Setting up New York Rock Exchange, an Emeryville, CA-based marketplace that sells music lovers shares of individual songs, wasn’t easy for Jeff Annison, CEO and co-founder of Underground Labs. The idea itself was simple: allow fans to buy pieces of their favorite bands’ songs, letting them get a little closer to their beloved artists. But navigating the world of securities, rights, and music was far more complicated than he thought.
The idea first came to Annison and friends while they were running an “American Idol” pool. They were watching an episode of the show when someone floated the idea of buying shares of up and coming musicians. But it turns out, you can’t buy a share in a musical artist—securities laws make it logistically impossible. Buying rights to a song was too complicated (and expensive) as well, and farther away from what they were hoping to give fans—a way to get closer to and feel more involved with the artists they love.
Instead, Annison and Underground Labs co-founders Joe Krause and Eric Lam built New York Rock Exchange, a kind of stock market for songs. Instead of selling pieces of musicians or song rights, they issue what they call “SongShares.” Each share comes with perks provided by the musician, like early sales on concert tickets or a special album cover, or, in the case of ‘60s British invasion band The Zombies (pictured above), a new, unreleased acoustic version of their iconic song Time of the Season. Former “American Idol” runner-up Crystal Bowersox (below, with car) offers a hand-written lyric print with one of her songs.
Each song on the exchange has a limited number of shares, depending on the popularity of the band and the perks from the artist. For example, Time of the Season has 1,000 shares on the market, but a lesser-known song or band might only have 100.
The company takes a fixed percentage of the price paid for each share, and all bands get the exact same deal. “[It’s] important because fans want to know that they are supporting the people making the music,” Annison says. NYRE also pays all costs associated with the shares, like studio fees for a new track or marketing.
So far, song shares have ranged between about $20 and $40, but Annison has had conversations with bigger bands about offering only 10 shares of a song, say, for something like $3,000 coupled with massive perks like dinner with an artist after a concert.
Once all the song shares have been purchased, the worth of each share will depend on its popularity, just like in the real stock market. “That really is what ultimately sets the value of the shares, supply and demand,” Annison says. The song exchange can’t help you resell your shares yet, but it expects that to be available by the end of the year. Underground Labs’ developers are still working to build it, and the technology is “nontrivial,” Annison says.
He compares the exchange to a stock offering the Green Bay Packers set up. The Wisconsin football team offered fans $62.5 million in stock at $250 a share, but the stock didn’t pay dividends, couldn’t appreciate, and could only be passed down to family members. The Packers needed help paying for a 6,700 seat expansion to their stadium. But even without the traditional benefits investors might buy stock for—the opportunity to earn money on it being the main one—rabid Cheeseheads couldn’t wait to plunk down their $250. In fact, the team sold 1,600 shares in the first 11 minutes of the sale.
Annison isn’t expecting shares of songs to take off that fast, but the concept is the same. “Our shares are very different,” he says, “but at the end of the day we’re trying to tap into the same thing. The ability to buy something you’re very passionate about. That’s what we’re trying to bring to the music industry, and give the fans a connection to the artist. In a lot of ways it’s like an old-school fan club, coupled with a limited edition piece.”
Jorge Hernandez, manager of The Classic Crime, thinks it’s a great way to get fans more involved with the band. “There’s always a rabid part of the fan base that wants something unique to the band that only they have, and this would appeal to them,” he says. It’s also another revenue stream for bands in an industry shaken by the new media revolution. “I don’t think it’s any secret that bands are always looking for unique and valuable ways to monetize their fan base.”
So far, Annison is focusing on bringing more artists to the exchange, but down the line, the exchange could partner with festival organizers to offer perks like VIP access to concerts or other events.
The NYRE was launched late last year, and Underground has been funded with a combination of bootstrapping and angel capital. So far it has nine songs on the exchange, with more in the wings. Annison expects to have 40 listed by the end of the year.
“We’re brand new,” he says. “Everyone wants to see how it’s going to work. Artists have to be very protective of their brand and their relationship with fans. Naturally, they want to see us prove ourselves before they jump into being guinea pigs.”
