FanDistro, a marketing and sales platform for artists, announced it is accepting bitcoin as payment, becoming one of the first music platforms to jump into the rapidly growing but highly volatile currency.
Bitcoin, invented in 2009, is an unregulated currency that has started to catch on with major retailers and merchants such as Overstock.com, Zynga, Virgin Galactic and select Etsy sellers who accept bitcoin payments.
For FanDistro, the primary advantage of using bitcoin is that it allows artists to avoid paying credit card payment processing fees, which typically eat up anywhere from 5% to 10% of every sale, said FanDistro Founder Michael Penfield.
"It’s crazy how much money is spent by artists to process transactions," Penfield said in an interview. Under an agreement with Coinbase, a major bitcoin exchange based in San Francisco, artists will not have to face the stomach-churning fluctuations in the bitcoin market. While fans can pay with bitcoins, Coinbase will convert the bitcoins and pay artists in dollars. Artists also don't have to worry about the value of bitcoins eroding their sales. A $1 download will always yield a $1 in gross revenue, because bitcoin prices will automatically fluctuate to yield the same amount in dollar terms. FanDistro does not charge a transaction fee. Instead, artists agree to give 20% of their sales to a charity of their choice.
"The artist will not be exposed to any exhange risk whatsoever," said Penfield, a musician who spent 17 years as an investment banker for Merrill Lynch, Lodestar Group and Cowen & Co. before launching FanDistro in 2012.
Eventually, the company will let artists choose whether they want to be paid in dollars or bitcoin.
"Musicians are a funny bunch," Penfield said. "We embrace our independence. That’s what attracted me to bitcoins. You’re independent of government currency manipulation, bank fees and regulations."
Penfield acknowledged that usage of bitcoins to fund illegal transactions, such as the Silk Road online drug market, have detracted from the currency's reputation, sometimes overshadowing its legitimate uses. He feels that as more established businesses such as his begin to accept bitcoins, the currency will gradually gain stability and respectability.
"It’s going to take some time for that to mellow out," Penfield said. "Within a couple of years, we will look at a relatively stable market" for bitcoins.
FanDistro, based outside of Stamford, Conn., allows artists to give away T-shirts, music and other rewards to fans who help promote their music. It also lets artists sell tracks on the site. The fledgling company, which generates revenue from advertising and sponsorships, on Monday also announced it has raised $700,000 from angel investors.