In early May 2019 music crowdfunding website PledgeMusic announced it was officially entering bankruptcy. Most of the artists who were pledged money through the website will almost certainly not receive the money that was promised to them as the company had used this money to pay company debts instead, breaking their own promise that all funds go directly to the artist.

So what went wrong? Is crowdfunding still a viable way to raise money for your projects?

How it all began

Over the last few years crowdfunding platforms on the internet have raised billions of dollars for start ups, entrepreneurs and inventors. That amount is on a steep upward trend with many territories experiencing year on year increases of more than 100%. Over $34 billion has been raised through crowdfunding websites, and there are now more than 1000 such websites to choose from.

The concept of crowdfunding isn’t new, as far back as the 17th century a type of crowdfunding was used to finance the production of books. In return for contributing to the costs people were often named in the book.

A famous historical example of crowdfunding is the construction of the pedestal that the Statue of Liberty stands on, it was constructed with donations from the public.

Joseph Pulitzer, publisher of the New York World newspaper, announced a campaign to raise $100,000. In return for a donation he pledged to print the name of every contributor, no matter how small the amount given. Pulitzer began publishing the notes he received from contributors, which in itself encouraged other people to contribute.

Fan Finance

In 1997 British rock band Marillion became the first to use the internet to conduct a crowdfunding campaign, raising $60,000 to fund a North American tour. In 1995 they split with EMI and signed with independent label Castle Communications, who was better known for releasing heavy metal compilations and videos of Alvin and The Chipmunks, they weren’t able to properly fund their tours, or new recordings, as band member Mark Kelly explained.

“We were in a position in 1997 where our manager said to us that we would have to find something else to do for six months out of the year because Marillion wasn’t earning enough money to carry on paying the sort of money that we were used to… we then sacked the manager. We emailed the 6000 fans on our database to ask, “Would you buy the album in advance?” most replied “yes.” We took over 12,000 pre-orders and went on to use the money to fund the writing and recording of the album.”

Trendsetter

In 2001 the first crowdfunding company was formed. ArtistShare was founded by musician and producer Brian Camelio as a way for artists to raise money and grow their fanbase. Since launching in 2003 ArtistShare projects have been nominated for 29 Grammys, winning 10. In 2005 Maria Schneider’s Concert in the Garden, funded and released via ArtistShare, became the first project to win a Grammy without being available in retail stores.

It wasn’t long before other crowdfunding companies started to pop up, Sellaband in 2006, SliceThePie in 2007, IndieGoGo in 2008, PledgeMusic and Kickstarter in 2009. Many of them had a specific focus on music, such as PledgeMusic.

Riches to rags…

For 9 years PledgeMusic was a roaring success and year on year growth was consistent, but late in 2018 rumours were beginning to circulate that some artists weren’t receiving the money their fans had pledged them within the 30 days stated in the PledgeMusic terms.

Even the high profile acts like Jesus Jones were having to wait much longer than they expected. The campaign for their album “Voyages” completed in October and they were expecting the money to arrive by November. By the end of January, they had still not received the funds owed to them and felt compelled to warn other bands and their fans to avoid PledgeMusic.

PledgeMusic also released their own statement on January 24th saying (in part), “PledgeMusic has been in discussions with several strategic players in the industry who have interest in the PledgeMusic platform. We are evaluating a number of transactions with those potential partners, and we plan to announce details of this in the next 60 days. It is our expectation that payments will be brought current within the next 90 days.

What does it all mean?

It doesn’t take much to read between the lines, they were clearly trying to find a buyer for the business who would take on their debts and pay the artists what they were owed. At the time of making that statement, they were still accepting pledges and new projects despite owing a large number of artists five-figure sums.

Founder, Benji Rogers, issued his own statement on the same day and spoke about “battling to get the right people paid under immensely difficult circumstances” which inadvertently revealed they were unable to pay everyone and instead were prioritising just a handful of projects.

On February 1st, the Musician’s Union (UK) issued a statement to members advising them to use other crowdfunding sites for their projects. It took a few more days for PledgeMusic to issue their own statement suspending activities on the website.

On May 3rd a leaked email named FRP Advisory as the administrators that would be steering the failing company through bankruptcy. On May 8th Benji Rogers confirmed efforts to sell the company had failed, despite the fact they offered buyers a deal that meant they didn’t have to repay the money owed to artists and stated: “PledgeMusic will shortly be heading into administration”. There is currently no staff on the payroll at the company.

So what happened to the money?

The only explanation is they spent it. In his statement, Benji Rogers said the money had been used to pay company debts. Why were there debts though? The company boasted over 45,000 artists and a 90% success rate on campaigns, they charged 15% commission on each campaign, so there shouldn’t have been any cash flow issues.

That means it can only be one of two things, fraud or simply gross mismanagement.

A former employee suggests it’s the latter and points a finger directly at former CEO Dominic Pandiscia who took over the role in 2016 following the departure of founder Benji Rogers. According to the employee, Pandiscia spent $500,000 to get a presence for PledgeMusic at SXSW Music Festival but it lead to little or no new business opportunities.

Pandiscia also moved the New York office from an affordable shared workspace into a much more expensive office, only to have to move some employees back again when the financial issues began. Pandiscia and many of the other high-level executives also took home huge wages and bonuses despite paying other staff a bare minimum.

Dominic Pandiscia left PledgeMusic in October 2018, right around the time the rumours of money trouble started to become more public.

Band-Aid on a broken leg

It seems that when the money troubles began, instead of suspending new campaigns and focusing on paying the artists they owed they did the exact opposite and instructed the A&Rs and campaign managers to launch as many new projects as possible so they could use the pledges from those campaigns to pay the artists they owed. At this point, PledgeMusic is more like a Ponzi scheme than a business.

The Fallout

Unless a miracle happens, this is the end for Pledge. They have no money to pay artists the estimated $1million (or more) that they owe and no staff to distribute it if they did. The damage to the reputation of the company is the hardest to recover from. Will artists and fans ever trust the platform again? Probably not.

A number of music industry organisations came together to assess the damage caused by the collapse of PledgeMusic.  They put together a survey in order to find out how many artists in the UK have lost money and what the impact has been for them

It was jointly promoted by UK Music, Music Managers Forum, Musicians’ Union, the Association of Independent Music, Help Musicians UK, PRS Foundation and International Showcase Fund partners, including British Underground, PRS Members’ Fund, the Music Producers Guild, The Ivor’s Academy, Featured Artists Coalition, Music Support, and the BPI.

The survey has ended now, so we just need to await the publication of their findings.

Also, Michael Dugher the CEO of UK Music has demanded that the beleaguered direct to consumer platform be referred to the UK’s Competition and Markets Authority.

In a letter addressed to Small Business and Consumer Minister Kelly Tolhurst, he wrote;

Dear Kelly,

I am writing on behalf of UK Music to ask you to investigate the speculated collapse of PledgeMusic and concerns that it may enter administration and to refer the case to the Competition & Markets Authority (CMA).

UK Music is the umbrella body for the commercial music industry. We campaign and lobby for the collective interests of the music industry on behalf of artists, musicians, songwriters and composers, record labels, music publishers, studio producers, managers and music licensing organisations.

Many musicians across the UK relied on crowdfunding website PledgeMusic to deliver payments from patrons, to pay for album recordings and other costs. These artists were already enduring long delays in receiving payments.

As a consequence, creators who used PledgeMusic’s services are likely to lose money if it goes into administration without resolving its outstanding debts. The Musicians’ Union is working with its members to advise them.

Emerging musicians often rely on crowdfunding platforms to raise capital to support album recording costs, music video costs and other capital expenditures. This is often a crucial step for them to progress through the music talent pipeline. Musicians should be able to trust crowdfunding platforms to fulfil their obligation of delivering money pledged by fans and supporters.

I would therefore ask that you refer PledgeMusic to the CMA to ensure this matter is properly investigated.

Kind Regards,

Michael Dugher CEO, UK Music

So what’s next for crowdfunding in general?

It’s possible that the problems PledgeMusic found themselves in are somewhat endemic of the crowdfunding model when used to monetize music. If we look at one of PledgeMusic’s competitor’s, Kickstarter who also launched in 2009, you can see that while overall revenue is up, the amount of successful campaigns for music projects is rapidly declining.

In 2012 around 5000 music projects were successfully funded on Kickstarter, by 2017 that number was less than half at around 2200 projects. The other issue Kickstarter and other crowdfunding sites have to deal with are scam campaigns and projects failing to deliver on rewards. According to Kickstarter’s own fulfilment report, 9% of successful Kickstarter projects failed to deliver rewards. This figure is consistent across all the categories, including music. Overall, 8% of dollars pledged went to “failed” projects. To date, Kickstarter has received over $4billion in pledges so $320million has gone to failed or fraudulent projects with only 13% getting a refund.

Perhaps this is why in 2016 online payment processor Paypal announced they were removing crowdfunding sites from their payment protection program?

Despite over 10 years of steady growth, in 2017 it was forecast that the crowdfunding industry as a whole would fall around 17% in the period 2017 to 2021. Something that appears to be manifesting as in addition to the failure of PledgeMusic, Kickstarter’s own success rate has fallen from 40% of projects succeeding to just 36% in 2019. Music seems to have fallen more than most of the other categories so far with a 7% decline.

Were crowdfunding websites ever good for music?

There’s 3 reasons why I don’t think using crowdfunding websites are good for music

  1. The fee paid to the website. PledgeMusic took a massive 15% (or more with some packages) of the money raised, if you were able to raise the same funds through a business loan you would pay around 5% APR and even then it’s not a fair comparison as the bank have actually provided the capital therefor are justified in charging interest. Kickstarter takes a lot less, just 5% plus another 3% or 4% going to the payment processor.
  2. The success of the campaign is almost entirely down to your own following and your ability to effectively communicate with them. Which makes paying the fees mentioned in the previous point even harder to justify.
  3. Many people end up having to put their own money in to make sure the project succeeds, but for every $10 of their own money they put in around $1 goes to fees and commissions.

The concept of crowdfunding is still sound, whether thats through focussed time limited campaigns, pre-orders or ongoing subscriptions getting your capital directly from your audience is extremley useful. 

Aside from the money itself there are some other benefits from this method of fundraising.

The level of engagement involved in promoting your campaigns will naturally result in a stronger bond with many of your fans. You can identify your “super-fans”, these are the people who spend/pledge the most on your products and will likely be very vocal advocates.

You can also use your fans as a focus group to test out new songs, videos and artwork ideas.

Alternatives to using a Crowdfunding website.

Your Own Website 

The most obvious way to raise funds from your fans without using a 3rd party crowdfunding platform is to have that functionaility on your own website. There’s even website templates (available for under $100) pre-configured to work exactly like Kickstarter and other crowdfunding websites and all you need is a payment processor like Stripe or Paypal. Even if you have to pay a web developer something to add this to your site it will still work out cheaper than the commissions you would pay to the crowdfunding sites if your campaigns generate a decent amount of interest. For those on a tight budget a simple paypal button on a page promoting the campaign can be just as effective. 

Your Own Mailing Lists

This is how Marillion did it back in 1992, and direct email marketing is still an effective strategy. The key here is to have a good mailing list, and that isn’t just a case of having tons of email addresses. You need to regularly clense your list, remove people that don’t ever even open your mails. The average engagement for email marketing is about 7%, a well maintained list can be up to 30% or more.

Bandcamp 

Obviously this is a 3rd party, so it does still mean paying a commission but what makes Bandcamp a bit different is that payments come directly to you as they happen. You don’t have to wait at all, the moment someone completes a purchase youget the money. There’s tons of functionality that I’ve already talked about in another article. Even if you don’t want to run your campaign on Bandcamp it’s still a great tool for building your mailing list as you can give away tracks in return for an email address and then run a email fundraising campaign.

QRates

Qrates is a vinyl broker that has crowdfunding options on their website. So it isn’t entirely dissimilar to the fulfillment options that PledgeMusic offered. But with a 100% record of actually fulfilling their orders and campaigns the similarities between them are all surface level. Their commission is quite reasonable, between 10-20%*, and they even have a network of retailers who will purchase your releases wholesale (you can opt to not allow wholesale purchases or limit the amount) I ran a campaign to press 200 7”s and I sold 40 of them to a distributor in Germany. I’ll be writing a complete review of Qrates in a later article. Traxploitation readers get a 5% discount. Use this link to get your discount or enter the code TRAXPLOITATION05 at checkout.

So while PledgeMusic is history, and other Crowdfunding sites are declining (at least in terms of music) raising funds directly from your fans is still a worthwhile strategy and there are tons of ways to run your campaigns. If you do decide to go through a 3rd party be vigilant and look out for any red flags, sign up for the newsletters of the companies you use and pay attention to any changes in the business.