In part one, I took a basic look at how NFTs could change the music industry forever. But, I wanted to take a better look into the pros, cons and whether they’re here to stay, so I’m back for part two! If you haven’t seen part one yet and are wondering what an NFT even is, I’ll leave the link in the description below. Otherwise, let’s take a deeper dive...
Whether we like it or not, it seems there are going to be a lot of conversations happening around NFTs. Let’s first start with the benefits, how could NFTs positively affect the music industry?
Ticketing
According to a report on CNBC, 12% of people buying concert tickets have been scammed and right now with tickets as they are, it’s pretty easy for someone to do this. With NFT Tickets, you could clearly verify the true ownership of a ticket on the blockchain. This makes forgeries harder, and it also makes it much more difficult for bots to buy tickets in large quantities to resell at inflated prices. If tickets are resold, artists could make money from that resale and the person buying it would be able to verify and validate the authenticity of the ticket with absolute certainty. We’re a few years from this version of blockchain technology coming to fruition but when it does, it could also provide another type of memorabilia. There’s the potential for tickets to be unique in some way with a one-off image, artwork or signature attached only for people who went to that gig. So rather than a boring conventional ticket, you could get a nice piece of displayable artwork with the ticket information encrypted into it, which also could be a collectable.
Access
As I said in the last video, I hope NFTs can open up a new culture of connectivity in the music business. This could be underpinned by more direct access to the artists themselves, which could benefit both the artist and the fan. For example, NFTs could be used as a kind of loyalty card, where fans can earn the chance to win things like backstage passes or meet and greets. Perhaps by collecting five NFT tickets to different gigs, you would be able to earn access to a sixth ticket to an exclusive performance. Another option would be owning an NFT to gain access to a phone call with an artist or an exclusive discord group with other fans. Or even access to a real-world party with the artist.
A New Way To Measure Value
The concept of owning something that’s scarce has been desirable for a long time. We see this within music already, with Wu-Tang Clan selling their album as a one-off vinyl for two million dollars in 2015. And the idea of scarcity driving the digital marketplace has also been around for a while. For example, Bitcoin is a cryptocurrency that gains much of it’s value from having its supply capped at 21 million BTC.
But now, we’re seeing the idea of digital scarcity translate into other areas too and it’s already changing the way we value things. For example, think about the blue verification tick on Twitter. This is just a simple graphic, but it’s something people want because it’s rare and it carries social clout. This digital social context is something that’s becoming increasingly important, especially to younger generations but is something that we have always done. Whereas previous generations valued things like titles on your name, younger generations are valuing blue ticks. Both are badges of your social standing.
NFTs combine scarcity with a modern social context, allowing us to have the experience of owning and even displaying something unique in different ways. We have all seen people who have a room full of amazing memorabilia. You can display NFTs as art in digital picture frames in your house and have that experience but, also you can keep them on your phone and show your friends from there. Or even, if you have a strong community online, you could buy digital land and display your digital art there. As technology evolves, who knows what other opportunities might develop. It might be a concept that is really far away for some people and others will really understand it, but it’s a fun new way to share what we care about with the world.
Backing an Artist Early
This is one of my favourite benefits. Imagine going to a gig and seeing an incredible act that no one knows, who you’re convinced is going to be massive. What if you could then go and buy an NFT of their original first single? This would help give power to the artist, you’re supporting them by monetising their content at an early point in their career. But could also benefit you financially. Because these can be resold, if that artist fulfils the potential you see in them, there’s obviously a chance that the value of that original recording grows hugely. You can end up selling it for a profit if you wish and when you do, if the artist has set up the NFT this way, a portion of the resale would go back to the artist. It also means that more people are financially invested in their success and will want to promote them, bringing fans together in the process.
Power to the Artist
NFTs can put power back into the hands of artists. In 2017, the music industry revenue was a huge $43 billion in the U.S. But how much did the artists themselves get? Only 12% of that money, with most of the rest going to record labels and distribution platforms. In the last video, I talked about Mike Shinoda, a co-founder of Linkin Park, who raised $30,000, auctioning a 37-second teaser of an unreleased song. Shinoda explained, “Think of it like owning a 1 of a kind item in a game … It’s a weird thing to own, yes, but: Here’s the crazy thing. Even if I upload the full version of the contained song to distribution services worldwide (which I can still do), I would never get even close to $10k, after fees by distribution services, label, marketing, etc.”
But it’s not just an initial monetary benefit. As I’ve just mentioned, an artist can make a commission on each resale of an NFT to provide them with a consistent income stream. So, if you were a new artist who hasn't built up a fan base yet, you could release something really cheap, let’s say $1. Because of the resale commission, you would still reap the benefits as items are traded between fans and prices rise. The ability to properly monetise an artist's work over a lifetime is a potentially revolutionary concept. For artists, NFTs offer the exciting possibility of cutting out some of the industry’s middlemen, and perhaps even remaining an independent artist to be fully supported by fans.
But it’s not all perfect in the NFT world. There could also be some potential drawbacks and there is a lot still to be clarified. So let's chat through some of these potential issues…
But can I stream this for free?
This is people’s most common concern but generally speaking, yes of course! It’s like with books, anyone can buy a Harry Potter from their local charity shop for 50p, but a first edition is currently selling for over £250000 on AbeBooks. As you can see AbeBooks are even selling regular copies for £2.29. And remember in the last video I mentioned NBA Topshot? Those use basketball clips that can easily be watched on YouTube, NFTs are more about the feeling of ownership, it’s the verified original file.
Copyright
There could probably be a whole video on just the nuances of agreements with record labels and the potential copyright complications here. But it’s safe to say, record deals and copyright are really complicated and can be all-encompassing. Whilst NFTs have the potential to hand power back to artists, there are also no clear boundaries set up at the moment on who owns the intellectual property of a song if it were issued as an NFT. Should the NFT owner take royalties? Are we going to sign off the master rights as well as the master file? It’s not clear how this is all going to work. But you can be sure that record labels will want to continue to monetise their artists to the fullest extent, leading to potential legal battles that could generally slow the development of NFTs down. It remains to be seen how much power can be restored to an artist who’s already signed.
However, I also want to point out that once we do set up systems, it could simplify some of the grey areas in music copyright. Throughout the last few decades, there have been a lot of issues around sampling and remixing music. And currently, licensing music or transferring ownership is an inconvenient process for labels and lawyers, often resulting in pushed-back release dates as people work to clear each sample use or transfer of ownership manually. With NFTs, it is as quick as buying just about anything else online, and the technology allows for clear documentation of the transfer. So once we set clear boundaries in the end it could avoid a bunch of lawsuits or at least make it a bit more clear cut. Plus, the original artist could get paid each time a sample is used in a new song - but it’s going to take a long time to get there!
Will I be priced out?
Pricing is a definite concern. Anything with built-in scarcity is attractive to those who can bid the highest price, cutting off a huge percentage of the population even if they’re just as passionate about the music but have less ability to finance a big purchase. Part of the responsibility here falls with those issuing their NFTs, to make sure enough of their fan base can feel that connection to the artist and people aren’t cut off. The reality is, a lot of these unique and premium items won’t be accessible for most people, in the same way as they aren’t in the physical world now. Although I’ve talked about the potential for NFTs to provide connectivity, they could also just make social divides even greater than they already are.
Are NFTs a bubble?
Perhaps, certainly some of them will be. We’re going to see huge amounts of people try and harness the potential of NFTs. They’ll often sell for as much as someone is willing to pay, which can lead to sharp spikes up and equally large drops if demand falls away.
As the hype around individual NFT projects grows, you could see people who aren’t even fans trade in and out of music trends and perhaps even particular types of NFTs and then move onto the next big thing. This means there will inevitably be big jumps in value which can be hard to predict. Personally, I think the best way around this is to only invest in those items you’re happy to hold for the long term and have something beyond monetary value to you.
Bad for the Environment?
A large criticism of the NFT space as a whole is the huge amount of computational power that’s required to mint, transfer and store these assets. This is a problem with cryptocurrency as a whole. The most popular blockchain for NFTs at the moment is Etheruem, whose network currently consumes about the same energy as the whole of Peru! You could argue that we’ll save emissions by buying fewer physical items as a result of our digital ones, but I have to say this still really doesn’t sit well with me. Hopefully, there are ways around it. The first step is hopefully on the way later this year, with Ethereum planning to switch to Ethereum 2.0, an underlying change that will help cut the energy required by about 50%. But there is no doubt there is much more work to be done to make sure NFTs aren’t costing the environment.
So, what do we take away from all this? NFTs certainly open up possibilities that are really interesting for artists and their fan bases and I love the idea of artists being more in control of their own career. I can also see that for many it seems like a daunting prospect, with seemingly every aspect of our lives becoming digital. Whatever happens, I personally think this is something that is here to stay and I will be watching it’s development with great interest.
References
NFT Ticketing: https://nonfungible.com/blog/fixing-event-ticketing-with-nft
