Everyone loves music, but with the exception of a few iconic music labels, the music business isn’t usually a major moneymaker. At least that was true before non-fungible tokens, or NFTs, hit the world. Suddenly, music artists are generating unprecedented profits, and it seems like there may be untapped financial potential in the music market. For the first time, investors are looking at some of the top NFT stocks in terms of performance as an exciting new potential investment opportunity.
Before getting into NFTs, let’s take a quick look at what’s going on in the music industry and why it’s ripe for change. Musicians have never had it easy—record labels have always reaped the majority of the profits in the industry. But in the past decade, streaming platforms have made it more difficult for musicians to make a living than ever before. Whereas on traditional platforms, royalties are split evenly between the record label and the artists, in most streaming services, the labels pocket upwards of 80% of the profits. Musicians earn a measly 13-15%, from which they need to pay their service providers and backup musicians, cutting their own profits to a bare minimum. The situation was exacerbated when the pandemic hit in 2020, further cutting into musicians’ profits when concerts and live events were suddenly canceled.
It was a perfect storm in the music industry, one that gave birth to an alternative profit model. The new model circumvents middlemen and streaming platforms and puts the power back in the hands of the musicians and creators. It’s a model that allows musicians to connect directly to their fans, even when those fans are stuck at home. It’s a model that has almost infinite potential—music NFTs.
It works like this. NFTs are created or “minted” from a piece of music with a unique identifying code that is stored on the blockchain. Although the item can be copied, fans are willing to invest because they receive a digital file with the code of the item which is the equivalent of the physical “original”. The musician receives the majority of the amount of the sale, and royalties can even be integrated into the NFTs’ contract, giving artists a secure way to earn residual income from their music if the owner sells the token in the future. Music and NFTs could potentially be a match made in heaven.
And that’s not all. There are more ways NFTs can be used in the music industry.
NFTs can give owners more than access to a song or an album—an NFT is basically a smart contract that can include a variety of items and perks. As the pandemic wanes and concerts and live shows reenter our lives, NFTs offer an alternative to traditional concert tickets. An NFT could include more than just access to the event. Concert NFTs often could provide owners added value like artwork, practice clips, and other unique content. They’re also a type of memorabilia of the event and can even include perks at the event itself, like free drinks and snacks, or even backstage passes. With NFTs, the performers now have the potential to earn the majority of the revenue, but they’re not the only ones who can earn from a successful live event—fans can also earn money from their concert NFTs. If the NFT is set up as event equity, token owners become investors and earn a small percentage of the concert profits.
Creating music is a long and arduous process. It can take a musician years to make an album, years in which he or she has no income, except in the case of well-known performers who may receive an advance from a record label.
NFTs change that calculation and let fans support the musicians they love during the creative process by purchasing tokens of works in progress. And unlike platforms like Kickstarter, their support isn’t just a donation. NFTs can be set up as equity, allowing fans to earn a portion of any future revenue from the project, essentially monetizing their fandom. A popular Swedish musician, Danny Saucedo, is already using this method. He left Sony Music to become independent, and now creates NFTs before he starts working on a new single. He gets an advance on his work, and his fans earn money from his successful ventures.
NFTs give music fans a direct connection to the artists they love, as well as unique perks that they can’t access through other channels. Intrepid musicians have already proven that their fans are willing to shell out for NFTs. But are music NFTs, or NFT stock, a worthwhile investment?
What are NFT stocks? NFT stocks are stocks in companies that are invested or active in the NFT arena. In some cases, they are publicly traded companies that are actually creating NFTs, including music NFTs, and in other cases, they are companies that are building the infrastructure to create, buy, and sell NFTs, including in the music industry.
As a new domain, it can be hard to predict which companies will succeed and which NFT stocks to buy. Any individual NFT stock price tends to go up and down, making it a risky investment, even if you do your research and choose well known NFT stocks. But investing in an individual stock isn’t the only option. Instead of investing in one or two NFT stocks, or what you think will become an iconic NFT single, you can invest in an NFT ETF (Exchange Traded Fund) The net asset value of an investment in an ETF is linked to the value of its composite stocks, in this case, stocks on an NFT stocks list. It’s a less risky way to connect to a new financial model for the music industry that has the potential to disrupt an industry that is ready for a revolution.
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The BITA Next Gen NFT Index is a rules-based index that consists of the common stock (or depositary receipts) of companies that are building a platform or developing technology to use, or have at least one use or test case for using, NFT (Non-Fungible Token), cryptocurrency trading platforms, cryptocurrency mining, cryptocurrency banking or related services, or blockchain-related technology, as well as companies that have announced publicly that they intend to enter such space or have begun working on such products (collectively, “Crypto and Blockchain Companies”). The Index consists of companies listed on North American and European exchanges and aims to capture the potential upside generated by earnings related to the adoption of crypto- and blockchain-related technologies, including NFTs and cryptocurrency.
NFTZ is new with a limited operating history.
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