How NFTs are Changing the Music Business

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How NFTs Are Changing the Music Business
NFTs or non-fungible tokens are cryptographic assets stored in a blockchain using unique identification codes in the form of a distributed ledger. These identification codes make them singularly identifiable and allow the tokens to represent ownership of digital assets, including artworks, video recordings, music, and even virtual real estate. They are called non-fungible tokens because they have singular properties that cannot be defined in terms of value. Unlike currencies or cryptocurrencies, which are defined by their value and therefore exchangeable, NFTs cannot be exchanged or have two owners. The uniqueness and non-transferability of NFTs eliminate the problem of originality: it is difficult to counterfeit the tokens because they are encoded with a digital signature of the creator, thereby heightening traceability to the owner (Kaczynski and Kominers). Because of their ability to replicate the properties of uniqueness, scarcity, and proof of ownership, NFTs have found application in artistic businesses where exclusive ownership is a necessary component. This essay theorizes that the ability of NFTs to revolutionize the music business lies in the exclusive ownership of work as well as artistic freedom given to musicians.
The music industry has long been linked with the persistent economic exploitation of music artists by corrupt record labels, accountants, and managers. This exploitation resides in unfair advances/forwards, management of artistic direction, artistic development deals, corporate control of copyrights, as well as advertising and merchandising deals. Artists entering into the music scene are forced to transfer ownership of their work along with the rights to sell and promote the same to record labels in exchange for artistic development, marketing of their music, and upfront financing. While streaming companies have revolutionized the music industry by paying royalties to artists every time their music is streamed, the payment rates set by these file-sharing companies are also exploitative. For instance, only 0.8% of the most streamed artists make $50,000 a year, while 61% of musicians report that the wages they receive from their work are not enough to sustain them. Another example is that of Spotify, which registered more than $10 billion in revenue last year even as it paid artists between $0.003 and $0.005 per stream: musicians have to record 250 streams just to earn a dollar (Johnson).
Music artists are underpaid by streaming companies because the lion’s share of the revenue generated by their work is split between the file-sharing company, record labels (who hold full rights over the original recording of the song), lawyers, agents, and other investors in the artists’ music. Moreover, serious restrictions are put on the creative freedom of music artists: not only does the artist have no say over when and where his or her music is played, but also which advertising and merchandising deals to take. Fortunately, the non-fungibility and immutability of NFTs give them the capacity to change how artists create, fund, own, and promote their music (Leising). All NFT transactions are stored using a tamper-proof ledger: NFTs, which work like zip files, are non-transferable and immutable. When someone buys an NFT, they only own the code but not the contents in the folders. Only the person who created the token has exclusive rights to its files, including the authority to change or update them. Artists can therefore store a tokenized version of their song, music video, or album, knowing that they have exclusive control of the same.
Music artists can therefore market their work directly to consumers without the strictures imposed by record labels or other industry stakeholders. This ability to cut out the exploitative middlemen is the foundation of NFTs’ disruptive power. There is no restriction as to what can be tokenized, from music files to concert tickets to unique merchandise: music artists can tokenize any new experiences they wish to showcase and deliver them directly to their audience. Another way NFTs give power to the artist is their ability to be programmed for specific computerized actions without the need for agents. In addition to representing ownership of the tokenized work, NFTs are also powered by smart contracts. NFTs are generated through a minting process that involves the inclusion of a smart contract within the blockchain. A smart contract is a self-implementing protocol in which the conditions of the agreement are engraved within the lines of computer code. No central authority or intermediary is required to implement the contract since the NFT acts based on the directions given by the owner.
Smart contracts are capable of ascertaining that the terms of the agreement have been met and proceeding with the execution of the terms. The contract is implemented once the other party fulfills the required terms and annuls when they fail to do so. For instance, in the case of a content creator marketing his or her work using NFTs, a contract within the token may contain details about the owner of the work, other entities entitled to royalties each time the token is sold, as well as the work’s ownership history. Since storing all this information on the blockchain is expensive and requires a lot of electricity, smart contracts may only contain a sale agreement between the NFT owner and the purchaser, just like a vending machine. The self-executing code may also include a link to the content they signify, but only the artist will have access to this. On the other hand, smart contracts also allow the buyer to verify the originality of the work they are purchasing. It is difficult to counterfeit NFT assets because of the public manner in which the code containing the smart contract is stored on the blockchain.
Any buyer with the requisite coding skills can review the code and confirm the originality of the smart contract and the token’s assets. As has already been hinted, it is possible for the buyer to resell the NFT creation to another consumer. However, the first buyer would only be selling the code and not the assets contained in the token since NFT content is non-transferable. Music or any artistic experience as an NFT can only belong to its creator and, therefore, the original owner is entitled to a certain percentage of the sales or profits every time the token is sold in the marketplace (Ovide). A majority of the NFT marketplaces allow the original owner to determine their royalty percentage upon each ensuing transaction in the secondary market. On average, NFT owners set a royalty percentage of up to ten percent for each instance their creation is resold in the marketplace: besides, the smart contract contained in the NFT ensures that royalties are promptly paid to the original owner every time the token is resold. This is unlike most record labels which choose to keep this passive income on the grounds that ownership of the original content was already transferred to them by the artist.
NFT content creators have complete control of their work and can determine as well as receive royalties for their digital assets long after they have first sold them. Although there is no guarantee that the first sale of NFT music will be followed by subsequent auctions, an artist can continue receiving royalties indefinitely if their work is highly marketable. For instance, NFTs are usually listed for sale in an auction where a deadline is set for interested buyers to meet or even exceed the minimum sales price set by the owner. If the token is not sold by the end of the expiration date, the NFT is removed from the auction, although the creator continues to retain ownership of the same. Still, the amount of money musicians generally make from...