Eleven Wild Guesses on How Blockchain and NFTs Will Actually Impact Musicians and Songs

I only know enough to be dangerous, but I never let that stop me from offering an opinion

Let me start with a quote from a recent report:

"It still does not make 100% sense to digitally sell music as an NFT because [as] an mp3 it's not unique in a way or another. The NFT phenomenon has been remarkable for (almost) every art type except for music...."

Is this true? Will it always be true? Can musicians blissfully sleep through the NFT revolution?

I’m not so sure.

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In this spirit of full disclosure, I must say that I have zero insider knowledge of the NFT business or blockchain technologies. I am not an expert in these fields, by any measure.

However. . . .

I did spend many hours of my lost, wasted youth forecasting the evolution of emerging technologies in Silicon Valley for paying clients, as well as constructing schemes for the pricing, distribution, and stakeholder incentivization of new products and services. (To be sure, that’s a distinctly un-cool way of spending lost, wasted hours of youth—not with a bong, but an HP 15-C calculator in hand. But the truth is the truth, and those are the nerdy facts.)

And I do know a bit about music, not just as a critic and writer, but also with experience running a startup record label and advising various music tech startups over the years. I’ve also made pitches to VCs, raised money on Wall Street, guzzled expensive booze with investment bankers on private jets, etc. The whole kit, including the kaboodle.

In other words, I know enough to be dangerous.

So even as I invite blockchain insiders with better information to share their insights in the comments, I will go out on a limb and offer you. . .

Eleven Wild Guesses on How Blockchain and NFTs Will Actually Impact Musicians and Songs

These get increasingly strange the farther you go down the list.

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“I can even imagine record stores of the future looking like the floor of the New York Stock Exchange, with video screens displaying bid and ask prices for thousands of recording tokens.”

ONE:

A blockchain can obviously guarantee that any specific music file is linked back to an original—so it can be used as validation of authenticity. But how useful is that, really?

After all, a blockchain can’t stop music from getting disseminated ‘off the chain’. Just recall that any track played back on one medium can be recaptured on another medium. That’s always been the case and always will be the case. This could be as simple as the old teenage standby of taping hit songs off the radio or fanatical Deadheads making amateur bootleg recordings.

So grand pronouncements about new technology halting piracy are misguided. Piracy will always be with us—especially if blockchain authenticated files are expensive.

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TWO:

On the other hand, a blockchain could make it much easier for law-abiding folks (like you and me) to identify the rights holders for any given recording, and take out a license for using it, for example in a movie or advertisement or educational video. That’s a legitimate solution to a genuine problem—but not especially transformative to the industry or exciting to your average fan. After all, how many of you need to license a song?

Even so, this would be a step forward.

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THREE:

The notion of designating one music file as an original—and thus selling it at a high price—has more appeal. A music file now gains special status, much like an original Picasso, and thus comes with a hefty price tag.

However, this fundamentally changes the musician’s relationship with the audience, and not for the better. Instead of working to please their loyal fans, musicians now devote more energy to courting and sparking an elite group of wealthy collectors—who are inevitably purchasing the ‘original’ song as a kind of status symbol.  Do we really want to build our bold new music ecosystem on the whims of people like Martin Shkreli?

These kinds of transactions will take place—in fact it’s already happening. But I believe that this Shkrelitized approach represents only a tiny portion of the emerging NFT opportunity, and misses the potential of more transformative business models (see below).

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FOUR:

I am far more excited about the populist uses of blockchain to strengthen the relationship between musicians and a large audience. Tokenization of albums and songs are an effective way of doing this. Perhaps even momentous in their impact.

Consider the release of a new album with all cash flows from the music going to token-holders, with transactions verified by a blockchain. Let me assume a scenario where the musician retains 50% of the tokens and the rest are sold to fans at a reasonable price ($25?). The initial buyers of these tokens might also receive a copy of the record too—perhaps in the form of a vinyl album or, at a minimum, a digital download—and other perks. Some perks might be transferable, others only going to participants in the initial offering.

Fans could potentially sell these tokenized future cash flows to other fans. If the recording is very successful this might even be a profitable investment. Hey, dude, I made a profit by reselling my Daft Punk token, and even got to keep the crappy album.

I can even imagine record stores of the future looking like the floor of the New York Stock Exchange, with video screens displaying bid and ask prices for thousands of recording tokens.

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FIVE:

Another potential advantage of this approach is greater transparency and honesty in the payment of royalties. That might seem like a small thing to many of you, but ask a few experienced musicians how much they trust the royalty accounting at record labels. A very famous jazz musician, with million-selling albums in his discography, once told me he had never received any payment from any record label in his entire career except for the initial advance when he signed a contract. The promise of future royalties was a joke, in his opinion, no matter how many records he sold. Blockchain technology could change that overnight.

For example, with a blockchain you could imagine all revenues from the sale of a recording going into an escrowed financial account that the record label (or band manager, for that matter) can’t even touch. The money gets distributed to musicians and other token-holders according to, let’s say, an Ethereum-regulated system of disbursements. The algorithm runs the whole process from start to finish.

This might not ensure total honesty, but stealing from artists has now become far more difficult.

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SIX:

Blockchain and NFT technology could also turn music into a kind of Amway pyramid marketing scheme. Under this scenario, tokens are sold that convey resale rights—so each buyer gets rewarded for finding additional buyers lower down on the pyramid. This kind of turbocharged NFT thus empowers and incentivizes the fan to become a distributor.

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SEVEN:

You can imagine many variations on this theme, some of them quite strange. Tokens could empower each owner to sell either an infinite or a limited number of copies—or the number could vary based on some other factor (e.g., total sales, thus creating enhanced token value for hit records). And some resale rights might get passed on to those further down the pyramid. I get to sell a thousand Adele subtokens, and if you buy one, you can sell a hundred sub-sub-tokens, etc. Or you could imagine someone buying a super token that allows the resale of a recording on a specific platform. Hey, guess what, I now owns the rights to this new K-Pop song, but only for playback inside Fortnite. Or perhaps: I can sell this new Archie’s song at a 20% discount to any student at Riverdale High School—but we need to input your student ID number and PIN.

The mind reels at the options and variations. The music business could even evolve into a type of franchising situation. And you can easily imagine a carefully constructed pyramid that maximizes cash flow because of the incentives accruing to each participant.

Musicians, just consider the impact if everyone of your fans stood to gain financially when your next album becomes a hit? That’s a whole lot better than selling T-shirts at the gig.

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EIGHT:

Needless to say, this does create the potential for all sorts of unethical practices and conflicts of interest. Imagine if the radio deejay is a token holder? Or the playlist curator on the streaming service? Or the DJ at the college frat party? It’s like payola on steroids.

But that isn’t entirely bad. The idea of fans getting rewarded if their favorite musician becomes successful is exciting. And I also can imagine fans maintaining loyalty to an artist over the course of many years—simply because there’s an investment angle to the relationship. I’ve been holding these Hootie and the Blowfish tokens for years, and some day they’re gonna pay off.

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NINE:

I wish I could skip over the necrophiliac aspect here, but it’s a truth universally acknowledged that fans holding cash flow tokens will be rewarded when revenues spike after the artist’s death. And if that doesn’t create lifelong fans, what will?

To be more precise: a statistical study of 446 albums by 77 deceased artists determined that a musician’s recording revenues increase by an average of 54% in the aftermath of the artist’s death.

That’s not chump change—and it creates a tremendous incentive for fans/investors to purchase the tokens of aging artists.

This could even become a retirement plan for musicians. As they get older, their tokens rise in value—with investors awaiting the ultimate death pay-off. An old musician might even be able to issue more tokens—just like a company issues more shares—to fund the cost of medical care and other late-in-life expenses.

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TEN:

The major record labels ought to be setting up these token-based systems and marketplaces right now. They could create a hundred new kinds of cash flow to enrich their businesses and help musicians. But, I assure you with utmost confidence, record labels will do little or nothing to seize these opportunities, instead watching from the sidelines as tech startups implement every last one of them, and thus make the traditional record label increasingly irrelevant.

However, given the extraordinary reliance on lawyers at the major labels, I can safely predict that old school music companies will file many lawsuits in a neo-luddite attempt to halt the advance of technology. And these will be about as successful as their efforts, twenty years ago, to prevent Internet distribution of music.

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ELEVEN:

In other words, the current media fascination with NFTs as trophy purchases for the wealthy misses most of the opportunities out there. If all we get from the blockchain is a status-driven niche market for a few thousand collectors with deep pockets, we will have wasted most of the potential of these innovations. The only transformative applications of these technologies will involve millions of music fans, who discover (to their delight) that the blockchain has enhanced their connections to artists and even allows them to share in a song’s success.