{"id":56149,"date":"2023-07-19T14:41:02","date_gmt":"2023-07-19T14:41:02","guid":{"rendered":"http:\/\/egrowonline.com\/?p=56149"},"modified":"2023-07-19T14:41:02","modified_gmt":"2023-07-19T14:41:02","slug":"tokenizing-music-royalties-as-nfts-could-help-the-next-taylor-swift-cointelegraph-magazine","status":"publish","type":"post","link":"http:\/\/egrowonline.com\/?p=56149","title":{"rendered":"Tokenizing music royalties as NFTs could help the next Taylor Swift \u2013 Cointelegraph Magazine"},"content":{"rendered":"


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Since 2021, pop superstar Taylor Swift has been rerecording and releasing her entire back catalog of albums in an effort to break away from her previous record label and gain greater control over her art.<\/strong><\/p>\n

The fact she has to go through such a painstaking, expensive process just to recover what most would consider rightfully hers<\/a> highlights how the music industry can be a complicated, confusing place for young artists. It has a well-deserved reputation for being a space where enthusiastic musicians often unknowingly enter into unfavorable or exploitative record contracts.\u00a0<\/p>\n

\u201cI would say maybe 10% of musicians have a good understanding, 1% of musicians have a great understanding, and 0.1% of musicians have an amazing understanding\u201d of the legal and financial structure behind the music industry, Justin Blau tells Magazine. Also known as 3lau, Blau is a popular DJ and the founder of Royal<\/a>, one of a handful of companies working to bridge the divide between the traditional music industry and blockchain.<\/p>\n

Web3 or blockchain is often hyped up as the \u201cPromised Land\u201d for musicians<\/a>, where the music industry will be democratized and decentralized, and where musicians will earn a larger slice of the profit pie by connecting directly with fans through NFTs.\u00a0<\/p>\n

One rising use case for \u201cmusic NFTs\u201d is tokenizing a song\u2019s royalties, allowing fans to earn a percentage of the revenue generated by their favorite artists\u2019 music.<\/p>\n

But music copyright law and royalty collection are highly complicated, and very much off-chain. So, where exactly does blockchain fit in, and what do artists and fans gain from its introduction?<\/p>\n

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A complicated starting point<\/strong><\/h2>\n

To start with the very basics, each piece of recorded music has two copyrights associated with it: One represents the recording itself, while the other represents the underlying composition \u2014 the written lyrics and music.<\/p>\n

Depending on how many people and companies are involved in writing and releasing a song, any one track can have multiple rights holders. Musicians who release music through record labels are often required to sign over the master recording rights to the label.<\/p>\n

\"How\"How
How a song\u2019s copyrights generate multiple royalty streams. (Royal)<\/em><\/figcaption><\/figure>\n

Each copyright also generates its own associated royalties based on whether the song was played on the radio, listened to on Spotify, featured in a movie, etc. On top of that, different organizations are responsible for collecting each type of royalty.<\/p>\n

With all that, it\u2019s easy to see why the average artist may not fully grasp the business side of the music industry when entering into a recording contract that benefits their label more than them.<\/p>\n

\"Taylor\"Taylor
Taylor Swift spends her 33rd birthday in the studio. (Instagram)<\/em><\/figcaption><\/figure>\n

\u201cVery few people really begin understanding the business of music and how it works, let alone the legal part of it,\u201d Renata Lowenbraun, an attorney and CEO of Infanity \u2014 a Web3 platform for independent music artists and their communities \u2014 tells Magazine.\u00a0<\/p>\n

\u201cThe more informed you are as a recording artist or as a songwriter, the better off you are.\u201d<\/p>\n

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Putting royalties on the blockchain<\/strong><\/h2>\n

There are three main companies working on tokenizing traditional music royalty streams \u2014 Blau\u2019s Royal, Anotherblock and Bolero \u2014 and they all follow the same basic premise.<\/p>\n

A song\u2019s rights holders divest a certain percentage of their royalties, and those royalty rights are fractionalized as NFTs. Tokenholders receive regular payouts to their crypto wallets in USDC in proportion to their share of the rights. If they wish to sell their NFTs, they can do so on the company\u2019s website or secondary markets like OpenSea<\/a>.<\/p>\n

\"Justin\"Justin
Justin Blau in front of a massive crowd at Electric Daisy Carnival. (Rukes\/Instagram)<\/em><\/figcaption><\/figure>\n

The core focus of Royal is streaming, and the platform has already worked with several high-profile musicians, including Nas and The Chainsmokers. Blau tells Magazine that streaming is \u201cwhere most of the income comes from,\u201d and that since fans can directly impact how often a song is streamed, \u201cit makes the most sense to give fans the ownership in something that they actually can affect the success of.\u201d<\/p>\n

Royal\u2019s NFTs live on Polygon and can be stored either in a custodial wallet managed by Royal or self-custodied using a wallet like MetaMask.<\/p>\n

\"Owning\"Owning
Owning a piece \u201cRare\u201d by Nas also provides access to the secret menu for chicken spot Sweet Chick. (Royal)<\/em><\/figcaption><\/figure>\n

Anotherblock \u2014 which has worked with musicians like The Weeknd and R3hab \u2014 also focuses on streaming royalties and uses Ethereum. Investors can buy the NFTs with ETH using a self-custodial wallet or through the third-party wallet service Paper.<\/p>\n

With all three platforms, the original rights holders retain ownership of the copyright itself \u2014 all they give up is a share of the royalties. Anotherblock CEO Filip Str\u00f6msten tells Magazine, \u201cWe think that the creators are the ones that have made the track, and they should be able to decide where their music is and how their music is being listened to.\u201d<\/p>\n

\"Rapper\"Rapper
Rapper Snoop Dogg bought his old record label and now owns his masters. (Instagram)<\/em><\/figcaption><\/figure>\n

Bolero is a more recent entrant to the business of putting royalties on the blockchain, launching the Polygon-based \u201cSong Shares\u201d in February. It has worked with musicians like Agoria and Yemi Alade.<\/p>\n

While Royal and Anotherblock fractionalize just one of the royalty streams generated by a song\u2019s master recording, Bolero focuses on the master recording itself and its underlying IP.<\/p>\n

As a result, NFT holders are entitled to a percentage of the royalties generated by multiple exploitations of the master recording, including physical sales, digital sales and sync placements (when a song is used in a movie, TV show, etc) in addition to streams.\u00a0<\/p>\n

\u201cThis is what we are trying to tackle here,\u201d William Bailey, Bolero\u2019s co-founder and CEO, tells Magazine.<\/p>\n

\u201cWe are taking IP, we are fractionalizing, and thanks to this, we are able to offer multiple revenue sources.\u201d<\/p>\n

Keeping the artists at the center<\/strong><\/h2>\n

Many builders in the Web3 music space are motivated by their own negative experiences in the business.<\/p>\n

Blau, who continues to release music and tour, says he wants to help musicians better understand the industry, know the true value of their music, and ultimately, retain more ownership. \u201cEveryone\u2019s heard the saying \u2018artists don\u2019t get paid for music,\u2019\u201d he says. \u201cThat\u2019s true a lot of the time. But the statement \u2018music doesn\u2019t make money\u2019 is not true.\u201d<\/p>\n

\"Justin\"Justin
Justin Blau in the studio with fellow DJ Steve Aoki. (Twitter)<\/em><\/figcaption><\/figure>\n

Anotherblock\u2019s Str\u00f6msten is also a musician, and his negative experience signing a recording contract at 18 later inspired him to co-found the company so that artists could sell their catalogs directly to fans instead of giving them away for virtually free to record labels.<\/p>\n

\u201cWe want to emotionally and financially connect the consumers of music with the creators of music,\u201d he states. \u201cIf you actually own something, then you are probably willing to pay more, and you\u2019re probably willing to support that creator more.\u201d<\/p>\n

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With a traditional recording contract, the label acts as a bank, giving artists cash advances and fronting the money to record their albums. But there\u2019s a massive catch: The label wants that money back, and the artist is technically in debt until the label recoups its investment.<\/p>\n

For Bolero\u2019s Bailey, selling a part of one\u2019s music catalog directly to fans is a way to get money upfront but not be indebted to a record label. \u201cInstead of taking an advance that will be really difficult to recoup, [\u2026] maybe you can simply share or sell a little piece of it.\u201d He adds:<\/p>\n

\u201cThanks to Web3, I can access a liquid market to trade my IP without losing creative control.\u201d<\/p>\n

\"Agoria\"Agoria
Agoria divested 100% of his applicable royalties to collectors for his single \u201cAgorians.\u201d (Bolero)<\/em><\/figcaption><\/figure>\n

And when collectors decide to sell their tokens on secondary markets, artists can continue to profit from each sale. So while artists give up some of their future music industry royalties, they gain access to a different set of blockchain royalties generated from the secondary sales of their NFTs \u2014 assuming traders sell them on markets with this feature enabled.<\/p>\n

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What\u2019s in it for the fans?<\/strong><\/h2>\n

So, what do fans gain from musicians tokenizing their royalties? The most obvious answer is that they can more directly support their favorite artists and get some \u201cskin in the game.\u201d The better a song performs, the more money fans can potentially make.<\/p>\n

Purchasing music catalogs has historically been limited to a select few major institutional funds and record labels with deep pockets. But through fractionalization, \u201cthe average Joe can actually access music rights,\u201d argues Str\u00f6msten.<\/p>\n

\"Estimated\"Estimated
Estimated yearly returns for Offset and Metro Boomin\u2019s 2017 song \u201cRic Flair Drip.\u201d (Anotherblock)<\/em><\/figcaption><\/figure>\n

Music catalogs<\/a> for major artists are generally recognized as stable assets with reliable, lucrative returns for investors. Str\u00f6msten reports that Anotherblock\u2019s recent royalty payouts saw \u201capproximately 9% annualized dividend yields, which is much better than the stock market is performing, especially now.\u201d<\/p>\n

\u201cYou buy a catalog, and if the economics are right, you\u2019re going to have royalties coming in in the future,\u201d adds Infanity\u2019s Lowenbraun. She also points to the collectible nature of the NFTs themselves \u2014 fans have a blockchain-based memento proving they are long-time supporters of an artist.<\/p>\n

\"Agoria\"Agoria
Agoria poses with noted NFT collector Gmoney. (Twitter)<\/em><\/figcaption><\/figure>\n

\u201cThink about the bragging rights you can have, right? \u2018Hey, I was an earlier supporter. I was into this in this person before anybody, before he blew up.\u2019 But you can really prove that now.\u201d<\/p>\n

This aspect has also been embraced by platforms such as Sound, which recently raised $20 million in a Series A funding round that included the participation of rapper and crypto connoisseur Snoop Dogg. Projects like Sound and Infanity let artists mint limited-edition music NFTs tied to new music releases, allowing fans to directly support them in exchange for perks like exclusive meet-and-greets and VIP concert tickets.<\/p>\n

Bolero\u2019s Song Shares include a clause where artists can buy back the IP they divested to collectors at the current secondary market price. If the tokens have increased in value, fans make a profit. <\/p>\n

For Bailey, this ensures fans are properly compensated in the event an artist gains greater success and wants to pursue other lucrative deals.<\/p>\n

\u201cThe fans and the investors who are actually acquiring these pieces of catalogs, they are not lost in the process.\u201d<\/p>\n

Blockchain, meet the real world<\/strong><\/h2>\n

For all of the promises of Web3, the traditional music industry remains very much off-chain. As Royal\u2019s Blau puts it, \u201cIt\u2019s impossible to expect the world to just flip a switch and move everything on the blockchain.\u201d This effectively means that there is only partial decentralization, with these platforms acting as trusted intermediaries, collecting revenue from centralized off-chain sources before moving it on-chain.\u00a0<\/p>\n

This irony isn\u2019t lost on Str\u00f6msten, who tells Magazine: \u201cI would say that is probably the biggest challenge. If you want to have a decentralized music industry to begin with, then anyone who listens to music has to do that on-chain, right? So, the royalties have to start on-chain in order for it to be completely trustless and completely decentralized in that way. And it\u2019s pretty improbable, in my view, that in the short term that is going to happen.\u201d<\/p>\n

\"Rapper\"Rapper
Rapper Mims tokenized part of his royalties for his 2006 No. 1 single \u201cThis Is Why I\u2019m Hot.\u201d (Anotherblock)<\/em><\/figcaption><\/figure>\n

Then there is the regulatory and legal ambiguity around crypto and NFTs, especially in the United States, which is the largest market for recorded music and home to the \u201cBig Three\u201d major record labels \u2014 Universal Music Group, Sony Music Entertainment and Warner Music Group. (UMG is legally headquartered in the Netherlands but maintains its operational headquarters in California). For example, the question of whether NFTs can be considered securities in the U.S. is still up in the air.<\/p>\n

\u201cThe law, in general, always lags behind new technology because new technology just moves a lot quicker,\u201d attorney Lowenbraun states. \u201cOver time, the courts will slowly get used to this new technology and come up with ways of crafting the law, or rather to use existing principles to figure out what the heck things mean in Web3. I have full confidence in that.\u201d<\/p>\n

She adds that while linking royalties to NFTs is an exciting idea, builders must tread carefully. \u201cFor anybody working in it now, it just means you\u2019ve got to make some logical best guesstimates based on where existing law is now on where it should be going.\u201d<\/p>\n

\u201cIt\u2019s still a little iffy depending on how you offer what you\u2019re offering.\u201d<\/p>\n

The future is on-chain \u2014 potentially<\/strong><\/h2>\n
\"\"\"\"<\/figure>\n

The Promised Land may still be some way \u2014 with no easy path to get there. It would require music rights to be stored on-chain and royalties to be paid on-chain, both of which are technologically possible but don\u2019t seem to be an immediate priority of anyone in the traditional industry.\u00a0<\/p>\n

Many traditional music industry players have little interest in shaking up the current model, as its complex and confusing nature ultimately benefits them and their ability to make money at the expense of artists. As Bailey says, \u201cThey are making their bread and butter because it is complicated, you know?\u201d<\/p>\n

\"Outkast\"Outkast
Outkast rapper Big Boi fractionalized part of his 2017 song \u201cKill Jill.\u201d (Royal)<\/em><\/figcaption><\/figure>\n

But true believers still think we\u2019ll make it. Ljungberg believes that \u201cin a couple of years, it\u2019s not unlikely, in my view at least, that Spotify will pay out royalties directly on-chain and get distributed automatically to all the parties that are involved since that\u2019s a lot more efficient way of doing it.\u201d\u00a0<\/p>\n

According to Blau, it\u2019s just a matter of patience:<\/p>\n

\u201cPeople don\u2019t understand it yet. Any nascent technology just takes time to reduce friction.\u201d<\/p>\n

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Jonathan DeYoung<\/h2>\n

Jonathan DeYoung is the senior copy editor at Cointelegraph. He is interested in how decentralized technologies can strengthen communities, and the ways blockchain can empower independent artists and creators. In his free time, Jonathan raps and produces under the name \u201cMADic.\u201d<\/p>\n