Abstract: Unlike image-based NFTs, music NFTs are highly fluid, and images are only a static process. However, Atara, the Hofu Research Institute of Hufu Exchange, said that music needs to go through many complex levels from creation to landing, involving musicians. , record companies, streaming media and other layers of efforts and creations. This also leads to the reason why in the traditional music market, the income that the musicians who actually create the music can get is far less than the big profit brought by the music.
The combination of music and NFT is more like changing the production method of artists, or more like amplifying the status of artists and fans in the traditional music market, removing the role of record companies and streaming media. NFTs provide more opportunities for artists and unlock more channels of revenue and opportunity, including bringing fans into them.
Before mentioning the combination of NFT and music, let’s talk about the current size of the music market and musicians.
Before the advent of streaming media, the record companies almost occupied the voice of the entire music industry, and the record companies could decide how high the ceiling for each musician, while also monopolizing most of the music revenue. After the emergence of streaming media platforms such as QQ Music, NetEase Cloud, and Spotify, streaming media platforms provide listeners with full-antenna online music playback. It has given many new generation artists the opportunity to publish their own works. According to the annual report released by the International Phonographic Industry Association (IPFI) in 2021, the total revenue of the global recorded music market in 2020 is 21.6 billion US dollars.
Data source: “International Music Market Report: 2021”
In terms of the sources of music revenue, revenue from online music accounts for 62% of the total global music revenue, and this part of the revenue has increased by as much as 19.9% year-on-year, while other sources include physical sales (physical records, etc.), downloads and other digital revenue, Performance and related copyright, music licensing income.
In terms of the growth of musicians, Spotify founder and CEO Daniel Ek pointed out in the opening ceremony of the “Stream On” event that three years ago (2018), Spotify had 3 million musicians on its platform; The numbers climbed to 5 million; by the end of 2020, there were already 8 million musicians, according to Ek. Daniel Ek predicts that by 2025, there will be 50 million musicians on the platform.
If the amount of music uploaded to Spotify grows in line with the rate of creators on the platform, Spotify will add about 137 million new songs a year by 2025. But according to United Nations estimates, the average human lifespan, including sleep, is about 38 million minutes.
Through this simple calculation, it can be seen that the vast majority of songs cannot be heard in the lifetime of contemporaries, which also reflects the current state of the industry where supply far exceeds demand in the current music market. And that doesn’t seem to be good news for more and more artists who are making music careers.
In addition, Atara, the Hoo Research Institute of Hoo Exchange, said that even though the number of musicians is growing, their music income is not ideal, and only a very small number of musicians can make a living from music. According to a Loud & Clear report, as of 2021, only 203,300 creators are making over $1,000 through Spotify.
Based on the above data, the Atara analysis of Hufu Research Institute draws the following conclusions:
Music is a $20 billion+ market
The core business model of this industry is copyright. At present, the overall income of musicians is not high, and the income of musicians is limited by platforms and traffic.
Before mentioning this concept, we must first distinguish the difference between music and the music industry. Music as a spiritual sustenance exists in human civilization. When music is transformed into an industry, it has commodity attributes, but no matter what form, industry and expression method, the core of music is a way for individuals to empathize with the world. . There are many spiritual consumer goods, books, movies, images, paintings, etc., but music has a stronger repetitive attribute and audience stickiness. No matter how many people looking for something new, they will have their own unique playlists and repeat songs. Once people find their favorite songs and singers, the stickiness is unsurpassed by other spiritual consumer goods. That’s why there are so many phenomenal fans.
Atara of Hofu Research Institute believes that the advantages of the creator economy in the web3 field will be greatly revealed, because individuals who use social media as their creation platform with their own social media attributes will become an incision to bring the crypto field to the mainstream field. For the crypto world to move forward and have more opportunities for creation, it needs more and more emotional content. These creations have nothing to do with price.
Music may be more suitable than gamefi as a bridge between Web2 and Web3, like the problem of music cohesion mentioned above, fans attracted by a style and singer. At the same time, the Web3 music platform innovates the economic model, reshapes the production relationship, and solves the dilemma of the traditional music industry; the new music platform should have a unique market positioning and precise target customer groups.
Problems the Web3 Music Project is Trying to Solve
However, just like the growth data of musicians mentioned above, due to the reduction of production costs of digital music, the increase of musicians will make a lot of works continue to become zombie works. This may not be changed in web3 music. On the contrary, there will be more brutal competition.
Web3 music + NFT path
There are many new production methods for Web3 music, among which the status of third parties such as record companies and streaming media platforms is greatly reduced, and value is transferred to musicians and fans, resulting in more decentralization and transparency in value distribution; The way in which works are uploaded on the chain can change the situation that singers’ works can be freely put on and off on traditional platforms; the most important thing is that music consumers transition to the community in the form of various DAOs. DAOs give consumers great rights to participate and share creators’ works. .
Combined with NFT, due to the properties of NFT, it can be combined, programmable, and tradable to bring more different music service models and transaction scenarios to the music market.
Ownership of Track/Album/EP
The biggest change in Web3 music is the ownership of works. In the past, listening to music and buying digital albums were only for enjoying the right to use. In Web3 music, there is more emphasis on ownership, and all works are 1/1. For example, on music NFT display and sales platforms such as Catalog, Sound.xyz, Nina, etc., musicians can make their own music works into NFT through the platform, and sell them to single or multiple music collectors through auction or directly. Musicians can also set transfer royalties for NFTs, and each time NFTs are resold, they can get a certain percentage of the resale amount.
The picture shows the details of the music NFT on the Catalog, including the price, the owner of the work, and the transfer royalties.
Royal allows fans to purchase tokenized royalties, tying ownership of musical compositions to royalties, and fans can also trade royalties tokens off the platform and hold the tokens for exclusive benefits. Fans can also enjoy a share of the artist’s revenue when they buy royalties.
The picture shows the interface of Royal’s royalty transaction
In addition to the value of music NFT itself, it will also gain the scalability of usage scenarios, such as concert tickets corresponding to the corresponding NFT (Live Nation launched the Live Stubs project), for example, musicians will release music NFT, which can support the secondary sound source. Alter and synthesize new music or generate visual NFTs, Soundmint is doing just that.
A new form of fans under DAO
Fans in the traditional music industry have a strong capital background. In the web3 field, the form of DAO brings together a group of people to raise and deploy capital to music NFTs. There will be more casual investors coming in as angels and choosing to take on early stage risk. Fans and collectors themselves can choose which artists to make “successful” through direct investment, giving fans a great power to truly generate power for love. Currently, the type of investment DAO is SyndicateDAO. Music collector DAOs will eventually take on the functions of record labels and capital firms by somehow, since investing in NFTs is usually an investment in creators.
Existing investment DAOs in the music space include:
NoiseDAO and Morii Music are investment DAOs focused on supporting Web3 native artists and music NFTs.
MODA DAO and CreateDAO are industry oriented DAOs looking to improve music data/tools.
Holly+ and The Song That Owns Itself are DAOs around co-ownership or co-management of artist IP.
Risks and Prerequisites of Music NFTs
Although the combination of music and NFT can change the existing music market, as well as create a new music market. However, there are still many difficulties in the combination of music and Web3. It is impossible to say that music NFT can completely change the income of musicians.
The specific difficulties are as follows:
1. At present, it is unlikely that artists can make profits only by selling works through NFTs. At present, the number of users in the field of music NFTs is far less than that of image NFTs.
2. Music as a kind of creator economy, as Li Jin mentioned, the creator mode starts to tend towards fewer fans who pay more. For artists, this means having a small and genuine fan base that can generate larger revenue. For those new artists who want to transfer to the music NFT platform, it may be difficult to achieve high economic benefits in the early stage. Its music discovery still needs to rely on traditional mainstream channels.
3. According to the report of the International Phonographic Industry Association (IPFI), among the music revenue in 2020, the music payment from online listening increased by 19.9% year-on-year, while the revenue from paid downloads fell by 15.7% year-on-year. The performance revenue affected by the epidemic is still large. The migration of users’ music consumption habits from the “owning mode” of downloading to the device to the “accessing mode” mainly promoted by the music platform is the general trend.
Unless you’re a very passionate artist, it’s hard to pull users from the traditional Web2 realm into Web3. In the Web2 field, the music consumption habits of most users are still in the state of listening to songs online and listening to songs for free. The payment model is still relatively difficult, let alone the form of music NFTs.
The above picture shows the report of the International Phonographic Industry Association (IPFI). Among the music revenue in 2020, the music paid for online listening increased by 19.9% year-on-year, while the revenue of paid downloads fell by 15.7% year-on-year. The music consumption habits of users seem to be indifferent to the ownership of the works.
But it’s also a new opportunity.
Music NFTs are not only a matter of ownership for holders, but more value should be reflected in the redistribution of rights that NFTs can bring to holders and the value of music.
In a sense, the new organizational form of DAO coincides with the concept of fan groups generating electricity for love. In the traditional music market, the forms and benefits of fans generating love for love are rarely directly conveyed to musicians. Participating in DAOs that like musicians will give fans a stronger sense of satisfaction. Fans can participate in the career contributions of their favorite musicians through DAO’s governance mechanism and authority. Such attractiveness is unimaginable.
The difference from Gamefi and Defi is that when users flood into these two fields, they are generally attracted by high-yield returns. When the high-yield of the project is no longer available, users will easily leave to seek the next one. project.
This is very different from the loyalty and cohesion of fans to their favorite musicians, which often only increases, and most Gen Z fans will make idols their goals, or choose to accompany their growth.
In addition, web3 music will reshape the issue of value distribution of works. Purchased songs are no longer in favorites or eating ashes at home, and NFT owners can also enjoy the benefits of royalty distribution.
Written by: Hoo Research
All articles of Hoo Research of Hoo Research Institute do not constitute investment recommendations. Investment is risky, and personal risk tolerance must be considered. It is recommended to conduct in-depth research on the project and make your own investment decisions carefully.
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