How NFTs Will Disrupt the Music Industry
A high level overview of the future of the music industry and how Music NFTs will play a central role.
In this article, I’m making the bold claim that the blockchain, and specifically NFTs, will completely disrupt the music industry.
Music NFTs will empower artists to sell directly to their fans, avoiding the need for the ‘middleman’ of record labels.
The second order effects of this are unprecedented and difficult to imagine. Most are asleep at the wheel. Let’s dive in!
If you prefer to watch the video version of this article, check it out below!
What are Music NFTs?
I’ve written before about NFTs and why they have value. If you want a refresher on the basics, check out this post. Here’s the tweet thread.
I’ve spoken specifically about Music NFTs too, but the industry is so nascent it got little attention.
Here’s a short overview of Music NFTs and their benefits.
The Evolution of the Music Industry
The music industry has evolved rapidly over the past few decades. Notably, there have been three major changes.
The first is distribution. Back in the day (when I was a little kid), artists needed record labels to distribute their music. How else would they reach the masses?
Artists were put between a rock and a hard place: stay true to their roots or go mainstream.
Many major bands in the punk rock scene were seen as ‘sell outs’ when they signed with a major record label.
This all changed during my adolescence with the internet. It allowed artists to distribute their content through streaming platforms for free, reaching their desired audiences without needing to compromise on genre.
The second major change to the music industry is how content is being marketed. Even after the early internet solved distribution, artists needed record labels to be discovered.
It wasn’t until the advent of social media, namely YouTube, Instagram and TikTok that artists could be discovered, go viral, and build massive fan bases on their own.
This allowed artists to come to record labels with more leverage. Even though they may have never sold an album (nor made a single dollar), record labels took on less risk since they could be relatively sure the artists pre existing audience would purchase from them.
Despite these two major changes, record labels maintained a monopoly on the economics of the industry. Starving artists got a huge carrot dangled in front of them, to the tune of millions of dollars, if they signed with the record label.
This is all about to change with music NFTs.
How Music NFTs Will Disrupt the Music Industry
The economics of the music industry is that last piece that keeps the legacy system in tact. Artists need to pay their bills and that incentivizes them to sign with major record labels, despite the majority of that money going to the label, not the artist.
What if there were a way for the artist to maintain control of the economics and sell directly to their fan base?
What if this process allowed for the artist to maintain the majority of the royalties?
And what if in the process the fans could own a piece of the record, thereby benefitting from the asymmetric growth of an undiscovered artist?
Enter music NFTs.
How Musicians Will Use Music NFTs to Sell Directly to Fans
Imagine a booming artist named Sarah Danes has amassed a huge following on TikTok. She has thousands of fans who support her and are ready to buy whatever album she drops.
Before music NFTs, she’d have little choice but to sign with a major record label and take 20%, maybe 30% of the royalties if she’s lucky.
Sarah is modern and familiarizes herself with the blockchain and NFTs. She partners up with Tasha, an upcoming digital artists to create the art for her new album drop.
Sarah is a pioneer, so she decides to sell her album as 10,000 NFTs on the Ethereum blockchain. (If users want to avoid fees, they can use Polygon instead, a layer 2 solution built atop Ethereum, or Solana, an alternative Layer 1).
Leveraging the use of smart contracts, Sarah promises her fans that each NFT represents fractional ownership in her album. Each NFT will sell for $10, meaning if her collection sells out, Sarah will gross $10 x 10,000 or $100,000. She gives 5% to the digital artist, and keeps 95% for herself.
This bankroll allows her to stay true to her music and keep producing on her own. She can now support her lifestyle by selling directly to her fan base.
It doesn’t stop there. In fact, we’re just getting started.
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The Benefits of Using Music NFTs
Each fan now have an equity stake in Sarah. As I’ve written about before in my latest post on the Tokenized Economy, having ownership in something (or someone) profoundly changes one’s relationship with them.
Each time one of Sarah’s NFTs is sold on the secondary market, Sarah receives a 10% commission. This is where the real money is. While her original collection only netted her $100,000, her album will be bought and sold in perpetuity, meaning Sarah just created a passive income stream for life.
Her fans did too. Remember that Sarah promised her fans fractional ownership in her album. This means that each NFT represents a stake in her record. If Sarah receives 10% royalties on all secondary sales, she can embed in the smart contract that the collective 10,000 NFTs receive 20% of her share.
A Real Life Use Case of Music NFTs
Sarah’s initial 10,000 NFT drop sells out immediately. Since she’s in high demand, the value of her NFTs go from $10 to $100. Each time a sale is made, Sarah receives a cut. Over the course of the next year, the trading volume on the secondary market is $1,000,000.
Sarah will receive 10% of that 1M, for a total of $100,000. Of that $100,000, Sarah has promised that 20%, or $20,000 is distributed to the 10,000 NFT holders.
This means that each NFT holder will receive $2 per NFT they hold. Since the original buyers (called ‘minters’) purchased the NFT for $10, they now have a 20% dividend on their NFT, in addition to the price appreciation.
So long as they hold the NFT, they’ll continue to receive dividends (although these are paid out in real time). Should they sell the NFT, the ownership stake gets immediately transferred to the new buyer.
People are Underestimating Music NFTs
People are dramatically underestimating the paradigm shift that music NFTs will bring to the industry, and the power they give to artists.
Artists can now directly sell to their audience. Fans now have an equity stake in their future, which creates a positive feedback loop.
Imagine Sarah’s friend Julie is a great marketer or salesperson. Instead of getting a summer job selling insurance or interning for a company she cares nothing about, Julie partners up with Sarah to market her album. She gets Sarah featured in upcoming Twitter Spaces, podcasts and on NFT drop websites.
Sarah’s album sells out instantly, and Julie now receives a cut. This will happen at scale as Sarah now has 10,000 fans with a financial stake and vested interest in Sarah’s future.
What do you think they’re going to do after they buy the album, knowing they benefit from Sarah’s growth?
This ‘ownership economy’ will profoundly change the music industry as the incentives of all parties are now fully aligned, and the relationship with middle man (the record label) is disrupted forever.
The Future of the Music Industry and Music NFTs
Record labels will be forced to adapt or get left in the dust. Just like streaming and social media disrupted music in the past decade, in the next decade I predict that the artists of tomorrow will use music NFTs at scale to sell directly to their audience.
I believe we’ll see a radically different music industry in the future, where unique platforms pop up that exclusively sell Music NFTs.
The Spotify of tomorrow will not only have a streaming service built in, but a ‘Listen to Earn’ or ‘Curate to Earn’ feature.
Leveraging their own native token, they will incentivize people with their token to curate music. The more plays an artist gets on the platform, the more of the native token they will earn.
Second, the Spotify of tomorrow will have its own Music NFT marketplace, which corners the music industry. While OpenSea will sell everything, I believe we’ll see niche marketplaces that sell industry specific content, and a place for artists to sell their music makes total sense to me.
Third, the platform will be an incubator for artists to be discovered. Artists will be able to crowdsource their records and sell directly to the audience on that platform.
How I’m Betting on Music NFTs
The Music NFT industry is currently in its infancy. A leading player is not yet established, but the number of artists using NFTs to sell their music is increasing by the day. (See the appendix for more).
I’ll also be betting on individual artists who I believe are promising by supporting their work and buying a share of their album through the purchase of their NFT. I will be updating my journey on Twitter as always.
I hope you enjoyed this post on Music NFTs, the future of the music industry and how things are about to radically change.
What are your thoughts? Would love to hear from you in a comment below.
Alec
P.S. I figure some of you want to dive deeper into Music NFTs. Here’s an appendix of supplementary material.
A great tweet thread Jonathan Mann wrote about how Music NFTs help artists capture the financial upside of a popular hit. Notably, he holds the Guinness World Record for producing a song a day for the past 14 years!
Cooper Turley is a must follow. He has great essays and tweet threads about Music NFTs.
Dyl is a rapper using Music NFTs to sell directly to his fans. He hosts awesome daily Twitter Spaces where you can learn and ask questions.
A great tweet thread by DegenDaVinci, who claims he’s one of the biggest music NFT investors in the world.
The thread also contains great resources for Music NFT platforms for those who want to dive deeper.A case study of the greatest Music NFT success story where they raised 86 ETH!
