Does the Music Industry Still Want NFTs?

Hello, readers. Slightly longer intro this week. Last month, I was laid off from SoundCloud with their recent cuts. I worked at the company for over four years with some amazing people but I’m certainly ready for the next step of my career. Professionally, I’m seeking full-time work at an NYC-based union or a city agency or department. If possible, I’d want it to be doing research but I’m also fairly open if there’s a potential skill set/interest match. Obviously, I know many readers work in music, so I’ll say I’d be potentially open to consulting work around music while I make this career pivot. Additionally, if you’re a startup founder or someone interested in chatting about your business, I do plan to start charging an hourly fee. This isn’t to preclude any student outreach or simple professional coffees (love those!), but if you’re working on a business and need my insights just need to be more mindful of my time. If you have any questions, please do reach out and I’ll try to clarify.

Now, for this newsletter. Don’t expect much to change. I’m seeking out more freelance writing work and plan to take off the month of July, but that was already in the works, prior to my layoff (see the newsletter’s tentative schedule here). The other best way to support my work, especially now, would be to forward this newsletter to a friend or subscribe here. All of the personal updates are out of the way, let’s dive into collectable digital assets.

NFTs were a fad. An incoherent response by a mixture of technologists, venture capitalists, and certain artists to a pandemic crisis that disoriented the whole globe. Or, like I said, a fad. In early 2022, I looked at the frantic investments by record labels in NFTs, alongside smaller self-serious VC projects. Both strains of projects a year later look fairly underwhelming so let’s take a review of this digital gold rush moment and what it says about the current industry

Before fully diving into NFTs, one should survey broader changes in the crypto market. 2022 saw the collapse of the ironically named stablecoin TerraUSD and cryptocurrency Luna, the fall of Three Arrows Capital, and the disintegration of Sam Bankman-Fried’s FTX empire. 2023 isn’t much brighter. Crypto’s primary American banks (Silvergate and Signature) failed, retail interest is basically non-existent, its largest market makers are done, and just this week the Security and Exchange Commission sued Binance and Coinbase. (Yes, there is a music connection there.) The digital asset was always an outgrowth of crypto and as it caught a cold, NFTs and Web3 remain bedridden.

Labels and Their Digital Toys

The desperate rush towards Web3 by the music industry was hard to miss. Nearly every company at some point released some NFTs or tip-toed around the idea of a drop over the last couple of years. My initial skepticism was that any interesting or liberatory potential that some of the boosters, like Grimes, might’ve suggested would be overshadowed by major labels who were heavily involved with investments into these companies. In fact, while the crypto bubble kept building it was curious to see just how much NFT hockers would virtue signal against streaming platforms and how little they paid, while seeking any level of validation or support from bigger major label artists. So, let’s see what labels were indeed doing in this space.

Sony Music invested in a $30 million Series A round of for Makersplace, an NFT marketplace, that recently jumped on the “artificial intelligence” hype train, and helped Sony produce two Baby Shark collections. Outside of an odd collaboration with Snowcrash, an NFT startup by Bob Dylan’s son, the Japanese company remained at arm’s length from this hype cycle. UMG dipped more into the waters. The world’s largest record label even hired an executive to oversee these efforts. The company's most public-facing effort was their Bored Ape Yacht Club “band” called Kingship, which, thankfully (?) hasn’t released any music but did make headlines last summer “selling out” 5,000 NFT key cards. The thinness of the project mirrors previous buzzy efforts by 10:22pm, which previously signed the YouTuber Lele Pons and released an album by the children’s character Pete the Cat. Clearly, UMG wasn’t putting its full weight into these efforts. However, there was one major label that never saw a NFT project they didn’t like.

Warner Music Group under the direction of Oana Ruxandra and Celine Johnson were in Web452 during the height of the pandemic. The label was an early investor in Dapper Labs, the company behind NBA TopShot and Cryptokittens, who’ve undergone two rounds of 20% cuts over the last year. In January 2021, WMG put “eight figures” into the video company Roblox at $45 per share, a price the company struggled to break over the last year. Even still the company would only get more eager about projects. They invested in Wave, a digital concert company that’s done two shows since the top of 2022; too many no-name marketplaces and digital avatar firms; and also whatever Splinterlands or POAP is. The company was so invested in the space that Steve Cooper, their former CEO, made his first post-WMG move to the board of OneOf, a former NFT collaborate with WMG. The lack of discretion might be why the label worked with The Sandbox on multiple projects, which may raise future flags as the SEC in its Binance and Coinbase lawsuit, said that the SAND token, the main assets of the its metaverse, is an unregistered security. WMG is all in amongst the majors for NFTs but Web3 projects did find funding outside of the major label system, just don’t expect to see much better results.

The Endless Web3 Pivot

The clumsiness and lack of due diligence in both the legality of the products and potential market didn’t elude smaller, though still VC-backed, music NFT ventures. The steady devaluation of NFTs released by companies like Royal, by 3lau, or Sound.xyz was obvious to spot if one thought for two seconds that the bubble of 2021 and early 2022 wouldn’t last forever. That’s why it wasn’t surprising though still sad to see layoffs hit marketplaces like Opensea or the shutting down of Mint Songs. The endless proliferation of marketplaces offering a product no one wanted was a red flag I called out last year: “None of these address the core means of how listeners connect with artists; everything asks for your wallet first, and passion second…There currently isn’t a strong social incentive for fans to engage with a new digital medium, when there are now two decades worth of digital, much less physical, ones to continue to use.” That the reanimated-on-Web3-rails carcasses of Limewire and Napster were perhaps the most egregious examples. Long-in-the-tooth brands desperate for any relevance during a new hype cycle.

A couple of years ago I wrote a brief history of other attempts at selling fans on the idea of owning small parts of favorite artist’s catalogs. The main takeaway was that most of these efforts never gained much traction not only because of how complicated it was but also because it’s not at all clear these are worthwhile investments to make. That a core sticking point over the last decade is the weak payouts of streaming platforms for artists never made it entirely clear why a fan would want to join the maddening process of fractional copyright ownership. Outside of a bubble period, it’s unclear how much appetite there can be for such financially risky products, especially for NFT-specific projects even more sensitive to this boom and bust cycle.

I’d be remiss not to mention the metaverse. The incredibly confusing rebranding of video game partnerships that would flash the Travis Scott Fortnight event as a future of music as if I was supposed to forget that Michael Jackson's Moonwalker arrived on the SNES over three decades ago. Thankfully the market appeared to make a swift adjustment here. Microsoft, Disney, and Facebook all scaled back their efforts. The valuations of digital lands in projects like The Sandbox cratered, even prior to the SEC alleging they might be unregistered securities. Deezer and Audius invested in virtual concert companies with little to show for it. Continued collaboration between the music industry and video game firms won’t stop but the incessant clamoring about a metaverse future can right now be put on pause.

Is There a Web3 Future?

The corporate and financial struggles for web3 are matched by user apathy. Last August it was reported that Opensea’s trading volume dropped 99% since the collapse of TerraUSd and Luna, and that hasn’t recovered at all. The buzz phrase of 2023 in the world of web3 increasingly became “web2.5” a way to retcon a lack of organic user interest and accept that credit cards are easier to use than a Metamask wallet and that most people aren’t interested in digital ownership for obtuse, niche products. Venture capital funding for web3 sank like a rock, as tech startups continue to face a pretty icy investment market, beyond a few artificial intelligence startups that are selling their own fresh bill of goods. Facebook and Instagram also just entirely walked back their own NFT integrations. Even 3lau saw a lawsuit over his headline-grabbing NFT project for not properly paying a songwriter, showing that old industry problems still persist no matter the tech.

Still, the amount of money invested into this space means that it isn’t all over yet. There are still partnerships being announced like Beatport earlier this year but how much these will be forgotten novelties or new steps forward will be seen with time. NFT advocates still eye the world of live music as a potential gateway, yet a couple of recent programs by two NYC clubs were notable to me. Elsewhere announced a digital membership plan that was integrated with Discord and used Apple/Google’s wallet system, which provides the functionality of NFT advocates proposed without the off-putting tech. In an even more lo-fi measure, Nowadays, a club in Queens started offering membership cards attached to their Patreon page that people can just show and use for benefits at the venue.

The frustration I’ve held over the years with the attention around this technology was both a desire to hyper-financialize music fandom without any sense of what fans may want or need. The desire to turn all parts of music into an investable asset is repeatedly shown not to be a product most fans want out of music (and also may be an unregistered security), and even the proposals for live music can be done in a far easier manner. That music technology in the 2020s so far can be summed up in trying to find new ways to sell functionless MP3s and wasting incredibly labor and energy-intensive technology to produce cheap soundalikes mirrors a broader malaise in the industry. NFTs/Web3 promised to revolutionize the industry but it’s even more intellectually bankrupt than labels chasing TikTok hits. Those songs at least get heard.

Unheard Labor

I mentioned it earlier but wanted to again highlight that SoundCloud enacted 8% layoffs, after a previously announced 20% cut last August. Spotify announced a cut of 200 in its podcast studios, which further cements the company's strategic shift after spending hundreds of millions on acquisitions over the last four years. Instagram laid off Perry Bashkoff, its director of music partnerships, in another example of what I detailed last month in which social media companies are pulling back from music endeavors.

Now a quick update on the Writers Guild of America strike: Still going! A couple of major wrinkles is that SAG-AFTRA, the main actors guild, approved the strike authorization vote by nearly 98%. Their contract ends on June 30th, setting up what could be more intense entertainment struggles as even more Hollywood productions could shut down. The Directors Guild of America (DGA) announced a tentative agreement on Sunday with the studios, though it still needs ratification.

Government Rhythms

The protracted legal battle over the Phonorecords III mechanical royalty rate ruling came to an end, and I’d really recommend this Billboard piece as they summarize the half-decade-long back and forth. California’s senate passed a bill that would limit “exclusivity clauses” in the state, a notable move against Ticketmaster, who uses them in contracts with artists. Then over in the UK, they convened a working group to relook at creator remuneration that was previously recommended during the Competition and Markets Authority review, and the Intellectual Property Office put out an agreement on metadata standards. Even if the BPI, the British major label trade group, balked at the working group’s existence, the country does appear committed to keeping a closer eye on the industry’s health.

A Note of Financialization

Beyond Music, the South Korean song rights firm, raised $170 million led by former lead investor Praxis Capital to continue purchasing catalogs. Primary Wave bought the publishing and “record royalties” of the band Skillet’s albums from 2003 to 2016. Reservoir Media got the catalog of Enrique ‘Kiki’ Garcia of the Miami Sound Machine. Kilometre Music Group bought the catalog of Tourist, a songwriter best known for his work with Sam Smith. Also, KMG got a $50 million credit facility with Pinnacle Financial, who also helped Cutting Edge Media raise $100 million earlier this year, because who else is gonna finance niche music catalog purchases. Speaking of Cutting Edge, they spent “eight figures” purchasing a majority of the back catalog of the songwriter Jamie Hartman.

6 Links 2 Read

Why Your Spotify Subscription Is About to Get More Expensive - Bloomberg (Subscription)

To answer the headline: Everyone in the music industry would like to get paid more. Higher prices will go mainly to the benefit of copyright holders (labels, publishers, artists, etc.) but streaming platforms also would like some additional revenue coming their way. Unfortunately, industry commentators and decision-makers took all the wrong lessons from digital piracy, twisting themselves into a belief that people won’t pay for music. The fervor around ticket sales and even the decade-long revival of vinyl would push back against that logic but the inevitable price hikes will provide the final word.

"You can touch your music" - Components

Andrew Thompson dove deep into the sales data over at Bandcamp to show physical sales are growing in smaller markets over the last couple of years, and that artists who sell records are in the top percentile of earners on the platform. That may suggest a potential ceiling that Bandcamp is hitting at the moment, but Thompson’s essay also unpacks Bandcamp’s role as a platform, and why the physicality of vinyl is a key component of its success that industry observers haven’t fully absorbed.

Sony Music Chairman Urges Streamers to Regulate ‘Poor Quality Content,’ Strikes Positive Note on AI - Billboard (Subscription) / Universal Music Partners With AI Company to Win Sleep Playlists - Billboard (Subscription)

The future of generative artificial intelligence will be mediated, and eventually legislated, by large copyright holders, not small startups.

Meet the Virtual Artists Backed by Some of the World’s Biggest Entertainment Companies - Music Business Worldwide

This rundown of digital artists' projects reveals how haphazard many of these efforts remain. The idea of “real” artists being replaced with “AI” or “virtual” acts remains fodder for cheap headlines and aloof executives grasping at straws on earnings calls.

To Monopolise Our Ears - London Review of Books

Nothing too out of the box in this long essay looking at Spotify but nice to see how a non-trade or music publication perceives the streaming giant in 2023.

The E-Sports World Is Starting to Teeter - The New York Times / Pokemon Go Creator Niantic Suffers Metaverse Woes - Bloomberg (Subscription)

E-Sports, at one point hyped to be the future of sports, continues to collapse, at least in the United States. Who could’ve seen that venture capital investment inflating a niche unprofitable digital product with declining user interest may have not been a strong bet? Also, the company behind the novelty hit Pokemon Go hasn’t found follow-up success in the metaverse. Again, no one could've seen that coming.