The following article is by Bruno Ghez, CEO of digital rights administration company Revelator. Last July, MBW published an article by Geza asking what it takes to decentralize the music business.
It’s been a whole year for decentralized technologies, music NFTs and Web3. There have been all sorts of rumors in the music business, from job postings to announced partnerships that suggest how this technology is changing and will change music. But don’t let the seeming flurry of activity fool you: music companies are moving out of the starting gates too slowly.
The race has already begun to define and shape Web3. Gaming companies have surged forward, happily capturing key music companies, resources, technology, and talent along the way.
The big players in the music industry are unlikely to easily catch up with them. For now, all signs point to them needing to adapt to gaming leadership rather than trying to behave if they want to play a viable role in the future of Web3.
How did it happen? While the music companies were strategizing, the game companies were acting. It was easy for them; their products are based on communities – collect them, support them, monetize them – at its core, Web3 is a community. Labels and DSP – no. Labels have struggled to create fan communities for artists. DSP have struggled to create a community of fans, to an almost embarrassing degree. Subscribers and playlists are not enough to create fan communities.
But this, of course, does not mean the end of the music business. The industry is adapting and likely to thrive if it can adapt to Web3 culture and rethink business models.
Games without borders
It is enough just to watch the flow of deals to see that the leading game companies are using old music players. Tencent has acquired a majority stake in gaming companies outside of China, including recent move with Ubisoft.
Epic bought Bandcamp. Microsoft buys Activision. Children discover music not through Spotify, YouTube or even TikTok, but through games. Napster has hired a former Roblox executive for the reboot. Roblox and Fortnite were the venue for major musical events.
This small selection of recent examples shows just how far game companies have already come in the direction of an immersive, interactive, virtual world where music will be a part—an important part, but only a part—of the experience. (AI-generated music is already in development for gameplay.) “Activity” is a big part of interactivity, and active communities are more important than scale in web3. Game companies already know how to build a community; for many of the most popular games, the gameplay is secondary for players who join to meet friends and talk to others.
Game companies also know how to create digital characters and avatars that resonate culturally in these communities. They know how to sell in-game digital collectibles and virtual goods and run a virtual economy. Music companies have a lot to learn to achieve the same levels of knowledge and engagement that are ideal for thriving on Web3.
This is not Web3’s advice of desperation. It’s a call for realism about what music companies and streaming platforms need to do to become strong partners in this evolving Web3 world, as they’re unlikely to command.
Despite the dreams of many decentralized maximalists of a direct connection between artist and fan that eliminates the need for all intermediaries, labels will still exist and play an important role. However, they have never been good at building a community. Labels are not built; they sell. They see the market in a way that is difficult to reconcile with Web3. They see it as a series of distribution channels that need to be monetized. Web3 is about rewards embodied in new tokenized business models like “listen to earn.” Snoop on something.
It appears that labels are applying their legacy market model to Web3 by making deals With NFTs markets, For example. Web3 marketplaces are just a new distribution channel. In fact, there is nothing new in this. it’s the same thing that labels have always done, the same way they’ve always monetized.
Labels must undergo a major cultural shift in order to thrive on Web3. They will need different thinking and new tools; the question will no longer be “how do we sell it?” but “how do we grow a community of artists?”
Part of the answer to this question is licensing, more specifically Web3 friendly licensing structure, which supports approaches such as CC0. Web3 communities want to build to earn, similar to the play-to-earn game model. This means new business models for labels where primary copyright requirements are removed to allow the community to create derivative works and create long-term value for the artist’s community and brand. An industry so reluctant to deal with derivative works such as remixes needs to completely change its attitude towards licensing and copyright.
DSP, destroy yourself
DSPs own the current digital music market and all of its listeners. This leadership makes it easy to delay change, but even harder to accept. But as the much larger gaming industry is innovating faster and driving innovation and Web3 adoption, DSPs must act now to effectively change themselves and manage two interconnected shifts. One generational and one cultural.
For Gen Z and younger music lovers, gaming is part of their upbringing. Everything in their world is gamified, even the once level-headed bastions like stocks, thanks to sandwich-loving Robin Hood users. Young fans are not interested in models that are transmitted by click and stream. They want and expect more, which is why TikTok is so popular in music.
The next generation will be native to Web3. However, culturally, DSPs are built as Web2 products, which may be the right strategy to connect the next 100 million wallets to Web3. (For a great example of this, see Recent Reddit Activity in adding 3 million new wallets for their NFT avatars.) For artists, DSPs will need to develop a token economy around artists and their digital creations, economies that can handle dynamic content owned by their community. Younger listeners will expect things like creating to earn and listening to earn tokens. So far there is no hint of this from DSP.
This shift will be difficult to implement from a product standpoint. Most DSPs don’t want to create Web3 products inside their platform and create monstrous complexity like Facebook. This challenge is an opportunity: because they are in a strong position in Web2, they can open access to the Web3 market for the mass market. By necessity, this will be a hybrid approach for some time. Web3 natives, young artists with young audiences will understand this. For older artists and their audiences, this transition can be more difficult. DSP will have to take them into account.
The coming world
There’s a lot more to be said about what’s already happening, both in games and in the mainstream Web3 music community. Suffice to say, music companies will have to contend with a world where protocols are taking over valuable applications.
This new approach is changing existing business models, including licensing, funding for artists, and the experience and expectations of music lovers. Web3 innovation is evolving rapidly, at an ever-accelerating rate. Platforms and labels will need to act quickly and decisively to make a name for themselves on Web3.
Music business around the world