Musicians turn to NFTs in hunt for fresh profits

NFT


DJ Justin Blau was opening for fellow superstar Avicii on a beach in Mexico when he met the Winklevoss twins, who introduced him to bitcoin. “It couldn’t get more cliche than that,” he says of his 2014 reunion with Mark Zuckerberg’s Harvard classmates, who have since become blockchain evangelists.

As a college student, Blau dropped out of finance studies and turned down an internship at asset manager BlackRock to pursue a career as a DJ. Years later, he combined his dual interests, music and finance, into a business intended to revolutionize the recording industry through blockchain technology. On Tuesday he teamed up with his old friend Diplo, the popular electronic musician, to sell 20 percent of a song’s streaming royalties to fans in the form of digital tokens.

“I’m fascinated by the idea that music ownership has value,” Thomas Pentz, known professionally as Diplo, told the Financial Times. “The more people behind your record, whether they’re fans or investors interested in technology, it’s great to have more people on a team.”

In recent months, the hype surrounding Web3 – the buzzword for a decentralized, blockchain-based iteration of the internet – has taken the music industry by storm, drawing the world’s largest music companies into the fray and fueling hope that non-fungible tokens will become into a new source of money for musicians.

Rapper Snoop Dogg recently sold an NFT attached to his latest album © Kevin C. Cox/Getty Images

To sell an NFT, musicians assign their song, video, or other media to a digital token. The token is sold through an online auction enabled by blockchain technology, which keeps a record of the transaction. Beyond songs or images, NFTs could also be used to sell perks like backstage passes or meet-and-greets.

Shocking examples abound. Rapper Snoop Dogg in February sold an NFT attached to Back on death rowhis latest album, which reportedly generated over $40 million in sales in just five days. DJSteve Aoki claim (it is has made more money through NFTs than a decade’s advances from record labels.

“Some of these valuations are out of control. As an investor, I see it a lot and every now and then I have to laugh,” said a senior executive at a major record label.

But after being swept away by the Internet with the advent of file-sharing company Napster two decades ago, the big music companies are looking to get ahead of technological change this time, making them willing entrants into the market.

diplo american artist
American artist Diplo: “I’m fascinated by the idea that music ownership has value” © Tiffany Rose/Tailgate LA/Getty Images

Universal Music, the group behind Taylor Swift and Drake, have teamed up to create NFTs for their artists, including a virtual band featuring characters from the Bored Ape Yacht Club, much like rivals Sony and Warner.

After spending more than half a billion dollars buy the copyright to Bob Dylan’s songbookUniversal and Sony are now working with the musician to sell the Bob Dylan NFT. Spotify has been drawing up plans to add blockchain technology and non-fungible tokens to its streaming service, the FT reported earlier this month.

“There’s been a lot of ups and downs of irrational exuberance around this space,” said Jonathan Dworkin, Universal’s senior vice president of digital strategy. “As the smoke starts to clear, there are some really interesting opportunities. . . there is a real revenue opportunity,” he said, pointing to the ways that tokens can directly connect fans with artists.

But so far, most participants in music NFTs are crypto enthusiasts rather than regular fans, and the market is small: It only made $83 million in primary sales last year, according to the industry blog. Water and Music.

There are many skeptics. “It seems like the music industry is desperately trying to find a way to insert themselves into NFTs without really thinking: what is the underlying use case?” said Mark Mulligan, an analyst at Midia Research.

Mulligan argued that it is hypocritical for musicians to sell streaming royalties to fans, after years of complaints about the tiny payments the artists themselves receive streaming royalties. “If you sell someone a fraction of that fraction and charge them a lot of money because it’s an NFT, I’m not sure what a valid investment would look like.”

Diplo maintained that it is a good investment for music lovers. “For a fan, what you can do is buy merchandise, you can buy concert tickets. . . but really, this is what you’re a fan of. You’re a fan of music.”

Most of the $17.7 billion in NFTs traded last year went to visual arts, games and collectibles, according to market tracker Nonfungible.com. While the NFT market itself has shown signs of deceleration With daily trading volumes on OpenSea, the largest NFT market, falling since the beginning of the year, some people see music as a ripe space to break out this year.

Daily volume ($mn) column chart showing OpenSea trading in decline

Blau’s company Royal is among the most prominent in a crop of music blockchain startups that aim to revolutionize the industry. Through Blau’s personal connections, and Silicon Valley’s optimism around blockchain, Royal raised $55 million from investors, including Andreessen Horowitz and Peter Thiel, without even doing a book pitch.

Blau, who last February sold $12 million worth of NFTs attached to his songs, wants to scale that into a business through which ordinary fans can own music, “instead of just record labels, Private capital and hedge funds.

Don’t Forget My Love: A Digital Token of Music in Numbers

$99

0.004% of streaming royalties

$999

0.05% of streaming royalties and more music

$9,999

0.7% of streaming royalties and a meeting with Diplo

Royal’s project with Diplo, for example, offers fans the option to pay $99 for a token that represents 0.004 percent of the streaming royalties from “Don’t Forget My Love,” the first single from his recently released album. For $999, you get 0.05 percent royalties, as well as an “exclusive DJ mix,” while $9,999 gets you 0.7 percent royalties and meeting Diplo at a concert. These tokens are not the same as owning the copyright to the songs.

Asked if this is a good investment for fans, Blau said there is an emotional attachment to ownership, as well as the chance to bet on an artist’s success before they become a star. “In real estate. . . if you own a single family home, there’s the rental income and then there’s the real appreciation of the assets, right? he argued he.

Another longtime record label executive said some of these projects “haven’t been successful because people are concerned about the exploitative nature,” referring to the questionable investment value of broadcast royalties.

“There are a lot of naysayers saying: There are only rich white guys who are doing this and driving up the price of NFTs.

“But I don’t think we can rule out that the technology is evolving,” the executive added. “We’ve been in playlist land for the last decade. I believe that blockchain tokens will be central to our world in 10 years, and anyone who says that’s not true is not looking back at history.”