Three weeks after President George Bush hit the television airwaves warning that the entire U.S.
economy was "in danger," the London Stock Exchange FTSI 100 dropped drastically on Oct. 15 by
7.16%, the Dow Jones Industrial Average plunged by 7.87% (its largest one-day percentage drop
since "Black Monday" in 1987), and the NASDAQ fell by almost 8.5%. Some experts warned people
to hold onto their cash. Nevertheless, the following day a 27-year-old carpenter parted
with £100 of his hard-earned money to make an online investment... in a band.
Two days later, a 48-year-old tinsmith invested £120 for 12 shares in the same band's recordings.
On Oct. 24, despite stock markets continuing to plummet worldwide, banks reporting dreadful
losses and Prime Minister Gordon Brown admitting that Great Britain was already in a recession,
a 29-year-old bank manager invested £50 for five shares in the band's recordings.
A bright green graph on Bandstocks.com then showed a dramatic surge upward in the investment
fund for 24-year-old songwriter/artist Jersey Budd. A short report in The Sun magazine stated
that Budd had been compared to Bob Dylan and noted that bands The Rifle and The Twang had
invested their cash in Budd.
Budd is one of the new artists raising funds for their recordings through Bandstocks.com.
So far, 87 investors own shares in Jersey Budd's recordings: 24 individuals hold one share each;
25 people hold two shares each; 27 investors hold 3-10 shares each; seven investors hold 12-30
shares each; and a few investors hold 200 or more shares each. The fund now totals £30,960.
"Obama started out this way," notes music industry attorney Laurie Soriano with Davis Shapiro
Lewit & Hayes in Beverly Hills. More than 48% of Barack Obama's presidential campaign fund of
$639 million came from individuals' contributions of less than $200 each. "I love the idea that
fans can vote on the artists they like very directly by making small contributions, those
contributions can add up to a robust support for the artist, and that it's only because of the
Internet that they can all be tied together this way."
Obviously raising funds for a new artist is nothing like raising funds for a presidential campaign,
but there is a certain grassroots energy spreading among the citizens of many countries as the U.S.
presidential election approaches. And the fact that individuals are electing to spend money online
to invest in a band rather than to steal the music over a P2P service during such hard economic times
is a positive sign for the music industry.
BANDSTOCKS MODEL
London-based music lawyer Andrew Lewis first conceived the idea for Bandstocks.com more than four
years ago after spending many years working for major music companies. After waiting to meet the
right partners, working on the project only in his spare time and making sure the company complies
with complex regulatory requirements, the site finally launched in August.
The business model seems to be based more on cash flow than on long-term asset ownership. The company,
Civilian Industries, co-owns master recordings with the artist for five years, after which time the
rights revert to the artist. The company does not acquire rights in any other revenue streams
of the artist.
"The starting point is to have a deal so artist friendly that it appeals to really good artists who
have a choice, as opposed to those who never got signed [to a label]," says Lewis.
The investment fund is used to pay for recording and marketing the music according to a budget prepared
by the company with each artist individually.
When revenues from CDs and digital uses are received, the company deducts costs of manufacturing,
distribution and mechanical royalties. From net receipts, the company retains 20%, the artist receives
50% and the investors receive their proportionate share of 30%.
"We go way over the top on warning investors about the risks," says Lewis. "We say, 'Don't do it for
the investment. Do it because you love the music.
Lewis estimates that each artists needs to sell about 40,000 albums for everyone to start making money,
depending on the individual artists' budgets.
SELLABAND MODEL
Bandstocks.com is not the same business model as SellaBand.com, which launched two years ago.
One difference is that artists on SellaBand.com, according to the Web site, must first raise $50,000
before the company records the artist's music. After that point, the company will use a minimum of
$30,000 to record the album. The company then retains rights in the recordings for 12 months before
they revert to the artist.
Another notable difference is that SellaBand acquires all publishing copyrights in the songs recorded
for the term of copyright, sharing 60% of publishing income with the artist/songwriter.
Finally, SellaBand sells "parts" of the bands. The site does not have the regulatory disclosures
customarily provided by companies selling investment securities.
Civilian Industries, the company behind Bandstocks.com, will at times invest in its artists.
For example, the company acquired 1,500 shares of Jersey Budd. Although it has not yet sold all
available shares in the recordings, the artist's first single will be released next week.
THE POTENTIAL
Since Civilian Industries does not request any publishing rights from artists signed to Bandstocks,
this site could be an interesting opportunity for music publishers whose songwriter/artists may
not have much chance of landing a major deal soon but who may still be able to build a fan base
of investors to sell some records.
If Bandstocks.com eventually provides specialized marketing tools and tips on its Web site for
investor/fans to learn how to help market their investments--and publishers pitch in on marketing
those artists--who knows how successful these artists may become? Perhaps, like some presidential
candidates, they will one day be center stage calling for positive changes to the world.
For now, Bandstocks.com is only available for investments by U.K. residents due to regulatory requirements.
MUSIC CONFIDENTIAL
The New Weekly International News & Analysis Report
STRAIGHT FROM THE SOURCE
October 30, 2008, Issue 17
www.MusicConfidential.biz
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