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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.

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.

Death Is Not The End Or … The Slow Death Of Sellaband

Almost a year and a half ago, I heard Nick Cave’s cover of the Bob Dylan song from 1988 for the last time. I am just as sad today as I was then. Apparently, Sellaband no longer exists. My sadness is only exceeded by my agitation of the fact that this obviously means little to anybody. In January of 2008, I discovered Sellaband, a vital music crowdfunding community which brought forth an impressive number of musical works from famous and not-so-famous artists since its founding in 2006, however was not able to bring about the much needed commercial success.

After the initial (Dutch) management went bankrupt in the beginning of 2010, a German CEO took over the business. The takeover left behind a lot of disappointed and upset artists as well as believers (supporters) but, thanks to a few dedicated employees, the platform had a brief second bloom until the fall of 2013.

Since then Sellaband had only been a shadow of its former self. The sad remainder was put to rest sometime in December of 2015 unbeknownst to the rest of the world.

For me, the downfall of Sellaband raises several questions which the supporters of Sellaband, music crowdfunding in general as well as all supporters of crowdfunding deserve answers to.

  1. Can music crowdfunding establish itself as an alternative to conventional music financing? Answer: It is possible, but not in its current form. Sellaband and other such music crowdfunding platforms have only established themselves as an instrument for the financing of music. In order to truly become established, there have to be options which cover the other links of the value-added chain (e.g. A&R, sales, promotion). In the end, this can only be accomplished by creating capacities for such aspects within the platform or in cooperation with established players within the music industry. This is the only way crowdfunding can establish itself as a sustainable business model and further develop into a true alternative to the classic music industry.
  2. Is music crowdfunding done for? Answer: Yes, if crowdfunding platforms do not evolve and if they continue to see crowdfunding as an independent “industry” – or if they see crowdfunding as self-fulfilling. Crowdfunding is only one of many options which an artist can take into consideration when he wants to finance his music – and it is not even the most convenient. Crowdfunding platforms have to make this type of financing both more attractive and more flexible in order to make crowdfunding more than just hype. For several years now, there have been no new concepts and no new visions – except for offers such as Patreon. All in all, it seems to be that the wind has definitely gone out of the crowdfunding sails.
  3. Can music crowdfunding establish itself in Germany? Answer: It will be difficult. The German music market itself is a difficult one. In addition, there are skeptical artists, fans who would much rather consume music than actively forge music careers and then there are record labels for whom the topic of crowdfunding does not even seem to exist. There is a lot of informing and convincing to be done here.
  4. How quickly can the trust from supporters be lost in music crowdfunding? Answer: Light speed. I was able to experience this phenomenon during the first bankruptcy of Sellaband at the beginning of 2010 after which numerous artists and believers turned their backs on the platform. During its second blooming in 2012/2013, Sellaband was not able to return to its former glory even though it concluded several successful projects. After the most recent bankruptcy filing in August 2015, I cannot say whether I will ever see the money I invested in the Sellaband system again or not. It is also doubtful as to whether or not the artists I have supported will ever be able to realize their projects which were concluded successfully within the platform. Some of the artists, according to their own accounts, have been waiting for the funding from their believers since 2013. Trust in crowdfunding cannot blossom in such an environment, yet trust remains one of the most important pillars of the business model.

It remains to be seen if 2016 will be a better year for music crowdfunding.

Artists and Fans Don’t Fit Together … or Do They?

Artists and fans live in two different worlds. That’s the common belief. When you think of artists you immediately picture big stars, which it seems like make their millions without a struggle, fly out from one party to another and in between, every now and then, have concert tours around the world. The reality is different for many artists. Many of them barely finance themselves and their families with an ordinary job and usually finance even their music with it. At least they can make a living out of music. It’s the world of crickets, that Sascha Lobo described in an article based on the old Aesop’s fable about the ant and the grasshopper, as a reaction to Sven Regener’s lament about copyrighting.

Lobo criticizes the widely spread scornfulness towards (unsuccessful) artists and the general low opinion about art. This doesn’t only explain the stolen copies and copyright infringements, but also why many artists can’t make a living out of their music. And this is where the ants come to play. They work diligently and dream of a better, worry free life, in their opinion the kind of lives that artists have. And they don’t want to pay a dime for music and give, at best, only charities.

Similar to every cliché, there is a tiny part of truth in how others imagine the world. But the other part, the big part, is made out of ignorance and isn’t really thoroughly thought out. However, at that time, a constructive dialogue on copyrighting and the value of art, didn’t take place at all.

Yet, when I separate the “financing of music or musicians” issue out of the, at that time, heated debate, the opportunities of crowdfunding immediately come to mind. With it, I can scatter the artists’ worries of having to ask their fans for money (or charity). Fans will gladly support you, if they believe in you. I want to tell a short story on the subject:

It had to be around the end of 2009 when I, at Sellaband, stumbled upon a singer/songwriter whose music immediately blew me away. Alex Highton was then new in crowdfunding; I on the other hand had initiated the 50K MUSIC MAG at the beginning of 2009 and therefore asked him If I can present him there. Certainly, I also helped finance his album project. The interview was published, I eventually also received my rewards – up to this point, everything according to the normal crowdfunding process. Then “it” happened, which gave crowdfunding a larger meaning: we stayed in touch. We wrote each other emails, we met in Birmingham and Leipzig, he sent me small Christmas presents, I returned the favor with small gifts for his girls… in 2011, I and a fan, partially financed Alex’s trip to SXSW.

In 2013, he started the crowdfunding for his new album “Nobody Knows Anything” on Pledgemusic. And I was there. Some of his fans too, which I recognized from the Sellaband project.

What I want to say with all of this? Crowdfunding can be a first step towards developing a relationship with fans and questioning clichés. Yet, the crowdfunding platform and the crowdfunding itself are just additional tools. The key success factor is the artist himself. You are the person that communicates with the fans, laughs, cries, tells them stories (your stories) and ultimately asks them for money. However, it should always be an individual way of asking. If someone simply copies Amanda Palmer’s “The Art of Asking”, it won’t work. You have to understand the principle behind it and of course, your fans. And, you should offer your fans various channels, where they can collect information about you and communicate with you.

Your crowdfunding project will still always be just one part of your relationship with your fans. Take the chance to build a sustainable, intensive and lasting friendship with them – connect yourself with them … online, but also in the real world. That’s where you’ll find the true value of crowdfunding.

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.

CFAS_150412: What is Crowdfunding to me?

Steffen Peschel started an interesting action, in his Kultur2Punkt0-Blog with crowdfunding on Sunday (cfas), which I willingly want to support. On this weekend, it’s all about thinking individually about crowdfunding – “What is crowdfunding to me”?

Well, where to start? In January 2008, my attention was drawn to SellaBand through an article in the WiWo (economy week). It was my first contact with crowdfunding (CF) and in Germany, at that time, only the fewest had heard something about it. At the time I was convinced, that CF could be a) an investing opportunity and b) a way of revolutionizing the music industry.

At least this is what was suggested during the establishment hype of different music CF-platforms (among which ForMyBand, Slicethepie). The alternative a), means the wish to make money through CF (as an investor), quickly turned out to be a deception- at latest when the first SellaBand albums didn’t turn out to be bestsellers. Even the boastfully announced revolution of the music industry is, so far, absent… even in the CF industry one is still tied up to the old ways of thinking. Today, crowdfunding has lost a lot of its magic. SellaBand, in the meantime, has declared bankrupt and found its way back again, ForMyBand from Berlin doesn’t exist anymore. And even Slicethepie no longer has anything to do with CF. Even all the other providers seem to have found their spot in this recess. There obviously is no sufficient market to be able to make money out of CF. For me, crowdfunding in today’s music is a niche product, which with the current approach of it only being a project-related mediator between musicians and fans, barely exploits its potentials and in my opinion doesn’t have much of a future as a business model. In this way, it will neither help revolutionizing the music industry, nor help musicians overcome their dependence on record deals/ record labels. Here, three theses that music-CF could possibly develop in the future:

1. CF-platforms need to become full-service providers and consistently develop and market musicians with new, creative ideas- meaning, they are a new form of a record label (“Crowd label”) – in order to do so, they have to separate themselves from a simply project-related way of viewing, possibly also find other organizations or alternatively types of companies ( for example cooperatives), which will help implement it all,
2. CF needs to find its way back to what really makes crowdfunding decisive: the crowd- the community is the most important aspect of CF but today it’s mostly left behind- investing in developing a community is therefore the crucial success factor for a CF platform.
3. CF in Europe doesn’t work if based on a national standard- there’s a national CF platform being provided to a small market- problems here occur because of the different cultures in Europe, which need to be overcome which need to be individually catered to- at the moment, Sellaband (still) is well constructed in this aspect.

I look forward to the discussion.

Where’s the Crowd in Crowdfunding?

Although Tim Schafer’s Kickstarter “Double Fine Adventure” game project is making headlines, the big number of over 57.000 supporters (on Kickstarter called backers) shouldn’t mislead from the fact that this project is an absolute exception and can’t be compared to music crowdfunding projects.

Even if we take in consideration the positively running project of the Libertins on Pledgemusic, with at the time around 1.800 supporters (on Pledgemusic called pledgers), it still is a barely repeatable success, which only few musicians will achieve. I don’t possess any statistical values about the number of supporters and their financial contribution to music crowdfunding projects. I do assume that most (quite successful) projects are supported by hundreds if not even only tens of supporters.

These are more than good numbers for many artists who are so far unknown. “Newcomers” mostly face many problems at the same time. Firstly, they still aren’t as experienced in the music business, in dealing with fans (and sometimes the media), in presenting on the web (most of them don’t have Website, Twitter, Facebook or MySpace accounts) and generally in promoting. This is where a fan can be of tremendous support, whether it’s a new or an old one. The crowd shouldn’t only have a financial role. They can also help through giving advices, actively helping on building an online presence or simply through buzz marketing. From experience, usually there are a number of supporters who willingly take over those assignments, because they identify themselves outstandingly with the musician or his/her music. A decisive problem in this case is the consistency of this approach. Many fans tend to overstate the supporting or have a different idea of what support really means, and I know this from experience. This is what crowdfunding platforms are missing- suitable collaboration tools.

Besides, not even established crowdfunding providers managed to achieve a big, sustainable crowd, the so-called regular crowd. Most of the supporters are narrowed down to a single project and they attract other supporters through the interest of the media in the project. I believe the reason is that so far it hasn’t been possible to establish a crowdfunding brand, which can sustain enough supporters for a long period of time, regardless of some stars. Simply focusing on the funding act has surely played a big part in this case. In the beginning, crowdfunding platforms like SellaBand or Slicethepie (which no longer is identified as a crowdfunding platform) have worked a lot towards a vivid community-life. In the meantime, such activities barely ever take place. Reducing it all to a simple money business is letting a big potential go to waste. One can only hope, that the providers will remember what eventually makes crowdfunding a success – the crowd.