The externalities of NFTs will upend the world of creative expression. They’ll have to be reckoned with even by those not interested in the technology, through a three pronged approach.
Economics 101: externalities are hidden or indirect costs (or benefits) associated with goods or services. Pollution is often used as an example, as plastic-producing companies don’t have to pay to clean plastic out of the ocean or microplastics out of our water supplies, for example. The manufacturers reap the benefits, while the general population gets taxed and the environment itself burdened.
In the case of permissionless blockchains to which everyone can write, this means we’re going to have to deal with the type of problems and externalities that occur in permissionless spaces. Besides the high energy cost associated with creating NFTs on Ethereum, to which a solution is being implemented, there is another issue that is perhaps harder to solve since it strikes at the core of the decentralized principles underpinning the technology.
There are artists that make from NFTs on a monthly basis what they used to make in a year from streaming. As a matter of fact, many artists make more money in a single NFT drop than they have ever made from streaming. This is exciting; music can finally be valued in similar ways to art in galleries.
It’s about a year now since Bas and I started writing about NFTs and becoming ever more active in Web3. A lot has changed, but I’m still seeing the field of tension I described as a two-pronged fork back in May 2021. On the one hand there’s the notion that we should break from the past and go full crypto. To put everything on-chain and by virtue of decentralizing everything we can build a better and more equitable future. On the other hand, there’s the notion that we should bring our legacy institutions and structures into Web3. To build on what already exists and improve. It’s a classic situation of revolution versus evolution, and it permeates on so many levels:
This list could be much longer, but the nature of the contradiction is clear. Time to unpick the underlying contradiction and find some valuable next steps for music in Web3.
What if fans could invest in songs and participate in the financial success of the song through a cut in royalties? This is one of the most easy to explain value propositions for NFTs, yet it’s also one of the least important use cases for NFTs.
The idea of fans investing in artists, music or songs directly isn’t new. Conversations about music royalty NFTs have brought renewed attention to David Bowie’s ‘Bowie Bonds’. At the peak of music startup launches in the web2, about 10 years ago, there was a whole range of startups that wanted to figure this out, only for most to be laid to rest in the ever-expanding music startup graveyard and forgotten. Now, too, there are many platforms that offer co-investment in songs in exchange for getting a cut of revenue though NFTs.
I don’t believe that this is a great value proposition for fans. Here’s why.
First of all, these type of NFTs risk being seen as securities. Various platforms are doing their best to stay compliant, but good luck staying compliant in all jurisdictions in this rapidly changing legal landscape. This puts risk on the collectors. Unfortunately, due to the way these NFTs are marketed, these collectors are often fans who do not know much about investing and (international) tax laws related to that. Yes - it’s cool to galvanize a fanbase around the success of an artist, but do they need to incur this much risk or responsibility? I don’t think they do; keep reading.
Royalties, schmoyalties. I think the wrong expectations are being set about what fans might be able to earn by participating in a fraction of a single song’s royalties.
NFTs already let fans participate in the success of their favourite artists, even without tying it to music royalties. Tying music royalties in makes fans care about ‘number go up’ for a song’s streams. What does ‘number go up’ mean? It means an artist is getting more visibility and / or engagement. Why tie that so directly to the current streaming landscape?
If an artist and their work become more famous, more esteemed, then the valuation of their past work usually goes up. This means an early collector of their work could sell & capture that value. What we need is more models around how people can capture value without having to sell. This could be solved by regular token distributions to NFT holders, but there may be many other models to explore too. I expect the NFTs you own will allow you to get access to relevant DAOs, communities and experiences. For example, if you hold a rapper’s NFT, a hiphop DAO might let you claim membership tokens which may hold value on their own.
Lastly, I think these types of NFTs are too dependent on a high degree of centralization. Does that matter? I’ll admit, I’m not certain, but it causes a lot of friction with a core principle I believe in about value in web3.
‘Ownership’ in the web3 is an illusion. The NFTs you ‘own’ do not sit on your computer. They sit on the blockchain in the network. They are connected to your wallet address on there and if things are properly decentralized and secured, then nobody can change that reality other than you. This gives the experience of actual ownership of digital goods to the point we can speak of ‘owning’ something. When things are not properly decentralized, a few players can band together to change the state of a blockchain. Even if they choose to take something from someone else, e.g. a criminal or bad actor, it becomes immediately clear that how everything is distributed on the network is dependent on these people and they can intervene whenever they so choose. That’s more akin to feudalism than actual ownership.
The largest obstacle to understanding the developments in the web3 space is the belief that it’s there to replace everything we know. Innovation doesn’t work that way. Innovation lives side by side with past innovations. Napster and Torrent technology brought peer-to-peer network technology to the innovations of sound recordings a century earlier. These innovations paved the way for the modern music streaming service and the web3.
First published on Jan 4 in the MUSIC x newsletter.
Peer-to-peer filesharing felt like a revolution, but was only temporarily disruptive. The legacy of filesharing is a new ruleset for recorded music; a playbook for how recorded music thrives in the age of networks. The recorded music industry, and its major labels, still operate based on paradigms of the age of mass consumerism & recorded music: build catalogues & leverage them to get maximum exposure and ‘sales’ (aka streams).
If you read a lot about music, especially the music business, it’s difficult to escape the impression that it’s all about value and the creation thereof. Large catalog sales, investments in start-ups, artists fighting to take ownership of the full value of their own master and/or publishing rights, etc. are all run of the mill headlines. There’s two issues at play here:
To answer the first question: value is usually expressed in the economic definition – how much are people willing to pay – or give up – to get something. However, there’s often also an indication that it should be about values, in the sociological definition: what is good, or what is desirable? It’s that second idea of values that I will focus on here. Moreover, I’ll show how people – human beings – are what’s missing from discussions around value in music and often even in the production of music.
There’s a reason why innovations get picked up when they do. Part of it is technological maturity, but a much harder to see convergence of trends is often key to things taking off when they do. The past years have seen creators calling for fairer compensation, trying out new business models through ‘the creator economy’, people being overwhelmed by infinite social media feeds & recommendations, and an ever-increasing normalization of digital payments in general, as well as payments for digital services. The latter two being far from widely adopted in most countries even 10 years ago.
The emerging web3 is a cultural moment. It builds on top of what has come before. While not everything will move towards web3 tech stacks, there will be a consumer expectation of services to behave more like the principles common in the web3.
Here are some of the most important ones for the digital music landscape.
A common issue creators excited web3 run into, is that their fanbase might not be familiar yet. There’s a feeling of needing to port folks over, to educate them, to help them get set up… This may not be necessary. There are lessons we can draw from the past.
We’re going through a shift. Many of the novel concepts of ownership, autonomy and more equitable ways of distributing value across ecosystems of creators will stick. Some of the tools we are already using for this will stick to. These shifts have happened before.
After the NFT money hype this past spring, we moved into a space that focused more on the utility an NFT can carry. Taking a cue from the world of gaming - with their skins and items - musicians began to experiment with digital collectibles. Not only does this idea of the collectible allow for good story-telling, it’s also a way to bring non-crypto minded fans into a Web3 environment. All of this seems beneficial to both artists, who can create connections with their fans, and Web3 enthusiasts, who see more people creating wallets and generally getting their feet wet in our blockchain ocean.
I’m personally also of the opinion that utility is an important factor in both the adoption of NFTs and in getting people to stop talking about NFTs and start talking about what the tech can do as a tool. That said, utility in music isn’t a new concept. So if we want to think about what the utility of music is, let’s talk about the framework those ideas sit in.
I tend to think that the primary utility of music is that it brings people together. But there is, of course, much more that music does. Music offers rhythm and groove, euphoria and celebration. Music can change a mood and reduce pain and anxiety. In other words, music has a physical, physiological, and mental impact on us. This is also immediately why it brings people together: it’s ingrained in us.
We live in an attention economy. How long have we lived in an attention economy though? Is this a social media thing? Or is it an internet thing? Can we trace it back to cable TV? Or perhaps to the third industrial revolution? The first industrial revolution? The moment attention became a commodity is perhaps the moment that more and more people had leisure time. As this notion of leisure extended to a broader class base of people - at least in Europe and the USA - in the 19th Century, those same people also had more disposable income. This combination birthed a leisure economy. From that moment on, it became common place to spend money on things that entertained us. As this economy has grown, it has led us to this moment:
So, if we live in this attention economy and ever more attention is consumed where does it stop? Can we put more into a minute than what we see on this wheel? What does that mean for the music you want to put out? How will you stand out from the raucous noise surrounding everyone’s ears? How do you get people to listen? Or should we be asking very different questions to define success and growth?
Hic et Nunc was a successful NFT marketplace until it was suddenly, and without warning, ‘discontinued’. It was part of the way many artists had started making their living. Imagine Spotify, SoundCloud or TikTok suddenly calling it a day and shutting down.
However, due to the decentralized nature of the technology, this is turning into quite a different story than if a web2 platform had gone down without warning. The community is regrouping, rebuilding, and improving on mistakes from the past. Nothing important was lost.
Rather than on Hic et Nunc’s own servers, all the important information was stored on Tezos, a proof-of-stake blockchain. That data includes:
In last week’s MUSIC x Web3 roundup, I quipped that I could write these on a weekly basis. The two main topics I’m currently most engaged with in music are community and web3, so LFG: another week, another roundup.
tone is a music bot for Discord that’s designed to pay artists. It’s being developed by the sone DAO, which was kicked off by members of the Topshelf Records team and is exploring what a record label can be in the new web3 context.
Edit, Nov 12: at time of writing, tone is a work-in-progress. An MVP exists on the sone DAO Discord.
The Web3 is about the "fundamental reorganisation of the internet towards ownership, data portability & being able to ascribe value to our digital assets." This quote, by Zoe Scaman who's also behind the New Creator Manifesto, perfectly describes what has so many people so excited to work with DAOs, NFTs and tokens.
At this point in time, it takes quite a lot of onboarding to make the web3 click for most people. Until it clicks, a lot of what's happening understandably looks like a grift. Or, to be more accurate, it's hard to distinguish the grifts from the genuine attempts to reorganise the internet towards something less extractive. For some people, the moment it clicks is when they start using crypto wallets to login to services and take their decentralized username along for the ride, which is why I've recorded a primer to get folks set up to do exactly that.
What may also help make things click is hearing about relevant examples of this reorganisation of the internet. Currently, there are probably a dozen or two experiments every month that may contribute to the reorganising of music's digital value chain in a way that benefits creators, fans and their surrounding communities more directly. Here are some of the ones I've come across recently.
In the heyday of the CD age, it was hard to make it as an artist. But there was a blueprint for what needed to happen. All that changed with peer-to-peer file sharing. Recorded music revenues tumbled and execs across the world panicked. What happened in the aftermath of Napster was never about musicians, it was always about bringing the overall revenues back up again. Musicians were never a part of creating the new infrastructures to achieve this. Subsequently they’ve been left without control of the systems they work in. This has been a feature of new technological developments taking hold in the music industry. In the past years, new technologies have brought control of ownership to artists. However, has this gone at the expense of what we have for a long time considered the final product: finished songs and albums?
Musicians have started to treat their fans as people they interact with on deeper, more personal, and more creative levels. This started with crowdfunding platforms, where fans could sign up for perks, special mentions, and unique merch if they paid the artist before they created their music. This trend grew with subscription models. Through these the artist extended the way they opened up to their fans. In the same breath, fans agreed to provide recurring revenues for their favorite artists. In between, we’ve seen the rise of micropayments and tipping features as musicians became part of a broader creator economy. The relationship between artist and fan deepened and the holy grail became 1000, or 100, superfans for each artist.
On the one hand, Web3 is going through its own decades-long development and adoption cycle. On the other hand, we see fast-moving changes in the way artists and their fans, or broader communities, interact. By taking a look at the intersection of these two developments we can take stock on where we’ve come from, and what we can do to push for good growth. I’ll use music as a case study, but as a whole this can be applied much more broadly.
Economics and community
I’ve previously referenced Carlota Perez and her lifecycle of technological revolutions. Earlier this week, Ben Thompson wrote about this same topic in relation to the adoption of crypto. His point centres on defining which period of the crypto-tech-revolution we are in.
This piece addresses two common questions and critiques about NFTs:
Given music’s history with ubiquity, including the economic effects of the sudden shift from paid to free post-piracy, I think these are two excellent critiques to explore the value of NFTs in general and for music specifically.
A recent project called Tunes used AI to generate 5,000 unique NFTs. They’re songs, or rather, shells of songs - missing artwork, audio and an artist. That’s intentional. They serve as prompts for people to iterate on, tapping into a recent trend in the NFT space popularized by another project called Loot. Let’s dive in.
At the end of August an NFT project called Loot dropped. People could claim Loot NFTs for free by minting - only paying for the gas cost. Like NFT avatar projects, people did not know what they would get exactly after minting. Unlike other NFT projects, Loot was stripped from everything except text.
You may have heard of CryptoPunks and Bored Apes. They’re NFT series of 10,000 unique and randomly generated images of characters. They’re also 2 of the most well-known examples of ‘NFT avatars’ - a trend which has exploded in the crypto space of 2021 and is set to permeate subcultures once they move into the web3.
Here’s how, and why.
We’re all full of the new Kanye West record, his open work-in-progress way of putting the record together and, of course, his Donda Stemplayer. This will be the future, a future of more transparency in the creative process of artists, and with amazing generative music that allows fans to become creators. And yet, each artist needs to be a content machine. Another perspective on the Donda success story is how it created tonnes of content, some of it experiential and other parts more digital. It dominated the news because it continuously dripped content into the world. This is not for everyone.
If we think back to Bach and how musicians worked, created, and subsequently got remunerated in his age then that is actually our future. They worked for a patron and learn their craft through apprenticeship. From Mozart and Paganini onwards, we started to create an image of artists as mavericks and people who’s art would force itself out no matter what and no matter the consequences. But Bach and his contemporaries and predecessors were essentially craftspeople. Churches and royals would hire them to do a specific job: create music befitting certain events, holidays, or ceremonies.
DAOs are hot right now. In the world of blockchains if you bring together a couple of people who share profits, voting rights, or create some form of community it’s almost impossible not to be called a DAO. But the idea of a decentralized autonomous organization has a long history. Around 160 years ago the concept of the cooperative took shape in Britain. In a country industrializing at a fast pace, workers came together to form groups that shared responsibility and found ways to match industrialists who turned their businesses (mostly factory-work related businesses) into corporations. Of course, this long history of the DAO isn’t a new framework, but I will have a look at the what the purposes, struggles and general history of the cooperative movement can teach DAOs and those thinking of setting up a DAO.
Blockchain and Web3 tools, solutions, and services are akin to the changes seen in the 19th Century driven by the Industrial Revolution. If you look at Manchester, in the UK, in 1801 you found 85,000 people. By 1851, this number had grown to over 400,000. The areas surrounding Manchester had industrialised at an equal pace. Towards the end of this 50 year period a couple of major changes had taken place that still shape our economic society today. All three actually have their root in the year 1844.
The Web 3 is still rough around the edges, but the growth of value has been immense. Fertile ground for scams. This piece aims to achieve two things:
This is based on years of watching the crypto space, from ICO pump & dumps to the NFTs & DAOs of today, so I’m not talking about any company in particular. However, should you have the feeling what I say applies to your own, then following the advice laid out here can improve your public perception.
This week hundreds of people pooled money to collectively place a bid on NFTs and attain fractional ownership using a tool called PartyBid. They succeeded. 478 people teamed up to form the Party Of The Living Dead and secured one of the highly popular (and expensive) NFT collectible CryptoPunks. 25 people acquired an NFT released by music x web3 project Songcamp Elektra, calling themselves Elektranauts.
After purchasing the NFT (of which there exists 1), buyers get ERC-20 tokens which represent the fractional ownership (of which there exist proportional amounts for each buyer). In my recent piece about data autonomy & the creator economy I explained how tokens on blockchains can be used to create platform-independent social groups. This is an example of it: the fractional ownership of the NFT represents group membership. In the case of the Party of the Living Dead that membership is signified through 1,201,725 $DEAD tokens and in the case of the Elektranauts through 2,100 $SQUAD tokens, a reference to a term used by the Songcamp DAO. What if certain privileges were given to those group members?
In the platform economy, your account, your username, your social connections: none of those belong to you. If you break the terms of service, or are merely suspected of doing so, the platform may revoke any or all of those and take away everything you've created or built (after it has reaped the benefits in terms of ad dollars from it).
I understand why people may be skeptical of NFTs and smart contracts, but I feel the budding Web3 solves issues left unsolved by the Web 2.0... and the space is heating up as creator economy trends coalesce.
A few years ago someone reached out to me to see if I'd be willing to part ways with my 3-letter username on a platform. I wasn't really, but was open to consider it. I also knew that if I wrote that in an email and the platform to which I had registered saw that email, they'd have cause to revoke my account.
Musicians are often thought to be a resilient bunch:
Web3 is about ownership and collectives who share revenues, knowledge, networks. So, if we move away from thinking about resilience as an individual solution to individual problems we'll find a much more interconnected and interdependent collective. It's exactly that kind of collective that Web3 is being built for and around.
Music is one of the strongest forms of story-telling, it also has strong utility: it's useful in bringing people together; it's beneficial in its cathartic power; and it can be profitable for rightsholders. Music, however, rarely managed to put those two powers together to create massive value in a similar way to other art forms. Perhaps because of the fleeting nature of audio, or because of its ubiquity, what created value was rarely the music itself, but instead the future potential revenues associated with that music.
In a massive bird's eye view of the history of those potential revenue makers we went from a sheet music dominated pre-modern era into a 20th Century dominated by physical recordings followed by the current digital era. Among many other aspects, a part of that trajectory is a move from scarcity to ubiquity and a move from ownership to nonpossession. Music's inherent utility and story-telling abilities, however, position it perfectly to explore the value of NFTs and the underlying blockchain technologies. Moreover, those technologies allow musicians, fans, and organizers to create new forms of public sphere. In the thinking of philosopher Jürgen Habermas, a public sphere is a space where people convene to discuss and pinpoint problems and relate those to governments. The new, decentralized, public sphere brings the public and the government together into one group.
During the first real mainstream push for blockchains in 2017 Imogen Heap wrote for HBR that:
Blockchain has the potential to provide a more quick and seamless experience for anyone involved with creating or interacting with music. For example, listening to a song might automatically trigger an agreement for everyone involved in the journey of a song with anyone who wants to interact or do business with it — whether that’s a fan, a DSP (digital service provider such as Spotify or iTunes), a radio station, or a film production crew.
Setting up a Decentralized Autonomous Organisation (DAO) is a clunky affair when compared to more centralized variants. But maybe that's the point?
I was recently asked when DAOs will feel more like installing an app and there are definitely accessibility hurdles to be overcome for these organisations to become a common phenomenon in music. Here's my thoughts.
Firstly, I do think we'll see DAOs become mainstream, but not until some of the least user-friendly aspects are resolved. Setting up wallets, gas costs and treating mobile as an afterthought are 3 points of friction that come to mind. I'll dive into them here.
Secondly, the point of a DAO is to organise as a group on your own terms, using your own tools, and participating in the value you generate together. Part of that value may be represented as shares in the project (in the form of tokens) and part of it may be cash (in the form of cryptocurrency). That's complex and usually requires all sorts of documents, contracts and perhaps even notaries. So in that sense, the expectation to make DAOs as simple as installing an app is unrealistic, but further maturing of tooling will definitely make things easier.
In order to get more of you actively participating, this post goes into something more practical: setting up a wallet & acquiring an NFT. I've set it up as a video:
A step-by-step guide on:
This is a place for music and the new internet to crash into each other.
5 weeks later, 13 strangers had made roughly $34,000 USD through their creative collaboration which they sold as NFTs.
I watched from the sidelines excited to see artists find new ways to collaborate, be onboarded to Web3 tools, terminology, and mindset, and make money along the way. This was exactly the mentality I was referring to in my piece Thinking small: a meditation on scale vs success for artists which encouraged musicians to consider options beyond the rat race of streaming, charts, playlist pitching, and constant touring.