Is Spotify Dead?
The Impact of Web3 on the Music Industry and How It Can Improve Revenue Streams for Artists
Recap of the panel discussion at the Sounds of Web3 Event, April 2023 at the Lisk Center Berlin
Gather Web3 geeks with a love for music in one place and you get a fascinating fusion of creativity, idealism and tech. The discussions in the room bounce back and forth between dreaming up the future and practically solving current issues.
This summary of the panel discussion provides a tiny glimpse into the visions, ideals, passions and tech solutions the attendants at the Sound of Web3 event contemplated.
Four music-loving Web3 visionaries joined moderator Ethan Pierce, Co-Founder of NFT Factory to discuss the impact of Web3 on the music industry and how it can improve revenue streams for artists.
- Ali Haghighatkhah is the developer and founder of the blockchain-based music streaming platform Muzikie.
- Miguel Lizio is the Head of Operations at Lab3 (a blockchain developer studio) and an experienced DJ.
- Christopher Mueller is a musician, developer and founder of the Ecosis Network, a blockchain-based payment solution.
- Marco Ehrler is a music business lawyer at Lausen Law Firm specializing in blockchain.
The panel opened its discussion by reflecting on how the music industry has already changed due to digital technology and the internet.
How did Web2 disrupt the music industry and what does it mean for web3?
Miguel was the first to speak and brought up an aspect that would keep returning throughout the discussion again and again: Community. When you think of how the music industry changed, typically streaming sites come to mind. But there’s more. Covid-19 has forced musicians to find alternatives. Initiatives such as home concerts became popular. Another exciting invention is Bandcamp as an alternative to Spotify or Apple Music.
“The community factor is something the Web2 platforms are bringing in hardcore at the moment. And this is something that started with Web3. So bringing your community together and connecting directly with your community with Web3 is actually one of the most marvelous things about the technology, in my opinion.”
Next Ali shared his view of how music evolves. In his eyes, the change is constant and music never stays the same for a long time anyway. TikTok, for example, has created new visual and audio experiences that suit an impatient GenZ audience. “Around 25% of the tracks that they hear, they skip after 5 seconds, and half of the tracks, they skip after 30 seconds […]. And we need an industry that is agile enough to understand this need and react upon it.” Later on in the discussion he gave a taste of how that agility might look.
GenZ fans may have a short attention span, on the other hand, they are looking for closer interaction with their stars, was Marco’s observation. This is the reason he sees a bright future for NFTs in the music business. “You can give fans the possibility to buy the song combined with ‘meet and greet stuff’ or other events that allow fans to get close”.
Chris looked at it from a slightly different angle. Musicians today depend on platforms to distribute their music and make the most of it. That’s not a bad thing. The only problem with Web2 platforms is that they are owned by some enterprise. “..in my opinion, platforms in the future need to be owned by the community.” This, of course, can be achieved by a technology that works on tokenization.
The elephant in the room was unveiled: ‘decentralization’ - that’s what Web3 is all about. The underlying technology allows for more decentralization by removing the intermediaries who get most of the revenue in the current setting. The entire creator economy would benefit from this because they could distribute and monetize their music - or other creative works, such as art or writing - themselves. With this observation, Ethan eased into the next question.
How is Web3 going to disrupt the way the music business is done?
“Decentralization goes hand-in-hand with crowdsourcing”, Ali claimed and explained how the public adapted quickly to businesses like Uber, Airbnb and other such companies. Their business models are based on crowdsourcing and lead to lower prices, more competition and better quality of service in the market.
“When it comes to music, artists can leverage the power of Web3 to have better collaboration, to have better ownership control over their artwork and to be able to create new channels of interaction with their fans, including crowd selling their art or their royalty rights for raising funds for their future artwork.”
Chris described the supply chain in which the artist operates. Every musician wants to become famous. But to get there you depend on a few big labels that completely dominate the industry. So the musician first needs to get the attention of the label and build a reputation. But with decentralization, the community can self-organize. You can build your own platform, grow your own community and maybe even create your own label.
He emphasized the fact that fans will be more willing to like and share music because they get rewarded automatically. This reflects back on the artist who is no longer alone in the struggle to grow and gain popularity.
More direct involvement of the audience in promoting music and maybe even sharing ownership raises some questions. Ethan contemplated if NFTs could bring back the idea of selling songs. Rather than just streaming their music and getting paid for streams, might musicians use NFTs as representatives for a music track that people can buy? This would largely depend on the music consumers who aren’t in the habit of buying music anymore and whether the demand for it arises.
Another area where NFTs could be potentially impactful is the premium service concept. Listening to music on a streaming platform is free. To use additional functionalities that allow you to create playlists, for example, you need a premium subscription, and that costs money.
Are NFTs useful in a premium concept and what are other ways of direct monetization?
Marco’s stance on this was clear-cut: “The main thing is that direct payments will be possible and you could avoid the label system. This is a big advantage.” It would also mean a significant shift in the way the music industry operates today. “But the other thing is,” he continued “...the idea to combine it with premium products like ‘meet and greet stuff’ and to find new products interesting for the people.”
So, let’s take a look at how this is already happening. Ethan describes. So far, you had public playlists and private playlists, now there are a third kind of playlists available. Spotify has rolled out NFT-powered playlists meaning that you can only access them if you hold an NFT from the artist. It doesn’t matter how you got the NFT, whether you bought it, or you earned it because you contributed to the musician in some way, or showed loyalty, as long as you have it, you can access the specific playlist.
Chris views this as a type of certificate or proof of contribution. On the one side, the musician can add a unique utility to the NFT. On the other side, it functions as a proof the holder took a specific action to get the NFT.
For example, a fan who bought tickets to many concerts of a rock band is obviously a loyal fan and can prove it with the help of NFTs. The band can create automatic rewards for this kind of loyalty, like a free ticket to the next concert, a meeting with the band, or a glimpse behind the scenes of the making of a song - anything is possible.
“It's pretty hard to do cross-platform with Web 2 solutions [...] especially because these data sets - your data entry - at the end is replicable and with NFTs it's not.” There’s no question about the authenticity of the person’s contributions, they are traceable and verifiable. Adding an automated reward when a certain level of contribution is reached or action is taken, is therefore achievable with blockchain.
When we take this a step further to a private label, the fan could become part of the music-making, because they contributed to the label which is a community and may even get decision rights etc.
Ali took it in another interesting direction, bringing us back to the idea of agility. He explored new ideas of how musicians could generate revenue by selling different assets of their music. An artist could sell the STEM version of their music and while generating revenue for themselves, help fellow artists create music.
They could also sell unofficial versions of their music, unfinished tracks, lyrics and so on. This could bring forth a new kind of collaboration between musicians, singers, lyricists, and anyone involved in creating music. Using the blockchain technology throughout the steps of creating a piece of music, the artist can also keep track of how his music evolved from an initial idea to the final product.
Combine the two ideas of tracking the development of a piece of music and collaborating throughout and imagine the possibilities for music makers. It’s pretty exciting stuff. Only the use of Web3 technology enables this, because it eliminates the possibility of fraud and rights theft.
“Maybe the era of just paying for one disc that includes only one album or one song is over. But there are other doors open for different use cases.” sais Ali and gives us a glimpse at what to expect from Muzikie the product he is developing.
Is there such a thing as Web2.5?
This filled the conversation with some fervor. “The best use case of blockchain is the utility, for example, with an NFT. But you don't need to be on a Web3 platform only to use Web3 tools.” Miguel jumped into the conversation.”I get excited when I see Web 2 platforms integrating Web3. When you see integrations like a Spotify playlist that you can only access because you're an exclusive fan of this artist. It doesn't matter if it's Spotify. You're using the technology there for something good and you're bringing your community close to you.”
Ethan seems equally excited and adds, “...and that NFT that's working on Spotify technically could work on YouTube, could work on Deezer, could work on Apple Music, could work on Muzikie - it could work on any platform out there that integrates a wallet access.”
A person’s wallet that contains the NFT would function as a personal digital identifier used as access to a certain service. Depending on what’s in the wallet that person would get a special seat at a concert, a discount on merchandise or whatever other goodies.
Ethan later expands on the idea, “The reality is that most of the solutions we're going to see, at least in the intermediary time, is Web 2.5 - it's Web 2 stuff squished in with Web 3 stuff. That offends a lot of purists but the reality is YouTube is not going anywhere.”
Miguel, who started as a Web3 evangelist, preaching that blockchain will save the music industry now believes that to make the most of it, you don’t need to fight against the current established situation. “I mean, why not work together? I think we will grow bigger and better if we work together.”
He goes on to describe how musicians will be better off moving away from trying to generate massive amounts of streams like they need to do now on the platforms. In the new model, where less fans support them with more, they’re going to see more value and higher profitability from their creative work.
What happens to the music labels?
Ali is eager to address the issue of the label that Marco had mentioned, “I hear a lot of people say when NFTs come into place and establish themselves, labels will be eliminated from the chain of music distribution industry. But I think that's not correct. [...] NFTs will introduce solutions for fundraising that will limit the power of labels, but they'll stay.” Ethan: “.. labels will just have to up their services game.”
Marco, in his role as a lawyer adds, “But they have to totally modify the system in relation to the artist.” He then elaborates on what that means. Labels can adapt the premium service concept. The basic services, such as accounting, could be for free - or at a minimum cost for the artist. But a record label could do a lot more for musicians, like organizing and running campaigns. This would be part of the premium package. “They provide a service and as a service company and they have to think about [the payment structure] in the future.”
Two examples of NFT Ticketing
Before the closing of the panel Eithan presented two examples of existing NFT uses in the music industry.
- NFT-enabled tickets. Ticketmaster is doing a trial run with two bands for NFT-enabled tickets. As soon as the sale for the tickets to their next tour opens, the fans who have an NFT will be the first to purchase. “Instead of 6 billion people trying to buy Taylor Swift tickets in like 4.8 seconds, the true fans will get to line up and get first access.” So, it’s not an NFT ticket, but a ticket that is token gated by NFTs.
This ties in very neatly with what Chris said earlier, whose platform enables autonomous rewarding based on the user’s activity. “..what we have here is kind of a global badge which is the NFT. [...] With that, you can prove that you have taken part in something, you contributed and you are loyal to the group.“ The token gated tickets are one way to reward loyalty.
- NFT tickets. Ed Sheeran's last stadium tour in London and Paris was attended only by people who have his app. The reason is that the tickets were a QR code inside the app. Fans had to download the app when they purchased the ticket and with the payment the QR code got downloaded to the app to be scanned at the entrance.
People weren’t aware that the QR code was actually a custodial wallet inside the app. “It was an NFT, you just didn’t know it”. But unless you are a blockchain or crypto geek, you didn’t care anyway. “This is how Web3 scales: When we stop talking about Web3 and NFTs and all the tech words.” Ethan declared.
Here’s the interesting part: The tickets cost €60-90 instead of an average €300 as previous tickets. The problem with regular tickets is, scalpers buy them only to resell them at a higher price for their own profit. With NFT tickets you can block resale completely or you can limit the amount that the reseller can charge. You can also make sure that whatever was charged above the buying price goes back to the artist. “So one little change destroyed ticket scalping for those arena shows. It just could not exist.”
Ethan paused for a bit to let the audience grasp the impact NFT tickets made. “All of that can be done with the NFT ticket. And now your ticket is a digital collectible. You can connect to the website, you can connect to Spotify with it. It serves as an NFT.” he continued.
Ali expands on it. “There is a large number of opportunities. And the good thing is that with NFTs, the door to creativity is open [...] beyond what you can imagine in just 5 minutes.” Indeed, creative thinkers come up with curious ideas and Ali gave one out-of-the-box example. “ I even heard about one artists who is streaming his songs on [a blockchain-powered streaming site] and has created the kind of payment that allows you to only listen to his music when you're above a certain altitude, meaning that you can only [listen to the stream] on a mountain or on an airplane”.
Most artists will probably go for more down-to-earth solutions and seek community and collaboration. Like the idea Ethan offered: One musician could offer the audience free access with the NFT of another musician. This way, they promote themselves and support a fellow musician as well. It’s similar to the you-may-also-like-feature at the end of a webpage. “It works for Amazon, makes you buy more stuff. It'll definitely work for artists, too.” With Ethan’s optimistic note the panel closed, but the discussions continue.
You may also like these highlights for the event:
Sounds of #Web3 event recap Show Me the Money - Who Earns What in the Music Industry? What Is Blockchain Doing for Musicians that Traditional Tech Can’t Handle? How can NFTs reshape the music industry?