The music industry’s perception of Non-Fungible Tokens (NFTs) has undergone a significant evolution, from early hype to skepticism. Initially hailed as a new way for superfans to interact with their favorite artists and a lucrative revenue stream, NFTs fell from grace as market enthusiasm waned. Yet, their true potential might lie not in fandom but as the cornerstone of a transformative music royalty infrastructure.
In the pursuit of reshaping the music licensing landscape, the industry must harness NFTs’ latent power, weaving master recordings and compositions into the NFT fabric. Despite the cryptocurrency market’s current challenges, the time is ripe to lay the foundation for a licensing paradigm that aligns with the decentralized ethos of Web3.
Attempting to delegate the establishment of royalty mechanisms solely to existing NFT marketplaces, exemplified by platforms like OpenSea, is untenable. Entrusting this crucial task to individuals unfamiliar with the intricacies of music licensing would only compound the complexities.
Thankfully, the music industry possesses the tools to craft a Web3-compatible licensing model by adapting proven revenue-generation strategies. Record labels and distributors can take the lead in molding the framework related to master recordings, while Collective Management Organizations (CMOs) can lend their expertise to the publishing domain.
CMOs must seriously consider the licensing of publishing rights for musical works as NFTs. The hesitance to tackle this intricate issue stems partly from uncertainties surrounding NFTs as a medium for music consumption. Managing digital rights is inherently intricate, laden with questions about territorial jurisdiction, particularly given the global and often anonymous nature of NFT transactions. However, these complexities should not deter stakeholders from the promising prospects that this technology presents.
NFTs, viewed as tools for managing digital scarcity, hold the potential to revolutionize the administration of licensed content in the creator economy. They can also foster collaboration across diverse music catalogs through the use of smart contracts, which specify and enforce content usage, providing a novel approach for content owners to monetize assets across emerging distribution channels like the metaverse, gaming, VR/AR, and AI.
In contrast to the restrictive nature of traditional Digital Rights Management (DRM), NFTs offer inclusive solutions that encourage derivative works and collaborations while automating settlements between rights holders. Going beyond conventional applications, NFT-based licensing can introduce innovative models such as stem licensing and AI-generated content. It can also seamlessly incorporate established practices like mechanical and neighboring rights into the digital assets.
To navigate this intricate landscape, the industry should seize the current pause in Web3 music activities as an opportunity for meticulous planning and testing. This respite provides the space to address significant challenges thoughtfully and glean insights from past experiences during the music industry’s digital transformation.
Embracing this strategic approach will facilitate the creation of a robust licensing framework capable of evolving alongside the continually changing music ecosystem.
