NFTs shaking up the music industry
by Adi Ben-Ari, CEO of Applied Blockchain
2021 was the year non-fungible tokens – NFTs – took the world by storm. Growing from relative obscurity to a $40bn market, the conversation over the past twelve months about NFTs in the digital art world has reached fever pitch. Now, many other sectors are gradually recognising the manifold possibilities inherent in the technology, including real estate, asset finance and luxury retail.
Most significantly, NFTs are on the brink of widespread adoption in a sector which has only recently undergone a considerable transformation: the music industry. Streaming services have completely changed the way people experience music while dramatically altering models of ownership and copyright for music artists. NFTs now represent an opportunity to return some of the agency to musicians while offering new ways for listeners to play an active part in the industry.
Streaming – who truly benefits?
Streaming services such as Spotify now account for 83.1% of the UK’s recorded music market. This figure has increased rapidly through the pandemic, with the UK’s music industry recording over £700m in revenue from streaming in 2020. Despite these exponential increases in earnings, the share of royalties going to artists remains vanishingly low. A Department for Digital, Culture, Media and Sport report from July 2021 called for a “complete reset” in the funding model, with the overwhelming dominance of a handful of major record labels presenting a significant concern to artists and legislators alike.
Once record labels, streaming platforms and other external rights holders have taken their cut, the streaming income for artists is often negligible, with only a few top-selling musicians able to use royalties as their main revenue stream, while most other artists rely on concert tours and merchandise to stay afloat, a feat which has only become more challenging amid constant cancellations of live events due to Covid-19.
The existing model has been very successful in providing access to vast quantities and varieties of music to listeners, connecting them with musicians and bands from all over the world and transforming the way people consume music. Nonetheless, the current system fails to reward artists for their hard work. This is where NFTs come in.
Tokenised royalties – the future of music?
Non-fungible tokens present an innovative opportunity to solve the music industry’s royalty crisis. Firstly, individual songs can be minted as NFTs, inscribing original ownership of a track on the blockchain. This re-introduces a scarcity into the music market which has been limited ever since the widespread digitisation of audio tracks. There are more intricate ways of using NFTs for music licencing, too. Using smart contracts, which can be embedded in NFTs, artists can claim ownership of their music while receiving a cut of the resale value every time an NFT is sold.
The overall benefit of blockchain technology is reflected in this: cutting out the middleman. A direct relationship between artists and their fans has been undermined by intermediaries in the form of record labels and streaming services. NFTs allow for this direct connection to be re-established and bring artists and listeners closer together.
Music marketplaces of the future
Tokens can also be fractionalised, meaning that listeners can invest in partial shares of song rights. This works similarly to buying up shares in a listed company. When the company performs well, the share value increases. When an artist does well, the share value of their songs increases too, allowing listeners access to some of the royalty earnings received through increased playback. In simple terms, this allows listeners and fans to actively participate in the careers of their favourite recording artists.
New NFT marketplaces for digital art are being created every day. Now, projects like Opulous are creating marketplaces allowing for music NFTs to be traded as well. Bringing the world of decentralised finance to the music industry, these music exchanges use copyright backed NFTs as tradeable assets, creating an investment space for music lovers.
Projects like Opulous are often backed by high-profile musicians such as Chance the Rapper, as well as established blockchain VCs such as Borderless Capital, and promise to be highly secure and user-friendly. Most importantly, these exchanges help to navigate the world of music NFTs for people who would like to invest and trade but are intimidated by the sometimes-confusing world of NFT collecting.
The potential for NFT technology in the music world doesn’t stop at songs themselves. Many established artists such as the Rolling Stones or Kings of Leon have already made use of the merchandising and marketing opportunities inherent in digital collectibles. By releasing music alongside collectible images or digital certificates acting as vouchers for fan experiences, artists can build communities around their brand while diversifying their revenue streams.
Tickets can be tokenised too. This can solve a huge issue within the music industry by preventing fraudulent resales and black-market ticket dumps, as NFT tickets come with an immutable record of ownership. This also allows smart contracts to be embedded in tickets, so that revenue shares can be set by artists or event organisers in advance, ensuring that concert income is directed to the right parties.
Of course, music NFTs are still in their infancy and the current streaming model is too dominant to be broken up any time soon. Nonetheless, streaming platforms took less than a decade to transform the music industry from the ground up, and NFTs have the potential to do the same. The main difference is that this time artists will be the main beneficiaries, and this presents too valuable an opportunity to miss.