Hello, hello readers. Last month, I put together an archive page for the current Penny Fractions website that goes back to 2018. Hopefully, this serves as a useful reminder to newer readers of my older work. Today is the first of a two-part series on NFTs and music, a topic I’ve sat on my hands to cover. And don’t worry, I do cover Epic Games’ purchase of Bandcamp. If you enjoy this newsletter, please share it, and check out our lovely sponsor Water and Music’s latest research report. Now, onto NFTs.
NFTs hit the mainstream in early 2021 from a series of headlines saying artists like 3LAU and Grimes were making millions of dollars selling digital goods and after Beeple, a digital artist, made big news selling a single NFT for $69 million, even though that was basically a marketing stunt. That last part was underreported, and like many NFT/crypto stories, the headline number caught enough attention that suddenly a new scene was formed around music NFTs.
The startups operating in this space are trying to think through what this technology could mean, and while some basically are readymade for reabsorption into the major label borg, there are also more interesting attempts at reimagining the industry. Many of these projects are barely a year old. I personally know folks in the space (see our sponsor), so many of these thoughts are ones I’ve tried to streamline after many conversations. Nina, for example, allows artists to create their own way of buying, selling, and streaming their works through the Solana blockchain. Their FAQ page says: “Nina is designed to solve inequity and opportunism in the music industry by providing a new model that doesn't syphon revenue from artists.” If the goal of these companies, and occasionally their venture capitalist backers, is truly to help artists, then I’ll take that seriously.
There are many, many music NFT projects, but the ones with the most prominent funding, and thus press, are: Royal, which aims to connect music royalties to an NFT, so you can own .09% of a 3LAU song; Sound, which allows artists to share new songs with a series of NFTs; and Mint Songs, a marketplace for artists to sell their works. The range of projects out there includes interesting projects like Holly Herndon’s Holly+ and headline wasters like Hitpiece. In short, there’s a lot out there, but the projects I'll talk about—in my eyes—show the early ideas people and capital are flowing towards. Let’s now look at how you—yes, you—can be a small-stakes shareholder of your favorite artist.
Justin “3LAU” Blau was bound for finance. The electronic music DJ/producer was covered in Forbes in 2015 for declining to pursue a career on Wall Street for EDM. The juxtaposition is far less strange than the headline might imply, considering Goldman Sachs’ own CEO moonlights as a DJ and even opened for the Chainsmokers. 3LAU’s step into finance as an artist wasn’t through a traditional path. In 2018, he helped put together the Our Music Festival, which billed itself as a cryptocurrency music festival (i.e., there was a digital token attached to the festival). Much of the rhetoric about freeing artists and changing the music industry used by 3LAU in the last 12 months can be found in the material around this come-and-go festival.
In late 2020, 3LAU announced a partnership with the NFT marketplace Blockparty, but what got his name out there was a late February 2021 NFT auction for his album Ultraviolet. Headlines from EDM and crypto websites jumped at the fact that a single NFT sold for over $3.6 million and total sales exceeded $11 million without a clear sense of who was actually putting down the money for these digital goods. Very quickly, 3LAU’s success and the hype around Beeple’s $69 million sale solidified the idea of a new market for artists in the minds of crypto-curious people. A few months later, 3LAU raised $16 million to start Royal, a startup that provides fans the ability to own fractional shares of a song via an NFT. Early backers included Peter Thiel’s Founders Fund and Paradigm, then Andreessen Horowitz (a16z), Creative Artists Agency (CAA), and several musicians (including Nas, Kygo, Stefflon Don) got in the mix in the $55 million Series A.
Last year, I wrote quite a bit about how the idea of individuals owning shares of a song was tested by the likes of Royal Exchange and SongVest in the United States and Musicow in South Korea. The overall assessment of this market would be that there isn’t really a strong desire from fans to own an asset that will provide low returns in most cases. Tatiana Cirisano at Midia and Bas Grasmayer at MusicX both offered their own unique critiques of the model, which ranged from potential fan disappointment to lack of clear monetary upside. The novelty of fans owning parts of their favorite artists' songs might be appealing to crypto/tech investors, but music business observers have repeatedly seen little traction for the concept. The increased complications and legal concerns don’t make for this to be the most exciting prospect.
This is why Sound, founded by David Greenstein, son of Scott Greenstein, SiriusXM’s Chief Content Officer and President, is an even more curious proposition. Greenstein and his co-founders, Vignesh Hirudayakanth and Matt Masurka, raised $5 million from a16z, 21 Savage, Mat Dryhurst and Holly Herndon, and a gaggle of music industry professionals, a few of whom read this newsletter. Sound’s proposition, for now, is to offer artists invited to use the platform the ability to auction a select number of NFTs, which, due to the hype and short-run nature, often sell out immediately.
This method of marketing is reflected in a little manifesto at the end of the website: “THE ONE METRIC THAT MATTERS AT SOUND IS HOW MANY ARTISTS MAKE A FULL-TIME LIVING OFF THEIR MUSIC ALONE. TEES, TOURS, AND FAN CLUBS CAN OFFER INCREMENTAL REVENUE FOR ARTISTS, BUT SHOULDN’T COME AT THE EXPENSE OF CREATING ART. WE’LL CONSTANTLY LISTEN, LEARN, AND MAKE ADJUSTMENTS AS WE WORK TOWARDS BUILDING A TOTALLY DIFFERENT KIND OF MUSIC INDUSTRY THAT PUTS ARTISTS AND FANS FIRST.”
That’s a pretty strong statement for a project that is still basically a prototype. The tight scope of Sound benefits the project and helps build hype, as each release maximizes FOMO (fear of missing out). The idea of a limited run NFT attached to a single project so effortlessly slots into traditional music marketing, and reaffirms decades of myth-building around physical releases. That’s why it was bizarre to me that the website would dismiss income from merchandise sales, touring, or fan clubs basically as meaningless. Beyond speculative value, why should a fan spend their money on still fairly expensive NFTs versus a ticket or shirt, two things that have fairly high cultural value within music? The rejection of what is already here feels misguided, especially since most musicians haven’t, like many of these startups, reoriented their entire lives around Discord servers, Twitter, and crypto wallets. Music NFT marketplaces, though offering potentially more control for artists, seem stuck in a similar box.
Investment from a16z will attract headlines, but there are still other projects operating in this space. Catalog and Mint Songs are well-known music NFT marketplaces, where artists can cheaply mint NFTs and sell them to prospective fans. In many cases, these sites end up feeling a bit like Bandcamp’s early days, when there was little context, especially pre-editorial, for all the music on the platform. As with Sound and Royal, these efforts beg the question: who is the target audience here? If you’re not the kind of artist who can call upon an audience sitting on six figures worth of cryptocurrency to help pump your product…I mean support your art. The narrative created by many of these projects is in stark opposition to the traditional music industry, but none offer a clear vision of how they plan to redefine the industry.
Over the last two decades, record labels have shown themselves to be fairly nimble in their ability to adjust to the changing technological climate. Whether it be through early investments (Spotify) or legal litigation (Napster), major labels have warmed to technology as payouts have increased. It’s within this context that these projects start to demonstrate their limits. None of these address the core means of how listeners connect with artists; everything asks for your wallet first, and passion second. Royal illuminates this contradiction the most because the entire product rests on top of music’s alleged “web2” political economy, not “web3”. Digital distribution established a parallel supply chain for core music consumption and very few of these projects do that. 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.
A16z and other web3 investors don’t hold an unchallengeable vision of the music industry. I look to the work Liz Pelly’s done the last couple of years covering library systems that host musicians’ music as examples of real alternatives to major labels or technology firms. Next week, I’ll focus more on the NFT projects that are already being favored by major labels. Many are far less interesting to me than what I’ve discussed above, but these projects don’t exist in a vacuum, nor at the edge of a major cultural technological shift (i.e. mobile phone adoption). Instead, we’re left with the rhetoric of a revolution spoken into siloed Discord servers. Possibilities exist, but perhaps with a lower ceiling than folks want to imagine.
Music in the metaverse
The metaverse has become one of the buzziest terms in recent memory, with everyone from Gucci to Facebook (sorry, Meta) building out their respective virtual-world ambitions. But what does the metaverse really mean for the music industry?
Water & Music is a newsletter and research collective building the innovator’s guide to the music business. We’ve published several articles on music’s role in the metaverse, from the challenges of growing the music livestreaming market to the rise of celebrity avatars and a detailed guide for incorporating gaming into your music strategy.
Once again, this week is New York-focused, but this is a notable initiative to highlight. The Andrew W. Mellon, Ford, and Stavros Foundations raised $125 million to provide a $1,000 payment for 18 months to 2,400 local artists. I incorrectly assumed this was funded by New York State, not private foundations, and was disappointed to learn that wasn’t the case. This idea is sweet, but I sense a lack of imagination on the part of the foundations and organizers. The gesture is nice, but why not back great public works if such a large sum of money is being collected.
A Note of Financialization
A couple of interesting stories before getting into the usual catalog acquisition roundup. Larry Mestel, the founder of Primary Wave, is joining the National Music Publishers Association’s board of directors, which further highlights the interweaving of catalog acquisition firms with the major publishers. Pophouse, a Swedish entertainment company formed by Björn Ulvaeus of Abba, is also looking into the catalog purchase game, so continental Europe may be seeing more competition in this space. Lastly, BlackRock, a former partner of Primary Wave, is investing $750 million into Influence Media alongside Warner Music Group to make sure that underrepresented people can also have the opportunity to sell off their works to an asset manager.
This really cannot be understated, but there are so, so, so many purchases this week. Neil Diamond sold his recording and songwriting catalog to Universal Music Publishing Group for an undisclosed sum. (I’d bet not quite Dylan/Springsteen money.) Hipgnosis and Blackstone made another deal for Leonard Cohen’s songwriting catalog. Spirit Music Group, financed by Northleaf Capital and a Quebec pension fund, spent $100 million on 90% of country singer Jason Aldean’s catalog. Primary Wave signed an administration and marketing deal with the songwriter Henry Mancici and purchased the rights of two publishing houses: Regent Music Corporation and Jewel Music Publishing Co., Inc.
Reservoir Media bought a part of the catalog of the early hip-hop pioneer Larry Smith. Endurance Music Group, which is backed by the investment manager Raven & Company, bought the catalogs of Jimmie Allen, Ash Bowers and Trent Tomlinson while they worked at Wide Open Music, which EMG already purchased in 2020. Finally, to close out on an even more niche purchase, Wise Music Group, a growing holder of classical music rights, bought Franz Waxman’s catalog.
6 Links 2 Read
Epic Games, Bandcamp, and Fandom for the ‘Me’ Generation - Music Industry Blog / Bandcamp Just Got Acquired by a Video Game Behemoth - The Honest Broker
Last week, Epic Games, creators of Fortnite, bought Bandcamp. Epic Games is 40% owned by the Chinese technology conglomerate Tencent, which also owns: 10% of Universal Music Group; 2% of Warner Music Group; 9% of Spotify; and, they invested $115 million into the Indian music streaming app Gaana. This doesn’t even include the music apps (QQ Music, etc.) under the Tencent Music umbrella in China. This is all to say that Tencent’s reach, if not explicit business vision, stretches across the entire music value chain. Flatly, I’d hope, but don’t expect, some regulatory stink raised over this deal.
Deals like this inspire a lot of premature speculation, so I’ll hold my tongue there. Bandcamp’s last two years of public branding were all about helping artists (Bandcamp Fridays) and this acquisition basically opens the door to throw all of that goodwill away. There are shared business goals between Epic and Bandcamp (e.g. Epic's fight against Apple’s absurd App Store tax), and certainly, big media platforms want access to music without dealing with major labels. What this means in practice is hard to say. As Ted Gioia’s piece above highlights, diversification doesn’t automatically imply success. My negativity towards this deal has to do with the continued foreclosure of music to megafirms, so that no matter where you spend a dollar, some American or Chinese billionaire skims a little off top. The fledgling idea of “Independent” music only becomes ever more incoherent.
No Easy Way Out: Why Some Artists Find Leaving Spotify So Hard - Resident Advisor
An exploration of the complexities associated with artists leaving Spotify, or really any streaming platform. Still, considering how little money certain artists make on the platform, I’d say there are opportunities for finding a new context for one’s work that is more on the artist’s terms.
The Hot Catalog Market Is Headed for a Cooldown - Billboard (Subscription)
A bearish opinion on the song catalog market as we’re about to see a rise in American interest rates. I’d agree that these factors will likely impact this market, but I don’t expect interest rates will play a huge role for the remainder of 2022. 2023 and beyond, we’ll see.
When Fandom Becomes Cultic: the One Direction experience / Love Beyond Reason: the Consecration of Fandom - Exiledfan
Two really thoughtful pieces on the complicated role fandom plays in music and the not-so-rosy aspects of “stan culture”. This is helping me better understand what I’d say now are the fairly problematic ways in which many journalists, including me on occasion, would treat fandom as sacred expression and not as marketing for multinational companies. Children devoting tens of hours to a single pop star can be fun, but when it involves mass harassment campaigns or pooling large sums of money together, then everyone involved should be a bit more critical.
YouTube is Working With Met Police to Take Down Rap and Drill Videos - Vice / Murder in a Moncler: The Bronx's Deadly Gang War - Trap Lord Ross
Vice examines how British police work with YouTube to try and take down drill videos and discusses how criminal cases use the same videos to prosecute the musicians. This contrasts well with this YouTube essay on Bronx drill rap, in which you can see how platforms like YouTube and Instagram are used by these kids to fan violent flames. There are real concerns to be heard about police misusing rap lyrics and videos for criminal cases, but we also shouldn’t ignore the way these platforms are used to fuel conflict.
U.S. Investigation Launched Into TikTok’s Effect on Kids’ Health - Billboard (Billboard) / The Horrifying Panopticon of West Elm Caleb - Sarah Z
Happy to see some government investigation into TikTok’s effect on children. The YouTube essay makes a strong argument that the mass interconnectedness of social media, and in particular local TikTok, holds rather complex ramifications that aren’t fully understood by any of the actors involved.