The Dance of Creative Destruction
Thanks to Web3, Musicians May Finally Earn Their Fair Share
The music industry today is stuck in an inequitable and unstable equilibrium. Music and dance are universally loved and are almost as fundamental to being human as eating and drinking. Yet, when you compare the size of the music market relative to these essential goods, it just looks like something is very wrong.
How can it be that people spent nearly twice as much on NFTs than music in 2021 (~$44 billion for NFTs vs. $26 billion for recorded music)?
We spend much more on food than music, of course. This isn’t surprising. But the ratio is amazingly large: humans spent over 423 times more on food than music last year:~$11 trillion on groceries vs. $26 billion on recorded music. While music is obviously not as important as food, how can it be that people spent nearly twice as much on NFTs than music in 2021 (~$44 billion for NFTs) and more than five times more on video games (over $200 billion)? Surely many more people love music than video games? And it is safe to say that more people love music than NFTs. These figures indicate that something is fundamentally wrong with the music business. And what is wrong is called the music oligopolies using their market power to prevent the innovation and change that would unlock consumers’ wallets and engagement.
It isn’t that the business of music hasn’t been touched by technology. Rather, the incumbent powers have somehow managed to retain their hold on the money flows in spite of the changes. Gone are the far away factories and long supply chains for making and distributing records; gone are the extensive networks of real estate devoted to stocking and selling physical copies of music in the form of records, cassette tapes and CDs; and gone (mostly) are the complex marketing and taste-making media of radio and magazines and music TV channels. Yet even today, with all of that vast infrastructure bankrupted or a shadow of its former self, the musicians, the very creators without whom there wouldn’t even be an industry, still receive the same small fraction of the revenue their music generates as they did before this transformation.
The corporate actors arguably earned a fair share of musician’s income for the costs and risk they were taking prior to the innovations of streaming and social media. The world has changed yet the existing powers within the music industry have held onto their extractive and rapacious economic rents. Even as their value and use has faded to a fraction of its former importance, the music trusts continue swallow an extravagant ~90% of all music revenue. Their actions and economic dominance have prevented new technologies from being introduced and new markets from being penetrated by music, throttling the potential growth in one of the most beloved sectors of the economy.
What might the world be like if (when!) the winds of change finally overthrow the incumbent powers’ dominance? The music activity on TikTok gives a preview of what is to come once musicians and fans are freed from the shackles the oligopolies have placed on them. Because fans are able to use TikTok to make their own music videos and instantly share them with the world, the market for music has experienced a step-change in consumption and engagement. The small fact of TikTok permitting fans to co-create musical experiences with their favorite music clips has opened a window into a possible music future, showing us what happens when the grip of rights ownership is loosened even just a little.
The numbers paint the picture. Today, the most popular songs on music streaming services like Apple Music or Spotify typically generate on the order of two billion cumulative plays each, with only ~180 songs exceeding a billion all-time plays. In contrast, on TikTok there are ~430 songs that surpassed one billion views in 2021 alone. And even more strikingly, the most popular of these songs on TikTok fall in the range of 20 billion views per year, nearly seven times more than the all-time most played song on Spotify (Shape of You, by Ed Sheran at 3.1B cumulative plays).
The most popular songs on TikTok have ~20 billion views per year, nearly seven times more than the all-time most played song on Spotify (Shape of You, by Ed Sheran at 3.1B cumulative plays).
If this one innovation (allowing fans to make their own music videos) grows the audience for a song by 10x, surely a whole world of companies and individuals competing for the next musical innovation will grow the market another 10x. Or more? Even at a hundred times its current size, the music industry would still be a quarter of the size of food and smaller than the global health and life insurance market.
Truly activating the hive mind to re-imagine music requires not just the ability to stream and share music online. It means allowing artists to own the rights to their songs and fans to co-create and co-own that music. This kind of ownership and value sharing wasn’t possible before the widespread adoption of blockchain or “Web3” technologies.
Just as Web1 (“Read”) allowed the streaming of every song ever made instantly available to anyone anywhere, and Web2 (“Read, Write”) allowed anyone to publish their own music, the advent of Web3 and the world of blockchains (“Read, Write, Own”) allows value to flow without any intermediaries and ownership to be fractionalized and shared.
In 2021 the world got to see what happens when people are empowered to own immutable and unique digital goods in the metaverse:
- Nine protocols are now generating >$100M in annual revenue
- Cumulative sales of digital land are approaching a billion dollars
- DeFi has reached $200 billion in total value locked (up from <$1 billion in early 2020)
- OpenSea’s annualized NFT sales (using January volumes) were $48 billion.
The year or two ahead is likely to see a similar Cambrian explosion in ideas and value as music migrates to the blockchain. It is already beginning to happen. Companies like Weav Music, Audius, royal, Bolero, Arpeggi, Asynch, Rally.io, Descent, Sound.xyz, Catalog, Derive, MixCloud, and Serenade are showing the way.
Thanks to innovators like these, the world of crypto is on the cusp of casting off the current industry’s stultifying structure. These pioneering companies are giving us a preview of the sort of creativity, innovation, engagement, and value creation that is possible when technologies like the blockchain, NFTs, and Web3 tokenomics are incorporated into the music world. They are showing us that the innovations of NFTs like Bored Apes and TikTok music videos are just tentative first steps into a new world of music creation, consumption and ownership.
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