Why Classical Musicians Should Care About NFTs

Posted December 23, 2021

  1. Summary

  2. Problems with streaming for musicians

  3. Problems with digital downloads for listeners

  4. Solution: NFTs

  5. What NFTs offer to listeners

  6. What NFTs offer to musicians

  7. Tempering expectations


1. Summary: NFTs are the future of the recording industry, and musicians stand to make more money from NFTs than streaming. This is because NFTs introduce scarcity into the digital market place, decentralize distribution so that a handful of major streaming platforms do not have all the leverage over millions of un-organized musicians, and also solve some of the problems that consumers have with buying digital downloads, CDs, and Vinyl.


2. PROBLEM: Streaming sucks for musicians. Spotify themselves admit that they pay out an average of $0.004 per stream, and musicians as a whole receive only 12% of the revenue generated by streaming because collective bargaining is unfeasible. For comparison, NFL and NBA players capture 48-50% of their leagues’ revenue. And of course, streaming has eaten into other forms of income for musicians; digital downloads, CDs, and arguably even radio royalties and ticket sales. 

Furthermore, streaming has the drawback that algorithms and popularity reinforce the financial success of artists “at the top.” This has a disproportionate effect on even the most successful classical musicians, because in the broader musical landscape, we are never “at the top.”

A personal example of all this is my recording of Schubert’s Arpeggione Sonata with Pierre-Nicolas Colombat. Via CD Baby, our recording was distributed to a bevy of streaming and purchasing sites, most notably iTunes, Apple Music, and Spotify. In a little over a year that recording has received 631 streams from Apple Music and Spotify combined, and five sales on iTunes at $10 a piece. But we have thus far earned only $34.22 from all the CD Baby streaming and purchasing sites combined. If we run with Spotify’s estimate of $.004-per-stream we earned only $2.54 from those 631 streams - truly embarrassing for all parties involved - and excluding miscellaneous fractions of cents from other streaming platforms we made $31.68 from the iTunes sales. Not terrible for iTunes, but we’d also like to get a bigger share of that pie. 

I do not share this for pity - we expected as much going in, CD and Bandcamp sales have done well, and out main motivation was marketing - but the main motivation for making recordings shouldn’t be marketing: recordings should be genuine artistic and money-making endeavors. 

3. PROBLEM: Digital downloads suck for listeners. The prices just don’t make sense when compared to streaming. And the sense of ownership and ritual (not to mention better sound quality) that comes with a CD or Vinyl - being able to hold it in your hand, show it off, take the thing out, place it on the turn table, press play, and listen - is completely done away with, so why pay CD-level money for a lame streaming-level product? As for CDs and Vinyl, they have proven resilient but aren’t without their obvious drawbacks in this digital world.


4. SOLUTION: NFTs! 

NFTs, Non-Fungible Tokens (Non-Fungible means non-reproduce-able or imitable) bring scarcity into the digital marketplace, and can thus solve many of both musicians’ and listeners’ problems.

To be clear here, it is not the audio file that is non-fungible, but the “Token” attached to it by the blockchain (more on that in another article). So, yes, technically the audio file of a music NFT can be pirated, but the NFT itself can not be pirated. And more importantly, NFT revenue + pirating > streaming revenue.


5. What Listeners get from Buying NFTs:

  • Something that you can show off. While not physically tangible, NFTs, if you so choose, can be visible to the public in your crypto wallet. They are also finding their way into gaming, Twitter, and the off-touted “metaverse.” Is this in many cases a luxury status symbol and people forming their identities around things they own? Yes, but so what? That’s been a behavioral constant for humans. As for the environmental costs of NFTS, it is entirely possible to have energy efficient blockchains (see Solana and Tezos), and they will only get cleaner and more efficient because they have monetary incentive to do so. The point here is that the tangibility and show-off-able-ness of NFTs lies somewhere in between that of streaming and CDs.

  • Community. This goes beyond being a fan. There are real communities that form around NFTs. Do an internet search and checkout the Discords and Twitters of some of the most popular NFTs; VeeFriends, Bored Ape Yacht Club, Cyber Punks, Based Fish Mafia, and Mike Shinoda’s inspirational Ziggurats project (that’s a music NFT). They have legit communities of owners, just like communities form around motorcycles, old cars, and rare books. It’s digital, but it’s real, and has even spilled over into RL (real life) events like NFT NYC and Art Basel in Miami.

  • Money! After you’ve listened to your music NFT as much as you want, you can sell it to somebody else! Maybe you sell it at a profit, maybe at a loss, but this ability to re-sell music eats into the biggest advantage streaming has. How often do you want to hear something just once, or maybe legitimately want an album but only end up listening to it three or four times? That reality makes it tough to throw down $25 to buy an album outright. But with NFTs you can buy it outright for $25 bucks and then sell it to somebody else. Maybe you make money, maybe you break even, maybe you lose money, but in any event it’s money you, the listener wouldn’t have. Don’t musicians lose out in this scenario, you might ask? No - and that’s where things get really interesting.


6. What Musicians get from Making NFTs:


  • Money! Digital scarcity allows you to charge a higher price. With music NFTs, you can control precisely how many NFTs are produced. That means there is legitimate supply and demand going on here to determine the appropriate price; unlike streaming which has unlimited supply and hence stupidly low prices.

  • Money! Royalties. You can set up a smart contract (more on that anon) so that you receive a percentage of secondary sales. You can pick the percentage - 10% is common, the highest I’ve seen is 25%, but that royalty on secondary sales is up to you and it’s yours.

Ex: You decided to make only 100 NFTs of your new album and they all sell for $20 ($2000). Then - let’s take a bad case scenario just to prove a point - those 100 people who bought it for $20 all sell it for $10. But you set up the smart contract so that you receive 10% of secondary sales. That’s another hundred dollars right there ($100). Then the price goes down again and they all sell for $5 ($50). And so on and so forth. Well, if that happens you’ve had 300 people listen to your album and made $2,150. If those people had streamed it on Spotify, and, let’s be generous, listened to all ten tracks on the album four different times we have 300 people X 10 tracks X 4 listens X $0.004 per stream (Spotify’s average) = $48. Last time I checked $2,150 is more than $48. And imagine if the secondary market price of your album actually goes up!

  • Money! Auctioning of streaming rights and royalties. Another tactic that has already proven successful is selling or auctioning off a percentage of the rights to a track. With smart contracts (more on that anon) you can sell or auction an NFT that will give the owner a percentage of the rights to a track, an album, or anything really. (This is an extremely fascinating application blockchains that bring liquidity and invest-ability into prohibitively expensive or illiquid assets, but I digress).

This gives musicians 1) more money upfront when the costs of recording occur 2) more guaranteed and consistent revenue 3) potentially more revenue. For fans who really love an artist’s work, it’s more often about being part of their music and career than a legitimate financial speculation (remember, streaming sucks). This tactic both takes advantage of NFTs and allows one to keep one’s music on streaming platforms where it is most accessible and visible.

  • Smart contracts. Smart contracts are not contracts in the legal sense; they are self executing pieces of code that are unique to blockchains. Smart contracts are why blockchains have so many applications for art, finance, business, - everything really.

The possibilities for what smart contracts can do are almost limitless. There are many standard back-end business transactions and contracts that can easily be moved over onto a blockchain (ie. ticketing, artist fees, revenue sharing, riders, trade agreements) and new possibilities that haven’t been thought up yet. 

  • Community. The communities that form around NFTs work both ways. NFT holders are people who like your work, believe in you, and want to see you succeed. You can keep them engaged, give away stuff, and have special opportunities for them - all of which adds value to the NFTs. It can be like having a membership pass into a community. And that community in turn is an excellent source of marketing for future projects.


7. Tempering Expectations.

The sum of all this is that NFTs have a tremendous potential to benefit musicians, but expectations should be tempered by what we know about economics and the nature of art. 

The molten surface of Web 3.0 (blockchains, crypto, NFTs, the “metaverse”) won’t cool anytime soon, but when it does there figures to be winners and losers. Certain blockchains and certain companies building apps on those blockchains will win out, and it will become more centralized - perhaps never as centralized as the monopolies that formed on Web 2.0, but more centralized nonetheless. That could again mean that a handful of companies have all the leverage over millions of unorganized musicians.

As for the nature of art, and perhaps I should specify High Art, it has always been sponsored by the Church, the State, the Aristocracy, or the Wealthy. In economic terms it is a positive externality, meaning it has a tremendous benefit to a third party (ie. neither consumer/payer nor producer) and those who make the art never get rewarded for creating that benefit to the third-party. Another way of putting that is that markets are very bad at creating art, which is why it has to be underwritten by the Church, State, Aristocracy, or Wealthy so that the less wealthy (the “third party” in economic terms) can still have Beauty in their lives. Burts of technology like the printing press and recordings have from time to time upset that pattern, but it has always returned to that norm. And maybe, after all, NFTs will remain a luxury status symbol and just a new iteration in that relationship.

Regardless, blockchains and NFTs, in some form or another, will be the future of the recording industry, and it behoves classical musicians to do their thirty hours of research and enter the fray now. 


References

[1] How Much Does Spotify Pay Per Stream? Streaming Payouts Comparison [2021]. https://freeyourmusic.com/blog/how-much-does-spotify-pay-per-stream. Free Your Music. 1 June, 2021. Web. Accessed 17 December, 2021.


[2] Graziano, Dan. NFL CBA approved: What players get in new deal, how expanded playoffs and schedule will work. https://www.espn.com/nfl/story/_/id/28901832/nfl-cba-approved-players-get-new-deal-how-expanded-playoffs-schedule-work. ESPN. 15 March, 2020. Web. Accessed 17 December, 2021. 

[3] Gough, Christina. NBA and WNBA Annual Salaries as Share of League Revenue in 2020. https://www.statista.com/statistics/1120689/annual-salaries-nba-wnba-league-revenue/. Statista. 14 October, 2021. Web. Accessed 17 December, 2021