The real conversation starts when you listen

In a groundbreaking 2024 memo, Lucian Grainge emphasised the importance of superfans, highlighting Universal Music Group's strategy to strengthen artist-fan relationships. Warner Music Group's Robert Kyncl echoed this sentiment, unveiling plans for an app to connect artists directly with their most dedicated followers. These moves underscore a growing industry focus on superfans—those who engage with artists across multiple platforms and activities.

Luminate’s 2023 report defines a superfan as someone aged 13+ who interacts with their favourite artists in at least five different ways, from streaming music to attending live shows. This deep engagement offers significant insights into the psychology of superfandom, yet the industry still lacks comprehensive data to fully understand these superfans. 

Today's superfans are not just passive consumers; they actively participate in the artist's creative journey. Also, superfans are willing to spend significantly more than the average listener, driving higher revenues and deeper artist-fan connections. They account for a substantial portion of streaming activity and merchandise sales, highlighting their economic value and impact. Public Pressure’s innovative use of Web3 technology allows for detailed fan data analysis, enabling artists to tailor their interactions and content more effectively. This shift towards co-creative fan experiences is transforming the traditional fan engagement model, offering fans a more intimate and participatory role in the music ecosystem.

Web3 technologies in this regard are revolutionising fan engagement, offering fans ownership stakes in their favourite artists' work and a voice in their creative processes. This allows artists to create personalised experiences for their superfans, strengthening the artist-fan bond. Communities play a vital role in nurturing superfans, providing the support and engagement necessary for emerging artists to thrive. By leveraging both Web2 and Web3 technologies, the music industry can bridge communities and convert casual listeners into passionate advocates and collaborators.

Superfans are reshaping the music landscape, driving deeper, more interactive relationships between artists and their audiences. To dive deeper into this transformative shift, read the full report and explore how superfans could become the lifeblood of the music industry. Read the full member-exclusive report here.

The greater potential of generative AI

The music industry has been introduced to a wide array of AI tools and platforms that span the entire creative process, from initial composition to the final stages of distribution and marketing. These tools and platforms vary in complexity, from basic recommendation systems and assistive AI tools to advanced generative AI models. The more advanced Generative AI models have rapidly risen to prominence as the principal point of interest in the music industry.

Generative AI music refers to AI models capable of generating music autonomously or semi-autonomously.  These models are seen as a double-edged sword – an opportunity for increased creativity and productivity versus a severe threat to copyright infringement and the dilution of music.

While this prevailing discussion rightfully exists, the real potential of generative AI is found elsewhere – accessibility. Generative AI is set to transform how consumers experience music, moving beyond consumption to a medium of expression and entertainment accessible to all.

Generative AI is accelerating the rise of the consumer-creator, leading to the bifurcation of the music industry into two distinct segments - lean-back consumption with streaming and the creator economy as a place for fandom.

To learn more about the rise of the consumer-creator and the bifurcation theory, please refer to our comprehensive member-only report on the greater potential of generative AI, available in the members section here.

The road to a global repository for music IP

Most data across the music industry remains fragmented and siloed due to the variations in how data is stored, processed, and managed. It is dispersed across various locations, often outdated or incomplete, and exists in multiple versions that differ from one place to another. As a result, there is a growing consensus in the music industry for needing a global, digital database that properly and efficiently manages intellectual property (IP) and rights data.

“Everybody knows that the industry needs a global repertoire database, and that the only efficient way to cost-effectively manage data is with a single, reconciled, authoritative database.” - Andrew Jenkins, President, Universal Music Publishing Group of Australia and Asia Pacific Region.

The idea of creating a comprehensive music database is nothing new. Since the 2000s, numerous attempts have been made to address the absence of a unified database, each to streamline rights management, simplify music licensing, ensure accurate compensation for rights holders, and decrease the frequency of lawsuits and conflicts.

Unfortunately, every attempt has failed, facing consistent constraints in funding, collaboration, and/or governance. Industry-wide initiatives like these rarely achieve alignment on the crucial decisions required to achieve success—who manages the initiative, who pays for it, and what rights do contributors have?

“This historical lack of collaboration stems from the adversarial nature of the music industry, where competition overrides cooperation. In the end, the industry has always adapted reactively rather than proactively. We're not good at getting ahead of problems because we operate on the basis that our business is all about market share and beating the competition.” - Andy Saunders, Founder Velocity PR

The music industry’s previous attempts to reform modern music ownership

Among the industry’s earlier attempts was the International Music Joint Venture (IMJV), formed in 2000 by a group of collection societies from across the globe. Later, the World Intellectual Property Organization took a different approach with the International Music Registry (IMR) project. The IMR effort, launched in 2011, began with great promise but ultimately underwent the same fate as the IMJV.

One of the most famous examples in recent history is the Global Repertoire Database (GRD). Supported by over 80 organisations and more than 450 individuals across six continents, the GRD aimed to create “a single, comprehensive and authoritative representation of the global ownership, administration, and control of musical works”. Despite years of effort and considerable funding, the project was abandoned after six years in 2014. The shutdown was attributed to the collection societies' inability to share their data openly, a lack of overall collaboration, and “due to a fall-out of collection societies over funding”. 

In 2014, JAAK was one of the first blockchain-based startups to attempt to build a comprehensive repository for music IP. They realised early on that public blockchains enable the aggregation of information from various sources into a unified repository, ensuring an auditable trail of ownership and data integrity without the reliance on a central authority. By 2018, they had launched a pilot with major industry partners, including WMG and BMG. Despite their commendable effort, the company was forced to shut down after six long years. Their shutdown can be attributed to a lack of funding required to get to market, the immaturity of blockchain and Web3, and the music industry’s limited understanding of the technology. 

A new approach to establishing a global repository for music IP

While previous blockchain-based attempts made significant breakthroughs in reforming modern IP ownership and management, they were restricted in many ways. For instance, JAAK’s open data network was designed to run on top of the Ethereum blockchain. While general-purpose blockchains like Ethereum have been proven to be the most secure and robust option for real-world asset tokenisation, their one-size-fits-all approach comes with a level of complexity that needs to be fine-tuned to the specific nuances of the music industry. Their generalist nature makes it difficult to construct specialised solutions seamlessly integrating with the existing industry value chain and legal frameworks. With the recent advancements in Web3 interoperability, scalability, and composability, specialised industry blockchains are now a viable alternative to general-purpose blockchains like Ethereum. 

For any industry-wide initiative – such as developing an industry-specific blockchain protocol – governance and coordination are key success factors.

“In innovation clusters or any environment where you try to define how something new is going to be implemented in everyday life, it is proven that you always have an orchestrator. This is someone leading the conversation, the experimentation, and the adoption. Usually, orchestrators have been innovative corporations or academic institutions.” – Sergio Mottola, President and CEO of the Web3 Music Association

In this context, the Web3 Music Association ("W3M") is a non-profit entity with the goal of orchestrating innovation in the music industry. Its mission is to educate music industry professionals, support their digital transformation, and stimulate the development of a global blockchain-based repository for music IP. By bringing together various music industry stakeholders, the W3M aims to bundle a broad set of expertise to collaboratively build out new infrastructure – owned and governed by the music industry at large.

Created from an extensive three-year collaboration, the association is a lead contributor to the Music Protocol – a dedicated blockchain for intellectual property registration, management and monetisation. The Music Protocol is designed to overcome the traditional constraints in funding, collaboration, and governance that have plagued previous industry initiatives in the past. What sets Music Protocol apart from its blockchain predecessors is its attempt to align and incentivise stakeholders through an industry token and customised incentive framework. Further details coming soon.

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Sources

https://www.digitalmusicnews.com/2018/05/03/jaak-kord-ethereum-music-rights-database/

https://www.hypebot.com/hypebot/2015/08/the-failure-of-the-global-repertoire-database-effort-draft.html 

https://archive.completemusicupdate.com/article/prs-confirms-global-repertoire-database-cannot-move-forward-pledges-to-find-alternative-ways/ 

https://www.cardozoaelj.com/wp-content/uploads/2011/02/WISHNIA_NOTE.pdf 

https://variety.com/2018/biz/news/jaak-moves-ahead-with-blockchain-pilot-joined-by-bmg-global-music-rights-warner-music-others-1202794923/ 

https://medium.com/jaak-io/building-a-global-view-of-rights-is-going-to-be-hard-but-were-not-alone-33be8e200384 

The music industry was not built for the digital age

Time has shown that the music industry was not built for the digital age we live in today. The industry is plagued with legacy systems and outdated infrastructure to manage and license intellectual property. This explains why music on social media has yet to represent a revenue stream for artists, why the metaverse doesn’t even have any music, and why AI is perceived as a threat. If the music industry wants to capitalise on emerging technology and acknowledge tomorrow’s digital consumers, it will require a more agile and future-facing foundation. How did we get here?

Pre-Internet era

Throughout history, musicians have been able to express themselves and their art through live performances. Music was a communal and participatory experience, bringing people together in a very personal way. This changed in 1877 when Thomas Edison unveiled the phonograph. This allowed people, for the first time, to listen to music in the comfort of their homes. As a result, the commercialisation of recorded music came into effect.

As the phonograph further developed, the cylinders used to produce sound became smaller and smaller. Finally, the phonograph was accompanied by vinyl records, first introduced by Columbia Records in 1948. Vinyl records were pivotal, allowing multiple songs to be compiled on one single record. The development of music distribution technology, from phonographs to vinyl records, facilitated the rise of record labels. Given the high costs associated with professional studios, music promotion, and distribution, individual artists often had little alternative but to sign deals with record labels. This ultimately led to an industry structure dominated by six major record labels that controlled most recorded music distribution and promotion until 1998.

As size and portability were barriers to the adoption of vinyl, the cassette was introduced in 1963. This allowed for greater portability on a smaller device, which people could easily take anywhere. It also allowed for significantly longer play times compared to vinyl. However, it also ignited negative repercussions, such as the first forms of piracy. Afterwards, in 1981, the first viable format of Compact Discs (CDs) was developed by Sony and Philips. The CD was a crucial development for the music industry, offering superior audio quality, portability, and affordability. This transition made the music experience much more casual, setting a precedent for transitioning from active to passive music consumption.

The pre-internet evolution from the phonograph until the CD built the foundations of the music industry value chain we still rely on today. From a live and participatory experience to a more globalised and accessible form of entertainment. Technological advancements in audio formats introduced new ways to consume, distribute, and experience music.

Post-Internet era

While the CD changed our listening habits, digital MP3 formats quickly gained popularity by eliminating the inconvenience of storing physical copies of music. Although introducing the digital format was new, it presented significant challenges for the music industry. Piracy was a relatively minor concern with analogue records because the quality diminished with each subsequent copy. However, digital formats could be duplicated without any loss of fidelity, creating the possibility of widespread piracy. 

In the late 1990s, particularly during the beginning of the dot-com boom, several attempts were made to establish internet-based music companies, but none achieved significant success. However, at the start of the millennium, the music industry experienced one of the most impactful developments with the introduction of peer-to-peer file-sharing technology, which was popularised by Napster. Napster initiated a new era that demonstrated how an innovation can disrupt an entire industry and make many established industry practices and players obsolete in a matter of days.

Illegal file sharing resulted in dramatic declines in sales of CDs and industry revenue. In the UK, recorded music revenues decreased by about 60% between 2001 and 2015, from £1,868 million to £761 million (CMA, 2022). To counter the rise in piracy, new ways of consuming music emerged. Initially, legal downloads through platforms like Apple’s iTunes store allowed consumers to purchase individual tracks or albums that they then owned and could listen to at their convenience. While this approach had some limited success in reversing the revenue decline, it wasn’t enough to fully mitigate the impact of piracy.

Music streaming services disrupted the industry yet again, starting with Spotify in 2008. Unlike the download model, streaming services offer consumers ongoing, legal access to vast music catalogues as part of a subscription or for free if they are willing to listen to advertisements. This resulted in streaming becoming the dominant means of consuming music. Crucially for the music industry, streaming has increased recorded music revenues from £761 million in 2015 to £1,115 million in 2021 (CMA, 2022).

From an artist’s perspective, streaming platforms offer a unique service for easy distribution, visibility and exposure. From a consumer perspective, streaming undoubtedly provides an unbeatable service: unlimited access to the vast majority of the world’s music catalogue, on-demand, for a monthly fee as low as $12.99 .

While the industry has undoubtedly benefited from streaming, revenue flows remain concerning. Artists, especially emerging artists, struggle with little to no earnings despite their music reaching a global audience. Even though streaming revenues are increasing, recorded music revenues in real terms remain significantly below their 2001 peak (CMA, 2022). The traditional structures of royalty distribution have struggled to adapt to the evolving consumption patterns of streaming.

Despite the advantages, poor streaming economics and an exponential increase in music on streaming services have ultimately led to the devaluation of music. This makes streaming an impractical long-term strategy for artists to build their careers on and thus undermines the sustainability of the music industry. Artists need access to new technology to capitalise on their intellectual property and sustain their careers properly.

The music industry's embrace of technology has historically presented significant hurdles

The music industry's embrace of technology has historically presented significant hurdles. The figure below provides a comparative study of the gaming and music industries, representing their respective responses to technological shifts. The two graphs illustrate the industry revenue adjusted for inflation in real terms.

Industry revenue adjusted for inflation in real terms.

Source: 49/META

The gaming industry is portrayed on the left side of the figure. The colours signify unique platforms or technological iterations, from arcade systems to console, PC, and mobile gaming. Notably, each technological leap either sustains or enhances the industry's revenue. This suggests a positive relationship where new technologies layer upon their predecessors, thus fostering growth. For example, the gaming industry, valued at approximately $20 billion in the 1980s, grew to over $100 billion in 2019. Over the last 4 years, the gaming industry revenue reached nearly $250 billion. 

Contrastingly, the music industry, represented on the right side of the figure, paints a different picture. Each technological advancement from the 8-track era, through vinyl, cassette, and streaming platforms, erodes the revenue of the preceding technology. This suggests that previous introductions of new technologies did not provide additional value to the industry but overthrew the previous status quo. The net effect is industry revenue that, at best, maintains its value. Even though streaming revenues are increasing, recorded music industry revenue in real terms remains well below their CD era peak of $20 billion.

An inconsistent foundation for data management

The initial method for collecting digital music data had significant flaws. When CDs were introduced in 1980, their limited data storage capacity meant that only basic song information was recorded on the disk. Consequently, when CDs began to be converted into MP3 files in the late 1990s, there was only a minimal amount of available data to be uploaded. Unfortunately, there was no standardised data collection process during this period, leading to numerous databases with varying standards. This lack of uniformity resulted in early-2000s digital music databases lacking crucial information regarding the IP and rights associated with existing songs. These factors led to an inconsistent data foundation that persists to this day. 

“Music is one of the most complicated copyright environments with one of the worst data management practices” - Edgar Bronfman Jr. , Warner Music Group Chairman

The rapid expansion of the music industry and the proliferation of platforms and rightsholders contribute to significant financial losses due to poorly structured data. With over 300 licensed music digital service providers (DSPs) worldwide and CISAC’s affiliated organisations representing more than 5 million creators, the stakes are high. Most data across the value chain remains fragmented and siloed due to the variations in how data is stored, processed, and managed. It is dispersed across various locations, often outdated or incomplete, and exists in multiple versions that differ from one place to another. This prevents alignment across the industry, creating inefficiencies and often making collaboration between entities difficult or impossible. 

Despite decades of music digitisation since the introduction of MP3s, the industry is challenging. The absence of uniform practices and a standardised database for tracking song information and engagement results in a significant delay between when a song is played and when the rightsholder receives payment. This lag typically spans three months to a year, depending on the entities involved. This delay is particularly noticeable regarding publishing royalties, where approximately 25% of music publishing revenue fails to reach its rightful owners. An important illustration comes from the Mechanical Licensing Collective in the U.S., which recently disclosed $424.4 million in unmatched or "black-box" streaming royalties. (W&M, 2021).

Adding to the delays caused by technical translation challenges is the lack of motivation for business intermediaries to transmit collected royalties to creators. If the money remains unclaimed, these entities are entitled to retain it.  The music industry’s challenges with royalty collection and distribution are a direct consequence of the industry’s legacy data foundations.

A perpetuating cycle of complexity

The attempts to address the fundamental issues in the music industry have been reactive, focusing on alleviating symptoms rather than proactively identifying and eliminating the root causes. The systems that governed the industry were originally designed in a pre-Internet era when the concepts of global digital rights and licences were yet to be considered. As the Internet emerged, the industry's strategy was to retrofit traditional frameworks to fit these new digital contexts. 

Traditionally, music rights were pretty straightforward – if you bought a CD, the musicians got paid for that copy. But with streaming, things got more complicated. Streaming should be governed by a distinct set of rights reflecting its unique characteristics. Instead, the industry patched pre-existing rights to try and adapt them to the digital age. As a result, a single stream is treated as both a reproduction or copy of the song (like buying a CD) and as a performance, meaning both ‘mechanical’ and ‘public performance’ rights are invoked. Legally, this is like juggling two balls (copy and performance) with one hand. 

The value chain complexity increases with each attempt to apply legacy music industry systems to new music consumption methods. Like in computer science, increasing complexity within legacy systems leads to ‘ripple effects’ that often prevent innovation. Ripple effects can be understood as the series of unintended consequences or secondary impacts that occur when changes or modifications are made to existing systems. 

The traditional react-and-adapt approach to updating the industry’s foundations fails when modifications negatively impact other parts of the value chain. Solutions that fix one issue often spawn additional problems elsewhere, thus perpetuating a cycle of increasing complexity.

An inability to exploit emerging opportunities

Outdated infrastructure has prevented the industry from taking advantage of digital opportunities such as AI, the metaverse, and UGC on platforms like TikTok. On the most basic level, a song has two distinct components: the musical composition itself and the recorded version or ‘master recording’ of a song. At present, there is no consistent standard for connecting a musical composition with its corresponding sound recordings. 

"While musical composition data is managed through one system, sound recording data is managed using another one." - Sharp, 2023

As a result, different intellectual property rights and activities in the value chain are associated with different copyrights performed by various entities and intermediaries. A DJ creating a remix must formulate agreements with music publishers (for the composition rights) and record labels (for the master recording rights). Depending on the complexity of the remix and the number of samples used, the DJ might have to deal with an increasing number of additional intermediaries, complicating the IP management further. As such, each modification in the music value chain, like a remix, adds layers of complexity to IP management, underscoring the challenges the current fragmented system possesses.

When we include music on social media platforms, such as TikTok for example, another layer of complexity is introduced due to the nature of user-generated content. Traditionally, licensed music libraries and fingerprinting methods have failed to effectively capture and monetise these uses. With European legislation placing increased pressure on online services to secure proper licences for copyrighted material, robust metadata and licensing data management has never been more critical. 

Without a consistent data standard and a centralised repository for all copyright ownership information, IP management becomes more complex. In this context, we haven’t even begun to include technologies like AI or the metaverse. When we examine this (simplified) overview of the different intermediaries for IP management, it becomes clear how complexity builds up.

Introducing AI-generated music doesn't just add complexity; it multiplies it. Think of the original scenario, where consuming music through streaming involved juggling two types of rights: the right to copy the music and the right to perform it publicly. Now, with AI stepping in to casually create music, we're adding more "balls" to our juggling act, making it more like juggling six balls at once. When an AI creates music, determining the holder of this right becomes a puzzle. Is it the IP rightsholder whose data was used to train the model, the developer of the AI, the user who prompted the creation, or a combination of the three? How the payment flows as a result is yet another aspect to consider. 

There is a reason why music on social media has yet to represent a revenue stream for artists, why the metaverse doesn’t even have any music, and why AI is perceived as a threat. Existing copyright laws do not adequately address the complex web of ownership and usage rights associated with the remixing or user-generated content on social media or in immersive worlds. With TikTok and UMG as an industry example, these fundamental issues lead to legal ambiguities and disputes. The complexity of the industry’s value chain, in combination with legacy systems and static IP management practices, falls short of providing the necessary infrastructure needed to license music IP demanded by emerging technology use cases today.

Web3 as a way of future-proofing the music industry

If the music industry wants to capitalise on emerging technology and acknowledge tomorrow's digital consumers, it will require a more agile and future-facing approach to licensing. Establishing infrastructure that offers clear and effective IP and rights management is the first piece of the puzzle. This infrastructure would enable an auditable trail of the complex IP ownership and usage needed to align with today's digital environment. By rebuilding the foundations from the ground up, Music Protocol aims to future-proof the industry, free from the longstanding constraints that have hindered progress for decades.

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Sources:

Sharp, A. (2023). Smart royalties: Tackling the music industry’s copyright data discrepancies. https://law.unh.edu/sites/default/files/media/2023/06/sharp_lobel-2.pdf 

Soens, T. (2023). The influence of web3 on the recorded music industry.

Knibbe, J. (2021). Understanding Music Rights Data: The challenges of delivering timely royalty payments to artists. Water & Music. https://www.waterandmusic.com/understanding-music-rights-data-the-challenges-of-delivering-timely-royalty-payments-to-artists/ 

Mulligan, M. (2023, August 31). Ai, Music Rights, and known unknowns. MIDiA Research. https://www.midiaresearch.com/blog/ai-music-rights-and-known-unknowns

Gamal, A. E. (2012). The Evolution of the Music Industry in the Post-Internet Era. Scholarship Claremont. https://scholarship.claremont.edu/cmc_theses/532

Wikström, P., & DeFillippi, R. (2016). Business Innovation and Disruption in the Music Industry. Google Books. https://books.google.be/books

Competition and Markets Authority - CMA. (2022). Music and Streaming. United Kingdom Government. https://www.gov.uk/cma-cases/music-and-streaming-market-study.

A conversation with Sergio Mottola

The music industry has seen massive transformations in the digital age, yet still faces numerous challenges, particularly in managing and monetising intellectual property (IP). The Web3 Music Association, the lead contributor to the Music Protocol, aims to address these challenges by introducing new infrastructure that leverages blockchain technology to create a more efficient and transparent ecosystem.

In this interview, Sergio Mottola, President and CEO of The Web3 Music Association, discusses the journey from his work in blockchain policy to developing this project. He explores how blockchain can streamline licensing, payments, and IP management and the potential to future-proof the music industry against disruptions such as generative AI. We also delve into the public good aspects of blockchain and how it aims to reshape the relationship between artists, labels, and the music ecosystem.

You previously worked in blockchain policy before building The Web3 Music Association. Was blockchain policy always your path? How did it all begin?

Sergio: No, not at all. People often suggested I'd go into diplomacy because I’m good at building narratives. I even pursued a PhD, but I left the program - I felt the need to be practical and hands-on rather than theoretical. A lot of my professional experience came from conversations and getting things done. I spent 22 years in London, which, like for many, is where I developed my progressive thinking. At the time, I was invited to join a political party to coordinate the digital agenda and strategy. Ministries weren’t sharing how they’d approach innovation, so that became my focus: integrating new frameworks for everyone to understand. It's like a self-driving car. If a car doesn't have a driver, who is responsible—the manufacturer? How do we ensure safety? We started iterating on blockchain by addressing these basic ideas. We deployed legislative power to attract business, and now the industry has grown from 20 companies to nearly 400. Yet, when I look at the website, it still has the same 2019 report, though companies build on what we initially defined. It's interesting how it all came together.

With this background, do you think working on a Web3 project that converts a traditional Web2 industry is more challenging?

Sergio: Yes, it is. If you sell a banana as a small business in a small country, you talk to farmers and the tax office. But for music technology, there are thousands of parties to deal with. You need to build a narrative, get buy-in, deploy resources, and participate, acknowledging everyone's perspective. My research focused on ecosystem dynamics, where innovations get stuck because people don't understand. It’s not just about buying in; it's about buying into a process.

With that in mind, do you approach people the way you did when you worked in policy and regulation, or has your approach changed?

Sergio: That's an interesting question. I started in insurance, which is a good analogy because you're selling a cover for a future risk. Take life insurance: you’re asking people to pay for protection against death, which they may argue isn’t necessary. Yet, they have families and responsibilities. It's difficult for people to conceptualise innovation, leading to the "Innovation Dilemma": disruption arises from people not recognising future trends. They stick to the old ways, proving over time that new methods are valid, becoming the new business model.

Music IP has historically been managed traditionally. What challenges does it face now?

Sergio: We need to restructure and redesign commercial models between the same counterparts. Licensing still involves paperwork, sitting down, negotiating terms, and signing. The one-to-many model is a classic Web2 approach, assuming platforms like TikTok and YouTube can license with major players, maintaining the status quo. But is this the future? Or will we unpack it, moving toward a more granular market? Automation is crucial to avoid lengthy negotiations and delays. We need to scale the industry, turning music IP into a blockchain-based system, allowing more efficient processing.

Can you tell me more about the critical components of the Music Protocol and how they impact artists and labels?

Sergio: The first component is IP identification, or "IP core," ensuring ownership registration. There's no global registry for music IP, making it hard to know who to contact. Blockchain can solve this, securely identifying owners and facilitating licensing. Attributes like legal exploitation can be attached, akin to Creative Commons licences. Blockchain provides a reliable framework, tracking every transaction and ensuring smooth execution. An IP licensing engine on the blockchain would manage licences, allowing users to understand and control them.

What about payments and other features?

Sergio: Payments must be automated, ensuring the business model pays everyone involved. We also include a multi-chain bridge, which addresses crypto industry segmentation.

How does this impact labels or artists not familiar with Web3?

Sergio: The Web3 Music Association is an intermediary, registering labels' catalogues on the blockchain and facilitating integration into digital spaces. They log in, see money flowing in, and needn’t understand the technology. User-friendly interfaces can simplify interactions, automatically registering transactions on the blockchain.

That sounds great. Can you elaborate on the comparison between the electrical grid and IP infrastructure so that our readers can understand the simplicity of the technology integration?

Sergio: The Internet is a general-purpose technology, much like electricity. It's an infrastructure, not a product. People plug in their devices and expect them to work, much like the internet's gradual global expansion. Blockchain, like electricity, is an infrastructure that faces resistance similar to early electricity adoption. Yet it fundamentally transforms industries, often with unexpected consequences.

Lastly, do you see Music Protocol as a technology for the public good?

Sergio: Yes, music is cultural, and culture should be public. Blockchain ensures IP's permanence, preventing loss and making it available forever. Even if an artist dies or a company folds, their IP remains, making it effectively public.

Learn more about Music Protocol here.

Is 2024 the year Web3 takes centre stage?

When Web1 was invented in the 1990s, computer scientists envisioned a decentralised world, a digital utopia of unrestricted global connections and accessible services. But a crucial piece of the puzzle was missing: blockchain technology. Its absence led us astray from the egalitarian digital space computer scientists had dreamt of, inadvertently creating monopolies that now challenge our vision of a free society. 

As a result, a few significant players came to dominate the digital landscape, creating monopolies that now dictate how we access and use the internet – leading to data privacy, content control and limited competition issues. Web3 is genuinely an opportunity to change this. The real hurdle? We need more than technological reconstruction; we must tackle Web3’s branding problem.

Read the full article below to discover why Katy Campbell – the Executive VP of Ecosystem at the Web3 Music Association, believes we are now at a place where Web3 has the potential to move beyond small circles and into mainstream usage.

You need to start taking Web3 seriously

The digital era's impact on culture and music

Over the last few decades, the digital landscape has become so ingrained in our daily lives that it is changing culture as we know it. As we continue to transition into an increasingly online world, new generations are growing up with something we define as ‘digital culture’ – the fact that our digital society drives our ideas, customs, and social behaviour. Spearheaded by the digitally native Gen Z, digital culture is increasingly blurring the boundaries between online and offline identities. In fact, it doesn't just mold individual identities and communities; it's also reshaping entire sectors, including the music industry.

Music consumption culture has transitioned from collecting vinyl and digging for rare gems to a modern reality where the world's entire music discography is accessible from the smartphone in our pocket. Similarly, the culture of music creation and distribution underwent significant transformation. Today, anyone is able to produce high-quality music with AI or achieve overnight fame through a single viral post on social media. The music industry's evolution is a testament to the Internet's influence on our norms, habits, and cultural fabric.

This article is the summary of a comprehensive member-only report on the digital era's impact on music and culture. For more a more in-depth exploration click here.

Digital culture is shaped by a variety of key trends and developments. A significant central pillar is the rise of gaming. For many young people, virtual worlds are not just escapes - but extensions of their reality, offering a window into their collective psyche and social dynamics. Gaming culture in this sense is paving the way for the metaverse, a concept increasingly transitioning from science fiction to a potential future reality.

The creator economy, another cornerstone of our digital era, is reshaping the entertainment landscape. Platforms such as Twitch and YouTube have democratised content creation, making amateur content a mainstream form of entertainment. This cultural shift is evident in the aspirations of young people, with more of them now aspiring to be YouTube stars or influencers than professional athletes and astronauts. In fact, around 33% of children in the United States dream of becoming YouTubers or vloggers one day. 

Internet culture is also redefining community dynamics, prioritising the quality of relationships over the sheer quantity of connections. Niche, engaged, and diverse communities are thriving, proving that digital platforms can do more than just connect people - they can nurture meaningful relationships and collective identities. This fosters a sense of belonging for music lovers, making the digital era a truly inclusive space.

As digital culture continues to shape the next generation of consumers, we anticipate a shift in modern digital business models and networks. Moving away from linear, top-down approaches to circular, bottom-up models – from corporate control to network control. Many industries will be confronted with a reengineering of their composition, value creation models and overall dynamics. Meanwhile, consumers and communities will gain more control, participation, and agency. If the industry embraces digital culture and acknowledges tomorrow's consumers, it paves the way for a more dynamic and future-facing music industry.

A dynamic IP model for the music industry

The digital landscape is constantly evolving, and so is how we create and consume music. Unfortunately, the music industry's foundations were not built for this. As a result, artists struggle to fully capture and grow the value of their intellectual property (IP). Static IP management infrastructure no longer aligns with the dynamic and interactive digital landscape, nor with the expectations of digitally-native consumers like Gen Z. Music IP licensing frameworks were traditionally designed as a one-to-one transaction model, but in a world where music is consumed and interacted with in various forms and shapes, music licensing needs an upgrade to a many-to-many dynamic.

From an analogue one-to-one era to a digital many-to-many era

Traditionally, licensing IP in the music industry was characterised by one-to-one relationships, where specific licences were negotiated individually between two parties. For instance, a record label might deal directly with a single broadcaster or video game studio to allow the use of a particular piece of music. These agreements are tailored to both parties' specific needs and expectations, including the terms related to the duration, geographic scope, and financial arrangements. 

However, with advancements in digital technology and global music consumption, there's a growing need to shift towards more universal and accessible licensing models. A single piece of music requires multiple licenses for different uses or users, moving from a one-to-one to a one-to-many relationship. 

Generative AI and user-generated content on social media or in digital spaces like the metaverse further complicate licensing in the digital era. While music IP is frequently utilised in these scenarios, there are no clearly enforced usage rights or licensing terms. This evolution pushes the need to transform traditional IP management from a one-to-many model to a more complex many-to-many dynamic.

The need for a flexible and dynamic IP framework

With the continuous expansion of social media, a thriving creator economy, and high-quality music creation tools, music creation is transitioning from being the exclusive domain of traditional musicians to becoming a widely accessible form of entertainment for the everyday consumer. With indistinguishable generative AI music at our doorstep, this development is accelerating in real-time. The shift towards mass consumer-driven music creation stretches the boundaries of our current understanding of music rights and necessitates the introduction of entirely new licensing mechanisms. The industry needs a flexible and dynamic IP framework that protects IP, supports the extensive and varied use of music across the Internet, and allows for mass licensing on a global scale.

What is dynamic music IP?

A dynamic IP asset represents a digitally adaptable, programmable, and expandable form of traditional intellectual property. It incorporates software modules that can be seen as "APIs" that automatically enforce pre-set terms and conditions for its use on the Internet. Embedding the rights and licensing agreements directly within the digital IP asset enables the creation of "IP derivatives" that build upon the IP base. This allows for the widespread use and further distribution of IP across various applications, platforms, and media - all supported with an auditable trace of use, without the manual licensing negotiations currently required, and ensuring that royalties are paid out in real-time. Imagine a system where music IP is not static but fluid, adapting in real-time to different uses across the Internet. This means that a song could seamlessly transition from being played on a metaverse radio in the morning to being used for AI model training in the afternoon and then sampled in a user-generated video on TikTok by evening.

A foundation for dynamic music IP

The vision of a dynamic IP future demands a rethinking of the industry's traditional structures and principles. In this context, Music Protocol lays the foundation for dynamic IP to thrive, serving as infrastructure that manages the complex relationships between IP assets, its creators, and its users. By future-proofing the industry’s foundations, the music industry will unlock its full creative and economic potential, paving the way for growth.

The role of dynamic music IP in gaming and the metaverse

Gaming has evolved beyond previous stereotypes and emerged as an interactive form of entertainment enjoyed by people of all ages and backgrounds. The metaverse—a futuristic internet space defined and connected through interactive (3D) environments— extends these gaming experiences beyond the traditional formats. But why is this evolution so significant? Games and metaverses are different from other forms of media because they have the element of interactivity that is not found anywhere else. Interactivity provides layers of immersion and engagement to tell stories in ways no other medium can. While it's uncertain how the metaverse will evolve over the coming years, one thing is clear: the growth of immersive experiences opens up new possibilities for the music industry.

Why the metaverse remains untapped potential for the majority of the music industry

To incorporate music in film or tv, there is a known standard on licensing – defining what can and cannot be done. This does not currently exist in the metaverse. Consider the scenario of an artist who wants to license one of his songs to be utilised within a metaverse game. In such a scenario, the rightsholder must individually negotiate the IP license on a one-to-one basis. The negotiations for such licenses can become exceedingly complex and expensive, given the need to determine terms around usage rights, distribution, and royalties in environments still being defined legally and commercially today. Whenever the rightsholder wants to license the same IP for similar purposes, they must start negotiations from scratch. The situation is even more daunting for independent artists or smaller entities, as they often don't fully comprehend the IP rights related to music licensing and lack the resources to engage in such negotiations. The current static model of intellectual property management effectively limits participation to large and well-resourced rightsholders. 

The complexities of IP rights in the digital age

In the metaverse, users aren't just playing a game; they're blurring the boundaries between player and creator. Beyond traditional consumption, the metaverse offers immersive, interactive experiences where users actively engage with content. Music creation tools within virtual environments could empower users to co-create, remix, and share music throughout those worlds.

Consider the scenario where a radio automatically starts playing when someone enters a virtual car in the metaverse. In this case, the radio owner is able to select certain licensed songs to be played when someone enters the car. However, they might wish to modify various elements like the tempo, style or overall ambience to align with particular in-game conditions, such as the in-game time of day or the type of car they are driving. If the user likes the remix being played, they could add it to their in-game catalogue and perhaps sell it in on a marketplace for others to enjoy. Unfortunately, existing copyright laws do not adequately address the complex web of ownership and usage rights associated with this kind of remixing or user-generated content in immersive worlds, leading to legal ambiguities and disputes. As a result, these kinds of use cases are not possible today. The dynamics of gaming and the metaverse demand more from music IP than what is currently provided.

Towards a dynamic licensing model for the metaverse

The high-friction process of negotiating licenses one-to-one in the metaverse excessively burdens artists and labels, making it impractical to consider spending time and money on these potential opportunities. This necessitates a more dynamic approach where intellectual property owners can establish digital licensing terms and conditions for anyone to access and exploit – in any application or environment. This many-to-many licensing mechanism would enable a scalable foundation for the widespread use of IP beyond traditional formats, allowing the IP's value to grow and expand.

What is the role of blockchain in dynamic IP licensing?

Blockchain presents the infrastructure needed to reshape the interactions among creators, users, and intellectual property within new digital environments like the metaverse. "Real-world-asset (RWA) tokenisation" is central to this process, offering a method to convert traditional IP and its associated rights into programmable digital tokens on the blockchain. The tokenisation of music IP streamlines traditional licensing processes, significantly reducing the time and costs linked to conventional IP management. By programming the rules of engagement within digital tokens, music IP can be mass-licensed without having to negotiate specific terms on a one-to-one basis. Establishing an open, transparent, and flexible blockchain-based framework for music IP management will pave the way for new music (co-)creation, remixing, and sampling opportunities.

Embracing AI while protecting IP

As artificial intelligence continues to be intertwined with our daily lives, its impact on music is increasingly prevalent. From initial composition to the final phases of distribution and marketing, the entire music industry value chain is being impacted. AI applications in music range from simple recommendation systems and supportive tools to advanced generative AI models. Among the most prominent use cases are text-to-music generators like Suno, automated mixing and mastering solutions such as Roex, and vocal cloning apps like Kits.

The duality of AI in the music industry

AI in the music industry can be seen as a double-edged sword – an opportunity for increased creativity and efficiency versus a serious threat to IP & copyright protection. While AI holds promise, the majority believe the risks outweigh its opportunities. The inevitability of AI’s future necessitates an urgent industry commitment to establishing mechanisms that guarantee responsible and ethical utilisation of this technology in order for the opportunities to truly shine. 

AI music challenges

At the heart of the issue is whether and how generative AI is permitted to use copyrighted content as input for AI model training. Unfortunately, copyright law was not designed for AI, so no clear answer to this question currently exists. Consequently, the industry currently faces four main challenges: preventing copyright infringement and unethical use of IP, identifying AI-generated music, and establishing mechanisms for fair compensation.

There are no mechanisms to protect IP & prevent copyright infringement

AI models analyse large amounts of musical data from every corner of the internet. They then discover patterns, learn from this data, and generate new sounds. AI models can thus be trained on an artist's IP without their consent or authorisation. Since copyright law was not defined with AI in mind, uncertainty exists if IP is even protected from AI in a legal sense.

There are no mechanisms for fair compensation

IP rightsholders seldom receive compensation when AI-generated music is derived from their IP. Following the “Heart on My Sleeve” case, many have taken legal action regarding copyright infringement and lack of compensation for rightsholders. Comparable lawsuits involving the legal implications of AI are currently making their way through courtrooms, and this issue is expected to escalate as the utilisation of AI increases.

There are no mechanisms to identify AI-generated music

Whenever an AI model generates an output, no labelling mechanism identifies it as AI-generated content. This means there currently exists no way to distinguish AI-generated music from human-made music.

There are no mechanisms to prevent unethical use

As AI-generated music or voice models reach a stage where they are almost indistinguishable from their human counterparts, more ethical considerations emerge regarding unethical use cases - such as spreading hate speech using someone’s voice clone. No mechanisms exist to penalise those who spread unauthorised content using an artist's voice clone.

How does blockchain empower AI while protecting IP?

To ensure fair and ethical use of AI music, it is crucial to establish a system that provides efficient and transparent mechanisms for IP ownership, licensing, distribution, and provenance. Blockchain technology can reform how rights are managed, licensed, and compensated - bringing efficiency and clarity to the sector.

The transparent, decentralised, and immutable nature of blockchain, combined with tokenisation - a process of converting the rights of an asset into a digital token on a blockchain - enables musicians and rights holders to establish undisputed digital ownership of their IP. While much of blockchain’s interest revolves around finance, its fundamental purpose is verifying authenticity. This tokenisation process, usually in the form of a non-fungible token (NFT), means that all information surrounding the IP is digitally preserved about who created what, who owns what, and where it is used. 

Rightsholders can then programme authorisation and usage rights into their tokenised IP. This allows smart contracts to perform certain automated processes, such as transferring ownership, managing royalty distribution, or licensing copyrights for AI model training. 

When a rightsholder chooses to license their tokenised IP for AI model training, blockchain can ensure complete provenance of the process. Since the process is traceable from the moment of IP registration, through AI model training, and ultimately to consumption - rightsholders could automatically earn royalties whenever an AI model trains or produces content that includes their IP.

A transparent tokenised process ultimately empowers both sides of the coin. Rightsholders gain the ability to control and monetise their IP, while companies developing AI models avoid legal disputes. In this way, blockchain technology and tokenisation provide a transparent foundation for establishing fair and ethical ownership, licensing, distribution, and monetisation mechanisms for AI-generated music.

Opening new investment horizons in music through RWA tokenisation

Over the past few years, institutional investors have attracted significant interest in music catalogue investments. This is primarily due to streaming royalties' long-term predictability and consistency. However, due to the absence of a public, open market for music intellectual property (IP), music is not an easily accessible asset class for most institutional and retail financial players. This highlights the need for innovation in IP infrastructure in order to unlock the industry's full economic potential and pave the way for new investment opportunities.

Streaming changed the financial structure of the industry

From 2010 to 2022, the alternative investments market has risen from $3 trillion to $12 trillion globally (Preqin Pro, Sifma). A study from Bain & company further indicates that there are still growth opportunities, with $8 to $12 trillion of household funds available for alternative investments. Over the years, music has become one of those recognised alternative asset classes. 

“ I think everyone realized that publishing catalogs were assets you could finance, like a building… So investment bankers, hedge funds, private equity - they all look at this as an asset class.”

- Martin Bandier, former CEO and Chairman of Sony / ATV Publishing

Before streaming, music was seen as an asset class with event-focused returns and heavily dependent on the right owner's ability to develop a business around music content. Streaming transitioned the industry’s cash flow from launch and event-focused to a more consistent revenue stream driven by recurring, predictable subscription payments and advertising. This had a strong effect on how investors perceived music. Naturally, investments in music still carry a distinct risk profile, including the unpredictability of music trends and consumer behaviour.

The lack of infrastructure has been a barrier to alternative asset investments

The lack of technological infrastructure has been the main barrier identified by Bain & Company for the growth of alternative investment into asset classes. Outdated intellectual property infrastructure and a lack of an open IP market make music a less accessible and illiquid asset class, especially for those outside the industry. The lack of a market infrastructure significantly limits the flow of investments, restricting them to large exclusive deals accessible to very few institutional counterparties today. It is almost always one-to-one deals, with a single counterparty, often for very high amounts (e.g. Bruce Springsteen’s catalogue for $500 million to Sony).

Real World Asset (RWA) tokenisation promises to transform IP management and transform the investment landscape

The advent of blockchain technology, particularly the concept of “Real World Asset" tokenisation, could present a significant turning point for the industry. "Music IP tokenisation" refers to the process of representing conventional music intellectual property through digital tokens on the blockchain. This process extends beyond just the IP itself to contain the vast array of associated rights, ranging from royalty- and copyrights to distribution- and sampling rights.

• McKinsey [1], and Citigroup [2] indicate it to become a staggering 5 trillion-dollar marketcap by 2030

• Blackrock CEO says that tokenisation “will be the next generation for markets” [3]

• Boston Consulting Group see a $16 trillion opportunity for illiquid asset tokenisation by 2030 [4]

The tokenisation of music IP on blockchain infrastructure transforms the investment landscape by disaggregating the IP (and its rights) into smaller, tradable units. Through this process, the Web3 Music Association seeks to develop an open, transparent market for music IP, ensuring global access and liquidity around the clock. Additionally, tokenisation promises to digitise and streamline the processes of licensing, royalty distribution, and other revenue-generating activities. For investors, these streamlined processes translate to potentially more stable and consistent streams from their investments.

Beyond streamlining existing processes and opening up new avenues for investment, tokenisation paves the way for new use cases and business models. One example is introducing tokenised music IP into the broader DeFi ecosystem. This integration would facilitate IP-backed loans, efficient IP price discovery mechanisms, and other IP-centric financial products, thereby enhancing the value of music IP and rendering it a more attractive asset class.

Blockchain stands out as a promising solution for establishing efficient market infrastructure

While music has historically been an inaccessible and illiquid investment class, blockchain technology emerges as a potential solution - offering robust infrastructure for tokenising music IP. This innovative approach to managing IP enables the creation of a public and open market for music. An tokenised market is more accessible, liquid, and transparent than traditional systems today, presenting new opportunities for investors and creators alike. This promise stands to unlock the full economic potential of the music industry and open up new avenues for investment.

You can read more about the opportunities tokenisation offers in our member-only report here.