With Justin Blau, Kings of Leon, Grimes, and other music stars entering the NFT-stage — in the case of Justin Blau aka 3LAU selling his first NFT drop for a whopping $11.6 million — it’s time to elaborate on the potential of “tokenizing music” and why we find ourselves on the cusp of a transformation of the music industry.
Bringing together NFTs and the music business doesn’t just entail the massive potential for projects in the crypto space, but it also presents the possibility to revolutionize the way music gets produced, monetized, and distributed to a global audience — making it more fair, fun, and transparent.
Characterizing Today’s Music Landscape
The music industry’s primary income stream is music licensing, the licensed use of copyrighted music. Music licensing generates music royalties, payments going to various types of copyright holders, including artists, songwriters, composers, and publishers, for the use of their intellectual property.
Music copywriting and licensing is a global, multi-billion business, heavily dominated by major record labels, publishers, and digital music distributors such as Spotify and Co, which cash in a large part of the revenue.
The detailed breakdown of how music royalties work is quite complex and goes beyond the scope of this article. Instead, let’s look at some impressive numbers that characterize the music industry:
- Global recorded music revenues surpassed $23.1 billion in 2020, growing by 7 % year over year and making it the sixth successive year of growth.
- Streaming accounted for over 85 % of the revenue generated in the first half of 2020 (in the US), growing more than 5 % in one year. This shows that the trend towards the growing dominance of streaming providers is still intact.
Breakdown of the U.S. music industry in the first half of 2020, source: RIAA.
- While the streaming and music “renting” model are booming, the actual ownership of physical or digital music continues its downward trend.
Digital downloads are continuing to decline, source: RIAA.
The Dark Side of the Music Industry
While music is as popular as ever and the industry as a whole has grown tremendously in recent years, there are some significant downsides:
- Musicians, the source of creativity and music creation, only get a sliver (estimated around 12 %) of the revenue generated by the global music industry.
- Most of the profits in the music business are netted by middlemen such as tech companies, radio stations, and record labels.
- So far, digitalization hasn’t evolved the music industry for the better for musicians: While consuming music by “renting” it on global streaming platforms has become increasingly popular and convenient for listeners, artists overall are losing out.
The problems of today’s music industry resemble the issues the crypto ecosystem tries to tackle in the financial system: Too many intermediaries and a fragmentation of platforms.
While in the financial industry, the end consumer is receiving the short end of the stick, this role belongs to artists in the music industry. Blockchain technology can help provide both industries with more efficiency, fairness, and transparency.
Why NFTs Are A Game-Changer
We have seen that one of the biggest problems in today’s music industry is the distance between musicians and listeners — this leaves room for intermediaries taking a cut and influencing both the music creation and distribution process according to their preferences.
So how can NFTs make a difference? They have the powerful ability to establish a direct connection between artists and fans. While producers and other intermediaries would still have their role, the overall monetization process could become a whole lot more just and transparent. Musicians can:
- Directly monetize their music through yield-bearing NFTs, which don’t generate yield through DeFi (even though that would be possible too) but royalties — actual real-world cash flow generated by the licensed use of an artist’s music.
- Generate instant revenue by selling master or publishing copyrights of their music as NFTs.
- Besides licensing rights, musicians can “embed” special utility into their NFTs, such as privileged access to tickets, backstage experiences, and much more.
Either way, artists can generate new income streams and free themselves from the clutches of streaming providers. At the same time, fans get new ways to engage with their favorite artists directly and even own a “piece” of their creations.
While no one knows exactly what the future will bring, we can tell with certainty that NFTs will play a major role in many industries — especially in the music business, which has virtually waited for this magical blockchain-enabled tool called non-fungible tokens.
SuperFarm is committed to be a part of this innovative movement and move NFTs to the next phase. We think that music is one of the sectors where NFTs will gain mass adoption very soon. Be on the lookout for an incredibly exciting announcement coming out this week from SuperFarm!
SuperFarm is the next generation of NFT infrastructure living at the intersection of DeFi, Gaming, and Nonfungible Tokens. SuperFarm is designed to bring utility to any token by turning it into an NFT farm with no code required. Any project looking to leverage the power of NFTs can find utility in the SuperFarm toolkit.
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NFTs Impact on Artists as the Music Business Transitions was originally published in SuperFarm on Medium, where people are continuing the conversation by highlighting and responding to this story.