Can NFTs Transform the Music Industry?
NFTs (non-fungible tokens) have gone mainstream recently, generating millions of dollars in revenues throughout the art community, with many businesses and celebrities in the entertainment and music sectors now participating.
There have been some astounding figures recorded in the music industry too, like Ozuna's release of an NFT compilation that earned almost a million dollars. In March 2021, Justin Blau (aka 3LAU) auctioned off his album 'Ultraviolet' as an NFT drop, and it fetched a whopping $11.6 million. He made his NFTs incredibly scarce, with just 33 units ever produced, including a one-time platinum version for the highest bidder.
Whilst these figures are remarkable, there is a far greater possibility in the music business as a result of NFTs, which provide musicians with a new method to generate income, connect with fans, and produce new music. To properly appreciate the possibilities here, one must first understand what NFTs are.
What are NFTs?
Understanding the terminologies
As previously stated, NFT stands for non-fungible token. Fungible refers to something that can be replaced by another identical item. A $100 bill, for example, is fungible. It can be exchanged with another $100 bill or even ten $10 bills without losing value. Non-Fungible implies that an object is unique and cannot be replicated.
A token is a digital file with a certificate of validity that is confirmed by existing on a blockchain. While a blockchain is a technique for storing information in such a way that it is difficult, if not impossible, to steal, hack, or manipulate the system.
So, NFTs are one-of-a-kind digital items that can be authenticated and easily confirmed as such. And they can exist as any digital asset, such as:
- a work of art
- a film
- virtual land deeds
- music tracks
NFTs and music
NFTs are relatively new, and the technology will ultimately permeate a wide range of industries. The music business is only now getting involved and realizing the possibilities that NFTs can offer. NFTs may be used by musicians and artists to allow fans to access unique album bonuses or even obtain passes to special live stream events. The crucial component is the indisputable confirmation that the NFT possessor is the genuine owner of that asset. All NFT transactions take place and are recorded on the blockchain, which is a tamper-proof database. Artists can also sell NFTs directly to supporters without the need for streaming platforms or third-party channels. Royalties can even be incorporated within the NFT smart contract, allowing artists to generate passive revenue from their music securely.
How Do NFTs Work in The Music Industry?
Music NFTs can take many different formats. It might be a song denoted by a/an:
- audio or video file
- album artwork
- concert ticket
- autographed merchandise
The premise is the same in the creation and distribution of music NFT as it is with any other NFT. An artist or band will pick what content to offer their audience. They will then decide which blockchain to mint their NFT on or which Music NFT portal to use. NFT TONE, Opulous, OpenSea, and other Music NFT platforms may be used.
After selecting their preferred platform, they will notify their followers of their NFT drop and put them available for sale at whichever price they like.
Because music NFTs cannot be copied, they may opt to hold a one-time auction for an audio track, with the highest bidder owning the actual audio file, but not the copyright. They may also opt to make a restricted amount of NFTs of the same track, say 50,000 units, and then sell them on a music NFT exchange platform.
Fans who purchase the song NFT become the owner of the track. They may then save the music NFTs in their crypto wallets and sell them in the future if they want. Despite owning the NFT audio track and being able to sell it, the artist who developed it can profit from resales of their work. This is one of the most effective ways in which music NFTs may benefit artists.
Pros and cons of NFTs
Pros of NFTs
So, how can NFTs benefit the music industry right now? Here are some ways:
More income and power to musicians
NFTs have the potential to put artists in charge of their music. In the United States, the music business generated $43 billion in sales in 2017. But how much did the performers receive? Only 12%!. With the remainder going to record labels, publishing firms, and distribution channels. To guarantee a constant income stream, an artist might charge a commission on each purchase of an NFT. For artists, NFTs provide the thrilling prospect of bypassing some of the industry's middlemen. It also allows indie artists to thrive as they are funded by fans.
Supporting budding artists
Imagine going to a show and witnessing an amazing performer that no one knows about, but who you're confident will be huge. What if you could then go out and purchase an NFT of their first release? This gives the artist more power because you're empowering them by monetising their material at an early stage of their career. However, it may also help you financially. Because NFTs may be resold, if that artist lives up to the expectations you see in them, there's a good possibility the valuation of that original track will skyrocket. If you want, you can trade it for a profit. And if the NFT is structured for royalties, a percentage of the resale will go back to the artist. It also implies that more parties are financially involved in their accomplishment and will wish to promote them.
Besides the collectibles and creative works that certain artists are now offering, NFTs can have a smart contract linked to them to give the token's owner additional utilities that come with the membership. These might include:
- Tickets to a concert
- Privileged access and private NFT holder-only concerts.
- Live stream of tours and concerts.
- Limited-edition releases
Some devoted fans save all of an artist's concert tickets as mementos to recall a certain event. You may now generate digital reproductions of these goods and keepsakes in the form of NFTs that individuals can keep as digital collectibles or assets. This opens the door for artists to bring fans who have attended certain events together and form communities around token holders.
You may insert a condition in a smart contract that states that if your unique NFT is sold, the owner will receive a certain amount of royalties. This is a way for fans to support their favourite artists while also having the opportunity to earn some income! These assets can appreciate with time and can be retained, exchanged, or traded for a profit. This is also relevant because, with NFTs, there is a new value in owning digital copies of an artist's work.
NFT access pass
NFTs can also be linked to an access pass to material such as backstage films of the artist creating and performing certain songs, or a deeper look into the musician's private life. You may create a contract that offers hierarchical fan incentives such as reductions, backstage access to events in their towns, a one-on-one video conference with the artist, and so on. The possibilities are limitless.
Cons of NFTs
However, not everything in the NFT ecosystem is flawless. So, let's go over some of these downsides.
The massive amount of processing power required to mint, transport, and store these assets is a major critique of the NFT ecosystem. This is an issue with cryptocurrencies in general. At the present, the most popular blockchain for NFTs is Ethereum, whose network requires almost the same amount of energy as the whole country of Peru! Fortunately, there are alternatives. The first step has already been taken, with Ethereum aiming to migrate to Ethereum 2.0, which is presently being carried out in phases over several years. This is a fundamental shift that will reduce the amount of energy used by nearly half. However, much more hard work has to be done to ensure that NFTs do not continue to harm the environment.
There could be a full-length blog entry solely on the subtleties of record label contracts and potential copyright difficulties. While NFTs can give artists more authority, there are currently no clear limitations in place about who owns the intellectual assets of a song if it is published as an NFT. However, record labels will undoubtedly want to continue monetising their artists to the greatest extent possible. This may result in possible legal conflicts, slowing the advancement of NFTs in general. A major area of concern is how much authority can be returned to an already signed performer.
There have been several concerns around sampling and remixing music in the past few decades. And, at the moment, licensing music or transferring ownership is a time-consuming procedure for labels and their legal teams. Due to this, launch dates are frequently postponed as personnel attempt to manually clear each sample used. However, with NFTs, this process is as simple as buying a t-shirt online and the technology provides a comprehensive record of the transfer. Anyway, as soon as we establish strict limitations, we may be able to prevent a slew of lawsuits, or at the very least make things a little clearer. Furthermore, the original artist may be compensated each time a sample is utilised in a new song. However, it may take a while to achieve this.
Affordability can also be a major problem. Any product with a built-in scarcity appeals to those with the best or highest offer. This may exclude a large portion of the population, particularly those who lack the financial means to make a large acquisition. Those distributing NFTs have some of the blame in this situation. They must ensure that enough of their fan base feels a connection to the artist and that no one is cut off. But the fact is that many of these one-of-a-kind and high-end content will remain inaccessible to the majority of people. And even though NFTs can initiate a sense of community, they may also exacerbate existing social inequalities.
More ways NFTs can change the dynamics of the music industry: Royalties
Royalties are the backbone of the music business. Music publishers and record labels may positively impact the music business by:
- integrating royalties into NFT smart contracts
- utilising a royalty accounting system like Curve to report on these royalties
What is a royalty?
A royalty is a legally binding compensation paid to an individual or corporation in return for the continuous use of their assets, such as copyrighted content. Royalties are payments made to artists when their original songs are:
- aired on the radio or television,
- utilised in films,
- played at events, bars, and restaurants, or
- consumed via streaming platforms
Royalties are frequently used as an income source to compensate the owners of music or property who license out their assets for use by a third party.
How NFT Royalties Work
When your NFT project is sold on a marketplace, you receive a share of the sale price. NFT royalties are paid continuously and are controlled automatically using smart contracts.
There are several distinctions between NFTs and other forms of royalty payments. NFT royalties are payments provided to the publisher based on secondary sales that are issued automatically. These are incorporated in the blockchain-based NFT smart contract.
Every time a secondary sale occurs, the smart contract verifies that the NFT's terms have been satisfied. If a royalty is created, a portion of the money is given to the creator of the work. There is no need for middlemen, and the transaction is not reliant on the preferences of the individuals involved.
It is critical to understand that not all NFTs generate royalties. It needs to be stated in the conditions. After the conditions of the smart contract are precisely written in the blockchain, the remainder of the procedure is automated.
NFT royalties and royalty calculating platforms
Record labels and publishers selling NFTs on behalf of artists may include royalties in the smart contracts and utilise Curve to track these revenues. Curve is a robust accounting system designed for labels and musicians to handle revenue, fees, advances, and royalty reports from any source and in any denomination, in a matter of minutes.
The platform processes large amounts of sales data in record time, digesting millions of lines of data and providing reports almost instantly. This makes royalty reporting efficient for record labels and publishers. It also enables labels to assist artists in maintaining their contract terms and any mechanical complaints. Curve makes it simple to view an artist's royalty statements, statistics, and analytics.
So, are NFTs capable of transforming the music industry?
Yes. NFTs bring up exciting opportunities for artists and their fan communities. Also, the thought of artists having more influence over their careers is intriguing. Furthermore, NFT Royalties enable artists and creators to make additional money from their NFT sales instead of being limited to just the primary purchases.
Additionally, royalty calculation platforms such as Curve might help to simplify the difficult process of royalties’ management. As these sorts of payments and earnings become more common, we should anticipate the NFT ecosystem to grow quicker and lure more participants. More musicians will also be encouraged to create NFTs, and music fans will know that their favourite performers will always be fully rewarded.