Friday, May 30, 2008

A new model idea

I don't claim to be qualified to be positing this idea (tax law is not my speciality), but I think it's at least worth throwing out there:
As bands and artists become more and more independent, would it make sense for them to incorporate as nonprofit organizations?
It sounds crazy, but here me out: the price of music is dropping to zero whether the artists like it or not. This doesn't mean fans don't want to support the artists, it's merely a function of distribution--it's easiest to get free mp3s, so that's what people do. Artists still need to make money, but they have to find other ways to do so.
People want to support their favorite artists, but often in varying ways and for varying amounts of investment--I might go see a show of 2 or 3 bands I sort of care about, while I might buy 2 t-shirts and a CD and e-mail all my friends about my favorite band. Currently, there aren't enough ways for artists to leverage the dedication of those top fans who would be willing to do almost anything to see their favorite bands succeed.
Being a 501(c)(3) wouldn't prevent artists from selling merchandise and such--those are "unrelated business expenses" that get taxed like they would if the artist weren't a nonprofit. However, being a 501(c)(3) allows the artist to receive tax-free donations, and the donors would likely be able to deduct their donations from their taxes. With gas prices soaring, this would enable a band to set up a fundraising effort (perhaps on Tipping Point models like or where nobody pays unless the goal is met) to ensure they can afford to make the drive around the country. With proper donation tracking, the band can try to book shows near where their big donors are. I would gladly give a few hundred tax-deductible dollars to my favorite bands to allow them to tour--I almost called the guys from Kaddisfly last night to let them know I wanted to do so, til I thought there might be a better way to go about it than just sending them a check for gas money.
The key is enabling the artists to "make the ask." Most artists understand business in the traditional sense: you get paid to play a show, you sell CDs and merch, and you make friends on MySpace in the hopes of spreading the word. Some understand that the top few fans are infinitely more valuable than all the rest put together. Few know how to capitalize on that concept.
In a step-by-step process:
  1. Incorporate as a 501(c)(3)
  2. Give your music away for free--your fans will appreciate it (they almost expect it, but still get excited when artists embrace it)--and encourage them to spread it to their friends
  3. Sell merch as you normally would
  4. Ask for donations. Bloggers often use a "Tip Jar" widget, but I envision something more relevant for artists: associate items with levels of donation ($5 buys the band a beer, $20 buys the band lunch, $100 fills up the gas tank (heck, you could base it all on gas--sponsor the miles on a tour), $500 buys a new amp, etc). A simple widget on your MySpace page goes a long way (especially if the fans can also put the widgets on their pages when they donate to spread the word further).

Thoughts? Anyone willing to give it a shot?

1 comment:

Jed said...

Here it is, Ty. Your opportunity to become THE national expert on one aspect of the music industry. This idea makes a tremendous amount of sense. You would need to "make the sale" to bands and serve as the middleman (sourcing agent) for lawyers. You take a small cut of the legal fees. Bands can embrace the idea of being a nonprofit until they grow a large enough fan base to transition to for-profit. It'd be interesting to find out whether they have to change the band name or the name of the umbrella organization. Of course, you'd have to prove that it actually helps bands make money. But I could totally see it happening. This is a great idea.