The Future of the Music Industry - Is Crowdfunding the Answer?

From: April 24, 2010

Post by Resident Expert, Vladimir Vukicevic, from Rockethub.com

Last week, I moderated a panel on The Future of the Music Industry. The panel discussion was hosted by the New York Law School and covered such topics as the evolving role of the big record labels, digital distribution, the growing influence of social networking, the future of copyright laws, piracy, and new business models in music (e.g. crowdfunding). The group was made up of prominent entertainment attorneys, key figures in music creation/distribution, and us - a new player in this fast-changing ecosystem.

The main conclusions painted a pretty complex and potentially bleak picture - including the continuation of penny-pinching and Return-On-Investment based major record labels, distribution of music that is financed by fractions of pennies per song, and the fact that most musicians will increasingly have to fend for themselves for most or all of their careers. I was left with a seemingly troubling conclusion: even those most heavily involved with the inner-workings of the current music machine have little idea what the future will bring...

But I also left feeling extremely empowered. When Derek Sivers faced a similarly uncertain music marketplace, he created the powerful grassroots tool that is CDBaby. When Steve Jobs sensed a strong shift to digital music, he created the new-model that is iTunes - a flawed yet Earth-shattering platform for distribution. With the powerful realization that we don't need to download our music anymore in order to enjoy it, companies such as Pandora and Last.fm freed our hard drives. Those are the types of important changes that RocketHub has learned from and is built upon.

As a team of singers and songwriters, we believe that crowdfunding represents the new path for funding the creation, distribution, and promotion of music. Four distinct and equally important facts make crowdfunding an important piece of the puzzle:

1. It costs less to make good music. A musician or band of musicians can now record an album for a budget of around $3,000 to $10,000 - including a high production value and overall quality.
2. The average crowdfunding contribution is not limited. CDs used to be the primary method for musicians to make money - at an average price of around $10 a pop. Now musicians can offer products (CDs, T-Shirts, etc.), services (lessons, etc.), and experiences (lunches, live shows, etc.) - at RocketHub the average contribution is around $50. That means that a new album can be funded by only 50 to 200 fans.
3. Social networking makes reaching friends, fans, and family easy. It used to take days and a lot of money (in postage fees) to reach thousands of fans. Now it takes minutes and it is virtually free.
4. Online payments remove friction. Cash is clunky. Checks are slow. Credit cards require infrastructure. Online payments are easy and can be virtually instantaneous (thank you PayPal).

We hope to continue to build a community that leverages these major trends and that is true to the ethos of music - including openness, education, and support. Crowdfunding is an important and vital part of the answer for the future of the music industry. We are honored to be a part of this grassroots movement.

-Vlad