NFT is doomed to fail …
My first formal introduction to blockchain technology came in 2018 at a Microsoft ignite session titled “IGNITE BLOCKCHAIN”. Up until then my only knowledge source about the topic was reading about bitcoin online. In the ignite talk, the speaker spent the first half of the talk talking about all the things that the blockchain shouldn’t be used for. This was the first time I had heard someone bring a case against the blockchain. I mean the consensus online is either the blockchain is going to revolutionize everything and we are witnessing the change already, or you are a boomer who doesn’t understand the blockchain and will regret your words later.
The non-fungible token (NFT) craze that has been sweeping the internet for months now is a true sight to behold. Huge sums of cryptocurrency are traded for these often Ethereum blockchain ‘items’ alongside dreams that one day they will be worth substantially more. The blockchain items that are traded as NFTs are most commonly art pieces including music, pictures, etc. I am not going to explain what is an NFT here, instead, I will leave it to the excellent article written on TheVerge that explains the topic in details (https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq). However, I am going to tell you why I think NFTs are doomed to fail.
Before going any further, it is important to establish some grounds here. While I think NFTs are going to fail, I am not saying, implying, or suggesting that the blockchain and cryptocurrencies are going to fail. I believe cryptocurrencies have a potential future where they exist alongside and complement the current monetary system. While I am going to make a case against NFTs, I am not going to talk about all NFT use cases here and instead just focus on NFTs in the music industry. This way the topic is more concise and I don’t have to write a 10k word essay. Now that that’s out of the way let’s examine the modern music industry, in particular, how artists make money.
A musician’s common sources of revenue include albums sales, sync licensing (when an artist sells the right to play their song on a T.V. show, in a movie, or a video game), and side-businesses, like fashion lines, as well as partnerships with brands. Some artists even establish their own brands, for example Rihanna’s makeup line. However, nowadays most musicians make the bulk of their money from live shows. Wait live shows? What about album sales and music streaming, aren’t artists making any money selling their music? Album sales have been steadily declining due to the availability and ease of use of music streaming, and music streaming pays artists so little that most artists are not earning a living wage there. Spotify, the most popular music streaming service with 180 million paid subscribers, pays artists between $0.006 and $0.0084 per stream. numbers from Apple Music, YouTube Music, Deezer, and other streaming services are comparable to what Spotify is paying artists.
NFT promises to change that, artists can post their song on the NFT marketplace for the price they choose, and they get to keep 97.5% of the sale price while the marketplace takes a mere 2.5%. Prices may vary from one marketplace to another; however, most marketplaces I could find online had a sub-10 % cut. This will undoubtedly address the current pay problem. Even if artists choose to sell their songs for as little as 99 cents, or the equivalent amount in cryptocurrency, they will be making far more money per fan than they would if they just listed their songs on music streaming services. While this approach is good on paper, things are very different when you apply this concept to the real world.
Remember the 99 cents per song I mentioned earlier? That wasn’t any arbitrary number, this is the exact price Apple’s iTunes used to sell songs for. Artists would list their songs on iTunes, Apple would sell them for 99 cents while taking a 30% cut. The record labels/artists got to keep 70% of the sale price. Today Apple has all but given up on this approach and has shifted its focus to music streaming like Spotify. Most users would prefer to pay 10$ a month to get access to millions of songs rather than pay any amount of money to own a single song.
Remember my statement earlier “musicians make the bulk of their money from live shows”? There are numbers to prove it. U2 made $54.4 million and was the highest-paid musical act of the year in 2017, according to Billboard’s annual Money Makers report. Of their total earnings, about 95%, or $52 million, came from touring, while less than 4% came from streaming and album sales. This is exactly why 1000s of artists give away their music for free on YouTube while selling merchandise and going on tours. Streaming is a way to get discovered, it is up to the artist to capitalize on their fame. NFTs might get artists to earn more money per sale; however, it will certainly make music harder to get access to which will lead to fewer people listening to music. NFT supporters also forget that pirating still exists, pirating is at an all-time low just because it is much easier to pay streaming services and get access to music. Make access to music hard again and we are back all the way to 2002 when record labels were losing huge sums of money to piracy services such as Napster.
In 2014, Following the release of her album 1989 Swift removed her music from Spotify. Swift explained her decision to remove her music catalog from Spotify in an interview with Yahoo. “I’m not willing to contribute my life’s work to an experiment that I don’t feel fairly compensates the writers, producers, artists, and creators of this music,” she said. “And I just don’t agree with perpetuating the perception that music has no value and should be free.” Swift’s 1989 sold over 10 million copies according to her. Assuming that every copy of the 10 million was listened to by one person, then about 10 million people listened to that album. 10 million people are far less than the 180 million paying users Spotify has. While Swift has certainly made more money by selling her album rather than streaming it, far fewer people listened to it. Swift ultimately returned to Spotify in 2018 after “Spotify’s CEO Daniel Ek spoke to her and managed to convince the star to stream her music via the platform again”.
NFTs are not going to magically make more people listen to music. In fact, they will make it harder for people to listen to music. The ease of use and availability of music streaming services are what made people listen to more music than ever before. NFTs will make it harder for people to access music, and people will pirate it instead. NFTs are not going to save the music industry; they will only make a small number of artists very rich while making it harder for everyone else.
