Building the Investable Layer of Music, by 3LAU

A Creator’s Perspective: Music & Distributed Ledger Tech

Tokenizing music is still in experimental stages but my long-term vision is that digital collectibles will evolve into true fractional ownership in a song’s master recording rights, allowing artists to disintermediate the music industry and fans to gain from their success.

After brainstorming for months on a framework for tokenizing music content, I’ve come up with three integral elements that form the collectible layer of a song:

• A visual layer (The Song Artwork)
• An audible layer (The Tokenized Audio File)
• A physical layer (physical object that represents the song).

I’m excited to present this framework on Nifty Gateway for my first solo drop ever! On January 22nd, I’m releasing my first single of 2021 called “Everything” and leveraging Web3 to make it collectible.

Recorded Music Today

Of the $40bn music industry revenue in US, only ~12% is captured by artists.

Source: https://audius.org/

Over the past five years, many blockchain startups have turned to web3 to disrupt a heavily centralized music industry. Yet adoption proves to be a huge challenge when it comes to onboarding mainstream users. Artists are excited by disintermediation, recapturing the value that is otherwise collected by middlemen, but high gas fees, lackluster UI/UX and low fan conversion stand as barriers to entry that discourage creator participation.

Creators have always paved the way for mass adoption, as content drives users to try new platforms. As consumers grow stronger appetites for digital collectibles and high-quality content further pervades NFT platforms, I believe NFTs may become the fastest onboarding tool for fans & artists to join the web3 ecosystem.

Roneil Rumburg, Founder & CEO of Audius commented on how crypto is becoming one more tool for artists. “The web3 creator stack has so many tools someone can do to engage their community today relative to in the past. There’s a playbook now that includes everything from NFTs to sharing content on Audius, social tokens and beyond.”

Why NFTs?

Purchasing tokenized content adds a layer of tangibility to owning a digital asset, making NFTs the perfect vehicle for bringing music into the realm of collectibles. In recent months we’ve witnessed a massive spike in visual NFT sales, and thus accelerated creator adoption of web3 as a new form of monetization.

Source: https://cryptoart.io/data

Before we dive into specifics, let’s quickly interpret the value of a song and why songs should evolve from their raw-listenable form into an independent asset class.

To suggest a parallel example from the traditional art world: A painter may spend months, sometimes years on a painting before it finds a home. The most popular paintings are easily viewable from a simple google search, yet ownership is coveted and limited to those who can afford those rare beautiful pieces. Those collectors take pride in that ownership, regardless of how widely a piece of art is replicated.

Similarly, an immense amount of creative effort goes into the creation of a song, yet mass digital distribution has made it nearly impossible to capture the true value humans derive from listening to music. One song may have an incredibly profound impact on someone’s life, an aspect of music that $0.003 per stream doesn’t come close to representing.

I envision a future where limited edition NFTs of songs (or albums) follow a similar structure to prints in photography or lithographs in art: collectors are driven toward owning an authenticated copy that is digitally signed by the original creator or artist, simply because that collector has a deeper, personal relationship with the song.

The final evolution of music collectibles will take shape in the form of fractional ownership of rights where token holders participate in the upside of royalties that are generated by a piece of music.

Digital Music Collectibles

There are a number of paths a musician might pursue to bring songs into the digital asset realm. The first strategy lies in the production of audio/visual content, where digital art and music compliment each other as a visual NFT. We’ve seen many musicians collaborate with acclaimed animators to create this class of assets. I’ve personally teamed up with my art director, Slime Sunday, under a new alias SSX3LAU to create audio reactive visual pieces with unreleased beats. We have also seen incredible work from musicians like RAC, Boys Noize, and Deadmau5, just to name a few.

THROWING SHAPES

LIVE TMRW ON @niftygateway

Preview: https://t.co/bKMNqfXHF9 pic.twitter.com/CcJSmdipwn

— SSX3LAU (@SSX3LAU) November 13, 2020

The next step is more song focused, where an artist can establish a collectible layer of a new recording or an existing popular recording. January 22nd will mark my first personal experimentation with a song-specific NFT through the release of my first single of the year, “Everything.”

Furthermore, artists will issue NFTs that represent unreleased, exclusive songs that will never become available on traditional streaming platforms. The collector then has the choice to share that song if they choose to, while the audio remains exclusive to those who participate in the primary sale.

Music collectibles will have ancillary characteristics, with the potential to unlock special privileges for collectors, from access to unreleased music, backstage tickets, and eventually, retroactive royalty payments. These particular features will secure value in music NFTs long-term, and may influence a highly liquid secondary market for digital music assets.

Digital Music Assets

As more artists begin to explore the intersection of web3 and exclusive content, we will see a revolution in ownership of music rights. For independent artists, and musicians that maintain rights ownership, streaming services have multiplied royalties quite substantially in the past 5 years. While there’s still room for improvement, the consistent cashflows merit token issuances that efficiently distribute royalties.

Imagine an NFT that represents 100% ownership of a song or album’s master recording rights. The artist can then issue a DAO token that fractionalizes ownership of a song or album, while maintaining 51% ownership of the total supply. It may feel conceptually utopian, but a simple UI / UX could give anyone the ability to invest in music assets without the complexity of the underlying tech. Distributed royalties may take many shapes in the future, as artists further experiment with tokenizing songs.

Any digital asset that is purchased with the expectation of generating royalties has clear regulatory implications, may require KYC, accreditation, and restrictions on transfer. Yet, we’re not too far off from a world where both fans & investors can participate in the upside of a song.

Proof of Memory

The long-term use cases of collectibles will completely revolutionize the live music space by bridging the gap between artists and fans in extremely powerful ways. Imagine an artist’s performance at Coachella, featuring a new song debut that might not be released for months. Fans could claim a token during the performance by scanning a QR code displayed on stage, giving them access to the song in advance, supplemented by an exclusive proof of memory token from an incredible performance moment.

There’s limitless potential when an artist can combine NFTs with real world products and experiences from verified merch, to tokens that provide fans with meet & greet privileges. Many forms of artist-issued collectible tokens will have complete interoperability with real world events in the near future. Naturally though, both artists & fans will require tools that demystify the process, making both issuance, collection, & execution as easy as swiping through instagram stories.

Closing Thoughts

On January 22nd, I’m beyond excited to be issuing my first song-specific NFT, which I envision to be the first step on a longer mission to tokenize many facets of my artist career.

While the journey ahead is one that has yet to be paved, I’m eager to be plowing fertile ground with the support of the very fans who helped me get to where I am today.

In fact, many radical innovations start by looking like a game. I think there will soon be a turning point where NFTs go from speculative games, to an important building block for culture. Fred Ehrsam, founder of Coinbase & Paradigm, said it best during a recent conversation we had about the NFT space:

“To a casual observer, NFTs appear speculative today. Beneath that veneer is a powerful primitive which has the chance to redefine digital media ownership, becoming an essential building block to a next generation of applications.” – Fred

Tie it all together and we’ve got a new playbook for artists to be sustainable in a digital age.

Game on!