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Will NFTs Offer Musicians a More Profitable Future?

Will the music streaming model be reimagined in Web3?

If a tree falls in the forest, does it make a sound? To be fair, the same can be asked about music. If it can’t be shared with anyone other than its creator, then what value does it truly hold?

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Since its early days, the landscape of the internet has transformed how music files are shared, consumed and monetised. From the days of Napster to the kingship of current streaming services, continuous advancements in digital technologies have played a key role in scaling the music industry over the course of our digital era. Within the last decade, digital streaming platforms like Spotify have further revolutionised how people consume music — serving as an intermediary between artists and labels and charging users a small fee for unbounded access and customised offerings. 

However, Spotify has not shied away from its own controversy — with recent reports accusing the streaming giant of not giving artists the lion’s share of their generated revenue. On the flip side, blockchain technology is now presenting new ways for artists to directly market the rights to their work without any need for intermediaries. It’s now widely predicted that thanks to the growing adoption of NFTs in the music industry, popular music streaming services are now treading through murky waters. 

So, what’s next for digital music sharing? First, let’s do a quick recap on the history and current pitfalls of digital file-sharing and streaming services. We’ll then break down what music NFTs are and how we may see blockchain technology eventually cannibalise the music streaming industry as we know it.

The earlier (and slower) days of music file sharing

Before we all gained access to the World Wide Web, the practice of making computer files available to anyone across a unified network was completely unheard of. But once the internet became a household concept, file sharing quickly became one of its most revolutionary advents. When the internet became mainstream, we saw the opening of Pandora’s box for unbridled access to licenced digital music, downloads and illegal file-sharing.

Those old enough to remember the early days of file-sharing might recall using now-antiquated P2P (peer-to-peer) sharing applications (such as Napster or LimeWire) to download audio or video files. Few things can still match the excitement of completing a day-long download of a new track on a 56k modem — but the unfair utility of these platforms was known by everyone (and was even behind one of music’s biggest controversies).

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Of course, the key issue behind regular music downloading was piracy. Unlicenced music was often sourced from illegally uploaded audio files, uploaded to live on the hard drives of millions of users and then shared across a vast network, allowing zero royalties to be absorbed by the artists themselves. Everyone loved having access to their favourite music without having to pay for it, but everyone also knew they weren’t exactly supporting the industry’s greater backbone. Today, we can see how this concept helped redefine the way we think about issues such as copyright, intellectual property and monetisation.

Digital service providers (such as Spotify and Apple Music) eventually became the preferred way for users to share and consume music online, helping to curb illegal file sharing and serving as a middleman between artists and record labels. Unlike peer-to-peer sharing applications, streaming services have actually incentivised listeners to fork out a small amount of money in exchange for access to continuous streaming, a near-unlimited music library and personalised recommendations created through sophisticated data collection.

Many experts believe that in the wake of illegal P2P sharing, Spotify should be credited for saving the music industry. According to Bill Werde, former editor of Billboard and current director of the Bandier Program in Recording and Entertainment Industries at Syracuse University: “Before there was streaming, the [music] business had lost revenue for 15 straight years. Once streaming took hold, those losses flattened out. Now, over the last four or so years we’ve seen growth.”

From the sounds of it, Spotify has ostensibly saved the music industry from a long reign of music piracy. So, why is this belief not shared by everyone in the biz?

The problem with today’s music streaming platforms

In the last fiscal year, Spotify has reportedly generated a total of $8 billion USD in collective revenue. With 100 million subscribers across the globe, the platform has proven to be popular in multiple markets worldwide. Apple Music is the streaming giant’s closest competitor, boasting approximately half of Spotify’s global subscriber base.

What’s the deal, then? Well, it appears that the other main incentive behind their paid subscription model — the idea that users can pay for artists to be fairly remunerated for their work — hasn’t quite become the utopic alternative to illegal downloading, if you ask several big names in music. 

Last year, a long list of UK artists including Paul McCartney, Kate Bush and Stevie Nicks wrote a petition to Prime Minister Boris Johnson, calling for new legislation to protect artists against unfair compensation. Organised by the Musicians’ Union, the letter argued for a change in legislation that would “put the value of music back where it belongs — in the hands of music makers.” 

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Independent artists who also found themselves frustrated with inequity organised a series of protests (called “Justice at Spotify”) that took place in front of the streaming platform’s various worldwide offices. Led by electronic artist Julia Holter, the group demanded increased payments to right holders and greater transparency for musicians. 

With current clauses in place, the majority of revenue generated from streaming fills the pockets of the labels. A good chunk of major labels reportedly take 50-80% of artists’ royalties, leaving them with less than half of their income before further cuts are taken by managers and distributors. And as for session musicians? They typically receive nothing.

To worsen matters, streaming became a primary source of revenue for most musicians in the post-pandemic climate. An average of 80% of musicians’ income reportedly comes from touring — which means that the inability to tour, play gigs or sell merchandise in person has left most artists in some sort of financial turmoil.

This blatant discontent in the music industry has most certainly placed Spotify on the docket. No musician wants to be left financially helpless — and the sustainability of a platform that leaves artists scrambling to earn a living has the fair right to be questioned.

Will artists eventually be able to leverage a system that will allow them to get the maximum value out of their creations, all while allowing them to feel empowered by the platforms that they use? Does NFT technology present a viable solution to this problem?

NFTs: a new way to access music

Non-fungible tokens (or NFTs) are unique digital assets, with ownership that can be established and stored on a digital ledger via blockchain technology. 2021 saw the rise of NFTs — primarily in the form of digital art. Now-popular monikers such as Beeple, Bored Ape Yacht Club and CryptoPunks probably come to mind.

However, NFTs aren’t just expensive cartoons traded and touted by elite figures and celebrities. Anything — from a song to a concert ticket to a digital contract — can be an NFT. In the music world, an NFT can simply be defined as a rare collectable file that is unique. Think of it as an original painting or an autographed vinyl cover — there are many different copies of these items and more can be reproduced, but the NFT version will always be one of a kind.

Saxo Bank, a Danish investment bank, publishes a set of ten “outrageous predictions” each year. At the end of 2021, one of their predictions has been outlined quite clearly:

“Musicians are ready for change, as the current music streaming paradigm means that labels and streaming platforms capture 75-95 percent of revenue paid for listening to streamed music. In 2022, new blockchain-based technology will help them grab back their fair share of industry revenues.”

What benefits can NFTs offer artists?

While the NFT marketplace may currently look like a chaotic art-trading auction, the future appears to be very bright for NFT technology. An NFT-based platform won’t just offer artists a new way to verify ownership of rights — it will also allow them to distribute rights without needing the help of intermediaries (for example, Spotify or Apple Music).

NFTs won’t just allow artists to monetise their content in real-time — their technology will also allow them to do so directly and fairly. As it currently stands, Spotify’s current model doesn’t direct each individual subscriber’s fees towards the actual music they listen to — instead, all subscription fee revenues are shared based on each artist’s total number of streams. “Smart contract” blockchains, however, would distribute music directly to listeners without any centralised intermediaries taking a cut. 

As blockchain technology will enable artists to be paid in real-time, this will also allow them to more accurately and consistently track their revenue streams. This means that NFTs will concurrently transform how listeners and consumers will be able to support musicians. Cryptocurrencies will also ensure that fans’ contributions are going directly into the wallets of their favourite artists, giving them the peace of mind that they’re actually supporting their work.

While this all might sound quite idealistic and easier to execute in theory, a creator’s economy will also provide independent artists with more creative ways to connect more directly with their fans and followers through NFTs — something not offered by rigid, standardised platforms like Spotify. Artists won’t just be restricted to sharing audio files — they’ll also be able to tack greater utility onto their NFTs, such as access to exclusive content, merchandise, backstage passes and much more.

Without an intermediary in place to choose how funds are aggregated and distributed, artists will be able to customise their streaming rates and choose how much they charge for any piece of content. Likewise, fans will also have full control over how much they choose to contribute to an artist’s work. If someone feels that an artist’s work is worth $10k or even $100k, they’ll have the opportunity to place that full amount into their hands. In short, the fans and artists will make the ultimate decisions — not the platforms.

In the words of Dallas-based rapper Rakim-Al Jabbaar: “NFTs will give artists another outlet to create exclusive content for fans in a more artistic fashion. In the future, we’ll see the value of songs appreciate, like Basquiat paintings.”

Which projects have been successful so far?

Several artists are already starting to discover the potential offered by digital assets. From musicians to filmmakers to podcasters, figures in several corners of the entertainment industry are now using NFTs to tokenise and monetise their content.

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Last year, Canadian electronic artist Grimes sold her first NFT collection for a total of $6 million. American DJ and producer 3LAU recently auctioned unique NFTs of his vinyl collection Ultraviolet, raking in an unbelievable $11 million in total earnings. Legendary EDM artist Deadmau5 has entered the NFT space with RAREZ, his own digital collectable line. Fans who join the RAREZ community are offered the ability to purchase ‘packs’, all while getting the chance to earn NFTs with varying levels of rarity. Other artists that have jumped on the NFT train include Paris Hilton, Shakira and Serj Tankian.

Will we see blockchain-supported streaming services also come to the fore? It appears so.

Catalog is a new digital record store that allows artists to release tracks as NFTs through an open music market. And taking a leaf from the model of Web1 platforms, music platform Audius has launched its own fully decentralised, peer-to-peer NFT music streaming service. Audius allows users to upload their own music and monetise through tokens, rather than through generated royalties. Both creators and users are also able to upload content for no cost and without the oversight of a third party.

Austin Virts, head of crypto marketing at Audius, highlights the significance of allowing an NFT streaming service to enter the music space: “There hasn’t really been anywhere [until] now for individuals who are not signed to a major record label to develop and grow an audience. Audius [is] utilising blockchain technology to provide the platform for over 90% of artists who are being pushed around and not catered to by massive record labels.”

What does this spell for the streaming industry and the future of music?

While music streaming platforms were originally presented as an alternative to online piracy, they haven’t quite gotten the remuneration model right. 

This inequity problem has positioned NFTs to cause a complete revolution in the music industry — and it appears that both artists and investors are ready for it. Should these centralised streaming services fail to adapt to the newer demands and constructs of the music market, they will very likely face significant disruption to their business models.

As we enter a new era of the creator economy, it’s clear that both artists and fans want to see all aspects of their business models be characterised by the ideas of creative control, greater autonomy and community. Web3 is a new space that might be noisy, confusing and nascent — but it’s very clearly building a better, more profitable future for artists and creatives.

It’s time to empower musicians, allow them to take back greater control of their work and allow them to create ecosystems around themselves, rather than to place them within ecosystems that are no longer allowing them to survive. This is what Web3 is here to do.

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