Would You Invest Your Own Money Into Your Favorite Artist’s Music?

This might be a golden age for artists in terms of the likelihood they can make a living from their music, but that doesn’t mean things aren’t tough out there: According to recent stats, Apple Music, the world’s second-largest audio-streaming subscription service, pays artists (and record labels) an average of $0.0056 per play. At Spotify, the biggest audio-streaming service on the planet, this figure is close to half that amount, at $0.0032. At YouTube, it’s as low as $0.0009.

Making these fractions of cents add up to a meaningful whole is a continual challenge for artists, who are also contending with the “one big pot” payout system of streaming services – a model that forces them to share revenue paid by their most passionate fans with the world’s biggest superstars.

In their defense, streaming companies often seek new ways to help artists boost their income. That’s why YouTube acquired Bandpage three years ago, a company that sent a million fans a month directly to artists’ online merch stores. And it’s why Spotify has just indicated that it may one day introduce “tipping” on its platform – a system that allows fans to directly deposit one-off sums of money into an artist’s digital account.

On Spotify’s second-quarter earnings call with analysts last month, founder and CEO Daniel Ek was asked if his company might introduce tipping – a.k.a. “user-controlled micro-payments” – in the future. “It’s something that we are, overall, interested in,” confirmed Ek. “We definitely look at it as part of the scope of the marketplace types of tools and services that you can expect.”

The idea of fans paying artists directly like this isn’t anything new but, in most circumstances, said fans want something in return. Artist crowdfunding is now well-known in music industry circles thanks to sites like Kickstarter, which was used by Amanda Palmer to raise $1.2 million from her fans for a new album project in 2012.

Since then, other services like Patreon – via which fans can pay a direct monthly subscription to artists – have arrived, joining the ranks of the ill-fated PledgeMusic. The latter company enabled fans to “pledge” (i.e., advance) money to artists to fund future projects; in return, fans earned rewards ranging from new records to signed merchandise and VIP meet-and-greet experiences. Yet PledgeMusic, which was used by artists like Rufus Wainwright, Weezer, Lindsey Stirling, and the Hold Steady over the years, collapsed into bankruptcy this summer, owing some artists tens of thousands of dollars. PledgeMusic’s demise, seemingly caused by the mismanagement of funds that should have been paid through to acts, has badly damaged the reputation of music crowdfunding services.

Now, though, a fresh streaming-centric approach in the crowdfunding space is gaining real traction – building on the fan-tipping idea that has impressed Daniel Ek.

If you could invest money into an artist’s music, in a manner akin to the stock market – enjoying a significant financial return should your favorite backed act become the next Drake or Billie Eilish – would you do it?  

This idea was pioneered by German startup Sellaband, which was founded in 2006 and, backed by a $5 million raise, worked with Public Enemy, among others. Sellaband enabled certain investors who funded artists to obtain a share of future revenues from their music, but it ultimately failed as a business, going bust in 2010. 

Nine years on, however, corporate financiers are coming around to the idea that – thanks to today’s streaming-dominated music biz – the time may now be ripe for this fan-fueled “equity crowdfunding” model to explode.

Last week, a promising new equity-crowdfunding company emerged, backed by seed money from the likes of investment group Tagehus, plus platinum-selling Swedish artist Danny Saucedo and Eastate, a company owned by the family behind East Capital Group – an investor in Spotify. Stockholm-based Corite is, in essence, a digital music distributor like TuneCore, delivering an artist’s music onto a variety of key modern services like Spotify, Apple Music, Pandora, and TIDAL. But it also comes with a unique twist – enabling acts to raise money by selling a share of their future streaming royalties to fans.

Via Corite, artists can set both the duration and percentage of the revenue cut a fan (or group of fans) will receive for their investment. Artists hold on to ownership of their copyrights, but are contractually bound to apportion a chunk of their future earnings to their supporters. Corite is led by a CEO, Mattias Tengblad, and COO, Emil Angervall, who were responsible for launching the flagship streaming-playlist brand of Universal Music Group, Digster, during their time with the major music company in Sweden. The duo also launched Spinnup at UMG – Universal’s distribution and aggregation service for DIY artists that rivals TuneCore.

Where this gets interesting is when you consider the dominant financing model of the music industry, whereby an independent or major music company advances money to artists, who then recoup (i.e. pay back) this cash from their royalties over a period of time. Equity-crowdfunding, like that offered by Corite, instead sees fans collectively advance artists this money, leaving musicians untethered to any traditional company. And if you’re thinking, “Well, that sounds like a cute way for DIY acts to earn a few dollars from friends and family,” you’re not wrong – but you’re also not sharing in the giant ambitions of Corite’s founders.

“We believe fan funding as a new way of financing music will be a big percentage of the music market within five or 10 years,” Corite’s Tengblad tells me. “Are [we] a threat to the big music companies?” He pauses. “I’d rather say we’re a threat to the traditional music-industry model.”

Tengblad believes that Corite and other companies in its field – U.K.-based Songbook and Austria-based Global Rockstar, for example – will lead to a “radical change” in the way music is funded in the future, and the role of the fan in driving a record’s popularity. “I wouldn’t go as far as saying it’s a monopoly right now, but it’s true there are a few big companies providing most of the finance for music production and launches all over the world,” Tengblad says, suggesting that this closed-ranks situation is primed for economic disruption. 

In addition to their experience at Universal Music Group, Tengblad and Angervall are also both alumni of MTG, one of the biggest players in the global esports tournament world. The duo say they took inspiration from esports – whose global industry revenues are expected to top $1 billion this year – when forming Corite’s business model. “The esports business is built on tipping via online channels that [broadcast] the matches,” says Tengblad. “From the get-go, fans have been directly financing stars and teams in that industry. We felt the music business could definitely find itself moving in this direction.”

One of the biggest challenges for any artist or label in today’s music marketplace is the noise. With nearly 40,000 tracks being uploaded to Spotify daily – equivalent to around 15 million a year – cutting through with mainstream, sledgehammer marketing campaigns is getting much harder. And that’s without considering how the likes of Netflix, Fortnite and Instagram are draining consumer attention away from music. Corite believes these conditions will become one of the biggest selling points to artists for the equity-crowdfunding model in the years ahead.

Monetarily incentivized fans will naturally market music to their own online and real-life networks, believes Tengblad, but they’ll also go one better: studying modern streaming analytics, as an investor would a share price’s performance, will help to “gamify” their investing experience, and deepen their personal interest in making sure a record succeeds.

Corite believes that it could only take one established artist to raise funds through its equity-crowdfunding model to change the game for the entire music industry. Says Tengblad: “This works for all sizes of artists, from those small [acts] who need money to get started, through to big-time artists who have been on a major label for a while, with millions of social media followers; with just one message on their Instagram channel, they could capture hundreds of thousands of people who might be interested in investing in their next song.”

If that sounds a little pie in the sky, consider this: The most popular music artist on Instagram today is Ariana Grande, who boasts around 162 million followers on the service. If she could convince just one percent of these fans to invest $10 each into her new music, it would net her $16.2 million – a figure that blows most major-label advance checks out of the water.

Tengblad says that the next iteration of Corite could see industry professionals and social media influencers being able to trade their services – as opposed to their cash – for a percentage revenue stake in an artist’s music. “If you want an Instagram influencer to do something today, you have to pay them money,” Tengblad says. “But if they believe they can become a great A&R person – that they can find the next hit and then promote it to their audience – a ‘co-right’ revenue share like this might make a lot of sense.”

As for how Corite itself gets paid, it collects five percent of the funding fee provided to an artist, and then another five percent of the royalties that are paid by streaming services. (This latter commission, for context, is comparatively cheap for a digital music distribution company.)

“We want to empower the new generation of creators by involving their fans, and the power they [wield], as true stakeholders,” says Tengblad. “To us, this represents a new experience for fans: It’s not only, ‘I really love your music,’ it’s also, ‘I want to be part of the band.’ ”

Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for “Rolling Stone.”

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