NFTs offer financial benefits unattainable in the traditional streaming-dominated music business
A group of music artists are starting to use the new, blockchain-based digital domain (sometimes referred to as web3) to do what they’ve always dreamed of — making money by making music.
They sell their songs and music as non-fungible tokens, or NFTs, for more money than the pennies they get from streaming services like Spotify. At the same time, they are providing a tangible use case for elements of web3, the term of choice for venture capitalists investing in blockchain technology.
Iman Europe is a singer-songwriter who has earned 22.2 ETH (now worth nearly $60,000) since November selling five singles and a music video as NFTs. By comparison, she only earns about $300 a month from streaming, despite getting about 4 million listens across platforms. Nearly 40% of her NFT income is obtained through secondary sales, and she gets a 10% cut from each resale.
Musicians like Europe made $83 million in primary sales last year through NFTs, according to Water & Music, an organization that studies digital music innovation.
The group found that independent artists accounted for 70% of that revenue, a trend that is attracting the attention of large investors, including 12-time Grammy winner John Legend. This month, he joined a group of entrepreneurs and venture capitalists to announce that he would be launching a platform for artists to use the technology to help them monetize their work.
The popularity of NFTs among independent artists is mainly because the money-making effect of the NFT field far exceeds that of traditional record companies. To issue an NFT, artists attach their media — like a song or video — to a verifiable digital token, which is then auctioned on online marketplaces like Nifty Gateway or OpenSea. These all operate on blockchain technology, which provides an online record of transaction history.
Buyers gain ownership of the digital asset, as well as a cultural cache of releases to a limited number of people, and in some cases to just one person. Sometimes, music is only available as an NFT; it’s a bit like having the only CD copy of your favorite artist.
Alec D’Alelio, 25, who lives in Brooklyn, purchased his first NFT song in February 2021. The song was produced by an artist named Supa Bwe, who D’Alelio said was an influential artist in the Chicago music scene.
“At that time, it was still early days for music NFTs, and very few people were doing it,” D’Alelio said. “I want to show that people will buy these things, that people care and support the artist he loves.”
D’Alelio also enjoys making music, and he has since bought a dozen NFTs of songs and albums by different artists. He estimates his total collection is worth 4.75 ETH, or about $12,000. He buys each piece for between 0.1 and 1 ether.
Christian Kaczmarczyk, head of venture capital firm Third Prime, has over 20 NFTs of songs by different artists. In his inventory, there are several names, like rapper Jon Waltz, an artist he’s been listening to since college. Other musicians, he discovered directly on the NFT platform. He estimates his collection is worth about $150,000.
Kaczmarczyk, 27, said: “I have some NFTs of artists that I plan to never sell, just because I’m a big supporter of their cause.”
The opportunity to resell at a higher price is one of the most obvious financial incentives for buyers
One study found that the top 10% of NFT traders made 85% of their trades and 97% of their assets traded at least once. Fowler, who used to work at a blockchain startup, said a key driver of increased NFT activity is that “people have cryptocurrency idle and want to do other things with it, which may be more interesting than just buying bitcoin.”
Other buying psychology
Collectors may get bragging rights for “owning” the music or art in an NFT, but not necessarily the copyright. Can NFT collectors use it for commercial purposes? For now the answer is no.
“The convergence of copyright law with NFTs is still a huge unknown, and now it’s a ‘wild west’ that even copyright lawyers can’t figure out,” said Kevin Greene, a law professor at the law school who specializes in intellectual property and entertainment law. “
Mainstream players entered the arena, starting to pay attention to headlines from Katy Perry to BTS. According to Cherie Hu, founder of Water & Music, the income gap between independent artists and big-name artists is narrowing.
Independent artists have something that big companies don’t, and licensing agreements often prevent A-list artists from listing singles or albums as NFTs. Instead, stars tend to post visual art. For example, Perry sold a collection of behind-the-scenes photos, moving art and physical concert props. Unsigned artists are able to avoid many of the legal obstacles to releasing music as an NFT.
This business model has attracted St. Paul, Minnesota-based rapper Allan Kyariga, known in the music world as Allan Kingdom. He said that after entering the NFT industry, he stopped pursuing a traditional music career.
He started posting NFTs when a fan recommended him to use NFTs to sell his music videos in November. After selling 10, his earnings totaled 15.8 ether, or $40,000 — an amount he said was twice the amount upfront on a distribution agreement for an artist of his caliber.
There is no guarantee that the success of independent artists with NFTs will continue. Last year was a big year for NFTs, with the market for these digital collectibles surpassing $17 billion as celebrities, politicians and even socialites like Paris Hilton entered the market. However, as many cryptocurrencies have fallen this year — and most NFT bubbles have burst — some are starting to wonder if the music NFT model can be sustained.
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