Today I’m going to discuss the different aspects of crowdfunding in relation to the music industry.
The principle of crowdfunding is a relatively new concept, the first crowdfunding company ever was ArtistShare, a website that has been created in 2003. On the website musicians can publicly present their ideas for projects and name a certain amount of money that they need to execute said idea. If people are are convinced by the project they can invest money in it, once the amount of money that has been raised reaches a previously set threshold, the initiator of the project can keep the money (and everything above) that has been raised and use it for his/her project, however if the amount of money doesn’t reach the threshold at all the people who invested money get it back and the initiator of the project doesn’t get any money at all. As a ‘reward’ of investing in their project the fundraiser often give something back to the people who invested money in them, the reward depends on the amount of money that the people have invested, if somebody invested 100€ into a project maybe he gets (in the case of a music related project) he gets free VIP access to the next show while somebody who invested 10€ might only get a free copy of the next album. ArtistShare was the first crowdfunding company, but the idea has really taken off. Now there are many more crowdfunding companies for all kinds of different projects and not only music. the most successful one among them is the company Kickstarter, which many (famous) people have used and still use to raise money for their ideas, for instance Scrubs star Zach Braff use Kickstarter who used it to raise money for his independent movie ‘Wish I was here’ and Neil Young used it to raise money for his company Pono Music, which is currently working on developing a portable music player that is capable of playing high quality music as opposed to the rather poor quality of mp3 players.
Crowdfunding has many advantages, one being that the fundraiser can keep almost all money that has been raised, the crowdfunding company usually only takes a small fee. Another advantage is that through crowdfunding very unconventional projects can be funded, in which traditional investors would not invest such as the “Grilled Cheezus” (a toaster that toasts the face of jesus onto your bread) or the “Ostrich Pillow” (a pillow shaped like a lightbulb in which you can stick your head).
Musicians who don’t have a deal with a record label can raise the money for their projects via crowdfunding, a way that many bands chose to go.
In that regard crowdfunding is a very good way to raise money without having to fulfil the demands of the investors, but that is only true at first sight, because past crowdfunding projects have shown that the amount of money people are willing to invest into a project depends on the level of transparency that the initiator of the campaign provides. Initiators of crowdfunding campaigns have to be very open to the public on how, why, where and when they are going to spend the raised money. In that regard it is actually not much different than having to convince a traditional investor, with the downside that you have to do it publicly, which is a big disadvantage of crowdfunding, because you basically have to expose the very details of your business idea (or any other idea too) to the public. Another disadvantage of crowdfunding especially in regards to music related ideas is that most people are only willing to invest money once in one person’s idea. So it might be very well possible to raise the money for one album, but it is very unlikely that an artist will be able to raise money from their fanbase more than one time. This is arguably the biggest disadvantage of crowdfunding, because traditional investors will most likely reinvest in you and your projects if they turn out to be profitable, while people who invest in crowdfunded ideas probably won’t.
That is the reason why I personally would not invest money in the crowdfunding ideas of musicians, because you won’t help them in the long run, because even if the project succeeds, the next project won’t. Therefor I think you help musicians more by going to their concerts and maybe buy their merchandise products, that will give them money and help them to sell out their shows. For the same reason I would not start a crowdfunding campaign to raise money for my album etc. for it will probably only be a flash in the pan.