How NFTs Are Providing Music Artists with Another Way to Take Back Control
For many years, record deals with major labels have been the be-all and end-all for musicians to gain recognition and acclaim, but this landscape has slowly been changing in recent years.[1] With the introduction of file sharing, entities such as iTunes allowed the public to buy individual songs rather than full albums, leading record companies to scramble to restructure deals with musical artists to encompass more streams of revenue.[2] Streaming services such as Spotify continued to wrestle control away from record labels, allowing artists to directly license their music for streaming without the involvement of a middleman.[3] Now, non-fungible tokens, or NFTs, are the record industry’s newest contender, and they may offer music artists the most control over their work yet.[4]
Musical works and sound recordings are generally protected under copyright law,[5] and songs usually have two copyrights, one for the music and lyrics and the other for the sound recording.[6] These copyrights are usually not owned fully by the artists themselves, but rather are owned in majority by publishers and record labels.[7] Because major record companies offer prestige, marketing capability, and financial support that music artists might not otherwise have access to, they are able to make deals that tend to be less than favorable to artists concerning intellectual property rights.[8] Often, the label will pay for recording and promotion of an album and pay the artist an advance, and in exchange, the label will retain the authority to license and profit from the recording, leaving artists unable to completely control the use of their music and seldom see profits from it.[9]
Because record deals vest corporations with most of the rights and the revenue, music artists have had to rely on more than album sales to make a living, with the majority turning to touring to supplement their income.[10] However, even this income is not fully protected from record companies. With the advent of streaming and a decline in traditional record sales, record labels have further involved themselves in artists’ revenue streams using so-called “360 deals,” which allow them to take a cut of the income made from ventures like touring and merchandise.[11]
So how might NFTs change these practices? NFTs have given artists an opportunity to retain the copyright and reproduction rights in their work while directly licensing ownership to fans.[12] NFTs are entities which store digital assets like artwork, videos, and music.[13] NFTs operate via blockchain, which is a “publicly accessible, transparent ledger” made up of data blocks which contain transaction information, such as timestamps and the digital addresses of both the seller and purchaser.[14] Because a copy of the blockchain is stored on each participant’s computer and the blocks cannot be edited or divided, these transactions are secure.[15] Each token can have only one owner, so if a musician were to sell copies of an album via NFT, each copy would be linked to its own token and would occupy a unique location on the blockchain.[16]
NFTs can also be tailored to artists’ needs using smart contracts, code that is automatically executed on the blockchain.[17] These codes authenticate ownership information and track the value of the NFT in addition to being capable of much more.[18] According to what the NFT creator wants, smart contracts can do anything from aiding in the copyright acquisition of the content of an NFT[19] to giving artists royalties each time the NFT is sold, allowing them to benefit when their NFT gains popularity.[20] These capabilities are allowing artists to retain up to ninety percent of the profits from sales, not counting additional royalties for future sales,[21] a boom compared to the percentages that artists traditionally see from the record industry.[22]
NFTs aren’t just useful for selling albums, artists have expanded the range of content that they’re offering fans and have found a number of new creative endeavors to profit from. While rock band Kings of Leon were the first to release a new album in the form of an NFT, they also offered two other NFT types, one containing exclusive audiovisual art and another offering—also for the first time—actual concert tickets.[23] In a show of exactly how much information can be communicated by smart contracts, these tickets offered front row seats to one Kings of Leon concert per tour for life and offered several other benefits as well, such as a personal driver to the show, time with the band, and free merchandise.[24] Music artists are also seeing new ways to expand into other areas of art. Grimes, for example, recently entered the NFT market with an art collection comprised of images and short videos set to original music, making nearly six million dollars in one day.[25]
While NFTs are proving themselves to be a formidable tool for well-known music artists, not all have been able to share in the wealth. Emerging artists and those who are signed to smaller independent labels lack the public recognition and demand that would allow them to benefit from releasing exclusive content in the form of NFTs.[26] Small artists might actually put themselves at a disadvantage by entering the NFT market; because the value of the content linked to NFTs derives from its scarcity, artists would have to refrain from distributing their work, therefore reducing their ability to build a fan base.[27] Additionally, the majority of NFTs tend to be purchased by cryptocurrency-fluent investors rather than average music fans, who might find it difficult to enter into such a new and complicated market, which further reduces the pool of potential fans for artists trying to gain recognition through NFTs.[28] Finally, independent artists might expend unnecessary time, energy, and capital in policing potential infringement of their NFTs.[29]
In addition to creating practical problems for independent artists, the emergence of NFTs has resulted in some misconceptions. Although NFTs offer a highly secure method of transaction, selling work as an NFT is currently not a replacement for obtaining a copyright in the work itself.[30] While an NFT cannot be replicated, the underlying content may be infringed if there is no additional legal protection sought.[31] Consumers must also understand that when they purchase an NFT they merely gain exclusive ownership of the work, not ownership of the rights pertaining to the work such that they would have the ability to reproduce or distribute it, unless there is an agreement to the contrary between the NFT creator and the purchaser.[32] Even if there is an express agreement, lack of precedent over whether ownership rights may be transferred via NFTs in the first place might result in some disputes.[33] The lack of precedent regarding NFTs could also cause disputes in a number of areas of settled copyright law, such as fair use[34]—the concept that unauthorized use of copyrighted works is acceptable in certain situations.[35]
Overall, NFTs have the potential to offer musicians a way to keep control of their work and bypass the giants of the music industry, but time will tell whether this tool will become more accessible to smaller artists and the general public.
Footnotes
