The Legit Ledger Podcast Ep. 17
Trends and Innovations with NFT-Based Music (Part 1)
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Listen to the original podcast released February 14, 2023 here:
https://www.sheppard.com/multimedia-455
In this episode of the Legit Ledger, Achilleas Sarantaris of Async Art joins Sheppard Mullin attorney Sam Cohen to discuss the latest trends and innovations with NFT-based music, including common use cases, Soulbound and generative NFTs, and granting commercial rights to music through NFTs.
Guests:
About Achilleas Sarantaris
Achilleas Sarantaris is leading product at Async Art, an innovative platform exploring ways NFTs make sense above and beyond purely speculative use cases. A musician who’s been on both sides of the music industry, Achilleas is also pursuing a research degree in Philosophy at UCL in the United Kingdom.
About Samuel J. Cohen
Sam is an associate in Sheppard Mullin’s Entertainment, Technology, and Advertising Practice Group in its New York City office. He represents emerging and established companies and creators in their business ventures across all facets of the entertainment and media industries, and frequently advises on transactions, intellectual property, and regulatory issues involving music licensing and exploitation, and disruptive technologies including NFTs, blockchain technology, interactive media, and broader web3 matters. A former in-house counsel at Sony Music, his extensive experience within the music industry allows Sam to provide artists, record labels, publishers, distributors, performing rights organizations, and other media companies with the guidance needed to effectively navigate the music, technology, and intellectual property aspects of their business endeavors and strategic transactions.
Transcript:
Sam Cohen:
Welcome to another episode of The Legit Ledger. We are going to be discussing some of the trends and use cases we are seeing specifically in the world of music. My name is Sam, I'm an associate in the entertainment, technology and advertising practice at Sheppard Mullin and I'm excited to speak with our guest Achilleas of the innovative NFT platform Async art to discuss some of these issues. Before we get into it, Achilleas, why don't you give a quick background on yourself?
Achilleas Sarantaris:
Yeah, hi Sam. Very happy to be here. So I have quite a, I guess, diverse range of things I've done in the last few years. I'm still, as a matter of fact, enrolled in a philosophy research degree at UCL. I'm a musician as well. So I've sort of seen the music world from the industry side, we were signed to Sony Records and Warner Chapel Records for a long time until we decide to go a bit more DIY. Now I lead product of Async Arts where we are trying to figure out ways in which NFTs make sense above and beyond, I'd say, purely speculative use cases.
Sam Cohen:
Great, thank you Achilleas. So to get into it now obviously the crypto winter is rolling on. However, the music industry continues to experiment with projects and activations that explore a variety of opportunities and use cases that NFTs and other aspects of blockchain technology offer to musicians, artists, creators, platforms, record labels, and other rights holders. Given the status quo when it comes to popular music and copyright law, institutional stakeholders will be slower to adapt to certain use cases, and I'd say the entire conversation is still quite in its infancy. But major players do already see the potential value and are getting involved in various capacities. Just for example Universal Music, the biggest record label in the world, formed the NFT based band Kingship featuring Bored Ape band members with music and content released to their 5,000 NFT owners. Warner Music, one of the other biggest record labels in the industry, is launching a Web3 music platform with Polygon and Open Sea. Even MasterCard recently announced a music accelerator program in partnership with the Polygon blockchain.
To quote the very relevant, "The music industry is and always has been irrevocably tied to technology and players in this space have always been the early adopters." So just to give a brief overview on some of the common use cases that we've seen in the initial stages of this technology are things like membership clubs, NFT ticketing, virtual concerts, collectibles, digital memorabilia and goods, even software for producing and minting NFTs on chain. Blockchain based streaming services, tokenized royalty sharing, which potentially indicates securities laws, which is outside the scope of this particular episode.
I'll note that an NFT does not need to have audio attached to it to be considered a music NFT or within the realm of music NFTs. Tens of millions of dollars in sales have already been generated from NFTs that don't have audio directly tied to it, but the value is still directly tied to a musician, artist, or music brand offering various off chain benefits. These new revenue streams, community building initiatives and promotional tools are starting to help both artists and rights holders engage with fans and create new paths to growing their popularity and success outside of the traditional streaming model. Async Art I think is taking it a step even further. Achilleas, could you give us a brief overview on Async Art?
Achilleas Sarantaris:
Yeah, sure. So Async Art was born a couple years back, three years now 2020, with the aim of I guess understanding how you can use a blockchain for creative purposes rather than using the blockchain as a repository through which accounting purposes are carried out. Which I think was sort of, might be the most clear use case for an objective ledger. So what we started off with was programmable art, which was art that changes based on audience input. The result and changes in a way stamped on the chain so everyone agrees as to the objective status of a given art piece. Then we moved to generative art and music, which was essentially using approval randomness from on-chain entropy to generate unique variations of songs and art pieces that they were then collected by fans. So each fan would have a unique song that they get purely by interacting with the blockchain.
We are about to launch our third product, which is still sort of under the hood, but its fundamental attributes are that it kind of combines these two aspects together. I don't want to spoil too much because we haven't announced it yet, but I would love to talk about the wider context through which I think that this makes sense and it has a future, which is essentially trying to imbue digital objects in the form of NFTs with actions that you can have on-chain results with. So using this, almost sort of gamifying these assets and having use cases for them, that leads to feeling intimate or sort of close with the artist through the NFT of which you're collecting. So taking a step further, I guess the idea of collecting in the very looseness of the word, collecting, you collect vinyls or you collect posters or tickets or even Spotify playlists. I see collecting as a much bigger thing than a purely financial activity and trying to figure out exactly what a blockchain could be used for in that respect.
Now I want to sort of, I guess take that a step further and say the fundamental question that I think everyone's thinking about now, and it's about time especially you said in the crypto winter, is what do you actually need the blockchain for? I think that's a very fundamental question that hasn't really had the sort of attention it deserves. A bunch of the things that people are doing with NFTs now, or are planning to do, or in some cases I've hinted at can be very easily achieved and even in a much more sustainable and efficient way using centralized ledgers, like gaming and online gaming. MMORPGs, starting with World of Warcraft 20 years ago, all the way to Fortnite have a vibrant digital economy that is absolutely sort of like no one's complaining about it. Well there are some complaints I guess, but the fundamentals are there.
You can sort of trade things without having to use a blockchain, which is very slow. In terms of the more accounting uses and aspects of the music industry publishing and royalty recording societies are a bit slow and have some issues, but they kind of work okay. The kind of issues that you could see using a blockchain might even be sort of, there might be other complexities at hand. So at least for me and for Async, the fundamental question is what kind of use cases are unlocked by a blockchain that are impossible otherwise and have a lot of value add there. For me, I'd say the two sort of like, and we'll discuss either of these if you want or something else as well. The two fundamental ones in a very high level are composability. So the ability that the blockchain gives its users to essentially interact with each other in a permissionless manner and buildup of assets in a permissionless manner. I think that's very exciting and very interesting.
The second one, I don't think there's a term for necessarily just now, but something like objectivity. I guess trustlessness is the sort of way it's used when it comes to financial transactions. But in terms of assets themselves it's the fact that you can prove things on-chain beyond a reasonable doubt. So a certain action was taken or that certain credentials are met. Of course all of these things are limited by the fact that they cannot be off world data necessarily. There's a big problem there. But in terms of on-chain uses, objectivity is something that you get for free by using a blockchain. So composability and objectivity, I think very tightly rated concepts, their applications on music NFTs, music in general and NFTs in general, I think are at least what excites me the most because I feel they are things that are impossible to attain without using centralized ledger.
Sam Cohen:
Right. Agreed with all that. To drill into it a little more regarding your comments regarding composability, one of the trends we're seeing recently and that seemed to have a lot of potential and a lot of variety in the use cases is generative music. That's kind of a very broad term around NFT experiences that are interactive for fans in some ways, I'll give a quick overview. Generally the two models of generative music that we're seeing are artificially intelligence powered, fully automated and randomized. Some projects are fully automated and are composed by AI and can be generated at scale. Oftentimes what the output is, is a randomly generated piece of music, sometimes accompanied by a piece of art and it can be generated at scale and randomness at its core. There's also generative music that heavily involves the artists in the creation process, further to what Achilleas was talking about.
Then uses the system to take the creativity and generate different variations of an initial artwork or a music piece. Really kind of changing the game when it comes to how fans can interact with artists and interact with the music itself. But further to what you were saying, Achilleas, another trend I think that is becoming relevant that you sort of alluded to are Soulbound NFTs. These are non-tradable NFTs that can't be transferred or sold post minting and are not meant to have market value. There's a variety of ways it could be used. For example, if you want to drop an NFT at a music event to the people attending the event that evidences that they were there at the event a Soulbound NFT could be used, which makes sense because an NFT that can be traded wouldn't really make sense in this case because if you're getting the NFT because you were at the event really only you should have the NFT. Shouldn't be able to transfer the NFT to somebody who wasn't at that event. So a Soulbound NFT, that's a very quick example of how a Soulbound NFT could be used in the context of a concert where the artist wants to have a way of giving the fans a way to show that, "Hey, I was at this concert, I was there." Achilleas, what are some of your thoughts around Soulbound NFTs?
Achilleas Sarantaris:
Yeah, so I guess we can take this the other way around, so Soulbound then discuss a bit the generative stuff as well. I sort of roughly see the parallels here that Soulbound relate a lot to the objectivity thing I was discussing, and generative relates to all the composability aspect. So Soulbound NFTs are very interesting and I'm sort of almost obsessed with them. Partly because they are exactly the opposite of what the NFT world has been about so far. These things are not tradable, you can't make a profit based on Soulbound NFTs. The majority of use cases we've seen so far in this space have been financial or speculative or art market-like experiences where the promise of buying an digital object is ... The reason why it's not the same as a sword in World of Warcraft or a Spotify subscription is that you can resell it later down the line so you're sort of being a patron and then you support someone but then you keep that thing and it's yours.
Well this thing is yours but it's only yours. So there's no financial incentives there. However, I think it opens up a whole another possible, I think, very exciting, very promising aspect of the blockchain, which is, as you said, proof of any kind of interaction you want proof, especially if it can be codified in some way on-chain. The first layer of that, I guess, which we're kind of now seeing being built, but I wouldn't even say we're anywhere near it being even nascent at this stage, is a kind of infrastructure necessary to be able to have conditional statements through which Soulbound NFTs can be obtained. So that would be something like if X happens, then you get a token that represents the fact that X happens, or that you did X action, or behavior. As you said, probably the most clear and most common sense idea of this would be to prove some sort of relationship you have with a musician in the case of music.
So for example, you go to one of the first concerts by an artist, by the fact that you were there you get the Soulbound NFT. You cannot trade it, it's yours, which means that there's no way for anyone to sort of pretend that they were there instead of you by buying it off you. 10 years down the line you can sort of prove objectively that you were indeed at the concert. Another way would be say you hit a number of streams or you're like 0.01% of listeners in a given year for a Spotify artist or you bought the demo tape or the first record or whatever you want or may be the case. So the first layer zero would be the kind of infrastructure necessary for these things to actually happen. Then where we go from there is, well what kind of experiences and products can be built around these sort of proofs?
If we had all of these proofs in a way that was beyond reasonable doubt, then what kind of experience can we make around them? I think there's a bunch there. The main one I'm thinking about right now is can you reward the people who did certain actions with further on-chain experiences based on the fact that they have the Soulbound NFT? I think for me that's the most promising potential use case. That would be something like, "Because you were there at my first concert, you can now access this sort of website or this sort of token or anything which contains demo tapes, or you can do some action on my website or you can sort of change something or participate in some on-chain activity." In synchronous matter permissionlessly, right? Avoiding any sort of login or signing up or any centralized custodian who has to keep track of all that stuff.
I think that's really exciting because it really allows, I think for the creation for guided communities signaling within those communities as we said before in very complex manners maybe in the future around non-financial use cases. Which I think is really exciting because at least for me, I think the thing that's been holding back the space is its obsession with trading, so to speak. So that's the first thing. I can talk a bit about the generative stuff as well, if you want or if you have any further questions, Soulbound?
Sam Cohen:
I mean I'll just quickly agree that Soulbound NFT is ... Agree with everything you're saying. Further there it really is kind of taking the NFT ideology away from the status driven and profit driven ethos that we've seen over the past couple years and that so many people have become wary of and are instead could be used to represent shared interests or have a credentials in a community in a different way that we didn't really see or have an idea of a just last year for example. It really shows just the variety and broadness of the technology and how it could be used. So I agree with everything you're saying, Achilleas. It'll be very interesting to see how Soulbound NFTs are used throughout the entire NFT industry, especially in the music industry where there are these specific potentials and ways of using it. But yes, would love to go back there and get your thoughts around generative of NFTs. Which are different, these NFTs typically are tradable, they have completely different purpose than a Soulbound NFT. Would love to get more of your thoughts there.
Achilleas Sarantaris:
Sure, yeah. Soulbound NFTs are essentially a new way of signaling things, as you said, not just status or financial sort of wealth anymore, but things like behaviors and activities and fandom itself. Then I'd say that yeah, generative NFTs are more about the art and the music itself rather than the signaling powers that a token can have. So I mean obviously the history of generative music at large is a long one. Starting from Stockhausen I guess, or Stravinsky and avant-garde composers of the 20th and 21st century. People have been using randomness and formulas and computers and algorithms to create music for a very long time. What's changed I guess, and the reason why it's popular recently at least the good stuff in terms of a generative music and art NFTs is the fact that the process itself is sort of there for everyone to watch. Because a lot of these things are the result of code running on-chain in the publicly verifiable manner and with provable randomness at hand as well.
It's almost as if everyone can participate in the activity of these things coming to life as if there's no black box there. It's all a public display of creation, which I think is actually super cool. I was surprised that this became so popular because it’s such a niche sort of or otherwise a niche artistic endeavor that was really exciting. Yes, generative music is using the blockchain in one way or another from more to less complex and interwoven ways to use the chain as the medium of creation in a way. What's exciting about that and what was the possible use cases here? I'd say what's exciting is the fact that you can have participatory music now in a way that transcends obviously geographical boundaries but also has something that's a tangible result thereof. This process ends up with a token that can signify that you are part of this process in some way.
What I'm really excited about is, which I think you would also thought about a lot, the legal aspects of are collaborative essentially generative music projects. Which would be the music itself is affected by some way or another by its consumption. A very sort of basic example would be you provide some music algorithm that you put on-chain, I mint from that algorithm and I get a resulting song that is special to me because it takes my address, for example as part of its inputs. The more complex scenario would be one in which you uploaded say a series of stems online and I was able to take those stems and create derivative works from them. All of this happening on-chain in a way, there's no sort of third party or arbiter to tell me for example, whose rights are who's or whatever.
We see a lot of experiments like that right now. But the idea of "freeing" the stems of a song, putting them on a public permissionless ledger where everyone can collaborate with and then you see a bunch of different iterations and derivative works and then sales thereof in some cases involving on-chain royalties. So say that you do an electronic song, make a bunch of stems, I take one of your stems and I make a variation and on-chain if I sell an edition of that song, you get like 5% royalties. Then this can go down the line, someone takes one of my stems and does something and then you get 2.5% royalties and get 2% royalties or whatever. So we're seeing experiments around that. I think it's, again, really exciting. We're still at the nascent stage where we're still building the layer zero, so to speak, just the infrastructure to be able to support projects like that.
Then I think soon we'll be seeing more and more actual productized versions of collaborative generated music in which there's some sort of input by the audience into the creation of music and that all happens natively on-chain. Yeah personally, I would love to hear your thoughts on that, the sort of rights holder implications for that. Because what happens if all of these things are available and are our on-chain royals sufficient in a way? Or are they sort of not as good as the alternatives are right now, which is legally enforceable royalties, I guess?
Sam Cohen:
Right. I think that's a great question that anyone involved in this space really needs to be asking themselves. It refers to another trend that we're seeing, and this is kind of in conjunction with things like generative music and the kinds of products and services that Async is offering for example. But we are seeing artists actually grant commercial rights into the output or the musical content connected to the NFT. This is in contrast to most of the use cases that we were seeing at the very beginning, which usually entailed a limited personal use license, usually the owner of the NFT wouldn't actually get many intellectual property rights to the music, they would just have a personal license to use it and reproduce it. They wouldn't have the rights to actually take it, change it, modify it, exploit it, create their own derivative works.
But we're seeing more experimentation now and we're seeing these commercial rights granted. For music this entails a complicated patchwork of music copyright legal issues that are unique to music and it makes it a little more complicated as compared to other projects that are kind of based on just visual art. For example, the Board Art Yacht Club, which have thrived by enabling their owners to commercialize their particular board ape and create derivative works through granting commercial rights to the image of the ape. So as a result you can now find Board Ape t-shirts, comic strips, restaurants, even a Bored Ape music group like I mentioned before. It kind of opens up these issues. From a musical perspective, this can get complicated because there are two copyrights in music, the copyrights of the sound recording and the musical composition, which historically have often been owned by different parties or in many cases, many different parties.
Some of the questions that come to mind that the people should be asking themselves is, if you're going to be granting commercial rights in connection with your music based NFT as both the owner of the IP and the person who's licensing the IP and the person who owns the NFT and is obtaining that license. For example, have the rights holder revoke or amend the rights granted in the initial sale, is that possible? We've seen cases where apparently that happens, it is possible in some cases for the original artist or the NFT minter to grant commercial rights, unless there's a license that says otherwise they could revoke or amend those rights. If the license grants certain commercial rights to create derivative works and you exercise those rights and create derivative works, what happens once you transfer the token? The NFT, which is the token, is what gave you those commercial rights and which licensed you those rights.
Do you have a license that tells you who owns the derivative work? Are there obligations to take down or stop using your derivative works if you sell your token? The answer to that may be yes, may be no. It really has to come down to a well drafted license that accompanies the NFT. You have to look at are there license terms that deals with any of these issues? If you're not careful, you could inadvertently be committing copyright infringement in various ways. There are a lot of issues there and we've discussed some of these issues in previous episodes around license enforceability and the general kind of gap right now the industry has in implementing and enforcing NFT licenses and kind of the lack of ability or the lack of clarity around how you actually present a license to a user with an NFT in an enforceable manner.
There are marketplaces that go and search for an NFT, you see the NFT, you can see it's metadata, you can see the data, but it might be connected to a license that is not there. Or you might have to look somewhere else to see what the license actually says. So technologically we have a long way to go, but people need to be asking themselves these questions to make sure that if you are going to be dealing with a music NFT that grants some commercial rights you have to be careful to have a license that actually grants those rights. Because if you don't, you technically have not granted those rights. So this also relates to in that same NFT license, what else do you put there? You usually want to put there how secondary royalties are handled when secondary purchases are made on the secondary market.
For example, one current practice includes putting in your terms of service or the license that secondary purchasers must include in their description of NFT that it's subject to the license, the applicable terms of service of the project. Because as more and more people purchase the same NFT and it continues down the secondary market, the license as of now does not technologically necessarily follow it. So you can put things in your license to ensure that that secondary purchaser is making sure that other people can see that it is subject to the license and that if they purchase it, they will be subject to that same license. Obviously this is not a perfect process, it's hard to enforce. Technology has long way to go to really making it clear and to really ensuring that enforceable licenses follow the NFT.
Thanks everyone for tuning into part one of this discussion. Please join us in two weeks for part two. See you then.
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