Why NFTs in the Music Industry is Big Business

What do artists like Snoop Dogg, Kings of Leon, Shawn Mendes, Grimes and The Weeknd have in common?

They are all raising millions on NFTs and digital assets.

Digital Assets in Music

In short, NFTs are digital contracts to prove ownership to anything from songs, albums, lyrics, soundbites, and collectibles stored on a digital ledger.

But they can also represent upcoming album’s royalties or special privileges, such as early access to new songs, backstage passes, exclusive remixes, and VIP parties.

When you own an NFT, you are the one in control of that specific right. You can sell it or store it as you want. It’s your contract, you have earned it.

And the numbers are staggering.

In 2021, NFT sales skyrocketed with trading volumes over USD 44 billions. By 2025, the NFT market is expected to reach a market cap of more than USD 80 billion.

That’s why NFTs are expected to disrupt the music industry.

The Goose with the Golden Eggs

Not only can artists market their NFT content directly to their fans. They can also cut out the traditional intermediaries such as record labels in the process.

This is extremely powerful as it changes the traditional dynamics in the market.

Now the artists can be in control of their own content on the primary markets. But it doesn’t stop there. They can continue to earn money from the resales of their NFTs on secondary markets, because there’s a record of ownership built into the NFT’s metadata.

It's like farming a goose with golden eggs.

The first artists to really explore these opportunities was the EDM artist 3LAU, who?auctioned 33 NFT collectible versions of his album?Ultraviolet in 2021, which ended up selling for USD 11.7 million.

But that’s just one example. The NFT use cases for artists are unlimited.

Since NFTs are digital contracts, they can be coded to be upgradeable. Such NFTs can evolve and mutate over time, they are not static.

As example, an artist can make a beat with a chorus and then invite other artists or content creators to collaborate on it. By using an upgradeable NFT, the artist can retain control of any spin-off products and even profit of it. Again and again for every upgrade, that sells in the market.

It's like Roblox for the Music Industry

Every kid, who have tried to play Roblox or Fortnite, is familiar to the concept of skins or other digital assets in games.

These skins are small upgrades to the underlying product. It’s a few bucks here and a few bucks there. But all these additional bucks are big business in the gaming industry, and the same will happen in the music industry.

Why not buy an NFT skin and show your affection for your favorite artist?

When the Swedish pop singer Zara Larsson held a concert on Roblox, she earned seven figures from digital sales of in-game items like hats, backpacks and sunglasses.

In October 2021, Ariana Grande held a concert in Fortnite. It lasted three days and attracted over 27.7 million unique users. It also generated over 1 million live hours streamed on Twitch and YouTube combined. Travis Scott did the same in 2020 and earned around USD 20 million for his Fortnite performance and its associated sale of digital assets.

Skins can be scarce and quickly become collectors’ items. Music NFTs can be autographed, they can be artwork, the possibilities are truly endless for artists to connect with their audience and investors.?

Next level Fan Engagement

And yes: You can be an investor in the music industry with NFTs.

NFTs can be coded as music royalties for perpetuity or function as a quasi-share of the artist.

Imagine a fan, who invested a few bucks in an NFT from his favorite upcoming artist who is now a big star. Now this NFT is giving the fan access to exclusive perks and benefits or maybe even a direct economic upside from the intellectual property deriving from that NFT.

That’s next level fan engagement, and it doesn’t stop there.

A highly engaged fan base is crucial for any artist, and with NFTs it’s possible to reward active fans with exclusive NFT drops giving access to front row tickets, backstage passes, collectibles, and other scarce assets.?

Prince and the Revolution

More and more artists are now connecting directly with their fans via digital assets, and there is a simple reason to that:

They want to be in control of their own intellectual property, and they rebel against the existing power structures in the music industry.

Kanye West went as far as calling record deals "modern-day slavery". And Prince, who sadly never experienced the NFT revolution, had to re-name himself as “The artist formally known as Prince” in order to take back control of his IP-rights.

Today, streaming platforms makes it extremely difficult for most artists to sustain themselves and make a living through their music. Data shows, that the revenue of 90% of all streams go to the top 1% of artists. And the overall revenue from streaming is low. Most of Spotify’s top 0,8% of artists earn less than USD 50k in streaming revenue.

Under these conditions the incentives are high for artists to start minting their music into NFTs and sell their NFTs like they used to with self-produced CDs before everything went digital.

That’s why NFTs in the music industry is an area to follow closely.

?Dr. Jeppe R. Stokholm is a lawyer and investor based in Zürich. He is founder of Stokholm Ventures, a Swiss entity specialised in new disruptive technologies (www.stokholmventures.com). Please do not hesitate to reach out, if you have any questions or comments to the above.