booth School of Business)

China: Tsinghua University (Shenzen)

Asia Pacific: University of Sydney

Cambridge Centre for Alternative Finance

Website: http://www.jbs.cam.ac.uk/ccaf

Twitter: @CambridgeAltFin

Email: kjg44@cam.ac.uk