Crowdfunding as a business model in the music industry

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My dissertation on crowdfunding in the music business from 2013. Feel free to contact me for any questions.

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Crowdfunding as a business model in the music industry

  1. 1. MA Music Business Management 2012/2013 Crowdfunding as a business model in the music industry A niche branch at its zenith or a promising model for the mainstream music business? Final project by Jan Himmighofen – student no. 140268941 8 July 2013
  2. 2. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 2 Executive summary Crowdfunding was one of the most dominant topics of this year's South by Southwest conference with 21 panels that discussed Kickstarter amongst other topics, including one panel with artist Amanda Palmer, who successfully raised over $1 million for her album and tour through a crowdfunding campaign in 2012. Crowdfunding is a very young phenomenon that describes a collective effort by people who network and pool their money together, usually via the Internet, in order to invest in and support efforts initiated by other people or organisations. In the music business, mainly independent artists use crowdfunding to raise the money for their album recordings, live shows or any other music project. The aim of this paper is to study the role of crowdfunding in the music business today and discuss whether the new model can become widely established, possibly even replacing the old models. In order to answer these questions, a combination of a secondary research and primary research approach is undertaken. For the primary research, four experts from the music industry and crowdfunding are interviewed. In 2012 crowdfunding platforms raised $2.7 billion worldwide for more than one million campaigns, which shows an 81% increase in funds raised compared to the previous year. Global crowdfunding volumes are estimated to increase to $5.1 billion in 2013. Different crowdfunding models exist. With the donation- based model, no tangible rewards are offers in return for funding. Reward-based crowdfunding offers tangible returns while crowdfunding with financial returns offers repayment, equity or other types of revenue sharing. Music campaigns
  3. 3. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 3 most often make use of the donation-based or reward-based model. When preparing a crowdfunding campaign, artists can choose between a number of platforms, which offer their services and host campaigns. At the time of writing, the best platforms for musicians are Kickstarter, Indiegogo and PledgeMusic as other platforms are either not popular enough, address only very specific campaigns or were launched just recently. A success ratio of 82% at PledgeMusic and 54.7% at Kickstarter show that these platforms do work. Artists are likely to be successful when doing crowdfunding if they have a clear and convincing pitch, are authentic, demonstrate expertise and experience, offer interesting rewards, involve the audience into the project and market the campaign properly to reach the maximum amount of people. The utilisation of social networks is particularly suitable and important when trying to raise money via crowdfunding. Although crowdfunding is accessible to everyone, it may not fit every artist, as some are not prepared for the level of self-management and organisation that is required with crowdfunding. However, with artists experimenting with innovative methods nearly every day, it is likely that more artists and also more mainstream artists will join in on crowdfunding, too. Crowdfunding in music has not reached its zenith yet, but shows a strong potential to become more accepted and widely utilised. It may not replace the established business models in the music industry within the next five years, but it will challenge the traditional models and serve as an alternative that becomes more and more integrated into the mainstream music business.
  4. 4. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 4 Table of Contents Executive summary .............................................................................................2 Table of Figures ...................................................................................................5 Introduction..........................................................................................................6 Methodology ......................................................................................................14 Crowdfunding overview ....................................................................................17 Definition ....................................................................................................................17 Models ........................................................................................................................18 Platforms ....................................................................................................................23 Crowdfunding in the music business..............................................................35 The use of crowdfunding in the music industry.....................................................35 Impact on the music industry...................................................................................40 Key success factors..................................................................................................45 Research findings..............................................................................................48 Interviews ...................................................................................................................48 Conclusion .........................................................................................................53 Bibliography.......................................................................................................57 Appendices ........................................................................................................73 Interviews ...................................................................................................................73 Simon Goffe.............................................................................................................73 Karen Bair................................................................................................................84 Sam Mussell ............................................................................................................87 Jamie Freeman Turner ............................................................................................96
  5. 5. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 5 Table of Figures Figure 1. Popularity of different crowdfunding models. .......................................22   Figure 2. Overview of crowdfunding platforms. ...................................................34  
  6. 6. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 6 Introduction On Thursday 31 May, 2012, US-American solo-artist Amanda Palmer completed her campaign on crowdfunding platform Kickstarter to raise money for the funding of her new album record, art book and tour (Palmer, 2012). Within the course of just 30 days, the unsigned artist, who had been released from her record contract with Roadrunner Records in 2010, had raised over a million dollars via the Internet by simply asking her fans and supporters to pool the money which was required for her future musical projects (Palmer, 2010) (Strickler, 2012). Not only was Palmer able to collect the $100,000 she asked for to be able to record her next album, produce an art book and go on tour, it turned out that her supporters from all over the world were happy to contribute even more funding, almost twelve times the amount of her initial goal. The overwhelming success of Palmer’s online fund raising initiative came as a surprise to the global music world and business (Peoples, 2012a). The most striking aspect of her campaign was that it provided her with a large sum of money even when comparing it to the amounts spent in the traditional music funding business model, which is centred about music recording and publishing companies. However, Palmer’s approach completely ignored the traditional business model and players. And although other artists such as Radiohead or Trent Reznor have followed an independent and do-it-yourself approach to distribute and sell their music online before, Amanda Palmer was the first artist to have major success in collecting money for a music project before any of her new music products had actually been produced (Peoples, 2012a). The
  7. 7. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 7 necessary financial investment required to launch an artist’s career or keep him going can hardly be carried by any independent artist alone and usually comes from a record label. But in this case, the artist was able to successfully distribute the financial investment amongst her supporters, making a traditional deal with a record label redundant. With her campaigns on the online platform Kickstarter, Amanda Palmer followed a new concept in project funding that has gained wider attraction over the last years and has particularly been popularised via the Internet. This concept is called crowdfunding, crowd funding or crowd financing, and describes ”a collective effort by people who network and pool their money together, usually via the Internet, in order to invest in and support efforts initiated by other people or organizations” (Ordanini et al., 2011, p2). Indiegogo, one of the many crowdfunding online platforms, describes crowdfunding as “the pooling of small contributions of funds from a group of people for the purpose of making something larger happen” (Indiegogo, 2013a). For a simple understanding, crowdfunding can be compared to the donation of money to charity, however the term crowdfunding is not limited to the financial support of people in urgent need, but can also describe the providing of startup capital for private projects, product ideas or the funding of organisations and private companies. In fact, just as there are crowdfunding campaigns for charity projects in poorer countries, there are other projects based in first or second world countries that ask for money via crowdfunding, too. This is due to the fact that nearly anything can be crowd funded if a project owner is able to
  8. 8. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 8 convince a group of people of his idea who then will provide the necessary investment. Crowdfunding is therefore used in support of a wide variety of activities such as disaster relief, journalism, startup company funding, software development, video game development, film and video production, support of artists by fans, political campaigns, inventions development, scientific research, civic projects and much more. This paper, however, will focus on crowdfunding efforts in the music industries only, which could include the funding of music recordings, live concerts, tours, music videos, merchandise, artist projects amongst others (De Witt, 2012, p11-15) (Mollick, 2013, p5-9). Furthermore, contrary to charity donations, crowdfunding projects often provide additional incentives for their investors apart from the experience of having supported a good cause or a great idea. If you visit a campaign’s web page, it is likely that you are offered special rewards in exchange for your financial contributions that support the project. Benefits for funders often take the form of the finished product, exclusive merchandise, advanced access to new output, a meet and greet with the campaign owners and more personal or exclusive incentives. This also means that in many cases the project supporters essentially pre-order the product that is to be funded and produced via the crowdfunding campaign. In rarer instances, crowdfunding campaigns also offer equity in the project or a share of profits in exchange for funding. In a crowdfunding campaign for the funding of a startup business, for example, this could imply the selling of small amounts of equity to many investors (Steinberg, 2012, p2-3). In doing so, entrepreneurs can bypass venture capitalists and angel
  9. 9. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 9 investors entirely and instead pitch ideas to everyday Internet users. For the music business, this means that unsigned or independent artists can utilise crowdfunding to bypass record labels entirely and instead pitch their artistic talents or musical ideas to their fans around the world, who can provide financial backing to support the artists’ careers (Steinberg, 2012, p3). The idea of online crowdfunding developed at the end of the last millennium when fans of the British rock group Marillion raised money for an entire U.S. tour through a fan-based Internet campaign (Golemis, 1997). Only a few years later, in 2003, the first crowdfunding online platform for music, ArtistShare, launched (ArtistShare, 2012). As Steinberg (2012, p3) points out, crowdfunding can be considered as an offshoot of crowdsourcing, which describes a business practice that involves asking a large group of people to submit services, ideas or contributions to a bigger project, especially from an online community, rather than from traditional employees or suppliers. In crowdsourcing, the combined efforts of all community members, each contribution often rather small, add up to a larger result. A well-known example of a crowdsourcing activity would be the free online encyclopaedia Wikipedia, which is open for every online user to participate and contribute content for any encyclopaedia entry. With 26 million articles in 286 languages, Wikipedia is a prime example of the mass collaboration that can be enabled by the Internet. Crowdfunding also tries to utilise on this potential of mass collaboration, but specifically in financial terms by distributing the funding for a project amongst a
  10. 10. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 10 mass of online users, also known as “the crowd” (Mollick, 2013, p5-9) (Belleflamme et al., 2011, p1-7). With the widespread availability of broadband Internet and the emergence of easy-to-use crowdfunding platforms such as Indiegogo or Kickstarter, project financing through crowdfunding has become increasingly popular over the last couple of years. The close integration within social online networks including Facebook, Twitter, YouTube amongst others, has also contributed to this development as communication, sharing and interaction via social media can push ideas and campaigns forward enormously, reaching a mass online audience within no time. Many crowdfunding campaign owners have therefore utilised the power of social networks to make sure that their projects will be successful. The importance of social networks in crowdfunding will be discussed in more detail later in this paper. The question that remains is whether crowdfunding, and crowdfunding for music in particular, has reached a tipping point. With over a million dollars raised for one of her projects, Amanda Palmer has demonstrated the current potential of crowdfunding, but on the other hand, why are there not more artists like her that have achieved similar results? Also, the mainstream music industry has not changed very much as a result of Palmer’s success. The old models are still in place and it does not seem that they will go away soon. Is crowdfunding just a niche branch in the music business and will it remain just that? Will crowdfunding only ever be a tool for unsigned artists that are unable or unwilling to follow the traditional route via a record label or will more established and popular artists join
  11. 11. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 11 in on crowdfunding as well? The overwhelming success of Palmer’s most recent campaign could mean that a tipping point has been reached. The novelty of crowdfunding and fan-supported music projects, which could have been a main driver for Palmer’s success, might have been lost now and other artists might find it increasingly difficult to get the same amount of attention for their crowdfunding projects. In fact, Kelley (2012) states that crowdfunding doesn't work for every musician every time. Seattle-based hip-hop group The Physics, for example, who have successfully funded the release of their fourth album through a campaign on Kickstarter, say that they “don’t feel like this is the kind of thing you can continue to do from year to year. Cause at a certain point your fan base or people are going to be like, ‘Hey, the novelty has kind of worn off.’” (Kelley, 2012). In addition, if an artist gets too successful it gets awkward to ask for help, as Sinan Aral (cited in Kelley, 2012) from New York University’s Stern School of Business notes. Aral has doubts that an established artist such as Katy Perry would ever be able to run a successful crowdfunding campaign, because people would expect such artists to pay for their projects themselves. On the other hand, a recent crowdfunding example from the film industry has proven the opposite. American actor, screenwriter, director and producer Zach Braff, well-known for his appearances on TV series ‘Scrubs’ and directorial debut ‘Garden State’, was able to raise the full amount of funding for his next film ‘Wish I Was There’ through a crowdfunding campaign on Kickstarter in May this year (Braff, 2013). Although the move has raised some artistic and moral questions, especially because Braff is making more money than most of his supporters, the campaign
  12. 12. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 12 was successful and even exceeded its goal of two million dollars by a fair sum (Luxford, 2013). This could mean indeed that there is a potential in crowdfunding even for largely successful people in the entertainment industry including famous artists and musicians. The aim of this paper is to provide answers to the questions raised above. As the main question, the role of crowdfunding as a business model in the music industry will be analysed. Is crowdfunding a niche branch at its zenith or a promising model for the mainstream music business? In order to provide an answer to this core question, several sub-questions will be considered in the course of this paper: • What is crowdfunding and how is it used in the music industry? • What’s the history of crowdfunding? What are the most prominent historical examples and what enabled the development of crowdfunding? • What models and platforms are there and what are their differences? • Who can make use of crowdfunding and benefit from it? • What is the impact on the music industry? What is the current state of crowdfunding in music? Who is using it? Is crowdfunding a niche branch of the music business? What is the success ratio for artists?
  13. 13. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 13 • What are the requirements and components needed in order to create a successful crowdfunding project? What would you want to avoid when making use of crowdfunding? • What will be the role of crowdfunding in the music industry of the future? Can it be or become a mainstream part of the industry or a widely used tool for any artist or even music company? Can crowdfunding develop further? How?
  14. 14. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 14 Methodology In order to answer the main and sub-questions, a combination of a secondary research and primary research approach will be undertaken. For the secondary research, the available literature and theories on the topic of crowdfunding and its role in the music industry will be analysed, summarised and evaluated. However, it is likely that the information found in literature will not be able to answer all research questions in a complete and satisfying way. Therefore, additional primary research in the form of expert interviews will be conducted. Online crowdfunding is still a very young phenomenon that gained mainstream recognition just a year ago. Due to this fact, only a limited amount of research has been conducted on the topic yet. Unfortunately, elaborate quantitative datasets about crowdfunding are not available and the means and resources for generating larger datasets or even experimenting with real crowdfunding campaigns are not available either. However, a qualitative research approach including semi-structured interviews with experts from the music industry, crowdfunding platforms and artists that have undertaken a crowdfunding project provide a suitable solution for answering the research questions. Also, interviews with people from different areas of the music industry will allow making a comparison between several perspectives and points of view on crowdfunding (Winch et al., n.d.) (Saunders, 2007, p117-119, 139-140, 310-313, 470-515, 527). Since the research is designed to be inductive, the collection of qualitative data makes sense, too. As fewer assumptions are placed on the research topic,
  15. 15. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 15 a qualitative approach suits this kind of exploratory research and hypothesis generation. However, by using qualitative research, the findings may not be conclusive. They will allow an initial and theoretical understanding of the role of crowdfunding as a business model in the music industry. (Winch et al., n.d.) (Saunders, 2007, p117-119, 139-140, 310-313, 470-515, 527). Interviewees that have been selected for the research and accepted to participate in an interview include: • Simon Goffe, Founder of Heavyweight Management and co-founder of independent record label Brownswood Recordings. • Karen Bair, Head of Music Development at crowdfunding platform Indiegogo. • Sam Mussell, Member of the band Ghouls and campaign owner of the PledgeMusic campaign by Ghouls: http://www.pledgemusic.com/projects/ghouls. • Jamie Freeman Turner, also known as solo-artists KillFreeman and campaign owner of his Kickstarter campaign: http://www.kickstarter.com/projects/389099604/kill-freeman. Simon Goffe was contacted to find out how crowdfunding is affecting the business of record labels. As a spokesperson of crowdfunding platform Indiegogo and someone who is involved in the development of music campaigns on the platform, Karen Bair was asked to give her opinion on the role of
  16. 16. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 16 crowdfunding today and how the platform aims to develop it further. Sam Mussell and Jamie Freeman Turner are two artists that have undertaken crowdfunding projects recently and were contacted to share their thoughts on what crowdfunding means for musicians. Several other people actively involved in the music business and crowdfunding were also contacted and asked for an interview, however, many were not able to help because they were very busy or said they didn’t know much about the topic. The interviews are conducted via telephone, online voice call or email correspondence. The interviews are semi-structured and non-standardised meaning that a list of themes and questions to be covered is used. Questions vary from interview to interview depending on the expertise of the particular interviewee. However, some questions are the same for two or more interviews in order to provide some structure and allow a comparison between the opinions of different participants (Saunders, 2007, p310-325). There were no major problems when conducting the interviews, apart from the fact that many interviewees only had little time and were not always available on agreed times. In the end, all interviews that were held for this paper contributed valuable information for answering the research questions (Saunders, 2007, p470-515, 527).
  17. 17. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 17 Crowdfunding overview Definition Crowdfunding is a relatively young phenomenon that began to gain widespread awareness and participation at the end of the noughties mainly due to new opportunities for collaboration enabled by the development of the Web 2.0 (Belleflamme et al., 2011, p6). Particularly, the development of social networks and the easy access for participants to upload content on websites have contributed to the arising of crowdfunding. Ordanini et al. (2011) state that “crowdfunding describes a collective effort by people who network and pool their money together, usually via the Internet, in order to invest in and support efforts initiated by other people or organizations” (p2). The idea for crowdfunding is based on the theory of the “wisdom of the crowd”. In that sense, the collective opinion of a group of individuals is considered to be better than the opinion of a few experts (Sarafian, 2011, p78). This group of individuals is called the crowd. In crowdfunding, the opinion of the crowd is utilised to evaluate any type of project, idea or plan on its eligibility for possible funding. Rather than asking a few investment experts or some acquaintances to provide funding for a project, crowdfunding suggests that the project idea is presented to a much larger group of people and that funding is sourced from the crowd. This implies that funding needs and funding purposes are communicated broadly via an open call on the Internet where they can be evaluated by a large group of individuals. The outreach is referred to as a
  18. 18. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 18 crowdfunding campaign. The person or organisation in charge of the campaign is referred to as the campaign owner (Massolution, 2013a, p5). The main advantage of this type of fundraising is that the share of costs to launch a project can be distributed amongst a large number of investors, most of which only provide a small investment each. The large number of individual investments, however, even allows the funding of expensive projects via crowdfunding. Investors are less scared of providing money because the risk is spread across a larger population. This level of collaboration has always been hard to achieve through traditional funding methods (Massolution, 2013a, p2-5). Crowdfunding, however, should not be misinterpreted as online fundraising. The main differences between the two are that crowdfunding implies communication at a social network level and can offer something in return for the funds being raised. Online fundraising, on the other hand, does not implicate either of these elements (Massolution, 2013a, p5) (Ordanini et al., 2011, p4-7). Models In their Crowdfunding Industry Report from 2012, Massolution define four different models of crowdfunding based on what they offer in return for the fundraising: • Donation-based crowdfunding: Donation-based crowdfunding is the type of crowdfunding that is most similar to traditional online fundraising or charity donation. With this model, there are
  19. 19. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 19 no tangible rewards offered in return for funding. Contributors donate money solely because they can identify with the campaign’s cause or due to an emotional attachment. People who pledge money do not expect anything in return, but want to provide financial support to make the campaign a success and are left with the knowing they have done something positive, normally with some kind of social value. Donation-based crowdfunding often takes the form of donations for political or religious campaigns, financial support of individuals in need, and community projects that would otherwise require governmental funding. In 2011, it was observed that almost half of all crowdfunding volume throughout the year was raised via donation-based crowdfunding. This makes the donation-based crowdfunding model by far the most popular of all models. The main advantage for campaign owners with this model is that there is no need for compensating the crowd once the funding is secured, however, it is very important and often the most crucial factor for success that the crowd is able to identify or have an emotional connection with the campaign cause. Apart from an emotional bond with the campaign cause, there is hardly any other incentive for people to support a donation-based crowdfunding campaign and if an emotional bond cannot be established, the campaign is destined to fail (Buckingham, 2013) (Massolution, 2012, p12) (Massolution, 2013a, p6-7).
  20. 20. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 20 • Reward-based crowdfunding: In reward-based crowdfunding, the campaign owner offers tangible returns for the raised funds. In doing so, campaign owners can attract people that not necessarily feel an emotional attachment with a campaign cause, but would like to receive some of the rewards offered in return for funding. The rewards, however, don’t have to be the only incentive for funding and it is absolutely possible to attract supporters through emotional attachments with the campaign cause, too. This model of crowdfunding is particularly popular with independent artists and in the creative industries, where campaign owners use crowdfunding to pre-sell their music, movies, games, design works, tickets to their shows, and more. By using a reward-based crowdfunding approach, they can test the market before making their product while generating some pre-orders at the same time. The rewards that are offered in reward-based crowdfunding campaigns vary widely for each individual campaign and are often only limited to the campaign owner’s creativity. While most campaign owners offer their final products or variations of those, which will be release as a result of the campaign, as a reward, many campaign owners also add more exclusive and intangible services or experiences as rewards for large individual contributions. Those more exclusive rewards could include a private gig by the artist for the person who contributed a certain amount of funding, a guest appearance in the artist’s movie, exclusive “VIP” treatments, and many other unusual rewards (Buckingham, 2013) (Massolution, 2012, p12) (Massolution, 2013a, p7).
  21. 21. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 21 • Crowdfunding with Financial Returns: Some crowdfunding campaigns might offer the repayment of the pledged funds, equity, or other types of revenue sharing. This type of crowdfunding is called crowdfunding with financial returns. When choosing this model, the campaign owner does not rely on identification, emotional components or an elaborate reward structure to sell his idea, but aims to convince the crowd that the project is a viable investment opportunity and that funding of the project can provide financial benefits for contributors. One can distinguish between two types of crowdfunding with financial returns: - Lending-based crowdfunding: The amount of money that goes back to investors can be limited to the amount of the funds pledged in some cases, so that investors may never expect profits from their funding. Lending-based crowdfunding can also be similar to getting a loan from the bank, which means that investors could be offered an interest on the money that they provide. The advantage for campaign owners over a bank loan is that they can define the terms for the loan rather than the bank. - Equity-based crowdfunding: In order to provide more convincing financial incentives, campaign owners can also offer to share revenues with investors or offer equity in the business in return for funding. This implies that once a profit is made or the project is sold, the investors receive a share of that money.
  22. 22. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 22 For artistic crowdfunding campaigns, offering financial returns is rather unusual as it reduces the value of the art project solely to a financial level and forces artists to make a profit from their work while giving away some control over the project to make it more financially viable. A good planning, legal and financial advice is important when making use of financial return models, to make sure that everything is correct and investors are happy to contribute funds (Buckingham, 2013) (Massolution, 2012, p12) (Massolution, 2013a, p8- 9). Massolution (2013a, p6) estimate that almost half of all crowdfunding campaigns use the donation-based model, while 22% are lending-based, 18% equity based and 11% reward-based. Figure 1. Popularity of different crowdfunding models (Massolution, 2013a, p6). Apart from deciding on the returns for fundraising, a campaign owner also needs to decide whether he wants to use his own platform, such as a website, an e-mail newsletter or an existing network of connections to host the campaign or if an
  23. 23. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 23 existing crowdfunding service would suit his needs better. Steinberg (2012, p12) notes that if you do not want to make use of one of the many existing crowdfunding platforms, you need to “possess a user-friendly, accessible and stable solution for promoting and processing pledge efforts, as well as the capability to engage, motivate and retain the attention of a sizable fan base that believes in your brand, your company or your project”. Using your own platform for a crowdfunding campaign is particularly suitable if you already have an established fan base, can offer your product or service immediately and have suitable methods for communication in place (Steinberg, 2012, p13). If your campaign and capabilities do not meet those criteria, you should preferably use one of the existing platforms for crowdfunding. An overview of the main platforms for music-related crowdfunding is provided in the following chapter. Platforms Crowdfunding platforms are websites that offer established services, tools and networks to host crowdfunding campaigns for a large number of campaign owners. Those platforms offer pre-built structures designed to attract both project creators and possible investors in order to provide the most effective and efficient crowdfunding solution (Nesta, 2013a). According to Ordanini et al. (2011, p11, 35), crowdfunding platforms serve as “network orchestrators”, because they do not execute specific activities, but facilitate those activities by creating the necessary organisational systems and conditions for bringing several players, such as campaign owners and investors,
  24. 24. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 24 together. Furthermore, the orchestration may differ between the platforms. A crowdfunding platform can add an intermediary role that was previously absent, e.g. if it is able to bring consumers closer together. It could also substitute a traditional intermediary, such as a record company, allowing artists to produce and sell their music through a non-traditional route. Or it can disintermediate by eliminating the activity of a service provider previously involved in the network, for example, in the case of online shop that previously sold the artist’s work. At the time of writing, there are over 450 different online crowdfunding platforms available (Massolution, 2012, p2). Many of those platforms are specialised on certain industries, allow only one crowdfunding model or are only available in specific territories, which is why project creators need to study the market carefully in order to understand which platform is best to use depending on the type of project they want to launch. For a basic understanding of the differences between each platform, the most suitable and relevant platforms for music campaigns are outlined in the following. Kickstarter With more than 100,000 projects and $642 million in pledges raised, Kickstarter has emerged as the most prominent and popular crowdfunding platform (Kickstarter, 2013b) (Scharwath, 2012). It is specifically a platform created to raise funding for creative projects, such as films, games, music, art, design and technology (Kickstarter, 2013a). Since its launch in 2009, the platform has hosted 22,506 music-related projects, which have seen a total of $78.6 million in pledges
  25. 25. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 25 from “backers”. Success rate for music projects on Kickstarter is 54.71%, which is considerably higher than the 43.98% overall success rate for all projects on Kickstarter (Kickstarter, 2013b). The crowdfunding model on Kickstarter is exclusively reward-based, which means that campaign owners have to offer rewards in return for funding in order to be able to host their campaign on the platform. Other crowdfunding models are not supported. All ownership or equity in the projects on Kickstarter remains with the project creators and Kickstarter cannot be used to offer financial returns or equity (Kickstarter, 2013c). The funding time window is up to the project creator and can be everything from one to a maximum of 60 days (Nesta, 2013b). If a project fails to reach its funding target within the chosen time frame, none of the backers will be charged and the project creator will not receive any funding. If a project is successfully funded, Kickstarter applies a 5% fee to the funds collected, plus the payment processor charges a 3-5% fee. Kickstarter is currently only available for project creators who are U.S. or U.K. residents, but funders outside these territories can contribute money (Kickstarter, 2013c). Steinberg (2012, p21) notes that Kickstarter provides valuable support from the time you begin developing your campaign until after it is completed. In addition, the site offers many useful tools and features for campaign owners such as a smooth integration into social media and individual websites, an analytics dashboard to keep track of the project progress and see where pledges are coming from, and more. Some post-campaign tools are also available, such as a
  26. 26. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 26 survey tool, which helps getting info from backers, for example, to collect mailing addresses or T-shirt sizes (Steinberg, 2012, p21). In the last couple of years, Kickstarter has experienced strong growth and seen many spectacular campaigns that raised record-breaking amounts of money, one of which is Amanda Palmer’s $1 million campaign (Barnett, 2013) (Strickler, 2012). Due to its popularity and proven qualities, Kickstarter is therefore one of the key platforms to consider for music-related crowdfunding projects. Indiegogo Like Kickstarter, Indiegogo is one of the earlier platforms that were able to gain large-scale popularity. Since its launch in 2008 and up to June 2012, 100,000 campaigns from more than 196 countries had been launched on the platform (Indiegogo, 2013b) (Taylor, 2012). Unfortunately, Indiegogo does not provide more recent figures on the number of campaigns, nor information on the average success rate of campaigns on their platform. Unlike Kickstarter, Indiegogo allows donation-based crowdfunding campaigns for almost anything and is not limited to creative projects only. While Kickstarter is purely a reward-based model, Indiegogo is mainly donation-based (Barnett, 2013). However, the platform also allows campaign owners to offer non- monetary rewards for contributions (Indiegogo, 2013c). In an interview, Indiegogo founder Slava Rubin has stated that the company may decide to open up the platform to equity based funding in the future (Scharwath, 2012).
  27. 27. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 27 Although the platform does not exclusively focus on creative projects, music campaigns are very common on Indiegogo, too. Some of the most noticeable music campaigns on Indiegogo in recent years include George Clinton’s campaign to raise money for his battle to secure the rights to some of his music and the upgrading of his music studio in Tallahassee, Florida (Nunnelly, 2012). The renowned funk artist successfully raised over $50,000 through his Indiegogo campaign (Clinton, 2012). Another largely successful music campaign was Schematic by Dave Elkins, former member of the band Mae. Elkins successfully raised over $50,000 to fund the launch of his music company Schematic, an alternative music business model which offers production, manufacturing, distribution, management, and fan community services to provide artists with a fair business opportunity (Elkins, 2012). Unlike Kickstarter, Indiegogo also targets a wider international market as the platform allows anyone from all over the world to launch a campaign and receive funding (Falcon, 2012). The typical project length on Indiegogo is 30 to 70 days (Needleman and Loten, 2011). Indiegogo offers two different types of funding plans: fixed and flexible funding, which can be selected by the campaign owner. With fixed funding, the campaign owner won’t receive any money if the funding goal is not reached and all contributors get refunded. If the goal is reached, a 4% fee applies. With flexible funding, the campaign owner can keep what has been contributed so far if the funding goal is not reached, however, he will be charged a higher fee of 9%. If the funding goal is reached a 4% fee applies with flexible funding, too.
  28. 28. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 28 With any of the funding plans, third party fees may be added including a credit card processing fee, a fee for non-U.S. campaigns and currency exchange fees (Indiegogo, 2013d). According to Steinberg (2012), Indiegogo offers a “smooth integration into social media and individual websites and a robust set of analytics tools to track your progress round out its benefits” (p21). PledgeMusic PledgeMusic is a crowdfunding platform that focuses solely on the funding of music projects. Through campaigns on PledgeMusic, artists can collect money from their fans and supporters to fund the recording and release of their album, finance a tour or produce a music video, which often requires major funding and publicity (PledgeMusic, 2013a) (Falcon, 2012). The platform, which was launched in 2009, offers two different campaign options, a direct-to-fan campaign and a pre-order campaign. The direct-to-fan campaign is designed for independent artists who require money for their music projects. With this option, a funding goal set by the artist has to be met before any money pledged is transferred. If the artist is unable to reach that goal, no funding will be provided. The pre-order campaign, on the other hand, is designed for artists and record labels who have already completed a recording. This option works like other e-commerce pre-order campaigns, in which fans can immediately make purchases of artist material, but bundles in all the communication and marketing tools of PledgeMusic. The platform charges a 15%
  29. 29. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 29 fee on every successful pledge received, which also includes all other fees such as payment processing fees. The maximum campaign length on PledgeMusic is 90 days. Campaign owners from all over the world can participate on the platform and will retain all their ownership rights (PledgeMusic, 2013b). PledgeMusic works on a reward-based model, which means that artists have to offer rewards in return for contributions. For example, a pledger may get a copy of the album as a reward for his contribution. For larger pledges, you may get access to exclusive content and experiences, such as attending a rehearsal or being part of one of the artist’s live shows (Nesta, 2013b) (PledgeMusic, 2013b). PledgeMusic is run by people who have been involved in the production and marketing of music or have released music themselves. The company therefore claims to have the tools and expertise an artist needs to create, market, and sell music. Furthermore, a project is personally assessed by a PledgeMusic employee before it goes live on the platform. This means that poorly prepared campaigns or artists with small fanbases and little touring history might be excluded from the platform (PledgeMusic, 2013b). Apart from running affiliated PledgeMusic recording and publishing companies, PledgeMusic also maintains partnerships with third party music companies to help record, produce, manufacture, market and distribute projects that are submitted to the platform (Music Week, 2011) (PledgeMusic, 2013b). With an impressive 82% campaign success rate, the platform has become popular amongst small and big artists alike (Houghton, 2011). Some of the most
  30. 30. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 30 notable artists that have funded their projects via PledgeMusic include Alien Ant Farm, Funeral for a Friend, The Libertines, The Lumineers, The Subways and Bring Me The Horizon (Pakinkis, 2013). Several PledgeMusic funded albums have achieved significant chart success, too. SellaBand SellaBand is a very similar platform to PledgeMusic but was launched a few years earlier, in 2006 (Sellaband, 2013a). Like PledgeMusic, SellaBand is solely focused on raising funds for musicians. In the first three years after its launch, SellaBand mainly offered artists the chance to record a professional studio album if they were able to raise enough money from their fans via the SellaBand website to cover the expenses required to record and produce an album (Sheet, 2006). Since 2009, the platform also helps artists to raise funds for any other music project, including promotion/marketing campaigns, live concerts, tours, festivals, fan products, and more (Sellaband, 2009). With changes made in 2009, artists that raise money via SellaBand can now also keep all their rights, which allows them to enter into deals with any label, publisher or management company (Sellaband, 2013a). People interested in funding artists on Sellaband can do so by buying “parts” in them, one part most commonly being €10. It is possible to buy multiple parts in a single artist, buy parts in multiple artists and to sell back parts (Sellaband, 2013c). Only if a project sells enough parts to reach its funding goal, the project is financed. In the meantime, investors can keep their parts in the
  31. 31. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 31 artist or transfer them to another artist. The platform charges a 10% fee for any campaign that reaches its funding goal. In return for providing funding, investors are offered incentives with the minimum incentive being a download (Sellaband, 2009). For a purchase of multiple parts in them, artists often offer more exclusive rewards. This makes Sellaband a reward-based concept. However, the platform also provides the option to offer investors a share of the revenues that will be made by the selling of a Sellaband funded album. By allowing financial returns for investors, this would make it an equity-based crowdfunding model, which is rather unusual with other creative crowdfunding platforms. Artists can decide if and how much revenue they want to share. The platform states that the average act shares 50% of its revenue (Sellaband, 2013b). Since its launch, 102 artists have successfully funded their projects via Sellaband, most of which are relatively unknown independent artists (Sellaband, 2013d). The most notable and popular artists that have successfully managed to raise funds for their music projects via Sellaband are Public Enemy and Jonathan Davis, lead signer of the band Korn (M3 Event, 2012). There are currently 650 artists on Sellaband that are either fundraising or have reached their target which implies that about 15.7% of artists are successful on Sellaband (Sellaband, 2013e).
  32. 32. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 32 Songkick Detour Songkick Detour is a very young crowdfunding service launched by personalised live music news service Songkick in November 2012 (Songkick, 2013). The platform was created as a tool for fans to bring artists to their city and works very similarly to ticket preselling, although none of the concerts on Songkick Detour are confirmed when fans start buying tickets. Instead, enough funds have to be pledged for tickets to a concert in order to bring the artist to the city and make the gig happen. Thus Songkick Detour brings bands to places where they have never played live before or where they never thought that demand was high enough (Songkick Detour, 2013a). The website allows users to suggest artists they would like to see play. Once a gig is open for funding on the platform, fans can pledge whatever they are willing to pay for a ticket. After the required amount of money is gathered, Songkick Detour works with promoters to organise the venue and other logistics (Lee, 2013). Unlike other music crowdfunding platforms, Songkick Detour does not allow the funding of music recordings, videos or any other projects apart from live events. To make a profit, the company takes a 10% fee from tickets sales through the site (Lee, 2013). During their limited beta phase which was open for 1,000 fans, Songkick Detour has made ten concerts happen within five months and generated over $100,000 in ticket sales across those shows (Songkick, 2013). One of the most popular artists that fans brought to their city via the platform is American nu metal band P.O.D (Songkick Detour, 2013b). As a result of this success, Songkick
  33. 33. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 33 Detour opened up to any fan in London in May 2013 and announced that the rest of the UK will be added soon (Lee, 2013). The company hopes to turn it into a “scalable platform for artists and fans to drive” (Solon, 2012). ArtistShare When ArtistShare launched in 2003, it became the first online platform for fan funded music projects (ArtistShare, 2012a). The company acts as a website and record label for musicians who can have their recordings funded using a crowdfunding model (Bloodgood, 2013). Jucst like other crowdfunding platforms, ArtistShare allows fans to pledge money for music projects, mostly album recordings, via their website. In exchange for funding, investors get access to the artist’s creative process, receive exclusive products or even credit listing on the recording. The ownership of copyright in the recordings can remain with the artists on ArtistShare (ArtistShare, 2012a). In return for providing their services, the platform charges a one-time project set-up fee of $595 and a $12.95 monthly subscription fee (SellYourBand, 2011). One of the most notable projects which was funded utilising ArtistShare, is American composer Maria Schneider’s 2004 album “Concert in the Garden”, which won a Grammy award in 2004. In total, all ArtistShare funded projects have received six Grammy awards and 18 Grammy nominations (ArtistShare, 2012a). ArtistShare is particularly popular with classical and jazz musicians, not so much with pop artists (ArtistShare, 2012b).
  34. 34. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 34 The table below provides an overview of the platforms analysed. Figure 2. Overview of crowdfunding platforms. Above-mentioned crowdfunding platforms are currently the most relevant and renowned platforms for music projects, however, other suitable platforms for musicians exist, including RocketHub, Sponsume, Gigfunder amongst others.
  35. 35. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 35 Crowdfunding in the music business The use of crowdfunding in the music industry Crowdfunding research firm Massolution found that in 2012 crowdfunding platforms raised $2.7 billion worldwide for more than one million campaigns, which shows an 81% increase in funds raised compared to the previous year. Global crowdfunding volumes are estimated to reach $5.1 billion in 2013 (Massolution, 2013b). As one can see from these figures, the crowdfunding market is growing at a fast pace, which also provides opportunities for individual musicians and the music industry as they can utilise the potential of crowdfunding for their activities. Over the past years, multiple artists and music organisations have already accomplished success in securing funding for their music projects via crowdfunding (Jones, 2013). In the music industry, crowdfunding entails asking your fans to help raise funds for a new project, such as an album, a music video, an event or a tour (Sarafian, 2011, p78). As mentioned earlier, in crowdfunding the collective opinion of a group of individuals is considered to be better than the opinion of a few experts. This idea can also be applied to the music industry where the traditional model usually involves a contract with a record label. In this traditional model, the record label is the major key to success as it facilitates the artist’s career by taking care of the financing, production, promoting and distribution of the music. Without a contract with a record company an artist has very low chances of success, because in most cases they will lack the funding, production
  36. 36. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 36 tools, distribution channels and expertise to make an impact on a national or the international music stage. Also, in the traditional model the discovery and promotion of new talent is reliant on the opinion of a few experts, typically A&R people at record companies. Those are the people who make the decisions about who to sign and give a chance in the music business (Sarafian, 2011, p71- 72). With crowdfunding and the possibilities of the Web 2.0, artists now have access to more sophisticated means to fund, distribute and promote their music independently. The selection process in music is no longer only a matter of expert opinions, but much more democratised when artist utilise crowdfunding, as one could argue. Fans from all over the world can now take part in the decision making of whether to give an artist a chance or not, too. The traditional music business model that grew over the past century without undergoing major changes is now challenged more than ever due to technological innovations that developed over the past decade. Those technological developments, which include the possibility to copy, pirate and share digital music files easily or the emergence of much closer fan-artist communications via social networks, have profoundly transformed each stage in the business of producing and selling music. However, although facing major losses over the last decade, the traditional players such as the big record and publishing companies now have adapted to the changes and remain intact, still forming central elements of the mainstream music business (Sarafian, 2011, p71-72) (Goldman, 2010) (Watters, 2011).
  37. 37. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 37 At the same time, the industry continues to be subjected to fast-paced changes. New models, platforms and players emerge nearly every day, challenging the traditional model (Watters, 2011) (Sarafian, 2011, p71-79). Crowdfunding could be such a model that will have a lasting impact on the way music is produced, sold and promoted because it has the potential to make musicians more independent from large music companies and could grow bigger and bigger in the years to come (Brandle, 2012) (Currin, 2011). Muñoz (n.d.) states that getting the attention of a major label is no longer a major concern for indie musicians, as alternatives to that business model are now available, particularly in the initial breakout stage. The do-it-yourself approach has become a significant force in the music industry, best demonstrated by the likes of Radiohead, Nine Inch Nails and Amanda Palmer, and crowdfunding is part of this change (Peoples, 2012a) (Muñoz, n.d.). In the last couple of years, artists have used crowdfunding to produce, distribute, pre-sell, promote and market their music recordings, live shows, tours, music videos, video documentaries or simply fund their equipment or any other part of their career. Some artists are even raising funds from the crowd to buy back their music from former record labels (Smith, 2013). It’s important to note, however, that crowdfunding is a tool used almost entirely by independent and unsigned artists who have previously been in contracts with labels or have never been in a recording contract before. At this point in time, record companies do not exploit the possibilities of crowdfunding, presumably because it would undermine their business model, which relies upon the concept that they fund
  38. 38. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 38 and market music recordings in exchange for the rights in the music. Nevertheless, some crowdfunding platforms have begun to offer services tailored specifically for record labels and music organisations or integrated traditional record label services within their crowdfunding offers. For example, crowdfunding platform PledgeMusic offers a preorder campaign which allows record companies to pre-sell their recordings by utilising the communication and marketing tools of PledgeMusic (PledgeMusic, 2013b). MyMajorCompany is a company that bundles crowdfunding with traditional A&R. Only acts spotted and selected by the company’s own A&R department make it onto the crowdfunding platform (O’Hear, 2010). In addition, crowdfunding platform ArtistShare recently announced to have entered into a partnership with Jazz label Blue Note Records in order to discover and nurture young jazz artists (Bloodgood, 2013). It is therefore possible that crowdfunding will become more important for record labels in the future. In the music industry, crowdfunding currently mainly benefits independent artists who can turn to crowdfunding for a chance to realise their music projects without the support of a record label. With crowdfunding, they are able to retain their independence, creative freedom and intellectual ownership rights in their music. The risk that is normally associated with recording and releasing music is eliminated as investments are outsourced and are only made if demand is high enough. Crowdfunding also allows artists to gain valuable market insights as they connect to an audience, exchange ideas, ask for support, make fans and do business. A crowdfunding campaign is always a marketing campaign, too, since
  39. 39. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 39 the campaign owner needs to find and connect to a target group in order to secure funding. A successful crowdfunding campaign therefore achieves valuable marketing results. Middlemen, which were necessary in the traditional business model, are cut out which can save artists time, money and effort. Furthermore, value is exchanged directly between the artists and their fans, which is likely to strengthen the artist-fan relationship. Finally, if a campaign is largely successful, it could provide an artist with greater financial returns than what he would have got out of a record label deal (De Witt, 2012, p17) (Steinberg, 2012, p4-5) (Peoples, 2012a). On the other hand, as crowdfunding provides greater independence and freedom, it also requires more effort and time from the artist who has to manage everything on his own. Many artists might not be prepared for this level of self- employment since they are more a creative person than someone who prepares and manages business concepts. In addition, as great as it is not having to rely on a record label, artists still have to put a lot of effort into convincing the online crowd to provide funding for their project. On Kickstarter, about half of all music campaigns do not reach their target and fail (Kickstarter, 2013b). In order to avoid failure it is therefore vital to prepare and execute crowdfunding campaigns properly, which includes a full understanding of the crowdfunding method, knowledge of consumer marketing and social networks amongst other important elements. Furthermore, when cutting out record labels, artists lose access to the labels’ valuable resources and expertise, which could be considered as a major disadvantage. Apart from a few very rare instances, such as the Amanda Palmer
  40. 40. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 40 campaigns, crowdfunding currently cannot achieve the same level of promotion, sales and chart success as a deal with a major record label could provide. Since a crowdfunding campaign entails elements of a marketing campaign, artists are also required to be very creative in their efforts to gain attention online and to make their campaign stand out over other campaigns. Finally, crowdfunding simply does not fit everyone and does not always work out. As with everything, there is no guarantee for success and competition is strong in crowdfunding, too. In the end, every artist has to decide for himself whether a crowdfunding campaign or a deal with a record label is the better choice for his career (Steinberg, 2012, p6-7). Impact on the music industry 2012 was a year in which music artists saw record-breaking success in crowdfunding. In line with the overall growth of the crowdfunding industry, more music projects were funded, more people made pledges and more money was raised than in any of the years before. In 2012, the music category saw the highest number of successful projects on crowdfunding platform Kickstarter (Peoples, 2013a). Almost $35 million were pledged by more than 500,000 people to support U.S. and U.K. based music projects (Kickstarter, 2013d). Although these figures seem low when compared to the annual $16.5 billion in revenue that are generated in the global recorded music industry, they are remarkable if one considers that Kickstarter is just under four years old and only just reached
  41. 41. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 41 mainstream recognition during the last year (IFPI, 2013) (Peoples, 2013a). Moreover Kickstarter is just one of many crowdfunding possibilities that exist. Globally and across all platforms music-related crowdfunding projects raised $205.5 million in 2012 according to reports by crowdfunding research firm Massolution (Jones, 2013). However, instances in which artists collect huge amounts of money, as in the case of Amanda Palmer, or achieve notable chart successes after securing funding via crowdfunding are still rare. For example, out of the 7,388 successful music projects on Kickstarter, the large majority (87.3%) raised $10,000 or less. Only 238 music projects on Kickstarter raised more than $20,000, eight raised more than $100,000 and Amanda Palmer was the only artist to raise more than $1 million. Most music-related crowdfunding campaigns are by independent artists who are provided with the opportunity to produce and sell their records if their campaigns are successful (Peoples, 2012b). In the case that one of these artists shows greater potential, it is likely that a label becomes involved (Brandle, 2012). Globally renowned artists have avoided crowdfunding almost completely up to now, which indicates that crowdfunding is not part of the mainstream industry, at least not yet. The music charts are still dominated by artists who are signed to major labels or less often to an independent label (Official Charts Company, 2013). While crowdfunding is definitely making an impact on unsigned and independent artists, this is not the case for the mainstream music business including successful pop artists and major labels. However, that could change in the future (Peoples, 2012b).
  42. 42. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 42 In January this year, Peoples (2013b) noted in Billboard that there are signs that crowdfunding is becoming more mainstream. One of these signs is that crowdfunding is no longer the domain of small semi-professional artists, but is increasingly used by professional musicians, too. Peoples (2013b) mentions artists such as Pete Ham of Badfinger, Jess Roden or George Benson who have begun to utilise crowdfunding while having a professional team of publicists, managers and agents on their side. Furthermore, more popular artists, such as metal band Protest the Hero, are joining in on crowdfunding and are able to raise funding amounts that are above the average (Peoples, 2013b). Probably the most high-profile musician to undertake a crowdfunding project was Icelandic artist Björk, who is famous on a global level and even signed to a major label. For her album “Biophilia” the artist and her record label came up with an innovative release method focusing on mobile applications. The music was incorporated into a series of iOS apps for Apple mobile devices and released in October 2011. Björk described the project as a multimedia collection “encompassing music, apps, Internet, installations, and live shows” (Young, 2011). Since the Biophilia app was only available on iOS devices, a large number of fans that owned handhelds with different operating systems where not able to use it. Hence, Björk launched a campaign on Kickstarter in February 2013 to raise funds for making the album app available on more platforms, including Android and Windows 8 devices. Surprisingly or not, Björk’s project became one of the biggest failures on Kickstarter and the artists was forced to cancel the project after 10 days as only 4% of total funding was raised. Since then, the
  43. 43. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 43 music industry press has discussed the reasons for Björk’s failure. Peoples (2013c) states that Björk’s project was very uncommon when compared to other music projects on crowdfunding platforms. Nearly all artists that use crowdfunding are independent or on independent labels, but Björk was a major- label artist which could have discouraged people from pledging. Peoples (2013c) believes that the do-it-yourself aspect inherent to crowdfunding is antithetical to the corporate backing of a major label. This may be true, but Masnick (2013) is convinced that crowdfunding makes sense even when used by the “rich and famous”, as a successful campaign by Tom Hanks’ son Colin to raise funds for a documentary has proven. Rather it was the unappealing cause of Björk’s project that caused its failure. Since the album app had been out for iOS devices for one and a half years already, Björk’s project lacked the exclusivity that is required to get people excited and to make pledges. In the end, Björk would not release anything new if the project was funded, but only port an app to a few other systems (Masnick, 2013) (Peoples, 2013c). Another major reason for the project’s failure was Björk’s lack of social media communication with her fans. While Amanda Palmer uses social networks to communicate with her fans on a daily basis, Björk had tweeted three times in 2013 when she cancelled her Kickstarter project. To make it worse, none of Björk’s Twitter messages even mentioned the campaign and were only one-way commercial messages that announced a presale, for example (Masnick, 2013) (Peoples, 2013c). Palmer, on the other hand, maintains a very close relationship with her fans. In her TED talk, Palmer even mentions that she does a lot of couchsurfing, which entails that she
  44. 44. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 44 stays at fans’ homes during her tours (Palmer, 2013a). This level of closeness between artists and fans is very rare and certainly contributed to Palmer’s crowdfunding success. On her blog, Amanda Palmer also commented on the failure of the Björk project and said that “it was a lot of money to raise for something so specific and technical” (Palmer, 2013). Björk asked for an intimidating £375,000 only to make a port for an app while Palmer’s goal was just $100,000 when she raised $1.2 million (Peoples, 2013c). Moreover the presentation of the campaign was not very clear and the rewards weren’t interesting enough (Palmer, 2013). According to Palmer (2013), “if Björk had been trying to fund an album, the interest would have been ginormous.” Eventually, the pure fact that more mainstream artists such as Björk are joining in on crowdfunding, whether individual campaigns are successful or not, shows that crowdfunding is on the brink of making an impact on the overall music industry. Crowdfunding was one of the most dominant topics of this year's South by Southwest conference in Austin, Texas, one of the most important and future- oriented industry events. This year’s conference had 21 panels that discussed Kickstarter amongst other topics, including one panel with Amanda Palmer (Peoples, 2013d). Today, crowdfunding provides funding for a good number of out-of-the mainstream music projects. In the future, however, these projects are likely to be far more plentiful and mainstream which will affect the way independent and major labels work (Peoples, 2012b). Artists that can easily raise enough money via crowdfunding to fund their music projects will no longer need all the services that a record label offers nor are likely to sign a 360° deal.
  45. 45. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 45 However, even in the case of Amanda Palmer, some label services are still required. For her European album release, Palmer has partnered with London- based indie label Cooking Vinyl who will look after distribution, project management, marketing and promotional services across the U.K. and Europe (Smirke, 2012). Even with crowdfunding, successful artists won’t be fully independent, but rely on bigger third-party music organisations that support them on their career path. Key success factors The discussion of Björk’s failed Kickstarter project has revealed some insights into what makes a successful crowdfunding project and what may contribute to its failure. In 2009, five weeks after Kickstarter was launched, the platform’s co- founder Perry Chan gave a talk in which he presented six core principles that make a successful project. Those principles are still relevant today: • Be real: Crowdfunding involves humans asking other humans to help them. Campaign owners need to be authentic, tell the story of their project, show that it is something important, meaningful and something they care about. Most crowdfunding platforms are very video-driven, which is why it is important to have a good video which tells an authentic story and does not come across as too commercial. • Have a clear goal: Be as precise as possible about the project goal. Campaign owners should avoid saying that they want to be funded as an artist for some vague pursuit, but make clear what exactly they want to do,
  46. 46. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 46 e.g. produce a 10-track album or video record a live show for a 2-hour live DVD. • Offer fun rewards: Not all crowdfunding models offer rewards for contributions, but the advantage of rewards is that they provide additional incentives for people who are not fully emotionally attached to the cause. Rewards also help to tell the story of the project and share the experience with the audience. People who help out with funding are happy to receive some value back in the form of rewards. • Show you can execute: Apart from having a good idea, campaign owners also need to be able to convince the crowd that they are able to execute and deliver. The best way to do that is to talk about your history as an artist and show what you have done so far. • Involve the audience: Ideally, the crowd should be involved into the project to the degree that they become part of the project. Campaign owners should aim to keep the audience updated regularly, let them make suggestions and offer rewards that will make people become part of the project. For example, a reward could allow a contributor to record backing vocals on the artist’s album. • Spread the word: In times of digital platforms and social media, this is probably one of the most important factors, which determines the success of a project. Campaign owners need to fully utilise their networks, both on- and offline, in order to get their friends, fans and other people to spread the word. All largely successful crowdfunding projects have achieved that level of
  47. 47. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 47 success because they benefited from the powerful word-of-mouth effects that can be enabled through social sharing. A strong fan base, close fan relationships and an effective use of social media are crucial in this regard. Most crowdfunding campaigns only run for a very short time frame of one to three months, which means that campaign owners need to push their message out there from the minute they launch the campaign until it ends. Social networks and other online communication tools are particularly suitable for raising awareness of a project as they can reach a large number of people very quickly and spread messages virally amongst online users. (De Witt, 2012, p18-19) (Chen, 2009) (Steinberg, 2012, p23-32). On the other hand, crowdfunding projects very often fail if the campaign owner is asking for too much money, the artist has not much of a history or a sufficient fan base, there is no or only a weak proof of concept, the project is constructed around unrealistic expectations or is too commercial, there is a lack of a compelling vision, a lack of differentiation from other projects or the campaign owner is unable to generate enough awareness and engage potential backers. As outlined earlier, some of these mistakes were made in the example of Björk’s failed Kickstarter campaign. Although Björk enjoys a massive fan base, the artist was asking for too much money, did not raise sufficient awareness to engage her fans, the project was unattractive and might have also been too commercial as Björk had the backing of a major label at the same time (De Witt, 2012, p18-19) (Steinberg, 2012, p23-32) (Masnick, 2013).
  48. 48. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 48 Research findings As previously mentioned, primary research in the form of expert interviews were conducted to obtain more relevant, detailed and insightful information for answering the research questions. Several people from the music and crowdfunding industries were therefore interviewed, which also allows to make a comparison between various perspectives on crowdfunding in the music business. The full transcripts of the interviews that were conducted with Simon Goffe, Karen Bair, Sam Mussell and Jamie Freeman Turner can be found in the appendix. In the following, the most important findings from the interviews are summarized, discussed and compared. Interviews Regarding the role of crowdfunding in the music industry today, most interviewees agree that crowdfunding is currently a niche branch, specifically since it is still relatively young and small. Although crowdfunding is used almost entirely by independent artists, this does not make it niche or means that it is not very relevant for the overall music industry either, as Goffe (2013) points out. In his opinion, the future of the music business belongs to independent methods and innovative business models anyway, as he thinks that the major record label model is dying and won’t be around for another 30 years. As an artist who has undertaken a crowdfunding campaign, Mussell (2013) is convinced that crowdfunding already plays an important role in the industry helping bands achieve their goals, especially because more well-known bands such as Bring
  49. 49. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 49 Me The Horizon and major labels such as Sony have already started acknowledging its use and utilising its capabilities. Even if crowdfunding is not widely used in the music business yet, the crowdfunding industry “has far from peaked”, as Bair (2013) states. “As more and more working artists continue to use crowdfunding platforms with success, crowdfunding will become more mainstream, this is just the beginning” (Bair, 2013). Simon Goffe from Brownswood Recordings also thinks that crowdfunding has got the potential to become part of the mainstream music business (Goffe, 2013). From the artist’s perspective, however, there seems to be no consensus on the future potential of crowdfunding. While Mussell (2013) sees potential in crowdfunding to become more widely used, Turner (2013) is more pessimistic about it. He thinks that the “shelf live of Kickstarter is quickly expiring” (Turner, 2013). As the exclusivity and novelty of crowdfunding is wearing off, “the popularity and community to support new projects is not as existent as in the beginning” (Turner, 2013). The main advantages that crowdfunding offers are that artists can maintain their independence and integrity (Goffe, 2013). At the same time, they retain all their rights in their music, which Bair (2013) describes as “a potential game changer”. Since there are so many talented people out there who haven’t got a record deal, Goffe (2013) states that crowdfunding is great as it is giving more artists a chance to record and sell their music. Also, for the artist it is a great way to monitor both progress and popularity (Mussell, 2013). Another unique feature is that crowdfunding can offer products and experiences to fans
  50. 50. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 50 that are not available elsewhere including the chance to become part of the creative process of a project. When funding tours or other expensive promotional activities, crowdfunding takes away the financial risk and can also test certain markets for demand (Bair, 2013). On the other hand, in the traditional business model and especially the major label model there is a lot of wastage, as Goffe (2013) points out. There are too many instances in which record labels spend large amounts of money on an artist’s album and then don’t do anything with it (Goffe, 2013). Although Brownswood Recordings are not searching crowdfunding platforms to find new talent for their record label at the moment, Goffe (2013) could imagine crowdfunding to become an A&R source for record labels. In fact, since artists that do crowdfunding generally are very active and have found their target audiences, this makes them very attractive for record companies (Goffe, 2013). Even if record labels don’t fund the recording for those artists, Goffe (2013) thinks that there are still a number of ways how the labels and these artists can work together, for example for marketing or distribution of the records. Bair (2013) states that most mainstream artists are signed to major labels and are not using crowdfunding at the moment. But she expects more labels and mainstream artists using crowdfunding in the future for projects that the label doesn’t want to fund such as a behind the scenes video. As an artist, Mussell (2013) would recommend crowdfunding to other artists, specifically small independent artists, but he could also imagine any other artist doing crowdfunding as long as they understand the concept. Turner (2013), on the
  51. 51. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 51 other hand, is more sceptical and thinks that some artists are just too small and unknown to find a large enough audience to pledge money. Nevertheless, Turner (2013) can certainly imagine global pop stars like Katy Perry using crowdfunding to fund their music projects as it has been shown with actors who raise money for films before. Mussell (2013) agrees on that, but fears that record labels will ill-use crowdfunding for their advantage to save recording costs, if they are able to sell and market the campaigns to fans in a clever way. He says “it is sadly inevitable” and that it will even benefit the label more than a pre-recorded album because it builds a very personal approach between fans and an artist (Mussel, 2013). Goffe (2013) also states that it is possible for mainstream artists to do crowdfunding, but it would need some very clever business people and a whole team of people behind an artist to make it work on a mainstream pop level. It makes perfect sense for small independent artists and could work very well with unsigned popular artists such as Radiohead, but if an artist is signed to a major label, fans could feel that they are taken advantage of (Goffe, 2013). Bair (2013) from Indiegogo thinks that big artists would even get a lot of backlash if they were to launch a crowdfunding campaign because they are very wealthy. However, she can still imagine that mainstream artists will join in on crowdfunding (Bair, 2013). When talking about their experience with crowdfunding, Turner (2013) and Mussell (2013) note that the most important components to make sure a campaign is successful are to promote your campaign in many different ways which entails doing many live shows, organising a mailing list, being active on
  52. 52. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 52 social media, writing regular updates, etc. As crowdfunding is still relatively new, you don’t only have to raise awareness of your campaign but of the whole concept of crowdfunding (Mussell, 2013). Setting the right target is also very crucial as it can scare people off if it is too high or not show enough conviction if it is set too low. Campaign owners have to be able to convince people that their pledge makes the difference and clarify exactly how the money will be used (Turner, 2013). There arguments are supported by Bair (2013) who mentions a great pitch video, a clear and transparent description, good rewards and regular engagement with fans as some of the core principles for success. In order for crowdfunding to develop further and become more established in the music industry, Goffe (2013) states that it requires more examples of artists who have achieved significant success in the industry after having used crowdfunding. Although the industry is already taking crowdfunding seriously at the moment, “it needs someone to really champion it” before it will make a large impact (Goffe, 2013). According to Bair (2013), crowdfunding also still suffers from the fact that it is misperceived as panhandling in some circles. The artists Mussell (2013) and Turner (2013) state that the biggest problem with crowdfunding today is that the platforms are still not popular enough and that it requires a lot of effort and expenses to launch a professional and well-presented crowdfunding campaign.
  53. 53. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 53 Conclusion As the literature analysis and the primary research has shown, online crowdfunding is a relatively young phenomenon that developed mainly as a result of the formation of the Web 2.0, which has enabled a high level of mass collaboration via the Internet. In the music business, crowdfunding allows musicians to collect funds for their music projects and today serves as an alternative business model to the traditional record company approach. It has already allowed a relatively high number of independent artists to successfully raise the funds required for a variety of different music projects including music recordings, live shows, tours, events, music videos and many more. However, due to the nature of the concept and because it is still rather a niche branch of the music industry, crowdfunding is almost entirely used by independent artists today and only very rarely by mainstream artists, signed musicians or even music companies such as record labels. A large number of different crowdfunding platforms exists, all of which provide services and tools to make crowdfunding as easy as possible. The variety in platforms also allows the hosting of nearly any possible type of project, however, there are many key differences between each of the platforms and it is very important to understand them for choosing the right service. Eventually, in music there are only a few key platforms that really make sense and can offer a large enough user base. At the time of writing, the best platforms for musicians are Kickstarter, Indiegogo and PledgeMusic as other platforms are either not popular enough, address only very specific campaigns or were launched just
  54. 54. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 54 recently. A success ratio of 82% at PledgeMusic and 54.7% at Kickstarter show that these platforms do work. By far the most successful crowdfunding campaign is Amanda Palmer’s Kickstarter project from 2012 in which she received over $1 million in funding for her album and tour. Although Palmer is not a hugely famous artist, she has accomplished that that level of success by understanding the concept of crowdfunding and how to influence the success of a campaign. In order to be successful when doing crowdfunding it is important to have a clear and convincing pitch, be authentic, demonstrate expertise and experience, offer interesting rewards, involve the audience into the project and market your campaign properly to reach the maximum amount of people. Although probably being more popular than Palmer, Icelandic artist Björk, on the other hand, failed when trying to crowdfund a project. This was not because Björk did not have the support that Palmer had, she definitely has a huge fan base, but because she made some elementary mistakes when preparing and executing the campaign. Overall, it can be said that crowdfunding is accessible to everyone, but it may not fit every artist as some artists are not prepared for the level of self- management and organisation when it comes to preparing a crowdfunding campaign. Some artists are simply not able to pull a crowdfunding campaign on their own and would rather be in contracts with third parties or have the support of a record label. Also, it is not advisable to rely on crowdfunding as the main tool to fund your activities all the time because a level of exclusivity has to be retained
  55. 55. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 55 to raise excitement and interest in fans. As Simon Goffe pointed out, it is likely that in the future artists will choose a combination of different tools, one of which could be crowdfunding, to realise their music projects. Although some artists and other people involved in the industry fear that the novelty of crowdfunding will soon wear off and people will show less interest in funding projects, the overall crowdfunding industry grew by 81% last year and is expected to grow even more, becoming a $5.1 billion industry this year compared to $2.7 billion in 2012. As more artists join in on crowdfunding, more diverse models and platforms emerge and exciting new projects come to life, fears about a reduced level of excitement about crowdfunding are likely to be ungrounded. What music crowdfunding needs now in order to move on to the next stage is artists that achieve significant success, whether it is chart success or any other type of recognition, after undertaking a crowdfunding campaign. Also, more mainstream artists that understand the model and champion it have to join in and demonstrate that crowdfunding can work very well for them, too. This has already happened in other entertainment industries such as the film industry where successful actors, such as Zach Braff, have successfully raised funds for expensive projects without major backlashes, but an overwhelming support from fans. With new developments in the music industry and artists that follow innovative paths nearly every day, it is likely that these things will happen in music crowdfunding soon, too.
  56. 56. MA Music Business Management: Final Project July 2013 Jan Himmighofen (Student No. 140268941) 56 To conclude this paper, it can be stated that crowdfunding in music has not reached its zenith yet, but shows a strong potential to become more accepted and widely utilised. It may not replace the established business models in the music industry within the next five years, but it will challenge the traditional models and serve as an alternative that becomes more and more integrated into the mainstream music business. Ultimately, record labels and the traditional players of the industry will have to adapt to these changes and recognise the effects that the possibility of crowdfunding has on the market and their businesses. This may entail that record companies will be less involved in the funding of music recordings in the future and instead will focus their main activities on the marketing and distribution of records that have been funded by the crowd.
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