Based on recent accounts, however, PledgeMusic's problems seem to have worsened. In turn, many acts, like ohGr, have been unable to produce products for their fans or have gone into debt in order to do so. Instrumental band Incendio has been waiting five months for an initial $3,300 payment of its total $6,200 raised, for example, while '90s pop-rockers Fastball are still owed over $10,000 after receiving a payment for about half that total in January. The band's manager, Peter Wark, says his requests have been shuffled among different higher-ups at the company like "a game of hot potato."
The main selling point of crowdfunding companies is trust itself. "Once they lose that, it's hard to get it back," says Chris Castle, an attorney who advocates for creators' rights. "Because why else are they there?" While Kickstarter and Indiegogo are not facing the same issues as PledgeMusic, the default of a major crowdfunding service could cause ripples through the industry. If customers and campaign owners are too turned off by the experience, PledgeMusic's actions could do industry-wide damage.
"The whole thing has a J. Wellington Wimpy feel," says Castle, referencing the Popeye character's famous catchphrase, "I'd gladly pay you Tuesday for a hamburger today."
PledgeMusic has not explained why it can't pay artists the money it owes them and did not respond to Billboard's direct questions on the matter, asking in a statement for "patience" and some "breathing space" as it explores potential partnerships or acquisitions that it says would help bring accounts current by the end of April.
But a former employee who asked to remain anonymous says the company doesn't hold funds "on account for the artist," as the website's terms and conditions say. Instead, the ex-employee alleges, PledgeMusic uses that money for ongoing operations and invests it in growing the company.
On Jan. 29, PledgeMusic co-founder Benji Rogers announced that he has returned on a short-term basis, and PledgeMusic has said it plans to bring in a third-party company to manage all artist funds going forward -- something leading competitors Kickstarter and Indiegogo already offer through online payment company Stripe. This week, PledgeMusic announced it would suspend accepting contributions to its active crowdfunding and presale campaigns until further notice.
PledgeMusic could have a hard time regaining the trust of its users. In the past month, artists and fans have left the platform, telling Billboard they're unlikely to return. While some acts are taking their campaigns to competing crowdfunding services, others are opting instead to run campaigns on their own websites. The British Musicians' Union has advised artists to use "other established crowdfunding platforms until such time as this situation has been resolved." ohGr has set up a Bandcamp page to handle sales moving forward.
"It's a ‘too little, too late' sort of deal for me," says Latin pop singer-songwriter Melissa Otero, who canceled a campaign for her album Erotomania after one month and moved to GoFundMe. "This is a huge responsibility, and I need my fans to know they can trust me and the platforms that I use. I can't afford to wait a year to receive money to fund my project that is happening now. It just doesn't make sense."
Already, the crowdfunding platform business model has an inherent flaw: Unable to guarantee that campaigns will fulfill orders, how does anyone know they'll get what they paid for? Stories of fraud -- such as the board game The Doom That Came to Atlantic City, whose manufacturer was charged with deceptive tactics in the Federal Trade Commission's first case involving crowdfunding, in 2015 -- are largely headline-grabbing outliers. But tales of ineptitude, like Central Standard Timing's promised "world's thinnest watch" that blew through $1 million before CST filed for bankruptcy in 2016, are more common and arguably more damaging to crowdfunding's credibility.
More often than not, things work out. Kickstarter, the crowdfunding market leader, has paid out $3.7 billion ($207.8 million in music); a 2015 study of the platform found that 9 percent of projects failed to deliver rewards. More recently, Kickstarter and Indiegogo have launched initiatives to assist campaign owners with manufacturing to scale.
But, in this relatively new and unregulated marketplace, little attention has been paid to the granddaddy of all failures: What happens when the crowdfunding portal itself flops?
"What PledgeMusic is doing is just offensive to anyone who is trying to create a project," says a source in the crowdfunding industry, "whether it's a music project, in this case, or any other creative endeavor."
Crowdfunding attorney Mark Roderick says that before now, he would have said the rewards-based crowdfunding space was operating "extremely effectively" without regulation. "Since the beginning of donation-based crowdfunding, it has been surprisingly free of fraud and bad actors," he says. Perhaps, no longer. If lawsuits are filed against PledgeMusic, they could bring regulation to a business that so far has thrived without it.
"This would be the man-bites-dog story," says Roderick. "By far the exception. But for good or for worse, regulation often is the result of the man-bites-dog story."
This article originally appeared in the Feb. 9 issue of Billboard.