How NFTs will change the music industry
Over a period of around four years, the term NFT has gradually gained prominence in our lexicons thanks to the first-ever NFT experiment — Cryptopunks. In the first Quarter of 2021, the entire NFT market recorded sales of over $2 billion. This number grew to a staggering $3.8 billion just a few weeks later in mid-March.
Like many others, you may have valid objections about the true underpinning value regarding the numbers cited above and the environmental implication of the technology behind them. What is certain and beyond objection, however, is the underlying science and use-case behind the solutions that have emerged.
That being said, one industry that is a leading and emerging benefactor of the NFT craze is the music industry. From record deal contracts, streaming royalty terms to every point where an intermediary is needed in the music business. There is no denying the fact that NFT tech is already finding its way into the music industry.
Why NFT’s are a Game-Changer for Many Music Artists
Why is NFT technology winning over a large number of musicians? This is the million dollar question here and the answer may be simpler than you think. The music industry has simply failed to evolve over the past few years. Record labels continue to remain the custodians or gatekeepers for artists that wish to rise to stardom.
Sadly, it can be said that the only areas of innovation have been in the financial exploitation of artists. This is often achieved via dead-ended contract agreements with convoluted clauses designed to exploit by essentially asserting ownership over any content produced by the artist. Other examples have included fraudulent concert ticketing services over which the artist has no control or influence. Many similar ‘innovations’ have emerged in this space.
“They make money… off of the exploitation of the recordings themselves…” said Cameell Hanna (who has worked with several superstar artists like Justin Timberlake, Adele, Eva Simons, and Snoop Dogg) in an interview. “So, now they make money off of every aspect of an artist’s career. There’s a deal type… called the 360 deal… A 360 deal is sort of the standard… You’re signing a deal, and you’re like, ‘I’m going to be the next Justin Bieber.’ You’re going to be signing a deal like that, where they participate in everything, including every T-shirt you sell. They’re going to have their own piece of that. It’s a giant markup on merchandise.” he added.
Because of these inefficiencies in the music industry, many musicians are optimistic about exploring music NFT solutions despite the aforementioned objections. NFTs facilitate the processes of revenue sharing, music production & distribution and the raising of funds through sales. This allows the artists to create a fairer deal for themselves (often cutting out the exploitative middle-men).
Though the technical implications of the term NFT still elude many musicians and artists, the financial bottom line is clear as the niche provides artists with the opportunity to make a lot of money with little third-party involvement.
Music icons like Grimes reportedly sold almost $6m worth of NFTs within 20 minutes. Similarly, Steve Aoki was said to have earned nearly $4.25m from a collection of NFTs sold. Kings of Leon leveraged the NFT trend to make a whopping $2m from a batch of NFTs. To dwarf their accomplishment, early crypto adaptor 3LAU pulled in a staggering $11.6m from selling his NFT collection.
The remaining part of this piece is an exploration into the evolution that NFTs have been fueling within the music industry. In order to understand this we must first explore how NFTs function, the inefficiencies within the music industry and finally how NFTs can offer a solution to the problems faced within the industry.
Understanding NFTs From the Eyes of a Music Artist
To understand the implication of NFTs in music, one must be able to answer the question “What is an NFT?”. An NFT (non-fungible token) is a digital representation of any art form, asset or entity that gains its value and identity from its uniqueness and rarity. This includes domain names, digital signatures, digital paintings, title deeds, the IP rights to a musical composition, copies of a song and more. NFTs can represent any non-fungible digital asset.
The opposite of an NFT is a fungible asset. These are assets that are identical in value, physical appearance and state, such that members of the same class or group can be exchanged for another. An example is the U.S dollar where each dollar is equal to another. My $10 bill is not in any way unique or different to anybody else’s $10 bill. Other examples of fungible assets include other currencies, gold, Bitcoin, stocks and almost every asset that is traded on traditional markets and exchanges.
Since music is an art form with non-fungible traits, NFT technology has several possible use-cases within the music industry. NFTs can be used to create limited edition copies of a song, autographed copies of an album, IP rights to music, concert tickets valued based on time & location and much more.
Decentralized music streaming platforms such as Audius, Orica, Binance NFT Marketplace, and Ban are paving the way for these NFT solutions within the music industry. The next section will explore how NFTs will change the way in which the music industry operates.
Conventional Recording Contracts and NFT Smart Contracts
The recording contracts that most artists had to consent to have largely not favored them. Most middlemen within the industry take up a huge amount of the artists revenue in exchange for services related to production and distribution.
Every involved party is vying to get a cut from the revenue. Hence the artist has to live with a tiny fraction of the generated revenue, mostly between 10–15%.
Image source: tech dirt
The flagship solution that the blockchain offers since Bitcoin has been the replacement of unnecessary intermediaries with open source code, executed by something called smart contracts.
These smart contracts are pieces of software that are built to replace intermediaries in business contracts. The goal with smart contracts has always been to save cost, save time, remove every unnecessary player in a contract and eliminate the likelihood of fraud (amongst other things) in a business relationship.
Thankfully, NFT technology is set to change the traditional music industry as it provides a unique opportunity to replace an antiquated system and allow the process to be more equitable to creators and their fans alike.
Using NFTs, artists will fully leverage automated smart contracts to verify their work while tracking its provenance and sales. Before blockchain, this process was highly prone to error, laborious, slow, and left room for exploitation.
With this approach, artists will keep the majority of the profits when selling their work for the first time. As per current trends in the industry, NFT artists can retain nearly 80–90% of sales. This is not to mention royalties, represented by a percentage of every subsequent sale in the future.
Due to the cryptographically secure nature of the process, musicians can say goodbye to the activities of costly middlemen and gatekeepers thanks to smart contracts.
Besides putting more money in the hands of artists upon releasing a song or album, NFTs can guarantee the payment of predetermined blockchain music royalties seamlessly.
At the moment, Orica is leading this innovation as the first NFT music project to support initial NFT offerings that will allow artists to sell out stakes of revenue rights from their pre-produced songs. As a result, artists will be rewarded on their terms rather than have record labels and other traditional intermediaries walk away with over 85–90% of their sales revenue.
Slow Fund Disbursement and Real-Time Disbursement with Smart Contracts
With the current realities in the music industry, especially as it concerns revenue disbursement when dealing with streaming service providers and record labels, many traditional artists have to wait as much as six months before they are paid for a record sale.
Thankfully, NFTs are here to change that through self-executing smart contracts. With these types of smart contracts, musicians can sell their content on a blockchain-enabled marketplace where royalty payments are automatically distributed without any recurring action from the artist or buyer.
Through the power of blockchain, all sales have a timestamp (which indicates the exact time of the exchange) and are verifiable on the blockchain. This way, the sales data can be audited at any time by anyone. As the tech gains more institutional adoption, this could serve as evidence in court.
Audius, a music streaming and sharing platform that puts the power back into the hands of content creators, is leading the way with this innovation. With Audius, artists can stream directly and earn in real-time as streaming revenues are generated.
Ticket Sales Automation
According to Billboard Boxscore, the music industry generated over $360 million in revenue from just 25 concerts in 2015. Given these overwhelming figures, you may be inclined to think that the artists involved in these concerts are rewarded well. Unfortunately this is not the case. Most established artists only get about 12% of the revenue which is grossly unfair. This is not including the loss of revenue resulting from ticket fraud.
Fortunately, NFT ticketing and smart contracts are set to completely change the way event ticketing works. Musical artists finally have the ability to prevent ticket fraud during their concerts and events.
Because they are a unique digital asset, artists can issue NFT tickets to combat issues such as ticket fraud which siphons funds from their revenue. Another cool thing about this is that it makes it super easy for tickets to be transferred and resold securely using blockchain technology.
Bam, a smart NFT ticketing platform, allows for ticket sales to be automated by event organizers, sports clubs, and artists. They can be easily transferred or resold securely via blockchain technology where every activity is recorded on a blockchain.
Product Customization with Limited Edition Sales
The rise of NFT music innovations has provided artists with the unique opportunity for product customization with limited edition sales. This has dramatically increased artists’ revenue and granted them full ownership of their content.
For instance, Kings of Leon, the Tennessee rock band famous for hits like “Sex on Fire” and “Use Somebody” has jumped on the NFT trend to launch a special edition album that eventually sold out for over $2m. Kings of Leon are just one of many musicians taking advantage of the NFT music tide. Other big names like 3LAU have leveraged the opportunity that NFT music tech offers to launch limited edition tracks which pulled in $11.6 million.
NFT music tech is increasingly providing artists with new opportunities to increase their sales and royalty revenue while creating unique experiences for their fans. With NFTs, musicians are able to interact closely with their fan base and directly enjoy the accompanying rewards.
As the space continues to evolve, NFT powered platforms will become the operational standard used by artists and enthusiastically accepted by their fans. We are also very likely to see an institutional adoption of NFTs, making them acceptable as proofs in courtrooms.