Will Tokenization Help Music Producers?
An exploration of whether tokenization of samples can offer a better and more reliable future for music producers
Tokenization of Samples
Twitter recently surfaced the below post to me and I felt inspired to write a thread on it; but it quickly outgrew that possibility and is now in its current form as this article. Given that I had set out to write a Twitter thread and not a blogpost, I’ll let this post flow somewhat colloquially - unstructured and unpolished.
The general idea presented here is the following:
Create a platform that allows producers to monetize their sample packs. Allow buyers to trade those samples like collectibles or speculative assets.
The motivation is that this will allow producers to get more monetary value from unused samples. I think the motivation behind this idea is awesome to see. It’s this kind of creative energy that we need to drive novel value generation in this space.
I decided to spend some time seriously considering this proposal and what follows below is my analysis on that idea. I’ll try to talk about it without referencing web2/web3/NFT/etc terminology. Let’s see if we can dissect the core proposal and understand the tools needed for the job - at least as a first, rough attempt.
The Problem and Solution Space
Any good proposal starts with identifying problems with the current solution space.
We already have platforms today that allow producers to monetize their samples. Two issues with the current system are described here:
The first issue makes sense. Often you’ll see samples reposted in Reddit threads - Vengeance as a classic example. This will be true in any system. Once someone has downloadable access to a file, piracy like this is inevitable.
The second issue is mostly a non-issue to me. Samples that are not solely shared within dedicated distribution platforms are unable to be “ownership-attributable”. More clearly, if the only way for you to access my sample packs is through authentication on a certain platform, then ownership attribution is relatively easy. In other words still, the second issue is mainly a distribution choice problem. As a producer, I need to (a) have available and (b) choose to only distribute my samples through these kinds of platforms.
So how do we solve for these issues?
We could never allow downloads
We only distribute our samples through an authentication gated platform.
As far as I know, there’s no discernible way to prevent piracy if we allow downloads. There are surely things we can do to deter it, but to me solving that problem requires an entirely different system than solving problem #2. I spent a good amount of time trying to figure out what such a system would look like, but the number of variables that come up and different points of failure is pretty large and dynamic.
Let’s just focus on #2 for now since #1 is beyond the technical scope here.
Proving Ownership Rights
Now, given that I am using an authentication gated platform for distributing my sample packs, I can both:
Know who has rights to my samples
Distribute value back to those accounts. In order to distribute value back, I’ll need to have an account balance on the platform and a platform-provided service to allocate those funds.
Straightforward. Ownership solved. We’ve known how to build and use these kinds of systems for years so this problem isn’t that interesting to solve or talk about.
What about building a system that makes this re-distribution more seamless? What would that look like? It would probably be one where I don’t ever have to manually update balances or distribute funds myself. I want a platform to take care of it for me.
In order for something like this to work, what I’ll need is for entities like PROs & businesses reporting to PROs to have built an integrated system that automates this transfer of value. I’ll ofc need to do some setup on my end as well to let someone in this pipeline know where my account is so they can pay me. Ideally it’s an account connected in some way to the distribution platform.
It’s not rocket science. It’s the music business.
Sounds like a great idea right? A lot of Silicon Valley operates like this where value/data/ID is relatively easily transferred between platforms. Why isn’t this the case in music? Will the sample distribution platform that we’ve discussed so far help with this problem? No, because what we need to fix is several levels deeper than what this distribution platform addresses by itself.
This is a very hard but super important problem to try and solve. Given the byzantine structure of music copyright/attribution, it takes a long time for the right ppl to get paid; and often many don’t ever get paid. It’s ~$2.5B market of unrealized revenue.
We need a different set of tools to solve this particular issue, most of which comes down to a human coordination problem rather than a technical one.
But what if!
“But what if we built this distribution platform on top of a native payments system1?”, you might ask. That still doesn’t solve the attribution problem because we will still need to find a way to coordinate integrated digitalization of all the systems in that diagram above.
For the time being, let’s table this behemoth of a problem, narrow our focus to the core proposal from the original tweet thread and go back to our basic distribution platform.
Tokenization and Collectibles
Let’s say that instead of selling my samples as traditional packs, I wanted to sell exclusive 1:1 rights to any individual sample that came with shared royalty rights.
Could I use the traditional distribution platform that we’ve been discussing to accomplish this? Sure! All we need are authenticated accounts and a database; and we have all those things here. Awesome. I don’t have to overcomplicate this design which is a great thing to be able to build, deploy, and iterate quickly.
Bang for my buck
Ok, now let’s say as a producer, I have my pick between two very similar competitors. How do I choose which one to distribute these collectibles on? Probably the one that will give me more bang for my buck, which is essentially a function of:
Bang_for_my_buck ~= Volume_traded * Average_price_per_unit
~= means “is proportional to” here
So that looks like if the number of samples traded goes up, then more bang for my buck; because higher chance that my sample passes through more hands and thus accumulates more revenue with every trade. If the average price per sample goes up in this marketplace, then same outcome.
Sounds like a constantly growing positive outcome. But ofc, there’s always a but…
The catch
Volume_traded
and Average_price_per_unit
are related. A change in one can affect the other in many ways. We can’t assume that both will always grow positively together. On top of that, to make things more complicated, each of these is a function of demand which is a function of time and market dynamics. Bottom line is that I need to make sure that I take into account which baskets I put my eggs in.
Unfortunately, because of this catch, it’s not really true that we’ll be able to help an infinite number of producers. At least, I don’t realistically see it happening.
Nor will we be giving more power to creators through these methods alone.
The Feeling of Potential
All that aside, let’s say what I really care about is to be able to tell what makes one platform more special than the other. Because it at least feels like one is more different right? It feels like one of them has this potential to drastically change my outcome but so far what we’ve talked about hasn’t touched on that.
One difference is that one platform is censorship resistant. But do I really care about that here? Not really. It’s like icing on top of a cherry that’s on top of icing on top of a cherry on top of a cake.
Another difference is that this same platform is “theoretically” decentralized. Aka another platform/marketplace can start hosting my samples for me without needing me to upload them again. That’s neat, though another double-icing-double-cherry cake…not game changing here.
The other main difference is one that we’ve actually already touched on a little but worth reiterating: this platform is built within an economic ecosystem ripe with speculative trading. What that means is that you’ll probably need a lot of $$ to buy samples here. It’s partly why this platform is so enticing: in its current state, I get more bang for my buck given the nature of this hyperfinancialized speculative trading.
Opportunity Costs
Are there any opportunity costs to this platform? Some:
User interface can be complicated and user error can lead to large losses in value. These kinds of issues are unfortunately very common and easy to occur. I think in time, however, they may be fixed.
You need lots of $ to buy in and chances are that many of your fans will get priced out from ever owning a collectible. In various music circles, there are active discussions/acknowledgements/concerns on whether the speculative buyers are fans or not. But maybe this is a non-issue and doesn’t matter! Though it is important to recognize that when these fans get priced out, the people collecting ROI on your royalties may be of an entirely different class. We should be prudent to recognize this realism to stave off cognitive dissonance.
Unhinged speculation on this platform sometimes leads to shady trading practices like wash trading. I haven’t gone too deep into the reports on how widespread this is, but I imagine it’s activity like this that could cause collapse of a financial ecosystem.
Given that the following Tweet is most likely true, it also is probably true that most of the buyers, alluded to below, won’t be able to own a collectible in this new marketplace. See point #2 above.
Legal overhead. To be fair, this same issue is possible in our first basic platform. It’s not the platform that brings this overhead, but the thing that is being sold/bought. When ideas like “speculative assets” and “expected return from the efforts of others” get put in the mix, legal overhead becomes inevitable. A tangential example of why the “type” of platform doesn’t matter in finding solutions is to look at SongVest vs Royal. Two platforms, offering very similar products, but built in different ecosystems. Hardly any difference.
Final Thoughts & What Ifs
To answer the final question posed in that original thread:
What if there was such a platform? What would change?
In the short run: some lucky producers will do well; others will do alright; most will have little to no luck. These systems don’t address discoverability.
In the long run: probably not much, because we’ve had capabilities for these systems and even probably have had many of these systems for years if not decades. The landscape hasn’t really changed with these new platforms.
The only tangible difference now between launching the proposal being discussed here on “Platform 1” vs “Platform 2” is the amount of $ being speculatively traded in one system vs the other. As a result, that speculation is driving development mainly focused on keeping that very same speculation propped up, whether intentionally or not. It may not necessarily be a house of cards all the way down, but it also may not end up being a house any much taller than the one we have now.
So, while this alternative distribution platform feels revolutionary, it’s probably not going to change much if we don’t tackle the real structural issues first.
Passing thoughts:
Maybe you read this and thought, ok this guy is an idiot. It’s possible. If you think I am wrong somewhere or am missing something obvious, I’d want to know → @therealcritiq
To kryptomaniak5: if I’ve mischaracterized something you’ve said, please let me know.
The idea of an Internet Protocol native payments layer is very enticing. If such a thing were to come to fruition, I could see a future where browsers, for example, came shipped with payment profiles. No need for extensions like MetaMask. The payment layer would be just as native as HTTP/SSL/TCP etc. This isn’t a particularly new idea, but exciting nonetheless.