Take note! Non-fungible Tokens (NFTs) have officially entered the music scene and are already moving beyond provable ownership of audio files: the latest development is NFTs that are created to be virtual celebrities. These NFTs will even appear across multiple media types and platforms, including music videos and video games. Interest surrounding avatar-based NFTs is growing rapidly and even mega-celebrities are minting and investing in NFTs, from Paris Hilton to Jimmy Fallon to Steph Curry to Eminem (just don’t ask Ye, aka Kanye West). Sales of NFTs are staggering, increasing from $95 million in 2020 to $25 billion in 2021.

Creating Digital Music With NFT Avatars – Uncovering America’s Next Rockstar?

NFTs are being created based on songs, albums, music, lyrics, and soundbites and they are also being combined with music and digital art as .gifs and .jpgs to create unique, multimedia packages. Some NFTs even append PDFs to include additional content, such as lyrics or a message from the artist.

The music band Kings of Leon released the first NFT-based music album in 2021. Well-known NFT creator Jace Kay created a virtual band called “The NFTs” and even created a song, “I’ve Got a Cool Cat Too” celebrating the popular Cool Cats collection of NFT felines. The NFTs plan to release their own music video along with the song as NFTs in the near future. The NFTs consist of four virtual band members, backed by real-life people: three sporting characters from the StereoheadZ NFT collection and a manager – none other than legendary Bored Ape Yacht Club’s Captain Trippy. Their music is hosted on Spotify and Apple Music. The value of the NFTs value will be tied to the “celebrity’s” popularity rather than the value of the token itself. As music NFTs become more popular, there are plans to collaborate with other artists through these tokens.

In order to purchase one of these music NFTs, potential buyers must be members of the StereoheadZ Music Club. Owners of these music NFTs receive full rights to create derivatives and use their characters in media, stories, other digital platforms, and manage their social media. Additionally, the StereoheadZ will host a “Battle of the Bandz” competition to discover and promote music groups within their community. Their own music label, SZMC Music, will support the discovery, recording, management, and promotion of new bands.

Major music labels, studios, and promoters are getting involved as well. Earlier this year, Warner Music Group, which includes the iconic labels Atlantic and Warner Records and a number of famous musicians like Ed Sheeran, Lizzo, and Dua Lipa, announced that it will create exclusive NFTs for a range of artists in conjunction with OneOf, a “green” Web3 company, and Blockparty, a decentralized exchange (DEX) for NFTs. They are offering a range of NFTs from collectible and generative profile pics (PFPs) to music royalties and experiences. The collaboration is producing NFTs that will effectively live like real celebrities by earning income through music videos, animations, music shows, and even as tickets for events such as Coachella. Moreover, these collaborations cut out middlemen so artists can connect directly with their fans and control their art mediums like never before.

Owners of NFTs can even send them to “auditions” for music videos and more. Jace Kay created the AvaCast platform to cast other NFTs, such as Bored Apes, Cool Cats, and StereoheadZ, in music videos. NFTs can have their own music careers, whether it is recording songs or making music videos. Of course, the NFTs will be managed by their owners. Warner Music Group will announce its own “casting calls” for NFTs.           

Music NFTs can also be used to raise money for charitable causes. NFTs can even be designed to sell existing works of music, whether for profit or for charity. The StereoheadZ Music Community will donate a portion of the NFT sales towards the SZMC Community Fund, which will help foster the creativity and collaboration of the club’s members.

Late last year, a previously unreleased Whitney Houston recording she made when she was 17 was minted as an NFT. Placed on the OneOf NFT auction platform, it sold for $1 million, the highest-priced NFT on the Tezos (XTZ) blockchain. While the new NFT owner can access the full version of the song, the NFT contract did not include rights to the recording itself or to publish it elsewhere to reveal the song. Proceeds from the sale went to the Whitney E. Houston Legacy Foundation which supports other budding music artists.

Music NFTs and Smart Contracts – Legal Issues

While music NFTs provide enormous potential for artists to control their own works and careers, there are legal issues to be considered. In the past, it was not unusual for artists to receive compensation for their work, but forfeit the rights to their intellectual property. Further benefits of utilizing NFTs in music are that artists can receive ongoing and accurate royalty payments for their work and also have more say over the content of their music. Blockchain and NFTs readily enable primary and secondary resell rights, so artists can create contracts that both record and execute their right to receive royalties for the future use and resale of their works. Whereas previously music studios would typically control what an artist could do and largely dictate how much they would make in their contracts, NFTs allow artists far greater control over their intellectual property and royalty structures.

Since each NFT is unique, the smart contract is recorded on the blockchain with the terms the artists want, without having to negotiate with other parties. Additionally, these smart contracts can account for equity crowdfunding initiatives, so each contributor can be included in whatever compensation scheme is appropriate, such as a percentage of revenues or lifetime tickets. NFTs enable smart contracts to be written so artists are directly compensated, and any crowdfund contributors get their fair share when music NFTs are bought and sold.

Furthermore, music NFTs can be configured in their smart contacts to be “upgradeable”, which means it is a non-static digital asset. An upgradeable NFT will respond to some event or trigger that occurs either on or off a blockchain, such as a ticket sale for a concert going ahead. This also enables original creators and future collaborators to all receive credit or permission to transform the content. Typically, making a remix of an already published song would involve first obtaining permission from the original artist and any other copyright holders to avoid copyright violations and/or obtaining a license for performance rights.  With an upgradeable NFT, the original creator maintains these their intellectual property rights but can provide for downstream owners of the NFT to remix the content and make it their own derivative works.

Music NFTs have the potential to transform the music industry, from artists’ control over their works to receiving accurate or better compensation, to raising money for good causes, to cutting out middle-people, to enhancing the consumer experience through closer one-to-one contact between artists and fans. The possibilities are endless. Thanks to blockchain and smart contracts, NFTs can enable artists and creators to take greater control over their destinies than ever before.

Gamma Law is a San Francisco-based firm supporting select clients in cutting-edge business sectors. We provide our clients with the support required to succeed in complex and dynamic business environments, push the boundaries of innovation, and achieve their business objectives, both in the U.S. and internationally. Contact us today to discuss your business needs.