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The Use Of NFTs In The Music Industry

Ashima Obhan and Shuchi Dutta
21 March 2022 4:47 AM GMT
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From the invention of the gramophone and vinyl records to today's streaming platforms, technology and the development of the music industry are inextricably linked, and with each evolution, the reach and manner of consumption and monetization of music content has changed drastically. Now, Non-Fungible Tokens ("NFTs") are posed to be the next such disruptor, with the potential to change the landscape of the industry as we know it. An NFT is a digital token that represents the ownership of interest in an underlying asset, which is recorded on a blockchain. Since the blockchain is a universally accessible public ledger, the authenticity of an NFT can be easily determined since the provenance of each digital asset is transparent and freely available to verify. Common use cases of NFTs have been pieces of digital art, gaming, decentralized finance and, increasingly, music/audio-visual content.

Several artists, from Mike Shinoda to Grimes to Kings of Leon, have already harnessed the potential power of NFTs to monetize and publicize their new projects. Likewise, a number of companies are trying to break out in this nascent yet potentially significant sector. In contrast with the traditional models of revenue generation for a musical work, NFTs open up a world of possibilities for artists to earn money from their pieces in ways that may have been unthinkable or impossible before the advent of this technology. While traditionally, music artists earned royalties from the sales of music albums, number of plays on streaming platforms, touring and the sale of merchandise, NFTs offer a new medium for the exploitation of artistic works in a number of forms and formats.

The alternative rock band Kings of Leon, for instance, released a series of NFTs in 2021 that earned them around $2 million. The project, titled "NFT Yourself," comprised of three types of tokens representing three distinct sub-projects. The first token was the NFT of their new album, providing the holder with a vinyl and digital version of the album, which the holder could download and play. The second token gave its holders lifetime VIP access to any one concert of their choosing per tour, coupled with front row seats for life. The holder would also be entitled to a concierge for the duration of the concert, a personal chauffeur, access to a VIP lounge, personal time with the band, along with free merchandise. The third token provides the owner with limited ownership rights to exclusive audio-visual art created by the band. Singer Grimes also released her own NFTs last year, in the form of a series of ten pieces of work, which sold for about $6 million in total. The project comprised of a series of videos set to Grimes' original music, each being issued in a set number of multiples thereby ensuring the rarity of the released NFTs. Rapper Tory Lanez also launched 3 NFTs in 2021, wherein the underlying assets were Lanez's previously unreleased full-length songs and the ownership of unique artwork featuring the artist. This NFT came with additional perks, for example a holder owning all 3 NFTs would be entitled to an airdrop of another unreleased song, the chance to join a private and exclusive meet and greet with Lanez on Twitch (a streaming platform), and access to merchandise signed by Lanez.

The usage of NFTs in the music industry is, however, not limited to artists releasing NFTs of their albums or music. Yellowheart, for example, is an organisation that seeks to simplify the process of purchasing concert tickets. By marrying NFTs and smart contracts with the process of buying tickets, Yellowheart also aims to reduce and prevent 'scalping' of concert tickets. By employing smart contracts and coding a specific set of rules regarding the number of seats in the venue, along with the seat and row numbers, the cost of each ticket, defining the price ceiling and number of permissible resales of the tickets, NFTs can be deployed to ensure that the defined limits, with regard to the outlined standards, are adhered to. Additionally, certain decentralised autonomous organisations ("DAOs") have been established for the purpose of providing grants to artists. MusicFund, for example, is a DAO that distributes memberships amongst its holders via NFTs, the holders of the NFTs then vote every month and donate cryptocurrencies as grants to three selected musicians through the community fund. Another example of the potential uses of NFTs in the music space is the launch of Live Stubs by Live Nation, one of the largest music event organisers in the world. Live Stubs will provide NFTs to each person upon the purchase of a concert ticket, enabling fans to both develop a deeper relationship with the artist as well as creating value since the NFTs will likely become a rare collectible over time.

Given that NFTs can support multiple formats of visual or audio-visual media, they can take the form of nearly anything from albums, lyrics, songs, music or even soundbites, it is clear that the potential for harnessing NFTs in the music industry is like no other technology seen before. While the technology can immensely benefit artists, who can now earn royalties at every stage of the sale or resale of their NFTs and in perpetuity, the rights conferred to the holder or the owner of the NFT is not nearly as well settled. Typically, music NFTs only certify or evidence the blockchain-backed ownership of a token tethered to a music file or a video, conferring no further rights to the holder, such as copyright or the right to receive any royalty (unless specified otherwise). While this caveat may make NFTs in the music industry appear to be a new-age alternative to buying a physical album or a song on iTunes, and not a distinct asset in its own right, it is important to note that the former only provides the holder or the buyer with a license to listen/stream the music they have purchased. Music NFT ownership on the other hand, provides the holder the license to listen to the music purchased, along with conferring ownership over the purchased file through the NFT. As a method that provides artists full creative rights and control over their created works, along with a new way to generate revenue streams without necessarily having to remit a large portion of their earnings to a middleman, it is hard to argue against the potential benefits that music NFTs can bring to the table. Therefore, with artists and organisations in the music industry increasingly deploying NFTs and exploring the potential that it holds, the trend of NFTs in music shows little sign of dissipating.

Authors:- Ashima Obhan is a Partner and Shuchi Dutta is an Associate at Obhan and Associates. Views are personal.

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