Wednesday W.O.W - Tokenising Music Royalties 🧩 🎧💸
[5 min read] Your mid-week bite sized treat on emerging tech on our journey to the Metaverse. Learn about why tokenising music ownership & royalties is such a promising use case for blockchain.
A nibble of knowledge in your inbox every Wednesday with a simple format:
🇼 What the technology is.
🇴 Objective(s) - what is it trying to achieve, with some examples
🇼 Why it is important.
This is week 46 of the 520 weeks of writing I have committed to, a decade of documenting our physical and digital lives converge.
🇼 What is the tokenisation of music royalties?
Imagine a world where musicians can seamlessly digitise their work, granting them more secure and transparent control over their creations. This is the essence of tokenisation. At its core, tokenisation leverages blockchain technology, allowing musical assets to be represented as digital tokens. These tokens can take on various forms, the most notable being Non-Fungible Tokens (NFTs). An NFT can represent a single song, an entire album, or even an artist's brand. With tokenisation, musicians are equipped with a robust toolkit to establish new revenue channels and meticulously track royalties, payments, and contracts.
Tokenisation breathes new life into the music industry by facilitating the secure transfer of tokenised musical works from artists to fans. It underpins a crucial transformation - shifting from traditional, opaque systems to transparent, digital ecosystems. This shift empowers musicians by increasing the visibility of their intellectual property and the clarity of their rights and contracts.
In this context, Non-fungible tokens (NFTs) are the stars of the tokenisation show. These digital tokens are veritable keys to the music kingdom. When you own an NFT, you hold a unique digital representation of a song, album, or brand. Beyond this, NFTs are versatile; they can track payments and royalties, serve as the foundation for digital asset-backed investments, and fortify music against digital theft or piracy. The music industry, through NFTs, is entering a new era of control over its digital identity.
🇴 What is the objective?
The advent of streaming platforms like Spotify and Apple Music revolutionised music consumption but posed a significant challenge to artists. These platforms pay artists only a fraction of a cent per stream, leading to diminished revenues. This situation is akin to making an investment, say, purchasing SingularityNET tokens, and having your profits eroded by platform fees. Enter tokenisation as a potential saviour.
Tokenisation, as a concept, holds the potential to reshape the music industry as we know it. At its core, it leverages blockchain technology and cryptocurrencies to redefine how music ownership and royalties are managed and distributed. By tokenising music rights and royalties, artists can regain control over their intellectual property and ensure fair compensation for their work.
One of the primary objectives of tokenisation in the music industry is to enhance transparency. Historically, determining the rightful owners of music rights has been a labyrinthine process, plagued by ambiguity and disputes. Tokenisation eradicates this problem by providing an immutable record on the blockchain that clearly defines ownership. This transparency not only simplifies royalty payments but also fosters trust within the industry.
Two great case studies:
Last Dec, 360X Music, in collaboration with Germany's music rights management society GEMA, issued a security token for music royalties. These blockchain-based tokens are linked to compositions by German film score composer Hans Günter Wagener. 360X, a digital assets startup backed by Commerzbank and the Deutsche Börse, operates a BaFin-regulated marketplace for tokenised music, art, and real estate. This tokenisation allows creators to access early value from their work, potentially borrowing against future earnings. The partnership aims to empower lyricists, composers, and publishers, ensuring they retain control over their rights. These security tokens offer a unique investment opportunity, distinct from purchasing music NFTs, allowing direct investment in artists, authors, or publishers.
In late 2021, DJ Justin "3LAU" Blau launched Royal - a music tokenisation platform. It allowed the division of song royalty rights into crypto tokens, enabling anyone to buy and trade them. The platform, supported by $16 million in funding from investors like Paradigm and Founders Fund, allowed music enthusiasts to gain a share of song royalties and disrupt the traditional music industry. Royal used limited digital assets (LDAs) backed by non-fungible tokens (NFTs) to distribute real-world music profits through crypto, giving artists a new way to monetise their work and fans a stake in the music business.
🇼 Why could this play a major role in shaping the future of the music industry?
The music industry is no stranger to transformation. Over the years, it has evolved from vinyl records to cassettes, CDs, and now the digital era. However, the digital age has brought both opportunities and challenges, especially when it comes to compensating musicians fairly for their creative efforts. In the digital age, streaming platforms like Spotify and Apple Music have revolutionised how we consume music. While this has made music more accessible to listeners, it has also raised concerns about fair compensation for artists. The traditional model of album sales and royalties has been disrupted, leading to artists receiving mere fractions of a cent per stream. This situation has sparked the need for innovation, and that's where tokenisation comes into play.
Tokenisation promises to revolutionise the industry by cutting out intermediaries, such as record labels and distributors. These middlemen often take a substantial portion of artists' earnings, leaving musicians with a fraction of what they rightfully deserve. Through tokenisation, artists can establish direct connections with their fanbase, eliminating the need for these intermediaries and increasing their revenue share. In addition to tokenisation, cryptocurrency plays a pivotal role in shaping the music industry's future. Cryptocurrencies like Bitcoin and Ethereum enable micropayments, which are essential for compensating artists on a per-stream or per-download basis. This microtransaction capability can significantly benefit independent artists who may not have the backing of major record labels.
Furthermore, cryptocurrency addresses the issue of cross-border payments, which has long plagued the music industry. Artists often struggle to receive payments in various currencies, leading to delays and additional fees. Cryptocurrency offers a seamless and cost-effective solution to this problem, enabling artists to receive payments in a universal digital currency. While the potential benefits of tokenisation and cryptocurrency in the music industry are substantial, there are challenges to overcome. Cryptocurrency's volatility and regulatory issues require careful consideration. However, as the technology matures and regulations evolve, these challenges can be mitigated.
🎬 Bonus watch
A deeper dive into Royal, the music investments platform that aims to give listeners a piece of the wealth generated by songs.
That’s all for this week! If you have any organisations in mind that could benefit from learning about emerging technology, be sure to reach out. Educational workshops are one of many consulting services I offer.