Non Fungible Tokens & The Future of the Music Industry

Kyla Bernberg

​

​

         In 2017, the music industry generated $43 billion in revenue, yet only 12% of those profits were pocketed by the artists themselves. Where did the rest of these profits go? It is hard to know exactly due to the lack of transparency within the music industry. The industry is composed of a plethora of business minded people who aspire to profit off of an artist's talent. The record label, streaming platforms, distributors, publishers, etc. all take a percentage of the artist’s capital gains, leaving the average artist with only 12% of the profit. Unfortunately, this leaves the artist with less financial liberty which oftentimes restricts the artist creatively, and makes them more heavily dependent on the record label. With so many people between the artist and the monetary value of their work, it takes time for the artist to be paid and the complicated contracts are never exactly clear. Ultimately, the artist is essentially robbed of a majority of their profit if they are signed with a record label.

​

          In recent years with Covid-19 shutdowns, the music industry struggled as live shows and tours were canceled. These shutdowns provided an appealing opportunity for the artists to generate a lucrative space online. However, with such easy access to musical content via streaming platforms, the value of profiting from music seems to be flooded and diluted. Many notable musicians such as 3lau, Deadmau5, Grimes, Tory Lanez, and Doja Cat have created Non-Fungible Tokens in order to profit off of their work. In conclusion,  it seems there has been great success for these artists in selling NFT’s and it sheds light to an opportunistic transition for the music industry that would benefit the artist by obtaining most of their profit.

NFT’s, otherwise known as Non-Fungible Tokens seem to demonstrate a model which would empower the artist and cut out the middlemen. For some NFT’s are an investment opportunity and for others it is a way to capitalize off of their art. In many ways NFT’s pose an important challenge to traditional thinking, ways of doing business, and measures of value. Non-Fungible Tokens are digital assets which can be created, bought, and sold. For example, the artist Grimes released a collection of NFT’s called War Nymphs. This collection was composed of original artwork paired with exclusive music and unreleased content. Grimes announced the auction of her NFT’s via twitter. Her auction generated 5.8 million in about 20 minutes. This is substantial profit for the musician and demonstrates the demand for digital assets and how an artist can use Non Fungible Tokens to profit from their work independently, allowing them to retain a majority of the profits. Ultimately, an established musician can profit greatly off of NFT’s as opposed to working under the predatory nature of the music industry. 

​

       3lau, an American DJ, also had a lucrative auction for his collection of NFT’s known as the Ultra Violet Collection. The top bidder was awarded the opportunity to collaborate with 3lau directly and create a 1 of 1 tokenized NFT. This demonstrates the wide variety of content and opportunities which can be allocated within the sale of NFT. It’s an opportunity for the artist to really engage directly with their fans and to be creative with how they market their work. 3lau earned a total of 11.7 million dollars from the auction of Ultra Violet Collection, which is a hefty profit for the DJ who claims a good year used to be $50,000. Overall, the exchange of NFT’s from established artists to dedicated fans creates an enhanced experience of intimacy and exclusivity. Essentially, the NFT is a digital asset and is likely to gain value overtime, creating an opportunity to invest in a specific artist or musician. 

​

        However, this level of monetary success is not guaranteed for every level of artist. It is difficult for an entry level musician to derive profits from Non-Fungible Tokens. There is also a lot of grey area and uncertainty in relation to NFT’s and the platforms which are used to distribute and exchange them. For example, Tory Lanez released “When It’s Dark” using the platform E - NFT. The platform proved to be suspicious on a variety of levels such as hidden fees, sudden crashes, and some users reporting no compensation for the reselling of the NFT, which of course is problematic. Users who are putting money into any digital space should expect complete transparency and security. Later, it was discovered that Tory Lanez had direct ties with the platform E -NFT as an earlier investor. Therefore, it is important to note that though Non Fungible Tokens pose a new frontier for musicians and fans to enhance the experience, there is also a lot of uncertainty. Celebrity influence can lure in crowds for a legitimate NFT exchange and provide an exclusive valuable experience. However, they also have the ability to lure in crowds into a sketchy and insecure platform. Therefore it is important to question, explore, and consider the platforms used within the exchange of these digital assets. 

 

      Every NFT and the content promised is different. For example, the rapper Curren$y released an EP Financial District in April 2021. This EP is entirely unreleased. The owner of the file did not leak it on youtube or any other streaming platform. Therefore, the owner of the NFT is the only person in the public who has heard this album. Yet, let’s say they did put it on soundcloud to share this exclusive content,  anybody could listen to this song. However, the person who purchased the NFT is the owner of the file, therefore they own the original copy. This idea of value being held within the original file is akin to how value is held within art. Everybody can see the Mona Lisa, people can print a copy of it, but the original painting holds value because there is only one unique original.The true value of the NFT lies in its uniqueness, scarcity, and exclusivity.  The technology used for NFT’s  makes it clear as to who is the original seller, which makes it easy to authenticate and eliminates forgery.  The original buyer of the NFT has authentic proof that the digital asset is theirs and they have the right to sell this asset as well, at whatever price they desire. 

 

        Most NFT platforms offer some sort of smart contract which are established rules that will automatically be executed. For example if a band has four members, and they sell an NFT, they might use a smart contract to automatically divide the profits four ways. Likewise if the buyer of the NFT resells the digital asset, the band might create a rule within the smart contract which allocates 10% of the profit back to the band who minted the NFT. Ultimately, smart contracts are a technological proofed pre written contract that allocates funds immediately if a condition within the smart contract is met. For example, the company Yellowheart is an NFT market place focused on ticketing. This company was started by John Katz at El Media group and the group the Chainsmokers. Yellowheart aims to solve the problem of ticket selling and reselling to eliminate forgery. This allows artists to create rules in regard to tickets using smart contracts and Ethereum blockchain. The artist may want to collect profits on resold tickets which would prevent people from buying masses of tickets to resell at ridiculous prices. Ultimately, the nature of this technology would prevent scalpers, fake tickets and benefit the artists’ control over ticketing.

 

    A platform with an extensive plan to expand into a decentralized space for musicians is Audius.  Audius is a decentralized protocol for Audio content, aiming to be a decentralized storage solution and ledger for sharing audio and metadata. It targets the current problems faced by artists and fans and poses solutions within the Audis platform. The Audius protocol consists of the Audius tokens, stablecoins, and artist tokens. The Audius token ($AUDIO) 

staked within the protocol is assigned governance weight, which if you have a certain amount gives you some sort of power within the platform. The Artist token is an idea that artists and musicians will have the ability to distribute a unique token, and when the fans hold a certain number of tokens, they will be able to access exclusive content. For example, X amount of tokens grants you access to an exclusive album, interviews with musicians, etc.  The idea of creating exclusive content in exchange for small investments in specific people is already popular in platforms such as Patron and Only Fans, where it proves to be successful. Artists who use the Audius platform must maintain a bond in $AUDIO to continue to distribute tokens, therefore there is an artist incentive which intends to strengthen the community trust and use of The Audius Protocol. Audius aims to play a part of the larger Etherum and Defi ecosystem. The envisioned protocol will have social features and a fan feed which would incorporate a social media type space where fans and artists can interact with follows, likes, and shares. Ultimately, the Audius Protocol has taken impressive steps in demonstrating how a decentralized environment for audio content could work.

 

    Another platform which has succeeded in a model to exchange NFT’s is One Of. This platform has been used by notable artists such as Doja Cat and John Legend. The founders are Lin Dai, Josh James, and Adam Fell who is also president of Quincy Jones Productions. This company prides itself as an eco-friendly alternative to buying NFT’s because the company uses the Tezos Blockchain. Another benefit is there is a zero dollar minting fee for the artist, which means that artist can put an NFT for sale without any initial cost. This platform seeks to focus specifically on music NFT’s and is user friendly for both artists and fans.

   

    Bondly Finance is another platform. The CEO is Brandon Smith. The feature Bond Protect  is a decentralized escrow used by artists such as Curren$y. This is the first Defi project on the Cardano Network. It uses BProtect smart contracts which extends the safety of the buyer and seller. 

 

     Overall there are  many companies who are working to create the most user friendly and artist populated  platform for music NFT’s. There are many opportunities in the future for content to be artist controlled. The artist will be able to manage the cost of their work, and will be able to retain most of the profits. In return, fans will receive digital assets, exclusive content, opportunity to invest in artists, ability to own the original file or fractional parts of the original file of a song, exclusive meetups, invitations to discords and other virtual spaces, and a wide range of unique user experiences. The incorporation of smart contracts will ensure fairness and precision regarding the profits, distribution of profits, and other conditions set by the artist. In the near future, it is assumed record labels might  incorporate something about the rights and minting NFT’s within the contract. However, hopefully the NFT platforms will prove to be an important stepping stone for the artist to generate accurate monetary value for the value of their content. Some of the platforms which are currently working with artists are Yellowheart, Audius, Bond Protect, One Of, Consensys, and Nifty Gateway.

 

      Overall, Non Fungible Tokens sold by artists and musicians seem to be on the horizon. Within a few years, many artists should recognize the financial liberty by selling NFT’s, while fans desire the experience of owning a Non Fungible Token. Perhaps the new i-pod will be a content ledger. There is ample opportunity for Non Fungible Tokens to change the music industry forever. NFT’s are an intersection for business, technology, and culture and will likely shift operations of ample industries. However, there are certain mental leaps that need to take place within the masses in understanding, using, and interacting with blockchain technology before this becomes completely mainstream. 

 

Kyla Bernberg is an artist and crypto enthusiast.