The music industry has undergone
significant changes in recent years and while the world grapples with mending
fully to the transition from physical music distribution to digital music
distribution, the changes heralded by
the digitalization of music continue to expand in even more unique dimensions.
The rise of Blockchain technology and digital assets has disrupted the
traditional music industry by providing artists with a new avenue to monetize
their work by way of non-fungible tokens (NFTs).
Simply by creating and selling
unique, blockchain-based digital assets, artists are now able to tap into a
previously untapped revenue stream while also engaging with fans in exciting
new ways. In this article, we will explore the opportunities, applications,
risks, and revenue streams associated with the intersection of music and NFTs.
About Music NFTs
NFT
stands for non-fungible token, which is a unique digital asset that is verified
on a blockchain network. Unlike fungible assets such as cryptocurrencies, where
each unit has the same value and is interchangeable, non-fungible assets are
unique and can be one-of-a-kind.
NFTs
are created by recording ownership of a digital asset, such as artwork, music,
videos, or even tweets, on a blockchain. This recording creates an immutable
record of ownership and authenticity, which means that the owner of an NFT can
prove ownership and the authenticity of the asset.
Music
NFT is simply an NFT that is linked to music. It can come as a single song, an
entire album, a music video, or even a generative piece of music — in other
words, a composition created using a computer program that algorithmically
introduces random patterns, colors, sounds, or shapes into the piece.[1] NFTs
have become increasingly popular in the art and music industries because they
allow creators to monetize their work in new ways. For example, an artist can
create an NFT of their artwork, and a collector can purchase the NFT, which
gives them ownership of the digital asset. The artist can then receive a
percentage of the sale and potentially earn royalties from future sales of the
NFT.
NFTs
are unique and cannot be replicated, making them ideal for storing artwork,
videos and music. When an artist creates an NFT of their work, they can set it
to sell for a certain price. If someone buys the NFT, they will own it forever
and can use it however they please.[2]
The types of music NFTs that can be created include Open editions, Limited editions,
One-of-one edition.
Functionality
The
process of creating music NFT is seamless and again, it is a process
advantageous to independent artistes.
Thus,
the artiste selects a blockchain platform that supports NFTs. Ethereum is
currently the most popular blockchain platform for NFTs. Some others will
include Zilliqa, Solana, Tezos, Polygon.[3]
Artiste is to further create a crypto wallet to hold cryptocurrency and NFTs. Metamask
is for example a self-custodial wallet. The wallet is into which cryptocurrency
is purchased using a fiat-to-crypto exchange or a crypto-to-crypto exchange.
Artiste
further adopts a preferable NFT marketplace or platform, where music NFT can
minted by uploading the audio file, adding the appropriate metadata, and
selecting the number of NFTs intended to
mint. Once music NFT is created, artiste sets a price for it and a royalty
percentage that to receive for any future resales. Artiste finally lists the
music NFT for sale in an NFT marketplace, such as OpenSea or Rarible, Serenade,
Sound, Mintsongs e.t.c or Web3 Communities such as Songcamp or Web3 Streaming
Services such as Audius Music.
Upon
creation and listing of the music NFT, the NFT is purchased by a willing
purchaser who must, to be able to purchase first have a crypto wallet used to
buy, sell or trade in the marketplace.
Once
a music consumer finds a music NFT he’s interested to purchase , he may either mint or purchase
the NFT. Minting an NFT involves creating a new unique asset on the blockchain,
while purchasing an NFT involves buying an already minted NFT that is part of a
collection. Most of the time, purchaser will interact with a smart contract to
pay a set amount to mint an NFT that will be sent directly to buyer’s wallet. In
some cases, purchase may be by auction and buyer may need to bid on the
NFT of choice and wait until an auction
closes.[4]
One
example of NFTs being used in music distribution is the release of Kings of
Leon’s latest album, “When You See Yourself,” as an NFT. The album was released
in March 2021 as a series of three NFTs, each representing a different type of
album package. The NFTs were sold on the blockchain platform YellowHeart and
included a digital download of the album, exclusive audiovisual art, and a
“golden ticket” that provides VIP access to Kings of Leon concerts for life.
The NFTs were sold for a total of $2 million in just one week, demonstrating
the potential of NFTs as a new revenue stream for artists.[5]
Another
example is the rapper Post Malone, who released a series of NFTs in June 2021.
The NFTs included digital collectibles, such as exclusive unreleased music, animations,
and video clips, which were sold on the NFT marketplace Fyooz. The NFTs
generated over $1 million in sales within the first hour of their release,
highlighting the potential of NFTs as a new way for artists to monetize their
content and connect with fans.[6]
Music
NFT Revenue and Streaming Revenue
The
rise of streaming platforms has brought about a revolution in the music
industry, providing fans with easy access to virtually any song. Tritely, prior
to streaming, consumers had limited access to music, either by purchasing
physical copies of albums or through online downloads. However, streaming
services have changed the music landscape by allowing users to access vast
libraries of music with just a few clicks.
One
of the benefits of streaming services is their convenience. Users can access
their favorite songs, albums, and playlists from anywhere, anytime, and on any
device with an internet connection. They can also discover new artists and
music genres easily, expanding their musical horizons. Streaming services also
provide users with personalized recommendations based on their listening
habits, making it easier to find new music they are likely to enjoy.
However,
music consumers and record labels have ridden on the fun trip at the expense of
artists. As a matter of income generation, music streaming has not been kind to
artistes, particularly independent creators who are the industry’s lifeblood.
The music industry’s current business models appear to reward big labels and
platforms at the expense of independent artists. According to a report by
Digital Music News, artists typically only make $0.003 to $0.005 per stream[7]
Only
around 7,500 artists on the Spotify
platform earn $100,000 or more per year.[8]These
figures suggest that streaming services benefit the consumer and the provider
much more than they do the artistes.
On
the other hand, the music NFT is an artiste friendly model in respect of
generating revenue. Non-Fungible Tokens (NFTs) have created a new economic
model that opens new avenues for artists to profit off their intellectual
property without relying on third-party intermediaries. NFTs have the potential
to provide creators with a more significant share of revenue generated by their
work by creating direct connections between fans and artists, with minimal
intermediation. The blockchain mechanism built into NFTs also allows creators
to earn royalties from secondary sales, further incentivizing them to create
and distribute their works through NFTs.[9]
Benefits
There
are several benefits of Music NFTs that make them an attractive option for
musicians and artists. These benefits include:
i.
Ownership and Control
NFTs provide creators with an opportunity to take
ownership of their work, mitigate problems associated with low earnings from
centralized streaming services, and create new revenue streams. Music NFTs give
creators complete ownership and control of their work. This allows them to sell
their music directly to their fans without the need for intermediaries such as
record labels or streaming platforms.
ii.
Royalties and Revenue
With Music
NFTs, creators can earn royalties from secondary sales, which means they can
continue to make money from their work even after the initial sale. This is in
contrast to traditional streaming platforms, where artists typically only make
a fraction of a penny per stream.
iii.
One Thousand True Fans Concept:
The concept of “one thousand true fans” was
introduced by Kevin Kelly in his essay “1,000 True Fans” in 2008. In the music
industry, this concept is relevant to the potential of NFTs. NFTs create a new
economic model that opens new avenues for artists to profit from their
intellectual property without relying on intermediaries.[10]
According
to Kelly, a creator needs only 1,000 true fans to make a living. These true
fans are individuals who will support the creator by buying their products and
attending their shows. In the context of NFTs, an artist can create a limited
edition of 1,000 NFTs, which are unique and valuable, and sell them directly to
their true fans. These fans can then hold on to their NFTs as a collectible,
sell them on a secondary market, or redeem them for exclusive experiences and
merchandise.
This
approach can be especially beneficial for independent artists who struggle to
earn a living through streaming services, where they typically only make $0.003
to $0.005 per stream. In contrast, NFTs allow artists to earn more money and
take ownership of their work. Additionally, NFTs allow artists to earn
royalties from secondary sales, which is not possible with streaming services.
Thus,
the One Thousand True Fans concept
suggests that an artist only needs to cultivate a dedicated fan base of 1,000
people to make a sustainable living. Music NFTs make it easier for artists to
cultivate this kind of fan base by allowing them to sell directly to their fans
and build a community around their work.
iv.
Transparency
The blockchain technology that powers Music NFTs
ensures transparency and accountability. Creators and fans can see every
transaction that takes place, which helps prevent fraud and ensures that
creators receive the royalties they are owed.[11]
v.
Scarcity
Music NFTs can be limited in quantity, making them
more valuable and desirable to fans. This creates a sense of exclusivity and
scarcity that can help drive up the price of NFTs and increase the revenue
generated for creators.[12]
Risks
Non-fungible
tokens (NFTs) have become popular in the music industry, allowing artists to
sell digital art and music ownership rights. While NFTs have the potential to
revolutionize the music industry, there are also several risks involved. Some
of the main risks of music NFTs include:
i.
Fraud
As the market for NFTs is relatively new, there is a
lack of regulation, which can lead to potential scams or frauds. Due to the
overabundance of NFT platforms artistes as well as music consumers can be
victims of fraud. One well-known form of fraud is called “wash trading,” when
an NFT creator or seller inflates the price of their NFT. The fraudster creates
a false appearance of demand through selling and buying the NFT from multiple
fake accounts with price increases through each transaction. Sellers have also
tricked buyers into paying for NFTs they don’t have rights to. Since
transactions are irreversible buyers never get their money back. Similarly,
fake NFT stores sell NFTs that do not even technically exist. People have
impersonated famous artists. These impersonators sell their own art as the work
of the famous artist. Another common form of fraud is called “rug pulling”: an
NFT seller announces a new NFT project that is supposed to come with future
features, to appeal to investors. The seller then closes the project and takes
off with the money once the first element of the supposed project is sold.
Further, similarly, since NFT platforms rely on Smart contracts, they are prone
to hackers.[13]
ii.
The Problem of Monopoly
A significant proportion of the profits from
NFT sales have been acquired by a small group of popular NFT creators, making
it extremely challenging for a new artist to locate a market of buyers in the
vast NFT marketplace. Recognition by name is crucial in finding buyers for
NFTs. Consequently, an ethical problem
with NFTs is that, they have
concentrated wealth in the hands of a select few renowned artists/creators and
investors. Additionally, artists incur cost such as processing fees, to create
NFTs on the Ethereum network. If the NFT fails to sell, the money invested in
the fees is entirely lost.
iii.
High Volatility
The value of NFTs is highly volatile, and the market
is subject to sudden fluctuations. This means that music NFTs may lose value
quickly, and buyers may end up losing their investment.
iv.
Liquidity
NFTs are not easily convertible to cash, making it
difficult for investors to liquidate their assets. This can lead to investors
being stuck with NFTs that they cannot sell or transfer.
v.
Copyright Issues
NFTs are still a new technology, and there is a lot
of uncertainty around copyright laws and how they apply to NFTs. This can
create legal risks for artists and buyers alike.
vi.
Environmental Impact
The process of creating and selling NFTs is
energy-intensive, and it has been criticized for its environmental impact. Most
Blockchains consume an immense amount of energy because they require numerous
computers across the globe to support each transaction. Although there are
improvements on mechanisms to reduce Blockchain energy consumption.
Conclusion
The
emergence of Music NFTs (Non-Fungible Tokens) has brought about a wave of
innovation in the music industry, providing new ways for artists to monetize
and distribute their work. While this technology holds tremendous potential for
artists and the music industry as a whole, it has not come without a handful of
challenges.
Despite
these challenges, Music NFTs have the potential to revolutionize the music
industry and provide artists with new opportunities to earn revenue and gain
more control over their work. As the industry continues to evolve and more
artists embrace this technology, it is clear that Music NFTs are the future of
music distribution.
[1]
Langston Thomas, The Music NFT Bible: A Guide to the Future of Sound, https://nftnow.com/guides/complete-guide-to-the-nft-music-ecosystem/
accessed on 20th t March, 2023.
[2]
Tony Fountain, How Artists Can Combine NFTs and Music to Grow Their Brands, https://www.google.com/amp/s/www.rollingstone.com/culture-council/articles/artists-can-combine-nfts-and-music-to-grow-their-brands-1333829/amp/
accessed on 20th March, 2023.
[3]
Ibid
[4]
Ibid
[5]
Aswad, J. Kings of Leon to release new album as non-fungible token. Variety. https://variety.com/2021/music/news/kings-of-leon-new-album-nft-1234925287/
accessed on 21st of March, 2023.
[6]
Zarya, V. Post Malone is the latest musician to jump on the NFT bandwagon.
Fortune. https://fortune.com/2021/06/11/post-malone-nft-album-what-are-they-how-do-they-work/
accessed on 20the March, 2023.
[7]
Digital Music News. Here’s How Much Major Streaming Services Actually Pay https://www.digitalmusicnews.com/2018/02/15/streaming-music-services-pay-2018/
Accessed on 21st March, 2023.
[8]
Trichordist. The Trichordist’s “Streaming Price Bible” Updated for 2019: Per
Stream Rates Drop as Streaming Volume Grows. https://thetrichordist.com/2019/08/27/the-trichordists-streaming-price-bible-2019-edition-streaming-rates-drop-as-streams-grow/
[9]
Miller, K. The Future of Music Is NFTs. https://www.rollingstone.com/pro/features/nfts-music-crypto-1153527/
accessed on 21st March, 2023
[10]
Kelly, K. 1,000 True Fans. The Technium. https://kk.org/thetechnium/1000-true-fans/
accessed on 21st March 2023
[11] Li, Y., & Wang, Y. Non-fungible tokens
and blockchain for music industry: A systematic review. Journal of
Organizational Computing and Electronic Commerce, 31(3), 219-232.
[12]
Ibid.
[13]
Lucy Ingold, NFTs: Risks and Rewards https://sevenpillarsinstitute.org/nfts-risks-rewards-ethics/
accessed on 21st March, 2023.
