By now—and for good reasons—everyone has heard one variation or another on the theme of “the music industry is broken.” Physical album sales are at historic lows; radio no longer wields a magic antenna over product exposure; and despite the massive increase in distribution via the internet, no online carrier or service has emerged as a viable, sustainable revenue booster, especially when it comes to compensating artists for their efforts.
In Atlanta, a quartet of entrepreneurs with bona fide music industry chops has developed what they think is a better idea. Launched this past summer with funding from a group of local angel investors, Loudfund is an online crowd-funding service based on the premise of eliminating the middle man. In this case, that means the traditional record label with its lethargic bureaucracy, excessive oversight, and financial agreements that rarely, if ever, give a fair shake to the most important part of the equation.
“Loudfund exists for musicians and bands that should be heard, have a fan base, and have an economic path that makes sense,” says company CEO and co-founder Sam Tesh.
Basically, the Loudfund musician or band creates a project (typically, the production of an album), sets the budget and establishes financial terms including the return on investment by project supporters. The Loudfund technology platform and supervisory team handle everything else including distribution of the album through a network of 300 (and counting) outlets, which include digital music services, such as Spotify, iTunes and Rdio.
After Loudfund takes a distribution cut of ten percent plus five percent of the total amount of money raised, any revenue generated by the project is shared by the artist and supporters. The main reason why Loudfund was established in Georgia is because the state’s investment laws allow for “non-accredited investors” (individuals with a net worth less than $1 million) to financially participate and share in the profits generated by crowdfunding programs.
“The solution is to engage the listener and make them a part of the business process,” says Tesh, who has several years under his guitar strap as a musician signed to a major record label. “Now people have an incentive to buy the music and promote the music, which builds value back into the act of purchasing the music.”
One of the key differences between established crowd-funding services, such as Kickstarter, GoFundMe and IndieGoGo, and Loudfund is the fact that the latter is not a come-one-come-all proposition. So far, seven artists or bands have been vetted by Tesh and his partners before being invited onto Loudfund’s virtual stage.
“We meet and get to know the artist, learn their history and try and understand their DNA,” Tesh explains. “When we sign them up, they go to their fans and campaign to raise money for a specific budget. We track all the sales, do the accounting including tax filing, and issue payments to the artists and fans.”
Information about the musicians and their projects is accessible on the Loudfund website, which runs on a proprietary platform developed by Chad Bercea, one of the company’s four founders. Formerly a guitarist in a punk rock band on Tooth & Nail records, Bercea is now head of product development.
“The site provides fans who invest with their own dashboard, so they can see how well the project is doing,” says Tesh.
One of those groups is Reuben’s Bell, a four-man southern rock band with an enthusiastic following around Atlanta and the southeast. Veterans of the college town/rock club/festival circuit, in recent months Reuben’s Bell has played Smith’s Olde Bar, The Earl and Star Bar in Atlanta, the 40 Watt in Athens, and the Iron Horse in Birmingham, Alabama. They frequently perform cover gigs in Buckhead and do an “originals” show about once a month.
“We are a self-sustaining band,” says Trey Lander, who plays bass guitar, keyboards and drums. “Performing is our sole source of income.”
In September Reuben’s Bell launched a Loudfund project to support production of the band’s debut recording. Fans who invest in the project will share 50 percent of the royalties gleaned from the full-length album, which will be recorded at Southern Tracks Studio in Atlanta. In late November, the project reached its $20,000 goal with 60 funders pledging support.
Initially impressed by the Loudfund team’s industry acumen and passionate drive, Lester says the band was ultimately sold on the company’s business model. Especially appealing is the control given to the artist over the most important aspects of the production process including all rights to the music.
“That they are actually looking out for us, and not just trying to make something lucrative for themselves, is a refreshing experience, to say the least,” Lander says.
The Loudfund model does not take away the risk involved in the music business. There are no guarantees that every project is going to reach its goals or reward investors with anything more than the experience of participating in a joint venture.
“The whole thing boils down to the relationship between the artist and the fan,” Tesh says. “Together, they decide what comes to market.”