Was PledgeMusic Lining Their Own Pockets?

In this latest chapter in the saga of the still-smoldering wreckage that is PledgeMusic, Mario Putzar examines some of the underlying causes that led up to the platform's current state of crisis, many of them eerily similar to another music direct-to-fan platform (now also defunct), Sellaband.

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Op-ed by Mario Putzar of Music and Crowdfunding

An essay about the end of Pledgemusic, Sellaband and of music crowdfunding

Almost ten years after being founded, one of the last pillars of music crowdfunding is starting to crumble. Even when those behind Pledgemusic, especially its co-founder Benji Rogers, vehemently denied operating music crowdfunding, the platform was always being mentioned in the same breath as the former (Sellaband, MyMajorCompany, AKAmusic) and current (Indiegogo, Kickstarter) leaders of the branch. As early as the summer of last year, artists proclaimed that Pledgemusic still owed them money which was collected from fans.

In light of the already announced bankruptcy, this is another chapter for music crowdfunding which is sadly coming to a close now. Moreover, it reminds us of the eerily quiet conclusion of Sellaband just a few years earlier. The parallels are astonishing and at the same time surprising. Musicians are not being paid. There have been wordy apologies and stalling strategies from the side of the platform, but these are never followed by any real results. The funds from the supporters were apparently never kept separate from the operating capital. Catastrophic crisis management, lost trust, coupled with a management incapable of getting a handle on things will lead to the obvious and inevitable end of Pledgemusic. I still hope Pledgemusic will disabuse me.

But no one learned from the Sellaband debacle. Maybe or perhaps because Sellaband died a quiet death.

What went wrong and what were the causes of the crisis of Pledgemusic – an initial analysis:

ARTIST ARE NOT GETTING PAID

It is obvious that the financial management of Pledgemusic was not able to manage the funds from supporters (Pledgers) properly, as deemed appropriate for a prudent businessman, and pass on the funds to the artists. It is even more surprising when taking into consideration that the managing of such financial funds makes up a large part of Pledgemusic’s business model. This is not only sad, but also frustrating for the artists who were not able to finalize their projects or who were forced to finance them by investing even more time and effort. Let us hope that there is still something left for the artists at Pledgemusic.

What are artists‘ options now:

1. Back in February, Sound Royalties advertised effectively that it would give out advance payments to artists … in the form of a credit.
2. Each and every artist should decide whether or not they need an intermediary (crowdfunding) platform that charges a fee of up to 15%. Perhaps, they would be better advised to use their own internet presence and social media channels for a more personal version of crowdfunding or for pre-sales. This seems to be both more secure and more promising.
3. For those of you who do not want to go without a crowdfunding platform, you should take advantage of an established player in the market: Kickstarter and Indiegogo could be some alternatives. But, each and every artist should examine in detail how the financial funds are managed and, when in doubt, contact the platform directly.
4. Use Bandcamp`s pre-order tool. At least you are established and equipped with a decent fanbase.

FUNDS FROM THE SUPPORTERS HAVE VANISHED

Supports are just as affected considering that they trusted their hard earned money to Pledgemusic and are now quite probably waiting for an album or their rewards in vain.

Sellaband set up a notarial escrow account when it was founded where the funds from supporters (Believers) should have been deposited until the successful conclusion of a project and it was time to pay the artists. These funds were thus kept strictly separated from the operating capital of Sellaband. However, towards the end, these safety measures were also circumvented by Sellaband so that artist were not paid and the funds from Believers vanished. Pledgemusic finds itself in the exact same situation in that there is currently no apparent separation between such funds and the operating capital.

Moreover, Sellaband did not quite understand how to score using the escrow account and stop the (double) bankruptcy. An escrow account seems to have never even been an option for Pledgemusic.

The separation of operating and crowdfunding funds is essential for the crowdfunding model and should be demanded by both the artists as well as the supporters. Otherwise, there will always be cases like Sellaband and Pledgemusic in the future and the funds from supporters will still not reach the artists but line the pockets of the platforms.

By the way, every Pledger should write off their funds pledged and use the last days of the platform to secure their album downloads. That is all that can be done.

WORDY APOLOGIES FROM THE PLATFORMS

… and stalling is often done, but is still not a useful tactic. Neither Sellaband nor Pledgemusic was successful in finding acceptable solutions for both the artists and the fans during the corresponding crises. Sellaband already got so little attention during the (last) crisis that the deceived artists did not get nearly as much public attention as the artists from Pledgemusic do now. There were also artists from Poland, Australia and Germany who were less well-known beyond Sellaband and who feared for their reputation.

Unfortunately, it seems that the legal steps to assert claims were not very successful due to the fact that Sellaband no longer had any assets. The statements given by Pledgemusic and co-founder Benji Rogers did little to console the artists and the supporters. They were, under no circumstances, capable of regaining lost trust.

LOST TRUST

The most damaging thing for artists and fans (apart from the lost money), but also for Pledgemusic and crowdfunding as a whole, is the loss of trust. Crowdfunding platforms, as intermediaries between fans and artists, cannot limit themselves to the artistic or communicative element of crowdfunding. This discussion has been going on for years, especially when another Kickstarter project turns out to be a fraud. The handling and management of financial funds is a crucial part of the business. Trust is of the utmost importance. An almost year-long payment problem, which is talked about in large parts of the music industry, is associated with a considerable loss of trust. The breaking point has now been reached with Benji Rogers’ announcement of the bankruptcy. It is doubtful that this lost trust in music crowdfunding can be regained. The damage has been done and is difficult to repair.

If UK Music now demands that the British government should order an investigation into the Pledgemusic case, then it is only fitting. Unfortunately, the umbrella association only represents the side of the artists, so that the interests of the supporters are probably not in the focus and will fall by the wayside.

The consequences:

1. In the future, crowdfunding platforms will have to consistently manage operating capital and funds from supporters separately. These funds simply do not belong together. Notaries or trustworthy trustees must be appointed as administrators of crowdfunding funds. Entrusting the platforms with this separation did not work out in at least two cases now.
2. The separation of funds must be communicated in a transparent manner and must be verifiable at all times. This open communication should be possible. Verification is certainly difficult, but not impossible.
3. Consideration should be given to setting up an advisory board to monitor the platform and, in particular, the financial transactions related to crowdfunding projects. The advisory board should consist of representatives for the artists and supporters.
4. The CEOs of the platforms must be assisted by financial professionals who are responsible for the management (and separation) of the funds.

Pledgemusic (and also other music crowdfunding platforms) have always advertised with their expertise and contacts in the industry. As we can now see, this is only part of the success. The economic know-how and experience in the field of finance is just as important. Maybe the public pressure in the case at hand leads to a fundamental change in crowdfunding platform’s dealing with the funds of supporters and artists.