A musical revolution? The possible impact of NFTs on the music industry
The winner takes it all. That is the current state of the music industry where the top one percent of artists claim 90% of total streams. The implications for the other 99% are profound. But are we witnessing a transformational change in the way music is shared, consumed and celebrated?
Perhaps you’ve heard of non-fungible tokens or NFTs in the context of Tim Berners-Lee selling the source code of the world web world for £3.9m, or the viral YouTube video ‘Charlie Bit My Finger’ fetching £538k at auction? But did you know NFTs may soon be used for domain name ownership, digital stores of our passport and driver’s license, and even real estate? The possibilities seem endless…
I’m a final year musician at the University of Manchester majoring in piano performance and electroacoustic composition. I have considered to what extent NFTs might positively impact the music industry. My research has convinced me of their potential to revolutionise how music is consumed and celebrated. Let’s explore how.
The ‘streaming age’ and where do NFTs come in?
Streaming, through a service like Spotify, Apple Music or YouTube Music for example, has become the dominant method of listening to music in the last decade. In 2020, streaming revenue hit 83% of total music revenue in the US — an all-time high!
There has been great concern about how streaming platforms distribute their revenue between parties involved in the creative process. The current ‘pro-rata’ model supplies artists with small remuneration for their streams. Take Spotify for example, which only pays out ~$0.0032 per stream and Apple Music, at a marginally higher $0.0056. At this pay rate it is brutally hard for the majority of artists to make a comfortable living from streaming; just last year, 150 artists and musicians wrote to Boris Johnson requesting legislative change in this area of the law.
This is not to say that some artists don’t earn big. Drake for example, has netted ~$150m from his 50 billion streams on Spotify, not accounting for songs he has featured on! We have no clearer example of a ‘superstar’ economy in the music industry— a study from 2013 found that the top 1% of musicians accounted for 77% of all recorded music income that year. The 99% in this case have little to share around.
Whilst a ‘user-centric’ instead of ‘pro-rata’ distribution model may help resolve this problem for artists, we have no idea if and when this may be implemented. I propose that NFTs are more impactful today — they are an alternative revenue model for artists who also wish to benefit from greater creative autonomy and strengthened artist-fan relationships.
What is an NFT?
NFTs are ‘tokens that we can use to represent ownership of unique items’. The word non-fungible in this context refers to a digital asset that is unique and cannot be replaced. NFTs are facilitated through the decentralised blockchain of Ethereum (cryptocurrency: ETH) which you can read more about here. The blockchain ensures each NFT has an associated digital certificate of authenticity or ownership meaning a new NFT cannot be created by simply copying and pasting it — a common myth! Importantly, an NFT can only have one official owner at one time.
I’ve heard about the negative environmental effects of NFTs…
In short, there is an issue now, but it is being actively resolved.
What you are referring to here is the carbon footprint of the ‘minting’ or ‘proof of work’ process involved in running a decentralised cryptocurrency. Minting in this context refers to the process of securing an NFT on the ETH blockchain. In its current state a single ETH transaction consumes ‘as much electricity as an average U.S. household uses in a workweek’. However, the ETH network is already switching across to a ‘proof of stake’ method in which there will be a ~99.95% reduction in greenhouse gas emission!
Within music, what can be created in to an NFT or ‘tokenised’?
What can’t be ‘tokenised’! Anything that provides value to your fans or audience should be considered— this may include new music (tracks, EPs, albums), album artwork, pieces of text, lyrics and even real-world objects such as concert tickets or unique pieces of merchandise. John Lennon’s eldest son Julian has recently auctioned off his father’s black cape worn in the film ‘Help!’ and handwritten notes for the Beatles track ‘Hey Jude’ as NFTs. Initially an artist would tend to tokenise their newest release whether as an EP or album, and the corresponding artwork.
The Kings of Leon chose to release their latest album ‘When You See Yourself’ as an NFT netting $2m from the sale. One of the three token options available for fans included a special touring pack— buy that token and you will have guaranteed front-row seats to every Kings of Leon gig forever! I can see NFT offerings such as these being particularly appealing to the most devoted fans.
I’m a new artist and considering my options going forward, should I consider NFTs?
Ask yourself this question. Am I better off with a traditional 80/20 or 50/50 deal (depending on 360 rights) with a record label, or should I choose to go solo and pursue NFTs. Of course, the answer will depend on several factors — genre of music, stage of career, approach to work, strength of team members etc. Perhaps the label with more experience in promotion, marketing and branding will appeal to you? However, if you are fairly tech-savvy, have an entrepreneurial approach to your work and can commit to sustained marketing, promotion and content creation, then NFTs are a model you may want to explore.
Let’s say you decide to crowd-fund your upcoming album by selling 50% of future master royalties to your fans as NFTs (the percentage is up to you). As a result, you receive a sizeable cash advance on the sale whilst securing a tighter relationship with your fans, who now have a stronger financial (and therefore emotional) tie to you and your music!
A particularly lucrative aspect of NFTs for artists comes from the potential for long-term earnings. As part of the ‘smart-contract’ issued with an NFT — a self-executing computerised contract — the artist can receive a certain percentage of the royalties from each time an NFT is sold on, in perpetuity. This has profound implications for the future royalty earnings of an artist.
You may be thinking the following: “but I’ve never dealt with cryptocurrencies”, or “I don’t like marketing and I have no experience in content creation, why don’t I just go with the record label?”. Well, I’m sure you know of a ‘Gary’ in your life who is familiar with crypto and a ‘Jenny’ who could take over your promotion and content creation, both in return for a percentage of your revenue, allowing you to focus exclusively on the creative process?
What makes NFTs so exciting for the music industry?
NFTs have the potential to revolutionise the music industry as artists benefit from greater financial control and earnings, control over their creative vision and a stronger artist-fan relationship. This last point cannot be emphasised enough. As part of the NFT process an artist would be encouraged to setup social channels on networking platforms like Discord and Telegram —Slack is an equivalent platform in the workplace. This fosters a win-win relationship: the artist benefits from more accurate analytical data and fans benefit from contributing towards an artist’s musical direction through direct communication.
Don’t forget that NFTs act as digital assets and we could therefore see them act as incredibly appealing financial instruments for investors.
We are already starting to see major labels getting involved in the NFT space: a partnership last week between Warner Music and OneOf was established where NFTs will be created for a range of artists across WMG’s catalogue.
What are the main factors affecting the viability of NFTs going forward?
Before NFTs become established in this space there are a few hurdles to overcome. Principle among these is the adoption of cryptocurrencies — buying and selling crypto tends to be a more cumbersome process when compared to fiat money. Indeed, many people are not too familiar with crypto — here in the UK only 7% of people between 2019–21 report owning or using crypto. I’d argue this is biggest barrier NFTs face in terms of growing popularity.
The legal rights of NFTs are also appreciably ambiguous. In UK law, copyright, the legality of smart contracts, estate and succession planning and tax are among the most contentious issues being discussed. I recommend reading the following article for more information on the topic. Whilst this is not my area of expertise, like any new area of law I suspect (and hope) the legislation will catch up.
We take for granted the ability to listen to our favourite artists at the click of a button. But at what cost does this come to the artist? Perhaps a revolution is upon us — a musical revolution where the majority start to receive their fair due?
If you’re an avid listener, would you like the ability to invest in your favourite artists, and support them through their musical journey both financially and creatively? As an artist, do you want a more lucrative, creatively free and ultimately more rewarding career? One where you are closer to your fans than ever before? Let’s hope NFTs can make this future a reality.
Billy Baker
