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LONDON - The digital revolution might be making it harder for record labels and retailers to make money out of music, but the decline in album sales has spawned a new type of investment that is attracting fans and investment banker types alike.
Slicethepie.com has financed 13 bands, earned 40,000 "scouts" more than 40,000 pounds ($91,000) and landed hundreds of investors some rosy returns since its launch seven months ago.
"The problem the industry is struggling with is that the cost of producing new artists is phenomenally high," said the company's founder and chief executive David Cortier-Dutton.
"With music sales dropping - physically, that is, and digital sales not making up (for that) - it means the industry has to find a way to make music at a much lower cost.
"We effectively turn every music fan into a record label. Everyone can invest in new artists on an economically attractive basis."
Members, he says, include avid music fans who simply want to make some beer money from reviewing new artists, people whose main desire is to get close to the bands, investment professionals looking to diversify their portfolios and others still, who want to do the whole thing: discover new music, invest and make money out of their position.
The site adopts a "wisdom of crowds" philosophy. Some 7,500 artists have signed up to be independently and anonymously reviewed by members and, every month, the 20 with the top ratings go forward to try to qualify for funding.
Typically, one or two receive the required level of backing from investors who want to buy "contracts" in them, generally costing 50 pence each - and secure 15,000 pounds to record and release an album.
Whereas a musician would need to shift at least 100,000 albums for a major record label to break even, those who sell just 1,000 will make money for their Slicethepie investors.
Two years after investment, investors receive one pound per album and 10 pence per single sale for every contract they hold. If the Arctic Monkeys had started out on Slicethepie, for example, investors would have received just over 100 pounds for every share bought, based on album sales of 1.1 million. So a 20 pounds investment would be turned into 2,000 pounds.
Artists retain copyright on their work and are free to sign to a traditional label at any time, provided it is willing to pay a 50 per cent premium.
Next month, indie-rock starlets The Alps will become the first band to release an album via Slicethepie. The fan-funded four-piece, from Greenwich will release "Something I Might Regret" on March 10.
"Slicethepie is perfect for a band like us," says lead singer Daniel Heptinstall.
"It gives us the best of both worlds. We have complete control over our sound and a direct connection with our fans - the very people who gave us a chance to record this album."
Investors can also buy and sell contracts in artists on what is effectively a music stock exchange.
Some artists have so far made sparkling returns (either real or paper) for investors: Scars on 45 is trading at around 250 pence, five times up on an initial price of 50 pence, while investors received 187 pence per contract, again on an initial 50 pence, when Gilkicker bought itself out to enable it to sign a major record deal.
Others are not faring quite as well.
Shares in Katrina Bello at one time had lost around 20 per cent of their value but have since bounced back to stand 10 per cent up at 55 pence.
Would-be traders can try their hand on a virtual exchange. Wannabe music moguls are given 1,000 pounds of imaginary money, with the top 10 traders every week receiving 20 pounds each.
As for Slicethepie itself, it earns commission on funds raised, trades and receives a small share of royalties.
It expects to finance more new artists than EMI, Sony BMG or Warner in 2008, bucking the trend for poor major label hit-rates and roster downsizing.
That would net it a pretty penny and come as music to the ears of those fans and investors hoping that their belief in these unsigned bands will pay off.
"Like investment in wine or (classic) cars, it's an alternative investment," adds Cortier-Dutton. "The industry isn't big enough to make it a major asset class, but that doesn't mean that it can't be a bit of fun - and earn (people) some money, whether you invest a few pounds or a few thousand."
- REUTERS
