Musicians will gain power through web 3 — but not in the way that you might think…

Global music streaming revenue hit 13.4 billion U.S. dollars and 443 million paid subscription accounts in 2020, and is on a trajectory to hit new heights in the years to come. This means that today, streaming is where our music experience starts and where the cash enters the system. We can state with confidence that “streaming saved the radio star”, yet there are some significant issues with the medium. The obvious one being that the majority of the revenue produced by streaming does not benefit the creator.

In fact, a majority share ends up with the labels. But the blame for this unbalanced arrangement does not lie with the streaming services themselves, in spite of what we have been led to believe. Critics can lambast the tech platforms for the cost charged to consumers, or the shortcomings of uniformity of pricing per track, or indeed for their ∼30% cut. However, after their fee and commission is taken, the remunerative role of the streaming services ends, and it is the music industry that becomes responsible for how much ends up in an artist’s pocket.

For the uninitiated, record labels are — and have always been — an important piece of the music industry. The core fundamentals of a record label, such as investing in music, and nurturing the asset, much as how early stage risk capitalists operate in the business world, has been the lifeblood of the industry. However, how labels end up with such large shares of ownership is questionable. This imbalance is one reason to account for why artists have been required to diversify their sources of remuneration through live shows, events and merchandise, and, last year, through NFTs.

‘2021-NFTs’ will not solve the power imbalance

I define ‘2021-NFTs’ as NFTs that mean ownership on the blockchain, but nowhere else (i.e. no IP of royalties). The value of these NFTs are both created by and restricted to the crypto/NFT ecosystem. 2021-NFTs offer an interesting proposition for artists as these present completely new income streams. However, it is important to keep in mind that it is only a select few artists who make the big bucks here. It is the ones with the right size of following, an established brand, and most importantly connections and ties to NFT whales, who win, and garner the headlines. I welcome music related 2021-NFTs and think they are a great addition to how we consume the art of music. Many agree, including major labels like Warner Music to artists (e.g. @SnoopDogg) and avid collectors such as @Cooopahtroopa and @web3brett.

However, I believe that these will remain on the periphery (in terms of value) of the industry as long as most people consume music elsewhere (such as the dominant streaming services of today). The fact that music rights is the holy grail also explains why major labels who interact with NFTs have typically avoided touching the topic of real ownership, or royalty rights and why they position their NFT projects as creative add-on products to build hype or earn something on the side. Given that 2021-NFTs are likely to function as a bolt-on, I do not believe these NFTs will change the fundamental power balance issues impacting the industry.

On-chain streaming will not address the disparity any time soon

I love seeing ambitious companies, such as Audius, and who are fighting to solve the institutionalised industry-wide injustices in a new way, by bringing streaming into web3. Their independence from the legacy industry definitely has the power to solve the problem of a model weighted against the artist earning a fair share. However, to really solve things, the majority of music consumers are required to join the movement. For this to happen, fans would need to be promised a comprehensive and competitively-priced catalogue of titles (from the CD/LP shop, to iTunes to Spotify, music-lovers are always motivated by availability of the best of the old and the new). I don’t believe web 3 streaming services will manage to onboard the necessary size of catalogue or lure across a sufficient number of users in the short-term. And as long as they don’t, this will remain a niche product, with its promise of recalibrating things to the benefit of artists unfulfilled.

The solution: Web3 music rights

How streaming service revenue is being currently split comes down to who owns rights. This is the core issue that music tech projects must address in order to urgently change the power imbalance. We need to dare to unravel the very complex issue of music rights. In my experience, many don’t want to go there. The innovation in the industry to date has been focused on creation and distribution, steering clear of the last frontier is what happens between them: ownership. The complexity of music rights have acted like a Gordian Knot, serving only to maintain the status quo. To cut through this is long overdue.

Platforms that allow investors or collectors to invest in music rights and earn royalties through their ownership is the first wave of how web 3 projects might create real change around the ownership issue. Here we find companies such as: anotherblock, Royal, Opulous (and soon hopefully others). The extent to which these companies will have contributed to the reinvention of the music industry in a year from now is hard to say. However, the core premise of enabling “the people’’ to invest in royalty-backed NFTs is revolutionary in itself and will change the industry in several ways:

• Buyers can finally own a piece of the song on-chain and in the real world. They would share a financial upside with their favorite creators and experience a new level of emotional connection to music.
• The current small pool of music rights owners will become diversified and democratized
• Artists will be able to fund their music directly through the platforms enabling this innovation
• Artists will understand the true value of their rights and not risk being trapped in exploitative long term deals

You may ask. Why would this not work through web 2 projects? Well, there are several reasons for why web 3 is an key enabler:

• Global reach: Web3 & 2021-NFTs have already created a large international market. Therefore these new utility NFTs (royalty generating) can directly tap into that existing collectors market. This market has proven that you build communities around NFTs. Music is all about community and having true utility to your NFT will only accentuate that.
• Trust: There is established faith in blockchain projects due to the strength of the technology. This means one less trust issue to overcome on the part of the collector/investor. Would I invest in shares in songs from a local startup from Belgium? Probably not. Would I buy a royalty backed NFT from them? Probably would (if I like the deal).
• Transparency: A key issue with the legacy music industry has been the lack of transparency concerning rights. The benefit of using blockchain technologies on the other hand, is all about the immutability of transactions, keeping protocol, while doing it all in public.
• DNA of web3: The DNA of web3 is decentralisation and dismantling of power structures. The music industry has always been dominated by centralized players. By building on blockchain, the community is more directly linked to the music. This is just what the industry needs.
• Metaverse: By building in web3 the possibilities seem endless. An NFT is not just a one-off product. It can evolve over time. If you add utilities to your NFTs, new experiences can be unlocked on many levels.

What about the labels?

Will labels still exist now that artists will be able to fund their platforms on decentralized platforms? Yes. In order to be successful on decentralized platforms you need a following, and many artists rely on the support and expertise of labels adept at creating stardom. Funding aside, the label often provides the artist with clear strategies, marketing concepts, administrative and creative support, as well as opening doors to great artists, producers and songwriters. Other doors that may be opened include: hyped playlists, concerts, talk shows, podcasts and more. However, the pricing of these services will be far more equitable when the artists appreciate the value of their music rights. No future artist will accept an “80/20” deal. It is also likely that labels themselves will benefit from these platforms, mimicking the best venture capitalists: once they have a unicorn, why not divest the rights on an open market, and use the proceeds to reinvest in the next generation?

Slowly but surely decentralized music rights players will empower artists and reward them with a larger share of the pie. This solves the institutionalized imbalance of power within the industry.

anotherblock is a community of music lovers who invest in music rights. Launching this summer.