But what if we had a better model? The one that gives us 10X more great MARVEL stories and doesn't rely on the taste and financial goals of Disney executives?

I believe we can achieve that if the "next MARVEL" universe operates more like Ethereum, where everyone can develop their own interpretations and adaptations of their favorite stories and make money from them.

And yes, I know what you might be thinking: - "Disney would never agree to it," - "We would see tons of crappy productions," - "How do you ensure the people who created the world get paid?", - "Why the hell do you even link Ethereum and MARVEL?", - "What do NFTs have to do with it?".

Hold on tight, as we're about to dive deep into the idea of IP Protocols and tackle these concerns head-on.

Every fictional world is a protocol

Let's start with Ethereum/MARVEL analogy.

As we all know, Ethereum is a protocol. And on top of this protocol are apps like Uniswap, MetaMask, and OpenSea that let us interact with it. 

What is a protocol? At its essence, it's just a set of rules. 

For example, diplomatic protocol explains how to behave around presidents, ambassadors, and senators. Thanks to these rules and standards, government officials don't need to waste energy wondering who speaks first, how they should address each other, and where they must be seated at the table.

Ethereum protocol, on the other hand, explains how you send ETH, how gas fees are calculated, what is the structure of smart contracts and so on. Thanks to these rules and standards, developers don't need to waste energy wondering how they should design their app to ensure it's compatible with Ethereum.

Similarly, MARVEL, Lord of The Rings, Star Wars, and all other worlds protected by IP rights can also be viewed as protocols. And movies, books, and games are apps to interact with these protocols and bring them to life.

To understand this concept better, let's leave MARVEL for a second and get to Star Wars Cinematic Universe, which is less complex and easier to follow.

Star Wars Universe - just like any other protocol - is a pretty small set of rules and standards. And if a producer follows them, a movie, game, or TV series will become Star Wars-ish. Theoretically, even you - as a fan - could follow these rules and create your own Star Wars adventure.

Some of these rules might be hard - e.g., it'd be impossible to set up a Star Wars movie in a medieval setting without turning it into a parody. And some might be softer - e.g., you don't need Jedi, Siths & lightsabers to create a Star Wars movie.

Andor is a great example here. In the first Andor's season, they don't even mention a Jedi or a lightsaber. Yet because of the known planets (Coruscant), characters (Palpatine, Mon Mothma), props (TIE Fighters, blasters), and the fight between good vs. evil (Rebellion vs. Empire), we feel that this is Star Wars TV Series indeed.

Of course, to experience Star Wars (or any other Universe), you don't need to study the protocol's set of rules. Just like you don't need to understand how SMTP protocol works to send an e-mail to your mom. You can just watch the movie and enjoy the experience.

So why are these protocols so important?

Fiction worlds protocols accrue value in a protocol-like manner

As we said before, when we watch "Andor", we feel that it's part of the Star Wars Universe. As a consequence, it connects with 30+ years of our "Emotional Value Locked" into this protocol, making the story much more exciting than if it happened in a totally new world. 

On top the Andor's plot, we feel satisfaction when we learn the backstory of Cassian Andor, who played a prominent role in Rogue One. It's also intellectually pleasing to connect more dots related to the early days of the rebellion. And learn about the new characters and subtleties of the world we already love. These learnings are collected by fans and updated in Star Wars Wiki called Wookiepedia.

So if movies, books, and games are apps to interact with Star Wars Protocol, then it works in a similar fashion as Ethereum - the more high-quality apps to interact with the protocol, the more valuable the protocol becomes.

Also, protocols like Ethereum get more valuable with an increased number of users and connections between them, known as network effects. And these IP protocols are no different.

If I were the only person in the world who liked Star Wars, it would be a pretty lonely experience. But if I have friends with whom I can discuss the Empire Strikes Back or play SW: Battlefront II, interacting with this world gets far more exciting. It may even become a way to bond with other people - that's why tens of thousands of Star Wars fans attend Universe-related events.

That's also why movie producers created Ewoks, Jar Jar Binks, and more distinct female characters like Rey - they made the Universe more attractive to new people (in this case: kids and women) so that fans can share their affection with more people.

These actions aimed to generate more "Emotional Value Locked" into the protocol, which can be transformed into money by selling apps - movie tickets, games, and merchandise.

This is also the main thought behind the MARVEL Cinematic Universe. Since 2008 they released 31 films starring different superheroes - cocky Iron Man, virtuous Captain America, funny Guardians of the Galaxy, and over a dozen more. Every fan can find a hero they like. 

And then MARVEL connected these worlds (and their fans!) in cross-over Avengers movies, capitalizing on the "Emotional Value Locked" and generating billions of dollars.

That's why Hollywood loves these protocols, also known as "franchises."

And that's also why companies like Disney restrict access to their protocols, contrary to Ethereum, that's fully permissionless. (1)

Both of these ways have their pros and cons.

Power of restricted protocols

Most of the most successful IP Protocols have been restricted. 

Star Wars, MARVEL, Lord of the Rings, Witcher, Toy Story, Pokemon, Harry Potter, Dragon Ball… The list goes on and on.

You can, of course, create your free fanfic, fanart, or fan wiki. But you can't make money on it. (2) And only those who own Intellectual Property (IP) rights can build bigger apps (movies, books, merch) to interact with these protocols. 

Why? Well, there are at least two reasons.

The first one is control.

Remember "Emotional Value Locked"? 

Studios act like hawkish brand managers because they fear destroying this emotional capital built for the last 30+ years. Just like an iPhone user might decide to "never buy an iPhone again" if he gets scammed by the app from AppStore, the Star Wars fan might dislike the Universe if he watched a crappy movie produced by amateurs (3).

It's the same reason Nike doesn't let every shoemaker on Earth use their logo - they'd destroy the brand they've been building for over 50 years.

The second reason is money. 

If I asked you what's the highest-grossing movie of all time, you'd probably answer "Avatar". But it's not actually true. The highest-grossing movie of all time is "Toy Story 3". 

Why haven't you heard about it? Primarily because box office lists consider only revenue generated from ticket sales. And here's the winner is clear: Avatar made $2.9B at the box office vs. Toy Story's $1B.

But when you consider all money generated by the movie, including merchandise - toys, t-shirts, notebooks with logos, etc. - then the scales are tipped. Avatar made around $150M via merchandise, whereas Toy Story made… $10B. 

So overall, Toy Story generated around 3.6X more money than Avatar. Of course, only some % of this money went to Disney since they typically license the IP rights to toys & merch companies instead of producing these things themselves. But it shows how important it is for Disney to restrict access to their "Toy Story" protocol.

And when the protocol is established, "Emotional Value Locked" serves as a moat to protect the world from other protocols. Since audiences' minds are already occupied with "Toy Story," it's hard to break in with a new world and new characters unless they're remarkable. So it further protects Disney's business revenue.

To sum up, restricted protocols, when they reach the tipping point, can become machines that produce high-quality content and generate huge amounts of revenue.

So if it works so well, why would you even consider making them permissionless?

Power of permissionless protocols

Let's compare Ethereum to Disney. 

Control here is very loose. You need to comply with the protocol's standards; apart from that, you can build whatever you want. And because of this freedom, the Ethereum ecosystem materialized the worst of Disney's nightmares - hundreds of scams, hacks, and exploits hurt the Ethereum (and crypto's) reputation. 

The reputation got damaged to the point where people created websites collecting all web3's failures, and Apple made it hard to introduce crypto-related apps to its AppStore.

When it comes to money… well. Vitalik Buterin and other Ethereum Co-Founders definitely made a lot of money on Ethereum, but there are Ethereum investors, founders & VC funds who made much more. Using Peter Thiel's phrasing - most of the value created wasn't captured by the founders. 

So if the results are like this, why would you even make your protocol permissionless?

Of course, there are moral motivations, such as "keeping the Internet open," which I fully agree with. 

But even if we put them aside, Ethereum being open led to the creation of many great apps built on top of it. Uniswap, MetaMask, OpenSea, Zapper, Farcaster - all these apps generate value for the protocol. The more great apps there are, the more valuable Ethereum becomes. And none of them need to be created by Ethereum Foundation.

Since you don't need to ask Ethereum Foundation for permission, it's a Wild West - you can make as weird and strange apps as you want. And some of them, like NounsDAO, can counter-intuitively grow into multi-million dollar entities. 

This whole process can start a virtuous cycle:

And Nouns is a great example of a brand that - contrary to Disney or Nike - is built in a bottom-up manner thanks to its permissionless design.

Most people who own Noun NFT want its brand to be as valuable as possible. So they create different art pieces and memes with Nouns Glasses to make Nouns more popular. And they got to the point where these Glasses became a part of a Super Bowl ad.

This cycle is, of course, hard to set up. For one Ethereum and one Nouns we have hundreds of failed projects. But if you succeed, your protocol is generated bottom-up: by people for people. I believe you can achieve the same thing with the next MARVEL and Star Wars, where fans will create new movies, stories, and games.

But we need one more ingredient not to get overwhelmed with crap. 

Power of curation

If you have ever touched a new iPhone, you know that without any apps installed, it's not too useful - it's just a toy. But although we all take for granted that thousands of developers compete in building the next great iOS app, it wasn't always that way. 

In the early days of the iPhone, you could only use apps made by Apple, just like you can only watch Star Wars movies made by Disney. Back then, these apps were limited to iTunes, Google Maps, e-mail, and a browser. And many people (myself included) discarded iPhone as a "cool but expensive gadget."

A year later, the App Store was launched, opening the iPhone to thousands of developers around the world. Opening the floodgates resulted in many crappy apps, with "fart apps" getting some recognition in pop culture. But in a few years, we got Instagram, Uber, WhatsApp, Tinder & 1000's other apps that became a must-have for millions of people. And these apps, of course, increased the value of the iPhone and let Apple take its 30% cut from every in-app purchase.

So, on the one hand, Apple remains open to apps created by other people - everyone can submit their iOS app and try to reach over 1.5B iPhone users. But Apple also controls what apps get distributed via AppStore, so they mitigate the risk of getting flooded by crap. This dual model makes AppStore one of the most efficient cash cows ever designed. 

I believe Disney could use a similar model for Star Wars (and other worlds). We would still have movies, games, and comic books produced by Disney. But they'd be supplemented by other content in DisneyStore, which would curate the best fan art and let their creators earn recognition and money.

I don't think Disney would take such a risk, though.

So that's why I think the "next MARVEL" will start as an NFT Collection where people - just like in Nouns - create the world in a bottom-up manner. This model would address the biggest problems faced by Disney, Warner Bros., Netflix, and all other prominent IP creators.

What are these problems?

Subscribe below to get an email when the next parts are out.

PS1: You can collect this post by clicking the button below.

PS2: I'm also writing a serialized cyberpunk novel called Cael Mux. The idea of this "choose your own adventure" story is to explore the boundaries of IP Protocols.
You can read Chapter 1 here.

(1) But wait, can we even call Star Wars a protocol if protocols are supposed to be open and permissionless like SMTP or Internet Protocol? I'd argue that we can. Access to some protocols - like Twitter or Skype - can be restricted, and in a tech context, we typically call them platforms then. But I stick to the word protocol because locking a protocol in a cage by a single entity doesn't necessarily change its protocol-ish nature. Fiction worlds are examples of protocols that are hard to break.

(2) I've heard there is a phrase among the US copyright lawyers - "Don't fuck with the Mouse", that highlights the tenacity of Disney's lawyers. According to Reddit, sometimes these Mickey Mouse lawyers are called Nazguls.

(3) As we know from Episodes 7-9, centralized control over content isn't enough to guarantee that the Star Wars brand won't deteriorate, but at least it gives Disney team some agency.

(4) Darth Jar Jar pics have been taken from here and here. AppStore UI has been taken from here. The rest has been AI-generated.

Over 7.000.000 artists published their music on Spotify. Only 0,19% of them made more than 50k$ - a median annual US wage - from the platform’s royalties in 2020.

Bear in mind that more than 95% of artists haven't even made $1K a year.

Here's the distribution of artists' Spotify earnings:

And if that chart looks familiar, that's because it's the same Power Law that determines the popularity of books, Twitter posts, and YouTube videos.

Why do artists earn that little? It’s not because of greedy Spotify.

Let’s crack some numbers. In 2020 Spotify generated around $8B in revenues. And over $5.7B (€5B) from that went to record labels & artists as royalties.

When you add other costs, it turns out that Spotify is still not profitable. Some people claim it’s because of their marketing spend. And it holds a grain of truth.

Spotify spent ca. $1.14B (€1B) on marketing in 2020. So what would happen if they spent $0 on marketing? It’s an absurd idea but let’s play with it. If Spotify spent $0 on marketing and magically had the same number of customers they’d have cash $420M of profit.

That’s still over 2X lower margin than record labels such as UMG

So maybe record labels are the greedy bad guys? Well, they definitely have a lot of power.

Record labels hold a lot of power

TOP3 labels (Universal Music Group, Sony Music Entertainment, and Warner Music Group) hold a 68% share of the music recording market.

And they exercise their power.

They do it through:

- Taking 76-85% of all artists’ royalties,

- Multi-album exclusive deals that tie artist to the label but let label exit the deal anytime,

- 360 deals that give them a share of other musicians’ gigs e.g. acting, modeling, merchandising.

So imagine a VC comes to you and says:

“You do the product, I give you some funding and take care of the marketing. And I take 76-85% of your profits”.

Seems like a lot, doesn’t it?

Especially if they also say:

"I want an exclusive right to invest in all the future startups you might start in the next 10 years. And btw give me a share of your consulting and public speaking gigs as they happened thanks to my work on the startup's marketing."

Okay, but if record labels deals are bad, why do even artists sign contracts with them?

Record labels are powerful but their role has changed over the last 20 years

To better understand this situation, we need to go back to pre-2001 times.

In pre-Napster times labels:

1. Gave you an advance to record an album.

2. Organized the studio & people to produce an album.

3. Manufactured the CDs.

4. Distributed CDs worldwide.

5. Used their relationship with the radio, magazines, and TV to make you popular.

6. And they also utilized their lawyers to make sure you get paid as copyrights & relationships between different entities in the music industry have been pretty complicated.

So record labels had the power over the whole value chain:

They were power brokers - in the era of radio, music magazines & MTV 99% of musicians couldn’t become a star without a label.

Then the Internet came, and labels experienced 5 big revolutions:

#1: Napster

We knew from the past that most people wanted to listen to singles, not the whole albums. So when the 1st Napster revolution came, fans started to download songs for free like crazy. Despite lawsuits and fighting back from the labels, the trend prevailed.

#2: iTunes

Steve Jobs came to the rescue and heavily limited music piracy in the western world. His deals with the biggest labels let people buy songs on iTunes for 0,99$. As iPods were overtaking the portable mp3 players market, it was the most seamless way to listen to music.

From 2001 to 2010 iTunes sold 10 billion songs.

#3: Spotify

Daniel Ek took iTunes idea to another level. He gave the Spotify users the “All you can eat” offer where they paid 9,99$ to stream as many songs as they wanted. He also offered a free, ad-supported Spotify version, so many people who haven’t listened to the music legally now started to do it.

All these 3 revolutions changed the way people consume music. But what about the music production?

#4: Hardware & Software prices going down

The 2000s made almost all high-quality hardware 10X cheaper. Digital cameras, flat TVs, smartphones - all of them got insanely more powerful while keeping the price pretty low.

The same happened to the music equipment & software, so musicians didn’t need 100.000$ to record an album. They could record good quality music for 5.000$.

It gave musicians freedom, as they no longer needed to rely on the label's money to produce the songs. It came hand in hand with musicians sharing their know-how with the community.

If artists wanted to learn more about the best hardware set-ups, software features, or the latest plug-ins to get some cool effect, they could find help on forums, Google, and YouTube.

#5: Social Media

The younger generation wasn’t watching MTV, reading magazines, and listening to the radio anymore. They were discovering music on the Internet. Not only on Napster but also on this new weird thing called Myspace.

One of the biggest stories of that time was Arctic Monkeys that, thanks to Myspace, made their song “I Bet You Look Good on the Dancefloor” a #1 hit in the UK.

Today Facebook, YouTube, and SoundCloud let artists grow their audience without relying on ads, radio, and magazines.

So as artists could produce music cheaper and promote it almost for free, it seems that everything should be fine, right?

So how did we end up in the place where most of them can’t even make $1k a year? It turns out these 5 revolutions weren’t that good for some of the artists.

Why?

Here are the 5 main trends that limited the benefits generated by the revolutions.

#1: Because it’s so easy to produce & publish music, artists create more songs than ever.

In 2000 ca. 1.5M new songs entered the market. In 2020 ca. 22M new songs were added to Spotify. It’s 14X more songs to listen to. And the attention of the listener is limited.

#2 People spend more time listening to music, but it’s not enough to match the growing supply.

In the US, time spent by people on music grew by almost 30%. And this is data from 2017, so today, it might be even more. But it can't match the 1400% increase in the number of songs.

#3 Music consumption is recurring, limiting new artists' opportunities to enter the market.

When you watch a movie, you typically do it once. So after you see the end titles, you have the room to explore a new film. Music doesn't work that way.

According to Spotify, I played “Dreams” by Fleetwood Mac over 300 times last year (mostly inspired by this instant classic). Every time I listen to “Dreams,” I don't test new songs.

So even if I spend a lot of time listening to music, I might spend 60% of my time listening to the old hits and only 40% on the new songs.

#4 Most of the music that people play isn't new.

In the US, 64% of the streaming comes from the catalog - databases of songs older than 18 months. Many of them are much older than 18 months - think about the 70s/ 80s/90s bands being played by the radio and your parents.

#5 Music got more global than ever.

20 years ago, what really counted were BIG5 markets - US, UK, Germany, France & Japan. They were responsible for around 75% of the label's revenues.

In the last two decades, the music got more global and cheaper, which limited the problem of piracy around the world. Today BIG5 is responsible for around 60% of the labels' revenues.

On the one hand, it's good news, but it has significant consequences that I'll explain later.

The ability to produce and promote music is both a blessing and a curse for artists.

When you look at the situation in the music market, it looks like that:

#1: Almost infinite supply of the new songs.

#2: Demand growing much slower than the supply.

#3: Recurring music consumption means fans are ‘locked down’ by the older songs.

#4: So only 36% of the consumed music is new music.

#5: And your fans are dispersed around the world.

And here comes the labels who whispers confidentially:

“Do you prefer this wild west competition and fighting for 100% of a small pie, or would you like our help and get 14-20% of a much bigger pie?”

So what do labels really offer? They help artists to cut through the noise and become famous.

Labels use their:

- Negotiation power to include musicians on the Spotify’s homepage or the top playlists,

- Global reach & market data (as markets gone global),

- Marketing support (so the artist can focus on music and not manage the website, social media, and e-mail list).

Labels also help with complex legal deals. Music always has been used in movies and ads. Today music is also used in video games (GTA), apps (TikTok), or devices (Peloton), and labels’ lawyers can help you with the deal.

These kinds of deals are known as ‘Synchronization.’

And although it’s a small part of the music industry’s revenue, it can be a game-changer for individual artists who can get even 100-500k$ from the song being used in a movie, game, or ad.

Of course, labels take an absurdly handsome cut for this help. So artist tried to find a way around it.

How artists tried to earn money without labels

Artists tried to cope with labels’ take rate in numerous ways.

Radiohead released the “In Rainbows” album in the pay-what-you-want model. According to Wired, they raised around £3M.

Wutang Clan released only one copy of “Once Upon a Time in Shaolin“ and sold it for $2M. (btw @PleasrDAO bought it for $4M to make it accessible to people though it cannot be commercially exploited until 2103).

Big stars made money by using their fame to promote different products. Diddy promoted his Ciroq liquor, and Kanye promoted Ye Sneakers he designed with Adidas.

Some musicians went through independent labels and took the risk of getting a much smaller pie. Some musicians used Patreon but without such spectacular success.

And although some of these methods worked, most of them are not available to smaller artists.

Alternative methods of earning money aren’t too accessible to smaller artists

If you’re not a headliner, you won’t sell your 1/1 album for 2M$, sell it in a pay-what-you-want model, or promote your products because you don’t have enough fans to buy your stuff.

So some artists tried BandCamp & SoundCloud.

These platforms let smaller artists reach their audiences and get money directly from the fans. BandCamp is more prevalent among indie musicians, while SoundCloud is a place to go for rising DJs & hip-hop artists.

And although BandCamp & SoundCloud have millions of users and many artists got better thanks to these services, many of them still find it hard to make a living.

(It's also worth noting that some artists go full guerilla, have their own e-shops, and go directly to playlist curators to put their songs there)

But this whole situation gets more confusing when you think what’s the real role of streaming for most big artists.

Most big artists don’t use streaming as their primary revenue source

Most artists get around 0.004$ per stream on Spotify. But can get even 50$ per concert ticket. So artists treat streaming as a marketing machine. They want to reach as many fans as possible so they can sell the tickets and fill their arenas.

It’s a reverse of the pre-2001 models. In the past, concerts were used to promote CDs. Today it’s CDs (well, mainly mp3 singles on Spotify) that promote concerts. That’s why artists signing exclusive deals with Tidal or Spotify haven’t prevailed. Artists want as broad a reach as possible.

But if you’re a smaller artist with a 10.000 fanbase that’s globally distributed, you can’t fill the arena. Even if you made concerts every week, most of your fans wouldn't attend them 52 times a year.

Also, if your fanbase is globally distributed, you might have 1,000 fans in NYC, 2,000 in London, 4,000 in Tokyo, 1,500 in Sydney, and 500 in Cape Town. So you can’t even organize the concert for all of them.

That’s where the global reach of music starts to become problematic.

And now imagine a pandemic that results in concerts being canceled. Musicians lost their primary source of revenue. Some artists had to change their jobs. Some started exploring different models, such as online concerts, but we all know it's not as cool as a live concert.

But… why do artists even struggle to make money if almost all 7 Billion people on Earth listen to music?

The music industry generates little money compared to its impact on culture

The music industry seems like a giant market. But it’s not. The music industry is supersmall compared to tech.

The entire music label’s revenue is less than the revenue generated by AirPods. So the headphones producer gets more money than labels whose music gets streamed via these headphones.

I know it sounds absurd, but here’s the chart:

And music industry generates little money despite the fans' love for music.

Fans travel around the world to attend concerts, wear t-shirts with the band's name, buy autographs, vinyl, and play the best songs to their friends.

And listen to music all the time.

So why do musicians - and the whole industry - earn that little? I believe that’s because of the poor monetization.

Chris Dixon calls it the “enthusiasm gap.”

https://twitter.com/cdixon/status/1468258841422823427?s=20&t=zSC1h02GMmTckfna-K00tQ

Using different terminology, music’s value staircase doesn’t have enough steps.

With every step on the staircase, you should pay more and get more value. But if you’re the world’s biggest music fan, there are almost zero options to spend more than a few hundred bucks.

And it matters a lot, especially for the smaller creators. If you were a blogger in 2005 and had 1000 true fans, it was hard to make a living. In 2022 you can start a Substack, charge them 10$/month and earn 10 000$/month.

And the main reason why you can make money on Substack is that it’s given a super easy opportunity to monetize your readers.

But Substacks don’t work in music because artists don’t publish new songs every month. And fans can get access to the whole Spotify for 9.99$. So artists needed to find a way to deliver more value to their fans while reviving the way music was bought in the CDs era.

How NFTs can help musicians earn more

And here comes web3 and music NFTs that give fans unique experiences & feelings of ownership.

This is one of the reasons why @3LAU has earned $11.6M on his Ultraviolet album NFTs.

If he wanted to earn that much via the record label and got a decent royalty rate, it would mean around 8 million albums sold. To give you a perspective: Ed Sheeran’s “Divide” album that had a top hit, “Shape of you,” had 6.1 million copies sold.

Of course, 3LAU is an outlier and sold it during the bull run, but even if he earned 10X less, 1.1M$ would still be a fantastic result.

Music NFTs are digital merchandise. And it’s not that strange.

But isn't it strange that the artist might make more from NFTs which are some weird digital merchandise than from music itself?

Not that much if you look at the movie industry. I might surprise you, but most of the money generated by blockbusters doesn’t come from movies.

When a big hit like Avengers, Harry Potter, or Star Wars hits $1B in the box office, the merchandise - toys, books, apparel games - typically brings $2-4B.

And there are even more extreme examples like “Toy Story 3” that generated almost $10B in retail sales compared to $1B from the box office.

So we know that merchandise can generate a lot of money. But can digital merchandise do the same? Yes, we’ve seen that work in gaming.

“When people tell me it’s ridiculous that musicians will sell digital goods on a blockchain, the reality that Fortnite made $300M last month selling digital dance moves is more ridiculous.”

@cdixon in 2018

But why would anyone even buy music NFT? Because it’s a digital ticket to unique musical experiences.

And music is about experiences what’s pretty clear when you look at the growing concert ticket sales.

And NFTs give true fans unique experiences. Both digital and in real life.

As a holder, you can:

- prove that you’re a true fan (NFT in your wallet may scream, “I listened to them before they were mainstream!”).

- invest in an artist you believe in and sell the NFTs for profit.

- feel co-ownership of the first edition of the album (“Darling do I like them? I own their NFT of their first song!”)

- talk on the private Discord channel with the band.

- attend collectors-only AMA with musicians.

- listen to demos of the new songs.- get discounts on concert tickets.

- get on backstage after the concerts.

So it’s a Fanclub 2.0 (thanks Frota for this name). And it’s just the start of the exploration phase of music NFTs. There are going to be many more perks that you get as a holder.

And there are royalties.

Music NFTs can change the royalties landscape

Record labels get 75-85% of the music royalties revenue. But thanks to NFTs, artists can raise money for the album by selling the NFTs and skip the label. And then share % of the royalties with the fans instead.

They become this big music family that works hand in hand to make the songs popular. It’s like a record label but without a record label. And even if artists miss record labels' help, they can sell some % of royalties to labels.

The difference, though is that here the artist has more power than before, so he can get a better deal. And at least some % of the royalties will go directly to the fans.

And royalties have already been explored from the investing point of view by big funds. Hipgnosis Songs Fund, founded by Merck Mercuriadis, a music-industry veteran who has managed artists including Beyoncé and Elton John, pays over a 4% dividend yield.

And they can do it because royalties bring stable cash flow independent of the market behaviors. People don’t limit the amount of music they listen to when the economy is bad.

Funds also promote their songs to make more money.

Round Hill fund bought the rights to a catalog by American Authors, partly because management thought one song’s title—”Best Day of My Life”—would lend itself well to use in films, advertisements, and videogames.

The song has since been used in ads for Apple and Hyundai, among others. Bought for a mid-six-figure sum, the catalog is now worth more than $4 million.

How much can the royalties be worth? A few years ago, Bob Dylan sold his song catalog to Universal Music for $300 million.

Of course, he’s an outlier, and his music is timeless, contrary to most hits. But it shows how big of a market it can be.

Music NFTs redraw the lines between fans & artists

So with music, NFTs fans act like a mix of a record label, exclusive fan club, and royalty fund.

They crowdfund the new albums. They get exclusive experiences with their favorite artists. And they can promote the music and earn royalties when the songs get popular.

And Music NFTs are not a “one day it may be possible” thing. Music NFTs already work.

Here’s an example of @soundxyz_ summary of their first collaboration with artists.

https://twitter.com/Gigamesh/status/1477854860921896966

Here’s an example of @join_royal drop with @Nas that has broken Royal’s servers:

https://twitter.com/3LAU/status/1480955256578228234

The idea of music NFTs has even been tested by Royalty Exchange - a more traditional royalties marketplace for professional investors (hence the big sums that go hand in hand with bigger catalogs).

The scale of music NFTs can become 10X bigger than the traditional visual art NFTs.

Visual art NFTs already got big. But how many people buy physical art in the real world? Not many. Very few even attend galleries.

Now compare it to music. Billions of people bought a song or streaming subscription in their life (even if it was a pirate CD sold for 1$ on the street). So there’s a multi-billion Total Addressable Market.

Ofc, not everyone will buy an NFT and it’s tied to the adoption of crypto that’s still pretty limited. But it shows the potential scale of this business. Also when it comes to digital art, art can become a part of music NFTs. Like album covers or posters. So you get 2 in 1.

So music NFTs may solve some of artists’ problems with oversaturated music markets

Music NFTs lets fans pay more for unique experiences with their favorite artists. So instead of paying artists $1, they can pay them $100-$10k and get something extra.

From the artist's point of view, that’s revolutionary because they don’t need to have 100.000 fans to make it. 1000 true fans willing to buy a 100$ NFT once a year would be enough.

And as fans, collectors & investors have incentives to promote the music (they get royalties and they want the NFT price to go up), they might take some part of the marketing out of the artist’s shoulders.

And it’s a big thing.

It also helps build a more direct relationship with the fans, investors & collectors. And here lies the opportunity to get more independent from the labels.

So, all in all, I’m very bullish on Music NFTs.

I think they can grow the music industry, help the smaller and bigger artists make more money, and change the way fans interact with their favorite musicians.

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What should you follow to learn more about music NFTs

Services: @join_royal @catalogworks @soundxyz_ @AudiusProject @MintSongs

People: @3LAU @Gigamesh

**Mindmap: **Music Blockchain Initiatives by @Mighty_33

Where can you learn more of my stuff:

1. If you want to read other deep dives (and some stupid memes) on web3, you can follow me as well: @macbudkowski

2. Or you can listen to my podcast where I talk with web3 builders about their projects: Web3 Talks

3. And if you'd like to have more nuanced web3 conversations, you're welcome to join my Web3 Talks Discord channel: Server.

Sources:

(The ones that haven’t been specified before)

Book: All You Need to Know About the Music Business

Podcast: Universal Music Group: The Gatekeepers of Music

Report: IFPI Global Music Report 2021; Goldman Sachs Report

Royalty Funds: stories from WSJ; Hipgnosis dividends; Bob Dylan Catalog

PS: Thanks to Frota & Maciej Zielinski for reading the early drafts of this gigathread

PS2: The part about the % of the money going to the labels has been simplified as, in fact, more entities are typically involved in this process (publishers, producers, etc.). In some cases, though, labels provide all these services for the artists, so all money goes to them.

PS3: If you liked the text and would like to buy me a coffee, feel free to send some ETH to macbudkowski.eth :)

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