Business

Earn Money for Your Music Taste: 3LAU Raises $16M for Music Rights Marketplace Royal

3LAU
Shervin Lainez*

3LAU

"The difficulty in executing [Royal] is extreme," 3LAU says. Here's why — and why he's proceeding anyway.

3LAU's latest drop is here, and it's not a song or an NFT.

The DJ, producer and crypto enthusiast whose $11.7 million payday from a single NFT collection in February helped spark the music industry's interest in the art form is now co-founding Royal: A blockchain-based platform for investing in music rights. The platform goes live today (Aug. 26) and is announcing $16 million in seed funding, led by Paradigm and Founders Fund with participation from Atomic.

3LAU, whose real name is Justin Blau, helms the company as CEO alongside Royal co-founder JD Ross, who previously co-founded online real estate marketplace OpenDoor. They hope that Royal will let music fans support and then share in the success of their favorite artists, driving up the value of music and helping artists better monetize their work.

"You can generate income for having great taste," Blau says. "Let’s say you find an artist like Illenium or The Chainsmokers, two artists that I was lucky to work with early-on. If I could’ve invested in them, I would have, but there were no means to. So not only will you see fans investing in artists, but I think you’ll see artists investing in artists."

Users will be able to buy limited-edition, autographed digital assets similar to NFTs that represent music rights, and collect royalty payments accordingly. Whereas traditional music rights sales are a one-and-done deal, the creators who sell rights on Royal set a resale royalty, giving them a percentage each time someone re-sells those rights in the future. Royal isn't taking a penny for now, but will eventually make money through a fee on sales and re-sales, which Blau says will be less than 10%.

Simple as that? Not exactly. "The difficulty in executing that is extreme," Blau notes, for a number of reasons. First off, in most cases, music rights are not readily transferrable, given the complex web of publishers, labels, songwriters and other stakeholders involved.

That's why Royal will roll out slowly, beginning with music by independent artists who can prove that they own all the rights to their work. (Proof will be important, as NFTs carrying music rights have already incited disputes about ownership. Artists on Royal are also restricted to selling rights for songs that have already been released -- no yet-to-be-released work is allowed.) Notably, for now, Royal will only sell master recording rights, and won't touch the notoriously convoluted publishing sector. "In the short-term, [royalties are] probably going to be stream-specific," Blau says.

The mere logistical process of transferring music rights can be complicated as well, and comes with a cascade of questions. (For example: Do buyers get sync approval? Do their payments come before or after distribution fees? How often do buyers get paid, who is administering them and how?) In the future, Blau says that royalties will be claimable directly through Royal, which is designed to be as user-friendly as possible. The platform will also include an educational component with video resources and blog posts for anyone who wants to know "what's actually happening under the hood." He adds that Royal will likely green-light artists who work with certain distributors, such as Stem, which are known for simplifying the payment process.

Eventually, Royal will open up to all artists, although those with the most ownership over their music will obviously have the most to gain from the platform. For now, "Our goal is to show that it does work, the music industry just has to put the time and effort in to make it work," Blau says. "You have to start somewhere."

Royal isn't the only blockchain-based music rights investment platform on the market. Distribution company Ditto Music launched Bluebox in March to serve a similar purpose, and online royalty marketplace Royalty Exchange began allowing rightsholders to sell their royalty streams as NFTs in June.

There may be further obstacles to come. The crypto community has been grappling with fears that digital assets like social tokens and NFTs could be considered securities by the U.S. Securities and Exchange Commission, and therefore subject to the same regulatory scrutiny and filing requirements as stocks and bonds. "We are working with expert counsel and former regulators to make sure Royal complies with all legal frameworks in the geographic regions it will be available," Blau says.

Even so, he takes the challenges ahead in stride, and says Royal will be announcing information on its first drops in the coming weeks.

"I think the skeptics are right" to be doubtful, he says. "I just think we’ll move a lot faster than their skepticism."