Music royalties are a $45 billion industry suffering from slow and opaque IP rights management and payments. Artists and rights holders often must wait two to six months or longer to get paid from the day their music was streamed, and rely completely on the intermediaries throughout the music industry’s value chain. Most artists have no ability to leverage their royalties financially or for community building with their fans. Overall, music, as an asset class, suffers from a lack of transparency, liquidity and price discovery.
Web3 introduces new infrastructure, technologies and concepts that can solve these problems: self sovereignty over financial contracts, transparency, smart contracts and last, but definitely not least, distributed control over public goods. Let’s explore what a web3 solution to these problems would look like.
Web3 meets music
Analog contracts in a digital world
The music industry has long been plagued by a lack of transparency, slow royalty distributions, and difficulty in tracking ownership and rights. Fortunately, web3 technology and smart contracts offer solutions to these problems.
Smart contracts are self-executing contracts with the terms of the agreement between people directly written into lines of code. This means that all parties involved in a contract can trust that it will be executed exactly as written, without the need for intermediaries or third-party verification. It’s a program that runs automatically.
In the music industry, this can be applied to royalty distribution. By using smart contracts, royalty payments can be automatically distributed to all parties involved in the creation of a song, accurately, quickly and transparently. This eliminates the need for manual tracking and distribution, which can often lead to errors and disputes as well as delays in transferring royalties.
Royalty payments sent to a smart contract, instead of a bank account, could enjoy all of these improvements. They would be sent immediately to the rights owners who could decide to split the royalties further to their fans, family or whomever they choose.
Managing IP via smart contracts could also simplify the legal work needed to sell, redistribute or generally manage IP rights in a global licensing industry. Today, the legal fees for managing contracts outstrip the actual income that 95% of songs generate. This prevents artists from managing their songs, cash flow and IP as they wish.
Transparency, liquidity and price discovery
Solving the problems of transparency, liquidity, and price discovery for music assets, can be achieved through the tokenization of revenue streams.
Tokenization is the process of converting a physical or digital asset into a digital token. That digital token can then be used, stored or traded on any digital platforms, including blockchains. In the case of music, this could involve creating tokens or tokenizing royalties from a specific song or album and linking them to a portion of the revenue generated. Essentially, the owner of the token receives a portion of the revenue generated from the song.
Doing this requires collaboration with the music industry to send those revenue streams to the token in the first place. However, once the revenue is sent to the blockchain, the use of smart contracts ensures that all parties involved in the creation of a piece of music, from the artist to the record label, receive their fair share of the revenue generated by the token. Since the blockchain is publicly visible, this provides a high level of transparency in the distribution of royalties.
Furthermore, the tokenization of music assets allows for increased liquidity, as the tokens can be easily traded on blockchain platforms. This opens up new avenues for artists to generate income from their work, as they can use the tokenized future revenue streams as financial collateral or simply sell them directly to fans or on open markets.
Increased liquidity and transparency will lead to improved price discovery for music revenue as an asset class. This will attract investors and more capital which will further increase the value artists can derive from their assets.
Interoperability and new fan communities
Interoperability refers to the ability of different systems, platforms, and technologies to work together seamlessly. Tokens built on web3 enable a high degree of interoperability. Tokens created can be used for different purposes - some financial as discussed above, but some will be aimed at fan engagement and community building in ways we haven’t experienced yet.
For example, artists could create a token that represents a VIP experience at one of their concerts, which fans can purchase and is linked to revenue streams associated with that very concert. They could also be redeemed for special access and perks, unlock exclusive content or merchandise on the artist's website.
The ability to connect different building blocks in a myriad of different ways will unlock new creative ways for artists to engage with their fans and for fans to engage with each other, all built on the transparency and interoperability of web3 technology.
Can web3 solve music industry problems?
There are many problems facing artists in the music industry today. The structure of the industry prevents artists from taking full advantage of their art and the financial revenue their art produces. Web3 offers solutions to many of these, such as lack of transparency, inadequate royalty distribution.
By using smart contracts and tokenization, artists can create unique tokens that represent their music and attach a portion of the revenue generated by those assets to the tokens. This allows for transparent distribution of royalties and opens up new avenues for artists to generate income from their work.
Interoperability in web3 also allows for the creation of decentralized fan communities and increased fan engagement.
Overall, web3 technology and smart contracts in the music industry can provide much-needed transparency and fairness, while also supporting the livelihoods of artists and those working in the industry. That’s what we’re building at the Original Works Network.