Fundamentals Of Rudimental: Decentralized Crowdfunding For Film

Crowdfunding on the blockchain usually, refers to Initial Coin Offerings (ICO’s) through the crowdsale of tokens for backers seeking to earn a profit from emerging platforms. For those outside the space, crowdfunding has become a valuable tool to raise funds for anything from new technologies and creative ventures to medical bills and personal vacations. Crowdfunding has also provided content creators a way to fundraise budgets for narrative films, documentaries, web series and fan-made proofs-of-concept (PoC) to popular would-be franchises. The leading companies to facilitate this process, Kickstarter and Indie Go Go, function through an incentivized system where supporters can back a project with fiat currency and in return, the filmmakers provide a copy of the work or other perks such as T-shirts, a supporter’s name in the credits, or other memorabilia related to the project. In return for offering this service, these sites take a percentage of the campaign’s goal. For many people, this model has worked, allowing filmmakers to get their projects off the ground and seen by the public. While crowdfunding has revolutionized the way filmmakers access capital, it’s not without its share of deficiencies.

Drawbacks

Typically, filmmakers seeking to crowdfund create a campaign that outlines the specifics of their project, their business model, and reasons why they are making the project. This is usually done in the form of a video, often involving the creators announcing a “call to action” that supporters can rally behind and pledge their money to. In order to draw in the support of strangers (the largest pool of contributors for projects), filmmakers create incentives such as rewards for contributions. These material rewards work on a tier system of value- the more a supporter gives the more valuable an incentive is provided. As great as coffee mugs, posters, or even a coveted “producer” credit on a film is, these incentives are hardly more than a promotional gimmick filmmakers create to entice supporters. For contributions ranging from $5 to $100, this model may be justifiable as a ”thank you” tactic the same way public radio stations organize annual fundraising drives. For those higher cost contributions, say $5,000 (USD), backers should receive something of more prominence.

This sentiment is one shared by Rudimental founder Troy Murray, a filmmaker, and actor who has been involved in the blockchain space for many years. Murray, who describes Rudimental as an “equity crowdfunding platform aimed towards filmmakers and short form media,” recently published a Medium article outlining Rudimental’s whitepaper and the specific components of the platform. In his piece, Murray highlights issues with the traditional crowdfunding model and offers solutions to reshape this growing industry.

“The biggest problem right now with ‘traditional’ crowdfunding is no one who puts money in gets any money out.

We are aiming to change the way artistic projects are made, starting with film and then branching out into other forms of media.”

Another problem with the traditional crowdfunding model is that filmmakers must allocate a percentage of their raised profits toward the expense of backer perks. While some resourceful creators opt to make their own perks to personalize their appreciation and save cost, most still spend a significant amount of money on design, printing, and shipping costs. All of these steps are taxing on the filmmaker’s budget, time, resources, and energy. Horror stories about how much time raised funds are spent on shipping costs from first-time campaigners circulate on the internet. With traditional crowdfunding sites charge 5% plus transaction fees on each payment made from backers, many filmmakers are often left asking themselves if all the effort was worth the journey.

The Fundamentals of Rudimental

Rudimental is more than an equity crowdfunding platform, there is also the Rudimental Exchange and Rudimental Media, the platform’s content channel and unique model of a film production company. The exchange will serve as the marketplace for backers to sell and trade the shares of a film. When a supporter agrees to invest in a project, their fiat currency is converted into tokens or shares that belong to a specific film. Instead of receiving perks for a contribution, backers will possess a financial stake in the film. Murray explains:

“The [Rudimental] exchange will operate like any normal cryptocurrency exchange. You’ll be able to trade in tokens person-to-person, for cashing out you can get the funds in fiat or cryptocurrency. Right now, it’s a little murky because no one has actually done an exchange with this type of equity yet. For one, the laws have only been out for a year, so no one has been able to trade them. It’s either going to have to be in Ether, Bitcoin, and some fiat outlet. How this will work completely has yet to be worked out.”

The laws Murray refers to pertain to SEC regulations on the subject of crowdfunding and investment. Because the contributions made on traditional crowdfunding sites are considered “donations,” the contributions are exempt from federal financial regulations. In 2012, President Barack Obama signed into law The Jumpstart our Business Startups Act (JOBS Act), which eased security regulations on the funding of small businesses in the United States. This ACT made it possible for everyday citizens to invest in startups and new business ventures, including crowdsales that were only accessible to accredited investors who made more than $200,000 (USD) per year. The Title III of The Jobs Act, “Regulation Crowdfunding,” took effect in May 2016, granting companies the right to raise capital through crowdfunding. Because the funds raised on these traditional crowdfunding sites are defined as donations, these entities are operating within the law. With the change in SEC regulations pertaining to crowdfunding, known as Reg CF, startups, and other private companies are now able to legally raise capital through equity crowdfunding. This is crucial to understanding Rudimental’s equity model.

“People will just be paying directly through fiat. Let’s say you give $100 to a film, in exchange, you’ll get tokens. The producer will just receive that fiat currency directly, those tokens are backed by the SEC security contracts that we connect to. The fiat goes from the investors to the producer, and in exchange for that fiat, the investor gets tokens that are also backed by SEC security contracts. Once the funds have gone through, the people who invested are not allowed to trade those shares for a year, that’s from the SEC. If the film comes out and you want to liquidate, you’d have to wait a year. Those laws are in constant flux, there’s even a new bill right now for how all that would operate, but those are the laws, for now, we have to follow.”

The Rudimental Exchange, in many ways, legitimizes media crowdfunding by adhering to US law and SEC regulations. For this reason, the platform has yet to launch and there is much to finalize in terms of legality and finance before the portal is available for consumers. Murray further states:

“The SEC was really receptive to us using Ethereum, they found items in our proposal interesting and had an understanding of blockchain. Some of the ways in which we thought we could do some things they said we couldn’t do. It’s completely uncharted, you kind of just keep going until they say no.”

Giving the Underdogs a Shot

Rudimental Media is the third component of the platform that will create a new model for the way films are made. The company aims to create a portal to link producers and film crew members based on factors such as shooting location, budget, and specific creative needs determined through data collected on the site. Rudimental Media will also demystify the production process for investors who are often left in the dark. Film investors using this service will be able to receive announcements and track the progress of a project, intimately connecting them to their assets. Crew members working on backed projects would also have the option of investing in the films themselves, to become creative collaborators and financial investors. Rather than being paid only for the work performed during a film’s production, crew members will have the ability to possess a stake in the film’s profits, which may incentivize them to perform at an even greater level than in the typical business model. Because Rudimental is built on the Ethereum Network, transactions and payouts would be documented and occur much faster than the existing models that do not utilize blockchain-based tech.

An additional component to Rudimental Media will also offer internship programs for beginning filmmakers to learn and work on the set of films. Due to the entry into Hollywood often requiring expensive education or connections to people in the industry, Rudimental Media will allow individuals easier access. Rather than entering the film space with a huge amount of film school debt, students and beginners alike will have the opportunity to learn, work, and even invest in Rudimental-backed films if they choose to. Murray elaborates:

“Everyone with a phone now is a movie creator, an editor or is a media creator in some sense, so it’s kind of getting more ingrained into us. I think you can open up the playing field -  toward much larger groups of people and provide an infrastructure in which they can get things done. In Hollywood, it’s extremely hard to get anything done, you have to know a lot of people and there’s no centralized database in which you can go and try to get a job on a film set or learn the craft, this is something I feel we need to rework and create a new business model for. If you’re a great filmmaker or storyteller you should have that shot, you should be able to get that shot much easier than it is now. That’s been my experience to the whole situation.”

Rudimental + Ethereum

Rudimental runs on the Ethereum Network through the use of smart contracts that execute agreements between campaign creators and contributors. Combined with elements of the ConsenSys projects Weifund and Boardroom, the platform has implemented decentralized systems for the trading of a film’s shares (tokens), communication, and governance models. Rudimental’s collaboration with these companies facilitates the framework necessary for the platform to operate, while also adhering to SEC regulations established surrounding crowdfunding.

Murray said why he felt it was important for him to create a decentralized platform for equity media crowdfunding:

“I’ve spent a lot of time thinking about what will happen when robots will take over, they might take a lot of jobs. I extrapolate that to what kind of jobs will be left - how the system is setup right now to accommodate those [jobs] and what jobs will be left. I honestly believed that art and media and creative things will be a sector that you can’t really use automation- I mean you could, but I think in the future there’s a really big possibility that you’ll have art that has labels that say “human made” not “robot made”, kind of like you see with food like “non-GMO” or organic food. I think in the future there will be a kind of schism towards that.”

A New Horizon

With Rudimental creating a first-of-its-kind platform for media equity crowdfunding on Ethereum, the company is forging new ways the blockchain will affect everyday consumer’s lives. Most people, whether involved in film or not, have contributed to a crowdfunding campaign, or are aware of its process. With Rudimental’s decentralized paradigm at the core of their infrastructure, this preexisting service will undergo a revamp with more benefits to the consumer. This platform will bridge finance to the arts and media, with cutting edge technology. Rudimental’s upcoming launch this 2017 will be a subject of much anticipation.

Founder Troy Murray has told ETHNews that major announcements will be made at the end of January 2017 with a projected launch in Quarter 2 of this year. ETHNews will follow-up on Rudimental’s progress and report on significant updates.