Band Incorporates As A Company And Raises Money, Rather Than Signing With A Label
from the smart-move dept
Reader Mike Z. points us to an interesting experiment by the band Francis and the Lights. Rather than going out and signing a record label deal, where the record label basically gets near total control over the band and its works, the band has incorporated itself into a company and raised $100,000 from The Normative Music Company as an investment. As the folks at Normative note, this structure is much more like a startup going out and raising angel or venture capital. It also makes a lot more sense. The label structure often takes way too much control away from a band. A model more similar to the venture capital model has some very compelling aspects to it. What's unclear from the article, though, is how the investment is structured. Unlike a startup, it seems unlikely that the band will be acquired (or go public). I'm guessing there must be some sort of "dividend" structure, where the band is expected to pay out a percentage of earnings to the investor. Who knows if it will work for this particular band, but it definitely seems like a model worth watching. Hopefully we'll see some more bands test it out as well.Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
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Filed Under: business models, incorporate, investment, music
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Just take out a loan
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Re: Just take out a loan
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Re: Just take out a loan
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Big Labels Suck
It will prevent newer and better models from emerging.
That is overall a net loss all around for everybody except the bloated incumbents.
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Whats the urgency to go public?
Mike states this as an assumption that they will eventually either go public or be bought out.. but I don't see any reason why this must be.
You would think, especially in the artistic scenarios, that the band members would like very much to remain in control of the company so a third party (board) can't order them to say... replace their drummer with one cheaper.
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Re: Whats the urgency to go public?
Sheesh.
Literacy FTW.
-rockerest
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Didn't David Bowie do this already?
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umm....
If it is simply about keeping control, then raise money from doing shows (if you are any good) and put your album out DIY style.
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re: umm....
In the typical record deal a band will sign for an initial term, usually for a single album, with label options to renew the contract for additional albums at its discretion. Via the record deal the label will front all the money necessary to record, market and distribute the album(s). In return for this, which the band will ultimately have to pay back before realizing any profit, the band assigns all their rights to the recordings and the proceeds of the album sales. Bands are then entitled to a royalty based upon adjusted sales figures (factoring in accounting reserves and other reserves for returns and promotional giveaways and deducting expenses).
Here the system (absent loan provisions to the contrary) allows the band to retain rights to their recordings, retain rights to their income stream and full control of their creative decisions. While they could theoretically raise money from doing shows and then self finance this framework would speed up the process of penetrating the market. It could take an exceedingly long time to tour enough to draw sufficiently large crowds to bank capital for an album recording and release.
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Re: re: umm....
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How is this different?
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Re:
So this model very well does put them in control, depending on the investors and type of agreed upon investment.
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Re: Re:
This is incorrect. There are different ways that you can give money to a company: one is a loan (debt) and the other is an investment (equity). Providing a loan does not make you an investor.
A loan has a set term for repayment, but provides you no ownership stake. You provide a loan to get a steady stream of interest revenue.
An investment gives you equity, or a piece of the company. It gives you ownership, and thus some amount of say in the direction of the company. In that case, you're usually betting on the upside: that your stake will become worth a lot more than you paid for it.
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Capitalism Works!!!
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Re: Capitalism Works!!!
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http://www.youtube.com/watch?v=BFTJ0i0lT8s
Hmm.
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This model - I don't see how it ensures any profit.
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Old School
Nor is the idea of incorporating a band anything remarkable -- virtually every band in existence will sooner or later set up some sort of legal entity, whether it be an S-corp, C-Corp, LLC or whatever. It's a necessity for a host of reasons.
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Not all copyrights will make money, but the Bowie bonds would have been worthless without the profit potential available because of copyright law.
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Re:
It's not "this plan" that makes money for the band. It's the business model that the band eventually puts in place. But "this plan" gives them a different method to financing their efforts.
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Why is "give us money, we're a rock bank and you like us" so much better than, "we made a record, please buy it if you like it?"
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Re:
However, "we made a record" in some cases tries to simply charge for the music, which, once made, is infinitely available. Some artists, such as Trent Reznor add good incentives to buying those records. And as one could see from his sales, it works quite nicely. However, the music itself, once made is infinitely available, and trying to charge for anything that is infinitely available just is not sustainable. Basic economics drives the price to zero. That is why we are not charged to breathe. Air is infinitely available. If the MAFIAA has their way, eventually, you may just be charged to breathe after all.
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Not Impressed
The band is issuing a security and protecting itself from ever having to pay any of the money back. The investors would not be able to go after the band members personally and all they could claim is the bands assets if there are any left after other creditors have been paid.
You may as well call it what it is a gift to your friend, son, brother, sister, etc.
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What is this band's plan to make a profit?
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Corporate Music
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