Music NFTs: what they are and why they could be the future
Though many outsiders probably associate NFTs solely with JPEGs that can be bought and sold in cryptocurrencies, the underlying technology actually facilitates many as-yet unexplored, or at least under-explored, applications.
One such example, which has recently begun to gain traction within the space, is music NFTs. Music NFTs are essentially songs released as a smart contract, built upon a blockchain, which verify ownership of the piece of music and can be freely traded between individuals.
Much excitement surrounds the potential for NFTs to revolutionise the music industry at present. If this is to be the case, the transformation could be on a scale comparable to that seen with web2 and the digitisation of music. Below are a few good reasons why this could happen.
Ownership of music
Currently, when you buy a song on iTunes, you do not own the song. Instead, you have essentially purchased a license to listen to the song. The same is true of streaming platforms such as Apple Music and Spotify, where you instead pay for access to a catalogue of songs.
Music NFTs, on the other hand, confer ownership of the file. Note that this is distinct from IP rights — the music NFT does not automatically grant the holder copyright claims or royalties (though it can do if the artist so wishes). Instead, it provides immutable proof that the holder has bought the file, a feature which could have a number of important implications for the music industry.
Firstly, markets value ownership of scarce assets. By verifying ownership of a product, the technology underlying NFTs facilitates an opportunity for digital scarcity, as the artist can decide exactly how many of a particular song they release. This could in some sense be seen to mirror the era of physical music copies, where supply was limited, giving rightsholders greater power to enact control over the price at which their music is sold.
Scarcity drives value in all physical product markets, and has also been used to great effect in the wider NFT market to date, with digital scarcity driving enormous value in some cases.
NFT technology facilitates many possible use cases
The ability for artists to verify the owners of their music opens the door to a number of potential use cases. These could include a multitude of holder-exclusive perks, such as concert tickets, discounted prices, exclusive merch, and VIP/access-all-areas type experiences. The NFT could essentially authenticate membership to an exclusive club of supporters, and the artist would be free to decide what privileges this affords.
There could be different membership tiers depending on the number of songs or albums held by an individual, and more rare pieces could qualify the holder for a higher membership tier. Music NFTs could also pave the way for artists’ songs to become collectibles, in the same way that limited-release memorabilia or records currently are.
Allows fans to directly support artists
Music NFTs would allow fans a more direct route to supporting their favourite artists than is currently possible through streaming. Listeners would be able to choose to purchase songs directly from the artists of their choice, rather than the revenue from their streams being diluted across all artists on a platform.
NFTs also present the possibility for revolutionising royalty payments within the industry.
In 2021, the global music industry brought in a total revenue of $25.9b, a figure which has grown across each of the last 7 years. Despite the industry thriving, it is well documented that smaller artists have been finding it increasingly difficult to make a living from their music.
Many high-profile musicians have spoken out about this injustice, arguing that the profits from streams disproportionately land in the hands of the platforms that host music, rather than the artists that create it (notably Taylor Swift, Kanye West, and others)
In 2021, 73.2% of Spotify’s revenue was paid back to artists and music rightsholders in royalty payments. Once this had passed through the hands of rightsholders (typically record labels), this equated to artists earning between $0.0033 and $0.0054, on average, per Spotify stream.
This means that artists would typically have needed around 25,000 streams to earn $100 from the platform; all this during a second consecutive year in which artists’ saw alternative revenue sources severely impacted by Covid restrictions.
Music NFTs, however, would afford artists and rightsholders more autonomy, through:
a) once again allowing them to control how much of their music is produced
b) facilitating direct interactions with their fans through both the sale of their music and the utility provided by holding it
c) providing them the opportunity to earn a fixed percentage royalty of their own choosing, on all purchases of their song in perpetuity.
NFTs also represent an interesting alternative route for artists to raise funds. Outside the music industry, we have recently seen many brands opt to raise capital through launching NFTs, rather than via the traditional route of Venture Capital. In much the same way, music NFTs present an opportunity for fans to become investors in their favourite artists.
If a musician experiences a growth in popularity, it is likely that the value of their music NFTs will rise to reflect this. One implication of this could be an inflow of money into the music industry, as music becomes somewhat of a speculative asset. Investors will essentially take bets on artists that they think will blow up, by buying into their music. If this is to be the case, the adoption of NFTs could bring about an increase in total revenue within the music industry, as well as in the share that goes to artists.
Music NFTs: The story so far
Within the last year, music NFTs have gathered a lot of attention within the space. Launching in March 2021, Catalog was the first, and remains the largest, marketplace for 1/1 music NFTs. On the platform, songs are auctioned, with artists earning 100% of the profit from the sale. The artists retain copyrights to their song, and are free to choose a royalty percentage for all future sales.
In 2021, Grimes raised nearly $6m by selling 10 NFTs, some of which contained original songs, on Nifty Gateway. Since then, Steve Aoki, The Weeknd and Eminem have each raised millions through launching music NFTs on the site.
Other key developments include the Kings of Leon becoming the first band to release an LP as an NFT, netting them 850 ETH in the process. EDM producer 3LAU raised $11.7m by auctioning his album Ultraviolet as an NFT. Don Diablo sold the first full-length concert NFT, as an hour-long DJ set accompanied with 3D rendered visuals, for 600 ETH. An unreleased Whitney Houston song sold as an NFT for $1m, a prime application of music NFTs as a digital collectable.
As a nice exploration of NFTs as a membership pass, Coachella released 11,010 NFTs that allow holders to unlock lifetime festival passes, as well as various exclusive experiences and physical collectibles.
Music could also have a large role to play in metaverse applications of NFTs, with VR concerts seeming a very likely possibility, and many high-profile musicians investing in various metaverses. It seems very likely that tradeable NFTs will be used to provide access to such digital performances.
As can be seen, a number of prominent musicians have begun to explore NFTs as a method of releasing music, with some great success. Buoyed by the precedent set by these artists, alongside the exciting opportunities it presents for greater autonomy and profit shares in the hands of artists, we should expect to see a continuation of NFT adoption by the music industry in the months and years ahead.