Croud-funding (participative record labels): a whole new world

Crowd-funding, also known as fan-funding, is a relatively new international business model that deserves some discussion. My Major Company (MMC) is one of the best known examples of this model. MMC is a fan-funded record label that gives internet users and music fans the ability to invest in the career of the label's artists, get involved at every stage of their development and retain a share of the profit generated by the release campaign following the artist's launch.

MMC's unique business model has been a huge success in France, where it started in 2007, and the UK platform was launched in late 2010 with the first act raising the full £100,000 investment in just 5 days. Other country-based affiliates are planned, to make it an international venture. In April 2008, the company signed a distribution deal with Warner Music France for distribution and download of albums, ensuring a 20% cut for the artists themselves. As with traditional record labels, MMC provides a fully strategised release campaign for its acts and the artist's album will be given every possible chance of success. 

My Major Company also has its own A&R department responsible for finding and presenting the best new acts in the UK. The experienced A&R team spent months travelling the UK, seeing artists play and listening to demos to ensure that investors can be presented with only the very best unsigned artists. Users are able to invest in artists they pick for a return in album sales. My Major Company does not only act as a platform for money to be raised, but also operates as a fully functioning record label headed by industry professionals. The beauty of the MMC model is that, in these uncertain times, people who do not know where to invest their money can, for the first time, invest in the music business even though they have never been in the business before.

The other marvelous aspect is that MMC presents a whole new and very original opportunity for unsigned artists to get a break. Once an artist's demo is uploaded on to the MMC website, members of the public who enjoy, see potential in, a particular artist can invest any amount in that artist's career up to the required £100,000. (If insufficient funds are raised to fund the recording, all investors are refunded). Once the limit is reached, the investment opportunity is closed, and the production goes ahead. All investors are kept fully apprised of the recording process, and are even asked to contribute to the marketing plan. Thus, investors are truly 'in the music business'. For a period of three years, investors receive (up to) 40% of the earnings, the artists receive 20% and MMC receives the balance. The company has had some startling successes. Its first artist, a little-known French singer called Gregoire, went gold, and brought his investors more than twenty times their investment, in a few short months.

Other companies have begun to follow the crowd-funding model, e.g. Artist Share, Akamusic, Aucadia, Pledgemusic and Sellaband. Indiegogo is a true combination of crowd-funding and the Marillion model. Probably the biggest of all is Kickstarter. In respect of the African continent, one crowd-funding platform comes to mind: Thundafund.

The difference between Indiegogo and Kickstarter is essentially that at Kickstarter, the artist creates a financial goal, and if he does not hit the target, he does not keep what he raised. At Indiegogo, the artist keeps whatever comes in. Both sites take a cut of what the artist raises (Indiegogo 4% and Kickstarter 5%). Both sites have thus far offered contributors only "premiums" - not an actual investment in the production, unlike MMC.

The reason for this is that in the US, the one thing that could not be offered until very recently via crowd-funding, due to legal technicalities, was an actual share of profits or shares in a resulting business, should the production hit. That changed in April 2013 with the JOBS Act (Jumpstart Our Business Startups). The new legislation however, will pave the way for another revolution called "equity crowd-funding". This will be more applicable in the film industry than music, but it will nonetheless free up this exciting new business model even more. Translated to more music industry terms, I suppose this means that composers and artist/labels will now be able to relax offer an actual share in their future copyrights, for even more money). Crowd-funding portals in the US will now be required to register with the SEC (Securities Exchange Commission). Let us hope that the SEC does not hamper the new business model with unnecessary rules and regulations.

Whichever site you choose, crowd-funding provides a new business model for the music business, especially because it attracts funds and investment for new artists that might otherwise have gone to other industries.