Far beyond NFTs: what can be the future of music monetization
- 01 November 2021, Monday
As blockchain technology evolves, artists face the potential of a new financial system in a post-royalties industry
We have been hearing a lot about non-fungible tokens (NFT), how DJ and producer 3LAU sold 12 million worth of NFTs at the beginning of 2021, the Grammy Awards announcing their own non-fungible tokens, or when Mick Jagger released an NFT based on his new song with proceeds going to charities. Though the term has taken plenty of headlines this year, NFTs might be just the tip of a disruptive iceberg that can change, once again, the way the music industry works.
One of the most challenging factors in the music business has been improving royalty payments to artists to be more equitable and transparent. As the tools of music consumption have digitally evolved (streaming being the primary one), the ways of paying artists has remained analog. There are more musicians and labels, more releases, more listeners - but the scale and reach of independent artists is not enough to make a sustainable living off music.
As blockchain technology evolves, artists face the potential of a new financial system in a post-royalties industry, where real-time revenue streams are supported and digital rights protection built in. The buzzword is blockchain music. To explain it all, we will first approach the whole reconceptualization of the web, discover how and why the future of music is decentralized, and learn what it all means for indie artists. For that, not only did we go to the deepest corners of forums to understand it ourselves, we also interviewed Chris Scott: iMusician’s tech-savvy, loophole master and Chief Technology Officer (CTO).
List of terms
Before we start, here are some terms explained by Cryptopedia:
Blockchain technology is a distributed ledger that connects a decentralized network on which users can send transactions and build applications without the need for a central authority or server. Blockchain underpins networks like Bitcoin and Ethereum as well as thousands of applications that have utility and provide value in industries as diverse as finance, fashion, and gaming.
Generally speaking, a token is a representation of a particular asset or utility. Within the context of blockchain technology, tokenization is the process of converting something of value into a digital token that’s usable on a blockchain application. Assets tokenized on the blockchain come in two forms. They can represent tangible assets like gold, real estate, and art, or intangible assets like voting rights, ownership rights, or content licensing. Practically anything can be tokenized if it is considered an asset that can be owned and has value to someone, and can be incorporated into a larger asset market.
A non-fungible token (NFT) is a cryptocurrency token that is indivisible and unique. One NFT cannot be interchanged with another NFT, and the whole cannot be broken down into smaller parts and used. NFTs are useful for proving the scarcity and provenance of rare assets, both digital and in the real-world.
NFT-enabled creative works use automated smart contracts (automatically executing programs on the blockchain) that authenticate a work and track its provenance and value. These processes are cryptographically secured and guaranteed by smart contracts, which eradicate the need for costly middlemen and gatekeepers. With the ability to put more money in the hands of musicians upon the initial release of an album or song — and the ability to guarantee payment of predetermined blockchain music royalties from that point on.
A smart contract is self-executing code that carries out a set of instructions, which are then verified on the blockchain. These contracts are trustless, autonomous, decentralized, and transparent; they are irreversible and unmodifiable once deployed.
Internet's evolution towards descentralization
The year is 1991 and the internet means consuming content that is statically displayed to its users - content mainly created by and for developers in text or image format: no interaction, not even HTML as we know it today. Dynamic content began appearing around 2004 and creators no longer had to be developers, all they needed was internet access.
As households began having their own hardware (by that time, computers), a sense of social interactivity began to emerge also known as web 2.0 and, between 2005 and 2010, not only did the internet provide enough speed for instant communication and community-oriented operation (Wikipedia, Reddit, etc.), the mobile revolution properly opened the ways to user-generated content.
At this moment in time, users reach a point of peer-to-peer connections at many levels, social media being the most expressive one. Platforms such as YouTube, Instagram, Twitter, or TikTok provide users a place to create, showcase and promote their own content - but monetizing it is still an issue, as these applications depend on advertising and data retrieval to be profitable. Most of the money generated by the platforms is held by them and only a small percentage goes to creators, as they are dependent on those applications to publish content.
That is when the decentralized web begins taking shape, offering a different architecture to how these applications are built. There is no longer a dependency on single servers to store data, neither a single database, but instead applications run on blockchains and/or decentralized networks. The concept is basically taking the middlemen or agencies out of charge of the flow of information: when a person or a group cannot control the system, the costs are lowered, transactions are faster and changes are only possible via consensus.
Blockchain technology has been around since the early 90s, at least among cryptographers’ discussions on how to break the model of society's reliance on banks and give citizens control over their funds without any third-party interference. The first cryptocurrency was introduced in 2008, making a lot of those early believers extremely rich and allowing money to travel in bytes instead of banks. We are talking, as you probably know by now, about Bitcoin.
In this scenario, software secures the money, there are no central servers, no humans handling the transactions between sellers and buyers. Any kind of transaction or information is recorded, immutable and doesn't necessarily rely on an external authority to validate the authenticity and integrity of the data. The idea behind the blockchain-based ecosystem is holding smart contracts: digital, autonomous, transparent and trustless.
What does it mean for musicians?
The fluidity of blockchain goes against the bureaucratic structure of banks, as it can provide better solutions to the complexity of royalty distribution within the music market. Think of smart contracts. Now think of the long, laborious process that involves different platforms, providers, and payment systems for your music to get paid for. Royalties travel a long road from licensing deals to multiple rights holders, multiple contributors, and a variety of third parties.
Distribution companies, like iMusician, took the first step into eliminating the paperwork and taking the burden off artists so that they could actually focus on creating. Blockchain for musicians would mean efficient, direct monetization from community engagement.
An artist produces a track that is timestamped, immutable, secured by a decentralized network. Fans are directly connected to the artist and real-time revenue streams are supported. There are fewer conversion costs and paperwork as property ownership is clear and owner rights easily tracked. It would mean a more collaborative and transparent system for music rights and management, as it would be easier for artists to legally prove ownership of their work.
Blockchain plays a big role in the disruption of the current system because it provides tokens or cryptocurrency as a financial incentive for those who want to create, interact, contribute or manage projects.
Speaking of tokens, we finally get to:
Non-Fungible Tokens and Digital Ownership
NFT is a digital authenticity certificate. Any digital file, such as a track, can be given a sequence of digits and become a registered item via blockchain, creating a cryptographic token that proves the asset’s authenticity. As of now, the majority of platforms that let you create and sell NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin. It means that you would buy an NFT (mostly with Ethereum) but instead of holding money, you digitally own a song, for example.
Whatever you put in an NFT, you set the rights for. When a song is issued with NFT, the ownership will always be traced back to who created it, protecting your copyright. It also means that this song is unique, which makes it verifiably scarce - and therefore valuable. NFTs hyped around 2018 within the artistic community because buying an NFT is like buying a Dalí's original: though you can recreate postcards out of it, there's only one authentic. In music, artists can create NFTs to auction off various forms of digital media to their fans. It can go from a collector's edition of a release with a hidden verse to a signed album, backstage passes, beats, or samples - virtually anything that can bring value.
NFTs are all about scarcity, and people can invest in music as they would in physical art. But would that mean that my song will only be available to those who purchase it? No, it can (and should) also be released to Spotify, Deezer, YouTube, and every other platform, but your infinitely duplicated track has only one original that retains its scarcity, just like any physical asset.
NFTs can also work as speculative assets, a way of indie artists getting financial incentives, as Chris’s example: “I start my artist career today and you can bet on me. For that, you’ll get 5% on all my revenue; or, I am a card and I split it into 100 pieces, you can have some and trade them when I’m famous”. It gives your community the opportunity to invest in your future success, and as you actually succeed, that NFT will be much more valuable. This can also mean that the buyer will work on helping you grow.
In this way, tokenized assets become commodities with the value determined by the law of supply and demand. “NFTs is a way to make art sellable and re-sellable. Humans are greedy and they wouldn’t spend money for no reason. It’s not about listening to the music but about collecting. The possibility of owning art and being able to resell it.” Though NFTs are now in the realm of collectibles, reaching immense prices because of the hype, they are the first step into the growth of royalties decentralization. In the long term, it won't be about a value locked in a particular asset, but more efficiently monetizing creations.
“Maybe the one solution is to go back to the thing that ultimately provides the value which is the music. If we want to fully reflect this on the chain, there's much to be done. We would have to start somewhere and we’ll come to realize quickly that this won’t be perfect because you need to trust i.e iMusician. This would be the first step into that space and so you wouldn’t distribute exclusively to shops like Spotify but also to decentralized networks such as the IPFS and then ensure that you have a way to prove that the musician created that song, smart contracts, or more commonly known NFTs would help with that". There are some Music Blockchains beginning to be developed towards this scenario.
Blockchain in Music Companies
Blockchain is not only about financial transactions, but any information. It simplifies the process and gives clear property rights to creators. It can mean a fairer way for music to be monetized as it gives artists more ownership of their work (basically getting fully paid for what you create), fixing a lot of the current issues with licensing, metadata, and the complex system of royalties distribution in the music market.
The technology to effect these changes already exists, but how would it work and how would it start?
“We’re not there yet because this scenario leaves no room for major streaming platforms as they currently function, for example. For it to gain traction, somebody needs to take the first step. An open-source system would take time, but once it gets traction, it’ll move very fast. You democratize the content and you’re allowing the artists to do things exactly on their terms. Highly disruptive, but somebody needs to do some work.” Chris added.
Do you remember when Spotify started and when there were not many users on this streaming platform? I guess you don’t because you don’t join or get interested in an app or platform where nobody is. But in a space of 5 years, Spotify gained roughly 30 million users by offering trials and some marketing strategies.
Some projects that began developing towards this direction: Audius. Who are they and what is it?
This is a fully decentralized platform, which also acts as a musical social network of sorts, and relies on crypto-related technology to operate. The Ethereum blockchain is crucial to Audius’ direct-to-consumer ethos, as it cuts out the middleman and tracks transactions transparently. Audius also supports NFTs, but they’re not in the business of buying and selling; the NFTs on Audius instead act as engagement and social tokens, unlocking goodies and extra capabilities.
At the time of writing this article, Audius has over 6 million users and is the first streaming platform that TikTok partners with. Why does that matter? TikTok recently commissioned a study on the platform's growing impact on culture and music: they've reached 1 billion monthly active users and 75% of those say that they discover new artists on the platform (just for the sake of comparison, Spotify has 365 million users). By partnering with Audius, artists can directly make their songs available for TikTok users to include in their videos, as well as linking their following on TikTok back into Audius.
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