Web3 & Music
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My last three posts were an attempt to lay the groundwork and explain the core concepts of the music business. Check them out if you haven’t already. I also wrote about my original foray into crypto back in the early 2010’s here.
There’s been so much hype around Web3 and music that I had to take a break from writing this post to distill my thoughts and separate signal from the noise. Like all things crypto, underneath the chaotic and bubbly surface there’s interesting technology, big ideas, and a multitude of legal questions.
Web3
First off and so we’re all on the same page, it’s probably worth defining what Web3 actually is. Web3 is a catch-all term that has its roots in the evolution of the internet:
Web 1.0 describes the early days of the internet from the 1990s and early 2000s where the internet was primarily read-only and non-interactive. You visited websites, clicked links, and primarily consumed text-based content.
Web 2.0 describes the rise of blogging, social media, user generated content, the cloud, and a more interactive and dynamic internet where users had both read/write access. It also describes the rise of centralized “big tech” platforms that came to dominate this era of the internet. Youtube, Facebook, the App Store, Dropbox, Google Docs, Twitter, Salesforce, etc.
Web 3.0 apart from being a rebrand after crypto started to become too narrowly defined and negatively associated with laser eyes, lambos, and rug pulls — it loosely describes the ethos of decentralization and balancing transparency and privacy via technologies and concepts like blockchain, smart contracts, token economics, and permissionless systems.
For the record, I would prefer if we dropped the whole Web 1,2,3 thing and just talked about the technology and its applications, but for the purposes of this post I’ll use Web3 and crypto interchangeably.
The Web2 Music Business
To understand why a new Web3 approach to the music business is even worth exploring, it’s important to identify the weak points and inefficiencies within the current system. No business or industry is perfect, but as anyone who works in music can tell you there are a number of longstanding challenges, for example:
systemic data issues that prevent accurate tracking and payment of royalties.
financial rewards heavily skewed toward the majors labels and top 1%.
labyrinthine network of royalty collection organizations.
limited transparency and general lack of trust.
concentrated distribution pipelines.
unnecessary middle-men.
inefficient and manual licensing processes.
slow moving legacy incumbents with limited technology expertise.
widespread inefficiencies and lack of process automation.
The music industry is making improvements to the aforementioned issues, but I worry that the pace is too slow to keep up with the exponential arc of technology and innovation.
Web3 & Music
All new technologies and products need to solve a problem or be a significant improvement on the prior system in order to achieve widespread adoption.
Blockchain applications and smart contracts are uniquely well suited to applications in music copyright and intellectual property. Financing, distribution, transparency, data attribution, payments, composability, marketplaces, community, and removing gatekeepers are all key elements of the crypto ecosystem.
A lot of people in the music industry cringe when they hear the term “NFT”, mostly because of its association with the boom of low quality pixelated profile pictures and BAYC that sell for hundreds of thousands of dollars — but a non-fungible token is simply a unique/non-interchangeable unit of data stored on a blockchain. An NFT is a permanent and secured on-chain record that reflects the ownership, metadata, and transactional history of the related asset.
Anything that you own physically or digitally can be represented by an NFT: art, music, land, patents, movies, research papers, property, medical records, title insurance, and so on.
A key innovation of Web3 is smart contracts. Smart contracts are programs stored on the blockchain that run when certain conditions are met. Smart contracts define rules like a regular contract and automatically enforce them via code. The major innovation of smart contracts is that you can program functionality into assets on the blockchain.
Applications of Web3 technology in the music industry could include:
automated royalty splits and payment.
complete, accurate, and transparent reporting — globally and in real time.
automated and on-chain licensing of music rights.
new forms of digital merchandise and collectibles.
decentralized funding and royalty ownership marketplaces/exchanges.
accurate per stream (artist centric) payments vs. royalty pool calculations.
digital platforms that reward fans with direct ownership or rewards.
automated registrations and conflict resolution.
There’s another fifty bullet points that I could think of off the top of my head, but the overarching theme is to use technology to improve the transparency, accuracy, and efficiency of the music business — while aligning incentives between songwriters, artists, fans, DSP,s, and industry partners. This overview by Harvard Law is a great introduction to smart contracts if you want to dive in.
The Supercool mental model for music and web3.
Layer 0 = legal framework.
Layer 1 = financial and technology infrastructure.
Layer 2 = artistic, creative, and community infrastructure.
Layer 0
The foundation of the music industry whether Web2 or Web3 is the legal framework in which it operates. Copyright law can vary widely by territory and Web3 will need to work within (but continually push) these boundaries.
Layer 1
This is where Web3 really shines. So much of the work that’s been done in DeFi can be ported over to address and remake the financial and technology rails of the music industry. Building decentralized, transparent, accurate, and efficient technology solutions is half the battle.
Layer 2
Web3 puts community above all else. The very ethos of crypto is derived from decentralization and building communities of like minded people. Once you strip out funding, distribution, and payments much of the value of a record label or music publisher lies in its community. If ten years of crypto is any indication, there are endless ways of building layer 2 artistic, creative, and community platforms for the music industry.
So What’s Happening in Web3 Right Now?
There’s a ton of really cool and innovative projects in the Web3 music space right now and they all have one thing in common: they believe in the value of music and that artists should be able to earn a sustainable living from their work.
I’ve chosen a handful projects to highlight but this is by no means an extensive list. I spend my 9-5 in the Web2 music industry — so send me links to cool projects that I should be checking out and get in touch if you’re working on something awesome, I would love to connect with more people building in the space.
In my opinion Royal is one of the most exciting Web3 projects to emerge. Royal is a marketplace that allows fans to invest in their favourite songs and earn royalties alongside the artist.
I’m a big believer in democratizing/decentralizing the investment and funding mechanisms for songwriters and artists as well as using blockchain to vastly improve the efficiency of royalty payments and reporting. It’s never made a ton of sense to me that you needed a label, publisher, or private equity fund to invest in artists and song catalogs.
Royal was founded by Justin Blau and JD Ross and is backed by VC heavyweights like a16z, Founders Fund, and Paradigm as well as artists like Nas and the Chainsmokers.
Sound, Catalog, and Mint Songs
Sound, Catalog, and Mint Songs are some of the leading NFT music marketplaces and platforms. They’ve all taken slightly different approaches but are building the tools to give artists more control over the value of their music — mint and sell NFTs, earn secondary creator royalties, and control the relationship with your fans. They each have incredible teams, thriving communities, pipelines of new tools, and are backed by great investors.
HiFi Labs is an artist DAO and Web3 music project incubator. They have an active community and a project coming down the pike that I’m really excited for called musicOS — details are sparse but the musicOS manifesto is a total banger. Really stoked to see where this goes.
The Water & Music home page says it best:
“A newsletter and research DAO building the innovator’s guide to the music business.”
Water & Music has an absolutely fantastic group of people doing industry research. Their community is full of people from all areas of the music industry and they take a realistic, optimistic, and pragmatic approach that’s rooted in the years experience of its team and community members. Founded by Cherie Hu - Water & Music is a super informative resource and industry newsletter for all things music and Web3.
Audius is like a Web3 version of SoundCloud built on the Solana blockchain. It’s a streaming platform that’s owned and operated by its users via the $AUDIO governance token. Audius is intriguing, I think they’re still pinning down their business model and trying to work within the existing legal framework. Once securities law catches up with crypto community and user ownership will be a staple of whatever future web platforms look like.
Legal and Copyright
As you can imagine there are a ton of legal questions and best practices that need to be established. Web3 operates within the existing copyright law and legal framework and all Web3 music projects need to understand their obligations and the rights implicated in their projects. Sound recordings and compositions need to be properly licensed and copyright owners and artists should understand the legal terms authorizing copyrighted uses of their digital content.
It’s important to understand what rights are being licensed, which rates that are being paid, and how any downstream royalties from the multitude of sources will be collected and accounted for — both for the copyright owner and any secondary sales.
To complicate things further functionality around investing in future royalty streams or generating creator royalties from secondary sales gets very close to the definition of a security and securities law, which falls under the domain of the SEC. This adds additional uncertainty to the legal picture for both developers and rightsholders and will clearly need more input from the relevant regulatory bodies.
Final Thoughts
Ultimately I don’t view Web3 as a magic cure-all but rather a set of valuable tools and building blocks. I’m still on the fence about whether it’s best to incrementally improve the technology infrastructure of the music industry or build fully parallel Web3 platforms and distribution mechanisms from the ground up.
The music business was hit by meteor when P2P file sharing exploded and it forced the industry to ditch some of its bad habits and damaging legacy practices. Streaming undoubtedly threw the industry a life line and returned the business to astonishing growth (with more ahead) but I really don’t want to see the business fall back into the old industry dynamics and cede control to a handful of industry participants at the expense of a more vibrant, healthy, and dynamic future.
By embracing the technology and elements of Web3 that make sense I think it’s possible to build a more efficient and prosperous music industry that does a better job of spreading out economic opportunities and rewards. To me, whatever gets us to that end point is worth exploring — no matter what you want to call it.
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Post-reading jam:
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