The cost of creating and releasing recorded music is lower than ever, but intermediaries between creator and consumer, such as labels and streaming services, still dominate the industry’s revenue distribution. Many artists feel that their royalty payments are extremely unfair, leading the Union of Musicians and Allied Workers to demand that Spotify raise payouts to at least 1 cent per stream. However, focusing musician’s efforts towards increasing streaming service payouts does little to put meaningful power in the hands of creators and allows rampant extraction to persist. People acknowledge the industry’s inefficiencies but believe that record labels and distributors are too powerful to be fought. Without redistributing the music industry’s revenue according to who creates the most value, artists are doomed to be continually exploited. The most viable solution to fairly restructuring the music industry is for artists to adopt blockchain technology, which has the potential to facilitate frictionless exchange between musicians and fans.
Throughout past decades, labels consolidated their power despite providing less and less developmental support to their clients. Universal Music Group, Sony Music Entertainment and Warner Music Group are the are the industry’s three major record labels, almost every popular artist is signed to them or one of their subsidiaries. A typical record deal goes like this: an artist receives an advance payment (a loan) their music must recoup in sales and streams in order for them to receive additional money. Labels take on the risk of a record’s success and in exchange receive the majority of the profit. This made much more sense in the days where recording, producing, and mixing a record involved at minimum dozens of professionals and cost upwards of million dollars (Voice). But today, at-home studio technology cuts the cost of a quality production and is within reach for most artists. Still, the promotional power, connections, and liquidity that labels provide incentivize artists to enter unbalanced deals. Before the pandemic, artists supported themselves through touring. With that option taken away, many are struggling to scrape by. The pandemic exposed the need for the industry’s structural overhaul, and musician’s are starting to utilize blockchain technology to increase their revenue and deepen relationships with fans. Currently, NFTs (non-fungible tokens) are the favorite tool of artists on the blockchain because they allow assets to be traded securely and directly. But, as more infrastructure develops, the use of a distributed ledger technology can expand to automatic royalty payouts and change the way artists fund their projects.
The electronic artist 3LAU provides an exciting case study for music NFTs. He held an auction between February 25-28 that brought in $11.7M in sales. The top 6 winners all paid more than 350,000 for their NFTs, but everyone who bid received a loyalty token (McGlynn). Clearly, 3LAU is benefitting greatly from a first mover advantage and is being supported primarily by “crypto whales” who want to stimulate the ecosystem, but this auction provides proof of the potential for artists to independently generate enough excitement to surpass even their own expectations in NFT sales. What an artist decides to sell as an NFT is limited only by their imagination and fans demand. Right now, most people who hold crypto are investors, but as the infrastructure surrounding blockchain’s real world uses expand, more people will acquire tokens and be introduced to NFT assets. In fact, many new crypto holders were inspired to get into the system by the artists they follow.
Ushering their fans into the new system are musicians/crypto enthusiasts such as Deadmau5, who promotes the blockchain based streaming service Audius, which is attempting to popularize decentralized music by bridging the gap between artist and fan while providing hi-fi streaming. Audius strives to be “owned and operated by its users” (Rumburg et al.) through the $AUDIO token, which artists can use to reward their fans with exclusive content. Those given access to authenticated digitally-scarce items certainly have the ability to rip and widely distribute them but have little incentive to if they want their items to remain exclusive. Ideally, the $AUDIO token also allows users to vote on the platform’s issues and features. Unfortunately, it seems that Audius is currently experiencing some difficulty on the legal side, with their website stating “$AUDIO has not been registered under the U.S. Securities Act of 1933 (“Securities Act”) and may not be offered or sold in the United States or to a U.S. person absent registration or an applicable exemption from the registration requirements.” Although Audius faces hurdles, it is still the only streaming platform whose incentives are directly aligned with its users. In order for a new type streaming platform to take over, it will have to be so good that it becomes the obvious choice for listeners, not just artists. After all, Spotify’s grip on streaming is strong for a reason, it has an excellent design, a price most consumers deem reasonable, and introduces its subscribers to personally curated new music.
Spotify helped the music industry by incentivizing consumers to pay for subscriptions rather than pirating. Despite only paying a fraction of a cent per stream, independent artists with enough fans, as well as signed artists with considerably more fans, can make a good living off streaming royalties alone. Furthermore, Spotify attempts to democratize listener distribution with sophisticated AI recommendation algorithms. Niche artists that use Spotify and TikTok are able to reach audiences that may have otherwise never heard of them. However, the most powerful record labels own considerable stake in Spotify, giving their artists a distinct advantage in securing placements on popular playlists. Most listeners today will opt for a curated genre or mood playlist rather than listen to a radio station. This has slightly shifted artists incentives in creating music away from appealing to the widest audience possible, but still discourages experimentation and boundary pushing. Besides keeping playlists in mind during the writing process, independent artists are routinely scammed by fake playlist curators who employ listening bots. It is difficult for artists to discern legitimately popular playlists that aren’t operated by Spotify itself, but if an artist ends up on one, there are negative consequences for being caught receiving fake streams (Boyer). Of course, playlists play an important role on a platform receiving 60,000 daily uploads (Ingham) but in recent years and pressure from labels, playlists have shifted from curation to gatekeeping.
Perhaps the most egregious overreach of Spotify and other major streaming services is data hoarding. Centralized platforms shut out artists from accessing valuable listener data that could help them grow while selling that data to advertisers. Artists have no clear vision on what their fans want from them without access to data on who is listening to their music or buying their tickets and how. As a passionate music consumer, I would much rather my favorite artists have access to my listening data than a centralized platform that sells it to companies I don’t wish to support or be targeted by. Every year, Spotify gives subscribers a run down on who they listened to the most, prompting tweets like, “I am in the top 0.05 percent of Mitski listeners I think she should acknowledge me.” It’s reasonable to assume that if Mitski knew who her biggest Spotify listeners are, she would love to personally thank them, but this is impossible.
Following in 3LAU's footsteps, artists can use NFTs to increase their interactions with individual fans. Individual songs can be sold as limited edition NFTs, as well as digital posters and cards. While not currently viable as the law catches up to this new area, SNFTs (security non-fungible tokens) can allow artists to crowdfund their projects by auctioning off royalty percentages, or stakes in their careers, to individual fans. Once this mode of project funding takes off, music labels are in big trouble.
When concerts come back, the potential applications of NFTs to live music are just as exciting as to streaming. An NFT concert ticket’s smart agreement can stipulate that the artist gets a percentage of resale profits, massively deterring scalpers while still allowing people to sell their tickets without a loss. Relatedly, artists who tour often host meet and greets, but many wish that there were more ways to have meaningful, personal connections with their fans. This is why loyalty NFTs have huge potential and is also one of the reasons why Audius is working on implementing messaging into their platform.
The music industry’s copyright system is a mess thanks to outdated laws and insufficient licensing options. Labels have entire departments, assisted by bots, scouring the internet for content to strike with a copyright claim. This leads to YouTube videos being taken down all the time with limited recourse options available to content creators, who are now discouraged from using any music in their work outside of a small library provided by their platform. A “blockchain-empowered rights and payments layer” could create an automatic system for legal music-broadcasting through smart agreements (Heap). This can create an ecosystem where artists are compensated effectively and creators have the freedom to use their favorite music in their videos. Furthermore, smart agreements can be used to automatically distribute royalties to everyone involved in a musical project, Imogen Heap used the Ethereum blockchain in this exact way for her song “Tiny Human.” Spotify holds on to artist’s royalty payments for about 6 months, collecting interest in the meantime, but the peer to peer nature of decentralized streaming can allow artists to access their earnings in a much more reasonable time frame if widely adopted.
There are massive hurdles in the mass adoption of blockchain technology for artists, mainly a lack of infrastructure to support the demand, and serious concerns on environmental impact. The Ethereum blockchain has become massively congested as it grows in popularity, leading to exorbitant gas fees. This renders the Ethereum network unusable to small artists. It is simply not a good business decision to spend more money minting an NFT than its sale price. On top of this, securing the Ethereum network using the “proof of work” model uses large amounts of electricity. There is a misconception that every transaction on the network increases its energy consumption, but this is not the case. Ethereum consumes the same amount of energy no matter how many people are trying to use it at a time (SuperRare). Many miners also use green energy such as solar panels because of their cost efficiency.
If musicians ignore crypto forever they will leave massive amounts of money on the table (Blau). Under centralized music streaming, all subscription fees are collected by the platform and distributed to artists minus an organizational fee. Blockchain allows the disintermediation of music by allowing consumers to pay artists directly on a truly per stream basis. This means that artists and fans will be the parties in charge of how much music should cost. There is still a lot of room for improvement within blockchain technology, but as more people recognize its massive potential, more will work on projects aiming to fill in the gaps. I believe in blockchain's revolutionary potential because, historically, efficiency always wins in the end.
CITED SOURCES
Voice., A. “History of the Record Industry, 1920- 1950s .” Medium, Medium, 10 June 2014, medium.com/@Vinylmint/history-of-the-record-industry-1920-1950s-6d491d7cb606.
McGlynn, Declan. “3LAU Sells Collection of Album NFTs for $11.7m.” DJMag.com, 1 Mar. 2021, djmag.com/news/3lau-sells-first-ever-nft-based-album-117m.
Rumburg, Roneil, et al. “Audius A Decentralized Protocol for Audio Content.” 8 Oct. 2020, whitepaper.audius.co/AudiusWhitepaper.pdf.
Boyer, Dustin. “Streaming Bots Are Ruining Careers of Indie Musicians.” Venture, Venture, 18 Feb. 2021, www.venturemusic.com/blog/streaming-bots-will-ruin-your-career.
Ingham, Tim. “Over 60,000 Tracks Are Now Uploaded to Spotify Every Day. That's Nearly One per Second.” Music Business Worldwide, 1 Mar. 2021, www.musicbusinessworldwide.com/over-60000-tracks-are-now-uploaded-to-spotify-daily-thats-nearly-one-per-second/
Heap, Imogen. “Blockchain Could Help Musicians Make Money Again.” Harvard Business Review, 6 July 2017, hbr.org/2017/06/blockchain-could-help-musicians-make-money-again.
Team, SuperRare. “No, CryptoArtists Aren't Harming the Planet.” Medium, SuperRare 💎, 3 Mar. 2021, medium.com/superrare/no-cryptoartists-arent-harming-the-planet-43182f72fc61
Blau, Justin. “Building the Investable Layer of Music, by 3LAU.” The Defiant - DeFi News, 21 Jan. 2021, thedefiant.io/building-the-investable-layer-of-music-by-3lau/.
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