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How the Music Industry Broke (And How Blockchain Can Fix It)

Artists ranging from Madonna to Metallica reflect on changes in the music industry, and we look at how decentralization offers a more equitable ecosystem.

by Miguel Martinez, host of The SingularDTV Podcast.

On June 1st 1999, the music industry changed forever. Record Labels, Recording Artists, Developers, the Open Source community and DJs were all taken by surprise at the appearance of the first Peer-to-Peer (P2P) platform for sharing digital audio files: Napster.

Anyone could download Napster — in fact, over 20 million did — and, in turn, offer access to whatever Music Files in MP3 format they had in their /Music folder and share them using nothing but an internet connection — for free. You became a distributor of the great music you listened to, and ‘supported’ your favorite artists by sharing their work with others. It all sounded idyllic and great, but there was a huge problem with this: Copyright Infringement.

As mentioned in a previous article, Intellectual Property is a category of property that includes intangible creations of the human intellect, and primarily encompasses copyrights, patents, and trademarks. Artistic works like music and literature, as well as some discoveries, inventions, words, phrases, symbols, and designs can all be protected as intellectual property.

According to traditional law, anyone who distributed to others any type of music, samples, creative works or trademarked materials making reference to works associated with any artist without previously proper notification and authorization would be doing so illegally and subject to lawsuits. This is what happened to Napster after artists including Lars Ulrich and Dr. Dre decided to embark on a series of lawsuits against the platforms’ creators that eventually crippled their development.

There were a number of perspectives that rose up from people around the world in response to the practice of illegal peer-to-peer file-sharing. Some were opposed on the grounds of artists already being unfairly paid by the record labels, and the doubly negative effect file-sharing would further lessen sales revenue.

On the other hand, many (not coincidentally most often those who used platforms like Napster and Limewire) claimed that, thanks to the file-sharing, artist popularity and demand grew far better than could have done so through traditional methods. And this was undoubtedly true for a number of plucky young bands and artists who built early digital followings in the days before Facebook and Spotify.

Record Labels at this time were so used to their entrenched business model that when something different came along — the open sharing of music and the shedding of the physical format — they couldn’t quite get to grips. Instead of face the huge challenge of reinventing their wheel, they went gung ho into shutting the whole thing down.

What ended up happening after Napster was thwarted was that many other platforms came up and other solutions to share files such as Torrent Files, became the norm. A demand for faster processing, internet speeds, blank cds, CD burner drives, and better players than the ones that came with your computer so you could create your own curated playlist was born. Instead of having to change CDs in your car you could make playlist and order the songs the way you wanted to. You became your own curator.

The Digital Music Industry

A new era of society was kicked into high gear. The demand for the internet and the instant gratification of getting things as fast as possible became the standard. iTunes was released on January 9, 2001 as a media player, media library, and Internet radio broadcaster at first. The demand and adoption for internet home usage was growing worldwide, And so on October of 2001, the iPod was released.

A thousand songs in one device that you didn’t have to be changing, scratching, misplacing? Compared to a 12-track CD, the comparison was a no brainer. Everyone wanted their music to be digital for convenience purposes.

With the growing adoption of the digital music phenomenon. Steve Jobs went to the Record Labels and ‘asked” them to come onboard and put their music catalogs in iTunes. In April 2003, the iTunes Store became a digital music distributor, enhancing the experience of iPod users where they could buy songs or albums. They could pick which songs they would get, and thus artist became driven to create singles rather than albums. Apple signed deals with EMI, Universal, Warner, Sony Music Entertainment, and BMG.

On July 11, 2004, a 100-million songs milestone was reached. Let’s do math for a second: $100 * $0.99 = $99M. Apple takes 30% of the revenue. 99 * 0.30 = $29.7M was for Apple. The remaining $69.3M was to be disbursed to the pertaining parties.

The pricing model, the structures, promotions, quality, extras such as a digital booklets were all controlled and set by Apple and its platform. Apple, in many ways, took the place of many record labels, simply because legacy music industry organizations were not savvy enough to embrace technology.

…But with great power comes great responsibility right?

If It Ain’t Fixed, Break it Again

Through iTunes taking a significant portion of the revenue from digital album sales — which quickly became more than physical CDs — it became clear that something new needed to happen with the Record Label model. Since touring and merchandising were the primary flows of revenue from the artist, and the avenues through which they were able to make most profit from, major artists turned to blockbuster deals that encompassed their entire operation.

In October 2007, Live Nation reached a landmark, 10-year 360 deal with Madonna, under which the company would collaborate on music projects, touring, merchandising, and other facets of her career.

In the music industry, a 360 deal is a business relationship between an artist and a music industry company. The company agrees to provide financial and other support for the artist, including direct advances as well as support in marketing, promotion, touring and other areas. In turn, the artist agrees to give the company a percentage of an increased number of their revenue streams, often including sales of recorded music, live performances, publishing and more.

Madonna is the Diva of Pop Music. Everyone knows that a ticket to a Madonna Concert is over a hundred dollars. With the 360 deal she signed with Live Nation, every song, royalty, merchandise, live performance revenue — anything with Madonna or her brand related at all — went into Live Nation’s pocket. And how she manages that brand is entirely the realm of influence of Live Nation. Whereas once the record label lorded over artists’ careers, major conglomerates like Live Nation that owned the songs, the artists, the venues, and the radio stations showed a whole new level of control — and profit.

The past quarter century has shown the music industry to be at the whim of technology, constantly changing distribution and revenue models to accommodate the changing modes of consumption. In that process, the industry gatekeepers changed from record labels to tech companies to major entertainment conglomerates, but the system remained skewed against the artist.

Enter Decentralization

Until recently, the only way to obtain financing, marketing, distribution, presentation, meets and greets, merchandise, sales tracking, legal representation, copyright registration, tours, managers, agents, and any other type of support was to sign a deal with the a gatekeeper label or media corporation.

This organization, usually a label, would provide all of these services under one roof, money in advance, help artists press vinyl records, cds, do photoshoots, pay for music videos to promote the song, loan more money to go on tour, handle all the music royalty inscriptions and such, with the condition that artists would give them master recordings and the label get a percentage of all record sales and royalties generated. All revenue flow was to go through the label, and whatever was left went to the artist to be split between managers, producers, songwriters, members, lawyers, and from the net profit of the artist came their own living expenses.

Artist Courtney Love actually wrote a very direct and explanatory article back in 2000 on the subject:

“Record companies are terrified of anything that challenges their control of distribution. This is the business that insisted that CDs be sold in incredibly wasteful 6-by-12 inch long boxes just because no one thought you could change the bins in a record store. Let’s not call the major labels “labels.” Let’s call them by their real names: They are the distributors. They’re the only distributors and they exist because of scarcity.

Artists pay 95 percent of whatever we make to gatekeepers because we used to need gatekeepers to get our music heard. Because they have a system, and when they decide to spend enough money — all of it recoupable, all of it owed by me — they can occasionally shove things through this system, depending on a lot of arbitrary factors.”

James Hetfield mentions during an interview in the Joe Rogan Experience that the system is broken, and perhaps there is no single way of fixing it. A veteran in the music industry in every way, and from the frontlines against piracy and illegal digital music downloads, Hetfield explains how little by little the band has come apart from the record label model.

Now, the members of Metallica own their masters, their own vinyl press machines, and now let other distributors around the world come in and join them on their own terms to be “part of the family” and protect their assets. But it has taken them 30 years to be able to do this.

In the SingularDTV ecosystem, artists and creators retain the ability to jump right into this kind of perspective from the very beginning. Having an entrepreneurial mindset and thinking beyond just obtaining the funds to make a record, artists can engage in a career as an business person slash musician, songwriter, performer, rather than the starving artist that no one should be.

In this ecosystem, the rights and the management of your intellectual property is yours through Tokit. You create your art, set your campaign and invite fans, community, supporters to become part of your project by becoming token holders. You release your art and go to the moon knowing that you created a feedback loop and a unique relationship through art where it is no longer “buy my record and support me” but rather a “become part of this movement.”

A sense of belonging and a relationship between artist and fan will always be far greater than the sense of “ownership” of music or art. When you belong to a movement, a cause, a change such as the one that blockchain is creating, this promotes self-investment rather than just buying something. Investing in an artist and helping create more art, more culture, more unique experiences to share with the world — the kind of stuff made possible by SingularDTV — that’s the future of the business of music, an industry that’s equitable for artists and consumers and not beholden to the gatekeepers of the past.

More Artists’ Takes on the Music Industry:

Wanna learn more about the future of the entertainment industry?

Check out, read our Blog, like us on Facebook. and take part in creating a decentralized entertainment economy…

SingularDTV is laying the foundation for a decentralized entertainment industry.

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SingularDTV is laying the foundation for a decentralized entertainment industry.

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