Introduction
Over the past fifteen years, a number of online platforms and tools have made music more accessible to users, shifting the way it is consumed and the way fans, artists, and their communities interact with each other. In recent years, the recognition of blockchain’s potential to improve accessibility and fairness in the production and distribution of digital art has increased exponentially. By automating funding processes, providing incentives, and introducing digital scarcity, blockchain can make digital art more widely available to creators, investors and users.
It’s no secret how challenging it is to acquire the funds and infrastructure to produce an artwork and to recruit people to distribute it and manage its circulation. For some years, digital tools have helped facilitate the navigation of this journey. Web3 tools, specifically, have not only made it possible to assign value to a creation, but also to put it in circulation, establishing new revenue models and allowing artists to emancipate themselves from mediation agents.
Statistics show that the digital music market’s worth – $31.7B – is significantly larger than the digital art market’s worth – $13.3B. Regarding music market and blockchain, in 2021, total revenue from music NFT sales reached $86 million. [1] However, the music industry has historically lagged behind the digital art market in adopting blockchain technology. From all the new initiatives that have been built in the past two years to help creators expand and increase their earnings, “less than 0.3 percent of all NFT’s transactions involve music”. [2] In their article Web3 and the Future of the Music Industry, the operating system Cardstack praises the peer-to-peer nature of Web3 ecosystems, but also notes that the attention given to certain types of art has been disproportionate in relation to others, including music, which has received a narrow focus.
Recently, however, this tendency started reversing, and some musicians, promoters and labels have begun to explore the application of blockchain technology to support activities such as digital merchandising, sales, membership programs, collaborations with fans, crowdfunding campaigns, as well as other financial opportunities. This shift represents an optimistic development for the music industry, promising new revenue models and collaborative opportunities sustained by blockchain infrastructure.
The blurry concept of ownership that accompanied the advent of mp3s and streaming services has been reinvented in Web3. And, thanks to the possibility to assign a unique identifier to specific digital entities, the conception of revenue streams that get returned directly to the original creator of a song has become possible again, as long as their creations keep circulating, that is. There are multiple feasible options to put music products in circulation and create automated revenue streams for artists thanks to the multiple marketplaces and streaming platforms available. These also provide opportunities for invested fans to participate in the success of the work.
Over the next several paragraphs, we will reflect upon what the main concerns of artists, labels, and fans are and how these projects are contributing to a fairer ecosystem. Rather than passing judgement, our goal is to understand the current state of these propositions and inquire as to possible avenues for their effective development. It is important to remember that these technologies are still in their early stages, and have a long way to go until reaching the desired level of success. Nevertheless, it is an opportune moment to see how blockchain is changing music from the production and the consumption side.
Background
So what is available out there? On his Twitter account, for instance, the substacker and music analyst @_Kaspar__ provides a very extensive list of tools devoted to migrating the music ecosystem to Web3. Categories cited by _Kaspar__ include DAOs, labels, streaming platforms, NFT marketplaces, royalty platforms, and protocols.
A common use case example of blockchain in music is NFT exchanges, which enable minting of works, circulation and sales within the Web3 ecosystem. The standard process of minting a digital collectible is relatively straightforward, yet creators often face the challenge of how to promote their work and reach an audience after the minting. Thanks to streaming, music has become widely accessible, and the demand keeps exponentially growing. [3]
In a lite paper published by the royalties platform Anotherblock, the authors cite a report by Goldman Sachs projecting music streaming revenue will double over the next decade. Therefore, “more revenue will come from that front” – Anotherblock assure readers. And, this projection is used by them to promote a new initiative for revenue generated through sales of stakes in music royalties. The marketplaces for NFT royalties often cooperate with streaming platforms in order to generate the revenues through streaming and sales. Royalty marketplaces offer a fairer ratio than major labels and professional investment funds, who usually own a “portion of the rights”. [4] Anotherblock’s paper claims that “for every million streams on streaming services (e.g. Spotify) - $3,000- 4,000 is paid out to the owners (or rightsholders) of the song,” [5] but the truth is that the revenue coming from these numbers is ridiculously low. Additionally, generating such large numbers of streams is unrealistic for smaller artists, meaning that streaming funds are not viable as a stable revenue source.
In their paper on DAOs, the research network Water and Music concludes that “money flows in recorded music remain complex and opaque, and margins on streaming remain prohibitively low for 99% of artists”. [6] This is despite the fact that independent artists accounted for 64% of the sales on Web3. [7] Regarding revenue streams, the focus is generally on short-term profitability but, the collective Water and Music argue in their recent survey that “major music/Web3 opportunity lies [in] sustaining long-term community and culture”. [8] Some such initiatives are very promising, and especially labels and DAOs seem like a viable solution for the long-term sustainable revenue flow issue, but technologies are still not very user friendly and, since many fans are not especially tech savvy, their engagement can’t be taken for granted, thus challenging the revenue flows and general prospects of success of the labels and DAOs.
The number of projects and initiatives using blockchain technologies to contribute to a more fair music ecosystem are increasingly extensive today. Roughly based on @_Kaspar__’s categories will list below a selected range of platforms and briefly describe their main features and the problems they purport to solve. How are these tools really helping musicians and fans? What problems are they solving, and what problems might they entail?
Some examples
- Marketplaces
Perhaps the most popular and widespread initiatives in the blockchain music ecosystem are the NFT marketplaces. In recent years, marketplaces have been built specifically for music NFTs. These include Sound.xyz, Catalog or Async music. On these platforms members can support creators, and works can be traded between users. The technology allows users to eventually collaborate in future productions and funding projects by purchasing NFTs as editions or “uniques”. A key benefit of NFT marketplaces is that they can provide artists with a high, or even full, percentage of the revenues from the sale of their work, as well as a share of any future resales.
- Streaming platforms
There are several streaming platforms that operate on the blockchain, including Audius, ΞMANATE, Future tape or Spinamp. Some of these work with mainstream artists, while others focus on supporting independent musicians. In order to become a member and/or staker, the platform’s native token needs to be purchased. This generates a pool of funds used to sustain the platform. The setting is similar to a cooperative, including the incentive of generating symbolic compensations for the stakes.
- Royalties
Royalties, platforms, and their underlying marketplaces often work with other streaming services in order to be able to generate revenue. Initiatives such as Anotherblock and Royal.io allow for the distribution of a percentage of revenue from streams coming from platforms such as Spotify, Apple Music, and Tidal. Royalties are distinct from copyright, which is designed to benefit whoever holds the specific title to the copyright; royalties enrich each contributing artist in a decentralised way. The royalties get distributed between the artist, the collector and the publisher. Apparently, music rights have had an average annualised return on Royalty Exchange higher than The S&P 500 dividend and the US 10-year treasury yields. Anotherblock considers “music rights an attractive asset class”, but “the difficulty”, they claim, “is how to access them more easily.” [9] The reason why might be that the minimum investment required is not as high as buying stock in a public company, or “investing generally in a larger fund ($5+ million).” [10] What these platforms allow for is value from the royalties at a much smaller initial investment. The collector gets paid when the artist gets paid, on a monthly, quarterly, or semiannual basis, as soon as the artists get paid by Publishers and administrators and distributors.
- DAO’s
In their article about music DAOs, Water and Music analyse the DAO ecosystem and claim it doesn’t follow the get-rich-quick model that have previously polarised NFT discourse and made them so unpopular in certain circles. Water and Music believe in the DAO’s capacity to “make a path toward community and culture-building”, regarding the space as “ripe for experimentation.” [11] They mention several projects, but they list three important categories within the DAO structure: investments which back Web3-native artists and music NFTs (NoiseDAO and Morii Music); industry-facing DAOs looking to improve music data/tooling (MODA DAO and CreateDAO); and, lastly, co-ownership or co-stewardship DAOs around an artist’s IP (Holly+ and The Song That Owns Itself). There are plenty of Web3 labels out there and one that is worth looking at is DAO records.
Some problems
In their article Web3 and the Future of the Music Industry, Cardstack celebrates the emancipation of artists from middle(wo)men [12], noting that a significant problem musicians face is that the ratio of what they get in relation to the label is usually paltry at best – percentages can range from 13% to 50% depending on the artist’s negotiating power. [13] Despite this popular maxim that, thanks to blockchain technologies, artists can subsist without the middle(wo)men, and manage their own creations, without sufficient contacts, or a large enough network, selling the product remains as difficult a problem as it was in the days of demo tapes. Independence means more creative freedom and a full percentage of revenue, but, without a sizeable audience, there is no meaningful revenue, and how to build one is the question many artists are concerned with, which can be especially difficult for artists who are just starting out, or who do not have a large existing fan base.
Also, even if these technologies allow much more agency over the production and distribution of their work, do creators really have the capacity to undertake all the required tasks to create, distribute, and sell - including legal issues, PR, and marketing? These may definitely be beyond the expertise or capacity of individual artists. In the Web 2.0 era, these tasks were traditionally carried out by several different agents, and it is unlikely that, even if the logistical burden is minimised, creators will undertake all what is required to make their work circulate effectively within the industry and beyond. Therefore, this independence might not necessarily always be the best option. Wouldn’t it, perhaps, be better to think of a possible readjustment of their deals, or to look for fairer ratios with the right middle(wo)men? In sum, there is clearly a need for artists to access the right networks and communities for their art to be seen and sold.
Building a community from scratch can be challenging no matter the technology one is using (or the lack thereof), but it can be especially difficult for artists working with blockchain if their audience is not familiar with the culture and structure of blockchain projects. While tokenisation of music has the potential to provide artists with more control and independence from intermediaries, it is important to remember that many creators may not have the capacity to handle certain tasks on their own, such as building an audience, dealing with legal issues. Therefore, one of the main challenges we see is building an audience that is both aware of and interested in consuming these creators’ products, let alone supporting and engaging with their future productions. Without the support of a dedicated community, it can be difficult for artists to create sustainable revenue streams that allow them to make a living from their work. So, what steps can an artist take to generate sufficient revenue and achieve financial independence?
Development
One effective way to build and maintain needed audiences, as well as to obtain support on additional tasks, may be through affiliation with a DAO. DAO ecosystems are based on cooperative and collective structures. They offer flat hierarchies that enable a potentially democratic governance and circular economic flow. Cooperative models have existed for centuries, but, with blockchain technologies, certain processes that allow the cooperative to work, such as voting, can get automated. In this light, DAOs are typically characterised by a decision-making process that is jointly controlled by their members, who can pool their resources in order to achieve common economic and social goals, such as investing in and supporting the work of artists. This flow can help to provide ongoing rewards and funding for new productions, enabling artists to continue creating, and providing incentives for stakers to continue supporting their work.
In our view, an affiliation with a DAO can provide a strong foundation for building and growing a community. By joining a DAO, artists are welcomed into an existing community. They are thus able to tap into its resources and channels of support. This can help artists to find an audience, and generate revenue more efficiently, as opposed to the largely random individual journey of trying to build a community on their own, from scratch. To be part of a community offers additional reach and the possibility of finding collaboration partners, and support from peers in the community for efforts including cross-promotion, handling various aspects of the production of music and/or videos, marketing campaigns, exposure, airplay, bookings, legal advice, and more.
DAOs can provide a platform for crowdfunding productions, as members can contribute funds and vote on what should be produced and promoted. For an independent artist, it may be much more feasible to generate revenue through the sale of a limited number of NFTs at a higher price point, rather than relying on a large volume of streams at a lower per-stream rate. For example, 25 individuals contributing $160 each for an NFT could generate the same revenue as 1,000,000 streams ($4,000). Thus, to be surrounded by the right community, even if it is a small one, can be more economically efficient than relying on the number of streams.
In conclusion, through DAO intermediaries will continue to exist, but hierarchies could flatten, and the ratios of revenue could be fairer towards creators. Finally, it is worth noting that affiliating with a DAO can also provide opportunities for education and training through interactions and collaborations with other members, and potentially access to rehearsal spaces, recording facilities, equipment, and other resources that can be shared.
Conclusion
Overall, it is important to recognise that, while there are many tools and technologies available for musicians in the Web3 ecosystem, no single option is likely to be able to solve all of the challenges faced by a given artist or creators. DAOs provide a great format to bring actors together and allow them to collaborate and raise awareness of new music products, but, so far, the tools available are not easy to use, and such spaces are, by definition, exclusive. In order to make these technologies more accessible and user-friendly, there is a need for easier interfaces and simpler transactional steps. This could involve making it easier to pay with credit cards, or other familiar payment methods, as opposed to requiring users to install specialised wallets or software. Another hurdle is that even though royalties can provide a source of revenue based on streaming activity, the amounts paid out, particularly for independent and non-mainstream artists, can be insufficient to sustain a career in music.
So far, each service presents its own unique features and capabilities, but each also lacks certain functionalities provided by other platforms. Cooperation is key in the music industry, and the development of new technologies and platforms that facilitate collaboration and sharing are among the most exciting developments toward this end. In sum, we believe that a more holistic approach that considers the musical ecosystem as a whole, with a focus on growth and collaboration between different initiatives, may be more effective in supporting the success of artists and creators in a transparent, equitable and sustainable way. We envision roles for intermediaries within this ecosystem, e.g. promoters, booking agents, accountants, lawyers, managers, distributors, labels, etc… Such mediators are necessary, but we think that the profit ratio between the artists and their labels could be renegotiated and become fairer. Looking for a fair deal should prevail over total independence, which would entail the absence of managerial actors and thus a lack of resources to succeed.
Big thanks to William Kherbek.
[1]
Numbers collected from https://www.forefront.market/blog/collector-economy, https://www.statista.com/topics/5254/global-online-art-market/#topicHeader__wrapper and https://www.statista.com/outlook/dmo/digital-media/digital-music/worldwide
[2] https://anotherblock.mypinata.cloud/ipfs/QmZbc56MLX3VD2d27q95TuHcauVjBD24a1rYCF45LKqSnu
[4]
https://anotherblock.mypinata.cloud/ipfs/QmZbc56MLX3VD2d27q95TuHcauVjBD24a1rYCF45LKqSnu
[5]
https://anotherblock.mypinata.cloud/ipfs/QmZbc56MLX3VD2d27q95TuHcauVjBD24a1rYCF45LKqSnu
[6]
https://www.waterandmusic.com/the-state-of-music-daos/
[7]
https://www.forefront.market/blog/collector-economy
[8]
https://www.waterandmusic.com/the-state-of-music-daos/
[9]
https://anotherblock.mypinata.cloud/ipfs/QmZbc56MLX3VD2d27q95TuHcauVjBD24a1rYCF45LKqSnu
[10]
https://anotherblock.mypinata.cloud/ipfs/QmZbc56MLX3VD2d27q95TuHcauVjBD24a1rYCF45LKqSnu
[11]
https://www.waterandmusic.com/the-state-of-music-daos/
[12]
https://medium.com/cardstack/web3-and-the-future-of-the-music-industry-6c703fda6a2e)
[13]
https://medium.com/soundeon/what-is-the-typical-revenue-split-between-labels-and-artists-for-streaming-royalties-8812fbafed23