Despite being a beloved industry by many fans and having produced some of the greatest works of human history, the music industry has proved a hard nut for the digital age to crack, especially for artists.
As digitization has swept over most of the world's cash generating assets, artists are finding that this is not the case in the music industry. This isn’t to say that the consumer facing digital streaming side hasn’t changed the business model of music - it has. Rather, it’s on the backend. The legal side that matters for artists. Outdated contracts and lack of coordination between rights holders and counter-parties are holding artists back from taking control of their music royalties and using them the way they’d like.
In this article we’ll cover 5 problems artists face in the music industry that are less well known:
- Music IP contracts are old, outdated and not digitally native.
- No easy coordination of value transfer between IP rights holders and counter parties
- No price discovery or access to liquidity for artists’ assets
- No way to share profits with fans and build dynamic fan communities
- Creators are underpaid and are forced into a ‘one price for all users’ model
The Problems in the music industry
Let’s explore these 5 problems artists in the music industry face.
1. The first major challenge is the outdated nature of IP contracts. Contracts are still stuck in an analog format, making it difficult to automate compliance and transferability. This lack of digital native contract agreements means that many IP rights agreements are offline in an online digital economy, which can create challenges in terms of tracking and enforcing rights. This also makes them non composable with online platforms and costly to onboard into the current existing marketplaces.
2. The second problem facing artists is the lack of coordination between IP rights holders and counter parties, such as record labels, performance rights organizations and global distributors. This can make it difficult to transfer value between parties, resulting in slow and opaque royalty payment processes, and delays in payments to artists. In some cases, revenue may be left entirely unclaimed - as there are misaligned incentives throughout this value chain (an unpaid artist is a distributor/labels cash float). This lack of transparency and efficiency in value transfer can make it challenging for artists to earn a fair income from their work.
Transparency regarding payments led to one of the largest public spats when Taylor Swift pulled her entire catalog from Spotify in 2014, citing the low royalty payments she was receiving from the service. This dispute highlighted the challenges over transparency in the industry, where artists saw platforms with millions of users, billions in revenue and yet paying out so little in artist royalties. Swift ultimately returned to Spotify, but the situation illustrates the need for better coordination and transparency between artists and industry stakeholders.
3. The third major challenge facing artists is the lack of price discovery and access to liquidity for their assets. While large, well known artists like Bruce Springstein or Bob Dylan can find buyers for their music catalogs and future royalties, the entire mid tier and long tail of artists can’t find a market for their music royalties. Because of problems 1 and 2 above, it's hard for financial investors to analyze music categories: rights and IP are opaque, cash flow can be delayed and unclear. This makes it difficult for artists to plan for their financial future and limits their ability to invest in their careers. Additionally, without a market for proper price discovery, it can be challenging for artists to determine the true value of their assets.
4. The fourth problem is the lack of flexibility and control artists have over their royalty streams and the inability to share profits with their fans. It’s incredibly hard to connect a royalty stream with fans or any other use really. This is both due to existing complications around securities laws as well as the legal fees associated in structuring this. Unlocking the ability to share financial upside with super fans and engaged communities can help artists to better engage with and support their communities.
5. Last but not least, the "one price for all users" model is a huge problem for artists. Today, artists really only have one business model: streaming and live shows. Users pay the same for a stream no matter who they are and what customer segment they belong to. This model doesn’t make sense in any industry and shouldn’t be the default in music either. It results in artists capturing a smaller share of music revenue, can make it difficult for artists to earn a fair income from their work, and can exclude many people from entering the industry altogether. To address this problem, it would be beneficial for artists to have the ability to engage directly with their fans and tier their offerings, creating new alternative revenue streams and enabling more artists to make a living from their art. This would not only benefit individual artists, but it would also help to foster a more diverse and vibrant music industry.
A possible solution?
At Original Works Network we’re working on a solution to all five of these problems.
Modernizing contract agreements to make them digitally native and more easily enforceable can solve many of the issues artists face. Digitally native contracts and the use of smart contracts (digital contracts that can be automatically executed and enforced using blockchain technology) will make it much easier for artists to take control of their royalties. Artists will be able to track and enforce their rights, and payments will be more efficient and transparent. This solution could even involve the development of new financial platforms and marketplaces that will allow artists to access liquidity, determine the value of their assets, have more control over their careers, and help them to create new revenue streams. Lastly, this solution could foster the creation of new mechanisms for artists to engage directly with their fans and share profits with them, building stronger and more dynamic communities around their work.
The music industry is facing a number of challenges, including outdated IP contracts, lack of coordination between rights holders and counter parties, lack of price discovery and liquidity for artists' assets, lack of control over royalty streams and inability to share profits with fans, and underpayment in the "one price for all users" model. These challenges make it difficult for artists to earn a fair income from their work, and limit the diversity and vibrancy of the industry. In order to address these problems, it is important for the music industry to modernize its practices and better support artists in their careers.
Original Works Network is working on a first of its kind web3 protocol to solve these problems.