Technology is supposed to be a freeing experience. Each advancement theoretically allows for greater flexibility and availability. It seems to benefit everyone. That is, everyone except the entertainment industry, which continues to struggle with adoption and adaptation. The flexibility and availability is game changing as consumers now hold increased weight in the equation, and this is especially true for music. With a greater share of voice comes a greater responsibility and now it is time for the consumer to actually put their money where their mouth is.
Changing of the Guard
Labels typically fulfill the role of bankrolling the cost of creating releases for the artists in a contractual clause known as an advance. The advance is in effect a loan to the artist by the record label against future sales in which the label will recoup the advanced money over time as the artist’s creation is sold to the consumer. The artist typically must repay a portion, if not the full advance, before they can begin receiving royalties for their work. At points in history, advances were not always spent by the artists solely on the raw creation of their works, however, the cost of writing, recording, mixing and mastering dominates most current artist advance monies. The process of digitizing the recording process may have made it possible for the average person to turn their basement into a recording studio, however, the studio industry continues to thrive in part based on the fact that just possessing the equipment for low-cost quality recording does not necessarily mean one posses the ear to generate the final product, and as such those few with the talent still come at a cost.
Physical music sales continue to drop by double digit percentages year-over-year and digital downloads lag behind in bridging the difference. In order to continue to fund themselves, labels of all sizes need to reduce overhead and a major piece contributing to narrow margins are the high production costs of recorded music. The label’s necessity to finance an artists product limits the ability to trim overhead in the current system. Couple the decreased demand with the lack of expenses to further trim and the profit margin of the record music world dwindled significantly.
In steps the consumer. Under a program by United Kingdom based Slicethepie.com the music loving public itself now becomes the banker for starving artists. Interested fans can invest in the career of artists of their choice via Slice The Pie, thus playing the role of a label’s A&R (artists and repertoire) representative and providing the financial backing for fledging artists. The process is a bit more complicated than just throwing money at any band through the website, however, the theory behind the program could have significant implications for labels looking to scout and fund talent as well as how consumers perceive their role in the music experience.
The claim that the only way to support an artist is to purchase something from them is nullified by concepts such as Slice The Pie. It is no longer about just buying music, concert tickets and t-shirts, it is about the entire career of the artist themselves and how the consumer ultimately interacts with the artists career.
A Share of Voice
One of the greatest complaints of music consumers is homogenization of music, particularly from the major label and distribution companies. The fear everything sounds the same certainly is not without warrant. Similarly, among the musical elite there is also an increased sensitivity to the possibility the best talent lies unwittingly out of the mainstream due to a lack of label interest, in part, because of homogenization. Allowing the consumer to leverage their personal tastes in deciding what artists will potentially receive money to create their work provides consumer empowerment. Personal choice can help launch the next big trend or support a fledging niche with the hero being the individual investors and not a nameless, faceless corporate entity.
Realistically, consumer voice is not far from many existing philosophies, such as the Wisdom of Groups theory. The value proposition of consumer-centric ideas via interactivity is one of the cornerstones of Web 2.0, however, the revamped presentation via the Slice The Pie vehicle places a new spin on the concept. By correctly leveraging the Wisdom of Groups theory, the Long Tail theory also plays a role in the consumer’s voice. Many of the unique niches of music often disregarded by the mainstream can find representation in a consumer driven investment scheme by allowing the relatively small number of consumer, most likely geographically separated, to collectively pool their resources and create a unified voice of their own, thus generating the possibility for even small niche artists to still rise to the top of their niche’s genre and garner success.
The success of programs such as American Idol, where viewers vote for the success or failure of prospective artists, underscores the interest by the music consumer to help choose what artists represent consumption habits rather than solely relying on the ears of an industry insider. Likewise, the ability for users to rate, rank and otherwise vote for or provide feedback on their favorite (or least favorite) anything further demonstrates the possibilities of a direct-by-consumer funded recording budget. Finally, the rise of self-traded stocks and other investment vehicles, supports the theory consumers may be ready to put their money where their mouth is. Like the pioneers who went against the grain of traditional broker trading, music fans who want to put their money where their mouth is in the belief they are better than the record labels at scouting talent can now do so.
The unique aspect of the Slice The Pie structure is participants take ownership of something. Previously, fans were passive in their involvement with artists, separated from their careers with little perceived stake in their success other than the passion one felt toward the music. Through getting paid to scout talent and front financing for it, the casual fan now has a vested interest in the future and gains an intimate relationship with what it means to be a starving artist, one-hit wonder, overnight success or utter failure more realistic than that of any VH1 Behind the Music special. The unique privilege to participate in the industry many fans have come to love to hate might be one way to bridge the void between fan and consumer again.
A Share of Responsibility
As with any new-found privilege comes responsibility and consumer investment in the careers of artists is not without potential losses. The investment cost for creating entertainment products is often misunderstood by the consumer. The markup in MSRP is often perceived as greed by the consumer in regards to the record label. However, the markup exists in part to subsidize the excessive losses many labels experience when artists fail to recoup their advances in the general market or are unable to sustain sales as compared to their incremental expenses. Consumers will also be greeted by the cold-sword of reality when the artists they choose to fund are unable to repay the investment. Like with the stock and bond markets, the chance of an investing music fan loosing money on an artist not only exists, but like their label counterparts, individual investors are subject to unrecouped advances and other loss-scenarios.
Concepts like Slice The Pie fundamentally change the relationship between artist and consumer. For many fans not familiar with the business of entertainment, the first-hand experience on how easy it is for an artist not loose money on a recording or how difficult it is to truly break an artist overall could be sobering and change the tone of some consumers about the way the industry functions. The function of the so-called music consumer evolves from being a fan to taking a quantifiable role in the future of an artist they otherwise they may not know how to support.
Although Slice the Pie claims to fix the broken model of the music industry in its claim that currently 90% of the money in the traditional deal is wasted and the pre-financing of records eliminates the waste, what it fails to note is 90% of the money spent in the industry is not spent solely on financing recording costs. Much of the industry’s money is spent on marketing and related support costs. When a recording fails to sell for any reason, all that money is then a loss, or wasted. Much like the traditional industry, just creating an album via Slice The Pie is not enough for artists and there are complex scenarios that can play out for investors. If the final product does not sell, money will still be lost, regardless of how the finances are initially raised. Ergo, if an artist does not take the steps to successfully promote the record and it flops the money spent on recording it goes to waste for someone and since the artists signed to Slice The Pie are not under legal obligation to repay the money back if the site receives no royalities it makes no money thus they wasted their start-up funds if it happens enough times, and if the record does not sell investing fans lose their investments and in essence wasted their money.
Participants in Slice The Pie should be wary of the entire investment process as it can be very deceiving, as like most investments, it comes with no insurance you will be successful and if music history even pre-record labels says anything than about 1% of artists will achieve approximately 99% of the success (depending, of course, on what your definition of success is, most might assume turning a profit, which is that income to all parties is greater than expenses by all parties). Thankfully, Slice The Pie does provide different levels of customer participation and therefor different levels of earning potential and investment responsibility.
Much like there are many other jobs more financially viable than performing in a band, there are probably more secure ways to invest one’s money. However, the world stock and bond markets are again pogo-ing erratically and the real estate market sliding significantly as of late, so consumers in general are looking for alternative investment routes. Media entities tend to be underperforming investments in the general market and carry with them a faceless existence, however, for the niche investing consumer with extra discretionary income to invest with the opportunity could provide a rewarding treat. State lotteries probably harbor better odds at big payouts, but the allure of participating in an artists career may be novelty enough to infuse money into the system.
Socialization and investment are individually transcended: No longer is it just about enjoying a band, it is about betting on their success. Likewise, no longer is it betting on an investment, it is being passionate for the end-product with your circle of friends. The intrigue of Slice The Pie is that it is an active community not only acting as a repository for one’s extra money, but also for socializing about a passion, thus bridging a gap between music networks like Last.fm or MySpace and financial investment entities like eTrade or Fidelity. If it is successful, it could change the way many independent entities can raise finances and awareness far beyond the realm of for-profit entertainment.
Fans are an artists biggest asset. However, most artists only see the music fan as a passionate audience and not necessarily as their financial backer. Conversly, most labels see fans as consumers first and foremost and always the devoted preachers of thier passino. In the modern era, these understandings are beginning to change, but the ability to fully leverage them effectively is still in development.
Social networks are effective means to corral burgoring audiences eager to demonstrate their love of a band, be it to support the possible next big trend or come together about a more niche offering. Many independent artists struggle with how to make the step from perceived social popularity to potential financial gain. Tapping their growing online communities is one way to help take that step and devices such as Slice The Pie can allow grouping more-limited funds toward artists who might not otherwise receive label advances.
The dichonomity of fans could allow a greater number of bands to find financial stability. Rather than relying on blog posts to superficially make fans feel closer to the band, do-it-yourself artists can potentailly bring a select group of their fans into the intimate inner circle of band success. The ability to exercise the fanbase for more than just social network popularity may help not only provide financial resources, it could also create a stronger more dedicated fanbase. As long as the artists are able to deliver music to the fans they will find success.
The key is in the phrase delivering music to the fans. Bridging that gap however, is not without pitfalls. Unsuccessful bands will have to answer directly to their fans rather than defaulting to the excuse the label did not do the right marketing. Delivering the music will go furhter beyond just the opportunity to record the record of their dreams, it will mean also tapping the social network to help build quantifiable excitement over it and allow them the opportunity to seel records.
Artists successful in grooming their fans to take that extra step in their careers could find longer term assets beyond just a company like Slice The Pie helping them finance a self-released record.
Label Proving Ground
Label reps look for bands that can function as a business on their own and not just write a killer hook. Finding those industrious and engaging talents is no easy task especially considering the proliferation of aspiring artists in the new age of technology.
Many record labels have turned to alternative means in defining what bands they are going to develop. Major labels set up mid-level distribution systems such as Warner Music’s Alternative Distribution Alliance or Sony-BMG’s RED to help indiependant record labels get their music to retail. As part of many of those distribution deals, labels use the independant label rosters like a minor league sports franchise is scouted for tallent by its major league counterparts, thus allowing the larger labels to updraft or downstream artists at approperate times during their career. Similarly, labels adopted technology to assist their scouting in hopes of investing more prudently in artists careers. However, discerning which artists have truly transcended their online community success and are ready for contracts is still tricky.
Programs such as Slice The Pie provide another level of determining the feasibility of success for artists by combining aspects of the more traditional A&R fuctions. Labels can scout for up-and-coming success stories by watching how artists supported through the system are able to interact with their fans dualistically, both in the way more traditional social communities online work and in regards to sales via the system.
One of the biggest challengs for a system of financing such as Slice The Pie is international laws for
investing, trading and gambling. Defining how the money is being placed changes from country to country and even basic aspects such as governing who may invest, what and how varies greatly. Take into account taxing for gains, regulating against abuse or catastrophic losses which are regulated differently from country-to-country and the matter complicates futher. Finally, even conceptually if it is actually investing on a bands future or betting on their success more in lines with the notion of gambling.
If Slice the Pie or any such repository for fan’s money is to be successful they must transcend these questions on a multinational level. At present, Slice The Pie opperates out of the UK and many of its services are either limited in nature or not-allowed at all in several foreign markets, including in the world’s largest entertainment, the United States.
Gaining regulatory approval for its services will not be easy, especially considering Washington’s crackdown on international gambling sites as well as the American Recording Industry’s distrust of alternative music distribution, including foreign sites like last.fm who found it difficult to secure lisences. Partnerships are one answer for overcoming some of the hurdles, such as the digital distribution alliance Slice The Pie forged with US based Tune Core. If additional partners are able to generate not only street level buzz but distinguishable sales for participating artists on the interantional stage it may become easier to obtain the necessary means for investment sites to function cross-borders.
Game Changing Play
Is fan investment a game changing ploy? Only if it catches on. Fans must adopt the idea. Artists must sell records from the idea. The rest of the entertainment industry must support the ideal. Three rather large ifs, even in an age where upstart companies can change the game. The novelty of the concept however is enough with merrit that under the right direction could provide incrimental stimulus and bouey a floundering recording industry. Perhaps it comes from traditional labels looking to improve their financial standing by deferring some of the costs back to eager fans who will not pay for music as it currently exists. Perhaps it comes from other media companies looking for ways to monitize more of their traffic on their existing sites. Perhaps it is other technology partners who are able manipulate a larger platform of similar services together. Perhaps it is an agency that ties in advertising to the site thus generating additional revenue streams for artists to tap. Only time will tell, but the first real step is building substancial usage.