Learn about the growing synergy between music and blockchain
The music industry has focused on the blockchain to create more robust engagement with their audience and new business models. The industry has long been a winding maze of artists, publishers, agents, managers, royalty collectors, and distributors. The idea of artists and creators being paid fairly and, more importantly, quickly in a system powered by crypto and blockchain still feels a significant reach away.
With the advent of blockchain technology, a new way of doing business emerged—one where intermediaries are removed from the equation. Web3 is empowering the creative community in ways never seen before, and in this article, we dive into how blockchain can disrupt the music industry.
As always, there are legacy blockers. Organizations that have controlled this multi-billion dollar industry for decades would like to retain their vice-like grip. The tech is all there. All potential applications for crypto in music have to pass the same hurdle.
Arguably, the music industry has been dragging its heels for a long time regarding the actual physical act of correctly dividing royalties and song rights. Tech companies spotted the pain points years ago, but the industry still didn’t develop an action plan.
The traditional structure of payment rails and long-winded payouts suits those in power. For example, why would they want payments to go to artists instantly when they currently hold that in a bank for six months and gather interest on it? To break through to the other side, it will take a strong grassroots movement of indie artists and labels to push a new paradigm. One that forces the hand of the current organizations and leaves them no choice but to embrace a new way of business.
Before diving into this topic, we highly recommend reading the following guides first:
This will give you the foundational knowledge of blockchain technology, non-fungible tokens, smart contracts, and the leading blockchain – Ethereum. With that knowledge in the bag, you can confidently move forward.
With all this new technology innovating and changing so quickly, it’s only natural that people have questions. Fortunately, DappRadar has you covered with this ultimate guide to how blockchain disrupts the music industry.
No central database
Two main types of information need to be stored when it comes to a piece of music. Firstly, who made it? Secondly, who owns the rights to it? This information is currently hidden from all the stakeholders in the equation, including artists, streaming platforms and services, and the end listeners. The core problem is that no central database contains all this information, but blockchain and ledger technology can change this.
The nuance of a piece of music can be simplistic when it’s 100% original or more complicated, depending on the samples used or the use of original melodies or vocals that need to be released. Even if all this information is collated by one party, it would still be trapped on a spreadsheet or similar: bottom line, it’s not globally accessible.
This is a massive issue already causing costly problems. Shown more clearly when
Spotify paid a $30 million settlement to resolve a lawsuit with the National Music Publishers Association for royalties it had held on to because they simply didn’t know who to pay.
Additionally, the Global Repertoire Database initiative was started in 2011 to aggregate ownership data for the first time in a central database but failed in 2014 after millions of dollars of investment. The main issue? No single party wanted to surrender control to a new entity, and the resulting friction meant the idea just imploded on itself.
A blockchain aimed squarely at music could be a single place to publish all information about who made what song without trusting a third-party organization. However, before entertaining such an idea, it is essential to distinguish between two different but often confused problems in the music industry. Moreover, one must be solved before the other.
Money vs. data
This problem exists because of the issues outlined above around a central database and a culture of inadequate data storage in the music industry. Without accurate data about the details of a song, music platforms are left asking whose song is this? Not only does this make life harder for the artists, but it also makes it harder for platforms to pay out.
This then leads to the problem of artists asking where their money is. Which has organically led to blockchain advocates trying to solve the problem with crypto and smart contracts. While blockchain would enable more efficient, standardized, and transparent payment systems, there is still the massive issue of knowing who to pay. In summary, the data problem needs to be solved first. Therefore, we should view any blockchain solution as a simple metaphor for shared, networked media metadata.
Solving the data issue
The blockchain must provide scalable, cost-efficient, and high-performance data storage. Any blockchain employed for such purposes must handle several specific things to be valid and work as a virtual shared metadata network. At a basic level, decentralization also removes the need to assign a gatekeeper, which can remove the friction of centralized approaches like the Global Repertoire Database.
While blockchains enable distributed consensus without the need to trust a central authority, they make sacrifices regarding performance. This makes a blockchain like Ethereum a wrong choice as a database to scale music metadata. In a nutshell, it would be too slow, too costly, and have unnecessary features, like the need for every participant to replicate the data, even if it was useless. Instead, a decentralized datastore capable of scaling at low cost while maintaining the intricate relationships and history of structured media metadata would be required.
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Faster, more efficient payment
A little understood issue in the music industry is how payments are structured and delivered to creators. In essence, traditional payment rails are slow and full of legacy delays like only working on business days, i.e., Monday to Friday. A further issue is banks’ refusal to let customers take account numbers with them if they switch banks. The account number would be under the user’s sole control in a crypto payments system.
Furthermore, due to the antiquated nature of traditional payment structures, problems exist because businesses must make payments during business hours, it can take up to five business days, and usually isn’t possible on Saturday, Sunday, or national holidays. By employing crypto and blockchain, payments can instantly happen without needing any middlemen or extra fees, any time of the day, anywhere in the world.
The process for labels to pay royalties to artists is long-winded, involving various bill-paying systems, many vendors, software platforms, and the need to check all the paperwork meticulously. In a crypto and blockchain-based system, royalties could be sent in seconds. More importantly, it doesn’t require the music industry to agree on one currency or even a single blockchain, as long as there’s an inter-ledger where all the blockchains are interconnected and can speak to one another.
Transparency has become a hot topic recently, and more artists choose to launch independently because of a high level of distrust in major music companies. Moreover, creators and artists expect transparency from teams responsible for handling and promoting their music. Ultimately creators want to know that no central authority or organization can manipulate that information.
Contracts and other sensitive information about an artist’s career could be held on a blockchain and help artists understand where and how their money comes from. Imagine an organized place that automatically updates all of an artist’s revenue streams, such as merchandise, touring, licensing, streaming royalties, and performance royalties. Thanks to the complications of the multi-ownership of music, such a system doesn’t currently exist. But it could be two or three years away — or less, with the music industry’s adoption of blockchain.
Direct interaction with fans
Non-fungible tokens, or NFTs as they became known, can open up endless opportunities for creators and musicians to interact directly with their fans. In essence, an NFT just holds assets and information despite being described as a token. Moreover, NFTs are useful in this scenario because they can’t be copied, are programmable, and are readily tradable.
NFTs are all about giving holders scarcity and access to exclusive content. A sense of exclusivity is vital — whether it’s a real-world wearable, something the owner can sport as a social badge of honor, or an access pass or passport into a set of exclusive experiences. Fans crave this, and NFTs are making it possible on a scale never seen before.
One other thing made possible through smart contracts and NFTs is the ability of creators to earn from their work throughout their lifetime. Because of smart contracts, rules can be coded into an NFT, so the original creator can get paid every time the piece changes hands, which is a massive benefit for creators.
Another popular way for artists to interact directly with their fans is to give out POAPs, or proof of attendance NFTs. POAPs are like digital mementos minted in celebration of a special moment. By minting these memories to the blockchain, collectors can build a showroom of tokenized experiences, potentially unlocking more unique features later. Imagine a wallet full of digital concert and festival stubs that could act as a permanent memento for the holder.
NFTs are already popular amongst EDM artists such as Deadmau5. He partnered with the WAX blockchain to release his limited series of NFTs and has since rolled out further initiatives to great success. Outside of the electronic world, Snoop Dog is blazing a trail with his collection of NFT Doggies and teaming up with Steve Aoki to launch an exclusive NFT album.
More importantly, collectors who hold a Snoop Stashbox token or an Aokiverse Passport NFT got a song airdrop for free. This shows the power of NFTs for creators more clearly as marketing vessels capable of building robust and rewarding relationships between creators and fans. Another benefit of doing business directly with fans and setting limited amounts is that creators let demand determine the value, arguably a fairer way to make price decisions.
Streaming & downloads
The traditional streaming platforms’ fixed-rate model is why platforms like Audius have arisen and are gaining traction with musicians. The money generated by Audius streams goes directly to the artist. The artist immediately receives 90% in real-time, and 10% goes to the people that support the network.
Audius is still young but provides the ability to pay for music you’re consuming, with the added peace of mind the creator of that music is rewarded. Furthermore, you will be able to crowdfund projects by your favorite artists and participate in the long-term growth of an artist on the platform.
Platforms like Spotify, for example, work differently, as if a listener streams fifty artists on Spotify, none of which are Drake. Drake still gets paid because of the pro rata system, which is why the need for change has arisen.
In systems like the one mentioned above, fans can invest directly in their favorite artist’s work which also acts as an incentivization mechanic. Artists can assign content to their premium tier of superfans, for example.
At the same time, there are arguably many social clouts that come with finding new and unheard music for avid listeners. In a blockchain-based system, a creator could let fans commit a small amount of investment under the promise of receiving a percentage of the revenue that song generates over a set time. More importantly, if a fan is invested, they’re more likely to share and promote the music, which is an incentivization model that, while seemingly logical, has never been used to compensate fans.
By releasing a governance token, fans can also be incentivized to play a part in the platform’s future direction. Holding those tokens could allow the user to vote to create new community features. Moreover, a governance token allows platforms like Audius to incentivize their users and could become a powerful marketing tool.
Ticketing & bookings
As mentioned earlier, NFTs can play a massive role in the development of the music industry. For promoters, artist bookings can be made using smart contracts that execute payments automatically and immediately as soon as contractual obligations are met. Promoters could book a DJ, digitally sign the contract, and put crypto into escrow on the blockchain. Once the DJ performs and all are satisfied, the funds are released without using a bank or intermediary.
NFTs are also being used as event tickets, which is far more interesting when applying them to secondary market sales. It can eradicate scalpers and bad actors from squeezing loyal fans for money once tickets sell out.
For example, conditions can be set within the smart contract on any NFT ticket regarding its initial price, which can be set at $50. Then regarding its secondary market resale value, the promoter and artist can decide they are happy with tickets selling for up to $100, for example. Going further, tickets can be programmed so that some money goes to charity, or 80% goes to the artist and 20% to the organizer.
What’s the hold-up?
Reading the above, you’d be forgiven for thinking, “so why isn’t all this already happening? It seems pretty logical” As with all things, blockers and legacy systems are preventing the evolution of music industry practices. Those that control the flow are not so keen to bring in new methods that alleviate them of their power and place it back into the hands of the creators.
The music business is yet to agree on the basic concepts like copyright and communication between music publishers and Performance Rights Organizations. Arguably, there needs to be a unified approach from the most critical stakeholders for any lasting change to occur. Currently, creators are still not setting royalty splits correctly, and negotiations are few and far between.
In essence, the music industry is still battling with the human elements and the shift in focus required to apply technology that has existed for more than a decade. Once humans solve their quarrels, perhaps technology can start to make things more efficient. Watch this space.