Follow-up article on ‘Blockchain in the Music Industry: Signs of the New Paradigm?’ (2019)
Originally published in Paradigm blog.
The pandemic affected many industries, and the music industry was no exception: retail store closures, tour cancellations, and venues closing their doors, and the list goes on. You simply couldn’t just go out and buy a record at your local store. Live shows began to seem to be something supernatural, or tales of a long-forgotten time. Concerts which were previously one of the main sources of income for musicians are now almost nowhere to be seen (apart from e.g. a unique pair of the Flaming Lips gigs, where both the band and their audience were inside individual inflatable balls — as means of defending against the virus, which was one of the few exceptions that prove the trend).
Astoundingly, even so, the industry manages to grow and thrive by finding other ways to survive.
In 2020, in the USA, overall recorded music revenue increased by more than 9% to $12.2 billion [According to the RIAA’s annual year-end report]. That growth was primarily sustained by more money coming from streaming services generating $10.1 billion in revenue in 2020 — up from $8.9 billion in 2019. 2020 marked the sixth consecutive year of this subsector growth that had previously struggled with declining revenues for 15 years.
Of the major streaming platforms, expectedly Spotify and Apple Music were the biggest contributors, generating $7 billion in revenue. Concurrently, the average number of subscriptions in 2020 increased to 75.5 million — up from 60.4 million. [Check out ‘The Best Online Music Streaming Services for 2021’ by PC Magazine to compare the platforms].
When you put all those numbers together, in the previous year, music streaming, both subscription-based and ad-supported, accounted for 83% of the industry’s total revenue — up from just 7% in 2010.
It is known that the music industry has always been dominated by gatekeepers. The invention of the internet, Napster digital revolution, creation, and spread of streaming platforms such as Soundcloud and now Spotify have changed the landscape drastically. However, while it is becoming more and more momentous to talk about streaming as a phenomenon, these platforms’ users are starting to express more and more concerns about where all these billions earned from auditions go to. Sad to say, the major streaming platforms still leave only small percentages to the musicians themselves, their model is long ago established — payout generously to the world’s most famous artists. Therefore, it is still difficult for small and independent ones to make a living off their music.
The statistics spoke for themselves: in 2020, the top 500 artists on Spotify generated around $1.85 billion in royalties from the streaming service — 37% of its overall payouts, while the 286,000 DIY musicians releasing through distributors generated $1.17 billion of Spotify royalties last year — around 23.5% of the total [according to the Spotify’s new website Loud & Clear, launched in March 2021].
Some platforms have tried to address this problem, e.g. Bandcamp launched ‘Bandcamp Friday’ initiative in the previous year, and every first Friday of the month, the company waived all of its commission fees, meaning more of the users’ money goes directly to people who created it. What’s more, SoundCloud’s new user-centric royalty system will revolutionize streaming for the music industry. Starting April 1st, 2021, the platform will pay artists and indie rights holders based on their number of listeners, not stream counts.
Apparently, this is just a drop in the bucket, this is not enough. Decentralized music platforms should come to the rescue here.
“I think we’re going into a post-Spotify earning era — I’m calling it the digital artist monetisation era. When you look at Audius, UCPS, Patreon, Twitch, in-stream tip jars: this is going to impact artists a lot.”
— Marc Geiger, WME music chief at SXSW 2021’s online conference, March 2021
DLTs and blockchain seem to be the next step when it comes to giving power back to creators and their listeners.
In a nutshell, the main and most visible DLT solutions for the music industry are as follows:
- The ability to remove middlemen from the process of music sales and streaming. Thus, payment of inclusive royalties that divide revenues fairly according to each person’s contribution to the creative process can be executed automatically. While the skewed distribution is unlikely to be fully addressable, improving conditions for emerging artists can lead to a more diverse market.
- A digital rights database. Rich distributed databases can be implemented so that everyone can interact with each other and associate the underlying copyrighted material with all their metadata in the digital ledger for all to see.
- Tokenized rights management which means the deployment of smart contracts that actually manage rights and maximize the value of publishing, recording, performance, merchandise, and all other artists’ rights. This includes terms and conditions of third-party engagement for record labels and distribution services.
- Complete transparency and data protection. Transparent ledgers are distributed hence everyone can see how much revenue a song brings, the timing and magnitude of the revenue streams, and who and what percentage received.
- New revenue sources for artists. It’s all about NFTs and crowdfunding. Music creators can earn from users via selling non-fungible tokens. There can also be an auction dynamic pricing mechanisms to experiment with promotions and versioning of content.
- Monetary incentives for listeners. DLT music platforms can make the whole music experience more interactive and rewarding for the fans. They can reward users not only through exclusive content and lower prices. Some of them offer listeners rewards for curating personalized playlists (like Choon did), some reward fans with its native tokens for contributing to the database of artists, venues and events (Viberate, and others).
Two years ago, I briefly overviewed the music industry’s 2019 state by describing ≈30 blockchain projects, which had the potential to boost it. To this day, some of them succeed and flourished, but many already ceased to exist without making a proper product. Such promising services as Choon, which paid artists on a daily basis 13 times more for streams than Spotify, or Feedbands, whose team planted 1 tree for every 100 streams, just disappeared.