Investing In Indie Bands: A Business Model To Support The Music Industry

There are countless articles that have been circulating the internet for years on how music piracy is killing the music industry at the expense of starving musicians.

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There are countless articles that have been circulating the internet for years on how music piracy is killing the music industry at the expense of starving musicians. And although there are still many new bands that attempt their luck and talents starting from nowhere other than their garages and basements, it is without doubt that the very vast majority of these artists cannot make it past a few local gigs and a thousand or so MySpace fans. These bands are often composed of young adults and adolescents, studying at least part time, and keeping a job in order to be able to fund their musical passions.

Using the stock exchange as a basis for my business model, I've constructed a theoretical approach to help support up-and-coming bands, starting from when they're still at their earliest stages of their artistic and commercial development. Thus, individuals could invest in bands that they think have potential, and when (or if) the band gains popularity and starts gaining profits from CD and ticket sales, the initial investors get a financial return from the band.

Because buying a share or stock of a band sounds too possessive (these are still human beings after all), we'll use the term bond. A bond in the finance world is a debt security, as in, an individual buys a debt from a company so that at a future date, once the company becomes more profitable, the investor is repaid the amount of the bond by the company along with interest. In the case of investing in bands, the debt would be repaid if the band eventually sells a profitable amount of music, and instead of interest, the band would also pay back a percentage of their revenue.

One way that this whole process can be facilitated is if we can invest in specific bands through their record labels rather than investing in the record label as a whole, or giving money directly to the band. Although this would technically eliminate all bands that are unsigned, it could conversely create an opportunity for them to get signed: they amass a certain amount of money from investors (which would mostly come from family and friends), and offer it to the label in exchange of getting signed, which consequently reduces the risk for the label of signing a new band since they won't require as large a sum of funds from their own treasury. This greatly supports the industry on many levels: first, the band because they are now signed with a record label and have a sum of money that will go to their commercial needs. Second, it supports the record label by allowing them to sign more bands at a lower risk. Finally, the mechanism also provides a way for people that love music and that are looking for investment opportunities to invest in an area that they know and enjoy versus the complexities of stock markets. Because of a possible financial return, it is more appealing than simply supporting a band by buying their music.

Although this business model is certainly flawed and doesn't consider potential problems such as band breakups, it is mainly to serve as a theoretical basis to thinking outside of the box in regards to supporting young and talented bands that are swallowed by the leviathan that is the music industry scene. There will practically never be a sudden dramatic plunge in illegal music downloads, and even if there are several other ways of supporting a band, there are still countless obstacles musicians have to face before being able to make sustainable careers out of their art. It is up to us, their avid listeners, to provide the beginnings of a reform that can allow musicians to attain their appropriate level of recognition by being judged solely on their devotion and talent.

By Frederic Sahyouni, Dotted Music

13 comments sorted by best / new / date

    RadioMuse
    This is kinda the standard DIY system anyway except the bands should NEVER offer money to a label... That idea is utter madness and shows a complete lack of understanding of the music industry. Labels (yes: even indies) are already known for breaking contracts and backing out of deals, so exchanging money for contracts would just give record labels another way to abuse and exploit bands. What a band should do; which is quite similar to what's being suggested here, is find a way to build up the capital to record a demo single or EP (or two), and tour locally enough to cut their teeth live, build some sort of fanbase, and *maybe* break even on their early recording/production/merch costs (proabably still taking some touring costs as a hit) then recording an album and pitching that to labels. All on their own bill. If they can get friends, family, or fans to loan them money, or gear or studio time, etc. then kudos to them. Where the capital comes from doesn't really matter so long as it's legal. If a band has an established following (however small and/or localized), a couple demos, and an album ready to go a label would have to be completely insane to not sign them on. As someone who's at least considered the basic logistics of running a label I'd say that a big hesitation comes from the band asking for/demanding money up front in order to record. Recording costs for an album, even cut very quickly, if in a professional studio, are going to run in the range of at least a couple grand. It's a similar cost range to buy the equiptment so that the band might record themselves with a decent semi-professional digital rig. That's a hard pill to swallow when you realize that making a reasonable number of copies of that, with even the most basic black and white artwork, is going to double that cost, AND you haven't even heard the tunes yet! Bands are an extremely high-risk investment. Labels are relying on exposure, public taste, buzz, and more than anything, luck, to break most bands. Yes, if there's enough money involved any subpar talent (Jonas Brothers, Miley Cirus) can be made into superstars, BUT that's still done via tapping into very calcuated and well-understood audiences. If, as a band, you're trying to be the next Slayer, Green Day, U2, or Radiohead, you're NOT A SAFE BET. So make the bet a little safer... But I really like the idea of being able to invest in specific bands through the label and get returns on your investment (both from the angle of the labels and of the bands: this is a good idea). These would be extremely high-risk investments; however, there are definitely a couple bands that I would invest in if this was implemented; which says a lot about both me as a fan, and how much I feel those bands have proven themselves as an investor.
    KurdtStaley
    I'm sorry but I think this business model is horrible. This idea that file sharing is causing musicians to go hungry is pure non sense. The labels are the ones who are taking on that burden. There will never be a time when the majority of aspiring musicians are doing well, the reason being is that the majority of them DON'T HAVE WHAT IT TAKES. There are more now (in pure volume) than before, because the worlds population is larger, but the same small percentage are still making it big while that same large percentage are still doing shitty. Again this has nothing to do with the internet it has to do with these peoples lack of talent. The internet only facilitates the uprising of new unknown talent. It gives them a platform to distribute their music, to gain recognition, and to build a fan base. And it does all of this without the any real cost at all. How much does it take to make a facebook, myspace, twitter, and youtube profile? CD's are useless and dead. Labels are useless and dead. The model for the future will be to build a following by getting you music out there anywhere you can and them making money of your fame via touring and merchandise. Lastly let me emphasize the point that the vast vast majority of musicians never would and never will make it. I think you're living in a fantasy land where you believe everyone on this site with a dream is going to make it as a commercially successful musician. The only person who needs to invest in a band is the producer. Other than that there is no need for capitol, and for him he's not investing capitol anyways. He's investing the opportunity cost of his time. And good producers will probably make good choices, bad ones bad choices thus determining the value of their time. If a good producer doesn't want to work with you, can you guess why? Is it because he doesn't get your creative vision? NO, it's because you're lacking talent and commercial potential. And an average person investing in a band is the dumbest idea ever, sorry. But it's more risky than investing in a poker player, property, or the stock market. No one with any financial sense at all would consider it.
    link no1
    this is total stupid... besides, the people who dont get more than 1000 fans obviously arnt putting enough effort into it, OR they are just really bad
    hawk_kst
    Isn't the whole "we'll give you money if we get some revenue when you make it big" exactly how Record Labels work at the moment!? They pay for the studio, P.R. ect...
    Zilcho
    It's certainly possible, this is how David Bowie got money for recording his first albums and we all know how that turned out.
    LordBaxtus
    "There are countless articles that have been circulating the internet for years on how music piracy is killing the music industry at the expense of starving musicians." How does this business model at all address the issue of profits being cut by piracy? Regardless of whether or not this model would work, piracy would still cut into total profit made by bands, and thus make investors less likely to take the risk. All this plan would do is take the losses suffered by record labels and turn them into losses suffered by investors. You're not solving anything.
    aaciseric
    I like your last paragraph a lot, people need to start thinking of new and creative ways that the music industry can be sustained (I think musicains themselves need to take on a certain amount of responsibility), to be effective the current model relies on totally ignoring the needs of the individuals that are creating artwork, which was never going to be permanently sustainable because eventually the artists would go against it. Which we've already seen happening (think Radiohead et al). Of course I massively support the DIY option, but with big record industries still holding monopolies (which of course we've also saw last December that can be challenged through a certain medium we're all currently using) it makes it a lot more difficult to make it 'big' as such. Very good article. Shame a few people seemed to have missed the point by not paying enough attention to that crucial final paragraph.
    eastern_riffs
    The answer isn't really as simple as you make it seem. Sure, in an ideal world everything is possible, but 'investing' in a certain band by it's fans has been going on for about 50 years now; that is what buying albums basically is. Yes, your idea is valid that there is a possible financial return-but for that, you would have had to invest a huge amount (even bands themselves only get about 15% of total revenue as royalty these days). Also, a band just isn't like stocks/shares, and it is not going to be easy for a band that doesn't work with a label to get investors who are genuinely interested, even with the internet around. People within the industry themselves know how difficult it is to make it big, and to people outside the industry it just seems impossible. And then there's piracy, which would remain an issue even with or without this business model. The main reason record labels thrived in the 80s was because one label can always communicate with another,and American music really made it to the international level in that decade because labels struck deals with international partners to produce, market and distribute music for their bands. Without a label, your only tool is the internet, and your investors are only going to worry about their financial returns; they won't bother with the production aspect of an album, leaving bands to deal with everything on their own. While the idea is not a bad one, it just isn't possible in today's world where bands are on the wane and digital music/beats seem to be taking the front seat as they require very little time, are easy to learn and master, and there's always an idiot here and there that thinks he can rap over your beat. Yet, it is always up to a band and individual investors as to how they make their money and how they spend it, respectively. All is fair in the music industry these days, so if something works, keep it.
    klemaniac
    Fairieswearsock wrote: I'm really tired of people saying that music labels are dead or are useless.
    This.
    bpazolli
    I think you misunderstand the difference between share and bond. A share gives you a share of the income of the entity. While a bond yields interest. My understanding is a bond linked to the success of a band would be a share. The main problem I think would be that in my opinion the largest factor in a bands success is marketing and such and as such the most likely way for a band to succeed would be to gain the most money and thus create a very volatile market. Not to mention the already low success and thus low average returns. Anyone stupid enough to invest in such a system is practically giving a gift to the band.