In the following MBW op/ed, Bruno Guez (pictured), CEO of Digital rights administration company Revelator, argues that 2022 will be the year where DSPs/distributors back the adoption of Web3 and the incorporation NFTs and blockchain technology for rights and royalty payments. The publication of this op/ed follows the news that the world’s largest music streaming company, Spotify, is currently recruiting for Web3 experts.
It’s hard to miss the fever and fervor surrounding web3 in general and NFTs in particular in the music space.
Artists and fan communities were first to the game, experimenting with drops, NFT-linked royalty shares, DAOs, and fan-centric projects.
Now, big tech is popping NFT-related capabilities into their creator-oriented platforms faster than you can say “Meta.” Everyone from Twitter to Instagram to YouTube and Microsoft are announcing new web3 features or initiatives. Hiring for web3 is underway at major music services. Major labels are also unveiling their first deals with NFT marketplaces.
They see the writing on the wall: Web3 is too big an opportunity to miss. Yet the change we’re just starting to observe won’t happen overnight. This is the music business, after all.
Like the shift to streaming, the adoption of web3 will be a gradual, bifurcated process, one fueled by fear of irrelevance but braked by the complexities of the music industry’s ownership-based business model. After all, in web3, the business players must become participants, not owners.
Much as with streaming, there’s a significant mindset shift that needs to happen to make cultural and technological adoption possible. The end result will be a bigger overall market for music IP, but that bigger pie will be more broadly distributed. The era of big-player consolidation may be coming to a close.
The DSPs, not the labels, are most likely to succeed in shifting consumer behavior. They have the means to connect web2 interfaces to web3 protocols. Consumer patterns are often shifted by the market makers, not vice versa. We saw this in the streaming transition with innovators convincing consumers to adopt a subscription-based, all-you-can-eat approach after P2P networks like Napster enticed music lovers to gorge on free music files. Those tastes and habits were shaped by services, not the other way around.
The DSPs and the industry as a whole know they cannot own web3; they can only participate in decentralized applications and distributed ledger technologies. DSPs will instead try to figure out how to leverage these new protocols and applications to grow consumer adoption and gain market share in the next generation of the internet.
To grab that share, the DSPs will have to contend with web3’s user-experience challenges. The great majority of people will be slow to adopt web3 protocols because of their non-custodial complexity and clunkiness. Yet they’re still going to want to purchase collectables, engage in defi, manage crypto assets, or even fractional ownership of IP.
Most marketplaces will need to offer a hybrid of crypto and fiat onramps to facilitate web3 transactions. Most consumers who do not want to deal with the complexities and security of managing private keys, will use the marketplace’s custodial services or managed wallets to hold digital assets. Security will be compromised as a result of marketplaces getting hacked.
“The DSPs and the industry as a whole know they cannot own web3; they can only participate in decentralized applications and distributed ledger technologies. DSPs will instead try to figure out how to leverage these new protocols and applications to grow consumer adoption and gain market share in the next generation of the internet.”
Bruno Guez
In general, interoperability and optionality are going to become more and more important. Five years from now, people won’t care what blockchain they’re using to mint assets, or worry about the gas fees or transaction fees. They will simply have a wallet that manages their assets across networks.
The tensions between web2 and web3, however, go beyond consumer behavior, and they may determine the future of the music business. DSPs and distributors will want to use web3 capabilities to monetize music IP and unlock new revenue streams for creators.
At the same time, once incentives can be thoughtfully integrated into web3 tokenomics, wealth can be distributed to a greater population. Fan bases across the world will take a more active role in marketing in a way that looks very different from today’s behavior. The BTS army, as active marketers, will become mainstream.
The value of the music IP marketplace should be a trillion dollars. Most of the growth in recent years has been from the independent sector of that market, the smaller labels and self-managed artists who have every incentive to build authentic fan-powered communities of people who share their visions. This is a stronger pull, for many music lovers, than an easy-to-use interface.
In a way, we’ll see a “hard fork” in decentralized music activity: the big platforms touting hybrid models, and the more grassroots, artist-driven, culturally relevant activities that make the most of tokenized communities, DAOs, and other models yet to be dreamed up. These models will in turn distribute the wealth generated by music IP to more people.
The contributor economy will lead this evolution from the bottom up, and will become a new center of wealth for creators and their followers. This is a thrilling prospect for all of us who love the vitality and creativity of music communities.Music Business Worldwide
