All pop artists like to say they're indebted to their fans. But in the case of British band Some Velvet Morning, it's literally true. The trio is currently recording songs because 358 fans ponied up the £100,000 ($160,000) needed to pay for the project. The arrangement came via My Major Company (MMC), an online record label that uses Web-based, social-network-style "crowdfunding" to finance its acts. While the firm has just started in the U.K., it's already huge and quite profitable in France, where it has 116,000 registered users and 34 funded acts.
Here's how it works: MMC posts demos and videos of 10 artists on its website, and users are invited to invest anywhere from £10 to £1,000 ($16 to $1,600) in the ones they most enjoy or think are most likely to score a hit. Once an act reaches £100,000, the financing is locked in, and the money is used to pay for recording and possibly a tour. Net revenue from resulting music sales, concerts and merchandise is split three ways: investors get to divide 40%; another 40% goes to MMC; the artist pockets 20%. Some Velvet Morning hit the jackpot in a mere seven weeks; label mate Ivyrise, an indie-rock band, reached the magic number in just four days. MMC's other eight acts whose styles range from soul to pop to folk each have a six-month window in which to secure funding. The payoff for investors can be big. One fan in France who contributed $6,850 got his money back 22 times over.
Crowdfunding musical acts is not new. But MMC takes the concept to another level. First of all, investors can get cash rather than just goodies like free downloads or tickets. Also, MMC is a label. It has the wherewithal to get its music distributed and to market artists effectively. In France, for instance, MMC has licensed Warner Music to distribute its recordings. "Artists need professional support," says Paul-René Albertini, CEO of MMC's international division and a former top honcho at Warner Music. While digital technology and the Net have spawned a do-it-yourself boom among musicians, success is still a long shot with the exception of the occasional artist who scores a hit on the back of a viral homemade video. Out of the 20,000 records released in the U.S. in 2009, only 14 DIY acts cracked the Top 200.
Also, with revenue from recorded music in a free fall, music companies have become more risk averse, funding fewer acts. The crowdfunding model allows for more records to be made by spreading risk among hundreds of backers. And the social-network aspect of the site helps expand fan bases. "Investors become a promotional army with a vested interest," says Albertini.
A successful rollout in the U.K., the world's second largest exporter of music repertoire, after the U.S., will give MMC a strong platform from which to launch planned expansions into Germany, Spain and Latin America later this year. It also wants to enter the U.S. in 2012, initially targeting the Latin-music audience, which Albertini calls a "good testing ground for such a very large market."
Some Velvet Morning's guitarist and singer, Des Lambert, 31, admits that having financial backing from fans gives the band extra incentive to succeed. "These are people who have invested in you, not some faceless corporation." And no act wants to give its fans the shareholders' blues.