Industry Analysis and Tokenisation Benefits

Why hasn’t tokenisation dominated the music industry yet?

First and foremost, there is the matter of the market and the type of financial flows.

The cash flow derived from music streaming has shifted from traditional music monetisation models like CD sales or concert earnings. In the past, fans would purchase a CD and become owners of a physical copy of the music. However, with streaming, users do not become owners but instead have a private use licence for the content. They pay a fee, often a monthly subscription, that gives them access to the music whenever they wish. This means that artists and record labels receive small payments each time a track is played rather than an initial lump sum from a sale. Previously, an artist might have seen sales spikes immediately after a new album's release, but with streaming, there is the potential for steady, long-term earnings, provided the music continues to be played.

Over time, this distributed cash flow structure ensures that streaming revenues are more prolonged and predictable, akin to cash flows from long-term financial products, such as stocks that yield dividends.

The rapid advancement of blockchain technology in recent years, with scalability levels now potentially reaching thousands of transactions per second, is a compelling reason for its adoption.

Ultimately, music stands out as a unique and intricate domain. Its multifaceted value chain and the intricacies of the music industry demand a specialised approach, one that generic tokenisation platforms need to be equipped to handle.

Driving the transition of music from Web2 to Web3

The current music value chain delineates the traditional ecosystem that governs music content creation, distribution, protection, and monetisation. The following table illustrates in a simple way the various stages of the industry's value chain, how they are currently managed (Web2), and how they could be managed if IP were digitised with decentralised digital technologies.

Phase

How it works currently

How it will work on Music Protocol

Web3 value add

Rights creation

Publishing rights: The content is written down as a musical composition and owned by the parties involved (writers, composers, adaptors, publishers)

Master recording rights: The content is recorded in one or more masters, so the related IP is established and owned by the parties involved (artists, labels, producers, musicians, etc.).

The IP publishing or master, or specific rights written on it, can be tokenised, thus opting for a fully digital form of holding. This allows for more efficient methods of certification and transfer of ownership to third parties.

IP management is moved into the digital world

Rights protection

Publishing rights: Rights owners register their share of copyright with certain collection societies. This ensures the content (lyrics, music) is protected and any mechanical or public performance royalties are accurately distributed to the creators and copyright holders through these collection societies.

Master recording rights: Rights owners have no registration opportunities and their share on the master recordings is stated by the agreements in place amongst them (eg. recording agreement).

Publishing rights: There are no significant changes in this area, except for the fact that the Music Protocol will have more direct connections with collection societies.

Master recording rights: IP tokenisation is increasingly important to secure the IP within a legally binding process, making it simpler to demonstrate to third parties than a written contract.

Process facilitation → Music production will become an end to end digital process.

Rights distribution

Publishing rights: These rights are not the subject of a proper distribution but exploitation which are regulated as described under the following rights payout section.

Master recording rights: Right owners distribute the content via aggregators, distributors, Digital Service Provider (DSP) and all the other channels.

Rights owners distribute the content via aggregators, distributors, Digital Service Provider (DSP) and all the other channels.

Rights owners have facilitations in distributing their content with distributors partnered with Music Protocol. All the processes in this case are automatic, even in case of changes in the IP ownership.

Rights payout

Publishing rights: Public performance royalties received by broadcasters, live events and any other public exploitation of the copyright are paid by the collecting societies to the right holders. Synchronisation rights and other ancillary rights (printed copies, etc.) pertaining to the copyright (lyric and music) are paid directly to the right holders by the third party exploiting this specific right.

Master recording rights: Distributors and DSPs pay recording royalties to the right holder directly and mechanical publishing royalties to the collection societies that then pays the right owners.

Synchronisation rights pertaining to the master are paid directly by the third party exploiting this specific right.

Publishing and Master recording rights

All revenues, both from collection societies and all others, can be channelled on-chain so that the right owner has a single, more controllable entry point.

Streamline the revenue distribution process. IP royalties will become similar to a financial yield or dividend.

Rights ownership and circulation

Publishing rights: Under civil law writers and composers can assign to publishers no more than half of their rights in the creation through written contracts as a proof of assignment.

Under common law rights holders are allowed to sell their publishing share through written contracts as a proof of assignment.

Master recording rights: Rights owners can sell their master rights share. Current procedure requires to make written contracts as a proof of assignment.

Publishing and Master recording rights: After tokenisation, IPs can be sold digitally. This will allow right owners to sell the IP itself, or specific rights written on the IP (e.g., the right to collect royalties from certain distribution channels for a specified period). At the same time, it will provide potential investors with the opportunity to gain exposure to musical IPs in a much simpler and more immediate manner than currently possible.

Liquid IP → open market → IP price will be aligned with financial market risk/return AND ip owner will be able to sell part of the IP (eg. Label will boost their business cycle)

Following the creation of Music Protocol, the music industry is set to be upgraded across every essential phase, from creation to distribution and payout. The tokenisation of IP rights will transform the traditional dynamics of rights transfer, making IP more liquid and easily transferable. This liquidity simplifies administrative processes and democratises access to music IP investment. Additionally, the Music Protocol brings efficiency to rights protection and distribution, automating these processes and ensuring real-time updates across collection societies. This, in turn, streamlines revenue payouts, making them straightforward.

We are working towards a new era where music IP becomes an asset class aligned with market dynamics and accessible to all.

Last updated

©2024 Web3 Music Association - All rights reserved