Why I don't believe in music royalty NFTs, yet

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.

  1. 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.

  2. 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.

  3. 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.

  4. 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.

My concern with web3 projects that depend on high degrees of centralization (e.g. having a single point of failure to distribute music royalties to NFT holders) is that it runs contrary to important core principles of why the web3 works.

I added the word ‘yet’ to the title to acknowledge that I may be missing something. I do think this is a direction to explore, but I’m not excited by the models I see yet. Perhaps something will emerge, for example DAOs aggressively collecting loads of music royalty NFTs (Hipgnosis DAO wen?). For now, if I can choose between buying a normal NFT of art or music created by an artist I love, or buying a music royalties NFT, I would go for the former rather than the latter. It’s simpler, more convenient, still grows with an artist’s success, and it’s more akin to the way in which I care about art.

For art’s sake.

Bas Grasmayer

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