It’s that time of the year again! George Michael, up in heaven, is cackling after knocking every single angel out of Whamageddon 2022 at once with a surprise a capella rendition of ‘Last Christmas’. Santa is wondering whether he can just send a non-fungible JPG to hundreds of millions of children to cut down on sleigh-fuel costs. And Music Ally is continuing our series of 2022 recap posts.
Today, we’re talking web3, a space that generated buzz and backlash in pretty much equal measures this year. Here’s the thing: the loudest people in the debates about NFTs, DAOs and related technologies are the evangelists on one side, and the fiercest critics on the other. But there are a lot of people quietly sitting in the middle figuring out how web3 might best serve musicians and their fans.
At the time of writing, Music Ally has written more than 80 news stories about this space in 2022, from artist NFT drops and startups getting funding through to the debates about blockchain technology’s climate impact and copyright implications. For this piece, we’ve reviewed all that material, and come up with some thoughts and questions. Read on, and don’t forget to check out our other 2022 recaps here.
01 NFT sales fell sharply this year. Is that a bad thing?
“The NFT market is collapsing,” claimed the Wall Street Journal in May, citing data suggesting that daily sales had fallen from 225k in September 2021 to 19k at the time of writing. It was just one of many stories charting this trend.
In March, Bloomberg claimed that a third of NFT collections “have essentially expired, with little or no trading activity”. In June, TechCrunch pointed to a 70% slide in weekly NFT sales since January, and the following month The Guardian suggested that monthly sales had fallen from $12.6bn in January to just over $1bn in June.
You WILL read about this in the mainstream media, then! But not just there: in August crypto outlet Coin Telegraph claimed that one of the biggest NFT marketplaces, OpenSea, had seen a 99% drop in daily NFT transactions since its peak in May.
All this data points to a peak and then rapid decline in both the number of NFT sales, and their collective dollar value. Is this a bad thing though? There’s an argument that the early-period stonks of the NFTs market were misleading (and in some cases, even shadier) with 2022 providing an important shakeout, and a moment to reflect on how NFTs might evolve to be desirable and useful in the long term.
Something that might, we suggest, be aided by an exodus of any people who were only ever in NFTs to get rich quick.
02 Money was still flowing into web3 music startups this year
Sales may have slumped overall, but companies exploring web3’s potential for music were still managing to raise funding rounds. Sometimes big ones.
We wrote about some of these in our startup-funding recap article earlier this week: Ready Player Me raised $56m; Doodles trousered $54m; Jadu raised $36m; Hume got $11.7m; Highlight raised $11m; and below them there were a host of singie-digit-millions funding rounds for web3 music firms.
That’s money that is going to be put to work on projects launching in 2023 and beyond: an injection of funding (and often, just as importantly, business and music-business expertise) that will spark new ideas and artist partnerships.
Some of those startups will blow through the money, realise that follow-up rounds are difficult against the current economic backdrop, and fold. Others will hopefully be putting their funding to good use however.
03 Major labels are striking web3 deals left, right and centre
In a recent news story about Warner Music Group’s partnership with a startup called LGND.io, we wrote this sentence: “It’s the latest in an ever-growing line of web3 partnerships and projects for WMG: Genies, The Sandbox, OneOf, Splinterlands, POAP, Stickmen Toys, Authentic Artists, OpenSea and Probably A Label.”
All of those partnerships had been announced since May 2021. It was a list that hammered home the pace at which WMG has been seeking out web3 startups to work with. Rival majors UMG and Sony Music have been making their own moves too: there’s a strong sense of the biggest music companies spreading their nets as widely as possible so as not to miss out on any web3 innovations.
It’s an interesting dynamic given that some of the core principles of web3 (and web3 music specifically) are decentralisation, transparency and artist control. Which is exactly why the major labels need to be out there doing these deals: learning and figuring out what their role is going to be in web3 music, so they can make that pitch to their artists.
04 The biggest streaming and social platforms are dabbling too
Talking of big companies exploring web3… 2022 was the year when Spotify tested letting artists promote NFTs on their profiles; when Instagram offered a similar feature for its community of creators; when YouTube hinted at its interest in NFTs; when Meta tested an NFTs feature on Facebook; when Snapchat was trailed as getting a test of NFTs showcased as AR lenses (before swiftly retreating from it)…
The biggest social and streaming services are asking themselves the same questions as labels and individual artists have been: ‘Should we do something with NFTs? What should we do? And how could it all go horribly wrong?’ Cautious, small-scale tests have been the rule so far, influenced by the third question (and, perhaps, by TikTok’s example of it going horribly wrong in 2021.)
It’s interesting though. One of the things you’ll hear web3 people talking about is the fact that these big social and streaming players – are firmly Web 2.0 services: and that they are going to struggle to become truly web3 platforms build around transparency, decentralisation etc.
Now, often the people saying this are also telling you why their social network or streaming service with a few hundred users right now is a Spotify or Instagram killer, so there’s an element of pitching. But this is still a dynamic worth watching in 2023: how threatened do the big established platforms really feel by web3, and just how deeply can they really go with these technologies beyond NFT galleries?
05 The impact of the Crypto Winter is still unclear
Sit down for this revelation! 2022 has been a difficult year for the entire crypto space, with challenges way beyond a slump in sales of NFTs. And those challenge sit within a wider economic context of the world and its industries trying to bounce back from Covid-19 and its lockdowns, while dealing with rising inflation, energy costs, supply-chain shortages… These are wobbly times, especially for new and still-proving-themselves technology sectors.
Our editor Joe Sparrow wrote a pair of articles about what the crypto crash might mean for web3 and music: one in May and another in June. If people lose confidence in these technologies – or never gain confidence in the first place – web3 music companies are going to struggle.
One converse argument we’ve heard is that the crypto crash may have a specific silver lining for startups in the web3 space: it will reduce some of their costs and thus spark more experimentation. “The lower the price of Ethereum goes, the better for developers: contract costs, transfer costs,” as Fanaply CEO Grant Dexter put it at our Sandbox Summit Web3 Special event in June.
That said, there are equally specific non-silver-linings to be found in the Crypto Winter’s clouds. US music festival Coachella launched its latest range of NFTs early this year in a partnership with FTX US. Yes, that FTX, and its recent collapse saw reports that Coachella’s lifetime-pass NFTs had stopped functioning.
06 Fans mustn’t be misled when buying royalty-share NFTs
Several startups are exploring the idea of artists selling shares in their streaming royalties as NFTs. Opulous and Royal are two examples we’ve written about this year. The theory is that it gives fans a stake in their favourite artists’ success, and gives those artists a deeper relationship with those fans – and an upfront income stream from NFT sales that is then earned out over the longer term.
It’s an interesting model, but one where fans must not be misled about what they’re buying, and how likely they are to get rich off of it. Which frankly is not very rich at all. We did some number-crunching on Royal’s drop with veteran rapper Nas in January, and found that for a fan to make the cost of the NFT back in their slice of royalties would require tens of millions of streams.
We were careful not to disparage Royal or Nas in our analysis: there are other reasons to buy this kind of NFT: chiefly wanting to support the artist. In this case it was not mis-sold as a ‘you’ll get rich quick’ investment. But you can imagine that through over-optimism or shadier motives, other NFT firms and their artists partners might lead fans to expect stonking returns – and then disappoint them.
That’s something to watch. Where an NFT collection is being sold with a share of a song or album’s streaming royalties, are fans being led to believe they’ll make a profit? What information are they being provided with on the artist’s historic streams and the true potential of the current works? Is there genuine secondary resale value for these kinds of NFTs, and if there is, how is that data being made available to them? These questions will be key to ensuring that royalty-share NFTs don’t leave fans feeling sore.
07 Where there are NFTs, there’ll be lawyers…
In 2023 we’re going to see a bunch of lawsuits around NFTs and web3. That’s not unusual nor is it surprising for a new technology, but musicians and the music industry should be prepared for it, and be doing all that they can to avoid being on the wrong end of those lawsuits.
We saw a couple of examples in 2022. Artist Lil Yachty and Opulous fell out over their partnership on an NFT collection, with Opulous hitting back strongly at his claims that he hadn’t authorised it. Meanwhile, Royal founder Justin ‘3lau’ Blau was sued by one of the songwriters who had co-written a track that he’d used for a (pre-Royal) NFT. Again, he said he would vigorously defend the lawsuit.
One of the most telling moments at the NY:LON Connect conference in January was during the keynote from Primary Wave’s chief content officer Natalia Nastaskin, who explained that her company – literally a publishing rightsholder – was not yet daring to explore selling NFTs that used publishing rights.
“I know it sounds crazy coming from a publisher, that we’re trying to steer clear of incorporating compositions and recordings into our NFTs. But for the time being, we’re trying to steer clear of anything that is subject to a publishing deal or a recording deal. Because there is no standardised method of clearances at the moment.”
This is new technology, these are new kinds of licensing deals, there are lots of grey areas, and there’s a sniff of money so lawsuits will fly. Again, this is not a surprise, it’s just an incentive to strive to do things the right way. Or, as in Primary Wave’s case, to not to them at all until that’s possible.
Music NFTs startup HitPiece knows the dangers, having been roundly condemned for launching a marketplace early this year that seemed to be minting music NFTs without the permission of the relevant artists and rightsholders. The company said that this wasn’t the case, and having received a stern letter from industry body the RIAA, went back to the drawing board and reworked its plans.
08 Secondary royalties from NFTs aren’t a sure thing after all
This sense of unforseen consequences being grappled with as they emerged continued with recent discussion about the issue of secondary royalties from NFTs. That’s the idea that the creators of NFTs – musicians, visual artists and more – can earn money when those tokens are resold by the original buyers. It’s a key part of the appeal, especially in music, where the lack of artist revenues from resold CDs and tickets alike has long been a sore point.
In November, however, OpenSea sparked a debate by pointing out that when NFTs sold on its marketplace were resold elsewhere, those other platforms didn’t necessarily enforce these ‘creator fees’. And where those fees were voluntary, the payment rate was “less than 20%”. A backlash led OpenSea to clarify that it would still enforce these fees ‘on-chain’ (i.e. on its marketplace), but the cat was out of the bag: for musicians as for visual artists, secondary royalties from NFTs aren’t as guaranteed as they may have seemed.
09 Web 1.0 brands hope for a new lease of life in web3
Earlier we talked about the potential challenges for services born in the Web 2.0 era (Spotify, Facebook etc) to adapt to the web3 world. But one of 2022’s other notable trends was the reappearance of some vintage Web 1.0 brands trying to have spangly web3 revamps.
LimeWire, once a reviled (by music rightsholders, if not by many listeners) P2P service returned in March with plans to launch a music NFTs marketplace. It went on to raise $10.4m in a token sale to fund this comeback, before striking a licensing deal with Universal Music Group – imagine saying that sentence in the early 2000s – and going live in July.
Napster is also getting a web3 revamp, although unlike LimeWire it had enjoyed a lengthy period as a legal streaming service following its heyday as a filesharing platform. Having been bought and merged into music VR startup MelodyVR, the new company then got bought again by a pair of web3 firms: Hivemind and Algorand. One obligatory ‘litepaper’ later, its new CEO told Music Ally of plans to invest in web3 music startups; launch a development fund to help artists explore the sector; and build a music NFTs marketplace as part of its streaming service.
Away from the former-P2P brands, media player Winamp also laid plans for a web3 evolution, as part of a pivot towards tools and services for artists including subscriptions and yes, NFTs. Its first tools went live in August for 25,000 artists and audio creators. Are these genius marriages of familiar music brands and brand new technology? 2023 will tell all.
10 Audius as the canary in the coal mine for web3 streaming
If Spotify and the big guns of streaming are Web 2.0, what will a built-for-web3-from-the-ground-up music service look like? Audius is the one with most traction so far: at the time of writing it has more than 4.3 million monthly users, although that’s down from the six million it had in February.
Audius is the canary in the coal mine for web3 music, which includes some of the challenges: a malicious governance proposal that drained more than $6m of its $AUDIO tokens from its coffers – at least temporarily – in July.
But Audius is also getting to experiment rapidly: with a tips economy, with online concerts, with token rewards for fans and artists alike, and with the ups and downs of decentralised decision-making and the demands of rightsholders.
CEO Roneil Rumburg talked about the challenges and opportunities at our Sandbox Summit Web3 Special, and refreshingly didn’t duck the former. We sense some of those bigger Web 2.0 streaming fish will be watching to see how Audius swims (or sinks) in 2023.
11 web3 x music creation could be really fascinating
One of the areas Music Ally is most intrigued by in web3 is where music creation meets NFTs. There are a growing number of projects exploring generative music for example, where a bank of beats, samples and melodies are automatically combined into new pieces of music at the minting stage. Human musicians are key to this: they’re composing and recording the stems that make it possible.
Other projects are more about helping musicians to mint NFTs during their creative process, including making music available for remixing and reworking by their peers. It’s an area that feels ripe with potential for creativity and experimentation, where the technology is led by the music-makers rather than vice versa.
We’ve written about startups including Endlesss, Async Art, Arpeggi Labs and StemsDAO this year around this field, and there are plenty more where they came from.
12 NFTs and DAOs as launchpads for virtual artists
Not all artists are human, mind. In fact, there’s another subset of web3 music where virtual, avatar artists are the centre of things. Universal Music Group’s Kingship project is essentially Gorillaz with Bored Ape characters (and thus a very high bar to meet to live up to the actual music of that collective) for example.
Authentic Artists is creating a roster of virtual artists under its ‘WarpSound’ banner, taking them into NFTs and other kinds of music experiences, and getting investment from Warner Music Group to boot. Another startup, Hume (see funding point earlier) is creating ‘metastars’ who are also the vehicle for NFTs. And because three’s a trend, Soundr has been launching its own virtual artists with “affordable micro-NFTs”.
There are lots of pitfalls around virtual artists, starting with the fact that if the music is terrible, the project’s a non-starter. We suspect that some projects will nevertheless spend a lot more time on the quality of the characters and animation, and the pricing structure of the NFTs, than on the music. Embarrassment will ensue.
But not always. There’s a really interesting spot somewhere between virtual artists, NFTs, fan communities (DAOs for example, where the token holders get a genuine say in the plans), games and virtual worlds, and generative music. Characters designed less to take on Bad Bunny or Taylor Swift in the streaming charts, but to live and perform in a host of digital environments and contexts.
13 Let’s carry on talking about the climate impact of NFTs
In the early days of NFTs hype, there were very quickly questions about the climate impact of this technology (and, indeed, crypto / blockchain technology more generally) and an increasingly widely-held view that it was Not Good. When there have been backlashes from fans to artists launching NFTs since then, the planet-killing aspect has often been prominent.
Music Ally has also seen a shift in 2022 in the many (many) web3 and NFT press releases we’re sent. Now most of them include a few sentences stressing that they’re using an eco-friendly / green / sustainable blockchain. We’ll be honest: we need to do some intense research into the technology and the science to understand how true those claims are.
It’s a fair bet a lot of the artists and labels who these companies are pitching to work with will be in the same boat. How many of us really understand web3 technologies’ climate impact, and why one blockchain is or isn’t greener than another? That’s something we will be working hard to get up to speed with in 2023, and that applies more widely in the music industry too.
14 Avoid the wankers, look for the thoughtful music-lovers
Sorry, this is coarse, but sometimes you just have to use the word that best fits, no? It’s a principle that applies to every area of music-tech. Indeed, to the music industry itself. Alright, to life…
Let’s face up to it: there have been a lot of wankers in and around web3, as there have been around every feted new technology before it. Money, hype and a perceived divide between people who ‘get it’ and people who don’t? It’s a textbook wanker-magnet scenario.
The danger comes when you judge the technology and the sector by its wankers. We’ve encountered people in this space who made us want to run a mile: dollar signs in the eyes; an unstoppable determination to tell us why they’ll sweep away the music industry’s middlemen / gatekeepers; no discernible understanding of the actual industry (or love for music and musicians); and endless allusions to how early they got into bitcoin and/or Bored Apes.
We’ve also encountered people in this space who are thoughtful, who love music, who understand the industry’s actual challenges, and who want to work with artists and the industry to figure out how web3 technologies can help. There are lots of them too, they’re just not as loud as the other group. The music industry needs to make sure it seeks these people out, listens to them and works with them.
This is where all the exciting ways forward will come from, and it’s a future where musicians will be at the heart of new technologies, rather than at their mercy. Seeing startups and artists forge links (like HIFI Labs’ web3 Artist Cohort Program) and other artists look to build their own web3 communities rather than simply flog NFTs are what encourages us. As ever, Music Ally are optimists. And hopefully not wankers…
While you’re here…
– Music Ally recently launched a new online training course about the web3 ecosystem. Find out more here.
– We were delighted to have many of the thoughtful, music-loving web3 people talking at our Sandbox Summit web3 Special event. Read our coverage of it here.
– January’s NY:LON Connect conference we co-run with Music Biz has sold out of in-person tickets, but virtual tickets are still available. Check the lineup here!
– We work hard on our web3 coverage, but we must doff our cap to Water & Music, who not only know the space inside out, but are building a great community around it. Check them out.