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When Fandom and Finance Converge
An antidote to music ownership and its discontents
A month or so ago, industry veteran Scott Cohen announced his new venture—a startup focusing on fractionalised ownership of music copyright.
Fractionalised ownership might seem like a new, web3-powered possibility—but it’s actually been around pre-web3. It was called equity crowdfunding or ECF and it never really took off.
Well, the traditional ECF model was not a sustainable financial strategy for most artists. Raising capital and sharing equity with a large number of individual shareholders meant taking on the stresses of corporate governance, investor relations, and fragmented interests—a complicated task for artist teams to manage. However, things are presumably different now. We have powerful tools to solve many of those challenges.
In this essay, let's look at why fractional ownership matters, whom it's for, and what it’ll take to see mass adoption beyond early adopters and whales.
Why does this matter?
Liquidity = Goood
Today, IP ownership is concentrated in the hands of a few select stakeholders. Fractional ownership could lower the barriers to entry, democratise the investing landscape, and provide artists with capital from early supporters.
Music copyright as a liquid asset will increase the amount of money invested in the asset class as a whole—total money invested in a particular asset class is directly proportional to its liquidity.
More liquidity would also lead to more accurate valuations of copyrights, as there would be more transactions to base the valuations on.
Labels currently don’t really offer early-stage support. They act as late-stage, “growth” investors once an artist has a proven track-record. No major label is taking creative risks. Think about it—when was the last time we saw a major push the cultural envelope?
Fractionalised ownership can change this. By democratising the investment landscape, fans and other aligned individuals could provide the capital that cutting-edge artist projects need.
Just to be clear, this is not patronage. This is financially incentivised individuals investing in true creative innovation. Whether it will actually end up happening is up for debate of course. But we can all admit that it’s definitely better than 4 companies dictating the future of culture.
Who is this for?
This model could be viable for artists who:
Wish to avoid major label control but need major label budgets to manifest their creative vision.
Have a high risk appetite and are okay with directly linking their social capital with their financial capital. (being cancelled would not just mean social ruin, it would mean financial ruin. Fandom is fickle!)
Want to use this as a way to bootstrap their “mainstream” career → a way to indicate PMF and use that as bargaining power to secure an institutional deal.
Part 2 of this essay will include what the artist teams leveraging this model could look like. What happens when managers become community managers, and community managers become investor relationship managers?
Adoption - what will it take?
Intermediaries will be crucial for this new model to see mainstream adoption. They will act as the capital inflow and royalty outflow interface connecting artists and fans/investors. They will help us prevent complex rights management BUT ensure we retain the social aspect of music, which is very important. Ideally, these intermediaries would be sufficiently decentralised to ensure the collective interests of all micro-invested fans and artists are represented democratically.
Intermediaries will orchestrate status games at the front, and rights management at the back.
On the front end, the intermediary could act as an arena for:
Seamlessly integrating the investment, ownership, and consumption experience on the same platform—helping us enjoy music but also play status games, which, as we all know, are very important.
Provide governance i.e. “investor relationship management” tools for artists—how much control should the micro invested fans/capital providers have? What decisions should they have a say in? (more on this in part 2)
Make sure the investment experience is frictionless and high-trust. This could mean using traditional payment rails like Visa, not just web3. It could also mean ensuring investors do their KYC and other regulatory compliance measures.
On the backend, intermediaries could:
Mitigate the complexities of rights management by collectively representing multiple capital providers as one entity to whom the metadata is linked.
Act as a conduit for payouts to each investor.
The ECF model was limited due to rights management complexities. Multiple micro investors meant fragmented interests and worse, fragmented metadata. A sufficiently decentralised, interoperable protocol could solve this.
The current ownership model in music is broken. Music NFTs are powerful, but they are based on a scarcity model. As long as we treat music as a fixed supply store of value, i.e. gold, we’re limiting ourselves to its true potential. Fractionalised ownership on the other hand, enables a productive assets model for music. It treats music like the S&P 500. A compounding source of value.
Fractionalised ownership in music is an interesting problem to solve because it sits at the convergence of fandom and finance. How projects balance these two factors will be key to their success.