WHILST SURFING THE INTERNET, I stumbled across the Web site of a rather inventive musician, who has come up with a novel way to raise funds for her next album: she’s soliciting donations from her fan base. Jill Sobule, our musician, hopes to raise some $75,000 for the effort, and is more than one-third of the way towards her goal. In return, her fans get a variety of benefits, ranging from advance copies of the disc in question (for $25) to free admission to her shows ($200) to having her show up and perform in concert at a fan’s house ($5,000).
RIGHT BRAIN: Wow, what a cool idea. Fans can support one of their favorite artists and they’ll get to be part of the experience, and –
LEFT BRAIN: Fuck that, I want equity.
RIGHT BRAIN: Wretched cur! How could you so harshly taint an artist’s love with crass thoughts of commercial profit?
LEFT BRAIN: Idiot! Go buy the world a Coke! I’m trying to calculate here.
RIGHT BRAIN: But don’t you see you would help create a work that would last the test of time? A work that would launch important ideas into the eternal soul of mankind?
LEFT BRAIN: What good is it if the work doesn’t help me reach my goal of not working? Ooooh, a liner note! I’m sure I’ll remember it when I’m working as a Wal-Mart greeter at 90!
RIGHT BRAIN: Dammit, just once I want you to recognize the importance of art!
LEFT BRAIN: Art is important because it means the rest of society is working and actually making useful goods and offering useful services, thus allowing people to buy it!
RIGHT BRAIN: Filthy capitalist running dog!
LEFT BRAIN: Goddamn pinko hippie!
RIGHT BRAIN: Running dog!
LEFT BRAIN: Hippie!
Soon, however, the two halves of my brain came to a compromise, and so I thought: this would be a great way for an artist to both raise money and connect with his fan base, but why should the artist get all the upside yet none of the downside? After all, if the album is a huge success, why should the artist reap all the dough while I get a liner note?
As it turns out, however, our artist DID look into that question, but concluded there were issues about risk-and-reward sharing, viz. and to wit: “We looked into that possibility, but concluded that it could get very complicated very fast. The recordkeeping overhead, the legal and contractual requirements, the potential SEC implications -- it's just more than we could reasonably handle. We want to make a record, not start General Motors.”
This, to me, is a problem, because she’s right – especially regarding the SEC. After all, in this day and age, to make an honest-to-God investment-funding scenario from a fan base work out, you’d have to sell stock. You’d also have to register it with the SEC and your state securities regulators -- unless you restricted the buyers all to one state, and then you’d have to still deal with your state securities regulators.
Of course, it’s worth noting why these regulatory requirements exist, because many people aren’t as financially savvy as one might hope. Vast sums of money are wasted each year on dodgy oil-and-gas investments; pyramid schemes and nonexistent companies dreamed up in boiler rooms and chop houses; outlandish insurance products; get-rich quick scams; odd personal-enrichment and money management seminars; and my personal favorite, those infomercials on television showing you how to become wealthy using a variety of strange tactics that seemingly require the expenditure of money. Oh, and season tickets to see the St. Louis Rams. Yeah, can’t forget that one.
Still, it is frustrating to think people are kept away from a potentially promising venture just because other people get duped. After all, why shouldn’t people who aren’t accredited investors (that is to say, rich, under the SEC’s definition) be allowed to invest in such ventures? It’s not like people without bunches of money are stupid.
Of course, I say this realizing that the potential for profit in a musical venture is very small, just by its nature. The business of producing a record is understandably fraught with peril just on its own: a recording company must spend money producing and manufacturing an album, and then must spend more money on promotion and various other expenses, and then must spend even more money to handle all the administrative work associated with it. Since the music market is so unpredictable, it stands to reason that many of these efforts are unprofitable, and that unprofitable albums receive an effective subsidy from profitable albums as a result. After all, you don’t think the recording companies screw over their profitable artists just for fun, do you? Well, maybe they do, but the whole “keeping the lights on” business is also a likely incentive.
Still, it seems investors can be easily advised about these affairs: for instance, through the prospectus, which can tell prospective investors of the SIGNIFICANT AND ALMOST CERTAIN RISK THEY’LL LOSE THEIR SHIRTS ON THIS BARMY, COMPLETELY MAD IDEA. Hell, put it in bright red ink if you must. But that should be enough protection for people who are going into the deal without the seasoned investor’s knowledge that any such venture will almost certainly fail. Because it will: that is the way of the world.
But one does not fund these things solely for commercial gain. For instance, a very good friend of mine is in a very good band – one that definitely has “breakout potential” and has a better chance than most to actually make it. Why the hell shouldn’t they be able to raise money in this way? For that matter, why shouldn’t I be able to chip in a bit to their efforts if I want to do so? I like them, and they make good music. It’s not like I’d expect to get any money back, much less an actual return on investment. But it sure would be cool if I did.
So my idea is this: we legislatively create a new type of corporation, out of whole cloth, for creative types, and allow these people to raise money for artistic endeavors. For artistic endeavors at their core are business endeavors, whether anyone wants to admit it or not: they are simply part of the quaternary sector of the economy. The firms would have extremely limited capital-raising abilities -- $100,000 seems a good maximum – and could sell shares to the general public. The amounts purchased by non-accredited investors could be limited, perhaps to say $500 or $1,000 per non-accredited investor, in order to prevent anyone from really losing a bunch of dough. The issuer of said shares would have to provide a prospectus detailing the work or product in which investors would hold shares, and how returns would be calculated and distributed. They would have to provide relatively reasonable financial statements (nothing fancy) and could incorporate in a single state, but draw investors from all states. We could call it a Limited Liability Creative Corporation.
Thus, Band X which sought to raise $20,000 to produce and distribute an album could perhaps sell shares entitling shareholders to 75 percent of the take on said album. If you figure a CD goes for about $10 these days, it would take perhaps 2,700 copies for the investors to realize a profit. But an LLCC wouldn’t have to be music-related: it could be book-related or art-related or what not. Even better, the combination of helping out a creative type you like AND the possibility of an actual return could result in greater gains and more artistic output than simply getting a thank you in very, very small print.Posted by Benjamin Kepple at January 23, 2008 08:54 PM | TrackBack