The following op/ed comes from Vickie Nauman, Founder and CEO of LA-based boutique music tech consulting and advisory firm CrossBorderWorks, where she has been working with a portfolio of streaming platforms, games, apps, experiences, start-ups and industry consortiums since 2014. Nauman has expertise across all aspects of digital music – licensing, products, business development, music-tech, strategy and international, Web3 and emerging tech. Her experience spans the earliest days of disruption in 2000 at MusicNet (RealNetworks) to KEXP Seattle, global platform 7digital, and connected device pioneer Sonos.
Back in 1999, music’s OG disruptor Napster burst onto the scene illegally with its gray interface showing millions of songs and people file sharing. I was working in old-school radio at the time, and I knew immediately that all music and all entertainment had just changed as a result of this technology.
I recognized it would not be an easy path, but I was so enthralled by the possibilities of digitally distributed music – not just a local record store’s inventory but ALL music – that I knew this was what I wanted to do. I went to work at one of the first legally licensed digital music companies, Musicnet, a joint venture between RealNetworks and three of the major labels at the time.
My initial belief was that everyone was going to make a lot more money as a result of digitalization of music. While that didn’t seem remotely possible in the early years, I never stopped believing it. Now, 22 years later, as I look at Web3 decentralized technologies and their accompanying experiences, I feel the same level of excitement and unbounded opportunity for how music can benefit from this next iteration of the internet.
While it’s easy to get mired in the details of coins and crypto, smart contracts, metaverse worlds, and the nascent applications running on decentralized tech, if we go up 50,000 feet, there are three significant differentiators in Web3 that have the potential for transforming music.
One of the most important of these differentiators is that Web3 products and experiences are artist-centric – as opposed to Web2, which are catalog-centric.
In Web2, artists have had a very passive role in how they engage in digital services. Labels and publishers license their catalogs, and voila, the artist has a presence in an algorithm-driven world of massive, centrally operated streaming platforms. If an artist disapproves of a particular service or its economics, the artist is usually not empowered to make any change without the label or publisher’s support and explicit action.
If an artist wants to reach their fans, they do so via the platform intermediary. In our early Web3 world, most of the initiatives are being led by artists, a reversal of the passive role in Web2. This is a paradigm shift for labels and publishers who now must follow their artists’ interests and collaborate, instead of leading and controlling digital initiatives.
The value propositions of Web3 vs Web2 for artists are also dramatically different. Web2 products and experiences are most commonly about accessing a broad catalog of music in one place, whether a streaming service, a UGC platform, or a social media site. Users have been trained to find the artists they love in a mix of millions of songs and then customize (or have the algorithm do it for them) where they focus on a smaller set of songs they love. Live streaming, which flourished during the pandemic, is an exception to this Web2 rule, with artists presenting a variety of live performances directly to their fans.
For Web3, it really does not matter if there are millions and millions of songs or artists in existence. In fact, I would argue that less is much better. Does anyone really want a metaverse with hundreds of millions of songs? No – what matters in Web3 is an authentic connection with an artist, participatory and immersive art and music, and communities with shared interests. Web3 products and experiences commonly have an end-user value proposition of getting closer to an artist, engaging in an artist-specific user experience, and being part of a community of fans who also appreciate a particular artist. Metaverse worlds are still early and will continue to evolve, but they will be much more likely to offer small, boutique combinations of artists, initiatives, and background music to accompany the immersive experience.
“For Web3, it really does not matter if there are millions and millions of songs or artists in existence.”
Early artist monetization is vastly different in Web2 vs Web3. In Web2, the artist is subject to whatever catalog deal their label, distributor or publisher signed up to—no matter how long it takes for those pennies to recoup their advance. In Web3, virtual merchandise, skins, and small in-app purchases will be essential core monetization strategies, with artists and their teams offering special experiences and communities that revolve narrowly around the artist. These tactics have proven to be highly effective monetization and engagement tools in the gaming industry and will transfer to Web3 seamlessly, meaning potentially more valuable uses for the artist name, image, and likeness rights separate from the sound recording.
But it isn’t as simple as an artist putting up an NFT and assuming fans will jump in and pay millions to that artist’s scarce good. Web3 fans are seeking authentic, unique ways to support and engage with artists and cash grabs will not be anything more than a short-term strategy without something more sustainable and valuable to fans – that may include an artist’s music or videos, but also their non-music passions, their personality and insights into their creativity, and certainly creative output beyond a sound recording.
And finally, the accompanying rights required for Web3 are not catalog-centric but artist-centric. This constellation of rights include artist name image and likeness (NIL), sound recording, publishing and artist brand. We are not terribly well set up for this right now. The closest thing we’ve got is sync licensing, which struggles at scale. Who holds those artist NIL rights will be at the center of making web3 artist initiatives come to life. This also poses challenges for traditional licensors who have aggregated rights in their own vertical (sound recording, publishing, performance) but are not accustomed to licensing very small selections of those rights, nor scoping deals around a handful of artist activations.
“Web3 is a natural extension of the creator economy, with nearly all Web3 platforms building creator tools directly into their technology — assuming a musical creator can be as nimble as a non-musical creator, and bring everything they need with them to activate an experience.”
Web3 is a natural extension of the creator economy, with nearly all Web3 platforms building creator tools directly into their technology — assuming a musical creator can be as nimble as a non-musical creator, and bring everything they need with them to activate an experience. Of course, those troublesome music rights now convolute the matter. Indie and emerging artists who control all of their own rights, as well as major artists who can carve out Web3 usage, are at a distinct advantage to exploit these tools. Established artists and those whose compositions are highly fragmented have a much more complex set of partners, co-writers, and stakeholders that all need to be aligned around their music, their needs, and their creative expression.
The bespoke nature of most artist deals further complicates the platform-artist integration because each artist deal is unique; Web3 platforms and metaverse worlds cannot assume just because one artist is set up in a particular way that they can easily replicate the approach for all artists.
Web3 founders, like all technologists who crash into the music industry, are often perplexed by how music rights and relationships work, and often end up offering solutions to the wrong problems. While there is enormous potential in how artists may use the technology to express themselves creatively, the utopian view that decentralized technology will solve all problems is highly flawed. For example, Web3 technologists often imagine all problems related to music licensing and rights will be solved by blockchain and smart contracts, and that therefore old inefficient models of rights management, licensing, opacity, and payout structures will disappear. In truth, our Web2 rights-related problems will carry on and co-exist for many years with new Web3 rights-related problems. I am convinced some of our problems can indeed be solved by decentralized and powerful technology, but only if the humans agree to participate.
Many in the industry are intentionally on the sidelines right now, waiting to see what sticks and happy to jump in once models are established and Web3 is less murky. I encourage everyone to experiment right now, because it isn’t a matter of it but when – the metaverse and Web3 are being built, artist initiatives are happening and the transformation of the internet is underway. Music stakeholders will benefit from gaining first-hand knowledge. I also believe there is room for everyone in Web3. It isn’t really about disintermediation, but more about shifting roles and adaptation to an artist-centric world. It’s going to be a wild ride, but certainly a fun one.Music Business Worldwide
