Musicians are Taking Note of Web3
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Now, back to our regularly scheduled programming. Crypto is disrupting many industries, especially those with historically powerful gatekeepers and middlemen. The clearest example of this is the financial sector, but similar ideas are taking hold in the creator economy as well. Today, I’ll focus on web3’s potential to disrupt the music industry as we know it, which will ultimately drive more value to both musicians and fans.
Perhaps the most straightforward application of web3 and music is through digital collectibles (aka NFTs). The concept of collectibles themselves has existed for a while. However, putting collectibles on the blockchain addresses two shortcomings of owning purely physical assets: authenticity and creativity. For example, I could buy a Simon and Garfunkel poster, forge a signature, and sell it to a poor soul. And even the person I sell it to can’t do much with it besides hang it on a wall.
On the other hand, NFTs enable people to transparently verify authenticity and rapidly experiment with the utility they can provide on the wonderfully wacky internet. Furthermore, these NFTs can often be resold fairly quickly (see my post on liquidity), offering economic upside for purchasers.
Back to music. It is now common for popular artists to both buy and sell NFTs as crypto has become more mainstream, many of which are worth millions of dollars. Perhaps the most famous instance of this is prominent American DJ 3LAU’s $11 million NFT.
People tend to have two reactions to artists’ foray into digital collectibles:
See! Crypto has value! People will pay!
WTF??? Who would be dumb enough to pay for a .jpeg? I’m just gonna screenshot it!
While these stories often make the front page, we shouldn’t focus on what already successful artists are doing with crypto, as it doesn’t faithfully embody the true ethos of web3. For better or worse, people tend to buy what celebrities sell! Instead, let’s focus on how rising artists can harness the power of web3 to expand and monetize their audiences like never before. After all, web3 is supposed to democratize access to opportunity instead of being yet another way for the rich to get richer.
Sound.xyz is an example of a music NFT project. Artists partner with Sound, creating NFTs that “are [an] access pass to the Sound community on Discord. Artists can also choose to include additional benefits for their backers, ranging from exclusive listens of unreleased songs to concert tickets.” In addition, NFT holders can leave a public comment directly on the Sound web page itself to show their support. To learn more about how Sound works, click here.
To date, artists have earned almost 1M USD total on Sound. However, NFTs as purely digital collectibles with some side benefits is just the tip of the iceberg in how artists and fans can interact in web3. Next, I’ll explore how music NFTs are aiming to replace record labels entirely.
Circumventing the Middlemen
In web2, many companies have become large enough to exploit their marketplaces through exorbitant take rates at the expense of participants, such as Spotify. Web3 introduces new paradigms for how value is distributed to players in an ecosystem, in turn empowering those that have traditionally been repressed by web2. The clearest way to describe this idea is with this image from Not Boring, Packy’s newsletter:
Concretely, the potential for disrupting the music industry is captured by a 2018 Citi study:
In the U.S., the music industry generated $43 billion in revenue. … Artists’ share of music revenues is small. In 2017, artists captured just 12% of music revenue.
Most of the revenue generated in the music industry goes to “middlemen” like record labels, music publishers, and streaming services. While we can all agree that these intermediaries provide value, it’s important that there are alternative routes for artists to distribute content, engage with their fans, and generate revenue. So… where does web3 fit in? This thread sums it up:
For years, aggregators have taken the lion’s share of profits while reinvesting only a fraction of it back into those who made their products valuable. This transfer of value out of aggregators’ hands back into the suppliers and consumers isn’t just for the music industry – it’s happening in gaming, social media, and many more.
Replacing Record Labels
To understand how web3 could replace labels, let’s take a look at a specific project that was recently launched: Decent.xyz. Here’s how it works:
When an artist partners with Decent, they agree to set aside a percentage of future royalties on a set of songs for a predetermined amount of time (the listing period). Typically, artists agree to 20% royalties across a 3 year listing period.
Through Decent, the artist sells a collection of NFTs, giving them an additional stream of capital.
NFT Owners are free to buy and sell during the listing period. During this time, royalties accrue in a Decent Vault.
At the end of the listing period, royalties are distributed to NFT holders.
After the end of the listing period, artists can choose to continue interacting with NFT holders.
Decent takes the concepts of Sound one step further by providing additional underlying economic incentives to NFT holders. Other projects thinking about similar risk sharing approaches include Royal and Opulous.
Taking a step back, web3 enables anybody to invest in artists. From Multicoin Capital:
Music fans take pride in discovering artists before they hit it big, and soon they will be able to invest in that. The next generation of music curators will not be executives who work at record labels, but passionate fans (many likely anon) who have an on-chain track record of their music investments.
The idea that a fan can simultaneously support an artist and be exposed to the potential economic upside of this support is a good example of the powerful ways that web3 aligns incentives. The more a fan-turned-investor helps an artist grow, the more their stake grows as well. It’s a win-win!
One concern I have with a decentralized crowdfunding campaign for artists in lieu of a record label deal is that artists will miss out on the support that labels provide beyond capital. Although record label deals are typically characterized as predatory, they also provide crucial “music infrastructure” for artists such as industry connections, PR teams and more. One project that aims to integrate concepts from web2 and web3 is Dreams Never Die Records.
Another concern I have is how web3 projects maintain their integrity. Specifically, I am worried how Decent enforces exclusivity with their artists. For example, if I was an artist that launched with Decent and then a few months later launched on Royal, presumably the value of my NFTs on Decent would fall. Another dangerous scenario for holders would be if the artist decides that they simply don’t want to endorse the NFT anymore:
Crypto maximalists would argue that these types of actions are a “feature, not a bug” of web3, but I disagree. Much like how there are SEC guidelines in place to prevent insider trading and stock manipulation, there will eventually need to be rules around how artists can manipulate their NFT prices.
A Thought Experiment
What if listening to music went on chain? In other words, what if there was a public record every time you listened to a song? This data, along with metadata such as the timestamp when you listened to the song, would be associated with your wallet address. With the way web3 is evolving, I would be surprised if this didn’t happen at some point in the near future.
First, let’s talk about the downsides. The main one is loss of privacy, a topic that I covered extensively in a recent article. However, the fact that people are already using crypto extensively for sensitive transactions signals that privacy concerns are often raised by a vocal minority. If people think that a product is driving value, they’ll happily trade away their privacy.
On the other hand, what kinds of innovation could be unlocked with a public music ledger?
New Social Applications. Every year, millions of Spotify users show off their listening history on social media through Spotify Wrapped:
What if any company had access to consumers’ listening data at any time? One potential idea is to surface NFTs owned by people with similar tastes to you. This data could be the backbone of an entirely new class of social networks, and would require no effort from consumers to set up! All they’d have to do is connect their wallet and start interacting.
Superfan rewards. Artists could have yet another way to identify and connect with their biggest fans. For example, an artist could see who’d been listening to them before they were famous and choose to airdrop them an NFT or even get in touch. On-chain listening history would take “I’m your biggest fan!” to the next level – the artist could say prove it!
Hyper-customized Experiences. I’m personally most excited about this idea. In the future, people may be able to buy tickets with crypto, linking their wallet to the specific event. Well, since listening history is on chain, this same wallet could also be used to figure out the music tastes of specific attendees. A DJ could aggregate this data and ensure that they play everyone’s favorite song during the course of an event! I call this Data Driven DJ’ing :). Going a step further, perhaps there could be tokenomics involved such that people who send more audio tokens to the DJ ahead of time have their favorite songs prioritized… Someone should build this!
Many of the projects and ideas I’ve been talking about are likely for dedicated supporters that want to go above and beyond to help their favorite artists succeed and simultaneously profit. In literature, these supporters are called “true fans,” a term coined by Kevin Kelly. Li Jin later expands on the idea of a true fan, describing them as a way for creators to earn a living:
A creator can cultivate a large, free audience on horizontal social platforms or through an email list. He or she can then convert some of those users to patrons and subscribers. The creator can then leverage some of those buyers [the true fans!] to higher-value purchases, such as extra content, exclusive access, or direct interaction with the creator.
The idea of monetizing true fans is a powerful mental model for anyone working in the creator economy. An artist doesn’t need to find ways to sell risk-sharing NFTs or offer benefits to each one of their listeners – oftentimes cultivating a small yet dedicated fanbase is enough to find success. Web3 uniquely enables musicians to monetize their “true fans” through the principles of incentive alignment and democratization.
Some Concluding Thoughts
The intersection of music and web3 is exploding and tons of new projects are launched each week. Here are some rapid fire thoughts on a few areas / projects that I didn’t have time to expand on above:
Audius: Probably the most fully-featured decentralized streaming platform that exists today. It has its own tokenomics ($AUDIO) which enables it to pay artists many multiples higher per stream than Spotify. I can see them thinking about putting streaming activity on-chain in the future.
POAP: Proof of Attendance Protocol NFTs are a way to prove that you attended an event. Similar to on-chain listening history, this data could become a backbone for social networks and yet another way for artists to connect with and monetize fans.
Pay per stream: I’ve seen some chatter about pay per stream business models since crypto enables micropayments in ways that traditional finance isn’t built for. I don’t like this idea – music should be about enjoyment without the worry of going over budget. The vibes just wouldn’t be the same.
Arpeggi.io: Arpeggi is building tools for musicians to create music on-chain. This reminds me of a concept I recently read about in “The Cold Start Problem:” build a service and then a powerful network. That sounds like what Arpeggi is trying to do here, as they mention their plans to “facilitate and democratize artist and listener engagement.”
Klezma.io: Klezma is a marketplace that enables content creators to get paid for featuring indie artist’s music. I don’t think they’ve launched yet, but I’d be curious to learn about how their economics works – it doesn’t seem like the artists are paying creators directly but rather indirectly through NFT drops.
Clearly, there are a ton more projects that I didn’t get to cover! If I missed one or an area that you’re particularly excited about, I’d love to chat about it either in the comments or on Twitter.
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^ this is awesome