How NFTs might revolutionise the music industry

• What is all the fuss about NFTs?
  
• Current musicians minting NFTs
• What's wrong with the music industry?
• Challenges for NFTs & music

[updated October 2022]

In the early months of 2021, NFTs have seen a surge in interest, with artists from many different industries minting NFTs and experimenting with publishing their work in this new way. One sector that has seen a lot of recent activity with NFTs is music. 

The music industry is notorious for being a harsh environment for artists to make a living and get paid fairly for their work. In 2018, Rolling Stone Magazine  estimated that only 12% of music industry revenue gets paid to artists.

This is due to a combination of things, particularly the advent of digital streaming and unfavourable record deals. Artists such as Taylor Swift and Kanye West have been critical of how the industry operates and have had high profile disputes over their work’s royalties and rights to their Master Recordings. . 

What role do NFTs have to play in this dynamic? Can they offer musicians a new, more effective way to get paid for their work? Will the music industry be forced to adapt as artists can more directly connect with their fans and be less dependent on labels? 

This feature will breakdown what NFTs are, how they are being used in the music industry and explore some of the potential answers to the questions above. 

What are NFTs? 

NFTs are Non-Fungible Tokens. Essentially, NFTs are digital representations of unique and indivisible things - both digital and physical. They can be used to represent digital collectables, artwork and music.

An NFT is only a signature showing ownership of the art or song and pointing to where the item actually exists, such as a location on the internet.

It may be useful to contrast this with cryptocurrencies such as Bitcoin that are fungible. For Bitcoin to function as a currency, it has to be fungible. In other words, all Bitcoin are equal and mutually interchangeable. You can’t have a unique Bitcoin. 

NFTs on the other hand, are used to represent unique assets. Unlike banknotes or Bitcoin, no two NFTs are alike. They are unique and the information that identifies them, shows previous owners and can program rights around how they are used  is defined in a smart contract. 

One way to think about NFTs is that they are file format for blockchains. Just like file formats such as jpeg, gifs, or mp3 are used to transfer information (or data) over the internet, NFTs are used to transfer ownership information over blockchains such as Ethereum. 

NFTs have various use cases including:

• Art

• Trading Cards

• Gaming

• Certificates of Authenticity 

• Domain Names

• Content

• Music

• Financial products

• Event Tickets

• Carbon Credits

Current Musicians & NFTs

As interest in NFTs has boomed, musicians have started to capitalise. Mostly, this has involved artists  tokenising new pieces of artwork or exclusive products such as limited edition vinyl, early access to new music and concert tickets. 

Note: the items themselves are recorded on a blockchain, just a record of ownership.

Famous examples include Grimes - partner of Elon Musk - who recently sold 10 digital art pieces for just under $400,000.

Illustrating the pace at which NFTs are appreciating these pieces have gone on to sell for over $2.5 million in the secondary market, and thanks to the functionality of NFTs, Grimes has been able to capture a percentage of their value.

When an artist mints (or creates) an NFT, they can set terms (within the Smart Contract) such as secondary sale capture percentages as intrinsic to that particular NFT. This means that as long that NFT is being traded, the original terms set at its creation will apply, and artists can continue to get paid.  

This is where the traditional middle-man nature of the music industry may be facing an even greater than posed by the likes of Spotify. The barrier to entries are so low, any musician in their bedroom can tokenise their music, artwork of methods of fan engagement.

Electronic music producer 3lau also saw massive success selling 33 NFTs for a total of $11,684,101. This included a platinum-plated vinyl record redeemable for a custom song by the artist and access to unreleased music, and a bonus physical vinyl disc.

Kings of Leon have claimed to be the first band to release an album via an NFT. Electronic music duo Disclosure recently sold an original song as an NFT for over 40 ETH. 

These could just be the first ripples of an oncoming Tsunami.

What’s the catch? Potential limitations of NFTs

This is all very encouraging for crypto and the music industry. However, many entrepreneurs see blockchain as a force to democratise industries and distribute earnings across a broader range of artists. So far, NFTs seem to be doing the opposite, funnelling more profits to those already making massive earnings. 

Furthermore, others have criticised NFTs as just another craze - similar to that of 2017/18 ICOs. This may be justified to an extent as NFTs do not provide ownership of an actual asset; rather, they provide proof of ownership - an NFT is a provenance source rather than control over the asset itself. 

Some argue that the risk of piracy is high here, and like with Napster, it could lead to heavy legal battles and a crash and burn. Unlike Napster however, many of the models being built using NFTs are focusing on connecting up and coming artists with their fanbases and empowering them to stay independent for as long as they want to. 

As it’s still very early days with NFTs, it makes sense that artists who already have an audience would be the first to benefit. What about the future though? What innovation is happening now that might cause change across the music industry as a whole?

How the Music Industry Works

To understand this we first need to have a basic concept of how the music industry currently works. At a foundational level, the main way music is consumed these days is via streaming platforms such as Spotify, Apple Music and Tidal. These platforms offer free music streaming with advertisements or charge a monthly subscription for ad-free music. 

The average rate per stream that artists get paid for Spotify is around $0,0032 and for Apple Music, it’s about $0,0056. Most artists struggle to make independence financially viable due to difficulty gaining exposure and funding early on in their careers. This means that more often than not musicians will sign to a record label that will pay them a set agreed-upon amount in return for the rights to their work. 

Due to the asymmetrical nature of record deals, it’s often the label that wins big if an artist becomes successful and not the artist. This dynamic has seen public disputes such as Taylor Swift vs Scooter Braun.  

Due to the asymmetrical nature of record deals, it’s often the label that wins big if an artist becomes successful and not the artist. This dynamic has seen public disputes such as Taylor Swift vs Scooter Braun.  

Swift signed a deal with record label Big Machine in 2004 granting it ownership of the master recordings to her first six albums in exchange for a cash advance to kick-start her career. In 2019, Braun bought Big Machine and ever since Swift and Braun have been in a battle over who owns her music. 

This kind of struggle between artist and label is common in the music industry as in the early days of their careers, artists have very little leverage. Most artists need the cash advance that record labels provide with no other way of accessing funds. 

If the artist then achieves success, the advance can look pitiful when compared to the revenue produced by their music. It’s not hard to see how Rolling Stone arrived at their 12% estimation we mentioned earlier

Crypto, NFTs & Disrupting of the Music Industry 

Going forward, many believe that NFTs are a way of disrupting this pattern and changing how artists can get funded. The rise of the internet has seen many artists able to build a following independently, giving them more leverage than ever before. But until now, record labels have still held the key to monetising music. 

Here some may argue that sites like Patreon or OnlyFans have already provided this new way of being funded, and whilst that may be true to an extent, Patreon only offers a way for independent creators to get paying subscribers. 

NFTs on the other hand have much broader application potential. With NFTs artists can potentially sell the rights to their songs directly to their fanbase. This means that if an artist has built up an independent following, the early believers in their work can pay to have a percentage of the rights, acting in place of a label. 

In the future, musicians may be able to access funding whilst maintaining much more control and ownership over their work. The value that musicians can offer isn’t just limited to song rights as well. We’ve already seen artists selling concert tickets and exclusive art works, who knows what creative offerings people will come up with in the future? 

Also, innovation isn’t just limited to the individual artist. Platforms such as Audius are aiming to use crypto to put more power into the hands of up and coming musicians. The music platform charges users directly for the amount they stream a certain song and then pays the artist the majority of that charge. Not only is this a much fairer deal for artists, but it’s also fairer for the consumer.  

The platform has grown to over 3 million monthly active users and is aiming to become the place for musicians to build community-owned fan-bases. Their protocols allow for interoperability across the web 3.0 ecosystem, meaning that Audius users can log in to NFT marketplaces with their Audius profiles and bring their following along. 

This could lead to models where every person that bids on an NFT release gets offered backstage passes to an artist’s upcoming tour - and this is just one small example that Audius has given. The sky really is the limit as artists become more empowered to directly interact with their fanbases.

A new music genre borne out of NFTs

With the advent of NFTs and their gradual proliferation in the music industry, one could consider the chicken and egg conundrum in NFT music. Which came first for music artists using NFT tech: the creation of music or the desire to creat an NFT?

Traditionalists might have begun the argument that the NFT hype was what came first, especially since pop and electronic dance were really the ones picking up NFT attention the most. However, now that we've even got opera music casting furtive glances at NFT tech, it's only fair to look beyond hype-driven projects, pump-and-dumps and "shitcoins" associated with a lot of music NFTs.

And in looking past that, we can't ignore that there are literally hundreds of music NFT projects born on Crypto Twitter, with a particular following and particular tastes.

If rock and roll music created dozens of spinoffs in subgenres, and if electronic and techno advances in music also resulted in their own genres, can it also be possible that blockchain tech has unwittingly created a new subgenre of music, with its own unique characteristics and following?

Musicians, on a constant quest to create and innovate, have always struggled to keep up with technology to improve and change visuals, audio, video, and even performance -- without the help of externals, which then necessitate the power imbalance we've discussed earlier in this article.

But NFTs introduce freedom and independence to use so many new tools to do all of these, without the reliance on powerful corporate entities -- a concept central to the theme of Web3.

In doing so, musicians finally have a new stage of their choosing, new rules of their making, new audiences even. Perhaps NFT artists like Sammy Ariaga sums up one such possible unique emotion you couldn't possibly find in any other music sub-category.

Adrien Stern, founder of NFT revenue sharing music platform Reveel, remarked that rather than creating genres, NFTs are even breaking them, so much so that music NFTs are becoming "anti-genre".

Adrien Stern, CEO and founder of Reveel — a Web3 revenue sharing platform for musicians — points to the Ariaga reaction as evidence that NFTs are actually breaking genres rather than creating them.

What’s the Point? The Future of Crypto, NFTs and Music

The point is that NFTs, and the broader crypto infrastructure that they operate upon are beginning to provide a way for creators to more directly connect with their fanbase and, crucially, monetise that connection. 

Demand for more direct interaction is high for both the producers and consumers of music. NFTs and crypto could potentially deliver this as they develop. As an industry, music has long been crying out for new ways of doing things. 

NFTs have the potential to become one of the biggest use cases of crypto as the technology changes how musicians publish their work and build a following. At the same time, familiar and unhealthy structures of power are emerging around the space, the threat of piracy hasn’t been addressed and interest is bordering on mania. 

Watch this space. It should be a wild ride.