Over the last few years, a rapidly growing number of artists have turned to NFTs to create new business opportunities and fan experiences. The trend is universal in the industry, ranging from world-renowned superstars to up-and-coming artists looking for a break.
Muse’s “Will of the People” became the first UK number one album to incorporate NFT technology. Snoop Dogg has also shown great interest and launched several crypto-based ventures. On the independent front, many artists are turning to decentralized platforms such as Decent and Audio to offer both collectibles and digital music to generate revenue streams and launch their careers.
Artists of all genres and levels of fame embrace the opportunities created by NFTs because they can help them deal with some of the problems they face. Let’s look at some of these key issues and how they are being addressed:
Fundraising for Music Releases
Obtaining financing 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 needed to produce and promote their material. However, this system has several disadvantages for both signed and unsigned artists.
Like any other business, record companies have limited resources: there is only so much time and money available to discover and finance new acts. It functions as a built-in filter that takes away opportunity from countless acts that simply aren’t given the opportunity. Due to the permissionless nature of the blockchain, anyone can use NFTs as a fundraising method. Although there is no guarantee of success, the result is left in the hands of the public instead of a small group of record managers.
Even for those that do get signed, recording contracts often come with strings attached. Labels can 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 gained mainstream attention in 2019 when Taylor Swift announced that she would be re-recording all 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 buy to show their support. It allows musicians to raise enough funds to release a single, EP or even an entire album. The biggest advantage is that they can retain ownership of their songs, master recordings, music videos and other content. By removing the middleman, artists can maintain control over their careers.
Income from secondary sales
When artists sell collectibles, concert tickets, or the rights to their music, they can earn revenue for the transaction only once. If the new owner sells this stuff to someone else in the future, they receive all 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 many as 60% of tickets for in-demand concerts are resold at least once.
NFTs can change this dynamic because of 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 who create digital collectibles, art cards and property rights. This source of income rewards artists who stand the test of time and see their popularity grow – as the signs associated with their brand appreciate and generate profit for fans and collectors, the artist captures a piece of the secondary value that created by their success, fast.
An example of this can be seen in the Main5 collection from Deadmau5. This collection has a 7.5% originator fee, meaning that every time one of the NFTs changes hands, that percentage of the transaction’s value is redirected to the artist. These small amounts can add up – in the ten months since the collection began trading, the originator fee has generated an additional 13.75 Ethereum in revenue worth more than $20,000 at today’s prices.
Intellectual property rights
Protecting IPR has also become a hot-button issue in a landscape where music is created and shared at an accelerating pace. Artists are extremely vulnerable to plagiarism, both from other artists and from digital piracy in general. While major acts signed to major labels enjoy access to legal representation, most independent artists cannot afford the same privileges.
NFT may also help to solve this problem. A non-swingable token is essentially a signed authentication certificate. Each NFT is powered by a smart contract that makes it unique, and the blockchain keeps an immutable record of who owns this asset. Artists can protect their intellectual property rights by signing singles or entire albums, as no two NFTs can ever be identical. At the same time, musicians can give a share of intellectual property rights to their fans if they want. Tokenization allows music to be turned into a digital asset and sold or licensed in a marketplace. However, the sale of NFTs does not require the sale of intellectual property rights.
Although these developments are still in their early stages, I believe they will be an important use case in the coming years. As the legal and technological landscape evolves, it seems inevitable that NFTs will become an affordable and accessible way for musicians to represent, distribute and sell the IPR of their content. With this pronunciation of a British court, legal documents can already be served in a signed form. This suggests that the time has come for non-swampable 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 it creates a more direct link with fans while allowing artists to retain more creative control and a greater share of the value 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 Coritea blockchain-based crowdfunding music platform.