Published: December 14, 2010 in Knowledge@Australian School of Business
Susan Lee looks intently at the camera and launches into her story. She left an emotionally abusive marriage of 16 years to find herself in a mid-life crisis that is not at all like the exciting adventures detailed in Elizabeth Gilbert's memoir Eat Pray Love: There is no journey to an ashram and she didn't fall into a romantic relationship. Instead, Lee's life in her 40s is a harsh yet touching journey of self-discovery and acceptance. She is chronicling her experiences in a play she wrote called "Diary of a Mid-Life Crisis," and asking people who see her video on the IndieGoGo website to support her production. The play is about going through a real, not fantasy, mid-life crisis and eventually emerging "a little smarter and a little wiser, but hopefully whole in our own incredibly beautiful way," she says. Lee's plea worked. Six people gave her a total of $581, exceeding her $500 goal, with 10 days left for the fundraiser.
Welcome to the world of crowdfunding -- a style of fundraising that taps support from fans and other interested parties. While politicians and charities have used this method for ages, the adoption of social networking makes crowdfunding feasible even for the average citizen with a dream and some creative talent. The Internet age has made distribution easy; these days, anyone can upload a video to YouTube or otherwise post their work online. But getting paid for that work is another matter. Crowdfunding is one solution to the problem and several websites have sprung up in response to the trend, such as IndieGoGo, Spot.Us, Pledge Music, ArtistShare, Kickstarter and others. These sites have democratized support for creative endeavors that had been dominated by large companies -- record labels and movie studios, for example -- by letting fans finance the work of artists directly.
This is how it works: An individual or group requests funding for a specific project at one of the crowdfunding websites. Supporters can donate varying amounts -- often starting with as little as $1 -- to the project within a specified amount of time, usually a few months. Some sites wait until the goal amount has been reached and only charge supporters if the project is successful, while others take the contributions from donors even if the campaign doesn't hit its stated goal. The crowdfunding sites earn money by taking a percentage of the funds raised, ranging from 4% at IndieGoGo to as much as 30% at ArtistShare. Kickstarter reportedly collects 5% of the total and has reaped an estimated $2 million in revenue this year, according to Business Insider. Artists usually interact with their supporters in hopes of strengthening their fan base.
"The idea is to get your fans to support your work," says Kendall Whitehouse, Wharton's director of new media. "In some ways, it's back to the future; it's history repeating itself. This was how most art was funded in the 17th and 18th centuries. A wealthy patron would pay to have music composed, for example." The difference now, of course, is that instead of receiving the entire sum from one wealthy individual, the artist gets a little bit of money from a lot of (often non-wealthy) contributors. In return, donors get something in kind, such as a signed CD, a T-shirt, or -- for a larger donation -- credit as a producer on a film or the thrill of having a song composed especially for them. Such deals are easier to do in the digital age. Adds Whitehouse: "It's the web's ability to communicate to a large fan base and then aggregate a significant number of small donations" that makes this work well online.
A Decade in the Making
Crowdfunding sites in the U.S., at least for music, go back a decade with the creation of ArtistShare. Founder and CEO Brian Camelio remembers being surrounded by skeptics when he started his website in 2001. "Napster was a big issue at that point with file-sharing," he notes. "I was starting to worry about the future of music -- how music is paid for and how artists are compensated." A musician himself, Camelio thought the best solution to fight the "destructive technology" of music file-sharing would be to give fans a more engaged relationship with the artist -- in hopes they would be willing to finance the music. He bet fans would pay to watch their favorite musician work or get a chance to be online inside the studio during a recording session. People scoffed, he says. "The reaction was mostly dismissive." But he had the last laugh: ArtistShare musicians have won four Grammys and snagged 11 nominations.
In recent years, several other crowdfunding sites of a more general nature have popped up on the web. Slava Rubin co-founded IndieGoGo in 2008 with Danae Ringelmann and Eric Schell after discovering there was no efficient way to raise money for bone marrow cancer research, which had killed Rubin's father. In two years, San Francisco-based IndieGoGo has launched 12,500 campaigns -- including films, charities, businesses and recordings -- and funded millions of dollars of projects in 139 countries. "Everybody in the world is passionate about something," Rubin points out. "We make it easier [for them] to raise money."
Libbie Schrader, an alternative pop rock musician in New York, has raised $8,000 to finance her fifth album through Pledge Music. Including another $2,000 she will pitch in herself, the sum is enough to bankroll five songs and will be used to find a producer, rent a recording studio, hire backing musicians, and pay for other production costs. She tapped her 2,500 fans for support -- people who saw her perform at colleges or as opening acts for other groups. Schrader turned to crowdfunding because it's difficult to sign with a label even though she had a demo deal with Atlantic Records at one point. "It's the most impossible thing to do on the entire planet," Schrader says. "It's crazy."
Paul King shelled out about $1,000 to support Schrader so she could keep recording even without a label. "I was worried she wasn't going to reach her goal" and that she would abandon her album, notes the Nashville, Tenn., computer technician. "I'm very selfish. I want my music. There are very few artists I like and she's one of them." For his support, Schrader will compose a song just for King and his wife based on their life together. "This is where the Internet is taking us, to where a fan will say, 'I will give you money to write a song about me and my wife'," Schrader says. "Some people want to Skype into the recording session or watch while the producer talks to the guitarist.... It's becoming more and more mainstream."
Such artist-fan bonds are key to the success of crowdfunding sites. "Personal relationships are very powerful," notes Jonah Berger, a marketing professor at Wharton. "Seeing someone on stage and knowing you had something to do with it is exciting." There is also a certain caché to spotting the next big act before the masses, and crowdfunding lets people do that, Berger points out, adding that proletarian funding of projects and causes can be applied to many things, even building projects. Internet trends that harness the power of the collective, whether it's Wikipedia or crowdfunding, are here to stay, he adds, but whether all the current sites will last is another matter.
Mainstream Hits or Niche Players?
The challenge for crowdfunding sites is to make sure fans come back to support an artist's subsequent projects. Camelio says he has learned what works when it comes to nurturing the musician-fan relationship. For example, he encouraged Maria Schneider, a jazz musician with ArtistShare who had been nominated for a Grammy, to invite a top supporter to the award ceremonies. She ended up winning, and the fan got the memory of a lifetime. IndieGoGo's Rubin, on the other hand, uses technology to boost giving. He found out, for instance, that posting the average contribution of a campaign prompts people to give more than that amount.
David Cohn, founder and CEO of Spot.Us, is taking a different approach to keeping his nonprofit viable in the long run. The site, which funds journalists to allow them to pursue news stories missed by the mainstream media, is signing up sponsors like Hewlett-Packard in addition to receiving foundation grants. Spot.Us also is planning to embed its fundraising technology in media websites so that local newspapers, TV and radio stations can ask consumers to support certain articles. "We really are a technology platform and not a news organization," Cohn notes. "In that respect, we scale really well."
Yet Peter Fader, Wharton marketing professor and co-director of the Wharton Interactive Media Initiative, does not see crowdfunding sites becoming much more than niche players. "They have been around a long time under different guises," he points out. While it's alluring to think that the masses will be able to spot the next Justin Bieber, the truth is that professionals have a leg up in identifying the next big star and, as such, they will never be completely replaced. "They are very, very good at identifying talent, much better than the crowd," Fader says. "If you put two musicians next to each other, they both seem fine, but one of them will do well. It's much easier for a professional music person to make that judgment than a bunch of random people."
Big recording labels and major studios also know how to groom, refine and market the performer to appeal to a large audience. It's that sheen of sophistication that artists on a small budget can't replicate. "Who would have ever identified Lady Gaga [as the next big music star]?" Fader asks. "Studios knew if she dressed a certain way and sang certain songs, people will respond. She's an extreme artist." After all, many artists flock to crowdfunded sites because they are not visible enough to be noticed by the big players. The most popular videos on YouTube are those of famous groups, not homemade movies, Fader adds. "For every YouTube sensation, there are 100,000 who aren't," he says.
But once in a while, a crowdfunded project breaks through. Emily Hagins, an 18-year-old film director, raised nearly $6,000 in three days at a comic book convention after airing a trailer of her movie, "My Sucky Teen Romance." Hagins will use that money, raised through IndieGoGo in November, for post-production of her film. During the summer, she raised $9,250 in a month to make the movie, which is about vampires crashing a science fiction convention. The romance comes in when one of the bloodsuckers falls for a human. "It's really silly," the Austin, Tex., high school senior says about the movie. Still, the response has been so positive that "we're hoping to send it out to the [film] festivals, the biggest ones. We just want to aim high."
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