Back to blog

LCN Blogs

The laws of music: the rise of fan-crazed NFTs

The laws of music: the rise of fan-crazed NFTs

Neide Lemos


Non-fungible tokens (NFTs) have recently propelled into the spotlight.

In the legal sector, NFTs continue to present challenges and possibilities for the clients that they serve. For the music industry, NFTs are on a mission to transform how the industry operates.

I’m back with the second instalment in the 'Laws of Music’ series, in which I look at the interdisciplinarity of music, finance and law.

Read the first instalment on the ‘Legal impact of covid-19 on live music.

What are NFTs?

Let’s not get NFTs confused with cryptocurrencies. The main difference comes down to their fungible and non-fungible units. Cryptocurrencies take the form of virtual or digital money. NFTs are digital assets that hold art, tickets, music and more. The digital assets operate as a cryptographic tool, using decentralised blockchain technology. NFTs allow decentralised certificates of historical transactions to track ownership. NFTs remain interchangeable.

Put simply, it is impossible to change NFTs with something else. Yet while you are trading the same assets, the value of NFTs varies according to demand. The lower the number of NFTs sold, the higher the price. Creators will generally make more money, faster.

Think of it like this: other people can own the asset, but only the creator can possess the original. 

How do NFTs revolutionise the music industry?

NFTs democratise the music industry. They remove the need for record labels and publishers to sell your music. Unlike ticket merchants, NFTs allow for the direct sale of music tickets to fans. In effect, NFTs cuts out the middle person and create tough competition between the musician and record label agents.

The surge of NFTs in the music industry brings the opportunity for musicians to generate their own revenue, while exercising creative freedom. Musicians are paid their royalties as their records ('the master recording') or composition ('the lyrics and music') are sold and re-sold.

Using smart contracts allows the musician to set a limit on the number of times the NFT is sold. Royalties are easily programmable into NFTs using smart contracts. Unlike with current royalties, musicians can use smart contracts to ensure they receive a percentage of their sales profits from their music each time the record is re-sold.

NFT’s ability to host smart contracts provides extra functionality by splitting revenue automatically among members of the band, music production team (and more) each time the music sells. For bands, this is a bonus. 

NFT's metadata is stronger and has developed with advances in technology. Looking back, almost two decades ago when unlimited music sharing using an MP3 was at its highest, the compressed file lost its quality. This is due to their poor metadata support. As this is not the case for NFTs, they can be enjoyed by many, for longer, without losing quality.

The recent surge in the use of NFTs in the industry has arisen from the opportunity to make money when not touring. NFTs have become more about the potential to make money than the value of the work itself. As NFTs become increasingly mainstream, larger record labels have developed specialist NFT teams, including:

  • Universal Music Group;
  • Warner Music Group; and
  • Sony Music Group.

The industry is at a crossroads in providing musicians with greater revenue and creative freedom as part of their strategy to develop the NFT space, without losing control over its musicians. 

Harmony between NFTs with ownership and copyright

While the excitement for artists and music fans grows on a global level, the legal industry continues to present issues (and opportunities) concerning NFTs.

NFTs pose a threat to intellectual property (IP) laws but are an important reminder to the legal field to keep up with modern times. With the rise of NFTs in the music industry, there will be an increased need for legal advice on how to develop smart contracts that remove ambiguity to the ownership of copyrighted works.

For example, musicians will seek legal advice on copyright, music publishing and revenue splits at the time of creating smart contracts. That is, of course, once it has been fully implemented into the operationality of the music industry.

For years, many disputes in the music industry relate to the ownership and authenticity of a record. Presently, NFTs tackle this issue as they are most often used to prove ownership of digital (and physical) assets. NFTs transparency can help to prove ownership of associated records, by way of historical transactions.

For instance, NFTs can be shared, copied and sold to anyone but the properties stored within the metadata of an NFT stay the same. Thus, making it easily trackable. The creator of NFT would need permission from the musician to embed the music in an NFT and offer it for sale on the blockchain. Although NFTs can be modified and sold, the musician retains copyright ownership to the original music. The musician can continue to produce and sell the record – freely.

The simplicity of sales, purchases and use foreshadows the next shift in the music industry – from vinyl records, CDs, MP3s, streaming services and NFTs. Streaming services combat piracy and the accessibility to upload and transfer music for free. NFTs, bringing transparency to the industry for its ownership and associated sales.

However, with transparency, there is an increased risk of piracy occurring in the industry – commonly known in IP as copyfraud. Clearly, NFTs don’t achieve anything that cannot already be done on streaming platforms.

There’s no doubt that the popularity of NFTs will be boosted by their incorporation into music streaming platforms.