IMPALA recently asked me to take a look at the economics of the music streaming market, to provide an update on the current state of play, and to suggest a way forward. I called up the lovely Kat for some help, and the resulting report was launched today (alt link hosted on my website).

For some context, we started the project focused on looking at two key areas: 1. the impact of changes forced onto the independent industry, and 2. potential other directions that the industry could take, as detailed in Impala’s 10 points to make the most of streaming. Very quickly, we realised the issues around availability and consistency of data to drive this analysis - the market is complex, vibe-driven, and opaque. And we didn’t want to do another 50-slide deck of back-of-napkin assumptions driving finger-in-the-air headlines, let’s leave that to the MBB / investment banker crew.

So, we used the interviews and feedback data that we’d gained to set off in more of a qualitative direction. We believe that this report, which was released today, reflects the best view of the state of the market from an independent lens available to date.

To assess the situation, we broke the problem down into four parts:

1. How have we got here, how are the stories that we’ve all seen break in the industry press over the past few years linked, and what themes are emerging

2. A deep dive into the real impact being felt by stakeholders in the independent music industry, across each of the emerging themes

3. We set up IMPALA’s “10 points” as KPIs on which we could grade developments in the industry and provide detailed recommendations for improvement

4. Finally, we look to the future, and provide a view on where the most impactful issues are likely to emerge in the coming 3-5 years

It’s worth reading the report, or at least the executive summary. The key areas for discussion that we put forward are:

• De-monetisation thresholds and royalty boosts that are stripping revenue from independent labels and niche genres.

• Pay for play-boost tools like Spotify's Discovery Mode, which extract revenue from artists while offering unclear benefits and limited transparency.

• Technology-driven pressures, such as the rise of generative AI and streaming fraud, which threaten to devalue human creativity and siphon earnings from legitimate creators.

• The mass oversupply of music, driven by low barriers to entry and incentivised volume uploads, which is contributing to dilution in royalty pools and weakening the market visibility and sustainability of legitimate creators.

• Subscription prices which continue to lag behind inflation, despite some recent rises

The conclusion that we reach is that there is a significant divide emerging between the largest rightsholders and independent actors, around rates, access, and ability to compete within the streaming market. A “two-tier” industry that is accelerating at the cost of diversity, innovation, and sustainability.

To the point of a lack of data and transparency. From a personal point of view, I was, and remain, genuinely shocked at how little general understanding there is as to the real economic impact on the balance sheets of labels and artists of de-monetisation and pay for play-boosting schemes, especially, but all the themes mentioned. Obviously, there’s a lot of noise, but if stakeholders aren’t given the tools they need to at least get some idea around causality and signal, then it makes it extremely challenging to do any strategic planning - it is a classic case of serious market harm driven by information asymmetry. Despite all the hype around AI and the future of music (…like my last piece), streaming is, and will remain for at least another decade+, the single most important channel to earn money from music, and everyone involved has a duty and responsibility to make it work.

Anyway, that’s all for now. If you read the report, I’d love to hear your thoughts.

I’ll finish up with the quote that I put forward for the press around the report, as I think it captures my feelings on the matter quite well:

“At a time when cultural homogenisation is on the rise, where generative AI is increasingly putting innovative creativity in competition with mass derivation, we risk a future where music diversity is also being actively commercially suppressed.”

Prelude

In 1999, Nick Szabo (yes that Nick Szabo) wrote a paper titled Micropayments and Mental Transaction Costs, which goes a long way to describe how business will work on the internet. It is twenty-five years old, and yet still just as insightful as the day it was written.

As a fairly short piece, it’s definitely worth reading, but the key takeaway is that the limiting factor on business models will be psychological more so than technological, “We have seen how customer mental transaction costs can derive from at least three sources: uncertain cashflows, incomplete and costly observation of product attributes, and incomplete and costly decision making. These costs will increasingly dominate the technological costs of payment systems, setting a limit on the granularity of bundling and pricing. Prices don’t come for free.”

Over two decades of Moore's Law later, services and content on the internet are paid for by advertising, subscriptions, or a combination of the two. Business models that abstract the per-action cost away from the user, exactly as Szabo predicted.

Ben Thompson summarised the current state of things well in his piece a couple of years ago, The Unified Content Business Model. In it, he argues that the logical position that every content platform will adopt will be one of a mix of advertising and subscription, citing the New York Times, YouTube, and Netflix as examples. Music isn’t explicitly mentioned, however, Daniel Ek spoke to a podcast a few months later about the piece, saying, “Yeah, exactly. It is one of the areas that I'm the most intrigued about. I think Ben Thompson had this piece very recently. I think he called it the unified content business model piece. I don't necessarily agree with everything he said, but I think his main takeaway is obviously that all media models ought to move to freemium. He's someone who's been saying that for 15 years.”

Arguably, Ben Thompson’s most impactful observation on how business is done on the internet is what he calls Aggregation Theory. “Zero distribution costs. Zero marginal costs. Zero transactions. This is what the Internet enables, and it is completely transforming not just technology companies but companies in every single industry. Old moats are gone — and new ones can be built — and Aggregation Theory helps you identify both”. Through Aggregation Theory, Thompson explains how Aggregators (Google, Facebook, Amazon, etc.) have utilised asymmetric leverage against supply chains to balloon in size and power, creating the internet that we have all become accustomed to.

In its simplest form, disruption initially occurs when a new technology enables a sought-after equivalent service or product to be provided for cheaper than its current market offer from incumbents. Disruption sticks when the new cheaper proposition empowers a user to do something new that they couldn’t previously do, and this new thing becomes a key user requirement.

The discussion on AI x Music to date has been frustratingly shallow on this point. Focus has centred on genAI music as an increasingly credible, cheaper alternative to music underpinned by copyright. While that is the thing in front of the industry’s nose right now, lets game out what this could actually mean with regards to future business models for content.

Back to Ben Thompson, last year he out out a piece titled Meta’s AI Abundance in which he laid out the case for why Meta is best placed to succeed in the incoming AI era, at least on the first clear battleground, AI x Advertising. Meta emerged from App Tracking Transparency (ATT) regulatory changes with a reinforced position as a global leader in digital advertising (a classic case of regulatory action raising the capex threshold for competition), and owns the world’s content feed, which it is increasingly populating with genAI content:

“Meta is the best positioned to do that in the short-term, thanks to the obvious benefit of applying generative AI to advertising. Meta is already highly reliant on machine learning for its ads product: right now an advertiser can buy ads based on desired outcomes, whether that be an app install or a purchase, and leave everything else up to Meta; Meta will work across their vast troves of data in a way that is only possible using machine learning-derived algorithms to find the right targets for an ad and deliver exactly the business goals requested….at some point ads will be indistinguishable from content. You can already see the outlines of that given I’ve discussed both generative ads and generative content; they’re the same thing! That image that is personalized to you just might happen to include a sweater or a belt that Meta knows you probably want; simply click-to-buy. It’s not just generative content, though: AI can figure out what is in other content, including authentic photos and videos. Suddenly every item in that influencer photo can be labeled and linked — provided the supplier bought into the black box, of course — making not just every piece of generative AI a potential ad, but every piece of content period.”

More recently, in an interview with Stratechery this month, Mark Zuckerberg was very clear in that he sees the future of advertising as being a turnkey solution provided to brands and consumers: ”Yeah, or we just make it for them. I mean, obviously, it’ll always be the case that they can come with a suggestion or here’s the creative that they want, especially if they really want to dial it in. But in general, we’re going to get to a point where you’re a business, you come to us, you tell us what your objective is, you connect to your bank account, you don’t need any creative, you don’t need any targeting demographic, you don’t need any measurement, except to be able to read the results that we spit out. I think that’s going to be huge, I think it is a redefinition of the category of advertising.”

Advertising on the internet is set to become even more ubiquitous, even more targeted, and much cheaper. The supply chain underpinning serving ads, from creative through to SEO and profiling, will be compressed into Zero distribution costs. Zero marginal costs. Zero transactions., the next run of Aggregation Theory.

The final bit of set up that I want to reference to create the background for this piece, and I guess the one that prompted me to write at all after a bit of a break, is The Agentic Web and Original Sin, again, from Ben Thompson. Citing recent announcements from Microsoft concerning accessibility and standardisation of the “Open Agentic Web”, he argues that the future of an internet filled with AI agents, which many are now building toward, may well open up the possibility for micro-transactions to become the dominant business model. Unburdened by the psychological friction of pricing that we humans have imposed onto the web, agents instead will algorithmically find the path of least cost, even if that requires orders of magnitude more decisions to get there. What I take from this is that the biggest trap that we can fall in to when thinking about future content business models is adopting a skeuomorphic mindset, taking what works now, advertising + subscriptions, and simply adding bots to the equation. The rules that built the current, human-centred internet will not be the same in the future, human + agent-centred web.

Music

OK fine, but the business of music on the internet has evolved in a fundamentally different way from other content. For one simple reason - ads don’t work very well with audio in the premium experience of a continuous streaming environment. Adding ads into the flow creates a disjointed user experience, and is largely the reason why Spotify can’t follow the Netflix / Cable TV model, injecting ads into the subscription tier to increase profitability. Instead, in music, ads have evolved to be more in line with the “rip the roof off third class” rather than use them to ”pay for champagne in first class” business model; intentionally making the cheaper/free tier a worse experience so that users are encouraged to upgrade their ticket.

And so, it follows that the current status quo of music streaming could well be relatively sheltered from the incoming disruption to the advertising industry highlighted above, when compared to other content platforms that are more reliant on ad$s, such as Twitch or online news sites, and at least in the short term.

However, when looking through a slightly longer lens, it is important to call out something else that Ben Thompson highlights in his Agentic Web and Original Sin essay, that there will inevitably be a content drought on which the algorithms of tomorrow can train. Thompson sees this as an opportunity on which a new marketplace can be developed whereby the AI itself is the primary customer for new content, aggregating it in to make adverts, affiliate marketing content, etc.. He cites this as a “possible - not probable”, but should the market move the way that evidence is currently pointing, then I feel it is should be categorised as economically inevitable.

Furthermore - and before making this point I want to state that the conversation of “is there even copyright involve in training data” is boring and is being parroted by boring people, because, of course there is, and of course regimes will settle that way eventually, and inevitably there will be a big pay-out for all the world’s content created to date…and then everyone will start looking forwards rather than backwards - this takes the “how should future content be licensed to AI” debate to a different place. Buy-outs.

Because, with the introduction of a new class of primary customers (AI), between the creator and distribution platform, and then the consumer, we are likely to see a reset in the power balance. Currently, music streaming platforms require all music to be competitive, and as a result, there is collective strength in the negotiating position of the supply chain. An AI model will want as much music as it can get, but importantly, it doesn’t need it. As the primary customer and aggregator, and unburdened by any kind of transaction costs, it can act as the largest aggregators of the past 20 years have done so, and force fragmented creators to its own terms. Which will absolutely require full copyright control in the form of a buy-out.

But why, as a creator in the future, engage in this system? The incentives would have to be right, and there would have to be no credible alternative.

I said earlier that the music streaming subscription business is probably relatively sheltered from the earliest disruptive forces of genAI, which seem set to impact content businesses overly reliant on ad$s. However, the economics of music streaming, already very head & tail-y, is fundamentally schisming into a two-tier ecosystem as the payout models evolve in response to being DDOS’d by noise. Arguably, there are already very few ways to meaningfully monetise music recordings online for all but the very select few. The proposition of a marketplace in which you can sell recordings to an AI model is likely quite compelling, if only as the next generation of work for hire. Work for hire, the dependable revenue stream that has supported artists for as long as there have been artists.

Competing with free / will free remain free / the new free

The Open Web is funded through ad$s, if you don’t pay for it, then you are the product etc, etc. With the digital advertising industry facing imminent disruption, it follows that the Open Web may well not remain as open and free as it currently is.

Ever since the average user could sail the high seas, the music industry has been in competition with free. Twenty years of litigation and picking winners has brought us to the place we are in now, a forced worse free to promote the value of premium. So it’s kind of ironic that it may actually be the rise of AI that does more to shut down free as an option than anything else beforehand, by significantly diminishing the revenue stream that a free site can generate.

But in place of the current free comes the new free, the genAI content feed; Meta, X, Google, OpenAI. How well does premium subscription stand up as a proposition then?

In it, we create an iteration of the “4 keys to fun” framework, designed around the music ecosystem, and then highlight example profiles of potential users within a creator’s world.

It is important to note that we are speaking to both creators and startup founders with this piece, it’s our belief that the next generation of creators will think like a founder and should consider all the same questions when thinking about their careers.

We round the piece off by looking at the current suite of platforms available to creators and suggest areas that are likely necessary for us to create an F2P music stack.

Thanks to Shokunin from DNS and Vaughn for feedback and support in pulling this essay together.

I - It’s not about designing for “superfans”

In an F2P business model, usually, the breakdown looks like 90% of revenue coming from 1% of users. The vast majority of users won’t pay a single £/$.

Seeing a change in the market, we have seen a sudden influx of startups building towards “superfans”. Which is an error on a number of levels.

Firstly, just because someone has high activity doesn’t mean that they are going to be the ones that spend the most money if given the opportunity to do so. Sure, there will be cross-over in user types, but the typical high-spend user (wallet rich, time poor) is often very different to the typical high-activity user (time rich, wallet rich or poor).

Very little work has been done to better understand user types in music on these metrics (at least to our knowledge).

Secondly, and potentially even more important, designing for the “superfan” means that you are neglecting 99% of users. That 99% may not be the ones that drive revenue, but they are what populates your world and makes the experience something that the 1% want to pay money to progress within.

II - It’s not about “gamification”

I recently tweeted, “stop building platforms to gamify the Spotify algorithm”.

The recent trend of building out reward mechanisms around getting fans to do work to inflate platform metrics is a dead end. It is intellectually insulting to users and platforms and not sustainable.

Gamification is essentially the antithesis of what we are proposing as part of this series of essays. Flip around the understanding of “get users to do something for you through rewards” towards “understand what users want to do and build features that let them do so”.

That exists within a wider world of engagement, you need to cater to a wide set of user types and create an ecosystem. And to do that you need to think deeply about personas.

III - It’s about building a fun and rewarding world of engagement

There are three questions to ask yourself when thinking about your ecosystem:

• Who are the people coming to your content?

• What else do they like?

• What are their motivations?

Each of these aspects will dictate the kind of experience that you will want to design for your current and future fans so that you can create a fun experience for them, at whatever level they want to engage.

Ideally, you want to offer the opportunity for users to develop along a “Path to Mastery” and for them to be able to track and compare their progress along it.

i - Who, what, why

As mentioned in previous essays, we look towards Nicole Lazzaro’s “4 keys to fun” to define the types of people that may engage with your work, what else they may enjoy, and their motivations.

A lot of this already exists through disconnected instances around the internet. F2P can provide a metagame around the 4 keys to fun, enabled by the affordances of apps built for it, connected to monetisation models that provide financial upside to the creator, and rewards to the users.

The below diagram is our attempt at building out a 4 keys to fun framework for the ecosystem around music; Competitive, Casual, Creative, and Community fun (the four Cs), and includes examples of “Paths to Mastery” within them to show how a creator can encourage and facilitate a fan’s development within a “fun tree” (one of the keys). See the previous blog for more information on Paths to Mastery):

The 4 Cs of “fun” in music

Competitive Fun: competing with the system and vs. other people

Could be categorised under the same heading as “superfan”, except we are more interested in motivations rather than singling out the most active users and targeting them.

Users that enjoy competitive fun are rewarded by the challenge, or the opportunity for skill expression, which is an interesting thing to consider in the world of music.

Examples could be being the top listener, going to every gig on a tour, finding a creator first, owning most of their songs, and owning a lower edition number of a famous record.

With regards to “skill”, we can define this as being able to showcase the development of ability, for example having “good ears” and being early to popular music. It could also extend to aspects that are also found within the “creative fun” tree, such as writing reviews, remixing, making playlists, or making covers of the creator’s songs (users will have a profile that extends across multiple trees).

Example Paths to Mastery

Casual Fun: using music as a functional resource

Casual fun stretches the word “fun” slightly, as what we really mean here is users in a creator’s ecosystem that are lean-back consumers.

Those that don’t specifically go out in search of a creator, or indeed any specific music, and instead are happy to be served audio, often to fulfil a need. For example, as background noise while working.

Engagement largely rests in streaming environments, and the design space has been heavily explored by the major DSPs, Spotify, Apple, YouTube etc. Users likely don’t pay for usage, or pay a small subscription / watch adverts.

Example Paths to Mastery

Creative Fun: making new things around music

User Generated Content in music usually means YouTube / TikTok and the various types of videos that fans make using music. It can be seen as a subset within a wider category of Creative Fun, which also includes other creative outlets, such as making fan art, blogging, doing covers, and even cosplay.

The drivers behind creative fun are usually around wanting to showcase their skill, wanting to connect with other similar fans, and wanting to build a reputation through their output. It is additive to a creator’s own work (though can be seen as substitutive / competitive by some).

As AI models become increasingly used to generate new works we face an interesting new era of user-driven creative output which could be harnessed by creators.

Example Paths to Mastery

Community Fun: connecting with other fans and the creator

For some users, the social interactions (and associated dopamine hits) that come alongside music are as important as the music itself.

We can see the most extreme examples of this in communities such as those built around KPOP and superstars such as Taylor Swift, as well as in more local scenes such as those built around genres and venues.

There are two main elements of the social interactions that make up Community Fun, creator-fan and fan-fan. These can occur across social media, community platforms such as Discord, and, in the old days, things like street teams and fan clubs.

In some ways, much of what is described as the “creator economy” leans heavily into Community Fun, with platforms such as Twitch and Patreon making available an environment in which a creator can grow and enable a community.

Example Paths to Mastery

ii - Fan profiles

Within these “fun trees”, it is likely that every user fits a profile with different levels of engagement across each axis.

Thus we can start to construct examples of these profiles:

Fan profiles across the fun trees

In this diagram we have outlined 4 example profiles:

• Social maker: Driven by the social and creative aspects of being part of a creator’s community, is a creator themselves and likes to work with other fans to make new things that build out their and the creator’s profile

• Competitive listener: Enjoys the challenge of collecting and comparing their collection against other users, is likely a self-identifying “music fan”, has a completionism mentality

• Background consumer: Uses music as a tool rather than something that they want to lean deeply into, can likely be engaged further within the constraints of the platforms that they are already on, though may be limited to pre-existing platform metrics

• Community leader: Driven by the values linked to social interactions and the organisational challenges that this can provide

There are of course many other profiles that we could draw out, for example, those driven by Creative + Competitive fun.

The important thing is that it’s unlikely that a creator will have, or will want to appeal to, every single profile of users. But drawing out an idea of what the range of potential users looks like will assist in designing their world.

IV - Considering this within the current music ecosystem

Now that we have an idea about the different types of users that may exist within the fanbase we can start to think about how current platforms are serving them.

Note, our focus is, of course, music, but platforms are sometimes more generalised, where user behaviour occurs across all kinds of media.

Streaming

Streaming clearly fits users within the Casual Fun tree well, to the point where one could reasonably assume that Spotify et al. have largely defined it as their market.

Features built to appeal to other types of fun are relatively limited; Spotify, in particular, has attempted to roll out things like social features, and then rolled them back, multiple times over the past few years.

There have been many attempts in the past to build new streaming platforms focussed more towards Competitive / Social Fun, but invariably they have met the familiar failure mode of not having a large enough scale / potential market to survive and being non-differentiated enough from major DSPs.

This has created a relatively homogenous Streaming environment that serves as many Casual Fun enjoying users as possible (for basically free for the user).

UGC (User Generated Content)

YouTube, TikTok, Soundcloud, and Twitch all represent different versions of more Creative Fun targeted platforms, each taking a different path around engagement within other fun trees.

Clearly, for music, there is a strong cross-over with Streaming platforms in that the dominant UGC platforms aim for scale and mass-market entertainment. And some cross-over with Community fun, via social connectivity.

Twitch stands out as keying into Competitive Fun elements, with subscriptions & “Twitch Bits”. TikTok has cross-over with Creative Fun focussed, with Stories, challenges, etc.

Social media

Twitter, Facebook, Whatsapp groups, Discord, and Telegram, provide platforms for social interaction and Community Fun.

While maybe not viewed as “music” platforms, they are a critical element of the stack that a creator uses. This area is largely oversaturated, and especially in the Musk years at Twitter, faces issues with regard to fragmentation.

Regardless, social media & group chat platforms generally do a decent job with regards to providing tools for Community Fun, and allow for the sharing and broadcast of elements of Creative and Competitive Fun.

Live

Live may seem out of place compared to the other digital-first channels and platforms already discussed, but it’s important to remember that music doesn’t exist in a digital vacuum and that Live will be an essential part of many Creators’ careers.

Live is front and centre when it comes to Community Fun, it is the embodiment of social connections, from fan-to-creator and fan-to-fan.

Collecting

The majority of development around music NFTs has focussed on collecting.

This is largely building within the Competitive Fun tree, though arguably lacks development with regards to a user’s Path to Mastery development.

Within the traditional industry, we can see platforms built to fulfil similar users in things like Discogs.

V - Connecting it all together

Based on the above, there are a number of reasonable conclusions that we can reach:

• Categorising the types of fun that users enjoy around music gives four distinct “fun trees”; Competitive, Casual, Creative, and Community Fun

• Users will have a profile that spans across “fun trees”, which can be defined by a creator to better understand their fan base and make decisions on how to serve

• The “fun trees” are currently catered for across a range of available platforms, which presents creators with a relatively fragmented and disjointed environment in which to build out their ecosystem

• There is a lack of common substrate to connect platforms, to bring it all together, and allow for overarching sense and monetisation mechanisms

This final point is likely where the true innovation in F2P music will be found. Building a cohesive world that incorporates and spans across activity on the internet.

This essay should hopefully support both founders and creators seeking to explore F2P Music, by providing a framework on which to make decisions about how and where to build and operate.

We think the future of music is Free to Play. DNS.xyz, JUICE, and BlockScience are combining their game development, music industry, and data science skills to build the first implementation of this model. Following the high-level introduction by Dan Fowler, this article explores how the business model can be applied to music (and entertainment in general).

I - How F2P fits the music business

1. F2P in the context of music

When we introduced the idea of F2P music, one of the main points of feedback was that music is not a game, and fears around the idea that we might be trying to gamify music. We think gamification is manipulative and focused on conditioning the most compliant or addictive users. The last thing music needs is a couple of tacked-on features to increase pre-saves or engagement for one quarter.

I was one of the first product managers to introduce F2P in mobile games, in 2011. Games were similar to the movie industry: you’d work for 2-3 years on a premium product, and ship it once it was finished. The pipeline was designed to ship $60 boxes on the shelves of Walmart. For the sake of the analogy, we could consider albums to be similar products. With the adoption of smartphones, we saw a surge in demand for games that drove the prices down to $0 within 18 months. Customers expected free games. They also reacted well to regular updates (seasonal themes, monthly new levels, etc.). Apple encouraged developers to update their apps, via featuring in various App Store placements. The business started looking more like TV: a pipeline that would ship new content every few weeks, that doesn’t necessarily have a set end date.

So we took inspiration from SAAS products on the web: apps like Dropbox that had large free audiences and viral effects, where a few payers would cover the rest. Much like web apps (and unlike “ship it once” products), we had live data on users. What they liked, where they’d churn. F2P was made for SAAS. It was created to find a way to attract, retain, and involve large audiences of very different users in an app. Using real-time data and rapid iterations to deliver something for everyone. What if instead of just “premium”, we had consumables? Extra lives, costumes, power-ups, and levels that go away after some time.

2. Music As a Service

We see the shift from albums to singles, as a similar change from paid games to F2P. TikTok and YouTube are pushing this change further. Not only do they provide better data on your audience, but they also have more social features than the music platforms. Artists now experiment with early demos, engage their fans on social, and tweak things, which eventually becomes a track. The EP or Album represents that journey but is no longer the goal. You build over time.

To support this trend, we think creator platforms should work more like Steam’s Early Access. A game like Valheim will ship in a beta state. First, it might be for a small community of hand-picked users. This will then open to a public beta, where people can buy the game (usually at a discount).

Early Access is a great way to signal you want to get feedback from the community. You’re going to ship updates every week, try some ideas, and see if people hate them, before you commit to a full game. People will give feedback, leave reviews, write guides, and also data on what works.

It’s a great way to find your supporters. Release a demo, get feedback, and ship a new version (but let your fans keep the demo to show they were there). Bring fans into the creative process. You don’t want them to design for you, but you want to quickly see what works. Reward them with exclusive skins, and badges that show they were an OG. Some go as far as including them in credits. Once a platform offers this mix of social interactions, small increments, and data, you’ll see some fans become not just listeners, but participants.

3. Streaming focuses on the wrong metrics

Music platforms have managed to cap Average Revenue Per Paying User (ARPPU) to $10 monthly. In exchange for this, you get 80 years’ worth of every track ever. Imagine getting every single video game or every app ever released on the App Store plus in-app purchases. 

When it comes to reach, music is only second to social platforms and vastly outperforms other entertainment. In 2022, 616M people paid for a music subscription. For perspective, this is just 3M users less than if you add Playstation Plus (48M), Xbox Game Pass (30M), Netflix (238M), Disney Plus (146M), and Amazon Prime (157M) together!

You can still buy games for $60, rent a movie on Apple Movies for $10, or buy the Blu-rays. Music is the only industry to have given away the whole thing for $10. In addition, churn is at 30% year-over-year, forcing the streamers to push for high growth (which creates pressure to lower ARPU). These users are usually lost to YouTube, where people will engage with the artist and have fun with other fans.

We believe these metrics indicate too much focus on attracting low-spenders. There is a lack of attention to retention: with time, the small increment in new music means that you’re paying for a product that offers you fewer new things to enjoy. There are diminishing returns to subscribing or coming back daily. Because of this, we believe that a model that caters to different personas, and offers multiple ways to engage (and pay) is more likely to fix the engagement and retention issues.

II - Designing the system

1. Loops and Personas

In order to get a better understanding of how to address user cohorts and different personas, we like to use two models from the games industry: the 4 Kinds of Fun by Nicole Lazzaro, and Game Thinking by Amy Jo Kim. The former will be explored in detail in a later article.

Amy Jo Kim’s framework can be summarized as, understanding what a user wants to get better at, and building a loop to help them get there. Are they new or experienced? Are they interested in some mechanic or another? It is designed to be agnostic and used outside of gaming. Let’s take a look at the work she did outside of gaming, for Slack:

Here we see Slack represented a typical Game Loop.

1. A user has a trigger: maybe they have some spare time between meetings, maybe they want to follow up with someone, maybe they’re bored at the bus stop. “I wonder if there are any new messages”.

2. The user does the core action in the app: for Slack, they read & respond to updates.

3. They get feedback: They follow up everywhere relevant. The app says “All done!”.

4. They make progress and get better at mastering the app. For example customize channels, notifications, or integrations.

As the user progresses, they improve their mastery. This is mapped as a “path to mastery” (sometimes called player journey), similar to user journeys you’ll find in UX or sales, but used to understand how people make meta progression.

This funnel’s goal is to get a user to be the best version of themselves, from discovery to mastery. For Slack, their intent was to make it more comfortable for people to either hang out on channels all day and socialize (have a channel for pets at the office, use emojis and gifs for responses), get productive (use apps to say when GitHub and Google Docs are updated) or collaborate (share content, help teammates).

You can’t make something compelling for fans before you’ve “found the fun”, the core actions that people will like. From there, later efforts can focus on bringing in more people, helping them learn the basics, and becoming superfans.

2. Building for fans

How can we make a compelling F2P music offering? F2P can take many different shapes. For example: Fortnite is F2P, and it's all about skins. Candy Crush is F2P, and it's all about power-up items to let you cheat at the level. Eve Online is F2P, and it's all about buying the most epic starship and lording over other people. In the context of music, the audience and activities that a local metal band would want are very different from the BTS Army. 

We start by understanding what kinds of people our fans are. We’re big fans of Nicole Lazzaro’s framework (enough that it warrants its own article in the future). Spotify also has a good starting point with its 16 personality types, which are a music-flavored version of Myers Briggs personality types. This opens up ways to contribute and participate.

Casual fans will:

• Play your free songs

• Like and leave a comment

• Follow your page

• Enter low-effort quests or giveaways

• Collect a song if it’s free

Creative fans will:

• Collect songs

• Make playlists

• Write thoughtful comments and reviews

• Want collectibles, avatars, badges

• Contribute ideas

• Buy limited edition items (especially if they unlock customizations)

Social fans will:

• Collect songs

• Participate in discussions

• Discuss ideas

• Attend your spaces and events

• Comment and react regularly

• Share your releases and updates

• Buy limited edition items (especially if they can be showcased)

Competitive fans will:

• Want rankings, leaderboards

• Complete quests, objectives

• Collect rewards, try to get the best ones

• Want badges in recognition of their status

• Collect expensive items (especially if they show status)

Artists can experiment with these angles to give aspirations to their fans. We think one way to do this is going to be via quests and challenges. Their cadence would be at the creator’s discretion: daily, for each release, seasonally. Quests could reward newcomers who like and comment or veterans who leave thoughtful reviews. Sharing a link to a review on social platforms. Listening to 10 songs or adding them to playlists. Collecting 5 tracks. Getting a collectible that only unlocks if shared with a friend. Posting reaction videos to your track could be a basic goal, but making remixes of your track would be for advanced users.

This segmentation also allows gating things. For example, you might want to release a song as a 30-second demo that you buy to unlock or perform quests to earn. A limited collector edition of a track could be for people who have been in the community for over 6 months, attended 10 shows, or are willing to pay. A creator can then decide to gate things with time, money, or any other way to contribute.

The platform’s goal is to make it easy for creators to make these ideas happen. Rather than simply shipping a track and promoting it on social outlets, they become game designers for their own fandom. Fans become engaged supporters.

III - Implementation

1. Our first music release

Enough theory. Let’s put our money where our mouth is! For our first music release on DNS.xyz, we wanted to explore the assumptions in this article and test whether F2P Music held scrutiny.

We were approached by Kane Mayfield, a respected rapper known for his releases on multiple blockchains and his pioneer work in AI music videos. His latest release, New Jack City, was his best video yet. He didn’t want to release on a regular social platform but didn’t want to use a regular web3 platform either as most of them aren’t good at serving videos. The track would be playable for free, but affordable to buy a collector edition so that as many new collectors as possible would join.

Web3 music tends to sell at price points ranging from $100-1,000+, which causes tracks to be collected by a select few competitive investor types. The opposite of our goal. We wanted to experiment with simple quests to encourage people to collect the track while keeping a low price point.

We landed on the idea of:

• A song that is free to listen to on the website

• A $10 price point to collect one edition of the song

• A leaderboard with a tiered ranking system for rewards

• The top 50 collectors would get the mp4, mp3, lyrics and a cute 3D avatar character

• The top 20 would also get an exclusive remix of the song, unreleased anywhere else

• The top collector would get their face and name in the music video, which would be updated for the occasion

Effectively, there was one quest: collect the song once, or multiple times, and you will climb the leaderboard. It was the only quest for this experiment, and it only focused on paid collections. This put the focus on social fans who wanted to be present, and on competitive fans who wanted to get the top prize.

2. What we’ve learned

In spite of the lower price point, this was Kane’s most successful release to date: 500 editions were sold to 100 collectors, nearly 5x the collectors, and 2x the revenue of his previous best. It accounted for 25% of music NFT sales that month, despite selling for $10 a copy.

The leaderboard launched 1 day into the event. Its introduction doubled sales velocity, even though sales had slowed down post-launch. Its inclusion was very helpful: he was able to use the updates in his social media activity (“new top collector! Oh someone dropped out of the top 20”), and participants were able to regularly check on each other. This rapid loop helped people be engaged and even gave them something to tweet about. 

People used the multiple editions as a pseudo Patreon. These people were there simply to enjoy the fun during the 4 days of the release. The small perks were a bonus. Casual and random fans saw the song on social platforms and came to listen to the music. Whales were the bigger drivers. A few bidding wars happened in the top 5 users. We saw the power of social comparison, similar to the behavior in mobile games. He was happy with the result: “I’ve sold more copies with you in 6 hours, than I did in 6 years of streaming”.

The event did rely a lot on Kane’s activity on social platforms, promoting his release everywhere. It also only catered to collectors. There was no way for people to contribute or participate for free (besides leaving comments and retweeting). There was also no way for them to earn anything via effort.

3. What’s next

For further releases, we want to expand on the notion of the game loop. We’d like to have aspiring content for casual, social, and creative users. This means quests tailored to them, as well as small rewards that fit their personality types.

Ideas range from showing “I was here” badges and avatars on their profiles, showing your edition number on albums, creator collectibles (avatars, banners, emojis), badges for event participation, unlockable behind-the-scenes content, gated community posts, simple quests for newcomers (follow, comment and collect this free item), direct to fan thank you messages and award showcases.

We’re going to need to figure out with creators what kind of tools they’ll need, so they can offer this content without too much overhead. What data they like to get in real-time. How to manage which posts or rewards are unlockable, and based on which criteria. It’s going to look like the relationship between a game engine developer, and a game designer.

It’s also going to need a dialogue with the fans, to understand how to make the experience of listening, participating, and discovering fun. This needs a blend of social features and a player, which only TikTok and YouTube have managed to deliver so far. It hasn’t happened in music yet. This will probably take the form of us dogfooding our platform to get fan participation.

IV - What’s next

F2P Music isn’t going to be for everyone. It won’t make sense to re-release the Beatles back catalog and build a community for super fans. This model is going to be a fit for artists who want to connect with their fans and engage them day to day. It’s a way to help them build their own fandom. It comes with the cognitive overhead of figuring out how to engage the audience, make interesting quests, and deliver some rewards and content at a regular cadence. Because of this, we think it will need a combination of experimental and counter-culture artists who want to move on from the status quo, with communities who are very engaged on separate platforms.

In our next post, we will be exploring how F2P Music can be designed to engage the different kinds of personas who engage with a creator, particularly the 4 Types of Fun, and how this approach can lead to better data and feedback loops.

DNS brings with it founders that have shipped over 30 mobile titles and have 15 years of experience in game systems. Block Science is the leader in complex systems engineering.

JUICE is a collective of current and past music tech founders, artists, and investors who are working to disrupt the incumbents in the music industry.

I - We need to start thinking differently

Today’s writing builds on the thinking detailed in my previous pieces, The Case For A Post Royalties Music Industry, and its update, Revisiting “Post-Royalties”; Open Editions, and New Digital Rights. I suggest that you read the Post-Royalties article first before this one as it’s important to have the context.

It also borrows heavily from the JUICE handbook that we put out a couple of weeks ago.

Much of what I have written over the past couple of years has been focused on the challenges and issues with current business models in music. Today, I want to propose an alternative.

Reminder of the Post Royalties argument

The conclusion that I reach in The Case For A Post Royalties Music Industry is that the financial model underpinning the music industry is likely to be strained to the point of breaking in the not too distant future.

Source: Goldman Sachs, their napkin, my annotation

Sure, reading the headlines from Goldman Sachs (“a massive revival”), The Financial Times (“the incredible resilience of the music industry”), or seeing the near constant stream of catalogue buy-outs (Bieber sells his catalogue to Hipgnosis for $200m), one could reasonably come to the conclusion that things are going great.

But once you understand that: music royalties are a zero sum game, that the business model they have become reliant on is deep in stagnation, and that there is a massive shock incoming through AI assisted abundance of content; it is right to question the known truth that royalties are a dependable business model for music for the next 15 years. At least that’s the argument I make as part of the Post Royalties series.

Of course I am talking at a macro, industry-wide, level. From the viewpoint of an artist that finds success, has a good team to support them, and makes solid decisions along the way, things will probably remain ok. But this blog is about market level thinking rather than individual strategy.

The signs are there. This year has been characterised by major rightsholders jostling over iterations of streaming economic models in the face of incoming AI driven disruption and Hipgnosis being forced into proactive measures to shore up its share price. Yes, royalty funds keep getting launched but how much of that is driven by bullish projections like Goldman Sachs vs. the reality on the ground? And surely a c.20x annual royalty investment price point looks pretty different where inflation is above the 1-2% that drove catalogue price discovery.

I don’t think that “royalties are going to zero”, but I believe that there is a non-zero chance that they do. And so, what do we do? We could get our Michael Burry on and actively short these funds. Or we could build something that will become the new model.

Learning from games

Most of us are aware of the charts that show that the Games industry has exploded in terms of top-line revenue over the past decade and Music and Film industries have at best recovered from internet-driven disruption.

Looking at some revenue stats from Games (vs. Music), some key things stick out up front:

• China is the largest market in the world in Games, larger even than the US, whereas it is the 5th largest market in Music (albeit the revenue per player in Games is nearly 4x less than in the States)

• Outside of that difference the country breakdown is largely similar, with Music having relatively stronger markets in countries with traditionally robust copyright regimes (read: Western Europe)

• Mobile as a standalone format is a significant contributor to Games industry revenue growth, it is essentially a different industry to PC and console markets, yet there is no such differentiation in Music

• F2P (free to play) has become the dominant business model in Games, with Mobile expected to come in at $84bn and desktop $25bn in 2023 (compared to subscription revenue, which is expected to be $9bn in 2023)

This difference in offerings between Mobile and Desktop, the move towards F2P business models, and the resulting effect of building differentiated products for a global market feel key as core pillars on which the two industries have diverged.

Music’s reliance on Streaming is not a good thing

When assessing the dominant model for music consumption in 2023, it’s quite interesting really that there is no difference between the offering as a desktop or mobile user. Streaming is a catch-all experience that is simple enough to run in the background on your phone or on your PC.

Furthermore, Streaming survives on a subscription business model that made sense in 2008 but is outdated in 2023. For starters, prices haven’t kept up in line with inflation (you’re getting more music for 30% less cost). Seems like there’s an obvious remedy (raise prices), but when cost of revenue is c.75%, due to licensing deals, and growth and retention metrics are already looking bad, you can start to understand why Spotify premium is still $/£9.99 a month (note, they are starting to raise this by a £/$1 this year).

This rather precarious position goes a long way to explain why streaming as an experience looks very similar to how it did 10 years ago. Short of Spotify making a market breaking move and completely changing its model and format, business development for it rests on attempts to lower its cost of revenue (while keeping its rightsholder shareholders happy enough to keep signing licensing deals with them), and increasing subscribers while trying to mitigate ARPU decline.

All of this argument so far has focused on the DSP side of the equation, but things look even worse when considering the artist side of things.

I made the claim above that royalties are a “zero sum game”, to explain what I mean let’s quickly consider how royalties work. A DSP generates revenue (predominantly through subscriptions) and then pays that out based on usage occurred in that period. As an artist, you get paid more if your music is streamed more, and as a result, another artist gets paid less. Usage is not directly tied to revenue.

Now let’s consider the environment in which artists are competing in this zero sum game. If you release a track you are in direct competition for attention with all music that’s ever been released. There’s a reason that royalty investment funds focus on heritage rights over new music, “old music is killing new music”. And rightsholders are scrambling to re-write the royalty distribution rules to makes sure that AI music doesn’t “kill” both.

Streaming provides a lowest common denominator offering, with little opportunity for product development outside of tweaking the positioning of common available repertoire, and is based on a business model that breeds misaligned incentives. Incremental growth will not fix this situation, we need to change the status quo.

II - Designing games

Game design is, of course, not my area of specialisation. I’ve been an avid gamer since a kid, but for whatever reason ended up in the music industry rather than games.

That said, I’m fascinated about exploring the shared space where games, music, and crypto meet, especially in “multi-player mode”, and have done some initial thinking in pieces on this blog like Killing dragons and discovering new metas and arguably even A productive asset model for the Crypto Music industry.

But yes, I am a games industry n00b. Fortunately, Shokunin and the DNS team are not.

We started talking because we have a shared feeling that there is a huge opportunity to explore F2P business models in music, that crypto & decentralised technologies allow creators to form their own economies in which these F2P models could proliferate, and that there’s probably a lot that can be learned from the two decades of testing and development that has occurred in the gaming industry.

That latter point is the focus of this second section; what makes a good F2P game, and how can we apply that thinking to building new business models for music creators.

The first assumption this section takes is that we are building around an individual creator as if they were a game. There’s likely another framing where we set that boundary at a group of creators, or at a platform level, but what follows below holds true regardless of the setting.

We are also making the assumption that music, as we have come to understand it within the streaming era, is effectively free (libre & gratis). As such, the goal is to design a model whereby a creator can create a system for monetisation within their product that builds on their free content. Ultimately they benefit from the network value that is built around them as a brand.

F2P game loop design

A F2P game succeeds when it is extremely easy to access and extremely easy to understand, can be satisfyingly played with the differing amounts of free time that different players have available and the different types of fun that they enjoy, and has strong player retention. This is achieved through good “game loop” design.

A key tool in this is through content cadence. If a player gets everything they want up front then they will burn out pretty quickly and not return. Similarly, if content is gated to the point where the player drops off then they probably wont return. After all, there are a lot of other F2P games in competition for that attention.

Switching the framing back to a creator, we see a similar effect, which has largely driven a change in release strategy in recent years. But unlike games, this usually translates into engagement, rather than tangible, immediate, financial, benefit to the creator. As there is no available stack on which to build, those already thinking this way have to do everything very manually.

The focus of game loop design for a creator should be pointed towards metrics that build engagement and convert it into higher value exchanges.

Probably the most explored within this for Music is the idea of fan club perks. Buy this limited edition thing and you’ll get access to this group chat type campaigns.

Quests and different types of fun

But, buying / collecting things is only fun for a sub-section of a creator’s fanbase. And hits a ceiling quickly.

Another core concept within game design is that of quests and progress. Good quest design provides an environment for players to engage in the content in whatever way they derive the most enjoyment and receive the benefit of the feeling of progressing through the game.

For a creator this means designing a progression model within their community that recognises participation and is flexible based on different types of fun. For context, in games, this can be largely summarised through the 4 Keys 2 Fun framework:

Source: XEODesign

These types of fun could range from listening, collecting, curating, community building, creating, writing/reviewing, attending events… the list goes on. The correct way to design quests to cater for these behaviour types would be to analyse data and categorise into a types of fun chart similar to that above, but again, the stack isn’t there to allow for this, yet.

Rewards

Once this flow of player progression is established then it leads towards the concept of a player levelling up, which provides two key reward mechanisms, the option for unlocking otherwise gated content, and social comparison.

In an open world game, like Elden Ring or World of Warcraft, your character needs to be a certain level to be able to access or beat certain content. In a game like Candy Crush, each level is gated by requiring completion of the previous one. In a game like League of Legends, progression is observed through a ladder-type ranking system, where opponents get stronger as you improve.

Each of those mechanics also carries the reward of social comparison, by progressing you are signalling your skill / determination to other players in the game, which creates a driving force in them to match you (alongside feelings that you must either be lucky or have more free time than they do!).

Social comparison mechanics can also be created through the utilisation of things like in-game items that allow for players to signal their progression, their interests, or just because they think it looks cool. Games like League of Legends’s business model is largely generated through in-game character skins, which can be attained through “grinding” the game (playing a lot) or buying through the in-game store.

Social comparison is also a core concept within Music, but poorly executed on the whole, for the wider ecosystem. We generally think of this in fairly shallow terms and usually based around provenance - “I wish I could prove that I was one of the first fans of this artist”, “I wish that I could prove that attended this gig”. There is likely validity in that approach for a subset of fans, but other fans want to enjoy the game in different ways, and should be able to signal their progression accordingly.

Obviously there’s a lot more to discuss about game loop design for Music, but let’s now switch focus to how these game loops can be monetised.

Monetisation

The common narrative is that the key to better monetise Music will be through “superfans”. And the framing of this article, learning from Games, leads that way as well, where the equivalent, “whales”, are generally understood to be the small minority of players that generated the vast majority of revenue for the game.

However, as ever, it is more nuanced than that. The outcome is probably similar, but the road to get there isn’t to solely focus on designing for the superfan. The game loop needs to cater for fan progression towards superfan status, a la our discussion about quests and levelling up.

Our starting point within Music is that the system makes it pretty difficult for fans to pay more than $10 a month (on all creators rather than their favourites). There are ways, but also there is significant friction.

Exceptions that prove the rule can be found in BTS and Taylor Swift. They and their teams are seen as innovators and shrewd business operators because they have built opportunities for fans to spend more. But this is only possible because they have the scale to make it possible, the underlying stack doesn’t exist for any creator to replicate this model.

A well designed F2P game loop for a creator would allow for fans to pay more if they want, would enable progression for fans to chose their own adventure within the game, and through this fans would level up to superfan status. Furthermore, a superfan should not only be defined by those that spend the most money, but those that participate within the game the most, and by doing so help it grow.

Recruitment

The final subject to cover in this section is the notion of player recruitment, and how a game can incentivise existing players to assist it. Often, an important part of a F2P game’s design is allowing players to progress quicker by bringing other players in to the game. A crude example being the early Candy Crush mechanism where a player could either wait behind a time gate to reach the next level, or skip it by getting some friends to download the game.

To this end, the game designers have forgone an opportunity to monetise an action in game and instead reduced their customer acquisition cost.

This is an area that feels more understood within Music, countless startups have built products for creators to reward fans for engaging in social marketing on their behalf. The problem is that, in isolation, that recruitment is sending new players into the traditional ecosystem where there is limited opportunity for engagement and fan progression.

Summary

So, what do we get when we sum up all of the above?

A creator-driven ecosystem of games that are designed to cater to a wide variety of fan types and their interests, that are easy to engage and that reward progression. A business model that enables creators to more accurately design models for revenue to match fan spending potential. And ultimately, an environment that moves the network value that is generated around a creator, to the creator, rather than being syphoned away from them.

III - Why this hasn’t been done before

This all sounds great, right. But wait!

This is hardly groundbreaking content in the wider context. F2P as a business model is at least 20 years old in some industries. Why hasn’t it been at least attempted in Music?

Rights, protectionism, and a lack of incentives to do something different, mostly.

Let’s be real here and state it very clearly. What we are proposing is to make the consumption of music free (and further arguing that it effectively already is), and instead build mechanisms that allow creators to capture the network of value that is generated around that content.

It is a significant break in logic to the modus operandi of the Music industry to date, where use of content is metered through licensing, even though payment to creators poorly reflects that fact. And thus, I expect, as a concept, moving to F2P business models will get extensive resistance until proven, as was the case 15-20 years ago in the Games industry.

If rumours are to be believed then one of our favourite music industry publications ran an April Fools piece some years ago stating that a F2P games developer was about to acquire a major label, which sparked an emergency exec all-hands at one of their competitors (before they realised it was a joke story).

However, as a model, it is absolutely inline with the set of guidelines that we recently published through JUICE to serve as a handbook for the next generation of artist, founders, and investors:

Source: JUICE

Changing the dynamics of the business model of the industry could be a good thing for incumbents if they lean proactively into it, but they are more incentivised to protect the status quo. The innovators dilemma.

Therefore, the only way this is going to work is to initially experiment with Artists and Rightsholders that hold all the relevant rights and so have flexibility to try new models; predominantly Indie creators.

IV - Moving forwards

If this article has piqued your interest then get in touch and let’s chat. We’re gonna be exploring this area over the coming months with DNS and Block Science and would love interested parties to get involved.

There is a world of opportunity to implement these ideas, and we need to test and experiment to work out what works and what doesn’t.

The Crypto & Music community feel best placed to proactive explore these ideas, so if you are a developer or artist that is interested then hit us up and let’s build.

Hello hello, I hope everyone is well.

I mentioned in my last blog that a few of us are currently cooking up something interesting, called “JUICE”.

The meme JUICE comes from a meeting that Vaughn and I had in LA while riding the wave of JAAK in the music & blockchain first era.

An ex-music executive interrupted our pitch to claim that despite the progress that we thought we were making, we were essentially already dead in the water as we had “no juice”. By that, he meant that we had neutered our startup to the point where we weren’t scary anymore, the people that we were speaking to had relatively less influence in their respective organisations, and therefore we were going nowhere.

At the time we brushed it off, but it’s something that has stuck with us ever since, as, he was right. Our “juice” had dried up and suddenly the industry wasn’t dancing to our tune anymore. Vaughn has since written about the experience and some learnings, here.

And so, JUICE is our project to try and meet this phenomenon head-on. To educate artists and builders on the importance of JUICE, the defence protocols of incumbents in the music industry, and what it means to be truly disruptive.

We have a few experiments planned to roll out over the coming months, but to kick things off, we have started a podcast to explore JUICE with a host of guests. Each episode will focus on specific elements that are important when considering disruption in music.

The first two episodes are available now, with more to come.

Episode 1 is a chat between Vaughn and myself about what JUICE is, and episode 2 is a conversation with Cherie Hu of Water & Music directed at failures with regards to information asymmetry and institutional knowledge and how that harms innovative startup development in music.

Check them out here:

• Apple,

• Spotify

Introduction

This piece is an attempt to describe the goal that I am personally working towards for an “onchain music ecosystem”.

It is in some ways intended to be a bit of a summary of much of the writing that I have put out through this blog over the past 18 months, and also a bit of a call for action to other people with shared interests in seeing something like this exist.

There is a lot to discuss, this is a long piece. So rather than jabber on in the introduction I’m just gonna get right into it.

Defining the onchain music ecosystem

The image centring this piece is a diagram that I put together a couple of mornings ago. My fiancee woke up to me sketching out boxes in the air while in bed next to her; she sighed, tutted, and went back to sleep. So I got up, drew it, and tweeted it out.

As I said at the time, it is incomplete and probably inaccurate. But I think gives a good idea of the general sense of direction that I mean when I talk about the onchain music ecosystem. Specifically, a composable stack of Public Good infrastructure that connects creation and front-ends to provide an ever-expanding set of tools and services.

The sketch is limited by both my lack of creativity and inability to draw, I clearly did not inherit my dad’s artistic gene and my mum’s handwriting looks like the result of a pissed spider covered in ink. Add to that the years of slide production that strategy consulting drives into you, and the above is what you get. Sorry.

To this point, clearly, an ecosystem is not the linear flow that I drew. It’s a möbius strip. A front-end, as defined below, often also facilitates a creator’s “minting”. And round and round we go ad infinitum.

Assumptions

This sketch of a future ecosystem is reliant on a number of assumptions that I hold, which are worth spelling out now for completeness and I will reference where relevant later in the piece:

• The onchain music ecosystem will live alongside and in parallel to the “traditional” streaming ecosystem

• Creators will be best served by playing in both environments, understanding that they offer different advantages and can be utilised symbiotically

• The onchain music ecosystem will not be specifically limited to “music NFTs”, as they have come to be understood, it is defined as any onchain activity related to actors within the music space

• The onchain music ecosystem needs to be built with a Public Good core, or else it will be sucked into the silos of the streaming ecosystem over time; this is ultimately our only defence to that inevitability

It is also worth noting that I see AI/ML/LLMs as a macro trend, with impacts to be considered as we would rising global inflation, increasing privacy regulation, and decreasing trust in political institutions.

As such, there is no specific reference to the machines taking over everyones’ livelihoods hype that seems to be sweeping the group think at the moment. Just be sensible when thinking about what this is saying and how LLMs may play into it.

Minting and Distribution

OK so, why are these separated from each other? People usually lump them together. Future “distro” does both, together, obvs…

Distributing music to the streaming ecosystem is fundamentally different to minting tokens into the onchain ecosystem. There are different requirements, different trade-offs, and different values that come from each.

Distributing music to DSPs involves a supply chain that registers and verifies your work and issues identifiers. The trade-off is that it is slow, restrictive, and reliant on 3rd parties.

Why engage in the streaming ecosystem?

A creator could decide that they don’t want to engage in the streaming ecosystem at all, and that’s fine. But, in doing so they are giving up on at least two advantages, one obvious, discovery, and one less discussed, third-party supported legal protection.

What I mean by this is that the act of distributing your music through to DSPs in effect brings other parties into the discussion to verify that this is in fact your music. To do so requires you to go through the various hoops that are designed to give enough confidence to the distributor that they aren’t going to get rekt by you releasing Beyoncé tracks under your own name, for which they are in part liable.

Releasing through the streaming distribution supply chain will ensure that your tracks and you get identifiers and registrations. But, you say, can’t blockchain do that also? Yes, but, there are two key challenges right now:

• One, anyone can mint a token, so how do I know that it’s your track that you’ve associated with it? The old-school supply chain has built a risk-insurance system for this with KYC at its core. We don’t have anything for this yet in the onchain ecosystem, despite advances in things like verified credentials and ‘passports”.

• Two, anything copyright assign-y, legal, requires paper contracts in place. And at that point then the blockchain element loses its point; if it aint enforceable onchain then it’s an appendage. Yes, there’s the whole “let’s make smart contracts legal contracts” argument, but, it’s not 2018 anymore so let’s just move along from that, yeah? Even if there’s validity in those claims we’re decades away from universal acceptance.

In the future, I see distributing into the streaming economy as a necessary step for a creator to build offchain proof points with 3rd parties in the legal ozone layer that surrounds everything.

Why engage in the onchain ecosystem?

This piece holds some assumption that you, the reader, are already bought into at least some of the benefits of building within the onchain ecosystem. And so it would be somewhat redundant to make a long case for it; I have previous blogs on some of the reasons why a creator would pursue this path.

In addition to the arguments made in those pieces is the specific value that you get from minting into the onchain ecosystem by being able to release whatever you want, whenever you want, without relying on 3rd parties to do so, and free of the restrictions that this brings. You don’t have to wait for an identifier to be assigned, for a distributor to deliver your track to a DSP, for the various rights to be cleared. You are still gonna be liable down the road if you are a bad actor, but the point is that you can do it.

Onchain x streaming distro?

By this point I’ve hopefully convinced you that these are different things, and both are important. But can’t they still be done by the same party? Yes, but, expertise, reputation, and risk mean that it is likely in the short-medium term they are better served by specialised entities.

More specifically, distributors could move into providing minting as a service for their artists, but in doing so open themselves up for a level of risk that they may not be willing to take on as the flow will be outside of their usual level of control. Plus it would mean them moving into an increasingly commoditised service that is built around a DIY approach. They could, and likely will increasingly try to, offer minting as a service alongside distribution but I argue that this effort would be better served at the “data oracle” level of the stack (which I’ll dive into later in the blog).

Entities that are building out minting platforms for creators may also seek to move into the streaming distribution game, however, this too comes with challenges. Distro is a scale business, with extremely low margins, it’s very difficult to make run in a financially viable way and has seen large consolidation as an industry as a result. Furthermore it is gate-kept through the “preferred distributor” system that most DSPs now run, effectively introducing significant barriers to entry.

One approach could be a partnership model, say if decent.xyz and distrokid teamed up; both facilitating their part, with built in tools and shared data. I’d expect to see things like this happening as we move forwards.

Another thing to consider with this part of the stack is one of my in-going assumptions, that “The onchain music ecosystem will not be specifically limited to “music NFTs”, as they have come to be understood”. I.e., minting tracks will only be part of the activity, the minting process will extend to things tangental to the music itself. Which would represent an extension far outside of the expertise, reputation, and risk profile that would be comfortable for a traditional distro.

Tl;dr

Minting and Distribution are each individually important enough for future creators to engage with, but different enough to remain separate for the conceivable future.

Distribution provides support for a creator’s copyright (even if they are a CC0 maxi) and a route into streaming discovery, minting provides freedom and access to greater potential value.

There will no doubt be counterexamples to this stated rule of separate flows in the coming months, but ultimately I believe they are unlikely to succeed and the best approach for a distributor is to either partner with a domain specialist, and/or to work on solutions higher up the stack, at the “Data Oracle” level.

Public Goods Stack

At the core of this sketch for an onchain music ecosystem is a stack of composable “Public Good” services. It is the engine room.

I define Public Goods as services that are open and available, open-source, for the benefit of the ecosystem, but an important note to make is that this does not mean that there is no opportunity to build a business here.

A more complicated version of this sketch would show a universe of services connecting and interacting with each of the layers. For example, a company could charge for easy API access to the results of a Public Good indexer, provide guarantees as to data validity, or produce subsets of the the data outputted from the indexer that obey certain rules, e.g. CC0 only music.

An important definition of the elements of the Public Goods stack is that the infrastructure itself is credibly neutral and not owned by any controlling parties.

Indexing

I have written lots in the past about Public Good indexing and why it is so important for the music vertical; so let’s skip over the rationale and I’ll just link this tweet.

We are building neume as an example of what a credibly neutral indexer can look like, crawling directly from the chains and coordinating across communities to set progressing requirements as new use cases are identified.

One thing that you will note from the above sketch is that there is not only one indexer but multiple. It’s important for decentralisation’s sake that rather than having one single environment that is translating data onchain into something consumable by front-ends, there are eventually multiple indexers running in parallel. In this, I hope that neume will inspire other alternative approaches that carry the same credibly neutral values.

And in fact, neume itself should probably be subdivided into separate environments, so that any platform consuming the data from it can be selective about the parameters of what it wants.

To the best of my knowledge neume stands relatively alone in this part of the stack, other indexing solutions are either API-driven, controlled by a single party, or not specific to the unique requirements of the music vertical. I hope that there is greater development effort put into this part of the stack in the coming months.

A Public Good indexer should be open code that anyone can run and get the same results as someone else (idempotence), is credibly neutral in that it will not limit or suppress certain results (other elements of the stack should be utilised for this where operationally / legally required), and is the reasonability of a wide community to develop and maintain.

Agreements Network

This is where things start to get really interesting, and leans more into the work that we did at JAAK.

If we see the indexing level of this Public Goods stack as the cataloguing of events that happen on chain, then we can see the “agreements network” level as providing links between those events and entities within the ecosystem over-and-above what is discernible purely from onchain data without context. In effect it is the proof of social & business interactions layer.

An example. If a creator mints a token and wants to split revenue with collaborators, then in the current onchain stack implementation they are probably going to use something like 0xsplits as a simple splits tool. However, if there is one thing that we know about the music industries it’s that nothing quite gets the blood pumping like ownership conflicts and the process for their resolution. How can we know that everyone on those splits agrees to the amount that they have been allocated, and how can we know if others feel like they should be on the split but aren’t?

To be clear, and this is very important, there is always going to be an exit to the courts solution. If someone has sold something that they didn’t have the rights to, or not gained permission or compensated collaborators, then the settlement layer has existed for centuries. To this, some people will start bringing out the whole “crypto means anonymity which means that the courts play no part” malarkey, but this falls apart as soon as the user off-ramps value from the system.

In reality, the ecosystem that we are building will be alongside copyright, legal structures, not ignoring them. It makes no sense to expect a creator that wants to engage in the onchain ecosystem to give up their copyright protection.

The agreements network layer is the start of building far more complex and interesting interplay between entities within the ecosystem. It will allow front-ends to build more comprehensive monetisation mechanisms and give them greater confidence toward statements that are in the system.

The agreements network should have several properties as a public good. It should be credibly neutral in design and operation, i.e. the system itself should be open to all, not prejudice any parties, and be free from control of any centralisation effects. It should ingest and allow for the statement of claims between entities, and enable the staking of reputation and/or resource against those claims to surface conviction.

An agreements network should operate as a guide rather than a source of truth. It should have mechanics in place that allow users to make informed decisions based on the claims it surfaces and the conviction staked against them. For, dear reader, there is no such thing as binary truth in the business of claims between parties, only a weight of conviction on which we can balance our own decisions.

An important note though, an agreements network is not a copyright network (we tried that one before…). Copyright, at least in the traditional definition, is an offchain activity that involves paper contracts and is backed up by the courts. An agreements network should be ultimately only concerned with activities that are enforceable onchain, though can be informed by contextual data coming from offchain activities or otherwise.

This thing is gonna be hard to do, and even harder to do in a Public Good way. Designing a system that is open, not controlled by parties of delegated authority (which is how it’s done in the offchain world), but also useful and trusted as a system (even if each individual claim has a non-binary conviction score), is an intimidating prospect. Furthermore, it is only needed when the complexity of use cases hits a certain point. But, we should start thinking about it now, before we end up with a centralised solution by necessity.

Thinking long term, as with the indexing step, we should be seeking to have multiple credibly neutral agreements networks to ensure that we don’t end up in another situation of centralisation and then oversized control. But that’s a way off yet, just one implementation would be a good start.

As a final thought, in many ways, an agreements network is a logical extension of an onchain social network. Taking Lens as an example, within it we have the concept of entities, publications, and social interactions between them. It is not a massive stretch to see how this could be used as a front-end to build out a web of agreements and relative conviction towards the statements made between them.

Data Oracles

Data Oracles allow for offchain data to be brought onchain. This will be useful for our onchain music ecosystem by adding further context and validation to the events and statements being catalogued within the Indexing and Agreements Network.

As mentioned multiple times in this piece, we should not see the onchain and streaming ecosystems as competitive but rather symbiotic and in parallel to each other, serving different goals. Data bridges across the ecosystems will be valuable where they are informing activity.

This, for me, is the primary role that a distributor, rightsholder, DSP, data services, or otherwise has in the onchain music ecosystem. They represent the offchain interests of their clients, and provide that information into the onchain ecosystem, with their reputation as stake of the validity of the claims. This in turn, is a valuable service and represents a revenue opportunity.

The system of data oracles should be a public good, but to encourage activity should also include financial incentives for good actors.

In the interests of blog-length, I’ll leave this one here, but there is a lot to explore within this topic.

Data services: ID Resolution & Curation

I have put ID Resolution & Curation together as they represent data and signals that are generated within front-ends and then outputted back into the stack to provide greater context for the ecosystem. They are two examples of likely unlimited similar such services.

What I mean by ID Resolution is the idea that an artist, collector, or other, may operate with multiple different wallets and identities but wish to map them together once, within one app, and then for that information to translate through the stack. It represents a specific example of a pin point at the moment, but a good example of the power of the onchain music ecosystem built around composable services.

Likewise, curation, the idea that a user can collate lists in one place, output into the stack and then for that to be available to them and/or others in other front-ends is something that is difficult to do in the streaming / “web2” ecosystem, but an obvious example of utility in the onchain ecosystem. Next gen blog era wen? Check out Public Assembly for great work here.

In the first example, there are obvious management applications that can be built at the front-end, alongside the growth that we are starting to see in analysis tooling (e.g. Bello). It’s likely that as account abstraction starts to come through we will see some in-wallet solutions here, but, yeah, feels complimentary.

Anyway, the point here is that contextual triggers can and should be pumped back into the stack to help make the big soup of data make increasingly more sense. And these should be Public Goods.

Tl;dr

Public Goods are good.

Public Goods are credibly neutral by design and open; uncensorable.

The Public Goods stack for the onchain music ecosystem looks something like Indexing (cataloguing onchain events), Agreements (social / bnizz logic between events and entities), Context (offchain→onchain through data oracles, and front-end→onchain through data services).

We have a long way to go to make this a reality. But it’s our duty to do so, otherwise everything on the left of this diagram gets sucked into the silos of the right hand side.

Front-ends

Kinda self-explanatory, but front-ends are the experiences built on top of the onchain music ecosystem that drive engagement through interesting onchain-native experimentation.

Right now this centres around fairly basic streaming functionality. It’s likely that we will see an increase in social activity, especially apps building in the Lens ecosystem (e.g. keep an eye on beatsapp).

Where I think this really unlocks things is when front-ends get into the new digital rights / new markets paradigm that I’ve mentioned in previous blogs.

Also noteworthy, as explained in the assumptions at the start of this piece, the onchain music ecosystem isn’t limited only to “music NFTs”. It’s understandable that this is where front-ends have started their development, but I would expect that the pursuit of new digital rights and new markets will take teams to a different place over time. The music is of course important, but, music is bigger than the music…

Part of the initial rationale for setting up neume was to provide common infrastructure so that front-ends could focus on the experience level. As things progress I believe that this is key to everything, to be honest. All the words I’ve written above are redundant if we aren’t building fun, useful, and onchain-unique things that people can actually use.

I’ve referenced it a few times in this piece, but the Lens ecosystem is a shining example of the beneficial competition that can evolve on a common and open stack where utility is net positive rather than zero sum.

Looking Forwards

OK, this was a long one, to write and I expect, to read. Thanks for making it this far, I appreciate it. It felt important to spell out what was in my head in words.

Hopefully, I’ve made the case for seeing the onchain music ecosystem as something separate to, but also symbiotic with, the streaming ecosystem.

And hopefully, I’ve also made the case for why a Public Goods core is essential for the long-term prospects of the onchain ecosystem.

The natural call to action from this is to appeal for more thinking, building, and funding at the Public Goods level. To make this a reality we need to get better organised at building the narrative and coordinating resources toward it.

And also to start thinking bigger than just another streaming experience using Music NFTs. Music is bigger than the music.

Let me know what you think. This is after all just a sketch for now and will come to reality through the work of all of us, together.

Introduction

It’s been an interesting few weeks in the world of Crypto & Music. There’s somewhat of a rising tide of discontent among many artists who have been the biggest early supporters, citing a swing and a miss in terms of this recent wave’s success in achieving the aims that were marketed around it.

I understand the concern. The eventual shortcomings of this iteration of social tokens, NFTs, discord communities etc. are clear to see. But it’s also important to consider the larger picture. In my article The Crypto Music Industry, I spoke about waves building across an overall momentum, specifically, “rather than purely focussing on where things are at the peak of a wave, it's equally important to analyse where the baseline has shifted when Crypto winter hits”.

I put that article out in December 2021. In hindsight that was post-peak (although Eth was still around $4k), what has followed since has been steady decline into relatively stagnant price action for around a year or so. Just as we saw in the last winter of 2018-21.

So, let’s do what I suggested - assess where the baseline has shifted in this recent cycle, and talk about the two drivers of development that will be key in terms of setting up the next cycle, Public Goods and Venture Funding.

Baseline

In The Crypto Music Industry, I cited three factors that we can use to compare the current baseline vs. the previous one: Engagement, Funding, and Infrastructure.

Engagement

It’s quite tricky to quantifiably assess engagement now vs. the last wave, in part due to how much the level of analytical tools has levelled up over this period (/how lacking they were back then), and how social activity has migrated.

Last time around, the dominant platform for discussion was Reddit, with some basic activity on Twitter. Now we have Twitter, Discord, Discourse, Telegram, and more recently, tailored environments such as Lens. The conversation has expanded, broadened, and precipitated into specific communities. Where we used to have conferences and events every few weeks or months, with the same small group of people attending, there are now Twitter spaces occurring every day.

In terms of the number of active artists, Sound.xyz is still dropping 18-20 new mints a week, newer platforms such as beatsapp.xyz are providing distribution for a whole host of artists minting through polygon, and decent.xyz is exploring more and more new models.

Activity is still very high, despite the stagnation in overall volume. A huge step forward compared to how things dropped off last time around. A good example is the current Sound 30-day chart, with unique collectors in the hundreds, and mints in the thousands for the top artists. It may, probably will, further decline some, but there is clearly a much larger, more diverse, foundation of engagement.

ERC-721 and more recently ERC-1155 have helped. ERC-20 tokens, which formed the basis for much of the first wave of excitement, were a useful initial instrument for quantifying attention and signalling interest. But, “NFTs” provide a more contextual, personal, and honestly, interesting vehicle. Hinting towards non-financial use cases that may be appealing for a wider section of society.

Many people that have collected NFTs will (or already have) go dormant in the space for a while. But, and this is a big but, returning is almost certainly going to be smoother than it was previously. This is more of an infrastructure point, but I’ll never get “Steve” and “Son of Steve” my cryptokitties that I bought in 2018 back. Or indeed the Ocean protocol tokens that I bought in its ICO. Wallets were very different and much more basic back then (and tbh overall understanding was way lower). It’s different now and I think that the path to returning to the space will be far easier to navigate.

Artists who have engaged in “web3 music” so far have learned the basics of how this thing works. As have fans and collectors who have picked up NFTs and/or engaged in DAOs and communities. As things develop forwards, they will be the next generation’s “old” generation, leading them forwards.

As a rough guide, and I should probably try and put numbers behind this at some point, I’d say that the current baseline engagement has 100-200x’d since the last Crypto winter. And that the pieces are in place to make returning to the space easier for those that want to once the next wave starts up again.

Funding

Startups have risen and fallen in this latest wave, but, on the whole, it seems as though the attrition rate is far lower than in the past Crypto winter.

It could be argued that this is a factor of the downturn only having set in in the past year, and that there is still a while to go (which may shake out a few more projects). But, there were a lot more war chests raised this time round compared to last, which provides considerable sticking-around power for the teams involved. This is particularly true for the teams that raised just before the decline set in.

When thinking back to the “music & blockchain” ecosystem of 2017, basically none of the teams remain. Dotbc, Ujo, JAAK (us!), Choon, OCL, to a name a few, all stopped or pivoted in some way. The difference is funding. We were all existing on Friends and Family / Seed rounds, often raising and holding in Eth, and got rekt by the downturn. The market wasn’t ready to commit Series-A money in, which could have got us through the period between waves.

It’s different now. I obviously don’t have oversight of each team’s runway, but based on the variety of raise announcements I think it’s a fair statement to say that there is a much more solid foundation of funding underpinning the moves and experiments that these teams need to make going forwards.

In addition to this, the ecosystem for Public Goods funding has evolved significantly within this latest wave. Gitcoin was founded in 2017, launched its first grants programme in 2019, and had distributed $50m in Public Goods funding by 2023. This is another essential aspect of funding that I go into more detail about later in the piece.

Fundamentally, the price of Bitcoin is the best comparator that we have with regards to funding in the system in this baseline vs. the previous. 2018-21 saw prices of c.$4-10k, we are now currently oscillating between c.$17-28k, an implied 3-4x increase.

Infrastructure

Probably the hardest of the three to quantify; an outcome, while also a driver, of the other indicators. The state of infrastructure is arguably the most important factor in considering baseline development.

A useful lens for this comparison is to look at specific examples and think about how they have enabled the building of products within this last wave and setting up the next.

The development of underlying protocols. Ethereum is now on Proof of Stake, after an unbelievably stress-less transition last year. It is still far and away the market-leading smart contract protocol. But has more solid competition, from Solana, Avalanche, etc. than the previous baseline… where shady projects such as Brock Pierce’s EOS ran riot off the back of the ICO phase. That’s a very good thing.

“Layer 2”s are now tested, trusted, and starting to scale out into day-to-day usage. Through Optimism, Arbitrum, and Polygon, we now have a functioning system for far cheaper transactions and are moving closer to the vision where “Layer 1” is the “settlement layer” and “Layer 2” is the “activity layer”. I expect that this will be one of the core tenets of the next wave of development.

Wallet functionality and identity management are two elements that continue to improve and are good examples of the need for layers of functionality that don’t necessarily have a route to direct monetisation. I expect that their development will accelerate even quicker in the coming 18 months, based on the great work of teams such as Ceramic.

Token standards and standardisation are probably the single things that have historically precipitated a wave of development more than anything else. Last wave we had ERC-20s, and the subsequent ICO meta. In this wave, we had 721/1155 and the NFT meta. Whether the next wave will be centred around a new token standard, or whether it will be a continuation, e.g. expansion of the “Open Editions” model from 1155s, we will have to see. Regardless, there is a growing suite of tools now available to creators, far greater than in the previous baseline.

Looking forwards, the two areas of infrastructure that I am most excited about are Account Abstraction and Zero Knowledge Proofs. There’s probably an entire blog to write here at some point, but, both should accelerate the accessibility of crypto, while facilitating more comprehensive use cases, especially with regards to Wallets. I expect that they will be instrumental in the narrative of the next wave.

I could go on. But, in summary, the baseline of infrastructure that we have now vs. the last winter is very encouraging. The features highlighted above are just a selection, for example, one can go deeper into the advancement of programming languages and the impact that will have on accessibility for new developers. There is now a much more reliable and broad basis on which innovators can hold experiments and build out projects, and the future looks extremely bright.

Why Public Goods matter

I’ve made the case here that infrastructure development is a core pillar on which this new ecosystem will grow, but equally, in my previous blog I highlighted the challenges in place for building a business in the commoditising and composable stack that blockchain enables.

The traditional model for building out a platform in “web2” is to either build out your own closed stack, which acts as your moat, or to build upon APIs provided by other platforms. I argue that both are fundamentally orthogonal to the values that make up our common belief set as builders in this space.

However, building out an open-source project is tricky. The public goods funding environment is maturing, but it is still a challenge to coordinate the potential grants and rise above the noise of other (likely equally deserving) projects in the space. For context, I detailed my thoughts for neume, our open-source indexer for web3 music, here, when considering how to move the project away from its incubation period with HIFI Labs and to a future of independence.

Public Goods matter because they shift the design space. Without this, we move quickly from a period of experimentation and exploration into continuous optimisation of the status quo. In gaming terms, we go from “progress” to “parsing”.

We saw it in earnest in 2018 with the ICO meta. Once the game had been established, effort and focus were directed towards token sale mechanics (remember the “reverse-dutch auction”?) rather than developing the actual projects. Within the music NFT space, we are steadily seeing a similar direction being taken, where the focus is being put on mechanics to juice the current market instead of expanding it through novel development.

Rather than this being anyone’s fault, though, this is purely the impact of builders working on a relatively stale, solved, foundation. We need public good infrastructure development to shift the meta again, which will further incentivise teams to be daring once more.

It’s why I’m so dedicated to furthering neume towards its goals. A well-functioning neume, with a strong community supporting its growth, alongside other Public Goods projects such as Public Assembly will unlock this and the next generation of explorers to realise the objectives of the next wave of development. Whatever that may be.

Why Venture Funding (also) matters

Not everything is or should be a Public Good. It is critical for effective development that there is a marketplace for ideas and risk, and that teams and investors can be rewarded for their conviction and execution. Just as in wider society, some things should be provided by the public sector and others should be subject to competition and provide the basis for building a business (admittedly, as a European I probably lean more towards one way than some American readers may…!).

Venture Funding allows for teams to take riskier bets, and be rewarded for doing so. It enables a far greater level of funding to drive the ecosystem and for a wider range of ideas and incentives to be present as things move forwards.

The typical cycle tends to be that Public Goods developments bring about the formation of a new game (/cycle), and Venture Funding then comes in to pour gas onto this emerging state and accelerate discovery towards the new meta. Rinse and repeat. They are symbiotic in the wider context of the ecosystem.

And so, as we are in somewhat of a lul in terms of investment activity right now, it’s important to be looking forwards, for builders and investors alike. There is a great opportunity for Venture to get ahead of things and build up their conviction in what the next wave will look like.

Summary

We can be fairly confident that we are now roughly at the new baseline after the second wave of crypto and music development. Assessing the state of engagement, funding, and infrastructure shows a very positive trend vs. the previous Crypto Winter.

Many of the developments that we have made in the past couple of years will make the next wave more accessible to users, and provide for an increasingly comprehensive set of experiments. Infrastructure is the unlock for things to get increasingly interesting.

The progression of the next wave will be dependent on the development of, and symbiosis of, Public Goods and Venture Funding.

Introduction

Discussing exits is somewhat of a taboo for startups while they are building momentum. Most are fully focussed on growth, and/or establishing a sustainable business, if not business model.

However, many of those same teams are also seeking investment, and the investors that they are talking to are looking for an exit to some degree in the future. This creates pressure over time and forces strategic decisions that lead to a loss of independence for the project and its team.

Within the music industries, all too often this results in a pivot towards acquisition to an incumbent, which in reality is a short-lived acqui-hire, the product itself disappears, and the team quit soon after. An inefficient venture for all concerned.

There are very, very, few examples where a team has managed to navigate this period, and those that do, have, in most cases, been forced to trade over significant equity to the existing parties with power. Curtailing their disruptive potential and usually bringing about the “Series-A stall”.

I argue that this challenge is linked to business model. In traditional tech investing theory, development post Series-A raise is all about proving “Product Market Fit” indicators and then using an injection of cash to scale out to profit.

However, there is an open question as to how suitable this VC model is for music tech. If a startup is reliant on copyrights for their business to work, then it’s looking at c.75-80% of revenue going straight to the supply chain through licensing deals. And, or, if their business is reliant on data pipelines, either from the wider industry or from digital platforms, then the risk of this basis for business being rugged is very much non-zero. Both elements provide significant downside for the scaling phase thesis, as has been proven over and over again.

Unfortunately, this often results in a trade-off for the disruptor, where, to prove Product Market Fit and adoption, to get the next stage of investment, they have to do some kind of partnership with an incumbent or build on their APIs. But in doing so they shut off future growth options, potential exits, and blunt their disruptive potential.

This is not only a question of experience and understanding for startups, but investors also.

The music tech investing space is filled with teams and individuals who have good intentions, but a fundamental lack of insight into the impacts brought by decisions made at this critical point between Seed and Series-A.

Typically, they fall into one of two camps, either coming from success in the tech investing world and looking to apply their experience and model to the music vertical, or success in the wider media business seeking to leverage their contacts for their investments. On paper, both seem like good bets, but in practice, the nuance that a startup requires to navigate this extremely challenging period is often outside of their effective advice and support.

The purpose of this piece is to describe the important elements that startups and their investors should be designing towards while navigating the Seed to Series-A and beyond period. It, like the rest of this blog, is focussed on companies that want to remain disruptive, rather than sustaining, and is aimed at startups building in the Crypto & Music space.

Business models on the internet

Building a business on the internet traditionally falls into three models, subscription, advertising, and transaction fees. Either a user pays for a service, they get it for free and their activity is monetised through third parties, or a business charges for reducing activity friction.

There is a fourth way, of course, to sell products. But the zero marginal costs of duplication for digital assets forces extensive legal layers and enforcement to keep that viable. As we’ve seen with the overall shift of media as a product to media as a utility over the past two decades.

The choice of which of these business models is most applicable often rests on the scale of customers that you will have. If few, niche, then subscription is likely best, unless the other options will destroy UX. If there’s enough data and attention being generated for effective advertising, then that is likely more scalable. And if the number of transactions going through the project is high enough to build a business off of single digit %s then transaction fees are going to be your go-to.

Blockchains commoditise internet business models

Crypto enables these business models by reducing transaction costs, making them more efficient, without reliance on a third party, and global by default.

However, this comes with additional considerations. The other side to the coin of building on blockchains is that they are commoditisation machines.

The “web2” model of seeking scale and then leveraging the moat into a monetisable position is far harder to achieve when the tech stack is composable and everything is open for competition. From a tech position this is great as it drives out inefficiencies and accelerates overall development, but those inefficiencies are traditionally where a company would centre its business model.

Far too often we see a team that is building on a blockchain stack focusing their business model around platform mechanics and expecting that this will be defensible over time. When in reality, that extractable value is a time-sensitive state that is ripe for further disruption by competitors.

This is also a challenge for individuals in the space, as seen in the recent Opensea and Blur situation. Secondary market royalties as a business model for NFT creators are an inefficiency in the wider system context, and observing Opensea over the past nine months shows what happens when the strategy is to try to fight against the inevitable, rather than work with it and continue to innovate.

At its core, pretty much every business model that you can build for your startup in web3 will be analogous to either subscription, advertising, or transaction fees, with the key difference that what is your edge today will become commoditised tomorrow. The only way to keep ahead of the curve is to constantly innovate. And commoditise yourself, before someone else does it to you.

You need to create new markets, you need “Juice”

As stated in the intro to this piece, Product Market Fit, the holy grail of a startup is a challenging beast for music tech innovators. Proving usage in most cases means doing a deal with incumbents, on either rights or data access, which has serious ramifications with regards to building a scalable business down the road.

The temptation to attempt to leverage the scale of current major industry incumbents, acting as an agency or partner, continues to dominate the go-to-market strategy of most players in the market. However, this will always lead to a position of weakness for the innovator and sustaining power for the incumbent.

I mean sure, you can always just yolo it and not do the deals. Go unlicensed and see how far you can make it until you’re forced to the table. To be honest, that may actually be the optimal strategy rather than destroying precious runway by trying to cat-herd the hundreds of required deals and spending $500k+ on lawyers for the privilege. But, like Jimmy the Reach, from the Mighty Boosh once said, the labels always get their man, eventually.

This is pretty much the core of Vaughn’s article “To Have No Juice”. To prove that you are worthy of being funded you have to do a deal with the kingmakers, and in doing so you give up any opportunity of unseating them.

So. How can we navigate this period to build and prove Product Market Fit, but without neutering any future disruptive capability?

I think it all revolves around two things:

1. Not building reliance on the established and effective copyright ecosystem, and

2. Creating new markets that are additive, and then ultimately disruptive, to the status quo

If you can build and scale without asking for permission. If you are permissionless. Then there’s a chance that you can grow to a point where you are competing with incumbents on an axis that they don’t already control.

You can become, and remain, interesting, scary, disruptive, and most importantly, independent.

A fair criticism of this stated approach is that “but without copyright, without the music, the business isn’t music”, which I sympathise with. However, the sad fact is that the top line of our industry is ultimately tiny in comparison to other sectors. For example, Spotify recently announced that in its entire history, it has paid out (nearly) $40bn to rightsholders. We need to do better and step change the value, and I argue that this will come adjacent to the copyrights themselves.

Exits and the Series-A Stall

Hopefully, the sections above highlight why so many music tech startups end up with few options for a satisfying exit. The deals done to position for Product Market Fit, to bring in funding prior to, or at, Series-A round, usually inhibit all but absorption into an incumbent.

The knock-on effect all too often is for Series-A to be the final “up” round of funding, if the team can even get there. By this time, the impact of non-scalable business models in music tech that are built on rights and data has started to bite, and it becomes harder and harder to find willing investors. The Series-A Stall.

I’d like to be able to say in this section that there are other exit options that teams should be gunning for, but honestly, I think that this is the least obvious element of this piece.

This is because I truly believe that Crypto will provide sustainable monetisation events for proven companies in the future, but also I have to admit that the market, and regulatory environment, is still too immature and unproven to be able to confidently say so.

Outside of acquisition, the target exit in tech is usually IPO. We have the startings of something to rival that in Crypto, but, consistently, token models fail to deliver on that potential and devolve into “altcoin” equivalents, vehicles for speculative pump and dumps. In some ways, we are still paying back from the ICO days when the model was backward and a 3 man team would “go public” off the back of an adderall-derived whitepaper, and hopes and dreams.

On a more positive note, the regulatory position will no-doubt evolve as things develop, even if it ends up being in ways that we don’t expect. Which will provide clarity. And regardless, if projects are creating net new markets, as argued above, then there should be external capital to the music industry seeking to become exposed to it.

Summary

Unscalable business models, a result of the bind that reliance on copyright and data puts on music tech startups, more often than not reduce future growth and disruptive potential.

Teams seeking to fundamentally change how the industry works should set out to create net new markets, which will enable competition with incumbents on the startup’s own terms, without asking for permission.

Crypto may be the tool to facilitate better exits in the future, but there is likely a significant amount of regulatory development that needs to occur for this to be a reliable path to success.

We recently moved back out to the mountain cabin in Norway. My happy writing place. There’s a lot to talk about…

I recently did a couple of podcasts, with Yash and Maartin on Appetite for Distraction and with Joe on Music Ally Focus, which sit quite well alongside this article.

Introduction

18 months have passed since I first put out “The Case For a Post Royalties Music Industry” through Water & Music. A lot has happened since and I think it’s worth revisiting the arguments I made in the context of a number of key evolving narratives:

1. OpenAI inspired hype is sweeping pretty much every sector, with music very much in focus for language model development

2. Major labels are starting to get very very worried about the preservation of their marketshare within streaming services

3. The wider financial outlook for tech companies, especially platform businesses, is starting to bite DSPs

Music Language Models

As every tourist VC quietly switches its focus from web3 to investing in language model / AI startups, we are setting up for a very noisy year of hyperbole.

In some ways, it’s not without warrent. Anyone that has used the notionAI tooling to summarise an interview or article that they’ve written, can see the potential time-saving power. Microsoft is rolling out AI features across its product suite. And OpenAI itself recently announced hitting one hundred million users within two months of go-live (TikTok, not a perfect comparison, took nine months, Instagram two and a half years).

Things, equally, are moving quickly in the creative industries, as described by Water & Music as part of their research stream on the subject. Google made headlines recently with “musicLM”, but as detailed by W&M, this is only one of ten similar models announced since the start of the year already.

I am no expert in AI or language models enough to comment on the significance of these developments in isolation, but, viewing this through the higher-level lens of strategic positioning, and medium-term potential implications for incumbents, provides some indication as to where we are heading.

Streaming Market Share & Economics

There is undoubtedly going to be an unprecedented influx of music once the music language models start churning out tunes.

My “post-royalties” article centered on the impact that lower barriers to entry have had on the market share driven, zero-sum, calculations for money distribution from streaming incomes. And surely these latest developments are going to have orders of magnitude further effect.

One of the concerns of focus, when I was working inside a rightsholder, was the growth of library/production music, which is created on commission and often through aliases, eating into market share. The industry has a particularly gross description for this kind of repertoire, “fake music”, and it’s been a hotly debated subject for years. The fact that has been seen as an attack vector belies the weakness of the streaming model already and sets up a very uncomfortable evolving situation.

Sir Lucian Grainge, CEO of UMG, the Godfather of music, and ever-present winner of the “Billboard Power 100”, certainly sees this, and made the case for a new streaming economy as part of his annual update to his company. Days later, Universal and Tidal announced that they were developing a “more artist and fan-friendly streaming model”.

This is obviously significant as Universal has gained more than any other party from the streaming age. Through deft implementation of the major rightsholder playbook, countering platform aggregation by holding control of enough of the supply, Universal has seen years of plenty in an age where music itself transitioned from a product to a service.

And so, for Universal to publicly announce that it is facing an innovators dilemma, and seek to use its weight (while it has it) to bend a re-formation of streaming economics to something that it finds agreeable, in the face of exploding market share that it cannot control, is a major event that everyone should take note of.

In reality, the Tidal partnership is likely posturing ahead of relicensing negotiations with DSPs across the board. But there is a chance, probably more than we’ve ever seen, of a future where DSPs move more towards exclusive repertoire rather than the current expectation of everything being everywhere.

DSP business model

The Covid years, in hindsight, were somewhat of a make hay while the sun shines period for tech companies. A time to aggressively hire and set ambitious targets based on work-from-home inflated projections.

Spofity partly spent this time doubling down on its strategy to diversify the content that its platform relies on, particularly through podcasts, as well as deeper monetising of creators through things like Marquee. Anything to try to decouple its linear relationship between revenue and cost of goods and services.

However, now that the dust is settling, the vibecession is setting in, and most tech companies are seeking to reverse some of the fever-dream excesses (mostly through lay-offs), we can look at the state of Spotify’s business model, and by extension, the wider streaming market (with the caveat that almost all of Spotify’s competitors are part of larger groups that can run their music streaming arm as a loss leader).

Spotify’s Q4 2022 results weren’t great. Subscriptions are up, monthly active users are up, but operating profit came in at -€230m. Q3 2022 saw an operating profit of -€228m, and Q1 2023 is forecasted at -€194m. Despite continued growth, Spotify is currently unprofitable to the tune of c.€1bn a year at its current rate.

But really, it’s the steady gross margin line of 25% that tells the true story. Despite its recent positioning, and efforts to move into “audio” rather than only music, Spotify isn’t scaling into profitability. And probably won’t unless there is a fundamental change.

Post-Royalties

We are approaching a very interesting flash point, where generated content could genuinely positively shift the economic model for DSPs by reducing their cost of goods and services…royalties… But this would be to the detriment of “non-fake music” assuming that there is no step change in the top line of the industry.

I see the dynamic of an increasing volume of generated music entering the streaming marketplace as an accelerant towards the end state that I described in depth in the Post-Royalties essay.

There will probably be some tweaks to the royalty equation once Universal has executed its new DSP licensing strategy. For example, part of Lucian Grainge’s proposal hints towards a structure that can reward and monetise an artist’s more engaged fan base. However, for the vast majority of artists, the deck will remain increasingly stacked against you with regard to earning sustainable money from streaming.

And this is fundamentally what the Post-Royalties thesis rests on - if the majority of creators can not build a sustainable career through the payout from streaming royalties, then, what are the emerging business models that will provide a better option?

It’s worth saying, as an aside, that the historical response to this question has often been, what about live? I am no expert in live music, but when speaking to those that are, the overriding consensus is that live music is if anything in an even worse spot than streaming for building a sustainable career.

I expect to see a continued resurgence of Kellyest 1000 true fans, creator economy, narrative as we build forward. For example, my friend Vaughn recently reminded me of an article that Chris Dixon wrote on NFTs and a 1000 True Fans, which is a great starting point for thinking about how crypto can enable better monetising under the demand curve.

More accurate monetisation, not leaving money on the table, is only part of the story though.

I’d argue that a major failure of the creator economy vs. the traditional business is that trades scalable effort to cash (copyright & royalties) for unscalable endeavours (subscription & continuous service).

Software can help with this of course, and actually, it’s a great use case for AI; using the algorithms to scale creators (see Water & Music’s experiment to “scale” their founder Cherie here). I expect there to be significant developments in this regard as the Post-Royalties economy evolves.

The other side of the coin to monetisation for a creator is always going to be reach and cutting through the noise. For this, I can’t see any reasonable short-medium-term strategy that doesn’t utilise DSPs and social platforms. Finding new fans is always going to involve some degree of getting in the mix in the big digital meat market.

One narrative that I do find encouraging though is the notion that the next iteration of the internet will have a more “local” community bias. Digital scenes, that are less centered on location as they were traditionally (by necessity), but on common values and interests. DAOs have provided some testing ground for this, but I feel like we have a long way to go.

As per my Productive Asset Model essay, I believe that the unlock will be where digital tribes can bring in an effective and sustainable self-governed economic layer. There have been some interesting developments, such as the Zora-driven Nouns Builder model (for example how The Park is using it to build out its own DAO).

In summary, I think that the most successful model moving forwards for a creator will be to generate capital and early supporters through the crypto markets, transition that into relatively oversized attention and exposure in the traditional streaming market, while, building their tribe and coordinating with other growing communities to build the next generation of music companies.

The death of Social Tokens and rise of Open Editions

Rally.io recently rugged its userbase, which for anyone watching had been a long time coming; the model had failed a long time ago and the company had become a zombie.

Rally sucked. And its failure has burned the reputation of crypto as an option for many artists, which is very unfortunate. The real question though is whether the concept of “Social Tokens” is still viable or not.

One of the challenges with Social Tokens, essentially an economy that a creator floats around their career, is that once deployed and initially monetised, there is little room for the creator to experiment moving forwards. They have duty to their token holders to direct value back into that token, which, obvious securities regulation aside, can provide extremely restrictive. Failure to do so risks rugging your most loyal fanbase.

In contrast, musicians work in releases, a chain of projects that are individual expressions and experiments. Social tokens aren’t a great fit, in a similar way to how the Creator Economy-inspired subscription-service models don’t work that well for many artists.

The final nail in the coffin for Social Tokens though is likely to be the rise of Open Editions; project-based tokens that have no cap and a specific buy-in price. Through an Open Edition, a creator can get many of the benefits that they would through Social Tokens, but without the future restrictions.

But, and this is where I beat the drum that a few of us have been sounding for a while now, in my opinion, Open Editions are only at their most powerful when they are not linked to copyright.

There’s been a debate for a while now around “music NFTs” and I am firmly in Team: “keep the music out of music NFTs”. NFTs offer the potential of freedom from the incumbent industry, but by linking in copyright you are instantly handing over that freedom and opening yourself up to future liability. You are turning something that could be disruptive into something that is sustaining.

I hope, and expect, that this mentality will prevail as we move forwards. Through clever use of Open Editions an artist can establish their community of early supporters, and then work together with them to create, distribute, and expand into the industry. Open Editions can work alongside the music as campaigns, supporting its development, promoting and leveraging the artist and their community’s brand. They can also provide the unlock for new digital rights that are better suited to the internet.

New Digital Rights

Vaughn and I first spoke about sound.xyz about 18 months ago, around the time of its launch. His first reaction was something that has stuck with me since, “this is cool, they are putting comment rights on-chain”.

The idea of taking Soundcloud-style comments and linking the right to make them to a token may seem a relatively low-value proposition. But the important thing here is that it is a new right, that is enforceable through code, and something that is not open to litigation through the courts. There is no copyright.

Sound’s model has subsequently become more focussed around curated music releases, which is understandable, but under utilises the potential of this genuine differentiator to the traditional industry. Hopefully, future development will look to expand more in this direction.

Comment rights are just one example of a basically endless design space of new digital rights that a creator can establish with their token holders. Rather than off-chain benefits (e.g. access to a live event) or access to off-chain royalty streams, which can’t be enforced through code and reduce the token itself to being a form of marketing.

Outside of music, a good example of New Digital Rights can be found through DAO governance tokens. Putting plutocracy concerns to one side for a second, and the inherent problems of voter apathy, governance tokens represent a New Digital Right that are valuable for certain entities, enforceable, and, not easily replicated off-chain. And they are starting to become extremely important, as in the recent Uniswap “bridge” decision, for example.

Token-gating is in some ways building around this idea of New Digital Rights, though I think there is a subtle but important distinction between the token-gating of access (e.g. chat/community), vs. the token-gating of an event/service (e.g. livestreams), vs. the token-gating of something that isn’t directly reliant on the efforts of the artist or their community. The latter to me feels the most valuable and scalable, though harder to envisage for the music industries.

This though is the area that I am most interested in terms of future development. I think that token-gating as it has been rolled out to date is certainly useful for building up initial communities, and provides some basis for monetising under the demand curve, but the real step change will come through an expansion of what comment rights hint towards, a digital right offered by a creator that provides value that is scalable beyond the linear efforts of them or their community.

Summary

Recent and evolving developments in the streaming economy provide further confidence to me that the Post-Royalties arguments are directionally correct. The speed at which this becomes a reality will in large part depend on the moves of the major incumbents over the coming 18 months, though in the end, it feels inevitable.

The evolving toolset being created within Crypto Music will provide disruptive opportunities along this journey, if, builders and creators are smart about how they navigate the existing business landscape and, specifically, build in parallel to copyright.

The areas of most potential are in the creation of New Digital Rights, capital and community formation through Crypto, and, using these advantages to leverage position in the increasingly competitive environment of social and streaming platforms.

Thinking forwards.

To start this off I want to first state that the title of this piece is not meant to imply that the current wave of Crypto Music is in any way dead.

Despite a general downturn in the wider markets, music NFTs and DAOs are going strong. Water and Music represents what can be built through clear concise and thoughtful development. The “headless band”, Chaos, brought together by Songcamp, is such a feat of organisation and execution that’s hard to believe it was pulled off. NFTs are becoming increasingly established as a viable business model for artists.

NY:NFT last month was a perfect example of how far we’ve come over the past few years. Unlike before, there is now a genuine community of builders and artists. It feels like a local scene, small and cosy, where everyone is involved with everything in some regard. But it’s a start. All new interesting things begin with a dedicated group of explorers.

Still, with the slowing of the general Crypto market, it’s important to take stock and ask “what’s next”. Often Crypto winters serve as a reset on narratives and memes and are the time when the seeds that are planted grow in earnest when the good times return.

As a side-note, this tweet thread from Rafa is useful context to view alongside the ideas detailed below. It focuses more on features rather than the general trends of development that I seek to highlight here.

Identity and Trust.

Allowing for pseudonymity is a core requirement of any Crypto platform; we should enable anyone to represent themselves however they want to on the internet. However, we also need to be able to derive trust against someone’s identity in a way that does not curtail personal privacy.

In “Web2” this tends to represent somewhat of a dichotomy. Trust is outsourced to 3rd parties, who charge the price of privacy to users. “Self-sovereign identity” puts control back in the hands of users… but we need mechanisms that provide context.

NFTs represent an interesting solution space, proactive cookies / digital stamps in a passport, that users can collect to shape the internet around themselves. Where cookies were collected against our activity, often without consent, NFTs could provide an opt-in alternative.

However, where NFTs can be traded and sold their value in this regard is somewhat lessoned. Buterin, Weyl et al. suggested in Decentralized Society: Finding Web3's Soul that “Soulbound”, aka non-trade-able, tokens could provide the basis for a “decentralised society” through the active building up of an individual’s on-chain reputation and CV. There is a lot of development on-going in this regard currently, led in part by my friend Tim through (EIP-4973 and EIP-5192).

I anticipate that there will be significant activity in this area in the coming year. For example, the development of wallets from being simple token storage devices to something with further functionality, web-of-trust based networks that enable community-supported reputation, industry-specific modules for identity solutions that build on top of composable primitives with the capacity for specific complexities.

Strong identity mechanisms are critical to making this a more trusted and reliable space. In a wave of many memes, probably the strongest has been the “rug pull”. As we continue to grow up as an ecosystem we need to fight this, but in a way that does not sacrifice our core morals.

Curation and Risk.

Every movement needs its selectors. From John Peel to Ben Klock, music fans have always looked towards tastemakers to direct where they should be looking to seek out gems.

Streaming has somewhat killed this for a lot of the music-consuming population, especially since major label-dominated, platform monopolised playlists have become the go-to signposts. But we’re a long way away from that in our own nascent area of Crypto Music right now, and with a growing catalogue of content, there is a huge opportunity for the development of human-led curation.

That said, it’s something of a chicken and egg situation, more content drives the need for more curation while leaning into curation only makes sense if there’s enough content out there. But it feels as though we are fast approaching a point where this will make sense, especially as more and more Web3 Music experience platforms are launched. The growing communities within Crypto Music are likely to play a key role here, as tribes are being formed around genre, identity, and theme, it is logical that curation will play a part in their collective output.

When I think about curation though, it isn’t purely about playlists and recommendations. Curation is to outsource the job and knowledge required to collect the right records together, and so I think the concept should be applied to the equally or more important role of risk management within the growing crypto music stack.

The role that many “middle men” play in the traditional music industry is to take on risk for a fee; they provide insurance that what is being served in and out is correct. Take, for example, a distributor. They are providing a service, the distribution of music to DSPs, but really the value that they provide to both artist and DSP is that they assume the risk that they have a certain level of confidence that the artist is who they say they are, and that they have the processes in place if the situation needs to be rectified. There is a reason that Spotify dropped its Artist Direct service very quickly, it wasn’t worth the risk. Better to let someone else take up that role and focus on their core product.

Within the music NFT space at the moment there are roughly two camps of NFT marketplace, those that are open to all, and those that curate who can mint through them. The two leading platforms in the latter camp, Sound and Catalog, have built up a trusted base of released music, at the cost of scaling their user base. This in turn has given confidence to platforms integrating those releases that they are what they say they are. However, scaling will likely be a key area of development going forwards and so mechanisms that allow for lower barriers to mint but provide assurance to developers will be a key hurdle to overcome.

In the wider Crypto market, we have seen the impact of insufficient risk processes over the past few months, leading to the market-wide wipe-out of many leading actors in the space. And while the value at play within the Crypto Music industry is of course much lower, the threat of legal engagement on behalf of Rightsholders due to infringing rights or fraudulent uploads is something that would pour tar on an emerging ecosystem. We will need solutions, and it’s important to think about what they could look like before it’s too late.

Rights and Licensing.

Whenever I talk about this area I’m usually met with blank bored stares. But honestly, it is super important, so give me a few paragraphs and then I’ll get back to more interesting things. There’s been a lot of hype around CC0 “no rights reserved” licences as the preferred method for releasing Crypto Media over the last wave of development. However, I’d argue it’s a bad fit for music in many cases due to the lack of requirement of attribution. We need more nuanced CC licenses for those that want to encourage the propagation of their work, and there is a whole suite to choose from, based on what the artist is looking to achieve.

Furthermore, we need greater interoperability and standardisation for NFTs to express what licence they are being minted under. This is in many ways a solved problem within the open-source software community, and honestly the creative commons community, and so is more an NFT standards question than anything else. Maybe we need an EIP to accommodate this. I might try and suggest one unless one of you guys does it first.

For the avoidance of doubt, pulling Crypto Music platforms into traditional licensing schemes would kill the speed of development and experimentation. It’s hard enough for startups to understand and afford licenses when they are building in the already defined streaming era (which is why I designed Licensr in my ICE Services days), let alone projects that are operating in an environment that is moving as quickly as this one. My hope is that in good time Crypto/Web3 will be defined as a different exploitation type as licensing and rights foundations adapt to it. But we’re a ways off from that, and so until then, empowering teams to act with knowledge around the rights that they’re integrating into their platforms will be a great help.

Engaging and growing communities.

Bull markets tend to top when engagement shifts from new entrants to value-transfer across the existing community. Bear markets are defined by exits from the community. Bull markets are re-marked by the ecosystem growing again.

I mentioned in the opening section that Crypto Music feels analogous to a local scene at the moment. And that is fantastic. But to move to the next wave we’re going to have to get some fresh blood in here and a likely route to scale is to start bridging the gap to pre-existing music communities as well as continuing to organically grow our own.

I’ve had a number of conversations with people that lead successful “Web2” platforms over the past few months, who are themselves very interested in how Web3 could be integrated into their ecosystems but fearful of the inevitable backlash. The risk to explore and experiment with Crypto is low when starting fresh, but if you’ve already got a vibrant community then it is a completely different question.

As the visibility of Crypto, NFTs, and DAOs grows, so does the counter-voice. It’s kinda always been like this, to be honest, it’s a feature not a bug of a growing market. And so premature movement for many pre-existing communities will be the wrong move until tangible value is proven along specific lines that make sense for that group.

The reaction to this point has been “we need more education” for pretty much the entire I’ve been involved in this space. And yes, there is some validity in that statement. But in reality, the biggest educating factor of all is when the point of it all becomes understood, rather than what it is or could be. And that’s something that needs to be proven rather than dictated.

Within music, we have an incredibly successful use case in this regard, Water & Music. Cherie and the team at Water & Music have shown how a community can be taken along the ride, thoughtfully, to show why Web3 is worth exploring for their needs, and how it can make a more effective and vibrant environment. It provides an example of how this can be done well, and a lot can be learned about their journey, though other existing communities will need to explore what will work best for them rather than simply attempt to replicate.

Bridging Live and Online.

During Covid everyone got very excited about the “Metaverse”, I mean, Zuck went so far as to pivot his entire company around it. As with “Web3”, there are differing definitions of what the Metaverse is, or could be, but my personal preference is that it is the merging of IRL and online experiences, rather than the dystopic vision of humanity sitting in headsets.

Linked to the section above around proving value to communities that are not yet sold on Web3, this feels to me like a key area where progress could be made in the next wave. Live experiences that enable further online value (digital twins, live gig enhancement, further engagement, etc.) on an opt-in basis could well provide a jumping-on opportunity.

One element that we’ve all felt as we go back to a normal-ish life is just how important real-life experiences are, which is true for artists more than anyone. This presents a challenge for artists that have accelerated their careers in the online world, where often they are playing catch-up in the live arena. Web3 Music showcases festivals and tours will be an important element of our development, and I’m really excited to see how digital-first artists can capitalise on these settings by merging online and real-life worlds. So far we’ve seen things like IRL minting at gigs, but there is so much more opportunity for experimentation.

For further context on this topic, since starting to write this piece the Water & Music guys have begun to roll out their “season 2” set of collaborative research based on this exact topic, Music and the Metaverse. Go read the reports as they drop.

Bridging Crypto and Streaming.

While Web3 can provide an outsized financial reward for an artist that engages it successfully, the audience is still relatively very small compared to the reach that can be achieved through traditional streaming means. When I wrote The case for a post-royalties music industry back in October last year my focus was on how hard it is to make a valid business model in the current industry’s financial dynamics for a new creator. However, core to this idea was also the idea of freeing up an artist’s rights so that they can gain the maximum value of attention that streaming can provide.

Engaging in streaming, and the wider “traditional” industry, strikes at an important factor that artists that succeed in the next wave will execute well on. Namely finding good partners to grow their brand with. Web3 allows artists to be relatively self-serving, but the traditional industry is built on processes and systems that mean that they need help.

And so, I believe that we will see the emergence of representatives that are sympathetic to artists seeking to explore this new way. The best labels will carve out NFTs and the wider Web3 sector as something that an artist is free to explore, without the usual contractual restrictions, but be in a position to provide the service set that they excel at within “Web2”. The best managers will understand Web3 and help their artists engage in the growing community while making sure that they are well represented in other areas. The best lawyers will proactively seek to carve out Web3 from deals but in front of artists to support the above. And so on.

Working well, Crypto and Streaming should be a symbiotic feedback loop in the next wave. If Crypto means anything, it is user-owned optionality, and so building out a suite of engagement for your fans with clear value for those that want to lean in further, but not excluding those that simply want to listen to your music, will be the key.

Composability and Open Source.

Joel Monegro wrote a post called Thin Applications in 2020, building off of Fat Protocols in 2016, which for me sums up how this ecosystem is building better than any other thought piece. In it, he describes how the composability of the growing Crypto industries provides a fundamentally different proposition to projects that are building applications. “Platform-lock” is gone, and in its place is a vibrant and ever-changing open stack that does the back-end work allowing for faster discovery of utility at the application/interface layer.

From the perspective of a team that is building applications, this is a fairly intimidating proposition. The lean start-up model is kinda gone; no longer are you racing to find product-market fit and then building a moat around it. Instead, the model is more in line with building a brand, you’re in a constant battle for attention. The projects that win will be those that constantly keep moving forwards and build a community like a snowball. That’s your “moat”.

However, from the macro perspective of developing the ecosystem as a whole, this is incredibly exciting. No longer will we get into nadirs of innovation where mega-platforms have become unassailable and shift into profit maximisation. At least, that’s the theory.

We’re taking an active part at HIFI Labs in this regard at two levels, through neume we are building open source infrastructure, “work & data”, that will commoditise everything that it takes to build an application on Web3 Music, and with musicOS we are building a thin application to pull it all together in a user-owned “operating system” where the artist and fan is the platform themselves (lots more on this very soon).

In many ways, the Crypto Music industry is lagging behind other sectors in this area. We’ve had great success in terms of bringing a point to Web3 to a number of artists, but everything is still quite spread out and disparate. This is going to change. What the future looks like is a greater importance placed on tooling development, interoperability, and protocols.

Summary.

Clearly, the above list of ideas that I’m excited about is not everything that will matter in the next wave, but it’s a start. Despite sectioning each into areas, the most important thing to understand is that each is related and creates a function that will transform the current state into state’.

One further issue that could have been its own section, though kinda rests across everything, is the requirement to find sustainable business models. Everything from how an artist can find long-term value from an NFT drop, to how a platform can make money with minimal to no moat, will be explored as we move from the Ponzi-mania of this last wave and into the next.

I mean, we may end up back at Ponzis all the way down again, but I feel like the expected greater focus on risk management in the macro-environment highlighted above will set the tone and more mature models will follow.

That said, degens gonna degen in the grand casino.

Rallying strangers

I, like many of my peers, fought the boredom of lockdown in early 2020 by diving headfirst into video games. Specifically, my vice of choice was World of Warcraft Classic, which had launched 6 months prior and was peaking in terms of activity.

Being the obsessive control freak that I am, what started out as a game quickly became a proxy job that took up most of my free time. Partly because there is just so much to do in the game, but mainly because I became fascinated by the organisational challenge of herding cats on the internet. Within a few months the “guild” that I was part of had gone through a hostile community fork and I ultimately found myself in charge of a band of about 60 people.

I know it sounds a bit silly, but I learned so much from that period in terms of how to motivate a disparate party of anons; there’s so much in common between a group of gamers that have decided to play together and contributors that are forming up within a decentralised organisation. I guess it really just boils down to the same thing, strangers on the internet rallying towards a shared goal.

The community switching costs within a game like WoW are pretty low. Sure there is the reputation that you will need to build within your new team, and too much moving around will get you blacklisted within the wider community as someone that is unreliable. But the core value that you bring to a raiding group, i.e. your experience and items that you have collected along the way only makes you more valuable over time. There’s an interesting power shift that happens where a player needs a guild to a point, and then it flips and the guild needs the player. Honestly, the option to “rage quit” is the great equalizer on the internet, it keeps everyone honest with themselves and each other.

This low switching cost and competition around the best players create a fairly intense environment for the attention of your community and the wider community at large. To this end, there are a few tools that you need to utilise effectively.

As with any market that has minimal moats, your narrative is the number one marketing tool that you have. You need to set a reason for what you’re doing and why you’re doing it, both internally and externally. Building a culture where everyone involved is bought into the goals that you’re setting as a group is essential to support the communication of decisions. It’s your mandate.

Trust is everything, if you don’t have the trust of the players that you’re managing then you’re already finished. In WoW, like in DAOs and the wider open-source ecosystem, players can go and play with anyone they want. When this is done well, everybody wins. When it fails the arrangement becomes irreparable. I have a friend that recently got into polyamory and when he described the basis on which he successfully holds relationships there were clear parallels in which the future of work will be run. There are clearly understood rules of engagement with the instant threat of separation if they are broken.

It’s really important that you provide opportunities for members of the community to step up and take on additional responsibility. If you find yourself leading a distributed group of contributors then there is no chance that you can effectively do everything by yourself. However, you also don’t want to be putting additional burden on people that don’t want it. Remember, they can rage quit at any point. And so, building a framework where people can move up and down to positions of responsibility is the key to a successful long term community. It’s hard to do though, intuitively humans don’t want to be demoted, and even more so are unlikely to demote themselves. But if you can get that right then it will make a healthier environment for everyone. I guess we can look towards democratic systems where this is on the whole executed in an effective manner.

Ultimately, with all of these elements, strong communication and perceived fairness are the critical elements that hold it all together. It’s not by chance that the gaming community has led the charge on platforms for discussion online, be it from the early days of forums and Ventrilo to recent use of discord as an all-in-one solution. Similarly, the decisions around how to reward players that contribute towards group efforts provide examples of how DAOs are thinking about how to incentivise their communities, such as DKP or Loot Council.

Fresh content patch

Online games tend to fall into one or a combination of two categories, “PvE” (Player vs. Environment) where you work together to defeat bosses as a group, or “PvP” (Player vs. Player) where you compete against other players in a deathmatch type scenario. I think this provides a useful framing to think through the current and future state of the emerging Crypto Music industry.

The natural position to take when starting out something new is to look across the ecosystem that you are hoping to build within and compare yourself against the potential of others. Winner takes all mechanics of platform economies and the intensity of expectation that venture capital brings lends itself toward a mentality that building a startup is a zero-sum game. It’s not just enough for you to grow, you need to do so at the cost (usually in attention) of others that are building in a similar vein. It is PvP.

As a strategist working at larger, established, companies this is also the default position to take. The vast majority of my time was spent creating SWOTs, competition maps, and generally researching and distilling information about what everyone else was doing. It’s understandable that when you have a position in the market then you need to be aware of any potential disruption, but it does create a defensive mentality that ultimately leads toward a less interesting market overall.

A PvE market, by contrast, is one where there is an overall objective, an end-boss, that players need to collaborate with each other to defeat. Often time-tested tactics are the best strategy when the content is old and the opportunity for success by deviating from the “meta” is limited. However, when new content is released, or the underlying power balance in a game changes, it’s likely that new metas will emerge through trial and error testing by the community.

Crypto is analogous to a new patch being released for the music industry, bringing with it fresh content and a realignment of mechanics. With this comes a race to find the new meta, a collaborative effort across interested parties to experiment with what works and what doesn’t. And so, the notion of competition changes slightly, in that there is still a contest to see who can discover it first and gain the reputation that this will bring. But when it is discovered, it will benefit the wider community as everyone shifts to this new model of operation.

Many years ago there was a boss encounter released within WoW called “Yogg-Saron” that had a particularly hard version called “Alone in the Darkness”. A unique mechanic within this fight was that players lost “sanity” periodically when they faced the boss leading them to become “insane” and attack each other. The hard mode included a tricky damage output requirement to beat it and almost all attacks require your character to be facing the boss; for a long time, it was deemed impossible by the community. But then all of a sudden a relatively unknown Chinese guild called Stars uploaded a video to YouTube where they emerged victorious by overloading their raid composition with Affliction Warlocks (link here for the 2009 potato-quality retro gaming video vibes). Warlocks had an ability where they can turn to face the boss to channel an attack and then quickly turn away from it again. This one iteration unlocked the boss for the entire community.

The new patch period is an exciting time where there is the potential for significant pay-off for trying something new. There is competition between teams, but the output of that competition is positive-sum in that it progresses the overall market.

Open information

I mentioned that the key to beating the Alone in the Darkness version of Yogg-Saron was a video posted on YouTube. This is an example of how the internet has increased the speed that communities can discover and build on each others’ work, however, it is predicated on a. that information being made available, and b. there being channels in which the information can be disseminated.

Tactics and strategies get passed around gaming communities very quickly in large part because of the understanding that the relative benefit of holding on to information is outweighed by the reputation reward of making it available. There is a common infrastructure underpinning each team’s efforts, and an open market for talent, and so the differentiator that sets one team above others is the ability to constantly and publicly remain at the top of the game as it evolves.

The big shift from Web2 and the potential of Web3 lies in this point around common infrastructure. Blockchains enable composable and open services to be created and built upon, which is why this extended analogy towards PvE meta discovery feels appropriate. While moats could be built around service stacks in Web2, this is far harder to do in one version of the future, and so the constant march of progression is the thing that everyone will compete around. Which is an exciting, albeit daunting, prospect, albeit requiring a concerted effort to safeguard open source as a priority.

Furthermore, if we consider the development of semi-open working relationships, we stand an even greater chance of moving towards a future music industry where innovation comes to the fore and is the aspect that entities are vying to take the lead on and gain the reputation for. Less innovation-washing of the current status quo and more genuine development of the industry.

But to get there we need to evolve how we think about building teams and interacting with each other. For now, we are in a PvE environment disorientated by the seemingly limitless potential of a new world. As this liminal space enters its endgame it’s likely that things will turn PvP again, but until then let’s enjoy this journey of shared discovery.

I’m painfully aware that it has been a little while since I wrote a post on here, but it is with good reason!

Around January this year, Jack Spallone, an old friend from the early days of Blockchain and Music, and I started chatting about an area of shared interest. Specifically, we felt that there was an opportunity to start up something new that sits above the activity that is growing in Web3 Music. Something to help make sense of it all and to contribute towards a cohesive and accessible ecosystem. Fundamentally, something to help drive demand.

We have since progressed that idea, with the amazing help of HIFI Labs, and Seed Club, and officially launched musicOS at Seed Club’s Demo Day last week.

We’ve written a fuller explanation of the intent behind musicOS and the plan forwards on our first Mirror post here. But I thought that there’s also value in positioning the thinking with respect to the things I’ve written about in this blog and the wider “liminal space” of Crypto and Music.

I plan to keep writing through this blog as musicOS progresses. It’s a useful vehicle in which to force my thinking, as it’s not until you write something down that you realise that you actually don’t understand it at all yet. Plus, Jack can’t change my spelling to American English here.

Post Royalties and the Disruption Theory of NFTs

An essay that I wrote, originally for Water & Music last year, titled The case for a post-royalties music industry made the argument that the next generation of creators will look towards new mechanisms to monetise their art. In it, I compared the volume of new entrants vs. growth in the value of the streaming industry, which, combined with power-law distribution, paints a very difficult picture for tomorrow’s artists.

Since publishing this piece Spotify has released new figures that suggest a slightly different picture to the repeated knowledge that there are 8 million creators releasing 60k tracks a day through it. Specifically that there are 200k “professionally aspiring” artists on Spotify. This definition of course instantly creates issues, and the devil with customer segmentation is always in the detail, but, triggering-category-naming aside, it further highlights the extreme head-tail relationship of streaming economics. By Spotify’s own definition, only 2.5% of artists on its platform are “professionally aspiring”, at least in the success they are getting through the platform.

A common narrative being pushed on Twitter over the past few months is that NFTs fix this. And while I think that elements of that argument have merits in some cases, I have also written about the areas where I feel like NFTs really do offer potential for disruptive rather than sustaining innovation. Ironically I opened that article up by posing the question of what happens if Spotify announced that it’s doing NFTs, since publication it has done exactly that.

Looking forwards, the future of Crypto (or Web3, depending on your chosen lexicon), and Music is going to be a nuanced and complex set of composable services that artists and fans can opt into. The game will be played by each creator choosing which options will best suit their own unique situation. To understand what is happening and to be in a position to make informed decisions, we need a user experience to help.

One of musicOS’s aims is to provide a comprehensive view of Web3 Music activity, similar to the role that Etherscan plays within the wider Ethereum network. This information, useful by itself, will also enable analysis and support from parties that want to build entities to support the development of artists within the space; take, for example, the continued superb work from Water & Music.

Formation of The Crypto Music Industry

For those of us that have been around this space for a few years now, it’s becoming increasingly clear to see an overall momentum being built across waves and phases of innovation, which I described in The Crypto Music Industry.

To briefly summarise, in the early days of Ethereum, crypto-curious innovators spent a long time thinking about how to use blockchain to rebuild the music industries’ infrastructure. Since the winter of 2018, the focus has shifted more towards simple monetisation for artists in discrete instances, abstracting away a lot of the harder stuff. Scaling into the next phase is going to require deeper integration at the user experience level and a capacity for more complexity and nuance.

musicOS’s role is to work on solutions in this area, connecting up the ecosystem at an application level and building out open data and services to support its growth.

One of the biggest criticisms put to Web3 Music currently goes something like “yeah some artists are making some money, but where’s the utility”. The counter then says “the music is the utility”.

In my mind, both these positions are understandable with the current state of things but miss the mark when thinking longer-term. This much-touted utility will be the function of a useful and engaging ecosystem, and right now we’re still experimenting with aspects that may make up elements within that. Success for musicOS will be to accelerate this feedback cycle of discovery to find product-market fit for the industry.

Open Data and Services; Community Ownership

Had I written a piece in the past month, it would have been to place the insight contained in Joel Monegro’s seminal Thin Applications against the current and future Web3 Music industry. A follow up to “Fat Protocols”, which we all got very excited about back in 2016, it describes the stack that crypto-enabled industries will be built on as “interface” (wallet + applications) and “work and data” (cryptoservices).

This is the inspiration for the positioning of musicOS as a “thin application”. In other words, we have no interest in musicOS owning the data and processes that it is built with, and in fact, it’s extremely important that those components remain open and permissionless. See Jacob Horne’s “Hyperstructures” essay for further context.

In the music context, the “work and data” are everything from minting contracts to identity to ownership information and metadata. As DeFi is focused on “money lego”, the Crypto/Web3 Music industry will be built on interchangeable modules of infrastructure.

The application described above and in our “manifesto” released last week spans the Web3 Music ecosystem leading to our belief that, as it is built for the community, it should be owned by the community.

There’s been a lot of backlash in recent years over “Web2” platforms being acquired or going public without financial benefit for the users that help build the business, and while I think it’s unfair to begrudge platforms crystallising their business according to the decisions they made previously, we are faced with an opportunity now to set things right from the beginning.

In reality, the application itself is only one element of an emerging Web3 Music network and supporting mutual success will maximise potential. We’ve been working with Seed Club over the past couple of months to understand the options and decisions that will be critical to navigating as this journey evolves. For now, the best bet is to get involved over at the HIFI Labs discord where we will be building out in the open.

A relatively low-tech, local coordination, solution to current copyright challenges associated with NFTs.

Creation of “multi-sig wallets” alongside the release of web3 digital assets, with a process between contributors to define the split of ownership, locked in through consensus between parties.

Motivation

NFTs have shown great promise in some areas, they hint towards an entirely new revenue stream for the creators of digital assets and represent the potential for financial independence & freedom.

However, one can see the ceiling on current implementations. There are constraints that require either a single entity to release the NFT, or for the single entity to agree payment to contributors off-chain, or for rudimentary indelible splits to be defined within the NFT itself.

Real world copyright is far more complex and currently served through aggregated databases underpinning the agreed state of ownership of rights.

However, copyright databases force a centralisation of power; in the ownership of and access to the database and in the power to adjudicate conflicts. Copyright databases are inherently reliant on input data being correct and dissemination of that data to be timely and understood. These issues pose limitations on the comprehensiveness and accuracy of current solutions. This challenge is somewhat mitigated by payment against digital asset usage in a streaming dominant world being delayed by royalty payment mechanisms, but poses a more severe challenge when value is surfaced upfront through NFT sales and payment to owners happens instantly.

3rd party representatives are an essential aspect of the supply chain underpinning the release of art and there is limited capacity for their engagement in current NFT release flows.

Therefore there is a requirement to investigate alternative solutions, to provide a foundation on which the emerging NFT market can scale and flourish. The current situation is sufficient for initial experimentation, but is a ticking time bomb in terms of future litigation.

Music represents a specific use-case for complex ownership structures unpinning digital assets, however the specification described below could be utilised for any digital asset where there are multiple contributors

Proposed solution

A wallet is created alongside the release of an NFT. This wallet will receive funds generated by the NFT, from initial sale and from any subsequent resale royalties.

The wallet will be a multi-sig, building on implementations such as Gnosis Safe.

Payment split allocation within the wallet will be defined through a process of controlling entities stating their claim around ownership of the asset. Splits will be crystallised once consensus is found between the parties.

To provide a fair window for discussion, payment out of the wallet will be delayed by a time period, to be defined by the parties involved. This will also provide an opportunity for 3rd party entities that may not have been included in the initial allocation of keys to state their claim on the asset.

Once payment splits have been locked there will be further opportunity for entities to state claims around asset ownership, enabled through the transparent and verifiable nature of the wallet split formation process. If funds have been found to be allocated erroneously then re-payment to the correct parties should be enacted with clear information being available for real world courts if required.

Non-technical specification

Wallet formation

• Multi-sig wallet creation

• Initial contributing entities defined and provided a key to the wallet

Payment split definition

• Each contributing entity states a claim for their split in the wallet

• Each contributing entity can state a proposal for other entities claims on wallet splits

• Splits are locked in if consensus is reached between contributors

• If conflicts arise then splits are not locked until they are resolved

• Additional contributors can be added to the wallet if consensus is found around their inclusion

Time delay component

• Wallet has a time delay on pay-out, to allow for reasonable discussion regarding split attribution and for additional interested parties to come forwards

• After the initial time delay is completed, all future payments from the wallet happen as soon as the funds are received

• If consensus is reached then contributors can decide to extend time delay to resolve any outstanding split conflicts

Consensus

• Consensus is defined as the majority of key holders, while this may invite collusion, it is seen as the simplest effective method for making changes to wallet splits and ownership

• Wallet changes and payouts are verifiable, should issues occur then appropriate correction processes can be put in place off-chain (e.g. through courts)

Potential areas of extension

DeFi

If creators wants to get money out against the wallet before the payment delay is up then they can do through loan type mechanisms, where their confidence against the claim they have stated provides the collateral, providing a neat solution with regards to confidence weighting around claims stated within an NFT split.

Aggregated view of ownership

Standardisation of wallets underpinning ownership of digital assets lends itself towards a platform to aggregate the information contained within wallets into an overall view of the ownership state of NFTs.

Concierge services

It is extremely likely that a catalyst for the expansion of web3 will be through trusted concierge platforms to hold keys on behalf of entities. While this may be a web2 solution to a web3 problem, the fit with the model proposed above is clear.

Limitations

The model proposed in this piece has several limitations, that may be mitigated as the ecosystem develops, but are important to detail.

Cost in setting up the wallet

Wallets should be an on-chain entity, and thus there will be gas costs involved in its creation. While this is a non insignificant cost in the current environment, protocol efficiency developments should mitigate this to a degree over time. Regardless, the assumption is the costs involved will prove to make a positive business case when compared to future litigation risk.

Cost in changes

The expectation is that the split definition process can done through non expensive means, for example gas-less signing. However, should future changes be required once splits have been locked in then it is likely that gas costs will be required.

All entities may not be “on web3”

A limitation of any initiative that seeks to release a digital asset into web3 with multiple collaborators is that all interested parties may not be in a position to hold keys or tokens. In the short term this is likely a key limitation on which digital assets can be released in this way, however future developments, for example trusted concierge services, may mitigate this.

Reliance on “real world” courts

The ultimate route of appeal in this idea, and arguably any system built to facilitate the definition of ownership, is through pre-existing “real world” courts. Copyright Law is robust as a final mechanism to determine the allocation of funds generated through the sale of digital assets protected by it. The intention with the proposed structure is to minimise the number of cases that are required to go to lawyers, but it is inevitable that they will be needed in some cases where resolution can not be found otherwise. Of course, there is an implicit requirement that for this to be an effective pathway to resolution that the actors involved have exposed their “real world” identity as part of the process, though it is reasonable to believe that this will be the case in the majority of cases due to the nature of the business involved.

Time gated consensus

Consensus is defined within this idea as the majority of interested parties agreeing on a specific detail. However, it is reasonable to believe that this may be open to collusion and coercion. Furthermore, requiring consensus to be gained within a defined time window may lead to inaccurate outcomes. As stated above, the ultimate route to resolution for parties that feel that the process has not delivered a correct outcome will be through lawyers and courts, supported by the transparent design of the split definition process. Alternative mechanism designs could seek to require support from all interested parties to fix splits or for there to be zero or an unlimited window for splits lock-in, however, the expectation is that this would bring greater friction to the system when compared to the edge case issues it may fix.