How NFTs revolutionize the music industry

Artists and fans both benefit from the innovative approaches of NFT technology.

NFTs in the music industry

From the first records to streaming services, technological advancements have always had a major impact on the way music has been produced, stored, distributed and consumed. Since last year, music NFTs have been revolutionizing these possibilities and have the potential to reform the entire music industry.

Why do NFTs matter in the music industry?

The fact that NFTs are finding their way into the music industry changes the possibilities of monetization for artists enormously. Through label contracts, streaming service providers, and the general always-access principle to songs, artists naturally benefit greatly from limitless access to their songs and, accordingly, fame and reach. But in parallel, revenues are shrinking drastically. In the streaming age, new releases and purchases no longer account for the lion's share of revenues. According to a study from Great Britain, it is assumed that only a minimal proportion of less than one percent of all musicians would be able to earn a living from streaming alone. Moreover, considering that a large proportion are under contract to record labels, this study suggests that more than one million streams per month would be required to make a living.

On the surface, music NFTs may seem like a blockchain-based alternative to buying tracks on iTunes. However, a key difference is that ownership of the music track goes back to the artist, allowing it to be released without record labels. So by buying via NFT, you are directly supporting the artist and not distributors or third parties. At the same time, this means that usage rights can be more flexible for the consumer. But what are the crucial points that encourage people to buy music when they can already listen to the tracks for free? In the following sections, we will look at the added values on both the artist and the consumer side.

What are music NFTs and how do they work?

Albums, songs, or even just snippets of a song can be secured as NFTs using blockchain technology, making them a digital asset. Music NFTs are revolutionizing the way music can be bought, actually owned, sold, and profited from.

Why are NFTs relevant to consumers?

For a simple understanding, the example of the traditional art market is suitable. If you are impressed by a painting at an exhibition, you have the option to buy the original and thus make it your property. Depending on how the reputation and, accordingly, the demand for the artist's work develops, the value may increase. The painting is then no longer just a decorative work of art, but can also become a valuable asset. This model of monetization has always existed in the artist market, and it is transferring to the digital realm through NFTs. Music NFTs are now opening the doors to this model as well. Fans have the opportunity to support their favorite artists in a direct way and earn unique value in return. This is completely changing the way fans experience their favorite artists.

How are NFTs changing the music industry?

In addition to the revenue distribution issues discussed at the beginning, NFTs open up entirely new opportunities for experience generation to connect with fans. One way for musicians to increase the purchase incentive of music NFTs is to offer owners special perks and access to an exclusive fan base.

Creating a new revenue stream

As mentioned earlier, the current revenue distribution model often works in favor of distributors and record labels and against artists. With the help of NFTs and the underlying smart contract, not only can musicians create a new revenue stream that they manage themselves, but also the owners of the NFTs, can resell the music and share in the profits. On the one hand, artists can distribute the usage rights of their songs as NFTs and receive both 100% of the sales price and a fixed percentage of subsequent sales on the secondary market. At the same time, thanks to initial support for the artist, the owners of the NFTs can hope for appreciation or rewards over time. These could take the form of perks to live performances, digital merchandise, or even part of streaming revenue. DJ 3LAU, for example, took in nearly 16 million euros from the sale of his NFTs. The DJ thanks the "fan investors" of specific NFTs with the regular distribution of half of the streaming revenues generated by means of the NFT-backed song or album. In this way, the DJ not only succeeds in offering fans an unprecedented form of experience, but at the same time binds them to him in the long term because of these loyalty techniques.

Royalty with Music-NFTs

Bridging middlemen and earning a royalty

Music NFTs seek to make the distribution of streaming revenue, royalties, and other intellectual property rights more equitable by cutting out middlemen, such as labels and distributors, who cannibalize most of this revenue in the current model. Artists can sell their work directly to fans and receive compensation each time one of their works is sold on the secondary market. This compensation can be customized and can also be used as a revenue stream or incentivization tool accordingly.

Token-Gated Access to Exclusive Content

Token gating is an innovative way to give a specific group of fans access to exclusive content such as fan merchandise, concert tickets, discounts or other incentives. This is because access to these incentives requires possession of the specific NFT. In essence, the NFT acts as an access key that is verified using a smart contract. This mechanism for monetizing and scarifying content or access brings various benefits to musicians and fans, as not only are incentives created with a group affiliation, but also exclusive content such as discounted tickets, extravagant concert experiences, limited merchandise, or even services provided by the artist can be made available.

What are the opportunities for artists?

Today, music owners control virtually all music distribution channels. Not only streaming, but also collaborations and outreach are often in the hands of the labels, which can be seen as the string pullers. As already mentioned, NFTs not only shape distribution in favor of musicians, but also open up new opportunities for them to interact with their fans. For example, the rock band Kings of Leon is using their recently released album as an NFT tool to give their biggest fans unforgettable experiences, such as limo service to the concert and front row seats.

Golden Ticket NFT by Kings of Leon

But even artists who do not yet benefit from a high profile could use NFTs to raise funds. For example, with just 100 fans who buy the NFT for €100 each, €10,000 can be collected. These can in turn be invested in features, equipment or similar, which support the artist on the way to the top. Should the artist become successful one day, the early supporters will enjoy a huge increase in the value of the NFTs, exclusive gifts or similar loyalty programs.

Opportunities are still in the early stages

The music industry is one of the most profitable cultural industries, thanks in part to its ability to adapt quickly to trends and technological changes. Yet it is highly monopolized by a very small group of players. This leads to an unequal distribution of revenues, as artists usually keep only a small percentage of the income they generate. NFT technology, and in particular the use of smart contracts, has the potential to revolutionize the industry. NFTs have already proven that they can become a powerful tool for artists. Music NFTs are also a powerful tool for independent artist fundraising, new revenue streams, and fan engagement.  

As you can see, this is about much more than just an NFT investment. For some, it's the ideal way to bet on the future of an emerging artist; for others, it's a way to support their favorite artists. Apart from these aspects, the exclusive benefits that NFT owners enjoy are a way to build a closer bond and therefore an interesting opportunity.

A customized strategy is essential

Musicians who have released projects just for the sake of NFTs have already failed many times. Chris Brown, for example, recently failed with his "Breezyverse NFTs", a disastrous entry into the world of Web3. The American musician's NFT drop is emblematic of the classic situation in which a celebrity tries to profit from his audience by promoting an NFT in order to make a quick buck. Merely saying "The auction starts tomorrow!" on a poorly designed website with hardly any information is no longer enough, even for superstars, to successfully launch an NFT project. For this reason, we always recommend defining the goals of the project in a joint discussion and setting up options and strategies accordingly to avoid such a disaster. Our Discovery Workshop offers the perfect starting point to jointly develop a well thought-out NFT strategy and subsequently launch a sustainable project.