Every Wednesday morning, Artnet News brings you The Gray Market. The column decodes important stories from the previous week—and offers unparalleled insight into the inner workings of the art industry in the process.

This week, a reminder that you better play the game before the game plays you…

THIS ONE TIME, AT BANDCAMP…

Earlier this month, Epic Games, maker of the online quasi-metaverse phenomenon Fortnite, acquired Bandcamp, a digital marketplace for music and merchandise that has achieved almost universal acclaim for its pro-artist business structure and profitability. The deal and the conversations around it deserve attention from the contemporary art industry because they suggest that, contrary to the suggestions of the most self-interested proponents of the internet’s supposed next phase, sellers don’t necessarily need new technology to equitably compensate artists while staying solvent.

To understand this story’s importance, you first need to understand Bandcamp’s identity and appeal to musicians in the dystopian economy of today. This excerpt from Matthew Ismael Ruiz at Pitchfork lays a great foundation:

Bandcamp was founded in Oakland, California in 2008, with a simple premise: Artists should have more control over how they sell and market their music, and existing platforms charge too much for the services they provide. Bandcamp allows artists to charge whatever they want—including nothing at all—for their music, as well as use their digital storefront to sell other merchandise.

The platform’s ease of use and relatively low commission rate of 15 percent made it attractive to independent artists and labels, eventually helping to foster vibrant communities of lo-fi, offbeat, and experimental musicians—all while turning a healthy profit. 

Bandcamp has transferred artists and labels a grand total of nearly $1 billion since 2008, according to Ben Sisario of the New York Times. That might sound like a lemonade-stand business in comparison to the $5 billion that Spotify says it forked over to music rights holders in 2020. But artists banked 85 percent of Bandcamp sales versus subdivisions of a penny per stream on Spotify, which suggests how different the arrangements really are.

Bandcamp’s sale to Epic was announced March 2. Terms of the deal were not publicly disclosed. I suspect they would have been irrelevant to the many Bandcamp artists and buyers who recoiled at the news anyway. 

For these skeptics, the fear was an existential one ingrained by the consequences of multiple big-money encroachments into the online-creator economy, including Google’s 2006 acquisition of YouTube and, more recently, Spotify’s 2019 acquisition of the podcasting platform Anchor. Long story short, these deals have not worked out well for the average independent talent. You can imagine why many musicians are wondering whether their Bandcamp lifeboat is about to start sinking. 

Visual artists, dealers, and other art-industry intermediaries should carefully watch what unfolds. Yes, the art and music industries deviate from one another in important aspects, but they’ve also faced many of the same challenges over the past two decades. This is especially true when it comes to the technology-assisted consolidation of power among a few top distributors, and the increasingly paltry compensation for artists beneath the uppermost echelon. 

These inequities help explain why starting over again in the metaverse holds so much promise for so many people, including struggling musicians and artists. Which is all the more reason to monitor whether Bandcamp’s new owner turns the platform away from a surprisingly effective, tried-but-true business model and toward a more speculative one that’s being pitched as an “inevitable” upgrade for us all.

Jeff Tweedy of Wilco performs during the 2017 New Orleans Jazz & Heritage Festival. (Photo by Tim Mosenfelder/WireImage)

STANDARDS AND PRACTICES

What matters about Bandcamp is that its reputation and results hinged on nothing particularly flashy or futuristic. The business—which has been profitable since 2012, according to a Billboard feature published last year—has succeeded primarily by structuring its financials around the premise that artists do the vast majority of the valuable work and deserve the vast majority of the sales. From there, the platform has sought to keep its operation lean and free of world-conquering ambitions. Case in point, Bandcamp cofounder and CEO Ethan Diamond told the New York Times six years ago that the company had no promotional budget whatsoever.

This isn’t to say nothing has changed since its inception. Bandcamp Daily, an editorial arm launched in 2016, introduced an element of light-touch curation to aid music fans who might otherwise be overwhelmed by having to choose their own musical adventure from a practically infinite number of options. Yet the initiative has only reinforced the company’s identity by uplifting largely unknown acts in different subgenres and regions, like artists shaping the rock scene in Bangkok or making collaborative electronic music in Paraguay. 

Another simple but vital upgrade involved enabling artists to expand beyond music to selling merch. Items on offer at Bandcamp now range from limited-edition vinyl and t-shirts, to artist-crafted perfumes and pet toys, and much more. Since adding this feature in 2012, the platform has processed 19.2 million merch transactions worth $332 million, according to its artist FAQ. 

Bandcamp’s winningest innovation was so basic that tech-obsessed critics could argue it doesn’t even deserve the “innovation” label. In March 2020, as the initial North American COVID wave swept away the live-concert revenue that allows many touring artists and venue-operators to eke out a living, Bandcamp announced it would waive its usual cut of sales for one day, so that 100 percent of proceeds would go to artists. 

The business and the beatifications it triggered were so propulsive that the company decided to make commission-free “Bandcamp Fridays” an ongoing weekly event, “cementing the platform as an artist-friendly force compared to big-time rivals like Apple Music and Spotify,” to quote Ruiz of Pitchfork.

Executing brilliantly on this relatively unsexy game plan was enough to make Bandcamp a juicy acquisition target for Epic, a company whose valuation soared to $28 billion in 2021. Although the deal surprised many, the two companies do share some core traits. Most notably, Epic takes only a 12 percent cut of sales from developers in its Epic Games Store, versus as much as 30 percent claimed by Apple and Google in their apps stores. Those hefty commissions are a big part of the reason Epic founder Tim Sweeney repeatedly accused the two Silicon Valley titans of unfairly squeezing developers and stifling competition, eventually suing Apple in 2020 for alleged unfair business practices. (As of this writing, Epic is in the midst of appealing the outcome of that lawsuit.) 

Epic has also done a healthy amount of music licensing. Fortnite deserves special mention for its role as an ongoing showcase for ambitious in-game concerts, screenings, and hybrid events by some of music’s biggest names. Featured artists have included rap star Travis Scott (before the tragic mayhem at his Astroworld festival in 2021) and masked dance-music sensation Marshmello. As Ruiz put it, acquiring Bandcamp now gives Epic’s decisionmakers “direct access to [Bandcamp’s] artists, and potentially a frictionless way to license music for their metaverse properties.”

But not everything about the deal sounds so harmonious—and the dissonant notes are the ones that ring loudest in the art world.

15 year-old Yasmin, the photographer’s daughter, plays Fortnite during thee “Travis Scott Presents: Astronomical” in-game event on April 23, 2020. (Photo by Frazer Harrison/Getty Images)

VERSE, CHORUS, METAVERSE

As with so much in the art industry of late, Bandcamp’s future now hinges on two factors: East Asian money and the metaverse. 

In 2012, Chinese tech colossus Tencent acquired a 40 percent stake in Epic Games. Tencent, for the uninitiated, developed the messaging and payments app WeChat—a necessity for doing business and living life in China, with 1.2 billion active users as of 2020. The company is also behind the multipurpose software portal QQ, which offers online social games, e-commerce storefronts, multimedia content, and much more to an audience of 590 million as of this January, per the South China Morning Post.

Crucially, Tencent’s investment in Epic was premised on the latter’s pivot to a Games as a Service (GaaS) model, an entertainment offshoot of the Software as a Service (SaaS) paradigm. Instead of selling a discrete, finished product, GaaS (and SaaS) companies essentially sell subscriptions to online products that are continuously updated over time. As part of the model, Epic and its competitors aim to ring up serious revenue by selling optional in-game extras and upgrades to users.

Consider Fortnite, where players can buy virtual outfits (“skins”), digital items, and even custom dance moves (“emotes”). There is a vanishingly short distance between these transactions and NFTs, especially in the blockchain-enabled web3 future. After all, if users will pay for customizations available in unlimited editions within a single game, why wouldn’t they pay even more for customizations that are unique or limited-edition in an all-encompassing metaverse?

Although the strategic pivot led to some in-house churn for Epic—Ruiz relayed that “several longtime staffers” headed for the exits after the company announced its GaaS transformation—it has largely paid off. Court filings in the Apple lawsuit revealed that Epic grossed a combined $5 billion in 2018 and 2019 from Fortnite alone. Crucially, analysts agree that the in-game market for virtual goodies makes up a significant amount of the company’s annual revenue. For a sense of scale, Epic racked up about $50 million for just one set of National Football League-branded skins last year. 

But it isn’t just the GaaS economy that scared so many Bandcamp fans and artists when they heard of its acquisition by Epic. Tencent is also a major player in the global music business, with sizable investments in the same vampiric forces that Bandcamp has provided a refuge from. 

Aside from owning not one but four Chinese music apps collectively buoyed by more than 800 million users, according to the Los Angeles Times, Tencent currently holds a nine percent stake in Spotify and chunks of two of the Big Three record labels: 10 percent of Universal Music Group, and about two percent of Warner Music Group. Perhaps even more troubling to purists is that two-thirds of the revenue it pulls in through its most popular Chinese music app, Tencent Music, “comes from non-music… from all the ways of people expressing themselves,” streaming-platform analyst Mark Mulligan told the LAT.

Although Mulligan didn’t elaborate, it sure sounds like he’s alluding to customizations and add-ons. 

A photo illustration showing the Fortnite logo and select in-game avatars on different screens. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)

GAME OVER?

The point for the art business is this: In an increasingly inhospitable music economy, Bandcamp had succeeded at a modest but meaningful level thanks to disciplined dedication to old-school sales and brand-building, with artists’ wellbeing front of mind. Epic, in contrast, has grown into a worldwide megalith by reorienting itself around a newer model: the in-game marketplace for virtual goods. That pivot has been largely underwritten by Tencent, which is philosophically and financially aligned with turning what used to be uninterrupted, undifferentiated entertainment into a neverending parade of micro-transactions and unequally distributed content. 

There is at least some reason to believe that, based on the incentives from the music side of its portfolio, Tencent could now push Epic to reshape Bandcamp’s strategy around subscriptions and proto-metaverse content, possibly by funneling more of the latter’s music and talent into games and online experiences, where it can be continuously monetized, drip by drip. And all of this because Epic and Tencent want it, not because Bandcamp needs it. 

Meanwhile, in the art market, artists are increasingly being pitched the notion that diving headlong into NFTs and the metaverse represents their single best hope to earn a sustainable living from their work (at least, if they aren’t already a part of the establishment’s machinery). This argument tends to hinge on the idea that the traditional sales model is inherently broken for artists below the superstar level. So why not blow it all up and start over in, quite literally, an alternate dimension? 

Yet Bandcamp’s decade-long run of independent profitability and artist loyalty suggests that maybe the drumbeat toward web3 is drowning out a quieter, less catchy melody: that it’s still possible to build something sturdy enough to withstand the economic storm without lashing yourself to the blockchain. This melody is getting harder to detect, which is precisely what makes it worth straining to hear. 

[The New York Times / Pitchfork]

That’s all for this week. ‘Til next time, remember: popularity and quality aren’t always part of the same chorus.