Music is an inescapable part of our collective human experience and culture, with Web2 giving us access to a range of music that our parents and grandparents could never have dreamed of. This is largely down to the advent of streaming services, where any song can be heard at the click of a mouse.

While this has brought positives in terms of the discovery of new artists and the ease with which fans can explore back catalogues, many artists have become increasingly vocal about the (re)distribution of earnings. While it's always been the case that most people simply enjoy music without thinking about the contracts, royalties, and licensing that go on behind the scenes, musicians of all stripes — even high-profile ones who have conquered streaming — have come together to say that the current model isn't working.

So what's the alternative? We can't get rid of streaming services, and the old model of music ownership also has its fair share of problems. Blockchain gives us a new way, with evangelists claiming that it can empower both musicians and fans, allowing for greater control and minimizing the necessary evils of having middlemen in the picture.

A common rallying cry is that Web3 will put music back in the hands of the artist. But is it as simple as saying that blockchain and DeFi can solve all the problems artists face? Not by a long shot — but there is an ability for artists to experiment with different business models, boost their earning potential, and explore a new world of creativity afforded by the technology. In this article, we'll look at how streaming changed music under Web2, how blockchain and NFTs offer a new space for musicians, three key projects operating in this space, and some open questions that remain unanswered.

How Streaming in Web2 Has Changed the Music Business

While streaming is not the only music-related phenomenon facilitated by our current version of the web, most people can agree it is the most significant. It has also helped to highlight what many artists feel is unfair remuneration in the industry.

Global protests at Spotify, led by the American Union of Musicians and Allied Workers, and a parliamentary hearing in the UK in 2020 are just two events that have helped raise consciousness about this issue. Another factor is the transparency of figures — there has never been much scrutiny into how much an artist gets when their song is played on the radio, or what percentage their record label takes per album sale, as these figures were changeable and often hidden. Streaming services, on the other hand, give us a clear view that is easy to digest.

Less Money to Artists?

This is chief among the concerns of artists behind the protests mentioned above — the pay rate seems minuscule (250 streams on Spotify equates to $1 earned), and it's even smaller for those on major labels whose managers take a cut.

It's easy to find articles with musicians speaking out against the low pay that streaming services provide, but this depends on which figures you look at and your assumptions about what traditional earnings were like before streaming came along. According to Producer Hive, music industry revenues are at their highest point since 2002. A UK Intellectual Property Office report, Music Creators' Earnings in the Digital Era, shows that artists with 1 million streams can be left with just £1,500 after royalties and agent fees are paid — but also notes that musicians make the same in real terms from recording rights revenues now as they did in 2008 (the pre-internet era), and royalty income taken home by artists across physical and digital sales has grown by 42% since then, far more than the 8% rise in the growth of record company revenues.

The Division of Royalties

Building on the basic rates above, many streaming critics talk about the way platform royalties are divided, as they tend to favor big artists. Spotify, Apple Music, and most other major platforms operate on a pro-rata distribution of royalties: all money brought in by subscribers and ads goes into a pot that's divided by the total number of streams. If a big artist gets 2% of all streams in a month, they get 2% of each user's money — meaning even a listener who has never purposely played that artist's music still contributes 2% of their premium subscription fee to them.

Further complexity comes from the fact that there's no differentiation between payouts for songs that are actively searched for ("lean forward" songs) and those that get automatically played as part of a playlist ("lean back" songs). Then there's the issue of songwriters — as ABBA's Björn Ulvaeus has pointed out, songwriters occupy last place in terms of streaming royalties, which can be disastrous considering they don't have the option to make up for a fall in income by touring, unlike the artists who sing their songs. New models such as Equitable Remuneration have been proposed as a fix, though critics note that under such a model, jazz and classical music would prosper at the expense of hip hop and rap.

Tailoring Music to the Platform and Algorithms

The fact that 90% of plays on Spotify go to the top 1% of artists means the stakes for a winning song are higher than ever. This has meant that many artists have felt pressured into tailoring their music to the algorithm — making sure a song is catchy in the first few seconds, has a clearly defined genre to have a better chance of making a playlist, or falls within a certain desired song length.

Knowing that more people search for solo artists and songs rather than bands and albums can mean the whole composition of a group and the music they release changes to have a better chance of getting more plays. This can have a negative effect on creativity, where songs are optimized for streaming rather than contributing something new and daring, especially when trying to land initial success.

Where Do Record Labels and Radio Stations Fit In?

Having such a fundamental impact on the way we consume music, streaming has become the focus for artists and individuals to complain about the current industry's state of affairs; however, big record companies have their own problems too. Even the biggest stars, such as Taylor Swift and Paul McCartney, have struggled with the issue of ownership of their own music, demonstrating that the ills we see today aren't simply a consequence of streaming. Traditional radio stations also have their role to play in boosting already big names while neglecting independent and up-and-coming artists.

Beyond Streaming

While we've limited our focus to streaming so far, Web2 has brought many other developments to the music industry. During Covid-19 lockdowns, musicians could perform to people all over the world through online platforms and connect with their fans in novel ways, such as through personalized video messages. Artists could also increase their exposure by becoming more prominent on social media and crowdfunding on platforms such as Kickstarter and Patreon. P2P filesharing through sites such as Napster and Limewire is also a product of Web2.

Web3 and Music NFTs — A New Space for Artists

So what can Web3 bring to the table in terms of what artists produce, how their fans consume culture, and how the business of music functions?

As Amber Stoneman of Minting Music, a NEAR-based blockchain music NFT platform, puts it:

"NFTs don't just give artists a new revenue stream, but a way to feel like they are not simply struggling, removing the stress that can block creativity."

Of course, not everyone can drop a selection of NFTs and make roughly $6 million, as Grimes did with her WarNymph Vol 1 collection. Currently, NFTs are the main way music can be packaged and sold, but we're likely to see a greater diversity of platforms as the sector develops.

Blockchain-Based Music Projects — New Developments

Looking at blockchain music platforms currently on the market, a few features stand out. Within the NFT music industry, a song can be as long or as short as you want without it being a negative trait, freeing artists from the physical constraints that limited album length and the algorithmic pressures of streaming. Rather than standalone songs, NFT collections may have common musical themes running through them, as demonstrated by Kaien Cruz's collection of 500 NFTs on SoundMint. NFTs are still very visual mediums, meaning the art that accompanies the music plays a part and can even incorporate aspects of rarity that affect the price.

New organizational models are emerging too — Chaos, a DAO comprised of 80 creatives, released 45 songs over 8 weeks, split into 20,000 music NFTs whose sales are divided among the artists automatically through smart contracts. Fans, meanwhile, get more direct engagement: NFTs can act as governance tokens within DAOs, tickets to fan-only merchandise hubs, gateways to music previews, or priority tickets to attend music in the metaverse. According to OpenSea analysis, indie-label and unsigned artists accounted for the majority (64%) of primary music NFT sales — the absence of middlemen has been a strong drawcard for many artists entering Web3.

Three Promising Music Platforms on Blockchain

Here are three prominent projects that have already gained traction in blockchain music distribution.

ModaDAO

ModaDAO describes its place in the industry as "defining the future of music ownership, distribution and publishing via NFT standards, decentralised governance and automated finance." Designed by creators with 30+ years in the music industry, ModaDAO aims to intersect music and blockchain through three pillars that leverage the sector's infrastructure to drive creativity and monetization for creators. Despite aiming to remove the middlemen associated with streaming services, ModaDAO doesn't aim to completely replace the current system — rather, it hopes to offer an alternative where artists have full ownership of their body of work and fans can listen to NFTs without the transfer of ownership. The most high-profile signing so far has been deadmau5, who came onboard at the end of 2021.

Sound

Over $1.1 million has so far been earned by musicians who have released NFTs through Sound, a platform that also aims to help mainly unsigned musicians make a living from their art. As co-founder David Greenstein put it:

"If we build for the artists who are making a lot of money on Spotify, it's 7,500. If we go for the artists that aren't making sustainable careers, we're dealing with the 99.9%."

A song is monetized through a set of NFTs, giving holders the option to comment at a specific place in the song, similar to SoundCloud's functionality — if an NFT is transferred, the new holder can overwrite the old holder's comment. Snoop Dogg and Pussy Riot are two high-profile artists who currently top the platform's all-time sales.

Audius

Audius is one of the most well-known and successful decentralized music streaming platforms, launched back in 2018. With a layout similar to Spotify, Audius runs as an open-source community of artists, fans, and developers, meaning users can build their own apps on top of it. The AUDIO token sits at the center of the platform, with a plan for 90% of the circulating supply to go to artists as they interact with the service or achieve milestones such as a trending track or playlist. Audius's familiar layout and connections to platforms like Twitter and Instagram mean its crypto music streaming can easily be used by those who have never engaged with a DeFi platform before.

Does Everyone Win from Web3 Music?

Web3 NFT and music metaverse platforms offer a picture where fans get greater access to their favorite musicians and their creations, while artists get better pay, conditions, and control. It sounds like a win-win, but there are real considerations that need to be addressed before the sector expands to wider audiences.

What happens if a piece of music is used in a movie or TV show — is it the artist who is compensated, or the owner of the NFT? As a recent article from Water & Music put it:

"Behind the explosive financial growth and hype lies a surprisingly shoddy foundation of knowledge and awareness about what people are really buying when they buy a music NFT — and whether, legally speaking, the technology actually "solves" any fundamental issues around the complexities of music copyright ownership."

It's great that unsigned and independent artists get more of a shot, but people still want to listen to their favorite stars — how will these platforms stop big names from monopolizing them, as is the case with Web2 music services? Web3 projects often claim to remove the middleman, but how will promotion work once more artists join — musicians will still need agents and publicists to further their interests. How far should integration with Web2 go, given that ChaosDAO, Minting Music, and other projects listed above still rely on Twitter accounts to gain prominence? What power will DAOs have over the artist, given that DAOs can act as record labels but may limit an artist's creative or financial control? And how will artists manage their income stream when music NFTs continue to follow the boom-and-bust cycles of the crypto market?

Music and Web3 — A New Frontier

As you can see, this topic is a big one, and we've only scratched the surface. There are plenty of unanswered questions, but one thing is certain: merging blockchain and popular music is a step forward for Web3 and the future of the music industry. For new technologies to thrive, they need to integrate into our needs and interests, of which film, art, television, literature, and music play a huge part.

A question that comes up is whether legacy structures should be brought into Web3, or whether completely new systems should be created. This is something that will need to be tackled in the next few years. Until then, INC4 will keep working to strengthen Web3 through the creation of bold and innovative blockchain-based projects. Reach out to our team for a consultation on your big idea today.