How web3 is going to disrupt the music industry, part 1

Unless you have been living under a rock for the past year, you have most likely heard the terms blockchain technology, cryptocurrencies and NFTs pop up more and more. Until recently, most musicians and artists would not immediately have associated these terms with their careers. NFTs seem to have taken the industry by storm, and we seem to be poised for the biggest digital revolution since the rise of streaming services. But what are NFTs exactly? How do they work, and how can musicians benefit from them?

What is an NFT, and how does it work?

To put it simply, an NFT is a non-fungible token, or key, that represents ownership of a unique digital asset. This can be anything, from a song to a photograph, a piece of digital art or a video. As it is non-fungible, it can’t be swapped for an identical token, because there is only one, but it can be traded or exchanged for something of equal value. Imagine NFTs as limited-edition signed vinyl records, with only a limited number in existence. NFTs can be bought or traded through a decentralised platform built on blockchain technology.

Blockchain is a relatively new system run by many computers around the world. Together, these computers run a digital ledger that records virtual transactions, like an open spreadsheet. The transactions do not have to be monetary. They can be an exchange of information that is time-stamped and cannot be edited, like an NFT. The benefit of a decentralised platform that runs on blockchain is that all users have free access to the tokens and are protected from fraudulent transactions.

What do NFTs mean for artists?

So what does this mean for the music industry? Why should you as an artist care about NFTs? NFTs have the potential to enhance the relationship between musicians and their fans, but also their relationships with streaming services, producers and record labels. NFTs offer artists a way to deal directly with their fans, without any middlemen. Nowadays most artists rely on digital music distributors or publishing and licensing services, such as TuneCore and Spotify, and they also depend on record labels, lawyers, producers and many more to connect their music with their fans.

According to a study by Citigroup, artists receive an average of only 12 percent of all profits from the sales or streams of their music. With current streaming models paying artists as little as $0.03 per stream, it is virtually impossible for musicians with a smaller reach to make a living from streaming services. The best thing about NFTs is that they offer an entirely new stream of revenue for artists, and let fans invest directly in an artist’s work, with the potential to make a profit. In this blog we take a closer look at how you can use NFTs for promotion, and where SmartLabel fits into this new world.

Using NFTs for promotion

Let’s look at an imaginary scenario with Celine Dion. She wants to increase her fan engagement around the world, so she creates a limited number of NFTs to be released together with her newest album. Each NFT is a digital token offered on a decentralised platform, and owning one gives fans all kinds of benefits. An NFT could be a WAV file of a special recording of “My Heart Will Go On” where she has the giggles. Something quite exclusive.

Owning one of these NFTs could give fans special privileges, such as access to all her concerts in Europe for five years, full backstage access during her world tour, or access to a special fan club on Discord or Telegram where she shares content just for her diehard fans. She could create a thousand of these NFTs and make sure that one in every 20 has an extra feature, an online meet and greet with the artist herself. Fans then know that if they acquire one of these NFTs, they get a song and special privileges, and possibly a rare reward.

These NFT rewards are extra valuable because there are fewer of them in circulation. As fewer exist, they are more in demand and therefore worth more. Holders can always choose to transfer their NFTs in the future if they are no longer interested, and with a bit of luck they receive more than they paid. A win-win, because they also make money on their investment in supporting the artist. And all proceeds from the NFTs go directly to the artist. Sounds great, right? At SmartLabel, we support artists all around the world with this NFT promotion service.

Musicians, fans and NFTs

Many electronic artists are testing the waters with NFTs. Justin Blau, also known as DJ and producer 3LAU, made headlines last year when he sold 33 NFTs to mark the three-year anniversary of his album Ultraviolet for a record-breaking $11.7 million. Each token holder got different bonuses, including a signed vinyl copy of the album and access to unreleased music. The highest bidder even got to collaborate on a song with Blau. This shows that what and how much each NFT offers is entirely up to the artist, which makes NFTs a great tool to monetise your fan base.

NFTs have yet to be perfected for the music industry, but it is a technology in motion, and we are helping to create it. Artists interested in NFTs should research the topic and know the potential risks before diving in. SmartLabel believes NFTs will change the music industry and help upcoming artists make a living from their music. But don’t put all your savings into NFTs just yet. We need to understand the risks and advantages of this new technology first.