Crowdfunding doesn’t really work for concert tickets, at least in Russia
This is a story about how to launch, acquire thousands of users with zero budget and eventually shut down platform for concert crowdfunding in Russian and Baltic States market. It took me 1,5 year to create this story, so I’d like to share outcomes with everyone.
I was into concerts and music industry for about 5 years back there. It all begins in guitar music school and old garage with heavy metal band formed with friends. Then you start to write music, play at local shows, helping venues with concerts and etc. It all brought me to doing my own student parties and local artists festivals, but at some point it always comes to ambitions of bringing someone really cool in the city. Especially from abroad.
But when you start planning great concerts of your dream you realise that there’s nothing to do in the industry unless you have connections and money, and despite the fact it sounds like an excuse, this is really complicated industry to work in.
So we decided to go further with lower risks — let’s become a platform for promoters and booking agencies that helps them to minimise risks by getting money from fans in advance. For instance, you want to bring an artist to small town, but obviously you’re not sure about the demand — let them prove you that this project worth it by giving you cash upfront. In theory, that might work really simple: when the required amount is crowdfunded, promoter can book the artist risk-free, the artist himself can be sure that the venue won’t be empty, fans will finally see their favourite star in live. And what about us? We’ll get commissions from each transaction made with us, profit.
As any idea, that sounds fantastic, the only thing that stops the startup from disrupting the industry and making lots of money is hypotheses testing in the real market.
Well, at the moment, there were couple of inspiring examples from other markets, and our potential angel investors were believing in us due to our rapid users growth and partnerships with major local ticketing platforms. The biggest concern came from promoters and booking agents who simply didn’t trust anyone telling them about “risk-free” events, but there also were a few who decided to join our party and even pay us.
We participated in HSE {Inc} incubation program and created a platform with thousands users from scratch in only 3 month period. Them it all brought us to one of the most famous Russian VC funds IIDF acceleration program. It all looked like there’s nothing to worry about and this is the next unicorn, because you are always too naive when it comes to your first startup.
Since you know about failure from a little spoiler in the very beginning of this article, it’s time to start talking about other side of it all. I now strongly believe that crowdfunding is not going to work for concerts, but I need to give some industry basics to explain this. Imagine you decided to bring the artist to your city. First thing you need to do is to choose the right one to have enough demand, which is already a complicated thing. Then you choose dates, venue, promotions, ticketing agencies and etc.
Have a plan ready? Now it’s time to talk to artist representatives, but you probably need to ask established booking agency about it since you are not the most well-known person in the industry. Then it’s time to make an offer — tell them about dates, flight tickets, hotels, event logistics, venue, advertising, ticket prices and etc. Contract signed? Okay, it’s time to pay! At least some part of artist fee, maybe 50%, maybe 100% if we are talking about someone very famous. And don’t forget — you’ve already booked all the flights and hotels, so it nearly comes to almost a half of your total costs, and this is totally your risk. For instance, it might be about minimum $20k to bring an unknown pop-punk band from the US to Moscow in case, which is not too much but still worth something.
It sounds quit reasonable to lower the risks in this case, especially if it’s not a tour when your benefits from some events might cover the losses from others, but when it’s a single live show for artist coming to city for the first time. But if you have a fan base in advance, especially those paying customer, then it makes sense to try when the worst case scenario is getting break-even point and lots of fun.
It’s a good chance to talk about worldwide competition now. For example, there’s really successful startup from the US and Brazil wedemand.com which helps fans to demand artist show all over the world, giving the artists chance to learn more about their audience geography. With $2mln investment and about $1mln annual revenue coming from ticketing fees they’ve also created market for a lot of similar startups in the US market. Interesting this is that there are no crowdfunding campaigns now — only “demand” buttons and tickets sales.
There’s even better example — mymusictaste.com from South Korea. $21,7mln funding and huge amount of users all over the world. The main feature now is “make” button which helps to request your favourite artist in your city. That helps the platform to estimate the demand and help their partners to make decisions on events.
And for sure there’s no way I can skip a startup acquired by Warner Music Group songkick.com — a platform for concert discovery almost anywhere with $60,8mln funding in total.
As you see, there’s an established trend for EntTech globally. But what about Sound Funding and Russian market then? Well, to speak truth, we were not the first startup facing this problem. They even managed to bring couple of unknown indie artists and make some noise around bringing “The National” to Russia, nevertheless, they closed their project eventually. Then it was out turn to start out loud and finish quietly.
I would never say that people participating in Russian concert market are being conservative and denying technological solutions. Moreover, there are some great examples of how technologies can improve ticketing services — ticketscloud.org and crypto.tickets for instance. This industry is quit tough and all the players are highly professional. The reason is different. And it’s 100% not about fans.
Fans really loved us. We had about 40,000 users with 50% CR to invites, and what is most crucial — with zero budgets, so our CAC was $0. There was amazing story about fans collaboration on our platform. We had about 15 active campaigns during Nov 2015 when suddenly we’ve realised that one of them got 1000 invites (emails given to prove the voice). This band had only 3000 people in social media community at that moment, so we were the first to notice them. After half a year they had about 150,000 community participants and very successful concerts in Moscow and St Petersburg, while no concert agency knew them before us. You probably know this band, they are “Twenty One Pilots”. If you are wondering why haven’t we become millionaires with this show — the answer is simple and sad. We just did not have required negotiations power in industry so this concert was taken by our ex-partners. Actually, our competitors had the same case study before.
The problem is — when you have too many middlemen in the chain, its efficiency is doubtful. There are not only artist and fans, but also artist management, some booking agencies near them, music label, of course, also Russian promoters, venue, ticketing agencies and etc. Average contract signing time with foreign artist is about 6 month, so it could be more than 1 year in our case. Considering our failure with big names and possible obstacles with any other band from abroad, we decided to take a look at our local market in order to start making money.
New illusion came earlier then we thought — it took us only a month to close the deal with Russian concert agency. The problem appeared right after celebration — their main artist refused to work with us so we had to break up with them. Then it comes to another contract, but this time there was a condition to sell tickets only with affiliated ticketing agency, who eventually refused to share sales commissions with us, so we had to go away once again. With the third contract with promoter we thought we were never going to face the same issues again, but there was another one — venue did not supported ticketing agency we had finally got an agreement with. I think this list of the reasons why we can’t finally launch crowdfunding campaign could be long enough if we continued to try again and again. But we didn’t.
After a few pivots and different offers for promoters we’ve realised that there could be a chance for us, but it’s not going to be a stable business model that attracts investors. Too many risks and too much manual work for potential revenue in the future is not a things that helps to grow a startup. At some point we even tried to launch (and actually have done it) in Baltic States, for instance, in Lithuania, since we had partners there interested in out business model. But we faced almost the same issues so it didn’t go anywhere further.
Alright, so we have negotiation power issue and unstable business model for now. Well, it’s fine for a startup if there’s a chance to make money, but you need a great market size to do this so that’s what brings us to another reason of our failure. If you were US VC investor for instance, you would say that there’s literally no market at all — according to PwC’s report, there’s only $400mln market for all ticket sales in Russia annually (accurate for 2015). I guess US secondary ticket sales market is 10x bigger. And don’t forget to exclude all the theaters, museums and etc — you’ll get much lower figures. I We estimate our SAM as about $800k per year, which makes our (im)possible annual revenue about $40k if we conquer 5% of the market. Doesn’t really makes sense to loose sleep for a little bit more than $3000 per month.
Another good news for the beginners in concerts — you’ll probably never have a chance to work with anyone like Placebo or Muse, they are simply taken by long-term contracts with big guys. You won’t beat the exclusive contract with the higher price because reputation and trust is more valuable in this industry. And obviously, they don’t need any crowdfunding to prove the demand for their shows.
Who’s left for us then? Maybe small bands trying to get audience attention? Well, not in Russia at least. Even some well-known local indie artists might get only about 150 people visiting their concerts in Moscow, so there’s no need to even think about the rest of the country. Okay then, there’s probably a middle segment for us — this kind of artists who already got some audience but no guarantees for demand in particular cities. Well, there’re not many of those in our country.
It’s probably a good time to sum up all of this. I don’t see any possibilities to apply crowdfunding (or crowdsourcing) model for tickets sales in Russian market. We have to many differences with Western markets, so it’s not about taking what’s good there and doing it here. I hope this story will be helpful for someone because we’ve spent more than a year working too hard to realise all of these things.
Anyway, I believe in EntTech in CIS markets. If you asked people “what is crowdfunding” in 2012, you’d get less than 1% of populations having the right answer, while it became 2–5% in 2016. Also, there are more and more artists getting to the top from being absolutely not famous, so there’s a chance that our market will get closer to Western one in terms of positive figures in the future. Will see, but probably without any new startups for this industry from my side, but who knows.
P.S.: I’ve written this article in the very beginning of 2017 but only translated it in 2019 (you can read the original version here). A lot of things have changes since that time. We now have much more famous artists, especially in rap music. We have developed more technologies for practical use in the industry, and there’s even M&A activity when huge private banks buy out ticketing agencies to develop new revenue streams in b2c market.
I believe that someday we will be much closer to Western markets than we are now. So maybe there’s a chance for crowdfunding here. And maybe we will see brand new “Sound Funding 2.0” getting huge market shares and investment rounds.
