collecting royalties in the metavers3
First off, it is important to mention how music publishing is very complex and has lots of key players, making it very interesting to find challenges and aspects that could be handled in a better and/or fairer way and that still wait for new answers and proposals of solutions from the music industry.
However, one of the topics that is being debated by the music experts is their vision and expectations regarding the Web3 and the metaverse.
In that regard, MTV Video Music Awards (VMA) may have introduced a new category this year 2022, the âBest Metaverse performanceâ, but what we can say is that they all had different approaches and impressions when being asked about this subject. Turns out some of the experts were quite skeptical about it; some others acknowledged that this could or is already transforming the music industry but didnât quite knew how the paradigm could or is going to be changed. Overall, there was a cloud of doubts over this matter. In the end, the experiences and opinions from the experts were just a sample of the thoughts of various key players of the industry at its largest extension, with startups moving towards the ânewâ music industry and others just sitting and analyzing the situation with more or less interest and faith.
Quite frankly, and as mentioned, the whole industry may have the same or similar doubts, as what is put into the table - even though it looks promising- is something so new and so unexplored in a way (or many), that still requires lots of understanding, solutions and changes have to be made and developed to know the real impact it may have in the music industry.
That is why weâve been examining and reading about the Web3 and metaverse and weâve chosen to investigate over the challenge of how royalties can be collected in the metaverse.
In that sense, this essay is going to tackle different topics related to that challenge. The examination of subjects related to the central theme will help us to get to get a bit of understanding of what is going on with that thing called Web3 or metaverse and what is the importance of sitting down to debate and explore whether and how the music industry can change its paradigm to adopt this new reality.
Therefore, we will start by looking at the emergence of new forms of selling, licensing, and promoting music (songs and records), as well as merchandising and even experiences in the metaverse. Weâll also see how metaverse could impact the dominance â or even existence - of traditional music companies and platforms we know today, by putting the relationship artist-fan in the spotlight. Moreover, weâll get deep into the viability of the business models created in the metaverse to ultimately get to the central theme of the whole analysis, the possible ways to collect royalties in the metaverse.
Regarding the first issue that has been raised - which is what could the metaverse offer to the music industry - it is important to look at how the development of new technologies and new ways to interact with devices and other people digitally has already impacted our lives. The metaverse promises to go one step further and make the digital world even more experienceable, whether if itâs with VR glasses or acquiring NFTs, which, to put it in simple words would be the equivalent to collecting digital assets.
But when we talk about metaverse we quite instantly think of blockchain technology, and more precisely, about the already mentioned NFTs. Those assets are the central piece of the already started and promised revolution of the music industry. NFTs are philosopherâs stones of artists, who can sell and license their music using them and even promote or sell digital and exclusive merchandise and experiences â first row in a concert, exclusive livestreams for the collectors, etc.
But not only artists, the metaverse is also an opportunity for other kinds of artists and creators â visual artists, graphic designers, content creators, etc to interact with music. Music can be synched into all kinds of digital art, videos, digital merchandising, and creations created by the artists in the metaverse making it a space not only to connect with potential buyers â fans and/or collectors â but also network and collaborate with other creators to build new ways of art and content for users. At the end of the day, it could summarized as: âThe metaverse is a much more level playing field than the real world, a connector, a network - a space for collaboration that opens up opportunities for musicians to team-up with digital artists to complete the audiovisual circle.â[1]
Aside from NFTs, the metaverse also has great plans for those players who are brave and promote of concerts and events in the metaverse, like Ariana Grande, Travis Scott or David Guetta did, among others. This is a new way to organize massive and big digital events for the whole globe, and not just a place, country or region and establish partnerships that have no precedent. A new way to look at the music industry.
As you can see, since weâve got into the analysis, weâve mentioned artists, creators but not labels or publishers. This was intentioned, because the metaverse offers a world where intermediaries and middleman(s), we could say, fade away. And this could benefit both, the artist, and the fans. The fans would see that artists would connect more deeply with then with the blockchain based ownership of limited-edition digital assets. At the same time, artists would see how they could be selling not only related assets to their music, but directly their music. Their demoâs, a percentage of their song, samples or even complete songs. If we think of independent artists, this could be a way to make of music their main (and only) source of income, because this would allow them to establish a partnership with their fans, even though for mainstream artists the label and/or publisher would still be needed, for some usages of the metaverse of their previously released songs. However, challenges surrounding the affirmation regarding independent artists from the metaverse still arise as, for now, and as we will see when we talk about the viability for business models in the metaverse, the successful stories in the metaverse have all been related to big artists, such as Snoop Dog, Drake & Damien Hirst, Justin Bieber, Grimes, etc.
To make a bit more understandable what we have just explained, we can look at some examples. In, 2022, Diplo dropped his song "Donât Forget My Love" on Royal. âHe allocated 20% of royalty ownership in the shape of 2110 NFTs in 3 tiers. Owners of the Gold token have access to the Royal collector Discord channel and get 0.004% of the streaming revenue from that song. Holders of the Diamond token get a guest list pass for a Diplo show, first dibs on all future Diplo drops, an Exclusive Diplo DJ mix, access to Discord, and 0.7% of the revenues generated through this song. He raised $398,000 from the token sale, which wouldâve taken almost a hundred million streams on Spotify. Diplo retains all his rights to the song and only sold a percentage of the earnings generated via streaming.â[2] In addition, Grimes, âsold a whopping $6 million worth of original video NFTs, many of them with pieces of music, some even old demos, only adding more intrigue and worth to each piece.â[3] Finally, one last example, the Coachella NFT collection: âCoachella music festival has released 3 separate NFT collections in collaboration with FTX, offering different photos, soundscapes, and posters. Coachella has also recently launched its own NFT marketplace on Solana, selling âkeysâ NFTs, which can be redeemed for different experiences at the festival, ranging from lifetime tickets to allowing guests to go onstage.â[4]
Nonetheless, the effect of NFTs on the roles of publishers and labels in the metaverse, has also an impact on the streaming services platforms, the so-called Digital Services Providers (DSPs). As for now, DSPs account for 89% of the $12.2 billion the U.S. recorded music income.
If we look back in history, musicians that hand any hope of ever growing and audience required a label or publisher. They needed them to get the connection to broadcast on the radio and distribute CDs. Nowadays, they are needed in order to make their music to collect revenues and royalties when distributing it through DSPs. âThis is because all advertisements and subscription profits are concentrated in the hands of the record labels, who are majority shareholders at Spotify. Only with a scale of millions of hits can Spotify music rights holders turn any significant profit. As a consequence, recording artists only capture about 12% of the entire music industry. NFTs hold the promise of downsizing the magnitude of middlemen and rewarding artists as the chief earners for their music.[âŠ]. Thanks to NFTs, artists could reap full profits from their craft barring a much smaller portion paid to the NFT marketplace relative to that required from DSPs. Effectively, one of the most important advantages NFTs offer in the music industry is to reward creators in such a way that mid and low-tier musicians can effectively make a living out of their craft.â[5]
Even so, with all the advantages the metaverse can have and that have been exposed, it is important to highlight that the horizon of DSPs being replaced by NFTs in the metaverse seems very far away. We see them coexisting, as those platforms are still a key player in the actual music industry ecosystem and essential for collecting royalties for streams, even if shared via NFTs like Diplo did. But the ultimate question is that NFTs would be offering appealing alternatives for artists to develop their own businesses and expand their brand and relation with fans using their music and independents to be able to live from music.
Lastly, before getting to the main challenge related to all the aspects that are being commented, we also wanted to explore and introduce to the equation the viability of the new business models based on NFTs and the metaverse. Currently, the music NFT landscape stands like this:
The reality of some of those companies, many of which could be categorized as startups is that many of them arenât aware of the importance of copyright laws and that implication they have in their business. Vickie Nauman, CrossBorderWorks CEO, addressed this topic by saying âIâve talked to quite a few startups who seem to think that copyright laws donât apply to them, and their technology use case falls outside copyright laws. That they donât need to think about these things⊠I have to say it: yes! You are still subject to copyright laws!â She also added that, in order to make David Guettaâs Roblox performance a reality in the digital world she had to clear the rights for 20 songs that had 143 different writerâs shares that needed to be cleared âIt was extraordinarily challenging. It almost killed me! But I did it⊠This is what we need to do to clear these rights. The industry is not particularly set up for it, itâs not really scalable to do it as a sync. But those were the rights that needed to be cleared.â[6]
In a nutshell, seems like the business models based on the metaverse still have a long way to go. They have to develop in order to be comply with laws and at the same time be sustainable and viable in that particular âmusic-systemâ, because this, even if it changes, will be their daily-basis work. In that sense, that the music industry changes its paradigm, doesnât mean laws will still be there, more or less developed, interpreted, but for sure with lots of key players vigilant that theyâre applied.
Finally, the real challenge we identified within the metaverse and that is related to that last point we made, was how royalties were going to be collected. In order to give a proper response to that challenge, we wanted to analyze the actual collecting system and see whether if it fits or we need new solutions.
On the one hand, we have to keep in mind that thereâs not only one metaverse, thereâs and there will be millions and millions of metaverses. So, getting all those metaverses fully licensed â especially what we nowadays as performance rights - and fully legal, will be very challenging and difficult. Plus, the metaverse right now is demanding for exclusive and perpetuity licenses. ââI would never outright sell a piece of musicâ, copyright attorney Cliff Fluet said in a Guardian story exploring âmusicâs problem with NFTs.â âYou can ask for a period of exclusivity, but I donât think âYou can ask for a period of exclusivity, but I donât think any publisher or songwriter would sayâ, âYeah, absolutely, go and take that forever.â [âŠ] Right now, most distributors and labels are simply not equipped to deal with [rights transfers and NFT contracts],â explained writer Julie Knibbe, ânor are the publishers or collecting societies. That is why thus far NFT sales have only involved newly-produced music, owned solely by the artists. An NFT auction for the previous catalog, where rights are already divvied up between several parties, is simply not possible, at least [not] yet.â[7]
On the other hand, just like in the 90s when hip-hop artists sampled songs and there wasnât a legal coverage that allowed them to do it, which lead to the creation of a new licensing framework that could accommodate that more and more extended practice, Web3 is also struggling to find its place in the current licensing landscape. âNow, Web3, the metaverse, and NFTs are challenging these licensing definitions even further. In the metaverse, the vast majority of content is user-generated, and that should come into consideration. Also, NFTs can take many forms, from an exclusive track, which could fall under a mechanical license, or video/audio set to music, which would require a synchronization license. NFTs can also be resold, and rights-holders should be able to receive a portion of each sale.â[8]Â In short, what NFTs are demanding is new ways of licensing and interpretation of those licenses to be able to collect and comply with the intellectual property based laws and system, along with a complex connection with other applicable laws that have an impact on the activities and revenues generated from it (consumer law and image rights, for instance). Multi-territorial agreements will also be demanded. It is important to have in mind that in the metaverse, unlike with DSPs, it may not be needed to license the whole catalogue from every rightsholder, but rather âa constellation of rights to light up web3 experiences, surrounding an artistâ as stated by Nauman[9].
Because of this last point that we have just made, the solution or proposal for improvement or adequation of the metaverse to the music royaltiesâ collection could start by introducing new licensing terms for the licenses granted in the metaverse. In this regard, there have been proposal of new mechanical and synchronization licenses, that would allow musicians, artists and all kinds of creators to reproduce their work into any kind of art form or sync their music into any kind forms. This will allow the music copyright holders to collect their royalties and compensation from the metaverse, regardless of if music is being the primary art form or not. Â Additionally, there would be an additional royalty that could be collected that would be the resale fee that would provide a portion of future revenue of ongoing resales of NFTs to the rights-holders in a pro-rated basis. There would also still be performance fees and royalties collected.
In conclusion to all what has been exposed, itâs a reality â even if itâs virtual or digital â that the metaverse will have a say in the music industry. Therefore, debating and trying to find challenges and potential solutions to that defiance within the industry will improve the way the industry approaches the changes the metaverse may introduce, without putting âinto riskâ the art and the players involved. Still, just like when Spotify and other music streaming services fought for the change of paradigm to pay for listening to music online, and not downloading it illegally, the new companies in the metaverse will have to show thereâs also a seat for music in there.
[1] As stated in the article âMusic in the metaverse: How NFTs are changing the industryâ published on https://scenenoise.com/Features/Music-in-the-Metaverse-How-NFTs-Are-Changing-the-Industry
[2] Example reported and taken from the article âRoyal is Selling Royalty Ownership as NFTs to Fansâ published on https://www.one37pm.com/nft/royal-music-nfts
[3] Example reported and taken from article âMusic in the metaverse: How NFTs are changing the industryâ published on https://scenenoise.com/Features/Music-in-the-Metaverse-How-NFTs-Are-Changing-the-Industry
[4] Example reported and taken from article âMetaverse Music Licensing: We have a window to sort this outâ published on https://musically.com/2022/06/30/metaverse-music-licensing-we-have-a-window-to-sort-this-out/
[5] As stated in the article âHow NFTs can disrupt the music industryâ published on https://www.nfttech.com/insights/how-nfts-can-disrupt-the-music-industry Â
[7] Extract from the article âHow could musical NFTs affect my rights and royalties?â published on https://blog.songtrust.com/how-could-musical-nfts-affect-my-rights-and-royalties
[8] Extract from the article âMusic in the metaverse: Redefining music Rights in the Web3 worldâ published on https://www.musicbusinessworldwide.com/music-in-the-metaverse-redefining-music-rights-in-the-web3-world/
[9] As stated in the article âMetaverse Music Licensing: We have a window to sort this outâ published on https://musically.com/2022/06/30/metaverse-music-licensing-we-have-a-window-to-sort-this-out/
