Written by Manabu Bannai

Problem of Spotify and Solution with Music NFTs: Explained

Hi, I'm Manabu.
This article explains Music NFTs.

Table of contents

For those who don't have enough time to read, here is a quick take:

1. Problem of Spotify and Solution with Music NFTs and D2C

Problem of Spotify and Solution with Music NFTs

Let's start with the problem.

Problem of Spotify and the music industry

Problem1: Income of the artists is insufficient

The following tweet comes from @cdixon, a general partner of a16z.

I created an image for those who want to share it on social media. Please feel free to use it:

truth_of_streaming_services

Let’s look at the detailed numbers. According to Spotify Royalty Calculator, an artist would earn approximately $400 for every 100,000 streams. What are your thoughts on this figure? It equates to $0.004 per stream. From my point of view, as a famous Japanese YouTuber (I have 550k subs), the revenue is higher than on YouTube.

But, I'm not saying that the revenue share of YouTube and Spotify is enough. I stopped monetizing with YouTube ads because the revenue was too low to sustain. Instead, I have chosen D2C(Direct to consumer marketing), which means directly selling products to my viewers. Using this method, I could have founded one of Japan's largest paid programming communities, CodeBegin.

The problem of ads revenue

If you have marketing and sales skills, there is no problem—simply selling your products by taking advantage of YouTube or Spotify. I was able to do so because I have worked in the digital marketing industry for 10 years. I have skills.

However, most musicians don't know digital marketing. It takes time to learn, but they don't have time or interest to do that. I think that's one of the problem in the music industry. This can also apply to the other creator's economy. These problems can be solved using NFTs and D2C, which we will discuss later.

Problem2: A few options for monetization

Take a look at the Covid. It's a real disaster for musicians. The majority of musicians perform live concerts to earn a living and continue to create music.

But they can't right now. We also don't know when we'll be able to resume a normal life. I suppose we don't return to normal life; once a human's lifestyle has changed, it's difficult to reverse.

So we need a new way of monetization in this era. It's not time to blackish for NFTs or Crypto. It is worthwhile to experiment with the new method. If it fails, let's consider another option.

*People sometimes criticize the musician's NFT announcement. Please keep in mind that the artist will need to seek other opinions in order to monetize. Critiquing them without offering alternatives is like, "Are you a true fan of them?" Let’s move on to the solution.

Solution: D2C (Direct to consumer marketing)

The solution is D2C, in my opinion. I don't say we need Crypto and NFTs to solve the problem. I simply want to say that we need D2C in order to increase the revenue of musicians and creators.

First, Let's build the structure

D2C is probably a buzzword in 2018 or 2019, I guess. If you are in the tech industry, you probably heard of that.

But, how come musicians will use the ability of D2C despite their lack of knowledge of digital marketing? I'm not blaming them. Simply telling the truth. So what we need to do first is build a structure that allows musicians to sell their music or digital goods to their fans.

*Examples: there are already some platforms:

Someone might wonder why you use NFTs for monetization. Okay, I'll explain.

Why NFTs are optimal

People may wonder why you don't just create a new E-commerce platform for musicians to sell their products. That has problems. The key factors are as follows:

(1) Monopoly

If we make a new platform for the monetization of the artist, then it will create a monopoly. Consider the case of "Epic Games vs. Apple." The problem is the take rate. We must pay 30% tax to Apple when we sell something on an iPhone app. Obviously, it's too expensive for almost all industries.

But why is Apple doing this? This is the monopoly.

They have such a large market share that they can possibly do whatever they want. What happens in the future if there is a big company which has a tremendous market share of selling musician's products. Perhaps the company does the same thing with Apple. We can solve this problem using NFTs. Let me explain in the following sentence.

(2) Composability

Compatibility allows different blockchains to communicate with one another without the help of intermediaries. In short, it will prevent a monopoly. For example, OpenSea. You can purchase a wide range of NFTs there, right? But what if you don't like OpenSea and want to use the other platforms?

You can easily switch the platform every time you want without any hassle. It happens as a result of composability.

Let's consider another example to gain a greater understanding. If there is no composability on the platform, there will be several platforms in the future that are not connected to each other. It means you will probably be stuck with that platform because they have your data(ex: Your reviews and followers).

What if they will increase their take rate like Apple? You have no choice but to obey their rules and conditions. I think it's much better to use composability to make a good future that the NFTs have. That's the key factor. Before introducing the ideas of Music NFTs, I will explain the potential of Music NFTs.

*For your reference:
People might say like, "I partly agree with your opinion, but anyway, the musicians need to study marketing. They can't sell their products without marketing skills". My answer is, yes, that's right. But please consider the situation occurring in writer's industries.

Substack is a platform that offers publishing, payment, analytics, and design infrastructure to support subscription newsletters, allowing writers to monetize their content in ways never before possible. Furthermore, Substack is partly decentralized; it's easy if you want to switch the platform. You can export your subscribers and then move to a different platform. We need a platform for musicians similar to Substack.

Potential of Music NFTs

Here are two examples:

3LAU raises $11.7 Million

Justin Blau (3LAU) is one of the earliest adopters of music NFTs. Late in February of 2021, the electronic dance music star’s Ultraviolet collection of 33 different NFTs netted him a reported $11.7 million. –NFT now

Haleek Maul made $226,800

One music NFT supporter, @Cooopahtroopa, estimated that Bajan rapper Haleek Maul made $226,800 in music NFT sales on Catalog, while his annualized Spotify earnings are just $178. –CoinDesk

If you want to learn more, visit The Top NFT Music Moments of All Time. Okay. Let's proceed to the next chapter.

2. NFTs are not only for investment but for creating communities

NFTs are not only for investment but for creating communities

I guess most musicians think that selling NFTs is kind of scary because it will cause some backlash(ex: Ponzi scheme or bad for the environment).

As for the environmental problem, we will fix that soon; Ethereum is upgrading from version1 to version2, and the latter has PoS(Proof of Stake) that doesn't have an environmental issue.

Are NFTs Ponzi scheme?

Actually, I'm not sure what the answer is. But here is what I'd like to try to say:

NFTs are not only for investment but for creating communities.

I agree with the opinion that the NFTs have a perspective on Pump-and-Dump investment. But there is another perspective; community. So I want to introduce the possibilities that the NFT has.

Here are three possibilities:

Idea(1) Monetize their backstage without using their time

As I said earlier, musicians don't have enough monetization options. It is partly because of Covid. But how about selling some NFTs with the function of allowing holders to see the backstage?

Holders, for example, can view backstage conversations or the process of creating their music. Core fans are willing to pay for that. It's okay if you want to sell that on E-commerce like Shopify. But if you choose NFT, they will probably face scenario like below:

It's beneficial to the fans, in my opinion. And STEP2 is the most critical part; the musician can increase their stakeholders. The more the musician becomes famous, the higher the value of NFTs. This will be the incentive of the buyer of NFTs to root the musician continually. This is referred to as "Tokenomics" in the crypto community.

Idea(2) Easy digital donation with benefits for core fans

Let me explain from my actual experiences. First, I'm a hard-core PC gamer. I'm a big fan of first-person shooters like PUBG.

PUBG

I always watch and enjoy live streaming in order to improve my skills. chocoTaco is my favorite streamer. He streams PUBG almost every day.

Problem: mostly, he earns money from ads

The problem is his monetization options are limited(ex: ads, selling fan merchandise, and YouTube paid community).

He launched his paid community last year, and I was happy at that time because I watched him every day and learned a lot from him. So what I wanted to do was that I wanted to pay him in return.

However, I'm sorry, chocoTaco. I didn't join your paid membership because the paid content is only FAQ sessions. Actually, I don't need that.

Also, he sells fan merchandise like hats or mug, which I don't need because I live in Thailand, and sometimes it requires the hassle to receive products from other countries.

Why don't you just create simple badges?

If he sells some genesis badges of NFTs, then I will buy that as a core fan. The badges will prove that you are early supporters of chocoTaco. It's valuable for their fans, in my opinion.

Furthermore, it's a digital product. So I don't need to register my detailed information to an E-commerce website. What's more, there is another key factor. Explain in the following sentence.

Idea(3) NFTs will automatically create the fan community

NFTs will automatically create fan communities. People in Crypto call it DAO. But I don't care what they call. Let me try to explain.

First of all, I like chocoTaco because he respects the other players. Actually, there are so many streamers who use dirty words while streaming. To be honest, I don't like it. I prefer the player who respects the other players.

The value of chocoTaco's community

I think many people who watch chocoTaco's streaming have a considerate mind. Actually, it's not very easy to find a guy who has this kind of mindset in the FPS community.

But what if chocoTaco decides to release the NFTs? The NFTs will create the fan community automatically because of their composability. I will create a Discord server without asking permission from chocoTaco and then add an authentication that only someone has the NFTs can write comments.

Find the player who can play with

Another issue will be solved. I play PUBG almost every day, but sadly I don't have many friends who can play with me. Here's a screenshot of the guy who was having the same issue:

Where_to_find_duo_partners_PUBG

What if chocoTaco release his NFTs? It will connect the people and solve the problem. This will increase the number of players on PUBG. Good fo PUBG. Good for chocoTaco. Good for the fan community.

*By the way, I reply to chocoTaco about that on Twitter. Hopefully, he will see my reply and create his NFTs in the near future.

Summary:

Here is the summary of this article:

Thanks for reading my blog. Please share this article if you agree with my point of view or want to support the creator economy. The words have the power to change people's minds. That's why I'm writing. Thanks!