Pando

In a huge win for direct-to-fan platforms, Bandcamp has paid out $100 million to artists

By David Holmes , written on March 9, 2015

From The News Desk

Plenty of startups have promised to save the music industry through technology. That could mean everything from increasing the amount of total revenues -- which have been cut in half since 2000 -- flowing into the category or making it easier for consumers to discover, access, and connect to bands that they love.

But for musicians -- the most important constituency of the industry , without whom there would be no product to sell -- only one metric matters: artist payouts.

On this front, the biggest streaming platforms have not been roaring successes. Although Spotify says it has paid $2 billion in royalties, that is distributed across over 20 million songs. Even more troublingly, a recent study estimated that labels keep a staggering 73.1 percent of these payouts. If anybody is getting rich off streaming music, it isn't artists. Not even Spotify is getting rich -- despite $1 billion in revenue in 2013, the company still isn't profitable.

But there's at least one music platform that, although it operates on much a smaller scale, has devised a formula that puts cash in the hands of artists: Bandcamp.

The San Francisco-based company just told Billboard it has paid out over $100 million to artists since launching in 2008. That may sound like a pittance compared to the $2 billion paid by Spotify, but Spotify's contribution to music revenues is made one fraction of a fraction of a penny at a time and -- with the exception of a few colossally popular performers like Katy Perry -- is rarely enough for individual artists to get by.

On Bandcamp, however, artists are given total freedom to sell their songs and albums directly to fans for however much (or little) they like. Bands can even give away their album in return for a listener's email address. When artists do charge, the platform takes home just 15 percent of digital sales and 10 percent of physical sales, which is half of the 30 percent cut Apple takes on iTunes.

In every way, Bandcamp prioritizes artist control: For example, bands can make one or two songs free to stream in order to build an audience, but charge $10 for a full album. This runs directly counter to the all-or-nothing deals that YouTube has been forcing its creators to sign. As for Spotify, whether or not some or all of a band's catalog is made available is usually determined by the label, not the artist. That's why, even though Thom Yorke despises Spotify -- he called it "the last desperate fart of a dying corpse -- the Radiohead frontman only been able to keep his solo work and his side-project Atoms for Peace off of the service in protest. Radiohead songs are still all over Spotify.

Launching in 2008, Bandcamp was one of the earliest direct-to-consumer sales platforms for artists. In recent years, startups like Gumroad and Patreon have been stockpiling millions in venture cash to offer artist sales platforms that, for a similarly small cut of revenues, make it extremely easy for fans to directly support independent artists. (Gumroad and Patreon are designed for any creator, not just musicians).

The practice of selling directly to fans is nothing new for small-time artists. I still have boxes of CDs from my old college band in my parents' garage. Thanks to the massive distribution power of the Internet, however, small artists aren't the only ones that have begun to sell directly to fans on one of any number of platforms, distancing themselves from labels -- major or otherwise. One of the most notable direct-sales success stories comes from R&B/hip-hop star Ryan Leslie, which I documented in a feature last year:

Leslie’s first album released on Motown in 2008 sold 180,000 copies, but the royalties Leslie received from those sales did not cover the $100,000 advance he received to produce it. His new self-distributed album, however, has only sold 12,000 copies — less than one-tenth the sales of his Motown debut — and yet Leslie has received around $160,000 in revenue off album sales alone. When merchandise sales and concert tickets purchased through his site are taken into account, Leslie has made over $400,000 since going independent.
It obviously makes mathematical sense (from the artists' perspective) to cut labels out of the financial relationship between content creators and fans, particularly because the importance of aligning oneself with a label continues to erode with each passing day of the digital era. That said, labels still offer valuable marketing advances to artists. And when it comes to achieving airplay on terrestrial radio or booking slots at big music festivals, labels possess far more negotiating power than an individual artist.

That's why Leslie wants to reinvent the record label for the digital age, by providing the advantages of label affiliation without decimating an artist's share of her sales and royalties. With the availability of massive open distribution platforms and the preponderance of affordable direct-to-consumer ecommerce solutions like Bandcamp, Leslie thinks he can make the relationship between artists and labels more equitable. His vision is to offer small marketing budgets and powerful audience-building and tracking tools, while taking around a 20 percent cut of the spoils. The label would still likely rely on platforms like Bandcamp, meaning that an additional 15 percent would also be erased from an artist's take. But that would still put 65 percent of royalties and sales revenues in the hands of artists -- that's far better than the 16.8 percent that writers and performers make from Spotify's revenue.

Of course there's little difference between 16 percent and 65 percent of Spotify's streaming revenue, which is as low as $0.006. What's more significant is that platforms like Bandcamp encourage customers to drop as much as $10 on full albums. And while it's true that most people don't pay for music anymore, Leslie's success story proves that it's often better to reach a few thousand paying fans than it is to reach millions of freeloaders.

Leslie's plan may not work. But the fact that Bandcamp has paid $100 million to musicians, despite being much smaller than Spotify, proves that these creator-first platforms that place cash and control in the hands of artists can be enormously powerful. And with the biggest music services like YouTube taking more and more money and power away from artists, expect to see many more artists -- big and small -- take advantage of these smaller marketplaces.

[illustration by Brad Jonas]