Are NFTs the future of the music industry?
What do producers 3LAU and Steve Aoki have in common with artists Kings of Leon and Grimes?
If you think this article is about a mind-bending collaborative single, you’re wrong! Instead, all these names that are in the entertainment industry have been mentioned above, each have earned millions of dollars in recent months by selling non-fungible tokens (NFTs), paid for with online cryptocurrency. Yes, the crypto craze has been good news for both musicians and producers as well. The media and music industry buzz has been generated from this, but many were still alien to these terms – causing confusion or disbelief when first reading about it.
The non-fungible tokens represent the digital certificate of ownership for anything a musician wants to put up for sale, from an album to single tracks. It can also come with a bundle of exclusive goodies that fans can enjoy within their purchase so that these items come equipped as bonuses – such as gig tickets or limited edition merchandise, images, videos, and digital arts that are not available anywhere else.
The future of the music industry is now at hand. Blockchain-based platforms allow fans to purchase NFTs that represent their favorite artists and bands, allowing them access into a world where records are not just possessions, but also form parts in an endless flow. By purchasing and selling NFTs, fans are able to monetize their love for their favorite artists as well. The crypto-currency makes online money with the ability to store who owns what on a shared ledger known as Blockchain – this means that they can set terms like embedded smart contracts ensuring part ownership in any resale value. Artists can now sell their work without the need for a middleman, as NFTs (non-fungible tokens) gives artists complete control and ownership of what they make.
This is the most interesting part of NFTs: although they are supposed to be unique, there can still be multiple copies with varying contents. This means that the value of an original NFT becomes higher due to its scarcity. It usually depends on how rare the content is, which makes it incredibly valuable for collectors who want a piece that nobody else has.
The perfect example of this is the Mona Lisa painting, it has been seen by millions of people, millions of clones have been made, but only one person can own the original displayed in Louvre. If you have a print or photo taken by them and sold on your website, it may be worth $500 dollars more than just an image from Google Images because there will always be someone wanting to feel as though they’re partaking directly with da Vinci himself – which is what makes this pieces so valuable.
In a single day, Grimes sold almost $6 million worth of cryptocurrency; Steve Aoki’s collection was valued at over $4.25 million and Kings Of Leon had their batch sell for less than $2 million dollars. 3LAU is an early crypto adopter selling his own NFT collections for $11.6 million.
The potential for NFTs to change the music industry is huge. Does it really have the power to help all musicians and fans in a safe and sustainable way, or it could just be another hype bubble waiting on its inevitable burst? Let’s take an objective look at the main points.
Why do musicians get involved with NFTs?
For many artists, the death of physical CDs and downloads have significantly reduced their profits. The music industry has been in flux for years, it is on the brink of a major change. With more people listening to streaming services such as Spotify instead of buying albums or singles every day, artists can no longer count on making money off their album sales alone; or even in streaming these days which has little or no profit margin per play.
More than 150 musicians, including Paul McCartney and Kate Bush, have written to UK Prime Minister Boris Johnson calling for an updated legislation in order to protect artists better. They say that “songwriters earn 50% of radio revenues, but only 15% from streaming.”
Recognizing the scale of the shift from traditional, physical formats to streaming services, the UK government is currently gathering evidence on how much money is generated by services like Spotify, Apple Music, and Amazon Prime.
Even singer Nadine Shah, whose latest album Kitchen Sink was named one of BBC 6Music’s albums of the year, has been forced to move back in with her parents because according to her, “Earnings from my streaming are not significant enough to keep the wolf away.”
Prior to the pandemic, artists have increasingly relied on touring as their source of income. With live music continuing its uncertain future and unknown for how long it will continue at all levels, the potential for NFTs in providing income holds huge appeal. This is especially true because it offers artists a chance to bypass the swathe of intermediaries, it saves time by selling directly to their fan base, as well as avoiding expenses that result with so many rights holders along producer-distributor lines (labels). Finance professor at the University of Sussex Carol Alexander agrees: “NFT allows bands to avoid all these costs which are risks associated due to process.”
After receiving a $10,000 bid for one of his NFTs (non-fungible tokens), Linkin Park co-founder Mike Shinoda reflected this in an insightful series on Twitter. “Even if I upload the full version of the contained song to DSPs worldwide, he tweeted, “I would never get even close to 10k by myself – after fees from label/marketing.”
With an increased profit share, the artist has a chance to direct where the money goes. For example Kings Of Leon’s NFT haul saw $600K (£425) directly benefiting Live Nation’s Crew Nation fund and support rose during pandemic times; while Shinoda similarly funneled earnings into charity causes.
Despite all the potential, it’s still nothing new, artists can sell copies of their music on a website without using NFTs. However, we can’t deny the fact that using NFTs offers more than what the traditional industry offers.
Are NFTs only for established acts?
While it is true that the value of an NFT depends in part on-demand, with big followings such as those from bands and artists you might expect them to stand a better chance at making more money. It’s no wonder that heritage stars such as The Rolling Stones and Janet Jackson have announced ventures into NFTs.
While it is not a guarantee that smaller artists will be able to make enough money with NFTs, they do have potential as an additional revenue stream. The key here lies in maintaining loyalty from one’s fanbase, and generating artificial interest for their tokens – something which only those who are truly devoted can hope to achieve.
Marketplaces such as Open Sea, which provide a platform for independent musicians to find an audience. Musicians from all demographics can advertise their work, with selling it directly on the site in exchange for feedback or money from buyers who are looking specifically to commission this artist’s style – whatever they may be.
“Big artists are currently dominating the ‘low-hanging fruit’ in NFT markets, but I still see a future for musicians,” says Tobi Okandi from O Children. “As an entirely independent musician and producer who builds his own art alongside its rise – rather than relying on traditional channels like labels or publishers — he’s able to find new ways with what others perceive as being uninteresting.”
Jean-Hugues Kabuiku, a technology and culture writer, describes how NFTs are not the solution to artists’ struggles. He states that when we look at it from a holistic perspective rather than focusing all of our energy on getting tokens or coins into these new blockchain platforms; by pushing for “a rental union” where mutual aid can build between creators who deserves money they have rightfully earned but do not receive enough.
So, who’s buying NFTs?
It’s not surprising that the most connected crypto investors have been dominating purchases of high-profile collections. After all, these are people who know what is going on when it comes to cryptocurrency prices and trends.
Cooper Turley, a 25-year old crypto trader from Los Angeles who handles strategy at music streaming/sharing platform Audius; he is friends with Tim Kang, a 28-year old software engineer who made his wealth in cryptocurrency Ethereum. He invested in NFTs by Grimes and Shinoda and so far have spent $2 million dollars on NFTs including $333k for 3LAU’s multi-millionaire sale.
The co-founder of Blockchain Music, Jimi Frew, who delivered music producer deadmau5’s first digital collectibles said to Billboard that 90% of crypto holders are very wealthy individuals. This leaves out most fans as they can’t afford these high ticket items for sale with cryptocurrency funds on Blockchain Music’s platform.
The rise of blockchain technology has led to accusations that music is being assetized, or with authors, Kean Burch and Fabien Muneisa calls assetization, they argue that the focus now lies not in appreciating art itself, but prioritizing financial ownership.
How’s NFT for the average music fan?
The good news is that you don’t need to be a millionaire in order to access some of the best investments on earth. There are many NFT entry points for everyday listeners outside the millionaires club.
The Kings of Leon made headlines by giving fans the opportunity to buy their latest album “When You See Yourself as an NFT”. Alongside digital download and a limited edition physical vinyl release, it can also get you one lucky ticket into a VIP concert seat with other perks available for a $50 token.
Jamie Parmenter, a music fan, also a journalist has made the standard token his first NFT purchase. He told BBC that the process currently feels “too cumbersome and time-consuming for average music fans.”
He says that “In today’s society of instant gratification and consumption, having to transfer monies into crypto-currency, then log into different online wallets and accounts for different fees and processes is too expensive and complicated for many,”
The cost of NFTs can be expensive. This includes unexpected transaction or “gas” fees to cover the computer processing power. Combined, these additional costs meant that while my original purchase was around £48 (not including any gas prices yet), in total I ended up paying about £100 more than expected solely because of how fast blockchain transactions happen- which isn’t cheap at all.
Parmenter says that while the company Yellowheart, who set up for Kings Of Leon’s NFT purchase tried to make it easier by providing some guides and a Discord message board there is still plenty of confusion and frustration.
“It’s nobody’s fault; the industry is still young. Everyone – both consumers and marketers – are still learning,” he says.
The idea of the NFT is still new, there are many practical considerations to take into account. First and foremost, if a marketplace hosting server goes down then all those assets become lost forever with no legal framework in place for them at this point. So it’s important that they’re protected correctly now while we work towards finding solutions – especially considering how much computer processing power these types of transactions will require.
So, what’s the future of NFTs?
Why deal with all the hassle of certificates when you can copy music?
The music industry has been changing rapidly, and there are already structures available for fans to directly support artists. Bands such as While She Sleeps, who have introduced a more traditional tiered subscription model to enhance the fan experience. This is akin to Radiohead’s decision in 2007, In Rainbows album which they offered online they also allowed people to pay for what they liked.
“There are thousands of other solutions to ‘cut the middle man,” says Kabuiku. “The question we need to ask ourselves is this: “How are we going to support people to make music, and prepare ourselves for a world where only the wealthy can participate in culture?”
It seems that some music fans have turned against the influence of NFTs.
The popular UK rock band Glass Animals announced that they would be getting rid of NFT collectibles, and replacing them with a physical card after receiving backlash from fans.
Parmenter says that as a music fan himself, he can see how NFTs “are not going to be for everyone. Not everybody sees value in digital assets many would rather pay for something physical”.
“The great thing about the Kings Of Leon NFT was that it was the best of both worlds: you got the NFT and a physical product – a special vinyl edition version of their latest album,” he added.
With the future of NFTs depending on how they are accepted and adapted, Parmenter is optimistic about what’s ahead.
According to him, “There is potential for NFTs to be more accepted in the future if they are used to benefit both artists and fans. This could just be a transition phase like we’ve seen in the music industry time and time again. When MP3s first came along, there were people saying they’d never buy or use them. The same goes with streaming, look at the streaming industry now.”
“The industry is at a crossroads at the moment. There are myriad directions it can go, especially digitally. Many artists want to be represented more for their work, whether it be financially or creatively. Royalties are big news at the moment, how to pay them quicker and fairer. Crypto-currency and the blockchain have the potential to solve this problem,” he added.
Although NFTs have a place in the cryptocurrency world, it is important not to get caught up in their hype as they do nothing new that cannot already be done with existing systems.
“This technology is still in its very early stages, but the potential is there. It just has to be adopted and improved.”