A New Old Business Model

For over a century, the business model for selling music was delivering recorded media to the customer. Possession of the recording on cylinder, disc or tape, provided the ability for the music to be played whenever the customer wanted to hear it. Musicians and composers were paid, in part, according to the number of recordings sold. When computer storage, processing and network speeds could support transmission and playback of digital audio, streaming became the preferred way to experience music and play it on demand. The term duplication, became meaningless, since no physical media existed. The price of distribution dropped to almost nothing thanks to home Internet. Payment to musicians and composers became based on the number of streams. However, unlike physical media that paid artists 10 to 25 percent of net sales, less packaging, a stream, which has no innate value, pays in most cases, less than $0.01 USD. A stream is like listening to a radio station since the customer does not have to have a personal copy of the music to hear it. But unlike radio, even without a personal copy, a customer can play a song whenever they want, eliminating an important source of income for artists. While the economics are good for a nationally known musician or composer, they are not for a relatively unknown independent artist. The difference in being able to sell a recording, as opposed to streaming, is huge. Play on Demand (PoD) was, by nature, a part of the product when a physical recording was purchased. Interestingly, though unrecognized, it was the most important part of the product.

If a musician or composer sold about 20,000 physical recordings in 1987 at a 10 dollar retail price, not including packaging, then they would have earned about 30,000 dollars, which was a typical middle class income at that time. Today, to account for inflation, that income would be conservatively doubled. Given a generous rate of about one cent per stream, to earn a middle class income now, at least 65 million streams per year would be needed. Let’s stop for a second to let that sink in. In 1987, by reaching 20,000 fans, a musician could support their career, but now, they would need 65,000,000. Way back in November of 2012, Damon Krukowski, a former member of Galaxie 500, Magic Hour and most recently, Damon and Naomi, pointed out that, “Pressing 1,000 singles in 1988 gave us the earning potential of more than 13 million streams in 2012. (And people say the internet is a bonanza for young bands...)” We note that sadly, things have not gotten better in the last decade.

To create an economic model that supports a vibrant music industry, Play on Demand must have the same value as purchasing a physical recording, because the true value of the physical recording was Play on Demand. Some streaming services, such as Apple iTunes and Amazon Prime Music, started with models in which customers purchased music. The companies kept (and still must keep) a database containing anyone who purchased a song. Due to the complexity and expense of having to maintain that database, into perpetuity, even those companies have begun to steer users toward a streaming subscription model. In order for the foundation of the music industry, musicians, composers, arrangers, sound engineers, producers, etc. to remain financially viable, the economics of music have to change. Otherwise, there will be no professional musicians without recording or performance contracts. Independent musicians will have to work a full time job rather than cultivating their music. The professional independent music scene will fade away to be replaced by amateurs playing for recognition in the hopes of gaining a recording and distribution contract.

Our technology replaces the purchase of a physical recording, with the purchase of a Play on Demand (PoD) license that is registered on a block chain with an Ethereum derived NFT technology and smart contract. This means that music can once again be sold at market value and the content creators will be able to earn a reasonable living without having to reach fans in the tens of millions. We must point out that the NFT is not coupled with some kind of digital copy of the music, which is currently the typical way to sell music through an NFT. The new music economy will be based on Non-Fungible Token integrated Play On Demand. We call them NFTiPoDs which is pronounced like, “Nifty Pods”.

Music sales through our NFTiPoD technology will work like this. When a song is released, with its Play on Demand right reserved, a series of NFTs with a smart contract (more on this later) will be created. Since there is no pressing or reproduction costs, the only expense will be the standard amount needed for creating Consecutive Transfer NFTs. NFTiPoDs will be sold by the artist on an open exchange, such as Open Sea, through an online retail store, a brick and mortar retail store, or through streaming services such as Spotify, Apple iTunes, Pandora, Amazon Prime Music, etc.. Rather than 10 to 25% of the sale, as was typical for physical recordings, the NFTiPoD owner (for the first sale, the content creators) will receive 90% of the sale price, with 10% going to the sales channel. Interestingly, once owned, a NFTiPod can be resold by its owner, creating a secondary market for music. Due to the smart contract, which is executed for each transfer in ownership, there is an owner amount (89%), a sales channel amount (10%) and the content creators are also compensated a small amount (1%). Smart contracts expressed by Ethereum block chain technology, provide a way to compensate not only the seller, but others when transactions takes place.

Since Play on Demand is not granted without a NFTiPoD, although the song can be included in play lists and Internet radio, which is considered programmed play as opposed to Play on Demand, streaming providers may not service a listener request without first confirming that the listener has a valid Play On Demand license, as identified by a NFTiPod. The Fair Trade Music Distribution Group will provide an API by which streaming providers can almost instantaneously verify that one of their listeners is on the song’s ownership blockchain. If the listener is not, the streaming service will be provided an interface by which a NFTiPoD can be sold to their user, at whatever market price they deem fit. In today’s economics, comparing to iTunes and Prime Music, that price will be between 99 cents and $1.29, with the streaming provider collecting the sales channel percentage discussed earlier. Once the listener has purchased the NFTiPoD, they may Play on Demand with any other streaming music provider, with which they have a subscription. From then on, for the user, the verification is invisible. Note that the user’s music license library is stored on blockchains, so the songs they have purchased are available everywhere. Since the user is paying for a streaming subscription, they do not have to physically store the music. Currently, only about 6% of music is downloaded, so the streaming model will continue to dominate. Since Play on Demand, adds a one time cost for the listener, artists and streaming providers must underscore that almost all of the revenue, goes to the artist to support creating more content. Remember, that the content creators are the first owner of the NFTiPoD and so receive 90% of the first sale. For maintaining and servicing an API for streaming providers, FTMDG will receive a small token amount for each validation transaction from streaming providers. This amount is insignificant, but by processing hundreds of millions of validations, FTMDG can underwrite its computer processing and code development, while maintaining profitability.

The key to our technology is not disturbing the economic model for streaming providers. It is important to realize that the technology does not compete with streaming providers, but provides a convenient API for music ownership verification while also extending new earning potential via license ownership. Listeners will rest assured that the money they are spending to purchase a NFTiPoD, is going to their favorite artists, since the artist is the initial owner of the NFTiPoD. With our technology, NFTiPoDs are bestowed innate value, unlike recent speculative NFTs, because they provide the owner with Play on Demand capability from any and all streaming services. But, more importantly, music once again has value.