Film and Music Electronic Magazine

Major Label NFT Strategy Is Long-Term Revenue

“We’re very obviously in an NFT bubble right now, but WMG has been working and investing in this space for some time,” says Oana Ruxandra, Warner Music Group chief digital officer and executive vp business development. “Digital collectibles have the potential to provide tremendous value to artists while also enabling fans to engage with their favorite acts in new and exciting ways. We will continue to work closely with tech partners and artists to build and execute as this space continues to grow.”

Multiple label executives agreed that NFTs would eventually become a standard part of an artists’ release strategy once the market fully develops, but they also noted the environmental concerns around “minting” — or creating — NFTs would have to be addressed before many artists will feel comfortable releasing NFTs. (Ethereum, the blockchain on which most NFTs are written, is highly inefficient and consumes as much power as Ecuador on an annual basis.)

“I’ve had to get artists to step back and think, ‘Is this something I want to do?’ One label source says about the environmental issues around NFTs.

This will likely change in time. A new version of Ethereum that’s designed to be more energy-efficient has been in development since 2019, with no firm date to become widely available. But other NFT platforms have figured out their own solutions. The incredibly popular NBA Top Shot — which is built on the Flow blockchain created by Dapper Labs, a company Warner Music Group invested in back in 2019 — doesn’t have the same energy consumption patterns, providing hope for near-term solutions.

The potential around platforms based on more efficient blockchains like Flow has elicited substantial optimism from label sources. “Look at Flow as you would iOS. Ethereum, like Android,” one executive says, noting that soon developers will build tools and improve both blockchains similar to how third-party developers did for the Apple and Google operating systems that have dominated mobile devices for a decade.

“Whether records, concert T-shirts, album artwork or other products, fans have always wanted to collect items that bring them closer to their favorite artists and music,” says Celine Joshua, Universal Music Group’s executive vp commercial & artist strategy. “The shift in culture, consumer habits and technology expressed through this new paradigm of [NFT] ownership is another step forward in the historical progression of our artists and labels working together to harness digital transformation to create authentic art that can be collected by fans.”

The feeling across the business is that while NFTs are hot and exciting now, the market still has significant maturing to do. So far, NFTs in the music industry have been based around digital art, with a few pure music releases like those from 3LAU, a longtime proponent of cryptocurrency who made $11.7 million on an NFT of his three-year-old album Ultraviolet, and Kings of Leon, who released their latest album When You See Yourself, as an NFT that had lackluster sales, which multiple major label executives pointed to as a cautionary tale.

“What we’re seeing some artists and management teams do is take what they were already doing in their traditional business and just try to apply it digitally, and it doesn’t work, it doesn’t connect,” one major label source notes, “And you saw that in Kings of Leon.” A source was also quick to note that fans shouldn’t expect every song to become an NFT.

Another executive compared the gap between the current NFT landscape and where they hope the space will end up to the gulf between Napster and Spotify. Both services allowed users to listen to music, but it wasn’t until Spotify arrived in the U.S. a decade after Napster that real revenue started to appear from the format. “There is definitely something missing in the ecosystem, you’re going to see an enormous amount of change and we’re hoping to drive some of that,” the label source says. “I actually don’t think that what’s going to work is what we’re seeing today.”

There’s no guarantee the moves the labels will make in the NFT market will pay off. NFTs from major artists like Kings of Leon and The Weeknd have earned around $2 million each, a small sum in comparison to the $11.7 million earned by 3LAU — an independent artist — for his NFT album. Both early adopters and label sources agree that the NFT market is in a bubble, and the money earned by 3LAU is likely unrepeatable, which means a successful major label NFT release moving forward may fetch far less.

And there’s also the current NFT community to consider, which by all accounts isn’t that fond of traditional power brokers. “I don’t think the people that are collecting these [NFTs] are going to buy them from a record label, I’ll tell you that,” 3LAU told Billboard in an interview last month, noting that the NFT community is eager to support individual creators, not corporations. “If the record label does [NFTs] without the artist’s permission, I don’t think that the community is going to support it because the community is pretty hardcore.”

To that end, major label executives, who have seemingly learned from past mistakes the music industry has made, are focused on building “organic” audiences for NFTs, a crucial aspect of creating a viable long-term market. Sources pointed toward the rush to live streaming at the beginning of the pandemic last year as a cautionary tale for NFTs. “Forcing consumers to do anything that they don’t feel is authentic is the exact issue that we’ve had in the music industry for a while, the same thing with artists,” a label source says.

Labels are targeting a range of different consumers of NFTs. Some are focused on Gen Z, which natively understands and wants digital goods without physical components to go with them — thanks to their familiarity with in-app purchases and games like Fortnite and Roblox. Others are designing educational tools for older demographics that require more explanation to fully grasp the NFT landscape. Currency also remains a concern, as most NFT marketplaces don’t accept credit cards, raising the barrier to entry for many music fans.

Does the music industry need a centralized platform like NBA Top Shot — which works with credit cards and offers a single place to get official content from the NBA — to solve some of these issues? “Need? No. Would it be useful? Sure,” one label source says. Another label source says any intellectual property owner of a major label’s size would “have to ask themselves, ‘Do we create our owned and operated marketplace?’”

On the legal side, agreements between artists and labels to sell NFTs are still being crafted on a case-by-case basis, according to sources, but standardized terms are being developed. A source says that while labels haven’t been taking legal action against NFT marketplaces in the “rare cases” when a platform attempts to cut them out of deals with the artists signed to them, they are “calling all of these companies to make that they’re aware that we will assert our rights when we need to and that they need to come to us,” the source says.

The “biggest question of the day” as one label source put it, is around policing NFTs — namely how to remove an illegally uploaded NFT from a blockchain. “We’ve got teams of people that are ready for the defensive, but the name of the game right now is to be proactive and offensive and try to create value,” the executive says. “We’re spending more time trying to enable right now than we are trying to stop.”

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