Following-on from general NFT coverage in June, and generative-art NFTs in September, here we focus on music-related NFT-applications. A quick reminder from our June newsletter: NFTs (non-fungible tokens) are native to blockchains and, like any other token, are developed using smart contracts. The main difference is they are non-fungible, i.e. unique, and with no 1:1 relationship between one NFT and another. And they can, in theory, carry a digital representation of any physical or digital asset.
Music – the digital status quo
The music market has already utilized various digital platforms, such as filesharing ones (e.g. LimeWire), digital music stores (e.g. iTunes) and, most recently, digital streaming (e.g. Spotify). All of these have exposed fundamental problems with the traditional royalties system, with it not providing a decent living for artists. For example, streaming platforms generally rely on monthly subscriptions – yet most barely turn a profit or pay musicians a reasonable sum. On average, creator-payouts average less than $0.01 per stream – resulting in only around 7,500 out of 8m Spotify artists able to earn a living wage from streaming.
NFTs in the music industry
Music-related NFTs are a niche application still in their infancy, and have only around 5,000 people actively investing in royalty-related versions. Still, the technology has potential to improve the industry in a number of areas. NFTs could, for example, provide artists with new sources of income, improve fan and community engagement, and present opportunities to create and distribute music.
Let’s explore a few application areas and some leading players.
- Songs as NFTs: Probably the most straightforward application is linking an NFT directly to a song. This lets fans invest in an artist and participate in the success of the song. It differs from an online music store, in that the user actually owns part of the song-NFT, instead of merely buying the right to listen to it. This results in a new power dynamic – fans become investors in artists they believe in, and artists can directly distribute their work in digital format. There are marketplaces specializing in royalty sharing models, where artists can sell a percentage of their royalties to NFT holders. Examples include Royal, Opulous, and Sound XYZ.
- Community / Fan engagement: Besides sharing actual royalties, there’s many ways to drive fan engagement through music-related NFTs. For example, artists could sell and monetize artworks, unreleased tracks, and special album covers in a limited version NFT. Another option is to create special communities of super fans – for example selling a VIP NFT at career-start, granting lifelong VIP access to concerts, or selling community NFTs granting access to a super-fan channel (similar to a Patreon subscription). Platforms for building such engagement marketplaces include LimeWire, OneOf, and Boleromusic.
- Generative Music: This is comparable to generative-art NFTs, covered in our September newsletter. AI is not yet capable of generating a catchy rock or pop song – however, there are already original AI creations in the electronic and ambient music genres. Probably best known in this space is Eulerbeats, which generates audio tracks and visuals based on the Euler number and the Euler-Totient function. Its Genesis and Enigma collections have both achieved sales revenue of over 2,000 ETH.
- Labels: Many established and new labels are exploring the feasibility of becoming NFT labels. These would allow fans to trade ownership of recordings, artwork and other assets from artists signed to the label. Prominent examples of NFT-friendly labels are Snoop Dogg’s Death Row Records, Probably a Label (a collaboration between web3-project Probably Nothing and Warner Records), and Hume (a web3 native label).
- Ticketing: Apart from music NFTs, there’s also a case for using the technology in ticketing various events and concerts. The main benefits are fraud prevention and the possibility of attendees retaining the NFT as a souvenir, while providing open access and transferability in a decentralized manner – and so not relying on big players like Ticketmaster. Projects in this area include Afterparty, Tomorrowland’s NFT Tickets, and YellowHeart.
- Streaming: There’s a number of music-streaming projects in the web3 space, the best-known being Audius. Although not using NFTs in their streaming platform, Audius does pay artists through a native token and has an integrated NFT gallery function as well.
- Collectives / Grants: In addition to the above players, there’s numerous collectives and incubators supporting artists, both in their creative process and in navigating the new web3 landscape. Some of these are affiliated with already mentioned projects, while others are not focused solely on music. Examples include FriendsWithBenefits, SongCamp, HiFi Labs, Audio Grants Committee, and MusicFund.
Implications for artists and the music industry
Currently, artists struggle both to break into the industry, and then to earn a living wage within it – due to depending on large labels and streaming platforms. Undeniably, these platforms have successfully combated music piracy and improved customer experience. However, artist payouts remain small, with their earnings around 0.3-0.5 cents per stream. Even famous artists rely on other sources of income – only around 7,500 artists earn over $100,000 annually from Spotify (a $15bn company with over 6,500 employees). Generally, the industry is skewed to large players and labels, with countless examples of exploitative deals (e.g. for Prince, Taylor Swift, TLC).
These failings provide numerous areas where NFTs could one day improve the industry’s status quo. Overall, NFTs could rebalance the power dynamic between labels and artists – something that is already improving with indie labels. They could also shift the relation between fans and artists, allowing consumers to become participants, investors, and community members of any artist – all without relying on centralized, third-party intermediaries. In a sense, this can already be seen in the trend of opening up music as an alternative asset class. For the artist, NFTs present a plethora of new opportunities. For example, they can tap into new ways to start out and earn a living by selling community versions to their closest fans. They can access new labels and platforms for distribution, while potentially profiting from fairer economics. There might also be improvements in payment allocation and speed for royalties, as well as new royalty streams from secondary sales on NFTs.
So far, numerous creators and artists have trialed some form of NFT. This includes up-and-coming artists relying exclusively on these new options, such as Daniel Allan, Latashá, and Black Dave. On the other hand, there are many famous, established artists experimenting with NFTs, including Eminem, Kings of Leon, Snoop Dogg, and Steve Aoki. Aoki summarized it nicely when he revealed that performing as a DJ makes up the majority of his income, while music royalties don’t “amount to very much.” He added, “… in the 10 years I've been making music, six albums, and you culminate all those advances, what I did in one drop last year in NFTs I made more money”.