LUME. Creatives in Web3 Age

The music industry is talking about blockchain technology as one of the growth directions in the industry. Could it also offer opportunities for music creators to earn additional income? This blog will consider what the process of entering the NFT market is like from the perspective of a musician building their career. The background is a practical experiment reported in Aili Tervonen's (2022) thesis. Blockchain technology is seen as a solution to the mechanisms that have long plagued the music industry, where currently only about 12% of the industry's turnover is generated for music creators (Bazinet et al., 2018). The remaining part is processed by the so-called intermediary layer, which makes the content available to fans. The value chain includes, for example, those who provide publishing, recording, agency and management services. Some industry players see blockchain as a way to take control of creative work back to its creator. There has been talk, among other things, of “IP rights decentralization” (Jalonen, 2022), which refers to the decentralization of the management of intellectual property rights. Decentralized rights management could resolve the perceived imbalance between wide distribution and fair compensation. For others, blockchain appears as a challenger that forces a reassessment of the already established business models of the music industry, in which the management and exploitation of copyright have been key. Recently, there has been an active discussion about blockchain-based non-fungible tokens (NFTs), which are at the heart of new content ownership. NFTs have also been considered as a source of income generation for young musicians operating outside of multinational corporations (Langston, 2022). From recording sales to increasingly diverse content A music NFT is typically a song, album, lyrics, or music video stored on the blockchain. It can also be, for example, a composition created by a generative computer program that algorithmically visualizes the work using random patterns, colors, sounds, and/or shapes (Langston, 2022). A music NFT can also be a concert ticket or an album cover. NFTs also help to build a new kind of culture in the music industry. NFTs can be, for example, collector's cards aimed at fans, pictures of the artist, versions of different stages of the creation of a song, or almost anything related to the artist that has value to fans. According to Sitra's definition, an NFT is a digital file management certificate. The transfer history of the digital file management is recorded using blockchain technology. Some of these digital management certificates (NFTs) sold on NFT marketplaces do not contain any rights recognized in legislation. According to Sitra, this is because the legal status of NFTs is still unclear. (Sitra 2023.) A young music creator quickly encounters a number of seemingly challenging choices that have a strong to binding impact on the future and profitability of the product or service in question. A key choice is the type of content exported as an NFT: A 1/1 NFT is a single, unique product. It is completely exclusive. The analogy is often used with paintings in our physical environment, of which there is only one original. With an open edition, an NFT can be made in unlimited quantities, for example to commemorate participation in an event organized in the metaverse. However, that edition is usually only made for a certain period of time, after which it is no longer available. With a limited edition, a certain number of individual NFTs are made. Many collections consist of editions of 10,000 pieces, for example. There are advantages and disadvantages to different release models. A single 1/1 NFT is a unique collector's item. The Mona Lisa is often used as an example: there is only one genuine copy, which has a high price. Open editions can be used to celebrate a specific moment, for example, and are collector's items available only to participants. A limited edition serves, for example, as a pre-sale of tickets. Blockchain brings added value to music NFT trading In the music industry, the added value of blockchain lies in its various means of exchange and the uniqueness of the NFT token. Only one person can own a single NFT, and all purchase and sale transactions related to that token are recorded in a “ledger” maintained by the blockchain. For example, the path of each NFT is openly visible to everyone, and the NFT acts as a proof of authenticity. For example, a fan buying an NFT concert ticket can check the authenticity of the NFT on the blockchain before making a purchase decision. If they sell the ticket on, the new buyer can also see the chain of ticket owners and can check the authenticity against the ticket history recorded on the blockchain. The restrictions and rights related to the use of NFTs are managed by smart contracts that follow the individual NFT in question with every transaction. For example, during the creation phase, it is decided what share the creators will take as royalties if the NFT is resold. This way, the original creator will receive passive income and benefit from, for example, the increase in the value of the NFT. In the music industry, the increase can be really large, because for some artists the future can bring widespread global success. For this reason, Tervonen (2022) wonders whether in the future one of the motives for a budding artist to buy NFTs could be investment instead of fandom. Creatives often find pricing difficult. One solution to this challenge on the blockchain is to use auctions. This allows NFTs, such as a VIP add-on service built around a concert, to be sold in limited editions at the best price at the time. By utilizing the pre-sale mechanism, fans can invest in an artist of their choice, for example by financing the production of an album in advance. As a reward, they can receive their own NFT for a limited edition of the new album. In India, a FanTiger service aimed at the music industry has been launched, which gives independent artists a route to open their future projects to their fans for crowdfunding. Fans can support the launch of new music by pre-purchasing an NFT album from a selection that currently includes quite a few Indian music genres. At the same time, fans can be critically important marketing messengers when taking new content to the social platforms and communities of their networks (Nahar, 2022). NFTs and cryptocurrencies are also of interest to criminals The NFT market has rapidly become a new area of activity in the music industry. Regulation is still quite incomplete, and there are many question marks surrounding NFT trading. Issues that need to be resolved include the security of smart contracts, legally valid ownership, and the regulation and taxation of virtual currencies (Lindgren et al., 2023). Blockchain technology can also be misused. Last year, the NFT marketplace Cent suspended most of its trading due to abuse. The platform sold certificates of ownership for content that was not the property of the person who uploaded the NFT to the platform. Market manipulation also occurs. For example, creators of works have bought their own works to make the demand for them appear greater than it actually is (Närhi 2022). In the NFT environment, money moves through virtual currency wallets. The buyer sees the virtual wallet address on the blockchain, but the buyer remains anonymous. This makes it difficult, for example, to detect money launderers. Before diving in, look into these things Tervonen's (2022, see also Table 1) work carefully reports the steps that a musician needs to take to adopt the NFT world. It also describes the kind of expertise that each step requires. StepRequired skillsCreate a virtual currency account and acquire currencyVirtual currency advice: how to open a wallet, how to buy virtual currencies, how to connect a wallet to an NFT marketplace, how virtual currency value is created, what virtual currency alternatives exist and what risks are associated with the currency you are considering acquiring.Creating an NFT workSupport service for brainstorming NFT works to create an idea of what could be sold. Criteria for choosing a platform for selling an NFT work, technical requirements of the platform, the most important choices made on the platform regarding NFT usage rights, and the technical process of publishing.Selling an NFT workSupport services for marketplace practices, marketing planning utilizing existing channels to direct fans to the NFT platform, also support for fans to make NFT purchases (they need to learn how to use virtual currencies and understand how NFT marketplaces work). Table 1. Based on Tervonen, 2022, p.51 From a musician's perspective, NFTs may offer interesting new ways to interact economically with fans. The transition of physical fans to a virtual environment currently requires a considerable amount of expertise from fans. They must have sufficient understanding of virtual currencies, the functioning of DAOs, NFT products, and various marketplaces offering music NFTs. It is of paramount importance to identify whether each artist's fans can be reached through this. NFTs are currently still a series of development projects and directions. However, it already seems quite clear that at least some of them have found their place alongside Web2 environments. When the news talks about NFTs and music, it usually involves big money: 3LAU made $11.7 million in a 3-day auction for their new album (Brown. 2021) and Whitney Houston’s previously unreleased demo recording made when she was 17 sold for $1 million (Legaspi, 2021). In reality, audiences of millions are limited to global stars. It is likely that it will be at least as difficult for a new music creator and performer to find an audience through music NFTs as it is in a traditional physical environment.   About the writer Musiikkipedagogi YAMK -tutkinnosta valmistunut Aili Tervonen on toiminut musiikkialalla aiemmin freelancer-pianistina ja opettajana, mutta päätynyt sittemmin työskentelemään opetus- ja kulttuuriministeriöön. Valtiolla työskentely on saanut Tervosen pohtimaan musiikkialan asemaa yhteiskunnassamme. Musiikkialan tulisi pystyä parantamaan muusikoiden työmarkkina-asemaa, kehittämään alaa eteenpäin sekä moninaistaa alan ansaintalogiikoita. Tämän vuoksi Tervonen päätyi tutkimaan YAMK-tutkinnossaan NFT-teoksia ja virtuaalivaluuttoja. Lue lisää: https://www.theseus.fi/bitstream/handle/10024/751689/tervonen_aili.pdf?sequence=2   Lähteet Bazinet, J.B., Singlehurst, T.A., May, M., Suva, J., Ezawa, K., Yap, A. (2018). Putting the Band Back Together. Remastering the World of Music. Citi GPS: Global Perspectives & Solutions. Brown, A. (2021). Largest NFT Sale Ever Came From A Business School Dropout Turned Star DJ. Forbes 3.3.2021. Jalonen, J. (2022). Musiikkialan kasvustrategia. Tilannekuva-raportti, 04/2022. Music Finland Ry. Johansson, P., Eerola, M., Innanen, A. & Viitala, J. (2019). Lohkoketju: Tiekartta päättäjille. Alma Talent. Langston, T. (2022). The Music NFT Bible: A Guide to the Future of Sound. NFT now guides 22.9.2022. Legaspi, A. (2021). Whitney Houston Unreleased Demo Sells for $1 Million at NFT Auction. Full-length track was recorded when singer was 17. Rollingstone 15.12.2021. Lindgren, J., Lindholm, O., Lehtonen, K., Mustikainen, H. & Niikkonen, P. (2023). 6+1 suositusta Suomelle. Miten sääntelyllä voidaan parantaa web 3.0 -liiketoiminnan edellytyksiä? Sitran selvityksiä 229. Muikku, J. (2021). Pelastaako NFT musiikkibisneksen? Musiikkikustantajat MPA Finland blogi 18.3.2021. Nahar, P. (2022). FanTiger crosses 50k transactions, enters list of top five NFT projects globally. ETMarkets.com 28.11.2022. Tervonen, A. (2022). Muuttuva musiikkimaailma: NFT-teknologiasta uusia ansaintamalleja muusikoille? Musiikkipedagogi YAMK opinnäytetyö. Metropolia Ammattikorkeakoulu.