Smart Royalties for Musicians?

The music industry has been going through one of its biggest revolutions in the last 15 years, since streaming came to the forefront. Musicians are making less and less money per listen, and unless you are at the very top, it is increasingly difficult to make a living wage as a musician. At the same time, artists are seeing huge opportunities to "blow up" in the form of TikTok, Youtube, Twitch, and other more democratized mediums. Incredibly, an artist can have thousands of faithful subscribers and make very little money through ads. (On Youtube, for instance, the average subscriber is worth 0.013 cents per video) Critical to this problem is the idea that compensation should be "per view." As we all know, art's value is personal to each fan, and certainly not a function of view count. (By that logic, Gangnam Style would be one of the most "important" works of art of all time, which...I just disagree with.) I think it is time for an alternative compensation scheme for artists in the digital age, which is only possible now due to recent advances in technology, namely smart contracts.

You would have to be living under a rock to not hear about NFTs (ERC-721) in the past 6 months. These tokens, built on top of smart contracts, living on the blockchain (namely, Ethereum) are a new vehicle for fans to show their appreciation for art. By "owning" an NFT, a fan feels a sense of intimacy with an artist and their work. It also has been a very exciting new way for artists to get paid. However, something is still lacking with NFTs — namely, you can't really do anything with them. Sure, you can put them on a digital wall, and brag to all your friends about the ownership, but with traditional assets, the benefits of ownership go far beyond that emotional aspect, into all sorts of logistical benefits, including the opportunity generate cash flow from that asset. NFTs are positive signal about digital ownership, but they are not the final form.

I propose a new form of digital asset — a digital "public offering." It would look like this:

• An artist wants to create a new album, but does not have funding to make it happen
• They will reach out to their fans, and raise money (Ethereum) from their fans in exchange for an equity stake in the resulting work (accompanied by other incentives such as a free digital copy)
• When someone downloads the music from a provider like Bandcamp, a smart contract representing a "digital royalty contract" of that song will disburse money to each stakeholder, in proportion to their ownership

This new form of digital ownership has many positive side effects. For instance:

• Fans are incentivized to do their own marketing for their artists, since they have a financial incentive for the music to be popular and sell
• Fans will feel closer to the artist and be more loyal
• Artists will get paid up front while retaining ownership stake in perpetuity, and can now spend more time on their art and connecting with their fans

There are many open questions and hurdles in the way. For instance:

• What segment of artists and fans should we target?
• How can we enlist artists to run a trial?
• How can we explain the transaction to fans?
  • Ethereum, as well as ownership, are difficult to explain succinctly and accurately
• Will music providers be willing to disburse through this new format?
  • How can we prove that the smart contract is legitimately owned by and approved for use by the artist?
  • How will taxes work?
• What should the actual smart contract logic look like? For instance, when can people participate / purchase "shares"? Can you sell your shares? As time goes by, should new shares be worth less to incentivize early adopters?

The plan, if I were to do it

I would partner with artists who want to fund new content creation. I would create tokens that can be "owned" and represent royalties for a particular piece of music. When fans / investors "pay" for that token, they would receive a percentage in future payouts of that token, as well as optional kickstarter-esque incentives like access or free digital copies. I would then approach music purchasing sites such as Bandcamp and ask to partner on an integration, so record buyers can pay via ethereum to the smart contract.

Phase 1: Minimum Viable Demo

• Create a simple demo
  • Goal is to sell the artists on the vision
  • Happy path flow that lets artists create new works / campaigns, with dummy fan-side static content

Phase 2: Reach out to artists

• Create a list of artists who fit our target market (TODO: define target market)
• Weed through the list of artists who respond to get those most emblematic of the problem we are trying to solve
• Establish trust and build a relationship with them

Phase 3: Minimum Viable Product

• Work with artists to build the product
• Implement core Ethereum logic
  • Deploy some smart contracts on Ethereum
  • Give the fans an NFT that represents their "partial ownership"
• Leverage the artists to reach their fans and get them in a beta trial with our site
• Market it as simply an NFT in the beginning, since whether or not we can actually facilitate disbursement is a known unknown

Phase 4: Music providers

• With the list of users and artists, reach out to music providers and work on an integration for payouts. If this is validated, then expand the product into the ownership / profit sharing model

Background on blockchain / music licensing

• https://open-music.org/blog/2018/4/5/salzburg-hack-a-12-hour-sprint-to-build-a-blockchain-music-product
• https://www.bobsguide.com/articles/6-reasons-music-royalty-payments-are-broken/
• https://consensys.net/blog/blockchain-explained/can-nfts-crack-royalties-and-give-more-value-to-artists

Background on challenges of streaming

• https://www.nytimes.com/2021/05/07/arts/music/streaming-music-payments.html
• https://www.wsj.com/articles/songwriters-lose-out-on-royalties-1444864895