Could Asset Tokenization Affect the Music Industry?

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The music industry has undergone a radical transformation over the past 20 years or so, thanks to the development of high-tech production resources and streaming services. It’s opened the door for many artists who might not have otherwise had an opportunity; for example, amateur musicians can now record their own music and have it professionally mixed, then taking it directly to streaming platforms. But it’s also created some extra stress for an industry already plagued with legal and monetary complexities.

Now, a new technology has the potential to overhaul the music industry, and it’s one you might not have expected: the blockchain.

How Asset Tokenization Works

The blockchain is the backbone technology for cryptocurrencies like Bitcoin. It relies on a distributed public ledger to record transactions and fractional ownership of some material—in the most common application, digital currency. But it can also be used to record and distribute fractional ownership of other assets, including intangible assets like art — or in this case, music.

Asset tokenization is the name given to this process. With it, musicians would be able to create a system of public ownership for the rights to their music, possibly one song at a time, but more likely in reference to a body of work, like an album. Listeners, producers, movie makers, and more people would be able to purchase or work to receive fractional ownership of those music rights, and like a stock price, the price of these fractional ownership shares could increase or decrease over time. It could be used as a system for distributing royalties, for paying professionals, for paying for new music, or even for investing.

The Benefits

What would the benefits of such a system be?

– Simplifying royalties. Currently, royalties are a complex business. Depending on the situation, when a movie, commercial, or TV show samples your song, they may pay royalties for the privilege. Royalties are then split between any number of parties, including the artist, their agent, their producers, and more, and the split may change depending on how, when, and where the song was used. Fractional ownership could greatly simplify this distribution process, offering each party transparent ownership and rewarding everyone for the song’s success.

– Empowering artists. Asset tokenization could also give more power to artists, who are used to dealing with middlemen and gatekeepers in the industry. With a system of tokenization, musicians could easily raise funds for their latest projects with fan donations and investor contributions. They could also exercise more control over how the ownership of their work is distributed, keeping as much ownership as they like and/or distributing it among the professionals who help them most.

– Empowering listeners. Listeners can also benefit from this system. For starters, they have the ability to proactively invest in artists they feel are talented, and support their favorites. They may even be able to acquire the rights to use those songs however they see fit, depending on the stipulations of the agreement.

– Acquiring special perks. Artists can also incentivize more investors by offering special perks in exchange for partaking in the asset tokenization system. For example, they may grant token holders with early access to their latest album, or give them first dibs on concert tickets the day they become available. It attracts more funding and rewards listeners at the same time.

Are There Downsides?

That said, asset tokenization isn’t a perfect new system for the music industry.

– Tech and talent hurdles. Blockchain developers are in high demand, and there’s a major talent shortage, even for the most prominent tech companies in existence. And of course, creating an asset tokenization system would be a significant technological hurdle to overcome—especially if you want it to be secure.

– The first adopters. There’s no guarantee that an asset tokenization system would be well-received, by musicians, by investors, or by listeners. Without an established process for how to roll out and manage a new system like this, the first adopters would be entering new territory. This is a massive risk for these artists, with no guarantee of long-term success.

– Rules and regulations. Asset tokenization is already under close scrutiny. The SEC has treated cryptocurrencies and asset tokenization with caution, and if these technologies become more popular, you can expect there to be strict rules and regulations for who can tokenize assets, which assets can be tokenized, and how they can be tokenized.

There are many hurdles to overcome before asset tokenization becomes a reality for the music industry, but when it does, it may have the power to improve the industry for musicians, listeners, producers, engineers, and everyone even peripherally involved in the scene. Watch for the early adopters, and be sure you understand the technology fully before you decide to partake in it.