How Tech is prepared to shake up the music industry.
Analyzing business models & consumer behaviour concerning music NFTs, Kanye's stem player, and Bandcamp.
For the joy an artist's music brings to its fans, it seems like a shame that making music isn't lucrative enough for most artists to focus solely on that.
It seems common knowledge that artists today get so little income from music because intermediaries such as streaming platforms & record labels tend to take substantial cuts. From an artist's perspective, sacrificing some financial benefit upfront for a discovery funnel and access to a global market may seem worthwhile because it may lead to high future benefits.
But, it begs the question:
Is there a better way to compensate artists while they produce their best work & provide consumers with a product they enjoy?
Further:
Is there a more prominent role that fans can play in that situation?
Music NFTs & Music NFT Platforms
Despite seeing a few cool projects, I have yet to purchase an NFT. Nonetheless, I'm still interested in learning more about the technology and following new developments within the space.
I have recently discovered a growing niche within the NFT space: music NFTs & platforms specializing in these NFTs.
One such platform is Royal.io. The Royal platform allows fans to invest in artists & share in their success by enabling you to purchase shares of stream royalties in artists' songs.
In the past, the platform has helped Nas launch two NFTs, which is pretty validating.
Artists can also offer special perks, such as fan experiences, for owning their NFTs. For example, on the Diamond tier of Nas' NFT, you receive 2 VIP concert tickets (Royal Markets Inc., 2022).
By the way, if you’re looking for a good introduction to NFTs and the business case for profile picture NFT projects, check out Episode 2 of the DubsCast podcast, where I interview an NFT project co-founder.
Why NFTs work for the music industry
Despite the hype, I don't think the platform offers crypto-native functionality.
In an interview, 3LAU, one of the co-founders of the Royal platform, emphasizes that a good framework for evaluating NFTs is that the behaviour already exists and can be replicated in the digital world (Ramaswamy, 2022).
He also highlights that in the music industry, the copyright of a song is what's scarce, not the audio itself, which any user can stream on a streaming platform, such as Spotify or Apple Music.
It's possible to purchase artists' catalogues, but it's pretty inaccessible for the average investor to participate in that market.
By representing the shares of the copyright of a song as NFTs, we can establish a clear contract structure using smart contract technology. We can also take advantage of the global secondary market to assist with reselling those shares and transferring ownership seamlessly, as the smart contract includes all asset details.
Why I'm Interested
I believe the value proposition with music NFTs is straightforward to understand. As an investor, you're purchasing an asset with a potential cash flow. Additionally, as a fan, you receive exclusive perks from an artist whose music you enjoy.
Given the percentage of royalties for each NFT and the number of NFTs you're looking to purchase, you will also need to develop a projection to determine if there are still enough streams remaining in the "life" of the song to warrant buying the NFT. But I'll leave that to you.
Understanding the music NFT business model
Thinking about this business model from an artist's perspective, I can see how releasing NFTs for a song is analogous to a cash advance from a label for the expected success & revenue for a song.
I think that's where the "investing in the artist" aspect comes in.
The artist is selling you future cash flows from the royalties of the songs streams for cash right now. As an investor, you're betting that those future cash flows, as well as the perceived value of the exclusive fan perks, are worth more than the mint price of the NFT. I also assume that an artist considered this tradeoff when determining the mint price and the percent royalties of each NFT they release.
Initial thoughts on investing in music NFTs
Let's get back down to earth here. You may make money if an artist is willing to give away a large percentage of their royalties. And you can acquire a good amount of units before a song explodes in popularity from TikTok, for example. But, how likely is that outcome?
Running some quick numbers on the Nas Rare NFT, with a 0.0113% royalty share on the Gold tier, the song would have to get tens of millions of streams for you to break even, given how much streaming platforms such as Spotify pay (Royal Markets Inc., 2022). Again, as an investor, you'll have to do some actual number crunching to determine if that's an attractive investment.
I listen to a lot of non-pop artists. It would be sick to be able to invest in their success and be along for the ride once they blow up. However, I would be highly skeptical to believe I would receive a significant return on investment by purchasing in their NFT.
Ye's Stem Player
Earlier this year, Ye dropped Donda 2, but you won't find it on any streaming platforms because it was released exclusively on the Stem Player. This hardware device allows you to break down a song into different elements and remix them as you please (Caraan, 2022).
Despite saying that he wasn't interested in making NFTs at the moment, Ye's still effectively disrupting the music streaming industry through this hardware product.
Ultimately, I think we're primarily seeing some power shift from entities such as Apple Music & Spotify to other entities where fans can purchase songs and download their files to upload them to a device such as the Stem Player.
I believe it's also encouraging a more involved method of consumption and connections with artists, rather than having virtually unlimited songs at your fingertips with a streaming service.
Target Audience of the Stem Player
A consumer can be curious and want to remix songs to exercise creativity. Still, I think the Stem Player as a product primarily targets a slightly different audience.
For example, DJs and producers are the people that have the technical knowledge to know how to remix these songs successfully.
Or, if you're a Ye super fan and want to dissect each song.
I can envision how sick this product would be for that audience, but for those consumers that want to hear what Ye's released in the intended form or want a new banger to add to their party playlist, I don't think the Stem Player will be a hit.
But they still might buy it to be able to get the officially released version of the album, which I think is a great business move from Ye.
I remember Ye posted on Instagram that he had made approx. $2.2 million in revenue on the Stem Player before the album dropped. He also highlighted that the album would have to receive over 500 million streams to achieve similar income from streaming platforms (Caraan, 2022).
That phenomenon emphasizes a popular business strategy: if you can connect directly with your super fans, rather than catering to a broad audience, it can be more profitable.
And music fans are a notoriously highly engaged audience.
Other Alternatives to Current Streaming Platform Models
Speaking of connecting directly with your super fans, quite a few existing platforms & business models further establish that strategy.
Bandcamp
One alternative music distribution channel is Bandcamp, recently acquired by Epic Games (Diamond, 2022).
Despite being built using older technology and lacking marketing, the Bandcamp platform served those in the know well. Rather than relying on a streaming platform's algorithm or marketing features to get you streams, it provides a simple, transactional platform for you to purchase music & support artists trying to make a living off of their craft.
Share of all streams vs. User-centric model
Though streaming services offer the benefit of music discovery, is the best compensation model for artists to allocate funds from a pool based on overall stream share?
The share of all streams model is a standard compensation model for streaming platforms such as Spotify. However, I believe it neutralizes the individual relationship between the consumer and any particular artist. Despite only listening to a curated subset of artists, a more famous artist may be compensated with your subscription fee (Spotify, 2022).
The user-centric model proposes proportionally allocating your fee to the artists you listen to primarily.
Some claim that it's harder math & provides less consistent payments for artists, but perhaps that problem space is a fitting use case for crypto.
In Conclusion:
Will it ever be possible to succeed in the music industry without some middle man or business entity acting as a middleman?
Perhaps music NFTs, considering the global, secondary marketplace and infrastructure for transactions & smart contract functionality of the blockchain, could be an asset to that tradeoff.
We already see increased adoption throughout the industry, with Snoop Dogg acquiring Death Row records and trying to turn the infamous record label into an NFT (Denis, 2022).
Regardless, talking about investing in an artist's economic potential and return on investment is cool. But, what about supporting artists to make the type of content they want? Isn't that a core purpose for all this?
Some food for thought.
What do you think about the future of music NFTs? Would you consider purchasing an NFT from one of your favourite artists? Leave a comment below with your thoughts.
References
Caraan, S. (2022, February 21). Kanye West Claims Stem Player's One-Day $2.2 Million USD Revenue Made More Money Than If "DONDA 2" Was on Streaming Services. Retrieved from https://hypebeast.com/2022/2/kanye-west-claims-stem-player-made-2-million-usd-first-day-donda-2
Denis, M. (2022, April 3). Snoop Dogg Is on Blockchain and Death Row Is an NFT. Retrieved from https://www.themanual.com/culture/snoop-dogg-death-row-nft/
Diamond, E. (2022, March 2). Bandcamp is Joining Epic Games. Retrieved from https://blog.bandcamp.com/2022/03/02/bandcamp-is-joining-epic/
Ramaswamy, A. (2022, April 23). DJ and crypto startup founder 3LAU explains the value behind music NFTs. Retrieved from https://techcrunch.com/2022/04/23/dj-and-crypto-startup-founder-3lau-explains-the-value-behind-music-nfts/
Royal Markets Inc. (2022, January 20). Own a piece of Rare by Nas | Royal. Retrieved from https://royal.io/editions/nas-rare
Spotify. (2022, April 28). Loud & Clear by Spotify. Retrieved from https://loudandclear.byspotify.com/?question=how-is-stream-share-calculated
