NFTs will revolutionize the music business for artists
Of all the industries that are poised for disruption, the music business is probably the most adept at combating changes that threaten its modus operandi. Decade after decade, we see new technology that alters the way music can be monetized. As music shifted from analog to digital, it changed the way listeners consumed and experienced it. Just take a look at the shift in the recorded music industry revenue over the past twenty years or so below.
The chart above reflects the two-decade-long battle between the recording industry and technologists and highlights one of the most prolific reversals of any industry facing a disruptive technology. The recording industry has weathered a few storms over the years while clawing its way back to record-breaking revenues. From legal bouts with Napster in 1999, to paid digital downloads on iTunes, and the emergence of streaming music platforms like Spotify, the recording industry has once again regained control over the monetization of music.
Creators and artists have long been taken advantage of by labels and platforms whose contractual agreements and revenue share requirements are oftentimes burdensome. Added to the continuous commodification of art and music through technological progress, the average artist is being compensated less than ever before for their works, while most of the rewards funnel to the top 1% of superstar performers.
Generally speaking, the very people responsible for the creation of the music itself, namely artists, producers, and writers, have never really received their fair share of profits compared to the music labels and streaming services that seek to control the ownership and distribution of that music. Sure, the few Beyonce’s and Taylor Swift’s of the world are making ungodly amounts of money, but the average artist is barely making a living off of their musical endeavors. Many artists are working regular 9–5’s to support their music careers.
Even Mariah Carey, an award-winning legend, wasn’t immune to the “bad deals” from music labels. Just take a look at what another legend, Prince, had to say about it on The Tonight Show with Jay Leno.
The rise of social media and direct-to-consumer business models have also begun to threaten the power that labels have traditionally held over artists. Independents can align with private investors instead of music labels to help market and distribute their own music directly to fans, which in-turn creates new revenue opportunities for the artists
This shift is already becoming clear. According to a report by Midia Research looking at recorded music revenues for 2022, independent artists and labels are gaining more market share of the music recording industry each year. Both out-performed the larger market in terms of revenue growth with indie artists posting 16.6% YoY and indie labels clocking in at 7.1% YoY. Independent labels and artists even beat out streaming revenues across the board with 13.9% YoY and 17.9% growth respectively.
Independent labels and artists also brought in $10.8 billion in revenue in 2022. To put that into perspective, Universal Music Group (UMG) recorded just $9.2 billion in the same year. UMG generated more revenue than Sony Music Group and Warner Music Group combined. This means that of “The Big 3” music labels, UMG is the largest and brought in about $1.6 billion less than independent labels and artists combined in 2022.
Midia estimates that indie labels and artists combined for 34.6% of the total market share of the entire music recording industry in 2022. Therefore, the total addressable market for product or service providers selling to independent labels and artists is bigger than the largest music label. So maybe we ought to start referring to it as “The Big 4”.
Beyond social media, the music business is becoming more democratized due to emerging Web3 technologies and marketplaces that are helping artists take back the ownership and distribution of their music. Several new Web3 marketplaces such as Muze, Royal.io, RCRDSHP, and OneOf are already assisting with aspects of the music business through music NFT sales, digital collectibles, merchandising, fan experiences and community building.
Ironically two of the original record industry disruptors, Limewire and Napster, have also resurrected their brands by launching Web3 initiatives. The “Big 3” are also launching NFTs and Web3 initiatives, complete with trademark applications to ensure their place in this new democratized music world.
The rise of non-fungible tokens (NFTs) has the potential to revolutionize the music industry for artists by allowing them to directly monetize their creative works without the need for intermediaries like record labels and streaming platforms. NFTs can provide creators with a new way to earn revenue through the sale of unique, digital assets that represent their music, including album art, concert tickets, and even personal memorabilia.
By leveraging blockchain technology, NFTs enable artists to receive a greater share of the profits generated from the direct sale of their music, while also providing a more transparent and secure system for tracking royalties and ensuring proper attribution. Moreover, NFT marketplaces can provide a platform for artists to showcase their work and connect with fans directly, bypassing the traditional gatekeepers of the music industry. With the potential to revolutionize the way music is monetized and distributed, NFTs have the power to give artists greater control over their creative output, and help to level the playing field between artists and the record labels that have traditionally held all the power.
Of course, the streaming giants won’t just sit by and allow competitive business models to disrupt them either. They have the advantage of distribution channels and the network effect of millions of paid subscribers who depend on their platforms to consume music. So expect more experimentation with NFT technology coming from the streaming platforms. Spotify Gated Playlists is evidence of just that.
One of the biggest issues facing artists in the music industry is the unfairness of royalty splits between record labels, artists, and streaming platforms. Typically, record labels take the largest share of the revenue, with artists receiving a smaller percentage and streaming platforms taking a cut as well.
For example, a typical royalty split might be 60/40 between the label and the artist, respectively. However, that 40% split isn’t necessarily all going directly to the artist. The label may also take a cut for marketing and distribution costs, leaving the artist with an even smaller percentage.
In the case of streaming platforms, the royalty split can be even more lopsided. According to a recent report by Digital Music News, Spotify pays out an average of $0.00437 per stream to the rights holders (usually a record label), with the artist receiving only a fraction of that amount. This means that an artist would need millions of streams to earn a decent income from streaming royalties alone.
NFTs have the potential to disrupt this system by enabling artists to sell their music directly to fans without the need for intermediaries like record labels and streaming platforms. With NFTs, artists can create unique digital assets that represent their music and sell them directly to fans, who can then own a piece of the music itself. This means that artists can earn a higher percentage of the revenue from their music sales, without having to give a large cut to record labels and streaming platforms.
Music NFTs have the potential to be highly profitable for artists, as seen in the cases of Steve Aoki and Snoop Dogg. Steve Aoki made over $4.2 million in just one weekend through the sale of his NFTs, which were themed around his 2014 album “Neon Future”. He sold 3,000 NFTs, each containing exclusive content such as unreleased music, live streams, and physical merchandise. In an interview with CNBC, Steve Aoki stated, “I’ve made more money in the last three months selling NFTs than I have in the last 15 years of my music career.” (Source: https://www.cnbc.com/2021/05/07/dj-steve-aoki-why-hes-investing-in-nfts.html)
Snoop Dogg also entered the NFT market with the release of his “A Journey with the Dogg” collection on Nifty Gateway in 2021, which sold out within minutes and earned him over $4 million. The collection included artwork, music, and access to unique experiences with Snoop.
For artists, NFTs offer a new revenue stream that can be highly lucrative. Unlike traditional music sales or streaming royalties, NFTs allow artists to retain ownership of their work and receive a larger share of the profits from its sale. Additionally, the scarcity and exclusivity of NFTs can drive up demand and increase their value over time, potentially creating a long-term source of income for artists. As the market for NFTs continues to grow and evolve, it presents an exciting opportunity for artists to explore new ways of monetizing their work and engaging with their fans.
Rihanna’s hit song “Bitch Better Have My Money” has become the latest subject of the NFT craze, with producer Jamil “Deputy” Pierre selling a fraction of his own streaming rights to the song via 300 NFTs in collaboration with AnotherBlock. Each of the NFTs was sold at $210, which gave each collector ownership of 0.0033% of the streaming royalties to the song.
The successful sale of the NFTs resulted in AnotherBlock acquiring immediate revenue of $63,000. This approach of selling fractional ownership over streaming royalty rights has immense potential for artists and creators who can leverage their work to raise capital. However, it also highlights the regulatory gray area surrounding NFTs and their ownership rights.
The growing popularity of NFTs and their increasing adoption in the music industry has brought to light the need for regulatory clarity on NFT rights and ownership over music. The lack of legal infrastructure creates confusion and potential legal disputes over ownership and licensing rights. As the industry evolves, there is a growing need for standards and regulations around NFTs to ensure that artists, creators, and buyers are protected. Despite these regulatory uncertainties, the potential for fractional ownership of streaming royalty rights could be a game-changer for the music industry. It could provide a new way for artists to monetize their music and connect with fans, while also creating new investment opportunities for fans and investors. However, it will be important for the industry to work with regulators to establish clear guidelines and regulations for these new forms of ownership and investment.
NFTs have the potential to revolutionize the music business for artists by enabling them to take back control of their music and earn a fairer share of the revenue. While the traditional music industry may be resistant to change, artists and fans alike are increasingly embracing new technologies like NFTs as a way to create a more equitable and sustainable future for music.
Some NFT marketplaces are already focused on music and are offering new ways for artists to sell their music and engage with fans. These platforms offer unique features such as exclusive content and experiences, limited edition releases, and fan engagement tools, all of which can help artists build a stronger connection with their fans and earn more revenue from their music.
The Gigantik platform and branded secondary NFT marketplaces can enable artists to build their brand and connect with their audiences directly. By creating a dedicated platform for their work, artists can showcase their unique style and build a loyal following. This helps to establish a direct relationship between the artist and their fans, which can lead to increased sales and more opportunities for collaboration.
Contact Gigantik for more information here.
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Brandon Rowlett is a Product Marketing Manager at Gigantik. Through technology solutions and strategic consulting, Gigantik helps brands create meaningful web3 engagements that deliver shared value between them and their customers.
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