The meta-universe and Web3 are almost cool, why are music NFTs still being popular with capital?

Author | Wan Yi Edit | Fan Zhihui

In the past month or two, the hottest topic in the global Internet circle is undoubtedly the AIGC wave led by ChatGPT, and the previous Web3 and meta-universe fever seems to have been rarely mentioned and cooled down a lot. In other words, the people who once chased the meta-universe outlet and the current AIGC outlet are likely to be the same people.

Earlier this year, Microsoft co-founder Bill Gates said at the event that he doesn't think the metaverse itself is revolutionary, nor does he think Web3 is that important, "but artificial intelligence is quite disruptive." In October last year, Matthew Ball, chief analyst at market research firm Canalys, pointed out that most of the current business projects related to the metaverse will end in failure by 2025 or before.

And one of the outlets in previous years, music NFT, has also experienced the same ups and downs.

Remember that at the end of 2021, Cao Yin, managing director of the Digital Renaissance Foundation, made music NFTs one of the top six investment themes to watch in 2022. He believes that in the Web3 world, "the size of the music NFT market will be comparable to that of image NFTs... And there will be more music + DAO gameplay." After various experiments and hype in music NFT in 2021, the price of music NFT fluctuates wildly, and the maximum can exceed $1 million. So netizens shouted at the beginning of 2022 that 2022 will become the first year of music NFTs.

But now, everything seems a little awkward. With the advent of the bear market, speculative players who are the main force of blockchain have exited the market, leaving only bankrupt exchanges, plummeting market capitalization, and chicken feathers. Unsolved problems with music NFTs have also surfaced.

The opposite trend is that more Web3 startups have been invested, music companies represented by Warner Music and SM Entertainment are still stepping up their layout, and music NFTs do not seem to be shrinking.

Why didn't music NFTs explode last year as expected, but why is capital still fascinated by music NFTs? What's next for music NFTs?

Games for the few: values plummet, scandals are frequent

At the beginning of 2022, the music NFT market was still continuing the madness of 2021.

In January, Lil Nas X partnered with 3LAU to release his first NFT collection on music NFT platform Royal, and 1,870 NFTs airdropped sold out in record time, grossing over $560,000 in total. In February, Snoop Dogg's NFT album sold for a total of more than $44 million in 5 days.

In April, Coachella Music Festival released NFTs in partnership with FTX, the world's second-largest exchange, for a total price of nearly $1.5 million, selling 10 festival lifetime passes and accompanying privilege packages, breaking Solana chain's single NFT (non-PFP) sales record. But at the end of the year, this wonderful plan ended with FTX filing for bankruptcy.

Due to the macroeconomic environment, geopolitics, and more, the cryptocurrency market ushered in a cold winter in the middle of the year. The music NFT market naturally cannot escape the impact of this environment. According to Water & Music data, the median monthly price of music NFTs went from over $1,100 in January 2022 to less than $50 in November.

But this year, the scandal over music NFTs has also exposed some problems.

NFT music streaming Audius has stolen $6 million worth of tokens, and similar large-scale thefts are not uncommon, raising concerns about the security of cryptocurrencies.

At the same time, lawsuits over NFTs have come out frequently. In December, dozens of celebrities including Justin Bieber, Snoop Dogg, The Weeknd, and dozens of others were class-action lawsuits against consumers accusing them of secretly accepting payments for NFT projects such as Bored Ape to mislead the public.

In an allegation against Kim Kardashian for receiving $250,000 to promote the token EthereumMAX, although she was fined $1.26 million for promoting crypto-asset securities without disclosing the nature, source and amount of remuneration she received, the judge dismissed the charges and held that investors should invest rationally in the face of trends.

Friends who follow the NFT market must feel this deeply. Since the value of NFT itself can be landed is doubtful, successful NFT projects are like the stock market, and the buyer's expectations for the future of the project determine the value of the project, so it is inevitable to have some hype. Whether it is the support of celebrity big V, or throwing money for attention by creating a "wealth myth", it reflects the unsolved problem of NFT itself: What is the value that NFT can land?

Mark Douglas, CIO of UK rights management firm PPL, believes that NFTs just artificially create a sense of scarcity, and that everything that NFTs can do can be done in a simpler way without the need for NFTs. "A smart contract is not smart, nor is it a contract, it is just a few strings of code." Moreover, the crypto industry likes to use obscure jargon, "just like politicians cite Latin that is taught in school to prove that they have good brains, but in fact they just have good memory."

It has to be said that these language barriers do raise the cost of understanding for the masses, making this a game limited to a few. Although NFTs portray a vision for creators and their fans, the buyers who realize it are mostly speculative or exploratory blockchain players, and have little to do with fans who don't know how to use cryptocurrency wallets.

"What pains me even more," writes Mark Douglas, is that NFTs "devalue the creative process" and that a large number of AI-generated NFTs can be sold at high prices, but not everyone realizes that this is problematic.

Why are music NFTs still being popularized by capital?

Even though many of the questions surrounding NFTs remain unanswered, the enthusiasm of capital has not been lukewarm by the bear market.

In 2022, according to Beincrypto, 348 Web3 startups worldwide received a total of $7.1 billion in investment, $4.5 billion more than in 2021. In January, Revelator, a digital IP infrastructure service provider for music NFT platforms such as Audius and ANote Music, announced a partnership with Stripe, which means that music companies and web2 users will be able to complete cryptocurrency transactions directly with credit cards.

Some blockchain investors also told us that the bear market will not affect their investment, but it is easier to find projects that do things well in the bear market. 

After the uproar, independent artists may realize that without the hype, now is not the best time to enter. While NFT platforms theoretically offer a better opportunity for creators to connect directly with fans, the prerequisite for being able to sell NFTs is still having a group of fans. Moreover, this group of fans must be motivated to understand how to buy blockchain wallets and NFTs, and must also be able to afford NFTs with an average price of hundreds of dollars.

To put it simply, NFTs are still more suitable for artists with a large number of avid fans and are sold as a novel virtual peripheral. This may be why many independent musicians think that this is just a gimmick or scam, while large music companies are still relentlessly deploying NFTs.

Among the three major record labels, Warner Music has the clearest attitude. In 2022, Warner Music accelerated its NFT layout, not only reached partnerships with a number of NFT platforms, but also created its own NFT label after Universal Music and jointly launched the music platform LGND Music.

Major South Korean entertainment companies with developed idol industry have also entered the game, and SM founder Li Xiuman, who was called "K-Pop Genghis Khan" by South Korea's "JoongAng Daily", even conceived a Web3 ecosystem based on the "play to create" model and reached a cooperation with Binance to land it, but it is currently in the midst of the SM battle, and there is no more information.

In China, there are also many music companies with low-key layouts. According to Music Herald, some record companies have low-key recruitment of employees, trying to copy the model of the GameFi project StepN and create music NFT games; There are also idol companies that are trying related things with a team of 100 people. According to its operating staff, the project will also cooperate with a number of overseas idol companies to share the revenue of artists by issuing NFTs with fans, and the project is scheduled to be launched next year.

That is to say, whether based on the card slot layout or the head artist advantage, the current downturn of music NFTs has not affected the rhythm of their continued entry.

Is Web 2.5 the ideal solution?

As mentioned above, the language barriers and payment barriers of NFT make NFT limited to the niche circle of blockchain players, and if the mass fans are not allowed to participate in it, all the visions are more like castles in the air. Web 2.5, which bridges the gap between Web2 and Web3, seems to be one of the keys to expanding Web3 business.

Royal, a music NFT platform that was invested by a16z, for example. Unlike ordinary blockchain projects, when we open Royal's website page, we can't see the project book, nor do we see any unusual words, not even the word "NFT", but only one sentence to introduce Royal: "Explore, invest, trade songs and albums." Earn royalties from every play".

The concept of this platform is also very simple, NFT buyers can participate in the playback share of the artist's songs in the streaming media, as well as other fan benefits such as fan experience, peripherals, etc., the specific proportion and the setting of the surrounding content are determined by the musician.

From a functional point of view, it is somewhat similar to the "music collector" launched by NetEase Cloud Music at the end of last year, in which musicians obtain income in advance by transferring royalty income of their original songs to users for a specific period, scope, and proportion of their original songs on the streaming media platform in the future.

Without needing to know any Web3 knowledge, fans can also use Royal, even if the payment is done within the website, no blockchain wallet is required, but a credit card is enough.

In the absence of better infrastructure support, such Web 2.5 companies have built a bridge for the public to enter Web3. There are many other companies making similar attempts, Instagram and Spotify are trying to integrate NFT functions on their platforms.

For fundamentalist blockchain players, Web 2.5 is not pure – blockchain technology is supposed to be so that people can control their assets and not be influenced by big tech companies and banks. If a centralized company does everything for people and holds people's keys, is that still decentralized? The user's key is in the hands of the company, how can the security be guaranteed?

However, considering several major hacking cases related to NFT platforms last year, blockchain security itself does not seem to be well resolved.

So, how will music NFTs evolve in 2023? Billboard gave a speculation that due to the decline in the cost of Ethereum minting and the calming down of the market, the music NFT market price will better reflect its own value, then the price is likely to continue to fall, and eventually enter the price range of vinyl prices, which is around $20-30.

At the same time, due to the reduced cost of music NFTs and the reduced difficulty of participation, there may be more musicians willing to invest in them. Before the new gameplay comes out, it is likely that the market size of music NFT will be similar to the vinyl market, which may be a glimmer of light in the downturn.