OFF THE CHAIN

WEB3 PRESENTS GAME-CHANGING POTENTIAL FOR VIRTUALLY EVERY FACET OF THE MUSIC INDUSTRY, BUT WILL IT REVOLUTIONIZE OR FURTHER FRAGMENT THE BUSINESS?

FOR ONCE IN ITS HISTORY, the music industry has embraced an emerging technology in its infancy, contradicting its decadeslong history of shunning evolution until — as the Napster era demonstrated — it becomes impossible to ignore. Over the past three years, music executives have shown a growing interest in blockchain, a digitally distributed, immutable public ledger — and the basis for the next generation of the internet known as Web3 — because of its far-reaching application potential.

A transparent, secure digital record maintained through a decentralized network of servers that eliminates the need for a trusted third party can theoretically reinvent how royalty payments are distributed and reduce the time it takes for rights holders to get paid. Tickets sold as non-fungible tokens could end scalping in the live-entertainment industry, because blockchain will give sellers the ability to track and limit the price of resales. And blockchain-based NFTs, which have already been issued by 3LAU, Brandi Carlile, Snoop Dogg, Haleek Maul and the Recording Academy, could become the de facto method for in-app purchases in the virtual world. Meaning, the music industry has already taken a step across the next threshold of digital consumer technology.

Investors and music and tech executives interviewed by Billboard agree that blockchain will have a significant impact on the music industry. Already, major-label groups including Sony Music Entertainment and Warner Music Group have invested in blockchain startups — NFT platform MakersPlace and Dapper Labs (the company behind NBA Top Shot), respectively — and Ticketmaster acquired the blockchain ticketing startup Upgraded in 2018. But how soon blockchain’s impact will be felt, and how much industry buy-in will be required for it to become a generally accepted method of doing business, are still up for debate, they say.

“When you look at the music industry, the blockchain piece may be the biggest value

creator long term,” says Matt Pincus, co-founder/CEO of investment firm MUSIC. That potential comes with a significant caveat, however: “People really underestimate how long it’s going to take before blockchain, even as an ingredient of the stack, is going to be predominant and saturated throughout the market.” (A tech “stack” is the collective infrastructure needed to run an app or service.)

Royalty Revolution

BLOCKCHAIN HAS THE potential to revolutionize how royalty payments are handled industrywide. “Theoretically, it should result in a copyright and royalty system that needs less middlemen or no middlemen at all,” Pincus says. “And there’s no reason [blockchain] shouldn’t be, over the long term, at least a predominant way that digital rights management is conducted.”

The word “theoretically” is often used when discussing blockchain, because in order for it to become a successful tool for rights management or other facets of the industry, multiple companies across multiple sectors need to adopt the technology. Until then, the current model of managing information, which blockchain experts refer to as “off-chain,” will have to learn to interact with the “onchain” model.

“When people invest in [blockchain], they underestimate how long they’re going to live in an on-chain/ off-chain universe.” Somehow, the industry will have to marry the traditional model of bookkeeping with blockchain accounting until the latter becomes generally accepted.

Not everyone who operates in the Web3 universe envisions it eclipsing current methodologies, however. “There’s going to be an important hybrid of Web2 and Web3,” says

Mike Darlington, founder/CEO of electronic music label Monstercat. Darlington was an early adopter and leader in the NFT and blockchain music space, but he sees Web3 technology as an “augment to the traditional music industry,” adding, “I don’t see it as a replacement.”

“I’m not a Web3 maximalist in the sense that it’s supposed to be the be-all and end-all,” he says.

“But I do see this as a great way to hyper-focus on your 10,000 or 1,000 superfans and create interesting connections and value relationships with them.” Darlington suggests that artists should continue developing themselves on Web2 platforms, such as Spotify, Apple Music and other streaming services, while also using “Web3 ecosystems and tools that exist today” to “speak to and develop a superfan community.”

Royal, a startup co-founded by JD Russ and Justin Blau, who is also known as the electronic DJ 3LAU, is a new leader in that space. The company allows musicians to sell a share of their royalties to fans. In November, Royal raised $55 million in a series A round from investors including Andreesen Horowitz, Creative Artists Agency and Coinbase Ventures — as well as artists including Nas, The Chainsmokers, Kygo and Disclosure — and has so far raised $71 million.

“It is going to be a lot faster for independent artists to integrate [into the blockchain] than it will be for signed artists, and that’s just the nature of existing [intellectual property] law and legacy IP infrastructure,” Blau says. Owning your masters makes it a much easier process to get integrated with a blockchain-based company like Royal, given the bookkeeping changes needed to sell a portion of a song’s royalties. “That’s not to say that established artists still can’t do things; they’re just a little bit more limited in what’s possible,” he adds.

Even blockchain maximalists who believe it will reinvent the internet — like Shara Senderoff, managing partner of venture fund Raised in Space — are quick to note that the impact on the music industry will depend on labels’ willingness to evolve. “Blockchain has to be able to handle true scale, and the music industry has to lean in and let the technology evolve its business — those two measurements will determine how deeply it impacts,” Senderoff says. “We’re seeing certain record labels have more willingness than they ever have before to stay open. They know that they have to be involved; they just don’t know how yet. And that’s not their fault. That’s the need for entrepreneurs to present products and business models that are going to make sense and to allow them to take small steps to what ultimately will be a complete reinvention of the internet, whether they like it or not.”

“Blockchain has to be able to handle scale, and the music industry has to lean in and let the technology evolve its business — those two measurements will determine how deeply it impacts.”

—SHARA SENDEROFF, RAISED IN SPACE

Interconnection Is Key

ONE OF THE BIGGEST challenges for the future of blockchain will be interoperability across different blockchains. A number of popular platforms like ethereum and ripple exist alongside offerings from major companies including Microsoft, Oracle and IBM (none of which are fully interoperable). They will all need to communicate with each other to make blockchains a feasible replacement for current internet standards.

“The ability to plug and put products — digital collectibles, royalties, whatever it may be — onto a chain and then for them to be allowed to be exchanged and move from one [chain] to another is interoperability,” says Senderoff. “They’re all disconnected at the moment, but the goal long term is interoperability. We need them all to be interconnected for a world to work.”

If that interoperability is achieved, the potential for blockchain in music is truly massive. Says Jake Udell, founder/CEO of Metalink, a social hub for NFT owners: “It’s going to change the music industry drastically, arguably as much as streaming did.”