Not Quite Free Money: The Hidden Price Of Crowdfunding

Monday, 07 September 2015

When reading Michael and Chris Yapp's recent pieces on 'The Price of Free', I was reminded of a recent program in Radio 4's 15min Four Thought slot, where a female solo musician was the speaker. In reaction to the disruptive digital or free music revolution transforming the business, singer songwriter Amanda Palmer has decided to take advantage of that other, perhaps compensating, trend in the music industry facilitated by the internet, crowd funding. With physical album sales replaced by paltry I-Tune and Spotify royalties, and record labels not in a position to be generous, the artist now has the option of appealing directly to fans themselves, and in the particular model mentioned by Amanda, get a reliable financial reward in return for each unit of music released. The musician gets a living, and fans get an enhanced feeling of connection, commitment and a kind of identity badge.

But the interesting dimension to this crowdfunding type model described so vividly by Amanda, is the accompanying sense of obligation and personal scrutiny placed by a vocal minority of crowdfunding fans on the musician. In the traditional album or single in return for cash model, no fan would ever seek to claim any right to dictate, or even to find out, how their music spending was being later spent by the musician. And given the excesses of successful musicians over the years, some of their spending habits may have provided quite an interesting set of accounts. “Mind your own business” (plus some colourful expletives added for emphasis) may have been the response if you had sought to question extravagant lifestyles. The finest traditions of impersonal transactions within a free market has always been a friend to the successful rockstar. But Amanda's talk centred on her reaction to a letter she had received from a crowdfunding fan, intoning her concerns over how her crowd funding receipts were to be spent, questioning the fact that she was about to have a baby, and observing how her recent songs might be the easy to produce type. As Amanda herself observes, in this new financial model it is difficult to chart “where the lines of asking and taking can be drawn”. Amanda tells of another music band being criticised by a crowd funding fan for taking their baby on tour, implying that their crowdfunding contribution was to be spent on music production, and paying for dypers was not part of the implicit bargain. But the fact is that what the crowdfunding bargain or transaction price is can be open to interpretation, where as in contrast when buying an album, each side knows the price of the bargain and where they stand.

The issues touched on here are typical of the contrast between standard market transactions and crowdfunding models. As a liberal freemarket economist like Hayek or Milton Friedman would have told us, having free anonymous markets with buyers and sellers free to switch their relations leads to greater personal liberty in how an individual can earn and spend, and as a result live. As Amanda was encountering, seeking refuge away from the free market in an alternative model of buy and sell, reintroduces the strings and ties common to those before affluent and free markets for artists, where for example renaissance painters were bound to their aristocratic patrons, or court lute players had to please their kings and queens.

This article is part of a series on the Future of Price.