Why the music business loves NFTs

The music business was almost annihilated by the Internet. Bold statement to start out an article, right? But it’s true, regardless of what metric matters the most to you.

Let’s talk album sales, which were, traditionally, the bread and butter for musicians. Musicians were creators of music, first and foremost, and some of the greatest names in music didn’t play live much. They made and sold music. Album sales has been an 8-digit industry pretty much since its inception. Recorded music became widely available in the late 50s or early 60s depending on where you were, and by the 70s the industry was generating over 10 billion USD annually in revenue.

As more and more people started listening, and technology made music more easily accessible and affordable, that number kept growing. At its peak, around the year 2000, album sales moved over 20 billion USD every year in revenue.

Then the Internet came along.

The Internet broke the music business

Look, there’s no way around it. We love the Internet, the Internet is our home. It has allowed for an explosion of creativity and innovation. It has spawned a plethora of native art forms that amaze us every day, and it has allowed all of us access to all the music we love instantly… and almost for free.

Which is problematic.

Napster was launched in June 1999. There had been other file sharing services before it, of course, but Napster was the one that truly impacted the way music was shared. It provided a centralised server that allowed users to search all other users’ shares, while hosting none of it. This meant that everyone on Napster could freely download all the music anyone else on Napster had. For some people, this was a moment of incredible liberation.

The consequences of this, however, are also obvious. Why would anyone buy a CD again when you could just go on Napster and get the same music for free?

The lawsuits were useless

Because there were lawsuits. So many lawsuits. Everybody in music, from massive corporations like A&M to the bands themselves (Metallica went to great lengths to attack Napster, for instance) sued Napster into the ground. By 2001, they had to shut down their servers and try to return with a legal subscription service.

The genie was out of the bottle, though.

By 2001, Gnutella, Limewire, Kazaa or Grokster were already up, and the public was used to getting music for free. There would be no going back.

The music industry would experiment with a ton of different solutions, such as selling files directly (iTunes) or, much much later, streaming (Spotify).

There’s no doubt a lot of these solutions made many people a ton of money. Daniel Ek, founder of Spotify, is trying to buy Arsenal Football Club, one of the club’s greatest sports institutions, demonstrating that it is in fact possible to become a billionaire in music today.

He’s not a musician, however.

The economics of streaming don’t work for most musicians

First of all, it’s impossible for an artist to know how many streams they need to earn any specific amount of money. It varies according to where listeners are (UK streamers pay more than US streamers for some reason), how much they’re paying (free streams are worth less than paid streams, which is not something the artist can control at all).

Secondly, the platform (whatever it is, we don’t want to single out Spotify. Apple Music, Tidal, YouTube, etc. work much in the same way) keeps up to 30% of all revenue, only making 70% available to everyone involved in actually making the music, including labels, songwriters, artists, and right holders.

The amount of money actually being paid is extremely low when you actually see the numbers. Assuming an artist earns 10% of royalties (the industry standard), then the sale of a 15 USD CD will net them 1.50 USD. To earn the same amount from Spotify, assuming the same 10% contract, the artist would need, on average, 4717 streams. For the equivalent of one record sale.

It’s no surprise that there are big musical acts, international bands that tour all over the world, posting royalty checks like this one. This is Matt Heafy, lead singer of Trivium, a band with 560 thousand followers on Instagram.

The fact is, unless you are Rihanna or Ariana Grande-level big, streaming probably pays so little it doesn’t even factor into your domestic budget.

The situation is so ridiculous Heafy makes more money from streaming his rehearsals on Twitch than from streaming his actual music.

But what if musicians were able to reclaim control of this process? What if they could create objects that were unique, and truly ownable by their fans? What if the things they made couldn’t be freely copied by everyone on the Internet?

Wouldn’t that be pretty cool?

NFTs are giving musicians their power back

Here are some things that make NFTs special:

Non-fungible: It’s right there in the name. One of the main reasons why tokens like Bitcoin or UTK can be used as currency is that they are fungible. Even though you can track every Bitcoin down to the moment it was minted, every single one is, for all intents and purposes, the same. It makes no difference which one you have. With NFTs, it’s the other way around. Every one is different. It contains different information, it has a different value, and it can never simply be traded in an exchange. This is incredible for musicians, because they can make NFTs to go with, for instance, an album sale, or a ticket purchase for a concert, that is uniquely specific to whoever bought them.

Bands like The Kings of Leon are releasing their albums as NFTs which will make them way more valuable to fans. If you buy an album as an NFT, no one else will own the same digital object as you.

Indestructible: This is true of most everything on the blockchain. It’s not unique to NFTs. But it does bear keeping in mind since it distinguishes them from other kinds of digital certificates. Whatever’s on the blockchain is there for good. You can’t erase it. NFTs, once minted, are forever.

Bands like Avenged Sevenfold are using NFTs as contracts that they built themselves. Whoever owns an A7X will forever have special perks with the band, such as meet n’ greets, front-row tickets to shows, etc.

Verifiable: This too is common to all denizens of the blockchain. In the same way digital ledgers allow for easy verification of digital currencies, so too do they allow for easy verification of NFTs, right down to the original author. This is what makes them valuable. You can verify originality.

NFTs can do a million things for bands and musicians, but at the end of the day it all comes down to verifiability. An NFT will tell the band when you bought their stuff (it doesn’t need to be music, Avenged Sevenfold are doing artwork) and will confirm you did it in a legitimate and fair way.

What constitutes legitimate and fair?

The beautiful thing about decentralisation is that it entirely depends on you. Bands can own this process and agree to terms directly with their listeners, excluding platforms and mediators from the process entirely while still enjoying maximum security and reliability.

It’s a new day for music.

And it’s all thanks to blockchain technology.

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