G20 Ventures
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G20 Ventures

Napster: Why We Invested

Both for what NFTs are changing, and for how people aren’t.

News just broke about our investment in Napster, as part of a syndicate taking the OG music streaming service private. I’ll share the highlights of that story here, touch on what’s happened in the music industry in the last few years, and describe the opportunity we see as NFTs change the relationship between creators and their fans.

This investment — our first as a fund in Web3 — will also mark a turning point for us. After 4 years watching this space closely, investing our own money to learn what works and what doesn’t, and waiting for enough of the foundations to fall in place to start building businesses on top of them, we’re ready to go.

G20 Ventures is going all in on Web3, starting now.

What’s changed? Why now? Where are the opportunities going forward? I’ll explore all those issues in the context of this deal, then touch briefly on what it means for the fund at the end.

The story driving this deal is a good one: Powered by a new generation of technology but inspired by the same pirate spirit, the new Napster will combine a streaming catalog of over 42 million songs with exciting new features built on a secure, open, and carbon-negative blockchain to unlock new ways for people who make and love music to connect, share, and profit together.

The new service will leverage the lightning fast Algorand blockchain to fix problems of fairness and transparency that have plagued the music business forever, and NFT technology which has captured the popular imagination to unlock exciting new possibilities for creativity, community, and commerce.

To see how it’s all going to work, you need to know how we got here, and how NFTs are changing the business model that supports not just music, but all forms of creative expression.

How We Got Here

Making something digital has always meant making it copyable. Anything on one machine — from the ENIAC to an iPhone — could be replicated as the same string of 1’s and 0’s on any other. Computer types call this “fungibility,” and it’s an obscure idea that’s shaped the music industry since the 1990's.

Back then the record labels embraced digital technology in a bid to improve their share of retail music sales, which was about 27% of the cost of a $16 CD. The music on that CD needed to be written and recorded by an artist (who got 16%,) pressed by a manufacturer (for 13%,) distributed to a store (9%,) and sold by a retailer, who kept 35% of the purchase price.

Selling music online gave the labels an opportunity to double their profits, cutting out manufacturers and distributors to take more than half of what fans were paying. The future was so bright, they had to wear shades.

Meanwhile, just outside of Boston, a nappy-headed teenager was tapping the fungibility of digital music to take things in a different direction, making it easy for fans to share their music directly with each other over the Internet. His service — Napster — cut out not just the labels, but everyone else. Napster grew to a network of over 80 million users, all of whom (including us) loved the service and what it represented... taking power from The Man, sharing the love, freeing the music. It was a hell of a party, before the cops came and shut it all down.

Brockton’s own Shawn Fanning, on a “magazine.” It was a big deal.

Licensed streaming services — led by Spotify, Apple Music, and Amazon but including a re-born Napster, gone legit — bolted a sustainable business model onto the digital music fans wanted, and over the last ten years their biggest beneficiary has actually been the labels themselves. Today the labels take the 50% of streaming revenue they dreamed of back in the day, with the streaming platforms keeping 10%, and the government taking another 17%. Most of the rest (15–20% of streaming fees) ends up in the pocket of the music publishers, often owned by the same global conglomerates as the labels. Artists — the people who actually sing and play the music we love — net an estimated 7% of what we pay to enjoy it, a situation that seems pretty twisted by any measure of objective fairness.

Napster is already out front when it comes to doing better for artists, delivering the highest payouts of any streaming service.

Source: Digital Music News, updated 2021

But the truth is, it’s been a small (if profitable) service, and it’s still pretty damn hard to make a living making art. Fixing that is going to take something revolutionary, something like a change in what it means to be digital.

How Non-Fungible Tokens Are Changing Everything

The white paper that gave us Bitcoin also defined how digital assets other than cash might be embedded in and protected by the blockchain. It took a while for this idea to catch on, but when memes and cat cartoons started getting connected to the blockchain in 2016, people began trading them, and a key pillar of “Web3” slipped into place.

These “Non-Fungible Tokens” are assets coded in or referred to by the blockchain that can’t be copied or counterfeited. NFTs are a big deal because they change what it means to be digital. They make it possible for anything — an image, a movie, an article, or a song — to be both digital and un-copyable, and entire industries are about to be re-wired as a result.

While it’s still early days, musical artists are leveraging NFTs in exciting ways:

  • Streaming directly to fans on services like Audius
  • Offering ownership of songs on services like Catalog
  • Letting fans co-invest in song royalties on services like Royal
  • Creating music together with fans on services like SoundMint
  • Making special editions available on services like RELICS
  • Selling collectibles and digital merch on services like RCRDSHP

Today established artists like Steve Aoki and Diplo are taking advantage of new opportunities to make art and money, while emerging artists like VÉRITÉ and Avenged Sevenfold connect with fans directly to make a living making music. Communities like Songcamp and Water & Music (whose recent report on the State of Web3 for Artists is fantastic) are experimenting with entirely new creative and business models, and each day seems to bring a new innovation and a new possibility.

What we need now is someone to take it mainstream.

Napster’s unique combination of brand assets, streaming experience, exhaustive music catalog, artist goodwill, and contracts with every major music label — all now backed by Algorand’s blockchain expertise and a deep pool of capital from savvy Web3 investors at just the right moment — give it the potential to be that business.

For artists, Napster will combine the biggest streaming payouts, crypto expertise deep enough to support national digital currency, and all the capital it needs to grow. The company is already executing against a plan to grow users, build simple tools, and create familiar interfaces that invite fans to participate without the hassle and friction of crypto’s first generation, “connect wallet” phase. Somebody is going to get there first, and we think, right now, Napster has that opportunity.

That’s why we invested.

What Hasn’t Changed At All

None of that matters, of course, if we’re not delivering something special and valuable to fans. To see how we are, step back from the tech for a minute.

What music do you love? Who’s the artist that changed it all for you? Tell me and I’ll know something not just about what you like, but who you are.

Springsteen? You’re my guy. Mayhem? Step off, man.

Such is the power of music as a signal of values (Brooooooce) and regional loyalty (Dropkick Murphys,) a badge of identity (Megan Thee Stallion,) and a path to tribal connection (Phish.)

NFTs will give artists new ways to help fans express their own identities, and to monetize all that untapped value to sustain themselves, and keep making music. Fan participation in royalties and performance rights will create powerful new incentives to back bands early and promote their success, and if you doubt it — again — just try and remember what it felt like to fall in love with a band the world hadn’t yet discovered.

I caught R.E.M. at the Living Room in Providence in the early 80s, and would still pay for a POAP to prove it. I’d have mowed a lot of lawns back then for a 1% stake in Perfect Circle, which hearing even now takes me back to a night and a version of myself I can see clearly again.

In those days you had one of these, or you didn’t:

It really doesn’t take a huge leap of faith to believe a new generation of fans is going to want the digital equivalent of that t-shirt in the world they live in through their phones every day.

Napster is becoming a destination not just for streaming music, but for connecting and identifying with the artists who make it. The value to be unlocked there is massive… in fact it may dwarf the current streaming business in both scale and scope.

What Else Is Changing

It’s been a long road to this deal… led by my partner Bob Hower but involving us all. We’d like to thank “OG” G20 Member Steve Kokinos and the team at Algorand for recognizing what we brought to the table, and promise we’ll do our best to deliver. I’ll be focused on helping them tell this very story, and on making it real for artists and for fans.

As for our fund, there’s no going back. In the coming weeks and months look for some exciting additions to our team, and the raising of a new fund, all focused squarely on Web3. If you’re interested in hearing more please subscribe for our updates.

We want to connect with our fans too. And a Ramones-style t-shirt may or may not be in the works. Until then… rock on.

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Mike Troiano

Mike Troiano

Venture storyteller, wartime consiglieri, lyrical gangsta. Partner, G20 Ventures, thoughts here are my own. https://nf.td/miketrap