Investing in artists to get a share of later success

Date: Wed Apr 04 2001 - 19:23:21 MDT

Ian Clarke, inventor of Freenet, has an essay at proposing a system
called FairShare to fund artists if copyright fails. He writes:

   Consider a simplistic view of how a record label operates. They find
   early-stage bands who are yet to have a wide audience, but who they
   consider to have the potential to be very successful. They invest
   money in that band, and if that band does indeed become a success
   they make a return on their investment.

   FairShare essentially democratizes this process. Anybody can "invest"
   in an artist, and if that artist goes on to be a success, then the
   person is reward in proportion to their investment and how early they
   made it.

   But where does this return on investment come from? The answer is that
   it comes from subsequent investors. For example, lets say that you
   invest $10. $4.50 might go straight to the band, $1 might go to the
   operator of the system, and the remaining $4.50 would be distributed
   among previous investors in the band, those who invested more early
   would get a bigger proportion than those who invested less, later-on.

   Of course, most people will not make a profit, but they are rewarded
   by knowing that they contributed towards an artist that they liked,
   and helped reward others who believed in that artist, and who may
   have brought the artist to their attention.

I think Robin Hanson proposed an idea something like this, but more
generally as a way of funding people early in their lives when they are
not yet very productive. A person could sell shares in their future
earnings and then the investors would profit if the person was successful.

Clarke's idea is a little different in that you make money by getting
an immediate share of future investments made in the artist. If we
stipulate that artists would be unable to make significant money from
marketing their products without copyright protection, this method funds
artists and at the same time rewards the investors.

Economically the scheme seems questionable, as you would not have much
incentive to invest late in an artist's career, since he' already
attracted all the fans he ever will. But that means that earlier
investors would not be rewarded much either, since late investors won't
exist. The whole pyramid will collapse once people realized that the
eventual payout won't happen.

Perhaps a real economist could come up with a scheme along these lines
that would be more sound.


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