As the major music companies continue to develop their Web3 strategies, Eamonn Forde explores the significant potential for revenue generation and long-term industry growth.
At the start of 2021, few people outside of a niche tech bubble really knew what NFTs were. By the end of 2021, pretty much everyone in music knew what NFTs were (or certainly had heard of them and could at least pretend to know what they were).
The boom in revenues related to NFTs, as well as the boom in the sheer number of them being created and sold in 2021, was what convinced the music business at large that Web3 should be key to its future.
Web3 as a term is far from new, coined back in 2014 as “Web 3.0” by Gavin Wood (co-founder of the Ethereum cryptocurrency). It was there to explain, as PC Mag put it, “the next generation of the internet being a decentralized digital infrastructure”.
The typographical rebranding of Web 3.0 as Web3 over the intervening years gave it a more streamlined feel. While crypto and the blockchain were core to Web3, these were things that the music industry was not necessarily set up to exploit outside of a B2B context (e.g. the multitude of companies racing in to offer royalty tracking solutions on the blockchain).
NFTs, however, allowed the music industry to jump fully into Web3 and make it part of their consumer-facing business. NFTs, as far as the music business is concerned, are basically a digital merchandise play and, therefore, a world it can quickly understand and look to monetise.
It is currently impossible to put precise numbers on what NFTs bring into the music business economy. That is in part because a lot of the headline numbers last year were driven by artists like Grimes, 3LAU and Deadmau5 and would not necessarily show up on the books of record labels or publishers.
Labels might not be at a stage where Web3 revenues are something they want to separate out in earnings calls (just as they do with things like streaming, synchronisation and vinyl sales), but they are all keen to regularly mention their importance in those same earnings calls and other press statements.
The record companies – and, to a lesser but no less important extent, the publishers – are still squarely at the building stage as far as Web3 goes. This is a cultural and economic wave they are determined not to miss and are equally determined to be seen to not be missing it.
Labels, more than publishers, are dominating the music business discourse around Web3 in part because they can see the most immediate financial benefits; but we can be certain that where the labels are publicly discussing their strategies and hopes here, publishers will not be far behind.
They regard it as a huge growth area, a long-term investment/development area and a core part of their new-generation marketing campaigns.
At the start of March, Universal Music Group chairman and CEO Lucian Grainge, when trumpeting company-wide revenues of $9.4 billion in 2021, talked of the multitude of growth engines powering the company forward. He talked about streaming, of course, as well as merchandise, sponsorship and film/TV. He also added, “[W]e expanded our partner portfolio into emerging growth areas such as health and fitness, Web3 and social video.”
He was at pains to stress this was not a flash in the pan opportunity for UMG, insisting that they are in it for the long term.
“You may see one-off NFT drops,” he said. “I’m far more interested in a long-term sustainable business model where this product, this opportunity – and I include the metaverse in that – is part of the conversation with our artists where it’s baked into their long-term marketing campaigns […] I want it to become something sustainable and long term as opposed to just a headline today about something that everyone talks about for an hour. I want it to be baked into our business.”
UMG’s digital head Michael Nash backed his boss up by adding, “You can think of Web3 and NFTs as kind of the tip of the technological spear of our overall e-commerce strategy with our artist roster.”
“You can think of Web3 and NFTs as kind of the tip of the technological spear of our overall e-commerce strategy with our artist roster.”
– Michael Nash, Universal Music Group
Nash, earlier in the year, had given a bullish interview to Reuters where he hinted at the strategic play the company is engaged with here. “We have an opportunity, with Web3, to have ownership on top of access,” he said. “With all the innovation happening around Web3 and NFTs, you’ve got the opportunity to make all kinds of digital products available that provide that ownership […] And you have technologically enforced scarcity, so you can appeal to collectors.”
Meanwhile, Warner Music Group’s CEO Steve Cooper regards it all as something of a spread bet and is not backing a single horse in this race. WMG has accelerated the number of partnerships and deals they are doing here (Dapper Labs, OneOf, The Sandbox) to unlock as many opportunities as it can.
He has also argued that the decentralised nature of Web3 and the complexities involved in being a viable player here are such that it all – in his opinion, at least – makes global labels and publishers all the more central and relevant, not less.
“[T]he emergence of Web3 is going to further amplify the importance of music labels and publishers,” he said. “The technology of blockchain, the perils of navigating crypto [and] the skill sets required to deal with distributed autonomous organizations will require organizations like us that have the financial resources [and] the intellectual capital […] Labels and publishers will be more important than they are today as the world becomes more and more complex.”
“Labels and publishers will be more important than they are today as the world becomes more and more complex.”
– Steve Cooper, Warner Music Group
While one would expect a global corporation like Warner to argue this line, early adopter artists and managers are viewing Web3 as the fast track to their total liberation from the old models and strangleholds of the major music companies.
Dean Wilson, manager of Deadmau5, has been leading the charge here from the creator side and sees it as delivering them empowerment within a rapidly shifting business. Web3 will, he believes, liberate creators in whole new ways by driving forward new forms of transparency and whole new ways to exploit their IP.
“The business model is completely broken for the creator,” he told Variety earlier this year. “It has to flip at some point, and it will happen with blockchain, smart contracts and Web3. It is the true way that we can connect directly with our fans and not have somebody telling us what we can and can’t do […] If you own your catalog, there are more and more exciting opportunities of what you’re going to be able to do with your IP in the Web3 space.”
Echoing the drive in the early 2000s to sign acts on 360-degree (or multiple-rights deals), there is a flurry of recruitment activity happening at the label and publisher level to bring in in-house experts who can capitalise on this market opportunity and grow it.
The HR conundrum, of course, is that every other media company out there is looking to do the same and there are more jobs going than there are qualified people to fill them. Huge media and technology companies like Spotify, Disney and YouTube are entering into a furious race to staff up and buy in Web3 expertise. Music companies are not just competing with themselves for executives – they are competing with everyone else in media, social media and tech.
The rebranding of Facebook as Meta in October 2021 was really the starting pistol for the mainstreaming of this all and now, if you haven’t made your recruitment moves, you are going to be missing out and lagging behind.
This recruitment frenzy is not occurring in isolation and the problems publishers faced in 2020 with the impact of Covid is something they will want to safeguard against in the future. Web3 is one (not the only one) of the ways they can look to do that.
While there is a huge recruitment drive and a strategic recalibration at a corporate level to make the most of the new revenue and marketing capabilities of Web3, the industry must not see it purely as a cash grab.
“It’s not about spinning up an NFT and making a lot of money,” cautions Dean Wilson. “That’s not going to help your brand in the long term, because, at some point, people are going to go back and say, ‘Well, I bought an NFT, but what does it do?’ […] Planning as far out as we could for the utility and connection with our fans while feeling like we’re giving our community real value in the future. This is our future. This is the strategy. Web3 is everything to us.”
“Planning as far out as we could for the utility and connection with our fans while feeling like we’re giving our community real value in the future. This is our future. This is the strategy. Web3 is everything to us.”
– Dean Wilson, manager of Deadmau5
That idea of prioritising the fan over and above the commercial benefits is something Obie Fernandez of digital collectables platform RCRDSHP stresses. “As an artist, you really have to see Web3 as more than just a glorified fan club for the 21st-century,” he told Music Business Worldwide recently. “It’s more like you’re the CEO of your own little corporation, with super fans as the shareholders.”
Primary Wave is one of the few major publishers to publicly outline their strategy on NFTs and Web3. Larry Mestel, the company’s founder and CEO, believes that it all allows companies to diversify their business activities, but insists that anything done here should be done sparingly.
Primary Wave has two senior executives at the company focused on their NFT strategy and offerings. The company, which has a 50% stake in the Whitney Houston estate, recently issued an unreleased demo by the late singer as part of an NFT bundle on OneOf and generated $1.1 million in the process. Even so, it is moving carefully here.
“NFTs can be very meaningful,” Mestel told Music Business Worldwide as he reflected on that sale. “Not every artist, though, is right for an NFT.”
Because Primary Wave has more assets and IP than a typical publisher (such as name, image and likeness rights when buying up or buying into estates), they see themselves as being at more of an advantage in terms of harnessing the potential of Web3.
“We have a different strategy which is based around a very long-term growth model of adding value to our artists’ income streams by producing biographical films, Broadway shows, destination events, podcasts, brand partnerships, and NFTs,” says Mestel.
By the end of 2022 we might start to see Web3-related numbers being broken out in music companies’ financial results. Until then, they will be holding tight to their belief that Web3 will be the magic number.