What about music?

2021 was undoubtedly the year of NFTs. This past year, NFT sales totaled $23B in trading volume, up a staggering 23,000% from approximately $100M in volume in 2020. Cryptopunks and Bored Ape Yacht Club headlined the interest in NFTs (and PFPs or “profile pic” movement) with the floor price of these JPEGs reaching hundreds of thousands of dollars. While visual art took up most of the headlines in the web3 and NFT space, another industry started to dip its toes in what the future in web3 could look like: music.

The Business of Music: History 101

Music is a funny industry. On one side, you have consumers who can be fervent in their fandom. On the other side, you have an increasing number of individuals who want to be musicians, with expected employment of musicians and singers projected to grow 11% from 2020 to 2030, faster than the average for all other occupations. This begs the question — why then have industries like video games grown tremendously over the last twenty years while music’s growth has lagged, even when music has experienced technological innovations like the mp3 players / iPod, and streaming services like Pandora, iTunes, Spotify? We have more audio recorded today than ever before but the size of the music pie has not increased.

Chris Dixon, VC at A16z, has one theory — incumbents of the industry (e.g., record labels) have filed lawsuits against innovators and forced artists to merely accept “incremental improvement of allowing users to subscribe to bundled content via streaming platforms.” However, Chris correctly also points out in the same thread, the “internet routes around broken business models.”

NFTs may finally be the medium and tool in which artists have to go around the incumbents and directly to the fans.

The world shutting down due to COVID-19 and the burgeoning of NFTs was the perfect combination to push artists in 2021 to begin experimenting with different models of going directly to the fans themselves, and potentially establishing a new norm.

But before we talk about how musical artists started experimenting with NFTs in 2021, let us first ground ourselves in how artists earn money today (or don’t make money for that matter).

In 2018, prior to the disruption of the pandemic, the music industry generated $43 billion in revenue, matching the highs of 2006. On the left hand graph below, you can see that consumer outlays (subscription, concert purchases) have driven the increase in spend. And to no one’s surprise, you can see the composition of consumer outlays has changed as the technology around music has changed — specifically consumers have increased their concert spend and subscriptions, offset by drastic drop in physical purchase of CDs.

Yet, even with music industry spend prior to the pandemic near its all-time high with consumer spending on an overall upward trajectory,

the value that artists receive from this ecosystem is relatively small: $0.12 on every $1 (or 12%).

Here is the breakdown of who is eating the musicians’ lunch:

A bit crazy if you ask me — especially given artists are the one who are actually creating the value and perhaps the most important part of this music creation value chain.

But as a music fan, you might be saying — what about all of my repeat streams of those re-recorded Taylor Swift songs? I also contributed to those 3.1 BILLION views of Shake it Off — shouldn’t T-Swift be making money off that? Well, T-Pain might have revealed the underbelly of the streaming music business with this tweet:

(Oof. Maybe this is why he adopted the moniker T-Pain going into the music industry).

RollingStone captures how little artists make from streaming services like Spotify, highlighting that the artists outside of the top 10%, earn on average $36 in the quarter, or $12 a month, or the price of two coffees in New York City.

Artists do, however, get to keep a relatively decent portion of revenue generated from concerts (31%) — one reason why we’ve seen an upwards trend in number of concerts and concert ticket prices.

As point of references,

• U2, the highest paid band in 2017, generated 95% of their revenue from touring, while less than 4% came from streaming and album sales
• Garth Brooks, the second highest paid musician, made 89% of his earnings from concerts and shows

2021: The Perfect Storm

Now, enter 2021.

For the past two years of the pandemic — gatherings have largely been shut down, effectively stopping artists’ main source of revenue (live shows and the associated merchandise sales from shows). An unintended impact of the pandemic has been that it has forced artists to think about new alternative ways of generating income — including livestreaming performances from home, encouraging tips from fans, adopting new categories of merchandise including masks, fragrances, and perhaps most importantly- the experimentation with the new technology of NFTs.

Creative thinking combined with increased public exposure to cryptocurrency and the seeming adoption from consumers on the visual art side of NFTs, gave license for musicians to embark on this exploration. Here are some highlights from 2021:

• January: Jacques Greene sells music publishing rights to his song “Promise”
• February: DJ 3LAU, a more crypto-aware artist, sold 33 NFTs for his Ultraviolet album. The sale includes album art, custom created song, access to unreleased music, and a physical edition vinyl), generating $11.6M
• March: Catalog launches its site where fans can press, trade and listen to unique digital records that are artist-certified. Artists receive 100% of all sales, plus resale percentage, without relinquishing their copyrights of songs
• March: Kings of Leon simultaneously drop their new album on record store shelves and in the NFT world. The NFTs included exclusive versions of the album, unique digital artworks, and lifetime concert tickets, generating around $2M
• March: Delphi Digital purchases “The Disclosure Face” NFT on Zora for $140K. Included in the purchase of the NFT is access to all Disclosure concerts worldwide with 4 guests as long as they hold the NFT in the wallet. This auction even included a live twitch performance for audiences
• April — Don Diablo sells first-ever full length concert experience NFT for $1.26M
• April — Verite auctions master recording rights in perpetuity on Zora. Sold 2.3% of the master recording in perpetuity for 11 ETH as an audiovisual NFT
• May — Songcamp releases genesis NFTs. Musicians from around the world, many who had never created NFTs before, collaborated together on these 3 songs, generating in total $34K in sales
• May — BT releases 24 hour song as NFT and sells it for 212K. The song contains 15,000 hand-sequenced audio and visual moments that will play out over the course of 24 hour cycle with the music programmed to play specific musical movements depending on when and where a listener is tuning in from
• August — Audius, controlled by artists and owned by a community of token holders, becomes first streaming service to partner with TikTok
• October — PleasrDAO, collective of DeFi leaders, early NFT collectors and digital artists, buys rare Wu Tang’s Once Upon a Time in Shaolin, a rare single copy of a LP for $4M
• November — Universal Music Group announced that four characters from Bored Ape Yacht Club are forming a band called Kingship in the metaverse. UMG states that Kingship will release music, NFTs, community-based products, activations and experiences in metaverse
• December — music NFT marketplace Oneof launched an auction for a NFT of never heard before demo recording of Whitney Houston and generates $1M

For many artists, at first, perhaps NFTs represented an alternative way of generating revenue. However, in a short span of time, as increased numbers of artists have become involved in this space and seen how other artists are experimenting with this new technology, artists have seen how NFTs could also help them connect better with fans.

In Part II of this exploration of music and web3, I will dive into some learnings from music’s experimentation with web3 and NFTs in 2021.