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🎸 Why NFTs will rock the music industry
Good evening Upscalers’ followers.
It’s now time to bring you the 18th edition of our weekly journal. This week, we’ll talk about Music NFTs 🎸
Feel free to like, comment, react and respond. Thanks for reading! And if you enjoy our content, why not join Upscalers as a member?
🎸 Why NFTs will rock the music industry
I know this week’s topic will be heavily scrutinized by Jack and Naveen from Anthems. No mistakes allowed here 😊
Here we go ⬇️
1. Why talk about music NFTs now?
2021 is the year that started it all.
With the pandemic, artists were stripped of their primary source of income: concerts. Not earning much from major streaming platforms like Spotify (we’re talking about a few thousand euros for a song that has a million plays), some started to embrace the use of NFTs. They realized that these allowed them to go directly to their fans, sell unique, tokenized versions of their work and yield substantially higher profits than they did with regular streaming platforms.
The spectrum of these early adopters ranges from independent artists (such as Daniel Allan) to the likes of NAS, Snoop Dogg or Kings of Leon (e.g., Kings of Leon became the first band to release an LP as NFT on March 5th 2021).
With them, a whole ecosystem started moving towards widespead adoption of NFTs as a new way to reward creativity and fandom in the music industry.
DAOs were built to buy rare copies of artists’ albums (e.g., PleasrDAO buying the single copy of Wu-Tang Clan’s Once Upon a Time in Shaolin).
NFT communities threw exclusive festivals, accessible to NFT owners only (e.g., Bored Ape Yacht Club’s Apefest, which was held during four days on October).
Labels lagged behind, until Snoop Dogg announced this week (on Clubhouse) that he planned to make Death Row Records, his newly acquired label, the first NFT music label, “moving artists into the metaverse”.
There’s a lot going on right now: from pure tokenization of songs to more remote applications of blockchain technologies to the music space. This can make it hard to follow. But it’s the start of something big.
Music NFT is not a whim. The music industry has always been bound to new technologies, and players have always adapted to keep pace (from vynils to streaming services). NFTs are a lasting tech trend which, in its very early days, is already rocking the music world.
We’re witnessing the early stages of an audio movement - driven by scarcity, fandom and access — Cooper Turley (Full time DAOs)
Blockchain tech has the power to change everything and tip the table in favor of the artists and the fans, and we’re going to be right at the front of the pack — Snoop Dogg (talking about Death Row Records)
2. From blockchain to Music NFTs
Now, you might wonder what a music NFT is concretely. Let’s start with the basics to make sure you get the full understanding.
The blockchain is exactly what it sounds to be: a chain of blocks. Each block has a specific “hash” (its ID), contains the hash of the previous block (forming a chain of blocks), and holds data about a transaction. Transactions that are recorded in each block are validated by a peer to peer process, where computers contributing to the system operate together to reach a consensus over whether the recorded transaction is valid or not (meaning that the sequence of hashes is correct). If you try tamper with one block, the hash of the block will change and the verification will catch you. To cheat, you need to hack the whole system. Which is nearly impossible (for now).
Classic blockchains such as the Bitcoin blockchain store data about a cryptocurrency transaction (meaning the sender, receiver and amount). Others (like Ethereum) can store additional data in the form of NFTs, which work differently than cryptocurrencies.
Unlike cryptocurrencies, NFTs are tokens that represent ownership of a unique “unit of data”. They are non-fungible. Non-fungible is an economic term to describe things like your furniture, a drawing, or your computer. These things are not interchangeable for other items because they have unique properties (just like a song file).
To put it simply, a music NFT is an NFT where the data is… a song file. The main characteristic is the audio itself, typically represented as an .mp3 or a .wav. When minting them on a blockchain, artists basically say “this is the original song, and I will release quantity X of them for fans to buy”. Period.
A common mistake is to think that buying a music NFT gives ownership rights over the use of the content. But the vast majority of music NFTs today don’t come with inherent royalties nor licensing rights (though this is changing, see below). To put it simply, music NFTs are extremely scarce copies of a song or an album. Think of it as buying a track or an album on iTunes, except you get a limited copy you can resell to someone else. The value of the copy is worth whatever price other people are ready to pay for it.
That’s it. Anyone can actually save the song file, and listen to it for free. But there is only one owner (which information is recorded on the blockchain), and only the owner can resell it.
3. Why should we care?
As I started to mention above, the Internet has completely transformed the music industry over the past 20 years.
Artist can get discovered through self-publishing on Youtube, SoundCloud and anyone can access all the music in the world, for as low as $9.99 per month.
Yet, for all those advancements, the economics between industry players (labels, distributors, managers), artists and their fans have mostly remained unchanged.
Most successful artists are produced by labels, which dominate the market.
Labels provide artists with cash up front, mentorships, mass distribution and strategies to thrive. But in return, they usually assume creative control and the rights to an artist’s masters, allowing them to use the music in perpetuity — Time
Labels take a large share of revenues through royalties. Distributors and managers take a cut. Streaming platforms charge a fee for their service. Which leaves only a tiny portion of revenue to artists ⬇️
Data from 2019 and 2020 shows that 90% of streams go to the top 1% of artists.
Today there are more than 8M musicians on streaming services, yet fewer than 0.2% of them make more than $50K a year.
So it’s brutally hard for artists to make a living in the streaming era. Especially since the pandemic hit, as they were stripped of their major source of income: concerts. Pre-pandemic, ~80% of income from music was said to come from touring.
With the streaming era, not only have artists been deprived of their sources of revenues, but it’s also getting harder for them to connect with their true fans. They have almost no way of knowing which of their fans were early adopters and helped propelled their career forward, nor opportunities to reward them. Similarly, early adopters see the fan experience degrade as artists they discovered in the early days of their career grow in popularity.
True fandom in music, is not rewarded anymore. While some of the most passionate, dedicated communities have music at their core…
On top of that, the actual feeling of collecting music has been lost in the process. Remember how it felt to buy a vinyl or a CD and to grow your collection with your favorite artist’s latest release? 😍
NFTs have the potential to change all this.
4. NFTs changing the game
First, NFTs will change the way we consume music.
Forget about the traditional streaming model where users are charged a monthly fee and some percentage of the revenue is eventually distributed to the artists. With Web 3.0 patforms, artists can set customizable streaming rates, meaning that they can choose exactly how much they want to charge for any piece of content. Fans engage directly with the music NFT itself (i.e. listen to it, put it in playlists…). Revenue goes directly back to the NFT and the artist who created it, with no intermediary.
➡️ NFTs offer disintermediated ways of rewarding creativity
Second, NFTs will change the way we value music.
With Web 3.0, the song file which is minted as an NFT now captures the value of the song. The artist creates music on his/her own terms, issuing as many copies as he/she wants, and the value of the song stems from what fans are willing to pay for it. It’s the same concept with crypto art. Of course, anyone can save the song and listen to it. But there is only one owner of the original copy.
➡️ NFTs are giving back to fans the pleasure of owning the copy of a song or album.
Third, NFTs give opportunities to artists to reward early adopters.
They can provide them with access to a community of fans, and hit them with exclusive offers such as priority access to concerts and festivals, exclusive merchandise…
As mentioned above, most music NFTs today do not confer any royalty rights over the content. But, some startups like Royal are building platforms to allow anyone to purchase the right to earn royalties from artist they support since their very early days. With this, fans get access to opportunities that traditionally have only been available to major labels, hedge funds and highly-connected individuals.
➡️ With NFT's, artists can simultaneously empower their fanbase while funding their careers.
If you are interested in learning more about Music NFTs:
➡️ Music NFT landscape by Coopahtroopa
➡️ Crypto will fix the music industry, by Bankless
➡️ Music NFTs GMI by BlockchainBrett.eth
➡️ Music NFTs 101: an Artist-to-Artist guide by camoufly.eth
➡️ Investing in Royal, a16z
🌍 State of European funding
Shorter version of this section this week.
Thanks again for reading guys
See you next week 👋