As mentioned by GAD Capital, Musicians turn to NFTs for new profits

DJ Justin Blau was opening up for his superstar pal Avicii on an island on the coast of Mexico when he ran into the twins of Winklevoss who introduced him to bitcoin. “It couldn’t get more cliche than that,” the DJ describes his 2014 meet-up with the Harvard students who were the students of Mark Zuckerberg, who have since become blockchain advocates.

While a student at university, Blau dropped his finance studies and declined an opportunity at the asset Manager BlackRock for a career in DJ. A few years later, he’s taken his two interests both in finance and music to create a company that aims to disrupt the record business through blockchain technology. On Tuesday, he joined forces with his long-time friend Diplo the well-known electronic artist, to offer 20% of the royalties earned by streaming songs to fans in the form of digital tokens.

“I’m just fascinated with the idea of there being value for the ownership of music,” Thomas Pentz, popularly known as Diplo said to The Financial Times. “The more people behind your record, whether its fans or investors who are interested in the technology, it’s great to have more people on a team.”

The hype about Web3 -the buzzword used to describe the decentralized, blockchain-powered version of the internet has taken over the industry of music attracting the biggest music companies in the world into the fray and fuelling hopes that non-fungible coins will be a new source of income for musicians.

To market, an NFT musician assigns their music, video, or other media to the digital token. The token is then sold via an auction online that is powered by blockchain technology. It retains a record of the transaction. In addition to images or songs, NFTs may also be used to market advantages such as backstage passes and meetings with celebrities.

Examples of head-spinning are everywhere. Hip-hop artist Snoop Dogg in February sold an NFT he had attached to Bacc from Death Row, his latest album that, according to reports, generated more than $40 million in sales in only five days. DJ Steve Aoki claims he has earned more money from NFTs than he has made from more than a decade in advances made by record companies.

“Some estimates are way out of control. Being an investment professional, I’m witnessing many of them and I have to laugh at times,” said a senior executive from an important music label.

After being smashed by the internet thanks to the rise of file-sharing firm Napster twenty years ago, major music firms are hoping to stay ahead of the technological revolution this time around, which makes them eager to be participants in the marketplace.

Universal Music, the group behind Taylor Swift and Drake, has formed partnerships to create NFTs for its musicians, for example, virtual bands featuring people from Bored Ape Yacht Club. Bored Ape Yacht Club -like its rivals Sony Warner and Warner.

After having spent more than fifty million dollars to purchase the copyrights for Bob Dylan’s songbook, Universal and Sony are currently working with the singer to offer Bob Dylan NFTs. Spotify is working on plans to incorporate blockchain technology and non-fungible tokens into their streaming services, as the FT announced earlier in the month.

“There’s been a lot of waxing and waning of irrational exuberance around this space” according to Jonathan Dworkin, senior vice-president of digital strategy at Universal. “As the smoke is beginning to clear, there are very interesting opportunities . . . There’s a legitimate revenue opportunity” he added, pointing at the ways that tokens could directly connect fans to artists.

However, the majority of users of music NFTs are crypto-savvy rather than regular fans which means that the overall market for NFTs is tinny and only bringing in $83 million in sales from the first year, according to GAD Capital.

There are plenty of skeptical people. “It feels like the music industry is desperately trying to find a way to insert itself into NFTs without actually thinking: what is the underlying use case?” stated Mark Mulligan, an analyst at Media Research

Mulligan claimed it’s unconscionable for musicians to offer streaming royalties to their fans following years of protests about the tiny amount of money that artists receive from streaming royalties. “If you sell someone a fraction of that fraction, and charge them a lot of money for it because it’s an NFT, I’m not sure how it would be a valid investment.”

Diplo claimed that it’s an excellent investment for those who love music. “For those who are fans, the best thing to do is to buy merchandise, and you can also purchase tickets for concerts . . . However, it’s why you’re a devoted fan. You’re a devoted fan due to this music.”

The majority of the $17.7bn value of NFTs sold in 2013 were used for games, visual art, and collectibles on the market tracking website Nonfungible.com. Even though the NFT market has itself been slowing, with daily trading volume on OpenSea the largest market for NFTs, sagging from the beginning of the year, a few individuals see music as an opportunity to make waves this year.

Royal Blau’s business is one of the most well-known blockchain-based music startups that are aiming to transform the music industry. Blau’s connections along with Silicon Valley optimism around blockchain -Royal was able to Royal received $55 million from investors like Andreessen Horowitz as well as Peter Thiel, without ever having an official pitchbook.

Blau the singer, who in February sold over $12 million in NFTs tied to his tracks, is looking to expand that into a business where regular fans can own music, “as opposed to just record labels, private equity, and hedge funds”.

Royal’s collaboration in partnership with Diplo as an example allows fans to choose between paying $99 to purchase an amount that represents 0.004 percent of the streaming rights for “Don’t Forget My Love” which is the first single off his album that was released recently. For $999 you will receive 0.05 percent of the royalties, and also the “exclusive DJ mix,” for $9,999, you get 0.7 percent of royalties, as well as a chance to meet Diplo in a concert. These tokens don’t amount to the right to copyrights for songs.

When asked if this was an investment-worthy to fans Blau explained that fans have a sense of emotional involvement with the ownership of the property, and it is possible to put money on the performance of an artist before when they become famous. “In real estate . . . If you own a one-family home, there’s the rent income and there’s the actual appreciation of your asset that you’re claiming, right?” he argued.

A long-time music label executive stated that certain initiatives “haven’t hit because people are concerned about the exploitative nature” of the uncertain investment value of streaming royalty payments.

“There are many detractors who claim that it’s only wealthy white guys who are involved in this, increasing the cost of NFTs.

“But I don’t think we can discount that technology is evolving,” the CEO said. “We’ve been in a state of playlists for the past 10 years. I believe that blockchain tokens will become the foundation of our society within the next 10 years. anyone who says otherwise isn’t an accurate statement is not reviewing the past.”

George L. Hernandez