Easy Guide to Music NFTs: What Exactly Do You Get When You buy or Sell One?
Updated: 12 hours ago
What you’ll learn in this article:
What exactly are you buying when you buy music NFT? And how can a musician make money with NFTs?
For many, NFTs are a hard concept to grasp, and they can be particularly complicated when applied to music.
For artists, music NFTs are marketed as a promising revenue stream. For fans, they enable more direct support of their favorite artists. For investors, it can be a way to ride on the coattails of the good performance of songs. But to reach any of these outcomes, it’s important to understand how music NFTs work.
Let’s dive into the basics of music NFTs and how they can be used in the music industry.
What are music NFTs?
Music NFT is an umbrella term for NFTs associated with music.
NFTs (non-fungible tokens) are digital identifiers recorded in a blockchain, and music NFTs can identify music products or even music rights.
Since each NFT is tied to an exclusive hash code, it cannot be replicated, but it can be tracked down to its owner.
What can be sold through NFTs?
Audio files
Visual art;
Tickets to concerts, events, virtual or physical experiences;
Access to exclusive spaces and digital communities;
Music rights;
Any digital content, or even physical goods (in that case, the NFT will work as proof of ownership over the physical good).
The myth of NFT and ownership
It’s important to bear in mind that the NFT is a medium, not a thing per se. The NFT is just a token that represents your ownership status of what you’re actually buying.
While NFTs can be used as a form of transferring and proving ownership (and therefore can serve as proof of anteriority or proof of ownership for copyright law purposes), buying an NFT of something does not necessarily equate to acquiring ownership of it. It doesn’t even mean that the person selling it actually owns the rights to it.
What you own when you buy the NFT is the metadata over the transaction. That’s why it’s important to know exactly what is being sold to you.
Many people believe that, when they buy an NFT related to an artwork, they’ll become the new copyright owners of such artwork. That is not the case by default, although copyright ownership transfer is possible and can be agreed upon through a deal or contract.
For example, a musician can sell an NFT of a sound recording of one of their songs, and they will still keep the copyright over the song (publishing rights) and the sound recording (master rights). What the buyer gets is the sound recording, which they can listen to whenever they want, and whose NFT will prove that the recording belongs exclusively to them.
Are music NFTs investments?
An NFT itself is not a financial asset that can generate passive income. But it can become an investment if one resells it, or if it is used to trade rights over a song or a sound recording, which can generate music royalties. It’s like investing in music rights without the need for a broker.
The rights holder can tokenize whatever they want (as long as the rights are transferable; for example, moral rights are not), and as much of it as they want. It is possible to sell only a percentage of the rights over a music asset, or only the rights related to one specific revenue stream.
In May 2022, the producer duo Chainsmokers gave away 5,000 NFTs that represent 1% of the streaming royalties of their album So Far So Good. The action happened on the music NFT marketplace Royal, and while it was free of charge, it shows how musicians can make money while keeping ownership of their copyrights, by trading mere shares of their outcome.
What are the risks of trading music rights through NFTs?
NFTs are deemed safe because they’re secured in a blockchain, which no one can copy or manipulate. But could there be risks involved?
Here are a few things you might want to know before spending money on NFTs or expecting to earn any money through them:
Profitability
There is a lot of buzz around the NFT market, which leads to many people thinking all NFTs are worth good money. But if you’re looking into buying NFTs as a form of investment, bear in mind that the NFT itself is not a guarantee of good profit. Remember that the NFT is only a token that represents an asset. The value is in what’s being sold, not necessarily in how it’s being sold.
As for music rights, they’re as risky as many other financial investments, and acquiring them through NFTs may not add much to the likelihood of return. Many companies or artists sell only fractions of music rights or assets. That is not necessarily illegal (as we mentioned previously in this article), but it also means that your profit will come in proportion to the percentage of what you own. The smaller the percentage, the less likely you might be to get your investment back.
Expiration date
Because copyrights have an expiring term, the profitability of music rights does too.
Copyright law determines a length for copyright duration. After this time limit, the copyrights expire and its protected works enter the public domain, which means the rights holder can no longer profit from them. These lengths usually are 70 years after the death of the author, but they may vary from country to country.
Therefore, music rights are assets that can generate income for a limited window of time, depending on how close the investor is to the expiration deadline.
Authenticity
NFTs might be safe from a transaction point of view, but it doesn’t necessarily mean they’re copyright compliant. Therefore, they’re not necessarily safe from scams and don’t prevent problems such as piracy, plagiarism etc.
It is possible that one person sells copyrighted goods without permission, or trades rights that they don’t own. In that case, the NFT will serve only as proof of ownership over the asset, but not proof of the authenticity of such asset.
Grimes used NFTs to sell digital art and also promote her 2020 album Miss Anthropocene
The pros of music NFTs
Each NFT is unique, and such scarcity is what can make it such a valuable asset in music. That’s why many artists sell limited editions of music goods through NFTs. These “music” goods might not even be songs at all, but any goods linked to a musical work or a musician’s career in any form. Singer-songwriter Grimes used NFTs to sell short videos that feature original music composed by her (titled Earth and Mars), as well as digital art related to the aesthetics that inform her album Miss Anthropocene, in what turned out to be million-dollar transactions.
Another advantage of music NFTs is that they allow the trade of assets directly from the artist to the fan/consumer, without the need for a “middleman”. In that sense, NFTs can provide funding for artists who are at the beginning of their careers or are looking for an extra revenue stream.
Notwithstanding, NFTs are sold through marketplaces such as OpenSea or Nifty Gateway and even niche marketplaces like Royal, which specializes in music NFTs.
While music NFTs are often associated with products, there are many creative ways in which NFTs can be used to improve services as well. Because the blockchain allows the identification of the owner of an NFT, this can be an efficient protocol for authentication purposes. At SPARWK, we use NFTs to ensure our users are correctly associated with the copyright holders of musical works. This way, we can avoid mistakes or false claims over song credits.
Are music NFTs worth it?
NFTs might be a hot topic now, but they have been around for as long as 2014. Even so, there’s still a lot to be consolidated in that field (including its regulation and overall legal implications).
It’s hard to say whether the increasing popularity of NFTs brings any hope to the future of the music industry, as they offer safe and accessible operational solutions for monetizing music, but don’t really solve the problem of building and engaging audiences to get them to spend money on music.
Many small artists are making money selling their music on NFT marketplaces, but it’s important to note that many of the buyers are not necessarily fans or people that would spend money on more products from those same artists; instead, they are early adopters that are betting on the boom of the NFT industry itself. Even so, it’s still revenue that small, unknown artists might not get through other streams such as sales, concerts, or music streaming.
As for the bigger artists making money through NFTs, much of the success of such strategy can be attributed to the artists’ successful brand and fanbase loyalty; which leads us to question if the products linked to the NFTs would have the same commercial success if they were sold through other mediums.
As we head towards the web3 (a decentralized model of the Internet), it’s safe to assume that NFTs transactions will become more common and will bring multiple opportunities for musicians to earn money. However, we’ll have to wait and see how the risks and problems related to music NFTs will be solved, and if the beneficial sides will outweigh them.
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What do you think of the future of music NFTs?
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Join SPARWK as we work towards a brighter future for all the stakeholders in the music ecosystem.
This article is published for informational purposes and does not constitute legal or financial advice.
