Alternative funding in the Music Industry

It has long been acknowledged by those who are familiar with the terms of record company contracts, that they wouldn’t be touched with a barge pole by any other industry. “Yes we’ll invest in your band by advancing you £30,000; then we will recoup this money from your earnings (typically 18% of the dealer price of an album, thus roughly £1 per copy sold), while we pocket our share and we own the copyright in the recording” This is like a capital investment firm offering investment in your prototype jet pack, taking over 80% of the profit from sales, being repaid their investment from your 20%, plus owning the patent.

Arguably, record companies do spend both their own money and lots of man-hours promoting your record, without which you may not sell many copies at all. In fact although record companies have come in for much criticism over the past few years, they are still the best place to go to access the wealth of marketing knowledge that could make you the next Lady Gaga. Another aspect of the deal which is rarely voiced by artists disgruntled with their deal, is that record labels traditionally don’t have the right to recoup their advances from other sources than record sales. So if your record flops and the label ‘drops’ you, you just walk away.

Faced with dwindling sales of physical product, record company lawyers have in recent years dreamed up new contracts known as 360 degree deals in which the record company, in return for catapulting you to stardom, earn a percentage of your merchandise sales and touring income, alongside the traditional record sales royalties.

So what do you do if you’re one of the majority of bands that doesn’t turn the head of a record exec (with less money to spend on signing new acts than in recent decades)? You look for alternative funding.

It’s almost ironic that people are now talking regularly about private investors, fan-based funding and music venture capitalists, since these so-called alternative funding methods have actually been with us for some time. Start up bands have often relied on the bank of Mum & Dad to make their first demo or album proper whilst bands with established fanbases such as Marilion have been directly fan-funded for well over a decade.

If you’re lucky, you can find a wealthy benefactor who will be interested in adopting the bank of Mum & Dad model (a loan on favourable terms from a true supporter) – the music industry is seen as glamorous to outsiders, who will balance the risks of investing with the delight at being involved. This does happen: our own Emily Barker is having her current album recording financed by a fan who runs a successful online property business. Crucially, copyright in the recordings remains with Emily and the company benefit from media coverage in a new area as well as being top of our guestlist!

This principle applies on the lower level of investment too. A funding vehicle such as Pledgemusic.com allows artists to offer fans a wide array of personalised exclusive incentives such as getting their name listed in the album credits, hand-written signed lyrics sheets, even a gig in your front room. In return the fans pledge an amount of money in advance of the album release in order to fund the recording. The money raises could also go towards marketing a new product, thereby fillings some of the gaps left by the absence of a traditional record company structure. A portion of the total raised is paid to Pledgemusic.com for administering the website and another chunk is paid to a charity nominated by the artist, but again, all copyright remains property of the artist. This model is growing in popularity and success: with better-known acts signing up all the time, more web-traffic is driven towards the lesser known acts on the site.

Once you’ve funded your recording, you’re still faced with the same challenges as the record label-funded band in terms of finding an audience. Fortunately, a funding method that is reliant on a social media network is inherently focussed on nurturing and growing the artist’s fanbase. Step 1 then, is completed. More on building your fan (read ’customer’) base at a later date…

In the meantime, please enjoy this taster of the songs that Emily Barker is currently working on in the studio….

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About the author: Phil Nicholas is a music industry professional managing Emily Barker (a folk artist) and running a record label to release her music.

2 thoughts on “Alternative funding in the Music Industry

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