NFTs are taking the creative world by storm, with artists worldwide capitalizing on this divisive new medium. For the music publishing world, this could mean a major, artist-favored shakeup. But will it actually happen?
NFT, Whodis?
Hands up if you know what an NFT is. Like, what it actually is. C’mon, nobody’s looking, no shame…Cool, me too. For the uninitiated, NFT stands for non-fungible token, which is techspeak basically for “unique item” but that doesn’t acronym as well, plus you get to say “fungible.” And once you remove all the pretense around them, they’re actually pretty easy to wrap your head around: at its core an NFT is an indisputable, blockchained, digital record of ownership in something.
As to what that something is, well, that’s up for grabs. You might buy an NFT that entitles you to an exclusive experience or a limited edition item in the physical world; virtually they can manifest as special items in a video game, (most popularly) unique pieces of virtual art or, as is the case here, proportionate rights to a piece or even a catalog of music.
In the Music Industry mystery still surrounds NFTs to some extent, but artists have caught on and capitalized on this new form of equity registration to retake control of their financial independence, achieving this primarily through sales of rights to their music. How tenable is this relatively undefined marketplace though? Is there a benefit to decentralizing rights ownership in this way, or is there a more structured strategy to adopt?
Challenging institutionalized structures: can an old dog really learn new tricks?
Traditionally when you register a song with a rights organization or collecting society (think ASCAP, BMI, SESAC, PRS, or IMRO) all of the entities who own a part of that song (writers, producers, etc) are listed along with the percentage stake each party has in it. This is done so royalties are properly and proportionately recorded. There are different types of royalties and specific instances for them, but in the most general sense, every time a song is played it’s reported by any one of many global collecting societies and documented on centralized monitoring platforms and accrues royalties. Rights holders are then paid out, usually on a quarterly or biannual basis. One of the responsibilities of rights organizations, therefore, is as keepers of royalty ledgers.
You would think that using NFTs to regulate this practice is ideal, then, especially in an area of the industry that is often muddled and under scrutiny. And yet, though NFT ownership is irrefutable because it’s recorded on the blockchain, the biggest impediment to their use in publishing is that they are “just” ownership records. They do not and cannot also function as a system to register a transaction of every stream or radio play. That’s really the biggest counterargument to NFTs’ use in publishing at the moment: the successful (i.e. organized) registration of rights holders relies on deeply entrenched off-chain processes, IP/copyright laws, and publishing norms. To implement NFTs or Blockchain in general for rights management industrywide, that ecosystem needs to catch up to the tech, likely requiring an entirely new infrastructure.
As it turns out, there are some really formidable startups working to make that happen. One of them, Opulous, FKA Bluebox, is backed by Ditto Music and just closed a $6.5M funding round to amplify their suite of tools, which they hope will result in “higher collection rates [and] massively reducing the loss of earnings currently experienced by artists”. As a step towards regulation this is fantastic, but ironically many (mostly independent) musicians hope the “NFT-as-rights” space stays in the gray. Pretty soon, though, that might not be the case.
The old dog says: “Maybe”
We might say, diplomatically, that Industry institutions have historically been more pro-corporation than pro-artist. As a result they’ve necessarily stayed away from unregulated spaces. But as NFTs’ presence in the Industry becomes more and more regular, a domino line of companies are making it clear that NFTs are indeed part of their growth and development strategies.
A personal favorite, Hipgnosis has a sweeping plan for NFT incorporation. Founder Merck Mercuriadis wrote in the company’s annual report: “The NFT space is also a focus and we aim to ensure our artists are collaborating with some of the leading creators in the crypto art space. This includes not only the potentially lucrative NFT landscape but also increased activity […] utilising our copyrights which will lead to significant upside in revenues.” While not addressing publishing rights explicitly, if the biggest song trust in the world is looking at NFTs as a key component of their development, you can bet others are following suit.
On the other hand UMG, who are in fact the biggest rights holders in the world, have made it explicit they’re steering clear for now. In a May Billboard article they confirmed they were “no longer accepting letters of direction for the sale of royalty streams” which will have a palpable effect on the use of NFTs as shares in royalties. It’s a strong public stance to take — it immediately opens the opportunity for one of the other Majors to trailblaze — but it also makes sense: until the Industry calibrates their models for NFTs, UMG’s hesitancy to jump in will signal to the rest of the publishing world that as a whole it isn’t ready to leap into the NFT ecosystem. An ecosystem that, by the way, is really, really bad for the actual ecosystem.
The decidedly un-green elephant in the room
It’s no secret the blockchain is horrible for the environment and by extension NFTs are too. While the Music Industry is currently focusing on the rights and administrative intricacies around NFTs, their environmental impact is a vital point that all businesses have to consider when deciding how to utilize NFTs, if at all, if for no other reason than to establish a CSR policy around them (yay intersectionality!).
Nobody knows quite yet the extent or true severity of the toll the blockchain — and Big Tech as a whole — has had on the world, but none of the preliminary studies are particularly promising. While it doesn’t warrant faster development of that Mars colony, it’s a crisis compounded by the dual dynamics everyone involved will have to reconcile: a new and empowering creative outlet that is also an environmental nightmare.
So how do we allow artists and Industry to capitalize on NFTs without further destroying the planet and sapping our already commoditized culture more than it already is? (There’s a strong argument and huge cohort that believes NFTs are pointless cash grabs). The simplest answer is to promote companies that offset their NFT-fueled carbon footprint, and by streamlining their purpose in the industry as a whole. Is it better for an artist to use NFTs to produce umpteen versions of an album cover, or to use them to demystify and, forgive the (IMHO horrible) term, democratize publishing perhaps once and for all? I’d argue for the latter, but that will take all stakeholders getting on board.
An old dog, new pup, and an elephant walk into a bar…
Not a joke — an opportunity. I believe there’s a happy medium to be found amidst all this. NFTs cannot, should not, and currently are not a vehicle to circumvent existing copyright law. In that vein, there are three important macros to consider. Contractually, creators will have to be sure they actually have the right to sell the royalty shares they want to divest; organizationally, labels will have to develop safeguards and monitoring processes for royalty receivers who are not in contractual privity with those labels; and operationally, publishing and collection societies will have to devise a way to handle royalty distribution to what could potentially be thousands more than the usual handful of contributors on a track.
But that’s what makes this necessarily collaborative process so exciting! NFTs have the potential to bridge the old publishing world with the new. The current systems are both inefficient and expensive to all involved. But to see royalty administration brought on-chain would mean that the publishing process becomes inarguably auditable, cheaper, and, most importantly, transparent. As a result, Industry-first power holders would no longer be able to employ those institutionalized practices that are notorious when it comes to extracting capital but are massive impediments to creative and artist-first commercial growth.
In fact, NFTs might be just the thing to allow everyone involved to capitalize as much as possible: more stakeholders means more investment, more popularity, and faster, stronger asset growth. So start non-funging, people.