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Soon NFTs Will Be Singing A Different Tune
The Rise Of Music NFTs
The cryptocurrency industry has been the “Great Disruptor” of many traditional entities, or is at least well on the way. Bitcoin is currently disrupting fiat. DeFi is disrupting traditional banking and finance. Play to Earn is disrupting mainstream gaming. DAOs are disrupting corporations and organizations. NFTs are disrupting art, and will soon disrupt other industries like real estate, legal (contracts), and… music.
Keep in mind that the total market cap of crypto is only $2.5 trillion. No industry is more ripe for innovation through NFTs than the music industry.
Don’t get me wrong, many industries are long overdue for a complete overhaul. However, the amount of horror stories about overworked and underpaid artists being swindled into unfair deals is mind-numbing. Quite frankly, this industry is so lopsided against the artists that I’m surprised music NFTs weren’t the first use case to go mainstream. NFTs have been on an absolute tear since the first quarter of this year, and only now are we starting to see the music NFT narrative start to gain traction.
The Current State Of The Music Industry
The global music recording industry has been on a slow but steady growth trajectory since 2015. Global music recording revenue bottomed out at $14B in 2014 before reaching a high of $20B in 2019.
The growth of streaming and smartphone usage are said to be the main catalysts behind this growth. Streaming revenues have grown at a compound annual growth rate of 42% since 2015 versus 9% for the entire recording industry.
In 2020, US music recording revenue grew 9.2% to $12.2B.
The music publishing industry has been a constant performer (pun intended). Publishing royalties increased from $7.36B in 2013 to $9.63B in 2018. Royalties clocked in at $11.7B in 2020.
Goldman Sachs predicts that the entire music industry – recorded, live, and publishing – will experience a revenue increase from $62B 2017 to $131B by 2030. This would put the compound annual growth at approximately 6%. However, with the introduction of crypto, I’m sure the industry will grow much faster.
Problems in the Current Music Landscape
There are many problems that plague the music industry.
Outside of concerts and merchandise, there aren’t many ways for artists to reward and build deeper connections with their fanbase.
Piracy is still present within the industry.
The industry is heavily monopolized. The music industry is controlled by three record labels (68% of recording market) and three publishers (58% of publishing market):
Sony Music Entertainment (20%)
Universal Music Group (32%)
Warner Music Group (16%)
Universal Music Publishing (21%)
Warner Chappell Music (12%)
To make matters worse, the major record labels make a higher profit margin from streaming and downloads (50% - 60%) than physical sales (40% - 50%).
Artists are being signed to vulture deals and taken advantage of by labels, streaming platforms, and publishers. Musicians received only 12% of the $43B in revenue generated in 2017!
When you look at streaming platforms, the split is even more asinine. Musicians are paid between $0.006-$0.0084 per play. The Copyright Royalty Board made an attempt to rectify the unfair revenue split between the streaming platforms and songwriters.
They ruled that the percentage of revenue paid to songwriters and publishers would be increased by 44%. This brought the total percentage of revenue paid out to a whopping 15% from 2018-2022… which is still laughable to say the least.
Now that we’ve discussed how utterly broken the music industry is, let’s discuss what the crypto industry is doing to fix it.
The Role Music NFTs Will Play
I have no doubt that fans of music will be willing to use decentralized music platforms like Audius, Catalog, and Royal to support their favorite artists. Especially, if they have the ability to gain ownership of music NFTs. Let me give a brief description of each project (not investment advice):
Catalog gives artists the ability to press and sell single edition records.
Artists retain 100% of the initial sale, and collect a percentage – which they set – of the resale profit.
The records are immutable. Even if the Catalog platform ceases to exist, artists will still have the ability to collect royalties whenever the record is sold, thanks to blockchain technology.
Founded by JD Ross and 3LAU, Royal will allow users to invest in artists by purchasing NFTs that will grant them access to music rights.
Artists will sell song ownership and experiences to their fans.
Fans can purchase ownership and experiences from artists.
Both fans and artists receive royalties as the artist grows.
Royal raised $55M in their Series A round from investors such as a16z, Coinbase Ventures, Paradigm, Nas, and various other funds and artists.
Crypto music platform backed by The Chainsmokers, Katy Perry, and Jason Derulo.
Audius aims to disrupt modern day streaming services like Spotify and Apple Music, by allowing artists and content creators to stream and get paid directly from their audience.
The platform is based on immutable smart contracts, and it is owned and operated by the user base through the $AUDIO governance token.
The platform is already live and serves over 5M+ users per month.
In Q2 of 2020, Spotify’s paid subscribers and monthly active users increased by 29%.
Now imagine if these users were actually getting something in return outside of the music they purchased – like a chance to invest in their favorite artists.
These platforms also give artists and producers the ability to profit from their creations and keep their royalties and IP.
Another issue crypto is helping to alleviate is the loss of revenue from the inability to perform live. In Q2 of 2020, LiveNation saw a 98% decline in global revenue due to the global pandemic shutdowns. Though live performances have been making a comeback, they still aren’t back to what they used to be.
We’ve seen metaverse projects like Sandbox, Decentraland, and Tools Of Rock give artists a platform to host concerts and interact with their fanbase in a creative way.
These are just a few solutions out there. I expect to see many more come into fruition throughout 2022.
In my humble opinion, a disruption of the music industry is long overdue. Though it is still rather early for the projects that were listed – as well as the sector in general – I’m sure that this frontier will tilt the traditional music industry on its axis. This is the true purpose of crypto and decentralization, to make the dream of liberation from oppressive corporate industries a reality.
I’m sure the record execs and corporations will find a way to capitalize on this new frontier. However, it’s critical that crypto and NFTs find ways for artists and producers to even the playing field.
Ultimately music NFTs are a win for both the creators and the fans. The crypto music sector is still in its early innings. However, once the train fully leaves the station, the music landscape will be forever changed.