Maroon 5 is Launching an NFT? WTF Does That Mean for the Music Industry
Just when you thought 2021 couldn’t get any stranger, we now have a passé pseudo-rock-R&B-pop band selling an non-fungible token.
Maroon 5 sucks. There; I said it. And I’m not the only person who thinks so. On r/unpopularopinion, a post saying that Maroon 5 is garbage received 90% up votes. It’s one of several along the same lines. No matter how many Grammy’s they’ve won (3), records they’ve sold (75 million), or Billboard pop number ones (11), they are awful. (Note: for those of you who cite these sorts of stats as social proof of a band’s greatnest, need I remind you that Nickelback has 5 Grammy’s, 50 million albums sold, and 2 Billboard top tens).
Maroon 5 is parterning with music and ticketing marketplace, YellowHeart, to launch “the first ever Fan Community Decentralized Autonomous Organization” alongside the release of the former’s latest album titled, Jordi. Fans who purchase the NFT will not only get limited edition animated album artwork but will also be invited to an exclusive event where the band will debut an unreleased bonus track.
So, why would anyone pay for digital album art and an exclusive party with a band that, let’s face it, isn’t all that great? And, if Maroon 5 is now selling NFTs, what does that mean for the crypto industry as a whole? Are NFTs mainstream now?
NFT Sales Ballooned to Almost $2B in the First Three Months of 2021
The start of 2021 saw an unprecedented rise in the sale of NFTs. For context, NonFungible.Com reported over $2 billion in sales in the first quarter of 2021, which was more than 20 times the volume in the last quarter of 2020. This figure does not include the sale of Beeple’s Christie sale in March (which was over $69 million) or the NBA Top Shots video highlights (which, racked up over $400 million).
The NFT market is completely revolutionizing the world of art and collectibles and it seems as though everyone is scrambling to get into the craze.
It was only a matter of time before musicians would take notice. And, of course, leave it to the most bandwagon of all pop bands — Maroon 5 — to make a big splash with their NFT offering.
NFTs are like Music Streaming on Steroids
Back in the day when Napster turned the entire music industry on its head, musicians saw their royalty revenues plummet. For non-touring acts, back-catalog licensing became a less certain cash flow stream.
The rise of streaming, however, changed all this. Spotify, Apple Music, and Tidal have all helped bring the music industry back to some semblance of commercial viability. Artists like Drake and Ed Sheeran have been able to supplement their touring revenues with steady incomes from royalties generated from the hundreds of millions of plays their music generates. For arists that are retired from the touring space and for the estates of deceased artists, streaming has breathed new life into their pocketbooks as well.
The NFT business — which has higher margins and more direct access to fans opens up a whole new world of possibilities for artists looking to capitalize on their image, likeness, and voice.
More Money, More Taxes, More Problems?
One thing that makes NFTs different from touring and royalties is the unique tax treatment that they may receive due to their potential status as “collectibles” under Section 408(m)(2) of the US Internal Revenue Code. The legal definition for “collectibles” are amorphous but Section 408(m)(2)(A) states that “any work of art” could be considered a collectible.
When a collectible is sold, much like other property, a capital gain/loss is accrued and tax filers must report said gains/losses on their tax filings. High-income earners (like many influential artists) would be assessed a higher tax rate on collectible gains as opposed to non-collectible capital gains as well as a net investment income tax on top of it.
I suppose when you’re already worth tens of millions of dollars a couple additional percentage points on your tax bill isn’t anything to worry about but, alas, these wealthy musicians have accountants and tax lawyers on retainer and are likely looking to minimize tax in whatever way possible. In other words, the rich get richer. What else is new?
If Everyone’s Doing it, Is it Still Cool?
One of the arguments for NFTs is the scarcity value they impose. Analogous to rare art, NFTs have value because there are so few of them offered for sale — so the argument goes.
Forgeting the fact that someone could take a picture of or audio record the contents of an NFT and “pirate it” and setting aside the fact that blockchain technology can help NFT owners spot counterfeits, are NFTs as valuable as they are if there are a bunch of different NFTs out there? In other words, while there may only be a finite number of the Maroon 5 NFTs out there for sale, is the fact that Kings of Leon, Grimes, Steve Aoki, 3LAU, Post Malone, Shawn Mendes, and literally dozens of others are all doing NFTs of their own dilute the “scarcity value” of this asset class too? How can you assess the intrinsic value of one type of NFT versus another if there are so many similar ones out there, which sold at the same price around the same time and by the same offerors?
It just seems as though this could morph into a sad chapter for musicians. as it encourages frivolous spending, needless speculation, and ableism. While fans are free to spend their money as they choose, does owning a digital asset of your favorite artist make you any more of a fan than someone else who can’t afford to do so? The whole idea of exclusive concerts and merch for pop bands was pretentious enough when it emerged in the late 1990s; this just seems like a very out-of-touch modernized version of that same elitism.
