Because every NFT contains a "smart contract" -- lines of code that automatically execute certain behaviors -- selling music royalties as NFTs allows for quicker, more transparent payments than the traditional process of catalog sales would. But most crucially, it allows the seller to participate in the resale royalty: A percentage of the resale value that the original seller collects every time the NFT is resold in the future, which is written into the smart contract.
"When you sell your catalog in a traditional deal, you get that one-time payment and that’s it," Martini adds. "Whoever buys it from you can resell it at a profit, and the original seller never gets a piece of those transactions. But with NFTs, that is going to change."
On the other side of the crypto coin, the buyer gets a passive income stream; an asset they can resell, potentially for a profit; and a digital collectible, all rolled into one. The winning bidder will collect Martini's share of mechanical, public performance and sync royalties, which generate income each time the song is streamed, sold, broadcast or licensed.
"Before, an investor would buy a catalog and they have the contracts, but they have nothing to show their friends," Martini says. "When it's attached to an NFT, there's going to be almost a trading card-type image associated with it." Such is the case with the (now ironically-titled) "Save Dat Money" NFT, which resembles a rotating record plaque.
Rightsholders who wish to sell royalties as NFTs on Royalty Exchange can request that option when contacting the marketplace. As with any other transaction, Royalty Exchange will create the NFT, value it based on the last three years of royalty statements and conduct the auction, taking a cut of the sale price (typically 15%). Royalties will be paid out to the owner of the NFT every quarter in Ether.
With 30,000 investors signed up to the online marketplace, Royalty Exchange has facilitated more than 1,000 transactions and directed more than $90 million to creators and rightsholders in the last four years. Martini hopes the new auction program will get those investors in the red-hot market for catalog sales interested in NFTs -- and, on the flipside, lure NFT collectors into catalog sales.
"You can pull in people who are interested in the crypto and NFT space, but before, weren’t going to pay in fiat to buy someone’s catalog," he says. "Now, because they have a bunch of Ether in their wallet, they could buy an NFT and get some publishing royalties, too. It opens it up to a whole new market that probably wasn’t active in this before."
Royalty Exchange claims that the "Save Dat Money" NFT marks the first time publishing rights have been sold in the format. Other artists have been selling royalties as NFTs in recent months, however: Singer VÉRITÉ auctioned off 100% of the artist share of master recording ownership for her single "By Now" on the marketplace Zora in April. The same month, rapper Taylor Bennett teamed up with music rights management company Bluebox to sell 75% of the rights ownership of an upcoming single release.
"We have credibility -- it’s a platform people can trust," Martini adds. "We’re in a position to do the best job in the space."
Read more about Royalty Exchange's new program for NFT auctions here.