The NFT is a catchy acronym. Whilst most people still don’t know what it stands for (non fungible token), or what it does (glorified Jpeg?), artists have sussed it out and are forging ahead to explore ways it can not only increase their exposure, but also bring their fans ‘in’ on the game as well. Both artists and fan now stand to benefit from this symbiotic relationship, in ways that a record company might never have thought of. Or probably wouldn’t encourage, as this could in fact negate the need for one in the first place.
A rapidly growing number of artists have turned to NFTs in recent years to create new business opportunities and fan experiences. From world-famous superstars to up-and-coming artists looking to break out, the trend is universal.
Muse’s “Will of the People” became the first UK number one album to incorporate NFT technology. Snoop Dogg has also shown keen interest, launching multiple crypto-based ventures. On the independent front, many artists are turning to decentralised platforms like Decent and Audius to offer both collectibles and digital music to generate revenue streams and kick-start their careers.
Artists of all genres and levels of fame are embracing the opportunities created by NFTs because they can help them deal with some of the problems they face. Let’s take a look at some of these key issues and how they are being addressed:
Fundraising for Music Releases
Obtaining funding is one of the most difficult challenges in the music industry. Under the legacy system, the goal of most artists was to attract the attention of a record label, which would then sign them and provide the initial investment required to produce and promote their material. However, this system has several drawbacks for both signed and unsigned artists.
Like any other business, record labels have limited resources: there is only so much time and money available to discover and fund new acts. This functions as a built-in filter, taking away opportunity from innumerable acts that are simply not given the opportunity. Due to the permissionless nature of the blockchain, anyone can use NFTs as a fundraising method. While there is no guarantee of success, the result is left in the hands of the public instead of a small group of record executives.
Even for those who get signed, recording contracts often come with strings attached. Labels may pressure artists to change their sound, take a majority of the revenue generated by the artist, and often take control of both the intellectual property rights of songs and ownership of master recordings. This fact received mainstream attention in 2019 when Taylor Swift announced she would be re-recording all of her old albums to own the master tapes.
When NFTs are used to facilitate direct funding between fans and artists, many of these unwanted strings are avoided. Artists can create their own digital collectibles, which listeners can purchase to show their support. This allows musicians to raise enough funds to release a single, EP, or even an entire album. The main benefit is that they can keep ownership of their songs, master recordings, music videos, and other content. By removing the middleman, artists are able to retain control over their careers.
Revenue from Secondary Sales
When artists sell collectibles, concert tickets, or the rights to their music, they are only able to earn revenue once for the transaction. If the new owner sells these things to someone else in the future, they receive all of the proceeds and the artist is cut out of the equation. This “value drain” can become quite significant. For example, it is estimated that as much as 60% of the tickets for in-demand concerts are resold at least once.
NFTs can change this dynamic due to a unique feature: they can be programmed to pay a percentage to the original creator each time they are bought and sold. This has the potential to create a secondary source of income for artists that create digital collectibles, tokenised tickets, and property rights. This revenue source rewards artists who stand the test of time and see their popularity grow — as the tokens associated with their brand appreciate and generate profit for fans and collectors, the artist captures a piece of the secondary value created by their success.
An example of this can be seen in the Head5 collection from Deadmau5. This collection has a 7.5% creator fee, meaning that each time one of the NFTs changes hands, that percentage of the transaction’s value is diverted back to the artist. These small amounts can add up — in the ten months since the collection began trading, the creator fee has generated an additional 13.75 Ethereum in revenue worth over $20,000 at today’s prices.
Intellectual Property Rights
The protection of IPR has also become a hot-button issue in a landscape where music is being created and shared at an accelerating pace. Artists are extremely vulnerable to plagiarism, both from other artists and through digital piracy in general. While large acts signed to major labels enjoy access to legal representation, most independent artists cannot afford to have the same privileges.
NFT may also be able to help solve this issue. A non-fungible token is essentially a tokenised authentication certificate. Each NFT is powered by a smart contract that makes it unique, and the blockchain keeps an unchangeable record of who owns this asset. Artists can protect their intellectual property rights by tokenising singles or entire albums, as there can never be two identical NFTs. At the same time, musicians can give a share of intellectual property rights to their fans if they want to. Tokenisation lets music be turned into a digital asset and sold or licensed in a marketplace. However, selling NFTs doesn’t require the sale of intellectual property rights.
While these developments are still in their early stages, I believe this will emerge as a major use case in the years to come. As the legal and technological landscape evolves, it seems inevitable that NFTs will become an affordable and accessible way for musicians to represent, divide, and sell the IPR of their content. With this ruling from a UK court, legal documents can already be served in tokenised form. This indicates that the time has come for non-fungible tokens to be used in a variety of sectors, including the music industry, where piracy is rampant.
The Future of NFTs in Music
The common thread between all of the use cases above is that they create a more direct link with fans while allowing artists to keep more creative control and a greater share of the value that they create. Both of these are powerful incentives, and for this reason, I feel that non-fungible tokens will play an increasingly important role in the music industry. When technology is used thoughtfully and purposefully, it has the potential to change the way creators and consumers interact, creating a “win-win” scenario for everyone involved.
Mattias Tengblad, CEO and founder of Corite, a blockchain-based crowdfunding music platform.
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