The music game has officially changed.
The song economy, characterised by the monetisation of consumption, is fast being replaced by the fan economy which is characterised by monetisation of the fandom. Models are shifting towards a more fan-centric structure where artists and rights holders directly monetise their relationships with their true fans instead of just casual listeners - with blockchain technology and the development of smart digital assets being the key underlying mechanisms facilitating this shift.
Having been actively following developments (and increasingly working directly) in the blockchain and digital asset space for the last 2-3years – particularly at the intersection of these new technologies with legacy entertainment businesses and intellectual property assets – I am in no doubt that the increasing integration of intellectual property rights (art, music, video etc) with blockchain technologies is ushering in the evolution of the music (and wider entertainment) business to a new paradigm.
Whilst there are essays and white-papers written as far back as 2016 discussing the possibilities of using blockchain technology to improve the commercial dynamics of the recorded music business for artists and rights owners (primarily through user-centric direct licensing & copyright protection/verification features built in to the digital files), developments in this area have since then been very stuttered. Huge changes have, however, been occurring at a rapid pace over the last 12 – 18 months.
The NFT Experiments
Tory Lanez, the Canadian rapper that has suffered recent high-profile issues in his career, recently announced that he had successfully sold 1million NFT copies of his new project - all sold for an average of a $1 therefore potentially generating USD$1m – in just a few minutes. Unlike prior NFT music project sales (such as Kings of Leon, Grimes, Shawn Mendez and others) with similarly structured sales in the last 6-12months, or even Nipsey Hussle’s earlier groundbreaking 100-copy mixtape, “Mailbox Money”, sold at $1k per copy back in 2015, the Tory Lanez episode gives a real insight into the possibilities of new business models and how blockchain technology can enhance music copyrights.
The key features of the Tory Lanez NFT sales are its timing (given the current nature and popularity of the NFT space), the extent of his fan base, and the large and growing demand and marketplaces to trade NFTs. If demand continues to grow at its current rate, the fans that bought his NFT release will be able to resell them on secondary markets (possibly with a small resale cut for Tory et al - which can be, and usually is, coded into the smart contract features of tokens) for a profit.
So buying an album could now become a financial investment (with the possibility of economic returns) and not just an expense for fans. Showing loyalty to an artist one enjoys no longer has to be just a one-way transaction. In fact, it seems the music business has no choice but to move further towards a model that emphasises creators being supported directly by their super fans, and in return having to come up with innovative value-added propositions and experiences to reward and further incentivise them.
Hence the difference with Nipsey Hussle's revolutionary $1k mixtape 'Mailbox Money' which, although scarce (due to the limited edition of available copies), did/does not have a liquid market for trading those physical CDs; and the difference with the Kings of Leon and other NFT album sales to date - which were more focused on providing added-value perks (such as concert tickets etc) to drive demand. The Tory Lanez NFT project however, is a scarce asset with a potentially liquid market in which the NFT can be traded due to its possible future rise in value. Who knows, prior music NFT purchasers may also begin to benefit from this growing demand and liquidity.
Decentralised Streaming & Mass Distribution
Another interesting development is the rise of decentralised music streaming via blockchain, which allows for direct payment from listeners to artist/copyright owner in real time on a per stream basis. Imagine paying your usual monthly sub-fee but it is credited to your streaming e-wallet, and every time you stream a song a $0.000X payment is deducted and paid straight to artist's e-wallet (see Audius streaming – which now apparently has 5m monthly users - up from 500k a few months ago). One can begin to see how the future music business could potentially take shape. This model also lends itself well to the growing trend of copyright owners selling parts of their copyright income streams to investors or use them as collateral for loans to invest in other revenue generating opportunities – which is the other side of the coin of the ongoing blockchain-powered music business revolution.
The liberalisation of music distribution has effectively given any and every artist on the planet a direct means of getting their music in front of listeners. DistroKid, the online music distributor, currently services 2million artists and pushes 25k+ tracks per day to streaming platforms. Competition has thus become much fiercer leading some to worry about the over saturation of music, particularly given the limited amount of fan engagement time/attention available in the advanced markets. However, as the famous economist Thomas Sowell states, ‘there are no solutions, only trade-offs’. Giving every artist access to direct music distribution means more rights owners having to fight for the attention/money of an increasingly fixed pool of fans with a limited amount of attention time - that must be spread across music, video and games. This trend will also likely steer the music industry more towards the fandom model and away from the consumption model.
The Future?!
We are just at the beginning of really exploring the possible use cases of NFTs and blockchain technologies in the music industry. With gaming, streaming, social video and other digital entertainment increasingly being facilitated through decentralized systems this trend is only going to accelerate. To facilitate the anticipated billions/trillions of transactions that will occur in this paradigm, new generations of distributed technologies have been, and are being, designed and developed to improve the speed and scalability of blockchains whilst still maintaining the security of a decentralized network.
Speed and scalability have till date been the primary hurdles preventing the widespread adoption of blockchain technology across a variety of sectors, but this is changing rapidly. Transitions from proof of work to proof of stake and other consensus models, and the development of novel consensus methods that enable more users to participate in the governance and maintenance of the networks, are just some of the breakthroughs powering the surge in activity in this area of technology development.
Music, like video, social media, games and other digital entertainment products and services, will increasingly migrate to blockchains which are getting faster and handling greater transactions per second - and allow for direct payments from users to creators for every interaction with their copyrights. Add the growing interoperability capabilities (enabling communication and value-transfer) between blockchains and the building blocks of the new decentralized internet, commonly referred to as web 3.0, come into view. It is therefore crucial that music industry stakeholders engage more with this sector to help shape how music rights can and will be equitably exploited in this new environment.
Super interesting times ahead.