NFTs are music industry’s latest big hit

Electronic-music artist Justin Blau, known as 3LAU, has fetched $17 million in the past month from NFTs, helped in part by a tokenized release of his three-year-old album “Ultraviolet,” which grossed $11.6 million and briefly held the record for the highest price paid for a single NFT, $3.6 million. (A record since broken by the artist Beeple.)

“It’s a way to monetize your fan base in a way that’s never been possible,” said Mr. Blau, who doesn’t expect the exorbitant prices to last. “I think this technology will definitely change the world, but I’m cautiously optimistic because no one really knows how to value this stuff.”

NFTs, digital collectibles that are authenticated or “minted” using blockchain technology and purchased with cryptocurrencies, have burst into the worlds of art, sports and sneakers. The frenzied new market has excited musicians, who have auctioned off digital art, music, merchandise, tickets and experiences for hundreds to millions of dollars.

So far, most buyers are crypto-savvy speculators helping send prices soaring. The music business is hoping the market will develop for real fan participation—at fan-accessible valuations.

From June through Friday, some 29,800 NFTs involving musicians have generated $42.5 million in primary sales, with an average per-unit transaction value of $1,427, according to a database compiled by music-technology researcher Cherie Hu.

NFTs act as virtual deeds, conveying ownership of a digital asset. Each one gets uploaded to a digital ledger where it tracks information such as the date it was created, when it was sold, for how much and to whom. The original creator can set the terms of this digital certificate of authenticity, called a “smart contract,” and it allows the creator to take a cut—in music, usually 10% to 30%—of any resales. Owning an NFT doesn’t equate to owning the copyright to a given asset, music or otherwise, but scarcity has helped push up valuations.

Late last year, electronic artist and producer Deadmau5 sold NFT packs including digital collectibles such as animated stickers and virtual trading cards for some $100,000, as well as an audiovisual piece for more than $80,000. In January, electronic label Monstercat’s first drop brought in more than $500,000. Activity accelerated in February, with Shawn Mendes, Ozuna, Grimes and Linkin Park’s Mike Shinoda joining the fray with song clips, avatar outfits, animations and digital art.

Already this month, dance-music duo Disclosure produced a new song on Twitch and sold it as a single-copy NFT for $69,000; 3LAU set records with his album reissue; Kings of Leon released a new album as an NFT, raising over $500,000 to benefit live-event workers; and Steve Aoki raked in $4.25 million for a digital art collection, including a single piece that went to John Legere for $888,888.88. Post Malone also said he would auction off the chance to play beer pong with him in the Clubhouse app on Thursday.

Compensation for those involved—usually a musician and a visual artist—and for rights holders, which could include a record label, producer or publisher, is being worked out in real time. A 50/50 split is becoming the norm between the musician and visual artist, say artists, executives and lawyers. From the musical artist’s 50%, music attorney Jordan Bromley, who leads the entertainment-transactions and -finance group at Manatt, Phelps & Phillips LLP, says he has been negotiating to carve out half directly for the artist based on the name and brand identity, with the remaining 25% for music-copyright holders.

“The driving forces for NFT sales are brand- and art-based, despite having music attached,” he said. “So the trick here is making sure the releasing artists keep their fair share, while also considering the various stakeholders and royalty participants connected to the music.”

“This is an entirely new hybrid product, market and distribution method,” he said. “The underlying idea is most of the money needs to go to the artists.”

In the case of 3LAU, he split the NFT revenue with his art director Mike Parisella, who goes by Slimesunday and who created digital visual effects to go with Mr. Blau’s music.

NFT valuations have surged thanks to the market’s so-called whales, the relatively few wealthy collectors who have made millions investing in cryptocurrencies and are able to bet on new digital assets such as music on a speculative basis. While there is an overlap between fans of the early-moving electronic artists and crypto collectors, the question facing the music industry is how to lower the barrier to entry for fans who aren’t millionaires and don’t own cryptocurrency.

“A lot of people who have transacted are not actually fans,” said Jeff Walker, whose Stellwagen Ventures is aiming to develop a platform for transacting in NFTs that is more accessible for both artists and everyday music and sports fans.

Mr. Walker envisions a marketplace that doesn’t require buyers or sellers to be blockchain or cryptocurrency experts, and allows transactions via credit card. His plan would allow big and small artists, alike, to find ways to sell NFTs, such as offering services that team up musicians with visual artists.

Charles Goldstuck, who co-founded Hitco Entertainment LLC with LA Reid, is an adviser to the project, and is exploring opportunities in NFTs for the music and entertainment company’s artists, which include Big Boi, Yella Beezy and SAINT JHN.

Mr. Goldstuck is among a growing chorus in the music business seeking “democratization of these opportunities.” He predicts that as more artists, athletes and other influencers flock to the market, the number of digital collectibles will explode. Technology needs to catch up, though, he said, so NFTs move into mass-market territory.

“It’s a broadening of the music ecosystem but people have to be careful,” he said, suggesting people not spend their rent on NFTs—only extra cash. “This could be messy,” he added. Digital currency markets such as bitcoin have proven extremely volatile, with boom-and-bust cycles over the years.

Les Borsai, co-founder of asset-management firm Wave Financial, who has been consulting for artists on NFTs and transacting in the space for years, said more artists will build dedicated NFT sites to establish and protect their brands. And the way people are creating community in NFTs, he said, is already similar to the community in music.

“There’s this connection to authenticity that’s important,” he said.

This story has been published from a wire agency feed without modifications to the text.

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