Is crowdfunding really a viable business model? (Cybercultural Daily Update 6-7-2019)
Getting 1,000 true, paying fans is harder than it’s made out to be in Silicon Valley, not to mention the Amanda Palmer-loving pop music media. Yet for all its difficulties, crowdfunding - along with its now trendier cousin, subscriptions - is still a viable business model for people in the cultural industries. Although, the recent failure of UK crowdfunding company PledgeMusic left many in the music industry asking questions about the future.
In the wake of PledgeMusic’s demise, The Association of Independent Music Limited (AIM) put out a “guidance note” for affected musicians and their fans. While the PDF note has a lot of useful advice, it also questions the longer term viability of crowdfunding as a business model:
“This is a terrible situation for all involved and AIM is very worried about the far reaching potential financial and reputational impact on the independent music community.”
The implication is that because a prominent crowdfunding service failed, that will make music fans reluctant to put their money into such services.
Music industry blog Hypebot had a good post today in response to that fear. It asked four “music marketing experts with experience in crowdfunding” to share their (mostly positive) thoughts on the future of crowdfunding.
This quote from the aptly named Dave Cool, from website builder company Bandzoogle, summed up the key benefits of crowdfunding:
“Despite the demise of PledgeMusic, I believe crowdfunding remains a relevant strategy for musicians. It’s still one of the best ways for artists to engage on a deeper level with their fans, and gives fans the opportunity to support an artist beyond streaming.”
In other words, crowdfunding isn’t just about raising money for your creative endeavours, it can be a great way to engage with your fans.
However, that’s true only if you can get enough fans willing to pay. The truth is, getting any kind of scale via crowdfunding or subscriptions is difficult.
1,000 true fans…but will they pay?
First let’s clarify one thing: PledgeMusic’s demise was about bad management, not a bad business model. According to Variety, which covered the news in multiple articles:
“Sources have told Variety that some questionable business decisions by the management team that succeeded [founder and former CEO Benji] Rogers caused the company to fall into financial peril, from which it never emerged.”
Thankfully there are other, much more stable, platforms for crowdfunding available.
Kickstarter and Indiegogo are two of the most well-known. Amanda Palmer has been arguably the most successful musician to use Kickstarter. In 2012, she raised $1.2 million from over 25,000 backers for her solo album Theatre Is Evil and its tour.
Palmer has since moved to Patreon, which is basically a subscription service. On Kickstarter or Indiegogo, you crowdfund a specific project and people typically pay you only once. But on Patreon, you make money from people who subscribe to you on an ongoing basis - either a flat fee per month, or per-item. Palmer does the latter, offering various tiers ranging from $1 to $1000 “per thing” (which for her means a song, EP, album, video, or a whole range of other creative products).
Here’s the thing though…I’m reluctant to continue using Palmer as an example of what creators can achieve using crowdfunding, because she’s an outlier. What Palmer has achieved is almost impossible for creators who aren’t already famous. So instead I’ll focus on a much less successful example of a creator, and his struggles to make money.
Before I do that, it’s worth quickly reviewing the extreme case of Palmer in order to illustrate the difference between Kickstarter and Patreon. According to a Billboard profile last July, she’s raised more money via Patreon than she did on Kickstarter:
“In three years, 20,600 patrons have funded her to the tune of more than $1.58 million, according to data Palmer's team provided.”
At time of writing, she has just over 15,000 patrons. Since Palmer has released three “things” a month over the past three months, that means she’s making at the very least $45,000 per month gross - and probably significantly more, given there will be many people on tiers above $1 per month. That’s a staggering amount of money; but again, she’s an outlier.
I suspect Brian Hazard, who records under the name Color Theory, is much more representative of what a regular indie musician is earning on Patreon. While Hazard is a niche artist, he does have a track record making music and a fair number of streams to his name. He has 21,500 monthly listeners on Spotify and a back catalogue stretching back to 1994.
Yet he’s struggled to convert that into paying patrons. At time of writing, he has 159 patrons and earns $568 per month. That hasn’t changed a lot since January 2018, when he wrote a very interesting post on his blog that outlined the difficulties he’s had raising money on Patreon:
“I’d be lying if I said I hadn’t expected more. I can name 50 people who bought everything I released over the past 15 years, that haven’t signed on.”
This next part really resonated with me, as someone who has sent a truckload of emails recently about my new email newsletter:
“When someone asks for money, the natural thing to do is look away. That couldn’t be easier to do on the internet — you just don’t respond!
Case in point, I sent out an email blast to 12K fans asking:
You’ve heard me go on and on about Patreon for two months now, but you haven’t become a patron. I’d love to know — totally anonymously — why, and how I can do better.
Please spare a minute to take this quick (and again, anonymous) survey
With a hard-to-miss “TAKE THE SURVEY” button just underneath. I got five responses, and zero meaningful intel.”
Hazard goes on to admit that “I simply don’t know how to convert fans into patrons.” That’s most likely the typical reality for creators on Patreon who aren’t named Amanda Palmer.
Of course, an alternative business model for musicians is to focus on direct sales and touring. That’s the approach cellist Zoe Keating has taken.
Direct sales vs crowdfunding
As a music fan and consumer, I bought all of Zoe Keating’s releases on Bandcamp (her “Digital Discography”). I could easily just listen to her music for free on Spotify, but I bought the music from Bandcamp because I want to do my bit to help support her.
In an interview I conducted with Keating earlier this year, she told me that Bandcamp is where she earns the most from music sales:
“In 2018 there were 5,024 downloads and 4,093 physical albums sold on Bandcamp, which after packaging, shipping, and tax netted me $28,729.”
Keating has never used crowdfunding to sell her music, and perhaps it’s because she knows it’ll be as tough for her as it has been for Brian Hazard (although I think Keating is more well known).
That’s the rub with crowdfunding.
Despite extreme cases like Amanda Palmer, crowdfunding - and indeed subscriptions in general - isn’t an easy way to earn a living if you’re a creator. Once you reach a certain level of supporters, then the network effects kick in and it becomes easier to raise more funds. Kevin Kelly’s 1,000 true fans theory gives a reasonable number for what a niche creator should aim for. But it’s by no means easy to get to that number on a crowdfunding site like Patreon or Kickstarter.
All that said, I believe crowdfunding is as viable a business model today as selling your product directly on platforms like Bandcamp. And as the subscription model matures (bundling will be a key part of that in future), and people get used to paying for content on the internet, platforms like Patreon - and perhaps the next PledgeMusic - will look more and more appealing to creators.
Lead image: Amanda Palmer video promoting her Patreon page, March 2018
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