How are NFTs impacting the music industry?
15 Jun 2022
We are living in an increasingly digital and decentralised society, and the music industry is embracing this with open arms. High profile artists such as Grimes, Steve Aoki, Kings of Leon and Eminem have all recently capitalised on the non-fungible token (NFT) trend. But what exactly is a NFT and how have artists utilised them?
NFTs are a digital asset paid for through online cryptocurrency and stored via a shared ledger – the most prominent being the Ether blockchain. The NFT itself acts as a digital certificate of ownership for the asset the artist is selling and, although its contents can still be shared and copied, the ownership is unique to that purchaser. It can create endless possibilities for artists looking to sell albums, gig tickets or even tailor fan benefits. But more interestingly, to the advantage of the labels and artists, they can embed smart contracts that ensure a percentage of any NFT resale works its way back up to the top. Importantly, the intellectual property can be retained by the artists when selling their music via NFTs, and royalties can continue to be earned on use of the music without the need for inefficient, fee-charging royalty collection groups.
Recent successes for established acts have shown the huge potential NFTs have in the music industry. American DJ Steve Aoki was one of the first artists to take advantage of the trend and generated over $4.2 million from his NFT campaign. Nashville rockers Kings of Leon released their 2021 album When You See Yourself as a NFT, generating over $2 million in sales. Each $50 NFT sold contained the original digital download, a moving album cover and limited-edition physical vinyl, with additional ‘super tokens’ available, which gifted perks such as VIP concert seats and lifetime passes for the band’s concerts.
The importance here is scarcity. This means that the NFT’s value is partly defined by the number of NFTs in circulation and their availability. The auction for the Kings of Leon album NFTs was only available for two weeks, and after this period no more have or will be made. On top of the regular album NFTS, they also minted (ie published the asset to allow end users to buy it on the blockchain) 18 super token ‘golden ticket’ experiences, however they only auctioned six, leaving those remaining for sale at a later date. This scarcity, coupled with the inevitable hype generated by these exclusive campaigns, leads to higher levels of excitement for the fan base and, ultimately, higher levels of interest in the music.
NFTs are also good news for the smaller artists struggling to make a living from the small percentages offered through streaming services. Emerging artists can sell NFTs directly to their fanbases, removing the middlemen and the associated percentage cuts, providing bands and artists with more control over distribution networks and an improved revenue stream. With the rise of self-released artists over the past couple of years, NFTs could offer significant commercial freedom and remove the barriers to entry currently faced by unsigned artists. In an interview with the BBC, Singer Tobi Okandi from the independent band O Children explains, “The thing no one gets about NFTs – for musicians or otherwise – is that the true value of an NFT lies less in music or artworks but simply in power. Essentially NFTs open up a new perceived route of uniqueness and ownership.” Some artists will see this a positive move for the music industry, opening possibilities and opportunities for emerging acts. However, others will see this as a distraction and unnecessary energy which could be spent on fixing the current imbalance between the industry, artists and consumers.
There is also an opinion that NFTs are not for the everyday music fan. Jimi Frew, co-founder of Blockchain Music, explains in an interview with Billboard that “90% of [purchasers] are very wealthy crypto holders. That leaves out fans that can’t afford these high-ticket items”.
The barriers to entry for processing and purchasing NFTs are also cumbersome. Setting up crypto wallets, purchasing cryptocurrencies and transferring currency around is not only time consuming but can also be expensive, as each platform usually charges a fee for a transaction. Although NFT arrangements can be simple, embedding smart contracts and other instruments will require specialist knowledge and input. Not to mention the huge amount of power these transactions can sometimes use and the associated environmental impact of that. However, streamlining is likely to arise as the technology and accessibility is adapted and improved.
Paying fair royalties to artists is a huge issue in the music industry, and it’s quite possible that NFTs could help improve this imbalance and resolve the issue, exaggerated by the popularity of streaming. However, there is still a long way to go with the technology before it becomes a major industry disruptive factor. There is also a possibility that NFTs are a flash in the pan, a short-lived trend that temporarily removes the focus from the actual music, and instead creates superficial hype. Only time will tell how this new technology develops and whether it achieves widespread uptake in the industry.
We work with music artists and their agents to help maximise returns and achieve clients’ financial and business objectives. In particular, we can advise on the taxation of NFTs and cryptocurrencies. You can read more about how NFTs are taxed in our article here.
For further information on how we could help you, please get in touch with your usual Saffery Champness contact, or speak to Julian Hedley.