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The music industry and Non-Fungible-Tokens (NFTs)

By Philippe Nadouce



Index:

· Emotional responses to painting and music

· Blockchain is disrupting the music industry

· An outdated, slow, and often opaque industry

· Blockchain changes the music ecosystem

· Blockchain and the music industry: the end of greedy intermediaries’ interferences

· Digital Art Images and Music NFTs


In our article “Non-Fungible-Tokens (NFTs) and Digital Art: the unexplored paradox”, we stated that the future of the emerging market of NFTs applied to digital Art was built on a paradox. This paradox lies in the fact that creations such as the Bored Apes or Crypto Queens are not the work of famous artists. The price of the digital images is pure speculation because a network effect has substituted the talent factor specific to the creators with the popularity of celebrities from the entertainment world (Justin Bieber, Lebron James, etc.) who buy these digital creations.


We concluded our article by saying that what was not valid for painting could, however, be more adapted to music.


Emotional responses to painting and music


At first glance, the emotional responses to music and painting are different. Modern psychology and cognitive sciences allow us today to see things more clearly. Many studies found that looking at a painting or an image is associated with increased feelings of wonder and decreased frequencies of joyful bursts and the will to power. It seems that, in addition to an increased vitality, music provokes a much wider range of feelings than the contemplation of a painting. Listening to music triggers in the listener various feelings ranging from mood repair, tenderness, nostalgia, peacefulness, and sadness, as well as need for personal overcoming. In a nutshell, music-related feelings and emotions are akin to what everyone experiences in everyday life situations. It is also said that people find an immediately gratifying use for music, whereas self-education and study of the history of art are more frequently associated with understanding painting. In the end, music seems to be a way to access knowledge much more suited to our modern society, full of fury and turmoil. It is an integral part of our lives, while access to paintings is much more limited.


The universal access to music is, however, not very lucrative for musicians and songwriters who are very often underpaid by music labels and who cannot defend their rights to a fairer retribution of their intellectual property (IP). The blockchain offers them the means to settle their problems with the music industry.




Blockchain is disrupting the music industry


The first decentralized blockchain was invented in 2009 by Satoshi Nakamoto. This ground-breaking technology offered to the world a new kind of database called Distributed Ledger. Information is shared across a very secure network of computers which hold identical copies of the data. Each computer controls the flow of data through a node, and all the nodes constantly check on each other. If anyone changes the data, it will be reflected in all the copies within minutes. In other words, it is impossible to tamper with the data as every participant of the distributed blockchain will immediately spot the corrupted node.


Blockchain has the potential to protect creators, writers, publishers, and other artists from the greedy practices of the music industry, whose opacity regarding the distribution of rights and royalties was always controversial. It can also save the music labels billions by revolutionizing IP processes, getting back lost revenues, managing delayed payments, and mitigating legal costs. But the industry needs to determine a standard practice and a universal adoption of this technology. Another aspect of this revolution is the possibility for artists to create their music outside the circuits controlled by the industry.


An outdated, slow, and often opaque industry


This terrible reputation was famously summarized by the writer Hunter S. Thompson as:

“… a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs.”


Although the description may seem excessive, stories of the harsh exploitation of artists abound. For example, Jared Leto, lead singer of an alternative rock band “30 seconds To Mars”, said that:

There was a point after we had sold millions of records around the world, where not only we were never paid a single penny, but we learned that we were millions of dollars in debt.”

It is said that underpayment is often deliberate and operates behind a wall of opacity combined with the extremely centralized nature of the industry. For example, the title and authorship of any given piece of music (including in performance) is recorded and stored in different, often conflicting, and incomplete records, and it is often extremely difficult to clarify who owns the rights to what track of music and for what use (not to mention the jurisdictional issues).


The Music Modernization Act (MMA, Jan. 2021) passed by the House Judiciary Committee in the US offers major improvements by changing performance and mechanical licensing laws to fully protect artists and rights owners. But major discrepancies still exist between the owners of music content (Now, mostly digital), the artists and their fans. And it is not uncommon for an artist to wait for up to two years before he or she receives her money. There was an industry attempt to change the deeply unfair nature of this system: The Global Repertoire Database (London, 2015) aimed to create a single authoritative source of data on multi-market rights ownership containing a global view of right owners. It seems that the will to create a shared, authoritative means to track and pay royalties was not sufficiently defended by the stakeholders since the project was a failure.


Blockchain came along and offered a solution to the ongoing need for a better system of rights ownership and information management.

Blockchain changes the music ecosystem


One of the powerful features of blockchain is that every transaction is encrypted, timestamped, tamper-proof, transparent, and immutable. And, whenever a change is made in the original data, a copy of that record is shared to every node. In other words, if you belong to a pop music band, all the data that is entered into the blockchain about your creations, copyrights and performances cannot be tampered with, corrected, or deleted. The existence of smart contracts capability also allows you to automate all these processes on a global scale, 24/7.


You therefore have the possibility of logging in and checking in real time the performance and revenue generated by all your songs without third party interference (Labels, agents, etc.). Payments are also automated and can be made through a cryptocurrency of your choice, which avoids you having to go through the banking system.


Blockchain and the music industry: the end of greedy intermediaries’ interferences


Blockchain is also known for being a “Trustless ecosystem”. In a nutshell, through a public blockchain, music labels, consumers/fans and artists alike trust each other and exchange art, cultural experience, and money without worrying about trust. Trust is taken care of by machines, algorithms and a consensus mechanism embedded in each blockchain’s code.

Without a doubt, this new technology could completely transform the music industry, providing an alternative to the legacy system full “thieves and pimps”, also called “trusted intermediaries”, that have been forever running registries, keeping records, handling transactions and copyrights, and negotiating terms. Many artists have created self-publishing channels/start-ups for themselves, other creators, and rights owners, allowing them to bypass complex centralized, outdated, and corrupt ecosystems. Thanks to these new structures, they were given more control over how their songs and associated processes reach and circulate among fans worldwide. Trustless environments such as public blockchains make it possible to eliminate almost all the intermediaries who until then fed in a parasitic way on the universe of the artists they were supposed to represent.


But let's not be naive, the big internet conglomerates such as Amazon, Apple, Google, etc., don't take kindly the proliferation of tools allowing music creators to achieve complete independence. Public blockchains such as Bitcoin and Ethereum offer a business model that, if successful, would be the opposite of the one on which FAAMGs are structured. Indeed, this new model would allow a direct relationship between creators and consumers; the advent of such a relationship represents a nightmare for these conglomerates who see in it the end of their worldwide domination.


For the moment, the blockchain phenomenon in the music industry is too small to worry but more and more artists have now chosen the path of freedom. Mass adoption is the key concept. It remains to be seen whether the appeal of the public blockchain will play its part among music creators who, for the moment, undoubtedly have a lot of freedom on the blockchain but have less visibility.


Digital Art Images and Music NFTs


We recommend our article: “Non-Fungible-Tokens (NFTs) and Digital Art: the untold paradox”, which explains in detail why acquiring NFTs for Digital art is a bad idea when the artist you are buying is not well known in the art world. Let us now try to apply the same reasoning to the world of music by answering the question: “How is buying a music NFT different from purchasing music from the iTunes library, Amazon or Spotify?”

The short answer is when you purchase a song from the usual online centralized platforms, you are acquiring the right to listen to the music, nothing else. If you buy a music NFT in a peer-to-peer fashion, you own it. Simple. But what does it mean, really?


Before answering, let's define what an NFT is. The simplest explanation is an NFT is a collectible. It is a unique piece comparable to a rare bottle of wine, a vintage car, an object that belonged to a celebrity. This token is exchangeable only on a peer-to-peer distributed network and has the security qualities of the blockchain. It also means that it is impossible to forge, counterfeit or delete. Non-Fungible-Tokens for music allow you to collect, sell and share songs. A music NFT is a unique, collectible token and it can embody a piece of music, a music video or even a whole NFT album. If you buy it, you can prove that you own it.

Imagine you are a famous pop star, and you decide to create an NFT. First, you must write and record a song, then, you encode it on the blockchain and create an NFT for that song. Now, you have two options. You can sell it to one fan, or you can also decide the number of copies that will exist of your song (for instance 1000 copies). You generally sell those copies through an exchange (AKA a marketplace online). Once your fans acquire those copies on the exchange, they can keep them or trade them on any crypto exchange that allows NFT trading. One famous example is Grime's song "Death of the Old," which NFT reached $400K. The owner can listen to that specific version of "Death of the Old" (Unfortunately, if you look it up on YouTube, someone uploaded 56 seconds of it). If you own the rights, you can always try to take the person who uploaded it to court.


But NFTs can also represent something which is not a music file. As a pop band, you can use these tokens as currency for concert tickets, merchandise, such as an invite to the record studio, or a chat with the singer of the band. You can also take some of the improvise music that you have made during rehearsal, ask a visual artist to create a video, and put the NFT on sale on an exchange, using an auction model. The possibilities are endless and allow artists to create and sell unique art pieces in exchange for cryptocurrency.

In conclusion, music NFTs have a purpose because they are created and offered on exchanges by artists who are recognized and have a fanbase. They are commercially viable. Regarding Digital Art NFTs, viability is very unlikely because those who sell the images are unknown and therefore are less desirable.



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