Non-fungible tokens (NFTs) have garnered a lot of attention in the last two years, mainly due to profile-for-proof (PFP) projects. However, NFTs have a much broader scope when it comes to adoption and the music industry is one space where the technology could really thrive.
Let’s have a look at three different ways that non-fungible tokens can have an effect on the music industry.
Music royalties are payments that an artist receives in exchange for their music being played by third parties. It works by an artist and their team licensing their work and allowing third parties to play their music in exchange for a fee. Examples include Spotify, online radio, tv programs, and movies. The process is complicated and involves multiple copyright holders, middlemen, and other parties that may have a stake in the song that is being used.
NFTs can change how royalties are handled and paid out to artists. Since non-fungible tokens use the ERC-721 token standard, sales royalties can be paid out for every sale made on the secondary market. This is helped by the EIP-2981 protocol that makes it possible for ERC-721 and ERC-1155 tokens to receive royalties from marketplaces by retrieving royalty payment information from smart contracts.
For example, the ERC-1155 token standard enables the original rights holder to receive sales royalties via smart contracts. This works by the EIP-2981 protocol calling a smart contract with the sale price info to determine how much should be paid in royalties and to who. Next, the NFT is queried for royalty info and the address for the royalty payment is identified, and the royalty is paid out.
So let's say an artist had a digital album and they're releasing some cool NFT merchandise alongside the album to try and boost sales. They set a 9% royalty fee on all secondary sales. This means every single time the NFT merchandise is old, they get 9% of the sale sent to their wallet. So if the merchandise NFT sells for $150 at the time of minting, they get the $150.
Let's say the value increases to $300 on the secondary market and the holder sells, the artist gets $27 for the sale (9% of $300). If it sells again for $500 they get $45, or if it sells for $100 they get $9, and so on.
Royalties are a promising use case for NFTs in the music space, it cuts out the middlemen and removes a lot of the legal complexities involved in royalty payments for artists. ChillRX is a good example, the project is an RIAA-certified virtual music and digital artist collective, powered by 9999 placebo pills on the blockchain. Holders earn passive income from songwriting royalties and metaverse concert performances of virtual artist CHILLPILL and others. The NFT collection was founded by Sidney Swift, a Grammy winning producer.
Concerts and live performances are additional areas that could be improved by the use of non-fungible tokens. Since NFTs are essentially unique and individual pieces of code stored on a blockchain, they can be minted as single-use tickets which are then burned after the event has run its course. Physical tickets can be lost, misplaced, damaged, and in some cases even faked.
NFT tickets would require users to own a crypto wallet for storage which would reduce these problems. NFT tickets can also be sold on secondary marketplaces, preventing fraudulent ticket sales. Customers on the secondary market will be able to verify the authenticity of the ticket as well as know the ticket supply and average price.
NFT tickets can also be programmed to generate royalties via the ERC-721 or ERC-1155 standards, enabling the event organizers, artists, or even the original customers to earn a cut from every sale on the secondary market. This process can be implemented as part of a loyalty program for fans, allowing initial ticket holders to earn royalties every time the ticket is sold.
If the ticket is intended as a single-use item, the token can be burned after the event has ended. Token burning is a process that works by sending tokens to an address that can only receive tokens. These are known as "burn" or "eater" addresses and these addresses are not owned by any entity and have no private keys so they cannot be accessed by anyone. Once a token is burned it's removed from circulation and in the case of NFT tickets, they won't be usable once burned after an event.
NFTs can provide viable alternatives to current systems in the music industry. Blockchain technology simplifies processes such as royalty payments and ticket sales, creating a simple and reliable process that can benefit artists, event organizers, and fans alike.