NFT sales skyrocketed in 2021. From a transaction volume of merely USD $40.69 million in 2018, NFT trading volume surged over $44.2 billion in 2021 and is continually shattering records and reaching new heights. The NFT segment is said to reach a market cap of $80 billion by 2025. In December 2021 alone, NFT transactions worth $4 billion were recorded.
Despite the speculation and skepticism around NFTs’ seemingly volatile and unregulated nature, one thing is certain — they are here to stay. NFTs have gained traction particularly among millennials and Gen-Z, and have emerged as a way to connect with their favorite artists.
While art NFTs and collectibles for the metaverse have taken off, NFTs are said to transform the music industry as well.
The dark side of the music industry
Music is a universal experience. By the end of 2020, the global music industry generated total revenue of $21.6 billion, and it was the sixth consecutive year of growth within the industry at 7.4% CAGR increase from 2019. Despite this seemingly successful track record of the industry, it is plagued with a bunch of issues.
Musicians find it extremely difficult to sustain themselves in the industry and make a living through their music. It is no secret that artists are not compensated fairly for their talent and efforts. This arrangement is usually fortified by the record deal and complex legal contracts which they are made to sign at the time of onboarding by the record label.
Artists who have made it big have often come out and spoken about this skewed power dynamic between the record label and the artist. Take, for example, Kanye West, who went as far as calling record deals “modern-day slavery” with all rights of the artist being signed off to the label for the lure of upfront financing, strategic advice, and marketing.
Here’s what Akon had to say about the exploitation of artists: “Throughout my career, I have always believed that artists never really got their fair share of the profits for the work they produced and people listen to.” “If you don’t own your masters, your master owns you,” said Prince for Rolling Stone in 1996.
According to reports, only the top 1% of artists receive 90% of all streams, and only about the top 0.8% of the seemingly famous and top artists earn an average of USD 50,000 per year from streaming. This is mainly due to the overall revenue being split between artists and record labels, agents, lawyers, distributors, and other “stakeholders” in the artists’ music. Moreover, with the record label holding full rights over the “masters” or the original recording of the song, the creator has absolutely no control over where and when it is played. This puts serious restrictions on the creative freedom of the artist as well.
This has led to a quest for the entire model of music industry record labels to be overturned. While social media platforms such as TikTok, YouTube, and Instagram have somewhat given the power back to creators as a way of promoting and marketing their music, there are still long strides left to be taken for artists to properly monetize them through a viable tool.
The NFT revolution: Changing tides for the music industry
When COVID-19 regulations caused a complete halt on live sports, concerts, and entertainment, blockchain-based non-fungible tokens emerged as a way to connect fans worldwide with companies, teams, and creators that they love.
The NFT revolution kicked off as profile picture collections (PFP) that buyers could display on their social media handles to denote that they are part of the particular NFT Community. These PFPs dominated the narrative with celebrities and other NFT enthusiasts buying famous digital collectibles such as Bored Apes, Cool Cats, and CryptoPunks.
But what is it about NFTs that makes them so disruptive and novel?
For starters, NFTs are non-fungible (or immutable) digital files on the blockchain that are distinct and irreplaceable. Housed on blockchains such as Ethereum, Solana, and Binance Smart Chain, NFTs are rare, verifiable, and valuable. However, most major NFT projects such as Decentraland and Axie Infinity are valued not for their art, but for their utility that comes from the underlying smart contract and use cases. For instance, on Decentraland, digital land can be bought in-game as NFTs which can then be used to host events, rented out, etc.
For the media and entertainment industry, this means, NFTs are offering artists and creators a new medium to present their work, market their work on the blockchain through NFT marketplaces, and engage their fan community. NFTs have the potential to establish scarcity of digital assets and thus let creators set their rates for the creations, as well as control over the secondary market for them. Therefore, they democratize access to new marketplaces for creators globally.
Artists and fans take the pie
NFTs also can restore power to creators to control the supply chain and rights associated with the masters and related collectibles.
NFTs bring scarcity into music and gives musicians complete control over the subsequent ways in which their work is distributed, and the rights associated with it. Therefore, NFTs present opportunities for musicians to engage with their audience on a more seminal and granular level with authenticity and establish communities around them, as well as give them complete autonomy over their work. Artists keep all rights to their music even when their NFTs are sold on a secondary market, and also earn a royalty that they chose to set for it on every transaction of the NFT. This makes for a global marketplace for music NFTs.
In January 2022, BTS, a popular K-pop boy band, in conjunction with Dunamu, is all set to launch its own NFT set in the form of photo cards, digital versions of collectible cards featuring photographs of the K-pop band members.
Even the popular singer Akon seems to be ditching record labels and dropping his next album as an NFT to monetize it from day one!
On the other hand, fans who buy these collectibles or creations have full transparency into the authenticity and origin of the purchases they make. In this sense, NFTs allow anyone to buy property rights to the art or music while letting artists verify their work outside the confines of the legacy music industry.
Further, NFTs allow for new ways of fundraising by letting the audience partake in the music process. Fans become the investors in the project for several reasons. While many may invest and buy NFTs solely as collectibles, others may do so for speculative reasons, some may HODL, some may do to learn royalties, and others for trading them in the secondary NFT Marketplaces to make profits. This can help artists get upfront funding without waiving rights to the master and suffering considerable cuts in revenue like TLC, Kanye West, and Taylor Swift. Further, it lets them take a fair share of the profits of their success.
Fans will be able to invest in Nas’ music by purchasing shares in the royalties made from the streaming of two of his songs. This investment can be made by purchasing Royal’s extended version in NFT form invariants of “Gold,” “Platinum,” and “Diamond” digital tokens for each song. The intriguing part is that token owners will receive a part of royalties each time the tune is streamed for perpetuity!
What lies ahead for NFTs and the music industry
Tokenization of assets allows for a wide pool of people to own assets on the blockchain. In this sense, even ordinary fans are immersed directly in the value and ethos of the artist or creator they support without an intermediary like a streaming platform or a record label. Thus, this enables fan communities to participate in their favorite creators’ growth like never before.
Further, music NFTs can have additional value besides themselves. Autographed physical copies of the collectibles, music royalties for perpetuity, backstage passes, exclusive remixes, and private parties are just the tip of the iceberg of rewarding the fan community who invest in the musician’s creation. The possibilities are truly endless for artists to connect with their audience and investors.
Several artists are testing the waters of NFTs, such as creative music producer 3lau, who sold 33 NFTs on the third anniversary of his album Ultraviolet for over $11.7 million, making it one of the largest music NFT deals. 3lau has even been contemplating allowing the NFT owners to collaborate with him on the net song and perhaps even be featured in the song! Moreover, there are recent instances of artists contemplating paparazzi photos being made into NFTs so they can monetize from them in the form of royalties. These applications of NFTs have the potential to transform the music industry into a level-playing field for all artists.
This article was contributed by Jake Fraser, head of business development at Mogul Productions.