What Everyone Should Know About Music Backed NFTs

NFTs are the latest craze. From paintings, GIFs of NBA players, designer sneakers, collectibles, and virtual game skins. The sales boom has also touched the mainstream music industry, with its proponents arguing that it could be a revolution and a new era for artists who’ve had to endure the streaming-era status quo.

Music distribution channels like Napster, iTunes, and Spotify have found ways to use technology to gain profits from selling music to their fans.

Will musical artists make any money from NFTs? What exactly are NFTs? Here’s a brief rundown of how music royalties work, what NFTs are, their pros and cons, and what the future holds for music-backed NFTs.

How Do Music Copyrights and Royalties Work?

Understanding how music copyrights and royalties work is essential before learning more about music-backed NFTs.

Any song released comes with two copyrights, one for sound recording and the other for composition, which entails melody and lyrics. Record labels manage sound recordings while publishing companies will manage composition copyrights.

When a musician gets into a music publishing deal, he/she assigns the copyright in a song to the publisher, gives a portion of royalties to the songwriter, and keeps a part as compensation to license the works and register with performance rights organizations and others.

Record labels control sound recording copyrights. They are responsible for promoting the songs, collection/distribution of royalties, giving the artists an advance, among other responsibilities.

Although artists get a part of their songs’ royalties, the truth is they don’t have ownership of the copyrights, and this limits their royalties.

There are also millions of dollars in unclaimed royalties as certain digital service providers cannot trace who the royalties belong to. While entities like Mechanical Licensing Collective can track unmatched royalties, artists can get the compensation they deserve.

However, NFTs are quickly catching up with the music industry, and they promise to provide artists with the opportunity to track where royalties should go and give them more control over their music. The tokens also promise to get rid of piracy concerns thanks to blockchain’s authenticity record.

What Exactly are NFTs?

An NFT in the music world is an original piece of art limited in number and signed by the artist. NFTs are powered by blockchain technology, recording information that cannot be altered or erased but can be transferred.

The blockchain is similar to a digital ledger that enables recording transactions and enforcement of controls via a decentralized network without the need for an intermediary. An NFT embeds unique metadata or ID into a token that stands for an asset.

Once an NFT is minted, its unique ID is registered on the blockchain. That means that an NFT user can see and verify the NFTs history. The information could be its creator, ownership, price, and more. There is no need for an intermediary in this case. Having uneditable ledger tracking ownership means that an NFT cannot be copied or duplicated.

Musicians can create non-fungible tokens and auction them to different digital media forms for their fans.

Their followers will pay using Bitcoin, Ether, and any other form of digital currency. An artist also has the right to add several buyers to the NFT.

Alternatively, he/she can retain sole ownership over his music. You can also choose to receive royalties each time a buyer of the digital copy sells it to someone else. That gives the artist control. Moreover, the artist can now access another avenue to monetize their art or other types of digital merchandise.

Musicians can create exclusive content for fans artistically through NFTs. Furthermore, NFTs provide artists with an opportunity to engage with their fans without the need for distribution models like Spotify or iTunes. Fans also get to enjoy several benefits apart from authentic ownership rights.

One thing to note is that music-like art made with NFTs can be duplicated and reproduced without the blockchain’s authenticity.

How are Music NFTs Created?

NFTs, go through a process called minting, which involves having the files copied and stored on Ethereum’s blockchain network. When you mint an NFT, you create a file that lives on the blockchain. That means the information on it can’t be deleted, edited, copied, or interfered with. The file acts as the original creation.

Nonetheless, it’s possible to make copies of the work and distribute them. These copies have less value as they are not the original.

A non-fungible token can be placed on different marketplaces and networks for sale or show after being minted and purchased by the collector.

Music NFTs enable artists to sell to their followers directly without a distribution channel or an intermediary.

Examples of Artists Using NFTs

Omit, The NFT sales phenomenon has grown in the art industry, with Beeple making sales close to $69 million. These profits got musicians interested.

Grimes, an EDM concept artist, sold over $5 million worth of NFTs in February, 3LAU sold $11.6 million of NFTs, and Kings of Leon became the first band to release a record as an NFT.

Calvin Harris is one of the artists to get in on the NFT trend. He collaborated with Emil Nava to create an NFT referred to as Technofish. He believes that non-fungible tokens could revolutionize the music industry.

The items sold were collectible versions of fan experiences during the artistic process or backstage. Short music videos were also sold in the process. Buyers could display, sell, and own these items. These massive sales show that NFTs reward musicians for their efforts and reveal the value music brings to fans and the price they are willing to pay.

What are the Advantages of Music NFTs?

Some of the benefits of music NFTs include:

Eliminates Middlemen

The music industry is filled with intermediaries who could be streaming platforms or recording companies. Artists only get a portion of the money when fans purchase merchandise, stream songs, or buy an album. The other part goes to the middlemen.

NFTs provide direct transfers between the artist and his/her fans. Artists get money while the fan receives the content or merchandise in their digital wallet.

Non-fungible tokens provide an increased connection between artists and fans. The use of NFTs means fans get to receive non-duplicable personal invites or merchandise.

Flexibility for Artists

With music-backed NFTs, artists have the opportunity to create unique content and experiences, which means they have flexibility over what to auction off. What’s more, the tokens can be physical or digital. That could be sound bites, digital art, album releases, concert tickets, and musical merchandise. The fans are thrilled about these rare experiences and are ready to pay the price to acquire these unique items.

Convenience in Buying and Selling

NFTs provide a convenient avenue for artists and fans to interact. Fans can participate in an auction and create a digital wallet to pay and receive content from artists. Artists can transfer ownership through the blockchain network without having to ship or store physical items.

What are the Disadvantages of Music NFTs?

Despite NFTs being convenient, flexible, and providing a direct avenue for artists to profit, they have their disadvantages. Some of them include:

Legal Consequences

A few artists consider auctioning off their rights for fans to use sample music packs. That means that the fan gets complete creative control as he now owns the samples. Unfortunately, that can spell trouble for the musician in the future.

If the musician signed a contract with a record label, any violation of its terms and conditions could expose the artist to legal trouble.

Challenging for New and Upcoming Artists

The NFT sales demand is driven by hype and status, not by merit. Established acts like Kings of Leon or Linkin Park can freely put up tokens for auction and attract their fans. However, for newer musicians, this may be challenging as this demand is non-existent.

Upcoming artists without an established fan base have trouble getting a similar financial success like popular acts, which makes NFTs limiting. You’ll also find that a few marketplaces are curated and omit NFTs from emerging artists,

Marketplaces like OpenSea accommodate upcoming acts, but artists have to part with high up-front costs to set up their accounts.

Manufactured Scarcity Can be Limiting

NFTs depend on the concept of manufactured scarcity. For example, having a limited number of tickets sold as NFTs creates scarcity, making the tickets appear valuable. It’s this scarcity mentality that attracts a higher price tag. The concept excludes most fans and is unnecessary.

Uncertainty Over NFTs Longevity

NFT markets like Nifty Gateway and NBA TopShot markets are overrun with speculators who want to buy and flip collectibles for instant profits. Moreover, the prices are volatile.

Music-backed NFTs are sold based on hype and an artist’s status. The tokens also depend on manufactured scarcity to create value. Unfortunately, if fans lose their interest, that could be dangerous and lead to a bubble that soon bursts. No one is certain about the longevity or future of these tokens.

Can NFTs Revolutionize the Music Industry?

NFTs can be an excellent place for artists to cut out streaming and distribution networks. Musicians can store their music and other collectibles on the blockchain and sell them to their fans directly. The platform not only gives the artists a huge percentage of sales, but it also curbs any piracy concerns as NFTs are centered on the blockchain network.

Another impressive aspect is that NFTs offer continual payment aside from the initial sale. If the token is sold later in the secondary market, the artist gets 10% of the buying price and continues to make sales for the piece in the future.

Final Thoughts

Music-backed NFTs provide a creative avenue for artists to develop unique products and experiences to offer their fans. Experts believe that NFTs could revolutionize the music industry and become a deciding factor in the creative digital landscape.

NFTs are also bridging the gap between musicians and consumers. Songwriters can now enjoy creative control as they get to set prices and share their music and other experiences without the middlemen.