The Broken Music Industry
How Decentralized Finance Might Save Music.
In a world where entrepreneurship is celebrated, where budding visionaries are encouraged to dream big, the music industry presents a stark and confounding contradiction. Picture this: an aspiring entrepreneur is told to craft a business plan, develop a production, distribution, and marketing strategy—all the essentials for success. They invest time, money, and creative energy into their venture. But there's a catch, a glaring absurdity that defies logic—they'll have no access to their revenue stream.
This scenario, however bonkers it may seem, is the harsh reality for countless artists navigating the music industry today. Unlike any other field, musicians are expected to launch a business without any access to their income. This is not a “one day in the future you’ll be profitable” tech analogy, rather it is, some other entity (an intermediary) will always be responsible for collecting the income, and then you’ll have to trust that entity to properly calculate and distribute that income to you - 4, 6 or 8 months into the future - for pennies on the dollar. It's a paradox that would raise eyebrows in any business setting, but it is the norm for aspiring independent musicians, by a music industry that continues to prey on the dreams of future superstars.
Today's music industry is riddled with problems, many of those problems created by the music industry itself. An over reliance on social media as a discovery mechanism coupled with decreasing revenues from ad supported streaming and poorly executed licensing agreements related to revenue sharing with social media platforms (owned by both domestic and foreign stakeholders) compound the struggle of the average musician and seriously hamper the music industry’s ability to thrive. Talent often takes a backseat to social media metrics.
Just this morning, a major music talent manager sent out a mass email informing thousands of artists that the days of expecting that a label “deal” will provide funding and “do it all for you” are over. This music manager and many others like him have told me countless times over the last several years that unless you have a minimum of 100,000 “followers” a label won’t even look at you, or listen to your music. The even more discouraging part is that they will in fact take on someone with “influence” over someone with actual musical talent. If you have 100,000+ followers, and maybe play a few chords on the guitar, you are the ideal candidate for a record label deal these days. No need to even be a good singer or songwriter. Heck, if you know how to apply make-up you win the record deal!
The disparity between streaming statistics and artist revenue on platforms like Spotify has been boiling over for years. Major artists like Snoop Dogg who recently revealed receiving just $45,000 from 1 Billion streams, highlights the significant disconnect between the sheer volume of streams and the relatively low compensation received by an artist of any caliber or popularity. What was once considered a significant milestone for artists, millions or billions in sales, now means very little and the music industry's reliance on ad-supported streaming revenue is facing significant challenges.
During a recent lunch with a music industry insider, a friend revealed to me a startling prediction: streaming giants like Spotify may be on the brink of collapse and without a significant intervention, it's conceivable that within three years, Spotify could either cease to exist or be dismantled for parts. Despite the initial meteoric rise of streaming, these platforms now find themselves grappling with unsustainable business models and mounting pressure from labels, artists and industry stakeholders.
This forecast asks artists to – I expect happily - reimagine a world without Spotify. By envisioning a world without Spotify, we can more clearly confront the shortcomings of the current music industry paradigm. Most notably the lack of access to income.
Amidst this uncertainty, there lies an opportunity for reinvention and renewal.
Decentralized finance (DeFi) is an umbrella term that refers to peer-to-peer financial services built on blockchain technology. Unlike NFT’s, which more commonly provide proof of authenticity or ownership, decentralized finance refers to more traditional financial tools such as encrypted forms of digital currency, like Bitcoin or Ethereum.
Now a decade into their lifecycle, digital currencies are here to stay. Governments are adopting Bitcoin as a form of national currency (El Salvador was the first) and the US government is the 5th largest holder of Bitcoin in the world. After years of regulatory hoops, the U.S. Securities and Exchange Commission recently approved the Bitcoin ETF for trading on the US stock exchange and that move represents a significant milestone in the mainstream adoption of Bitcoin as a legitimate asset class.
Combined with emerging Web 3.0 technologies, DeFi solutions, specifically digital currencies, present a promising alternative to the challenges plaguing the music industry today. These technologies, both mobile and progressive web applications (PWA’s), now allow value to be exchanged instantly, directly, and globally, not in app, but rather directly between the listener and the artist through digital wallets.
Over the last decade, one of the most significant advancements for independent artists was the advent of self-distribution. Artists could now release their music to their audience through platforms like CD Baby, Distrokid, TuneCore and others. In the process artists began to bypass traditional gatekeepers, like labels and retail distributors. As a result artists were able to regain greater autonomy over their work and begin to receive some more direct income generated by their music, albeit months in the future. While this newfound autonomy was a single step toward a more democratized music industry, many gatekeepers and intermediaries remained.
Blockchain technology can now move the music industry exponentially further. Artists can not only distribute independently but they can transact instantly, globally and digitally, without the need for collections organizations. They can also establish ownership rights and track the use of their work with unparalleled accuracy. We can now begin to envision a new music industry where the artist can regain autonomy over not just their music rights, but also their revenue stream.
With more control over one’s music career, artists will also need to take on greater responsibility. Where artists once learned how to self-distribute they must now begin to more deeply understand other legal aspects of the music industry, such as licensing and rights management.
Contrary to what some independent artists believe, licensing and rights management have nothing to do with burdensome regulations or in repeating the way things have “always been done.” Instead, this shift toward new technologies represents an opportunity for artists to seize greater control over their music and unlock new avenues for monetization and creative expression.
I am always surprised when independent musicians push back on licensing and rights protections as if it is a part of the industrial music complex. It's unfortunate that many independent artists have been conditioned to believe that only major labels or signed artists need rights protection or that music only needs to be protected under lucrative contracts. This couldn’t be further from the truth. It is essential for independent artists to recognize that offering free access to your music does not diminish the need for intellectual property protection. Even when sharing music freely, artists should retain ownership of their work, establish clear guidelines for its use and know exactly how to properly distribute any revenue received to the appropriate shareholders.
Making good quality music is not a free endeavor so no matter what your personal goals are with music, either as a hobbyist or professional, by releasing music at all, you likely want that music to be seen and heard as widely as possible. Freely sharing the music is not the rebellious act it appears to be. Ensuring that the next Marvel movie, using your music, shares their windfall with you should always be of concern to you. Further, if you collaborate on music in any form, be it writing partners or producing partners, you likely don’t own 100% of the song. Understanding rights management and collections becomes much more important than in the past. There’s an old saying in the music industry that “nothing of nothing is nothing, until it’s something.” Protecting your rights before “it’s something” is the most important part of the entire process.
While many people perceive regulation as primarily serving the interests of consumers or addressing market failures, in the music industry regulation most often reflects the power struggles and interests of major players within the industry itself. High-profile legal battles between major labels, streaming platforms, and very successful artists almost always revolve around issues of copyright infringement, licensing agreements, and revenue control. These situations ultimately highlight the complex power dynamics within the music industry and the litigation itself brings to our attention the massive revenue involved. The global recorded music industry grew 9.8% in 2023 and reached $35 Billion dollars in revenue. When combined with live music revenue, the global music industry is estimated to be over $80 Billion dollars annually.
Instead of viewing regulation as a burdensome requirement of the “mainstream music industry” artists should feel empowered by the ability to fully take control of their careers and also protect their creative work. Rights management and licensing does not restrict artists, but rather empowers them.
A license is simply "a permit to do something." Having a license only says that you own something (the music) and you are granting someone else a right to use that asset, in either a free or limited manner. The license itself does not equate to any guarantee of payment but rather it simply puts guardrails on how that asset can be used and ensures that you maintain the right to revoke the license if the asset is misused. Whether you freely share or restrict the access is entirely up to you, but artists should always first retain that right and have full control and revocability over the use of their asset.
Rights management is simply the process of protecting the underlying intellectual property rights of musicians, composers and other shareholders in a composition or project. It is easy to confuse the underlying copyright with the process of administering “the rights.” The topic can be murky for artists given that a number of highly regulated organizations (ASCAP, The MLC, or SEASAC, to name just a few) are primarily responsible for doing the majority of this work. These companies (both for profit and not for profit) are supposed to ensure that the owner(s) and shareholders are fairly compensated for their stake in the music and that the music is not being illegally used.
The complexities of music regulation, licensing, and rights management can indeed make the idea of self-managing a fully realized music career seem daunting for many artists. However, it's important to recognize that while these aspects of the industry can be challenging to navigate, they are also essential for protecting artists' creative work and ensuring fair compensation.
Every few decades, universal forces align to bring together an opportunity for transformative change. The emergence of decentralized finance (DeFi) and web-3 technologies presents just that opportunity. It offers the potential to revolutionize the way the music industry functions, placing greater control, not less, in the hands of individual artists and shareholders. By challenging the existing power structures and promoting greater individual accountability, we can work together towards a music industry that values creativity, innovation, and artists' rights above all else. With any luck we might also redefine what it means to be a “breakout artist.”
Make no mistake, the music industry will not take kindly to these disruptions. After all, they have been fighting amongst themselves to control the revenue for over 100 years. But, despite these potential obstacles, artists can assert their independence, protect their rights, and build sustainable careers in a new, and hopefully better digital music landscape.
As a music manager, my motivation for championing this cause stems from a deeply personal place, my daughter, a 19-year-old professionally aspiring singer, songwriter and artist. I believe that by advocating for her future, I am also advocating for the countless artists who stand to benefit from this transformative technology and this unique moment in music history.
If you are interested in learning more about how the next generation of music technology can help you rethink your music career please give us a call.
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Phantom Power Music is a music consulting business based in Nashville, Tennessee. They help artists understand blockchain music technology, decentralized finance through education and management, and provide promotional support for independent artists worldwide.
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Nashville, Tennessee