NFTs Are the Future Framework for Music Royalties: Op-Ed

The music industry has NFTs (Non-Fungible Tokens) all wrong.

During the peak of the music NFT hype back in 2021, they were heralded as the future way superfans would engage with creators and a great new source of artist revenue. Now that markets are down, they are viewed as an embarrassing fad.

But while NFTs have garnered attention as lucrative avenues for artists, they have far more promise in a completely different role, as the foundational technical framework for music royalties.

However, their potential in transforming music licensing remains largely unexplored.

The music industry is in dire need of an evolved licensing infrastructure that incorporates both master recordings and compositions within the realm of NFTs.

Despite the current downturn in the crypto market, now is an opportune time to lay the groundwork for a new licensing structure that aligns with the decentralized nature of Web3.

Relying solely on existing NFT marketplaces to establish royalty mechanisms is a non-starter, as demonstrated by platforms like OpenSea.

Outsourcing this task to individuals unfamiliar with the intricacies of music licensing would only complicate matters further.

Fortunately, the music industry is well-equipped to create a Web3-compatible licensing model by adapting existing revenue-generation strategies.

Record labels and distributors can focus on developing the framework related to master recordings, while Collective Management Organizations (CMOs) can work on the publishing side of things.

It’s high time CMOs start considering how to license publishing rights for musical works as NFTs.

The hesitancy to tackle this intricate issue lies in the uncertain nature of NFTs as a medium for music consumption.

The management of digital rights is inherently complex and fraught with questions about territorial jurisdiction, especially given the global and often anonymous nature of NFT transactions. However, this complexity should not deter stakeholders from the promising opportunities that the technology presents.

If viewed as a tool for managing digital scarcity, NFTs can revolutionize the administration of licensed content in the creator economy and facilitate collaborations across diverse music catalogs.

Through smart contracts, NFTs can specify and enforce how content may be used, thereby offering a unique way for content owners to monetize their assets across tomorrow’s distribution channels…metaverse, gaming, VR/AR and AI.

Unlike the restrictive capabilities of traditional Digital Rights Management (DRM), NFTs can act as inclusive solutions that encourage derivative works and collaborations, all while automating settlements between rights holders.

Beyond traditional usage, NFT-based licensing can pave the way for innovative models such as stem licensing or AI-generated content. It can also incorporate standard practices like mechanical and neighboring rights directly into the digital assets.

To navigate this complex landscape, the industry should use the current lull in Web3 music activities as a period for careful planning and testing.

This pause affords the opportunity to address key challenges thoughtfully and learn from past experiences during the digital transformation of music.

Doing so will allow for the creation of a robust licensing framework capable of evolving alongside the ever-changing music ecosystem.

Bruno Guez is CEO and founder of digital asset management platform Revelator and a former director on the board of Merlin Network. He brings over 25 years of experience as a music executive working with Chris Blackwell’s Island Records and Guy Laliberte’s Cirque du Soleil.