Music NFTs explained

As a longtime music producer and someone who's been involved in crypto for nearly 5 years, I understand the impact NFTs will have when they collide with the music world. The entry of NFTs into the music industry is inevitable and will empower artists to take ownership of their creations while getting paid for it too.


I'm making this post as an outline to demystify what music NFTs are and how to make them (the right way).


This post covers:

  • Why are music NFTs important?

  • What are music NFTs?

  • How music NFTs make money

  • How to make music NFTs


If this is your first time learning about NFTs, I highly recommend reading my intro to NFTs to gain a better understanding of what they are before reading further.

 

Why music NFTs?

Problem: Streaming royalties are a broken system that doesn't properly align incentives between artists, record labels, and streaming platforms. In that trio, artists were left out of the deal. While streaming works for some artists, most are left to find other sources of revenue.


The introduction of streaming shifted artists' primary revenue source from music sales to live performances. Now that we're in the Covid era, making money from live performances is anything but guaranteed and its forcing musicians to get creative in finding new revenue streams. This is the main reason I believe the music industry is headed directly towards NFTs.


Below is a high-level comparison of music streaming using Spotify compared to creating an NFT on Ethereum.


Spotify vs. Ethereum

Hosted on: Spotify

Hosted on: Ethereum

Spotify subscription required to stream music

Streaming is free for anyone

Fans pay Spotify to listen to music

Fans pay artists to support their work and achieve greater access to them

Spotify requires ad-revenue and subscription plans to operate.

People all over the world run the ETH network. No revenue required to survive.

Artists earn $0.004 per stream

Artists set their own price

Artists can only have their music streamed, not purchased. Spotify takes a cut of this.

No middlemen. Artists connect directly with fans and can sell music with added benefits.

Releasing your song as an NFT can bring a variety of different benefits to your fanbase that can't be achieved through traditional distribution methods. If used correctly, NFTs can allow artists to have a mutually beneficial relationship with their fans. The better your NFTs are, the stronger artist-fan connection you can achieve.


What does this mean?

  • NFTs make it possible for fans to have greater access to their favorite artists

  • NFTs make it possible for artists AND their fans to earn money


What are music NFTs?

Music NFTs are simply a new business model for artists to get paid for their work. It gets rid of any middlemen and allows artists to connect directly with their fans.


Creating a music NFT isn't much different than publishing a song online. The main difference is that the song's data exists on Ethereum instead of a platform like Spotify.


Music NFTs are created by tokenizing your song. When you tokenize (mint) a song, its basically like uploading your song's audio file to Ethereum. You get to decide how many copies are for sale and what kind of benefits people receive for owning your song. Once a song is tokenized, you are able to keep track of it's price history and everybody that owns it.


The main benefit of NFTs is being able to prove who owns your music so that you can reward them for their support.


It's even possible to turn your fans into your very own record label - some artists have already funded entire albums from their existing fanbase. This gets rid of middlemen taking a cut from you and your fans' pockets. A perfect example of this is in the next section.


Even if you haven't fully grasped the idea behind music NFTs, the most important thing to know is that they cut out the middleman and allow you to interact directly with your audience.


An important thing to keep in mind when making music NFTs is not to underestimate the importance your song's visual artwork. Tokenizing audio alone is not enough when making a limited edition song.


Structure of Music NFTs

  • Layer 1 - Artwork

  • Artwork is tokenized and basically acts as your NFT's album cover. Whenever people search your NFT, this is the visual they see. Artwork can be in basically any format depending on how your want to present the NFT (JPEG, GIF, video loop, etc.)

  • Layer 2 - Audio

  • Audio is hosted on IPFS. Audio link is accessible to token holders.

  • Layer 3 - Intangible benefits

  • Additional benefits that are offered through ownership of your token


How do music NFTs make money?

With tokenized music, artists get paid from sales of their NFT rather than each time someone streams it. This makes the song free to listen to, like YouTube, but encourages fans to buy the NFT to receive additional intangible benefits for owning it.


The amount of ways music NFTs can make money is only limited by your creativity, however the most common instances are:

  • Selling a song or album as an NFT

  • Crowdfunding a song/album


Selling your song as an NFT

Selling your song as an NFT brings in revenue from each copy sold as well as residual income from secondary sales. The ability to choose your own fee on secondary sales is a key feature of NFTs.


This means if someone who purchased your NFT sells it to someone else, you earn fees from that sale. This cycle repeats indefinitely.


This type of residual income from secondary sales of music doesn't exist outside of NFTs which makes it such a game-changer to the music industry. Through NFTs, the fee distribution happens automatically and the income goes directly to your wallet.


Residual fees can be set anywhere you'd like but the current standard is around 2.5%-10%.

 

Example: Let's say you set the residual fees on your song to 10%. You sell a copy of your song to a fan for $100. A few months later they sell that copy to someone else for $150.


Your total profit at this point would be $115.


$100 [initial sale] + $15 [10% fees from $150 sale] = $115


Not to mention, the fan who resold the work made a $35 profit too. The $15 earned from secondary fees is taken out of the reseller's revenue.

 

There are 3 ways you can sell individual songs as NFTs. These are probably best for when you are releasing a single, rather than individual songs from an album.

  1. Limited edition

  2. Open edition

  3. Special edition


1. Limited Edition

Limited edition songs have a set amount of copies that are available for purchase. Once these copies are sold out, no new versions will be created. This means if your fans want to own your song but it's already sold out, they'll have to purchase it from someone else who already owns the token.


2. Open Edition

Open edition songs do not have a limit on the total amount of copies that can be minted but they are typically only for sale for a limited time.

  • Unlimited # of mints available

  • Usually limited time

This means once the sale window closes, no new editions can be created. This method is best to use if you are unsure of how many copies to create. Some people choose to open the minting window for only 15 minutes if they expect high demand, others choose leave it open for days/weeks to give their fans additional flexibility.


3. Special Edition

Special editions are 1/1 copies to be auctioned to the highest bidder. As the rarest version of your song, these NFTs usually include some type of unique visual and have redeemable qualities that go to it's owner. Special edition songs can be released alongside limited/open copies since they should have a noticeable difference in appearance and rewards.


Crowdfunding an album

Below is the best example I've seen from anyone who has crowdfunded an album using their existing fanbase. This is by no means the only way it can be done, however it provides great guidelines for any artist interested in doing the same. The process works similar to crowdfunding on a platform like Kickstarter.


Ibn Inglor is a Chicago-based rapper who recently raised 20 ETH ($92k value) by leveraging his fans to crowdfund an album.


He offered 3 support tiers ranging from 0.1 to 1 ETH, each including their own separate benefits. The benefits include but are not limited to:

  • Album download

  • Access pass to listening party & headline show

  • Merch bundle (2 different tiers)

  • 8% royalty per song/per collector (highest tier)

It's important to note that Inglor limited the amount of people who could back him which created scarcity, and thus, higher demand for his NFTs.

  • Tier 1: 0.1 ETH - limited to 25 people

  • Tier 2: 0.25 ETH - limited to 15 people

  • Tier 3: 1 ETH - limited to 5 people

Another important inclusion was a budget list and projected timeline. Listing out all the items and cost for creating the album lets the supporters see where the money is going and why the fundraise is justified. At the same time, a projected timeline let's the supporters know when to expect the project's events to take place.


How to add value

Adding value to your art is the key to making a successful NFT. Your only job as the creator of the NFT is to deliver value to the people who bought it. Doing this successfully will increase the demand (and price) of your artwork.


In order to create and maintain demand for your NFTs, it's important to make holding the token rewarding to your fans. After all, your fans will be the ones holding onto the tokens to collect their rewards after purchasing. The longer you can get them to hold onto your NFT, the better you're doing - this will be reflected in it's price.


Your goal should be for your supporters to be able to get the value out that they put in. The better this is executed, the better chance your fans will end up earning a return on investment.


The main thing to keep in mind when choosing which rewards your NFT provides is: How does this benefit collectors?


Communicating the benefits collectors receive from owning your NFT is key for them understanding WHY they should own a piece of your music.


Should someone have to own your NFT to listen to it? Probably not. Restricting access to your song isn't a great way to have it reach a wider audience.


Instead, automatic entry into monthly giveaways could be a great value-add for token holders. If someone is a fan of your music, why wouldn't they want to earn free memorabilia/merch/NFTs for supporting your career? This gives much more upside to being a fan because it keeps them involved with what you're doing and allows a greater bond to be formed. Anyone can say they're a fan but can they actually prove it?


The possibilities are endless when it comes to benefits that can be added to music NFTs. Ultimately, you decide what benefits your community should receive and how much to give them.


Below is a list of a few of my favorite value-adds. I'll expand on each one to explain how they can be implemented:

  • Access passes

  • Giveaways/Airdrops

  • Non-exclusive licenses

  • Royalty share

  • Art collaboration


Access passes

Access passes are one of the best features that can be included with music NFTs. This is a unique feature because it can be used for both real life or metaverse performances.


The Ibn Inglor example where he crowdfunded an album from his fans is a great example of how to give real-life benefits to supporters. Depending on which 3 levels of investment Inglor's fans backed him with, they could receive the following benefits:

  • Priority access to album listening party

  • VIP access to the album's headline show

  • Extra VIP tickets

Undoubtedly, this played a large role in helping him gain backing from his fans on the album.


Alison Wonderland is another great example of using her NFT collection as an all-access pass. She regularly hosts private metaverse performances exclusive to holders of her NFT. These virtual performances take place once a month in Decentraland.


Giveaways/Airdrops

Giveaways and airdrops are one of my personal favorite benefits that can be added to music NFTs. One of the best examples of this comes from the CryptoPunk rapper, SpottieWifi. He recently released free NFT wearables to everyone who owned an NFT of one of his songs. Now Spottie's fans can rep his brand across the metaverse. This could provide great exposure during events like Decentraland's Metaverse Festival.


Each holder of Spottie's songs received the following items for free.

You'll hear me say the possibilities are endless over and over again but when it comes to giveaways this is especially true.


Want to offer physical items like merchandise or vinyls? Or tickets to a live performance? Or digital NFT assets? You can. The only limit is your imagination.


Non-exclusive licenses

Licensing is something I had to become very familiar with as a music producer. An easy value-add is to include non-exclusive rights to use your music through ownership of its NFT. This makes it easy to prove who is allowed to use your music, and who isn't.


Royalty share

Royalty share is one of the most obvious benefits that can be granted to fans through music NFTs. I'm not going to go too deep into this subject because at the moment it's unclear if offering fans ownership in return for a portion of royalties is in violation of securities laws.


Keep in mind that this is a relatively new concept and there are platforms currently in development that are being created to make this process easy and legal. This will absolutely be doable in the future but it's currently uncertain what the process will look like.


Art Collaboration

Artists can use collabs as a reward for reaching a certain tier of support. This can be used to reward fans or other artists with a feature on a song or by using their art in an upcoming project.


How to make a music NFT

Thankfully platforms exist so you don't have to code your own NFT from scratch. Each platform has different features so I highly encourage checking out a few before deciding which one to mint your song on.


Here are a few of my favorites:

Out of these options, Zora is my favorite for creating music NFTs. When minting NFTs, it allows artists to set their own fee percentage on their artwork. Not just this, Zora is also the only NFT marketplace that doesn't take a portion of fees from sales on it's platform.


Upcoming platforms

There are a few upcoming platforms that will be worth keeping an eye on. Here's a list of my personal favorites:

  • Royal - Invest in artists. Buy ownership of songs and share royalties.

  • Arpeggi Studio - In-browser DAW for music production. Great for collaboration.

  • Catalog - Verified artists can create and sell NFTs on their platform and choose their portion of fees.


What if I don't have the technical knowledge?

In most cases, it will be hard to create a successful NFT if you are operating as a one-man team. This being said, it's not uncommon to see people wear multiple hats in their group.


These are the most common roles required for creating an NFT project:

  • Artist - Visual/Musical creation

  • Developer (or platform) - Smart contract, mint site

  • Community manager - Discord/Twitter management

  • Marketer - Collabs & outreach

If you don't know people in real life that can work with you, crypto/NFT Twitter has tons of people who can help you fill in the gaps on your team. Find the people with NFT avatars and they'll lead you in the right direction. Feel free to reach out to @paper_ape or join the Apewell Discord and we can help you get started.


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