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Pledgemusic – Did They Line Their Own Pockets?

… or: Bang Goes the Money Again!

An essay about the end of Pledgemusic, Sellaband and of music crowdfunding

Almost ten years after being founded, one of the last pillars of music crowdfunding is starting to crumble. Even when those behind Pledgemusic, especially its co-founder Benji Rogers, vehemently denied operating music crowdfunding, the platform was always being mentioned in the same breath as the former (Sellaband, MyMajorCompany, AKAmusic) and current (Indiegogo, Kickstarter) leaders of the branch. As early as the summer of last year, artists proclaimed that Pledgemusic still owed them money which was collected from fans.

In light of the already announced bankruptcy, this is another chapter for music crowdfunding which is sadly coming to a close now. Moreover, it reminds us of the eerily quiet conclusion of Sellaband just a few years earlier. The parallels are astonishing and at the same time surprising. Musicians are not being paid. There have been wordy apologies and stalling strategies from the side of the platform, but these are never followed by any real results. The funds from the supporters were apparently never kept separate from the operating capital. Catastrophic crisis management, lost trust, coupled with a management incapable of getting a handle on things will lead to the obvious and inevitable end of Pledgemusic. I still hope Pledgemusic will disabuse me.

But no one learned from the Sellaband debacle. Maybe or perhaps because Sellaband died a quiet death.

What went wrong and what were the causes of the crisis of Pledgemusic – an initial analysis:

Artist are not getting paid

It is obvious that the financial management of Pledgemusic was not able to manage the funds from supporters (Pledgers) properly, as deemed appropriate for a prudent businessman, and pass on the funds to the artists. It is even more surprising when taking into consideration that the managing of such financial funds makes up a large part of Pledgemusic’s business model. This is not only sad, but also frustrating for the artists who were not able to finalize their projects or who were forced to finance them by investing even more time and effort. Let us hope that there is still something left for the artists at Pledgemusic.

What are artists‘ options now:

  1. Back in February, Sound Royalties advertised effectively that it would give out advance payments to artists … in the form of a credit.
  2. Each and every artist should decide whether or not they need an intermediary (crowdfunding) platform that charges a fee of up to 15%. Perhaps, they would be better advised to use their own internet presence and social media channels for a more personal version of crowdfunding or for pre-sales. This seems to be both more secure and more promising.
  3. For those of you who do not want to go without a crowdfunding platform, you should take advantage of an established player in the market: Kickstarter and Indiegogo could be some alternatives. But, each and every artist should examine in detail how the financial funds are managed and, when in doubt, contact the platform directly.
  4. Use Bandcamp`s pre-order tool. At least you are established and equipped with a decent fanbase.
Funds from the supporters have vanished

Supports are just as affected considering that they trusted their hard earned money to Pledgemusic and are now quite probably waiting for an album or their rewards in vain.

Sellaband set up a notarial escrow account when it was founded where the funds from supporters (Believers) should have been deposited until the successful conclusion of a project and it was time to pay the artists. These funds were thus kept strictly separated from the operating capital of Sellaband. However, towards the end, these safety measures were also circumvented by Sellaband so that artist were not paid and the funds from Believers vanished. Pledgemusic finds itself in the exact same situation in that there is currently no apparent separation between such funds and the operating capital.

Moreover, Sellaband did not quite understand how to score using the escrow account and stop the (double) bankruptcy. An escrow account seems to have never even been an option for Pledgemusic.

The separation of operating and crowdfunding funds is essential for the crowdfunding model and should be demanded by both the artists as well as the supporters. Otherwise, there will always be cases like Sellaband and Pledgemusic in the future and the funds from supporters will still not reach the artists but line the pockets of the platforms.

By the way, every Pledger should write off their funds pledged and use the last days of the platform to secure their album downloads. That is all that can be done.

Wordy apologies from the platforms

… and stalling is often done, but is still not a useful tactic. Neither Sellaband nor Pledgemusic was successful in finding acceptable solutions for both the artists and the fans during the corresponding crises. Sellaband already got so little attention during the (last) crisis that the deceived artists did not get nearly as much public attention as the artists from Pledgemusic do now. There were also artists from Poland, Australia and Germany who were less well-known beyond Sellaband and who feared for their reputation.

Unfortunately, it seems that the legal steps to assert claims were not very successful due to the fact that Sellaband no longer had any assets. The statements given by Pledgemusic and co-founder Benji Rogers did little to console the artists and the supporters. They were, under no circumstances, capable of regaining lost trust.

Lost trust

The most damaging thing for artists and fans (apart from the lost money), but also for Pledgemusic and crowdfunding as a whole, is the loss of trust. Crowdfunding platforms, as intermediaries between fans and artists, cannot limit themselves to the artistic or communicative element of crowdfunding. This discussion has been going on for years, especially when another Kickstarter project turns out to be a fraud. The handling and management of financial funds is a crucial part of the business. Trust is of the utmost importance. An almost year-long payment problem, which is talked about in large parts of the music industry, is associated with a considerable loss of trust. The breaking point has now been reached with Benji Rogers’ announcement of the bankruptcy. It is doubtful that this lost trust in music crowdfunding can be regained. The damage has been done and is difficult to repair.

If UK Music now demands that the British government should order an investigation into the Pledgemusic case, then it is only fitting. Unfortunately, the umbrella association only represents the side of the artists, so that the interests of the supporters are probably not in the focus and will fall by the wayside.

The consequences:

  1. In the future, crowdfunding platforms will have to consistently manage operating capital and funds from supporters separately. These funds simply do not belong together. Notaries or trustworthy trustees must be appointed as administrators of crowdfunding funds. Entrusting the platforms with this separation did not work out in at least two cases now.
  2. The separation of funds must be communicated in a transparent manner and must be verifiable at all times. This open communication should be possible. Verification is certainly difficult, but not impossible.
  3. Consideration should be given to setting up an advisory board to monitor the platform and, in particular, the financial transactions related to crowdfunding projects. The advisory board should consist of representatives for the artists and supporters.
  4. The CEOs of the platforms must be assisted by financial professionals who are responsible for the management (and separation) of the funds.

Pledgemusic (and also other music crowdfunding platforms) have always advertised with their expertise and contacts in the industry. As we can now see, this is only part of the success. The economic know-how and experience in the field of finance is just as important. Maybe the public pressure in the case at hand leads to a fundamental change in crowdfunding platform’s dealing with the funds of supporters and artists.

New @Kickstarter – Reviewing the most recent music crowdfunding projects

Here are my short reviews of the latest music crowdfunding campaigns on Kickstarter:

„Girl“ – by Jarrod Milton & Meya
– the pitch video is quite unpersonal
– I don’t understand what „Girl“ is about
– more time and efforts should have been invested in creating the rewards
– the campaign is obviously addressed only to friends and family
– no project FAQs
My prediction: not successful
My recommendation: don’t pledge

Re: Bach
– no pitch video
– project description is too short, more information would be great
– only 3 rewards and quite expensive
+ project FAQs
My prediction: rather not successful
My recommendation: don’t pledge

Birth of MiLawd. Reggae/Dancehall Album
– the pitch video is quite unpersonal
– the project description is quite unpersonal, no call to action
– no project FAQs
My prediction: not successful
my recommendation: don’t pledge

Mike Brunacini – Cherry Springs
– pitch video by Bruno is quite alright, but echoing the project description isn’t very cool
+ project description is OK
– no project FAQs
– rewards are only available for US fans
My prediction: with some changes the project could be successful
My recommendation: do pledge, if you like Powerpop and live in the US

Support The Dream
– the pitch video doesn’t have a message
+/- the project description is personal, but should be more about the music
– no project FAQs
– more Rewards
My prediction: with a good deal of work and creativity the campaign could be successful
My recommendation: wait and see how it develops, maybe pledge later

Travelling Marionette Band and Artists
– no pitch video, a video would definitely make the project more vivid
+/- probably a cool project if you read the description
– only available in AU
– no project FAQs
+/-more work should be invested in creating rewards
My prediction: not successful
My recommendation: don’t pledge

A Night to Remember
– no pitch video
– almost no project description
– almost no rewards
My prediction: not successful
My recommendation: don’t pledge

1431: The Road Less Traveled
+ very personal pitch video
– there should be more details in the project description
+/- cool rewards, but no rewards for less than 25 $
My prediction: successful with some upgrades on the project page
My recommendation: pledge if you’re into country/folk

global crowdfunding

Music Crowdinvesting – Where Are the Brave Music Entrepreneurs?

A look at the most recent massolution Crowdfunding Industry Report 2015 shows amazing growth rates in crowdfunding over the last several years. Starting with a market volume of 0.5 billion $ in 2009, the amount reached through crowdfunding was estimated at 34.4 billion $ for 2015. At the end of this development, there could be a crowdfunding market with a volume of approx. 300 billion $. At least, that is what the VC investor Fred Wilson had to say in 2012 about the future of the start-up scene within the USA. Let us project that globally – what a wonderful world!

Unfortunately, the music economy has neither profited from the development of the crowdfunding market since then – the worldwide music funding share for 2014 only reached 736 million $ or 4.5 % – nor is it foreseeable as to whether or not established or new players within the music industry will resolutely approach the idea of crowdfunding or even the idea of crowdinvesting. This is where we need labels, music producers or even crowdfunding savvy (private) investors. The potential is huge. If you take the music crowdfunding share and extrapolate it to the forecasted market volume from Fred Wilson, then we are looking at a sum of 13.5 billion $.

But what could future models, specifically for the area of crowdfunding within the music economy, look like? Peter Alhadeff already had ideas pertaining exactly to this back in 2013 which were published in the Music Business Journal. Here are his ideas:

  • Management and production companies could start funding campaigns in order to bind and further develop new artists and to support established artists – this could make companies economically more independent
  • Record labels could reduce the risk of closing contracts with musicians – why not develop a business form which incorporates artists in a similar manner to the concept of Brainpool

  • Similarly, music producers could collect funding in order to finance a new catalog or to market a collection of existing works

  • Finally, there is the option of making fans economic partners in the careers of musicians or bands – this could be done by the artist himself or with the help of a label

The models are there, the shortage is in the platforms upon which such ideas could be put into practice. The former Sellaband (unfortunately, no longer active) had approaches on how to allow fans to profit from the earnings of an artist on the long-term. It is sad to say, but the idea of Sellaband can be seen as a failed one. There is, however, a new player who is trying his hand with the idea – TapTape, from the USA, is offering the option to financially participate in the long-term success of an artist through TapCoins.

Crucial to the success of crowdinvesting models is, as was always the case with crowdfunding, the trust of the fans or supporters/investors. This is where all of the parties – labels, producers, platforms, artists – have to make sure that this trust can be maintained and further solidified. Realistic forecasts pertaining to the earning potential and clarification concerning the risk of investment as well as 100% transparent communication also go hand-in-hand.

Why should, what is already a common practice in the film industry, not be possible within the music industry? Platforms such as CINEDIME and the Stromberg project from Brainpool are leading the way. Let us follow their example.

Advice to the topic? Send me an email at mario[at]musicandcrowdfunding.com.

The Music Crowdfunding Survey 2015 is online

A few days ago I have finally completed the 2015 Music Crowdfunding Survey of music+crowdfunding and 50K MUSIC MAG and have posted it online.

The survey among music crowdfunding supporters has the objective to create a reliable information base pertaining to the topic. The focal points are the demands made towards crowdfunding platforms as well as the degree of satisfaction with such platforms, the motivation of the supporters and the amount of financial funding they provide. However, it also measures how satisfied the supporters are with the performances of the musicians and bands that they support. This includes not only the piece of music which is presented at the end of the project, but also the rewards, meaning the thank you gift offered by the artists in addition to the musical product.

Furthermore, I would also like to confirm (or possibly disprove) some of my own observations made in the field of music crowdfunding through this survey. For example, it can be seen that even larger platforms such as Kickstarter mainly attract projects from their countries of origin. The lesser-knowns such as Musicraiser, wemakeit, AKAmusic, MyMajorCompany and Startnext have also not been able to break this pattern, at least as far as music projects are concerned.

I hope that many music crowdfunding supporters will take part in the survey in order to gain a more comprehensive understanding of this crowd funding area. Click here to take the survey …. And please share the link: https://de.surveymonkey.com/r/mcfS_2015 … #mcfS2015

Adios Big Four?

The Institute for Communication in Social Media, shortly Ikosom, published a blog post named: “Music Crowdfunding and Labels”, at the beginning of June. A survey is planned to be conducted amongst German A&R-and Product managers of around 30 small and big German labels. I think the questions can, at the moment, still be commented on.

A couple of years ago, crowdfunding platforms boastfully announced the revolution of the music business. In the meantime, disillusion found its way to the revolutionaries. ForMyBand, the startup that was founded in 2008 in Berlin, wanted to unhinge the established concept about the music industry being headed towards a crisis. Today it can only be found on a tomb-like web site with the inscription “Germany’s first crowd funding startup closes its doors”. SellaBand, which used to be a forerunner for the crowdfunding guild that operated from Norway, which started in 2006 with the ambitious slogan “Level the playground in today’s music business” (or something similar), had to announce insolvency in February 2010 and was saved by German investors.

Meanwhile, the SellaBand team moved from Munich to Berlin and is again doing well in business. The contestants don’t seem to have such worries, yet no one has really successfully made a big breakthrough. Is the promised revolution not happening? What went wrong with the futuristic model of the music industry? The Ikosom blog post was also a reason for me to speculate deeper about the relationship between music crowdfunding and labels. What interests could labels have from crowdfunding? Or do they think of crowdfunding as competition? Are there any advantages in collaborating or even a synergy between crowdfunding and labels? Can one side or the other simply take over any steps of value chains?

Before we dedicate ourselves more deeply to the questions, we should take a look at the value chains of the music industry. Here, we can quickly recognize where crowdfunding starts, namely with the discovery of the artist, financing of the album/music and the production, which is mostly self-governed by the artist himself. And that’s where the possibilities of crowdfunding are worn out and the decisive steps of promoting and marketing as well as distributing the music, are left to others. Those are, in my point of view, exactly the points where, in the truest sense of the word, the music plays. It’s where the money is made. But it’s also where the supporters/fans are left out of the game. It wasn’t for nothing that Benji Rogers, Co-founder of Pledgemusic, established a record label in order to commercialize the artists that were discovered on Pledgemusic. (Although, only recently did Benji make it clear in an email, that he doesn’t consider Pledgemusic to be a crowdfunding platform). But, where is the supporters’ outrage? Why is it that, analogously to other branches, losses (or in this case the investing risks) are socialized and winnings are privatized? Up until now, the supports, apart from the fewest exceptions, have made no profit off of the artist’s success. A successful investment doesn’t work that way. But, let’s go back to our questions. I think that the business interest that labels have in crowdfunding, is rather low. They don’t necessarily have to fear competition in crowdfunding either. On the contrary, the labels can wait until the artists have gained some fan basis through crowdfunding and then, at the right moment, sign a contract with the artist- without the risk of financing a failed album. The supporters are the one who took the risk up to this point. Please, no misunderstandings, I wish for every artist to make profits out of their music. Surely, I see the synergy between crowdfunding and the labels. Even different points of the value chain can be taken over reciprocally. Though, it won’t work, because the labels work for profit and surely, which is understandable to me, they won’t want to share with the supporters, at least not without being forced to. The revolution of the music business can only come from the bottom. By fans and artists coming together and building a joint, new kind of a label, without mediators. This would surely be, even against the still actual GEMA discussion, an up-to-date answer to joint models of the Big Four, omnipresent music mainstream and the musical united mash on all channels. Additive (08.07.12): I am looking forward to the results of the Ikosom survey.

Welcome to the Niche Market!

After Sven Regener monologued on Bavarian broadcasting about copyrighting and the costless culture on the web, thereby immediately noticing who is taking who for granted, the subject is drawing his crisis. Hartwig Masuch, CEO of BMG Rights Management, is using the fit occasion and demanding in a Handelsblatt interview, more respect towards copyrighting and at the same time wants to make the big internet concerns accountable for copyright infringement, among which Google/ YouTube. However, they’re not the only ones responsible. Also the users, who had no respect towards the creative work of musicians and wanted to access their music free of cost.

The real problem lies much deeper: The label industry was over the years too much tied up to the traditional business models and reacted to the challenges of the internet way too late. Then, the (helpless) criminalization attempts of illegal downloading happened. Possibly, it’s the musicians now who have to pull the chestnut out of the fire. I don’t want to be misunderstood. I am all for paying for music and I bought my collection 100% legally. I think very highly of Google/ YouTube having to pay for the music on their sites, including other internet big shots and any podcast entrepreneur or streaming provider. In this aspect, I even agree with Sven Regener: a musician should be able to make a living out of his music. But, does this add up to the strategy of record firms, who constantly push musicians to make a fast dime? And what about GEMA’s distribution system – is it all that fair, so that even less successful (read: pushed) musicians can live out of the earnings? The debate has only just begun, but now the question is, who has a profit out of this discussion and does it really help improve the user’s willingness to pay and their respect towards musicians? I don’t think so, because it should be more about making music more open, reliving and intensifying the communication to fans. Because, I will only then understand the real value of a musical piece, when I know how much sweat, blood and tears were put in it. And, to complete the thought, this is exactly where the crowdfunding platforms have failed so far. What started a few years ago as a revolution of the music business, didn’t achieve a lot more than financing single projects. Here, the crowdfunding platforms missed their chance to achieve, with new ideas, strategies and concepts, more than just financing an album and building a community around a project, especially for musicians from the independent scene and newcomers. They simply didn’t acknowledge the potential: nowhere else can I come this close to a musician, like for example when crowdfunding an album, only here is such a tight relationship and intense communication with the musician possible and mostly also wanted. This project-fixated approach will, sooner or later, make sure that crowdfunding in music business never overcomes its niche existence.