Declining album sales and increased piracy present a challenge for the music industry.
In London, an investment fund called Icebreaker has devised an innovative model for funding the creation of music.
Created by entrepreneur Caroline Hamilton, the Icebreaker model brings investors together with artists and bands in the same way the feature film industry relies on financing from private investors.
It offers musicians a compelling alternative to signing with a record label in an industry that’s grappling with declining album sales and rising music piracy.
In 2010, global recorded music sales fell 8.4% in 2010, while digital revenues grew by 5.3% at just half the growth rate of the previous year, according to international music body IFPI.
“People often have a myopic view of the sector they work in, but one way of making things happen is to transfer ideas from one industry to another,” says Hamilton, who traveled to Brisbane last month to speak at the Creative³ conference, which ran from 26-28th October 2011.
Since 2003, Icebreaker has attracted millions of dollars from high net-worth individuals, and supported artists such as Marilyn Manson, British R&B singer Beverly Night, and emerging acts Crystal Fighters and Cosmo Jervis. In early 2011, it also penned one of the largest deals ever signed between venture capitalists and an independent record label, Cooking Vinyl.
In Australia, the music industry’s overall dollar value dropped 13.9% in 2010, in spite of an increase in total units sold of almost 10%, according to the Australian Recording Industry Association.
In the following interview, Hamilton shares her tips on securing external investment within the music sector.
What is Icebreaker’s ‘LLP model?’ Caroline Hamilton: In a way, our model is borrowed from the film industry, and in a way it’s very old-fashioned. Essentially, Icebreaker finances the production and marketing of an idea on a project basis.
In the UK, a limited liability partnership (LLP) brings investors and entrepreneurs together. LLPs are appealing because each investor’s risk is equal to the amount of capital they put in, and losses can be offset against profits in another business. All expenditure in the first year is written off as a loss, but if an album is successful long-term, the profits can be very lucrative.
How much do investors in an LLP typically invest? Caroline: The smallest investment is £200,000 of which 20% is the investor’s own cash and 80% is borrowed to enhance tax relief through gearing.
How many investors and artists are there in each LLP? Caroline: We would typically have 20 investors in a group, who invest in between three and five projects. They choose those projects to an extent: we say, ‘Group A is likely to have the following basket of projects, whereas group B is likely to have these artists’. Each basket might include one well-known brand, another speculative, and a couple that sit between the two. We endeavor for each group to include a similar mix of artists and musicians.
Investors can be involved in the artists’ development if they want to be. It’s a slight double-edged sword but generally the more they know, the more they get out of it.
What percentage of albums funded by Icebreaker are successful? Caroline: It’s very easy to find bad projects and very easy to find good projects. A major label will throw huge amounts of money at 30 projects a year, one of which they hope will be successful. So a success rate of 1 in 30 is about right.
What is the appeal to investors given only one album in 30 is successful? Caroline: You have to be lucky to fund an album that sells 20 million copies, but it’s also inconceivable you won’t sell one album, which is attractive to investors.
The allure of Icebreaker’s LLPs is a combination of tax relief and greed: with every project funded, there is a chance investors will make an absolute tonne. There aren’t many industries where you could suddenly make £20 million if an album becomes an overnight success.
Does Icebreaker acquire artists’ Intellectual Property? Caroline: No. We license an original idea, and then we pay for a product (ie. an album) to be made from it. We either own the product, or license the product for a period of around 15 years, and share in sales revenue over that period. However, the artist or their management retains the underlying copyright.
How do artists and musicians benefit from the Icebreaker model? Caroline: We share profits 50:50 between artists and investors.
Artists and their management also have a very big say in each project funded, whereas if they were signed to a really big record label, they would have absolutely no say whatsoever in details such as which tracks go on an album. Retaining control is very attractive to musicians.
What do you look for when seeking talent to invest in? Caroline: The artists we support are performing gigs already; they will have recorded at least a few tracks; and they’ll have some sort of following on Twitter or MySpace or similar.
If you put your hand up and say, ‘I’m looking to fund music’, then you’ll be absolutely inundated with artists. If an artist is good enough to be picked up by a good management team, then we’re interested – that’s probably our most important filter.
In early 2011, Icebreaker invested millions in a company called Cooking Vinyl. Why? Caroline: Cooking Vinyl is an independent label with its own distribution arm. It invests in promotion and marketing, and helps to coordinate production. It is not dissimilar to Icebreaker, only more hands on, which makes us quite a good fit.
Our investment is akin to a joint venture. Essentially we’ve allocated a share of investors’ money to Cooking Vinyl projects in exchange for a share of revenue. We had already worked with Cooking Vinyl financing an album by Marilyn Manson. This investment will enable more shared projects.
How many albums must an artist sell to be deemed a commercial success? Caroline: If a brand new act sold 50,000 albums in the UK, that’s a good start. But if a brand new act sold 100,000 copies in the UK, then there’s a good chance they will also enjoy success in overseas markets. So 100,000 copies is probably a good yardstick of success.
Does Icebreaker encourage artists to explore new revenue streams, such as digital downloads and cross-sector collaborations? Caroline: We recently financed the production of a 3D documentary for English boy band JLS, which will be released at the same time as their next album. We are unashamedly piggy-backing off the album launch, but so is the album piggy-backing off us, which makes it an interesting partnership.
A few of our projects incorporate everything from tour revenue to merchandising. Basically, we'll do anything that makes commercial sense. A couple of our artists are writing music for games. Licensing music to television series can be very valuable. Generally though, I’m not yet seeing a great deal of integration with other creative sectors.
What’s the most surprising thing you’ve learnt since launching Icebreaker in 2003? Caroline: I am surprised how vital radio play remains. In a digital world, actually it’s good old-fashioned radio that makes a difference to a band’s success. That just hasn’t changed.
Why do so many albums fail? Caroline: Either the artists don’t have enough money to fund the production and marketing of their projects, or they misspend their money. They might spend all their money on recording and not have enough leftover for marketing. They need to make every dollar work for them, which is why all the artists we invest in must write a business plan explaining where the money invested is going to go.
What skills does Icebreaker bring to each deal? Caroline: Half of our team is responsible for bringing investors in, and looking after those investors. The other half looks after relationships with the bands and their management. They collaborate on marketing and distribution. They oversee deals with distributors, and help to make strategic decisions that will impact their success.
Many of our employees have worked at record labels and understand the opportunities arising from the creation and distribution of music.
What kind of musicians are investors most interested in funding? Caroline: Investors assess artists like they would any other business decision. They need evidence of a business plan. The band has to know who their target audience is; who their competitors are; why they’re different; what their route to market is; how they’re going to reach their target audience; and what resources they’ll need around them to make this happen.
We view every project as a start-up business. The nice thing about investing in music or film is that everyone can have a point of view – you can’t really understand an energy stock, but you can say, ‘I loved that gig’.
Why are record labels struggling in the current climate? Caroline: Most record companies have got too big and are in the process of restructuring and putting new management structures in place. They’re run in a very odd way, which makes room in the market for an alternative investment model like Icebreaker’s.
AT A GLANCEName: Icebreaker
Location: London, UK
Launch date: 2003
Founder: Caroline Hamilton
Sector: music financing
Staff: 13 full-time; 5 part-time
Website:
www.icebreakerfund.co.uk