South by Southwest (SXSW) is a melting pot of techies and artists showcasing their product, band, or movie to more than 150,000 participants in Texas’ buzzing capital city of Austin. So it’s the perfect place to announce a project like The Music Fund. The team behind it — Geoff Cross, Thomas Jerde, and Nick Smith — are currently working at Winton, a London-based global investment firm that uses various layers of data science analysis to predict financial outcomes on the public markets. The trio aims to bring liquidity to the music royalty market, which, according to them, is inefficient and outdated.
The San Francisco-based music fund has created algorithms that feed off streams, views, likes, and shares on platforms like Facebook, SoundCloud, and Spotify to understand how well an artist’s songs have performed in the past (i.e. their back catalog). It then uses data science and machine learning to predict future royalty streams and pays the artist based off that information.
“We’re buying a portion of a royalty stream on current music going forward into the future,” said Cross, in an interview with VentureBeat at SXSW. “So the artist will not owe us anything, but we will collect a portion of the royalties which come in, assuming they do, for a predefined period of time. If the royalties go down because people stop listening to that music, we receive less. If they go up because the music becomes more popular, we receive more. But we collect nothing on any future music which the artist might produce.”
The artists can also choose to sell their entire royalties to the fund and get a lump payment in exchange. They would then receive no subsequent payments on any future royalties for that music, seeing as they have signed them over to the fund.
To finance this project, The Music Fund is currently raising capital and will be backed by Winton, among others.
Royalties are generally handled by a performing rights organization (PRO), which ensures songwriters and publishers are paid for the use of their music by collecting royalties on behalf of the rights owner. When a song is played in public — radio, streaming, in a venue, TV shows, commercials — these platforms or places are required to pay for the use of the song. The PRO collects those payments and distributes them to the rights holders.
Traditionally, royalties are split between the artists and their record label. “While some big names can get millions in royalties each year, the tail at the other end is very long,” said Cross.
And this is the market The Music Fund is targeting — new and independent artists. It plans on partnering with various players within the music industry, including PROs and streaming platforms, that can help the fund access artists who are interested in the funding it can provide. The underlying idea behind The Music Fund, according to Cross, is to give more control to the artists.
“We wouldn’t bind them in to long-term partnerships with us,” he said. “Often labels take a fixed portion of the royalty stream, whereas we would be very flexible. This model doesn’t really exist in the music industry currently. At a high level, VCs back entrepreneurs and exchange capital for a stake in their businesses. We view musicians as entrepreneurs, as they essentially are their business.”
Some well-known artists have suffered from binding contracts with their record label. One notable example is pop singer Kesha, who filed a lawsuit against her producer, Lukasz “Dr. Luke” Gottwald, for sexual assault, sexual harassment, gender violence, civil harassment, unfair business, and more. The ensuing legal battles have prevented Kesha from releasing music outside of her deals with Dr. Luke. What’s more, the music producer will, in theory, benefit from the artist’s newest album Rainbow, given the ongoing contracts that cover both her recorded music and her songwriting royalties.
It is worth noting that Dr. Luke signed Kesha more than 10 years ago. Some artists may take this as a warning, opting to produce their own music whenever possible, and turn to funds like The Music Fund for more flexible terms.
It’s fair to say that the music industry has undergone a massive disruption these past few years, gradually shifting from downloads to streaming. But disruption isn’t always good news for artists. Spotify, which opened up the streaming business, has reportedly neglected some licensing agreements and is now facing the consequences of doing so. Taylor Swift has openly criticized services like Spotify and Apple Music for not paying artists their fair share.
Whether The Music Fund can help the music industry reward artists fairly on the royalties front remains to be seen. The project is still in its early days and hasn’t announced an official launch date yet.