Image licensed from Envato Elements by Pressmaster

Music Royalties vs Music-NFT Royalties

A singer-songwriter friend called me today and asked how should we cut our music-NFT royalties. I stopped her for a second, and explained these are two royalties. One is music royalty and the other NFT royalty. Before I delve in, let me backtrack a little

While my real job deals with business, marketing and tech, my side passion is a tad more interesting as a Chinese pop lyricist. (PS: Find my latest work here)

I usually prefer to work with independent artists due to the fluidity and freedom of our relationship. But I realise many artists have poor knowledge of the way rights work. I mean the music rights structure is so archaic it definitely isn’t relevant anymore so being independent, we can do away with it. But it gets complicated when they are trying to understand how to properly pay the people downstream.

Why would I know? Because I have a past life as an artist and label manager myself and I deal with rights day in and out.

There’s no such thing as a Music-NFT

Firstly, an NFT is an NFT; it doesn’t matter if it’s mp4, mp3, jpeg, gif. The format of the NFT does not determine its inherent function. It’s simply a unique non-fungible code, that allows buyers to own digital assets verifiable through blockchain.

On most NFT marketplaces out there, they allow creators to set a creator fee or a creator royalty. This “royalty” is for the purpose of allowing creators to benefit from secondary sale. It means that if a buyer sells it after buying, you get a cut of the fee that was set off the selling price. For example, if the song was later sold for $1000 and your creator's royalty is set at 10%, you get $100. Usually, the percentile is set between 5–20% and it’s written into the code (smart contract) when it’s minted.

So in this sense, you can call it an NFT “royalty” if you wish.

Who in the creation pipeline gets paid?

Now, this is a slightly more complicated question to answer.

I am not surprised most NFT marketplaces (eg. Opensea, Mintable etc) or more “music-friendly” NFT marketplaces (eg. Our Song, Nifty Gateway etc) out there are not exactly designed to address the royalty payout of the music industry because most people in the music industry don’t even understand their own structure. What’s worse? Depending on where you are based, this structure differs. Now, I’m sure at some point it could potentially be simplified and resolved once the big players and PROs catch on, but they are usually the last to realise they are lagging behind. North America’s music royalty system is more mature and they pay with more precision that sometimes, even the Producer and musicians get a cut. Although Asia is a huge continent that will also differ from region to region, I will touch upon the Chinese pop market generally (PS: China has a more complicated system, so let’s put that aside for now but the general structure is the same)

For more efficiency, I created a flowchart below explaining the moving components of the music rights licensing structure.

General structure of the music licensing landscape (Updated 11/03/22, 10.25PM SGT)

Well, it can be disputed if NFTs should be considered as a distribution or a synchronisation since they can be sold as just the audio format or with accompanying images as a video format. Also, what happens if you are using only part of the song? This obviously will not fit into any existing distribution clauses by template mechanical contracts issued by major publishing houses (god bless if they know what NFT means). So it means the collection party will be the party owning the master recording right. However, these labels are not obliged to pay the downstream since none of the contracts now cover it. (Yep, which means technically they can’t distribute it as NFT) And, how should crypto be paid out in fiat (real-world money) if they are not cashed out?

To make matters more complicated, typically when you sell a copy of a song, you are selling the right to play and own that copy (like if you buy a CD, you don’t own the song), you don’t sell the copyright. But some creators are allowing buyers to own partial right to the song (which enables them to sell at a much higher value). This means when the song is being monetized, the original buyer also benefits from it. Yep, you guessed it right, this is a mind-blowing concept to the traditional system above who can’t wrap their minds around it.

Also, another item to consider is — how should content be treated if they are given out as unlocked exclusives to NFT buyers? Eg. if you buy a 15 sec video NFT with music, you can unlock the lossless version of the song or access to the next song drop.

Around 53% of all music-related NFTs are now distributed by independent artists. As you can see, that’s for obvious reasons because they usually write, produce and record their own music. They can do whatever they want with it. What happens if this is a collaboration?

Get a separate Contractual Agreement with Downstream for your NFT Distribution

Simple. Contracts override boring structures. There’s currently really no benchmark in the market. As long as the selling party and the creating party reach a consensus, the structure doesn’t matter. For songs released into the traditional structure including on Spotify, Youtube, Radio etc, the PROs would continue taking care of it. You only need to cover what’s not part of the PRO’s responsibility. Note, however, if you have an exclusive contract with a publishing house or a music label, you still have to check in to see if they consider this part of the contract.

Be sure to consider the following clauses in your discussion

  1. Cut from initial sale between NFT creators (artists, animators, song owner), and cut to creators of the song (vocalist, musicians, songwriters)
  2. Cut from NFT royalties collected from secondary sale — Will this be offered to song creator downstream or collected in whole only by the NFT creator
  3. Payout terms — including schedule (sale reporting cycle), currency (in fiat or crypto), effect payout only upon a minimum amount, tax matters etc

As for me, my co-writer and I decided that we will embark on this NFT project as an experiment and we’ll cross our fingers it will get sold for more than a cup of coffee. Till then, we are keeping our options open. Watch the music video below! Don’t forget to support original music by giving it a thumbs up.

Also available on all major music sites including Spotify, Apple Music, KKbox, QQ Music etc

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Belinda Ang

Belinda Ang

1K Followers

Founder and CEO of ARTO — Inspiring humanity with art. Art Lover, history buff and wine is my preferred poison. Psst: I’m a closet lyricist.