The following op/ed comes from Bruno Guez (pictured), CEO of digital rights administration company Revelator. MBW published an op/ed from Guez in July last year asking what it would take to decentralize the music business.
It’s been quite a year for decentralized tech, music NFTs, and Web3. In the music business, there have been all sorts of rumblings, from job openings posted to partnerships announced, that suggest how this tech is changing and will change music. But don’t let the seeming flurry of activity fool you: Music companies have been too slow out of the starting gate.
The race is already on to define and shape Web3. Gaming companies have sprinted ahead, merrily snapping up key music companies, resources, tech, and talent as they go.
The big music industry players are unlikely to catch up easily. At this point, all signs indicate they’ll need to adapt to gaming’s leadership, rather than attempt to lead themselves, if they want to have a viable role in Web3’s future.
How did this happen? While music companies strategized, game companies acted. It was easy for them; their products are based on communities— gathering them, maintaining them, monetizing them—at its core, Web3 is all about community. Labels and DSPs are not. Labels have struggled to build fan-powered communities for artists. DSPs have struggled to build a community of fans, to an almost embarrassing extent. Subscribers and playlists are just not enough to build fan communities.
Yet this doesn’t mean the end of the music business, of course. The industry will adapt and likely thrive, if it can adjust to Web3 culture and rethink business models.
Games without frontiers
Just watching the deal flow is enough to see the lead game companies have on the legacy music players. Tencent has been taking majority or controlling stakes in gaming companies outside of China, including a recent move involving Ubisoft.
Epic bought Bandcamp. Microsoft is buying Activision. Kids are discovering music not via Spotify, YouTube, or even TikTok, but in games. Napster hired a former Roblox executive to run its reboot. Roblox and Fortnite have been the staging ground for major music events.
This smattering of recent examples shows how far game companies have already gone toward the immersive, interactive, virtual world where music will be a part—an important part, but just a part — of the experience. (AI generated music is already in development for gameplay.) “Active” is a big part of interactive, and active communities are more important than scale in web3. Game companies already know how to do community; for many of the most popular games, 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 gain cultural resonance with these communities. They know how to sell in-game digital collectibles and virtual goods and fire up virtual economies. Music companies have a lot to learn to reach the same level of expertise and engagement perfectly tuned to thrive in Web3.
This isn’t a counsel of Web3 despair. It is a call for realism about what music companies and streaming platforms need to do to be strong partners in this emerging Web3 world, since they are unlikely to call the shots.
Despite many decentralization maximalists’ dreams of a direct artist-to-fan connection ending the need for all intermediaries, labels will still exist and have important roles to play. However, they have never been good at building community. Labels don’t build; they market. They see the market in a way that’s challenging to harmonize with Web3. They see it as a series of distribution channels that need to be monetized. Web3 is about incentives translated into new tokenized business models, like listen-to-earn. Snoop is onto something.
Labels appear to be applying their legacy market-oriented model to Web3, doing deals with NFT marketplaces, for example. Web3 marketplaces are simply a new distribution channel. In effect, there’s nothing new about it. it’s the same thing labels have always done, the same way they’ve always monetized.
Labels need to undergo a serious cultural shift to thrive in Web3. They’ll need a different frame of mind and new tools; the question will no longer be “how do we sell this?” but “how do we grow an artist community?”
Part of the answer to this is licensing, more specifically a Web3-friendly licensing framework, one that accommodates approaches like CC0. Web3 communities want to create to earn, similar to gaming’s play-to-earn model. This means new business models for labels, when primary copyright claims are waived to let a community create derivative works and build the long-term value of the community and brand of the artist. The industry, so loath to grapple with derivative works like remixes, needs to change its view of licensing and copyright completely.
DSP, Disrupt Thyself
DSPs own the current digital music market and all of the listeners in it. This lead makes it easy to put off change, yet more complicated to embrace it. But as the much larger game industry innovates faster and drives Web3 innovation and adoption, the DSPs need to act now, to effectively disrupt themselves and manage two interlocking shifts. One is generational and one cultural.
For music fans, Gen Z and younger, games are part of their upbringing. In their world, everything’s gamified, even once staid bastions like stocks, thanks to stonk-loving Robin Hood users. Younger fans aren’t interested in click-and-stream models. They want and expect more, which is why TikTok has so much music traction.
The next generation will be Web3 native. Yet culturally, DSPs are built as Web2 products, which may prove to be the right strategy for onboarding the next 100 million wallets to Web3. (For a great example of this, see Reddit’s latest moves in adding 3 million new wallets for their NFT avatars.) For artists, DSPs will need to nurture token economies around artists and their digital creations, economies that can handle dynamic content owned by its community. Younger listeners are going to expect things like create-to-earn and listen-to-earn token incentives. There’s no hint of this yet from the DSPs.
This shift will be hard to execute in terms of product. Most DSPs don’t want to build Web3 products inside their platform and create monstrous complexity like Facebook. This challenge is an opportunity: Because they have a strong position in Web2, they can unlock the Web3 marketplace for the mainstream. By necessity, this will be a hybrid approach for some time to come. Web3 natives, young artists with young audiences, will get it. For older artists and their audiences, this shift might prove more challenging. DSPs will need to accommodate them.
The World to Come
There’s a lot more to say about what’s already happening, both in games and in the grassroots Web3 music community. Suffice it to say that music companies will need to grapple with a world where protocols capture the value apps once captured.
This new approach is shaking up existing business models, including licensing, artist financing, and music fans’ experiences and expectations. Web3 innovation is unfolding rapidly, at an ever-accelerating pace. Platforms and labels will need to act swiftly and decisively to stake their claim in Web3.
Music Business Worldwide