[20] Pls don't stop the Music (NFTs)
Dear Readers,
Hope you had a great weekend!
This week, we wanted to learn more about Music NFTs. Why are a bunch of people talking about it? Why do artists like it? Why are fans rushing in? Surely, we all can’t be that wrong… so we went down the rabbit hole 🐇🐇🐇🐇
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Have you ever stopped to think about how big the Music category is?
Forget the dollars and statistics for a second, and instead think about the relationship most of us have with music.
For many of us, music is deeply personal.
In this vast category of content, there is always something for everyone.
For some of us, music transports us back in time… we remember how we felt listening to certain tracks for the first time, or remember listening to a song on repeat because that’s what we needed during that part of our lives.
For others, music allows them to connect with strangers and find community. It allows them to express themselves and create.
No matter how you look at it, music is a huge part of our lives and our global culture… and it’s been that way (in one way or another) since (likely) the dawn of time.
Music is so special because it has a different personality for everyone.
🎶 🎶 🎶
So for something so special to us, can you guess what the average artists and creators make?
$636. (This is the average amount streaming giant Spotify paid its artists in 2021. And while there are other figures, this is a good proxy).
🤯 That’s it? Is there a typo? Why is this? 🤯
The Streaming Model
The economics of streaming boil down to a system that divides a total sum of revenue (generated from subscribed listeners) by total number of streams: artists with more streams take a larger share of the revenue.
It’s a simple business model: you are paid for how many listeners stream your content, so the quantity of streams you have dictates your payout.
But in this model, only 0.2% of Spotify’s artists earn on average $50K or more per year from streams, with 90% of all streams received by the top 0.8% of artists.
So, most of the subscription revenues go to the top / most famous artists, with the rest being divided among the thousands of other artists on any given streaming platform.
And even for those top artists, those streaming dollars aren’t all going to the artist, they need to be shared with the labels, etc.
A double-edged sword: artists signed by major labels benefit from the large marketing and promotional resources to attract streams, but see the benefits of those efforts largely paid back to the label (in some cases, around 80% of royalties).
This means a user’s support for an artist ends up being just fractions of pennies. In this model, a user cannot effectively support their favorite musician by simply streaming music.
The platforms are designed to reward engagement as defined by quantity of streams and listens, with little other avenues for users to financially support their favorite artists. The only way users / fans can support an artist today is through a numbers game, but the user’s individual streams barely make a difference in an artist’s success anyways.
So…
😭 Musicians are barely making money through streaming.
😭😭 Fans and Listeners can’t support their favorite artists in the way they want to.
😭😭😭 Musicians feel exploited.
😭😭😭😭 Fans and Listeners feel powerless.
An industry ripe for disruption 🧗🏻♀️
This opens the door to disruption.
Artists (and potentially a lot of users…) want change, but the streaming platforms want to preserve much of the status quo. Innovation is difficult due to the large barriers standing in the way of disruption: taking on a major streaming platform like Spotify, Apple or YouTube is a losing battle.
To create a new channel, a new company or platform that values artists properly is an uphill battle with little proven success. For example, a platform like Tidal has a mission to pay artists more… but the platform still faces mass adoption challenges.
In our current world, music streaming values scale where “more equals better”.
Here's where NFTs are interesting to explore: they offer a customizable platform for musicians to gain control over their work, directly engage with their fans and give their community more power.
Musicians can distribute their work through NFTs.
They can decide how many NFTs they want to release and at what price… and potentially with different tiers, etc. This gives more devoted fans an opportunity to support their favorite artists in a more substantial way.
When NFTs are resold on the secondary market, the artist also earns a royalty (the percentage also decided by the artist), thus providing them earnings for every transaction.
This lets the artist and fans set the clearing price for the work… after all, value is in the eye of the beholders. 😄
But it doesn’t stop there… in an NFT-based model, fans can take on more roles in an artist’s community… blurring the lines between what it means to be a fan. For example, a fan can become a psuedo-investor / capital provider to help an artist they believe in get off the ground, and in return they own something (the NFT) that may become valuable as the artist gains success.
And by the way, NFTs are programmable, so we are barely scratching the surface here on what an artist can do with NFTs.
🤔 🤔 🤔
Let’s revisit the $636 avg. pay per artist paid out by Spotify in 2021.
Thanks to a16z’s 2022 State of Crypto report, we have credible numbers on how NFTs are uplifting the creator economy… albeit NFTs are early and not as established as the current model.
The $636 avg. pay per artist is in stark contrast with the economics of what we are seeing with NFTs.
The average revenue per creator through NFTs is $174K!! That number also includes secondary sale royalties the creators are receiving. (Of course, this figure covers all creators, not just musicians.)
Music NFTs have shown both early success and promise: 3LAU sold 33 NFT albums for ~$12 million. Top artists like the The Weeknd (who has 76M monthly listeners on Spotify) have created their own NFT projects.
But even greater than the financial upside of the NFT model is the fact that this opens the door for artists to become more in-tune with their listeners and take on more creative ventures.
With music NFTs, fans and listeners can now support artists in a more direct way:
If artists are chasing virality, they need to optimize quantity of listeners on the platforms… thus they begin to lose connection with their most devoted fans because they have to play the numbers game just to survive economically…
In the NFT model, artists can focus on the true value of a (devoted) fan and their communities.
The Value of a Fan
The quality over quantity of fans / supporters became popularized 14 years ago in the hit article “1,000 true fans” by Kevin Kelly.
The concept is simple:
“To be a successful creator, you don’t need millions of dollars or millions of customers, millions of clients or millions of fans. To make a living… you need only thousands of true fans. A true fan is defined as a fan that will buy anything you produce.”
A true fan is one who is willing to go above and beyond the normal approach (streaming in this case) to support an artist… they may attend a concert, tour, or buy merchandise, etc.
1,000 fans has laid a foundation that has evolved further in the digital age.
Li Jin (GP at Variant Fund and former Partner at a16z) wrote a piece on only needing 100 true fans… which follows a similar logic to 1,000 True Fans. But now, with the expansion of technology, you can connect even “truer fans” directly to exclusive products & projects that they’ve been willing to support.
Of course this all sounds great on paper, but will we, the fans, actually pay more to support our favorite artists?
In fact, this is already happening…
Platforms like Patreon have had huge success and have pushed the envelope in creator monetization and value capture. Patreon utilizes a tier-payment structure to allow content creators to choose how to divide their content options.
Fun Fact: Patreon’s founder Jack Conte was a musician, and he started Patreon after seeing how little revenue he generated from his YouTube success.
NFTs push (true) fan support of creators to the next level. It gives fans another avenue to support and engage with their favorite musicians in a more direct way.
And it gives both the artists and the fan the opportunity to co-create value (i.e. fans do more to support) with a chance to capture the co-created value.
(See our article on Value Creation versus Value Capture)
So what does this look like?
If you are a super fan (or true / truer fan), you are more likely to support with greater dollars and engagement than, say, the average fan.
Super fans might pay more for more content they’d like, while average fans might continue to stream the artist’s work without committing more money, time and effort.
This ties back to the value of true / super fans: you only need a few who are willing / interested in paying more to succeed. The rest of the fan base, which will be the majority, can (still) support in a more traditional sense.
And remember NFTs are very early in their lifecycle… as NFTs mature… innovation in NFTs will help scale, lower costs, and introduce mechanisms that help artists find the middle ground between different types of support.
If the promise of NFTs proves to be true, then we might see a world where:
🎸🥁🎹 More artists will be empowered to create than ever before because the economics can now make sense!
🙋🏽♀️🙋🙋🏽♂️Users will be more empowered to support artists beyond just being a fan and a listener… instead they will become part of a community (again with shared economics).
Empowering Artists and Fans
With NFTs, the economics of artists are changing. Our roles as fans and listeners are also changing.
More and more, as a fan you are able to support your favorite artists in new ways.
Economic models rewarding the artist and the fan are evolving — empowering artists both financially and creatively.
Your favorite artist can generate more revenue. That revenue can open doors to new projects, community building, and features that would otherwise be virtually impossible in the current state.
The future of music is happening, the future of the music industry lies in disruption.
Like most Web 3 topics we write about at Life in Color, we don’t know how this will all play out.
But when we think about Music NFTs, we channel our inner Rihanna…
Please don’t stop the music!
Are you listening?