Sellaband - Case Study 5
March 5, 2009 – 7:30 am | by ChristianWho are they?
Sellaband was set up in 2006 Dutch entrepreneur Pim Betist (ex-Shell), and has been managed by Johan Vosmeijer, a former Sony BMG executive. In 2007, it partnered with Amazon UK. It also has investment from Prime Technology Ventures.
What do they do?
Sellaband.com is a music business based on profit sharing and bringing together artists and music lovers directly. Artists upload their profiles, then fans can become ‘believers’ in the artist by paying $10 for a ‘part’ (2 parts makes them a ‘promoter’, 5 parts = ‘publisher’, and so on). Once an artist has reached the goal of $50,000 (5,000 parts), Sellaband uses this money to record a CD, providing the artist with a studio, an A&R manager and a producer. ‘Believers’ receive a copy of the CD and an album download, as well as 0.01% of any sales revenue for a period of five years.
How does it work?
Musicians
The money reaches bands indirectly. Until the necessary 5000 parts are sold, the money is held in an escrow account managed by a third party and any interest accrued during this period is kept by Sellaband. Once $50,000 is raised, the funds are committed to the artist and the escrow agent transfers the funds to a Sellaband account, as a budget for the band to spend ‘as they like’. Sellaband has a stable of A&R reps, recording studios and CD pressing plants, which the musicians are encouraged to utilise. After the recording of the album, the artist becomes the owner of the master.
Believers
Investing in bands allows fans the chance to ‘be in business’ with bands they like. The more tangible return is a special edition of the CD that is sent to all believers once produced. Additionally, believers share in a one-thirds split of the advertising revenues from the website. The amount received depends on the market share their band has on Sellaband’s download portal. In addition, believers will share 50% of the net profits from so-called ‘regular versions’ of CDs that are sold at gigs.
Once a year the totals are added up and any returns are deposited in the believers’ Sellaband account. Users can withdraw money from this account or use the funds to buy parts in other musicians. Believers can also withdraw their investment from an artist before the 5000 parts are sold, and their money is credited to their Sellaband account to be invested in another artist.
Community
Believers can maintain a blog, upload photos and videos and post messages to network with other believers and artists. These community aspects are limited to users who have bought at least one part. Musicians have similar options, and it seems to be a prerequisite of success for bands to engage heavily with the Sellaband community. It is up to the artists to promote themselves through regularly updating their profiles.
Business model
The advertising revenues generated are split evenly between the artist, the believers and Sellaband. The publishing income of the songs that artists record with Sellaband are divided between the artist, Sellaband, producer and A&R manager, in the following way: Artist 60%, Sellaband 30%, Producer 5%, A&R manager 5%. Sellaband doesn’t touch any of the $50,000 that is given, but does receive the interest while the money is accruing.
Establishing trust
Sellaband retains controls of the funds pledged by believers and provides these as a ‘budget’ for bands to use as they see fit, within certain parameters. A sense of participation that is more than purely financial is provided, as bands are expected to blog and engage with their believers. However, believers have no input into the recording of artists’ music, and have no say over the end result.
Performance
As of late 2008, 29 bands from 12 different countries have succeeded in raising the necessary $50,000 to record a CD since the site’s launch in August 2006. 17 albums have been released. A total of over $2.2 million has been invested in unsigned artists.
In April 2008, Sellaband raised $5 million in venture funding.
Problems or limitations
The mechanism for splitting profits from CD sales is somewhat ill-defined. This is probably because of the need to avoid legal regulations, but could create problems as the service scales.
Another criticism is that the structure of the site tends, at this point at least, to favour bands with a mainstream sound. This might change as Sellaband grows and is able to connect niche musicians with enough believers of like-minded tastes. But the constraints that Sellaband puts on bands, by offering rather generic industry tools, studios and producers, might not appeal to more experimental or innovative artists who want to do their own production or who are purely electronic musicians.
One Response to “Sellaband - Case Study 5”
By Netvalar on Mar 6, 2009 | Reply
Great article but lacking in a few key research areas. As such I would like to add the following corrections.
1)The 1/3 split of ad revenue did exist once but with the change to 50% of album sales from 1/3 split of album sales the ad revenue was taken away. The main reason Sellaband did this (as they told their community) was to reduce the amount of advertising onsite.
2)I also would like to add to your community section that fact that there currently are several offsite community projects not handled by the company.
3)Recently the 50k budget was changed Sellaband now takes 10% for adminsitrative purposes and the artist takes 10% to do with as they please (It is hoped they will use this for promotional purposes)
I hope you appreciate these corrections.