Skip to main content

The Ledger: A Music Band Created From NFTs? Oddly, It Makes Sense

In the context of reducing risk, it's not surprising that entertainment companies are now creating content with virtual characters based on well-known non-fungible token artwork

The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.

Have 10 conversations about the record industry and at least one will contain the phrase “artist development is dead.” It’s an exaggeration, although many musicians and their managers have painfully learned it’s also true. A better term, however, might be the more mundane, “artist development is expensive.”


Record labels pay huge sums to find, record, promote and market artists. A 2020 report by IFPI put global A&R and marketing expenses at $5.8 billion — about 34% of annual revenues. Granted, only some of those amounts go toward developing new artists from scratch while some is spent on more established artists. But the nature of the business means record labels must deal with sunk costs — meaning they have been incurred and cannot be recovered — before deciding how much to spend to promote and market a young artist. Holding your wallet isn’t an option.

Record labels like to minimize risk in an inherently risky business. That means signing an artist with existing momentum can be preferable to developing a complete unknown. TikTok is the current A&R tool of choice because a song that enjoys a viral hit is already popular and removes the guesswork out of signing an artist. Similarly, a large social media presence reduces the doubt an artist will succeed and ensures an existing audience. And labels are all too happy to let someone else spend the money: Competitions such as American Idol, The Voice and American Song Contest bear the cost of introducing an artist to the public, giving the winner — and anyone else who gets a label deal — invaluable visibility and recognition before going into the recording studio.

In the context of reducing risk, it’s not surprising that entertainment companies are now creating content with virtual characters based on well-known non-fungible token artwork. iHeartRadio announced Tuesday it will create a series of podcasts based on NFT artwork from the collections Bored Ape Yacht Club and CryptoPunks. The aim is to make the Non-Fund-Squad a “media franchise and shared media universe” using iHeartMedia-owned characters built around CryptoPunk #2821, Mutant Ape #10144 and NFTs from other collections, according to the press release.

In a strictly financial sense, NFT artwork is like an artist or DJ with an existing audience. The owner of a Bored Ape or CryptoPunk NFT can tap into preexisting communities and benefit from the promotional legwork of the NFTs’ developers, Yuga Labs and Larva Labs. (Yuga Labs purchased Larva Labs in March.) Now, iHeartMedia did not buy a turnkey operation like a McDonald’s franchise — they still face the arduous work of giving NFTs personalities and creating compelling programming. But, on the other hand, they are not starting from nothing, either.

We have seen this in music, too. In November, Universal Music Group announced the formation of a music group, Kingship, comprising four Bored Ape Yacht Club characters. And because every four-piece band needs its own Brian Epstein, in March, 10:22PM — the UMG imprint behind Kingship — paid about $360,000 for a fifth Bored Ape NFT that will be the group’s manager, called Manager Noët All. If that seems unusual, consider that UMG spent 588 million euros and 364 million euros (net) in 2020 and 2021, respectively, on advances it hopes to — but will not entirely — recover from artists and songwriters. If artist development is expensive, why not invest in a trendy NFT?

The fact that giant entertainment companies are building characters on NFTs isn’t the main point here. This is about building intellectual property and reducing risk. A virtual band is built on artwork, not a piece of code. An NFT is a digital token, its existence proven on a blockchain, that represents ownership in something — digital artwork, a share of music royalties or even a Florida home auctioned by a company called Propy for $653,163 worth of Ether. But the nature of some NFTs actually encourage owners to create characters, music, podcasts and other content. Not only can owners of a Bored Ape or CryptoPunk NFT capitalize on the brand recognition of those collections, but they also own the rights to monetize the artwork’s intellectual property. That’s not always the case with NFTs: you can spend hundreds of thousands of dollars on a piece of digital artwork but not own the copyright. But if you own a Bored Ape NFT, a Hollywood casting director might pick your character for “The Degan Trilogy,” a series of Bored Ape Yacht Club animated shorts being produced by CoinBase, the $39-billion publicly traded crypto exchange.

Some people may roll their eyes at the thought of NFT-based music and podcasts or predict doom for the projects. But iHeartMedia and 10:22PM have evidence they can succeed.

One of Japan’s biggest pop stars, Hatsune Miku, is a hologram. Miku has 2.1 million YouTube followers and 1.3 million monthly listeners on Spotify. In live concerts, Miku is projected onto a glass screen — something U.S. and European audiences have seen with deceased legends such as rapper Tupac Shakur and heavy metal singer Ronnie James Dio. In 2020, South Korea’s SM Entertainment launched Aespa, an eight-member group featuring four singers and their digital counterparts that now racks up 4.4 million monthly listeners on Spotify. Avatars have enough mainstream potential that baby boomers could get on board, too. Next month, Swedish pop legends ABBA will launch a virtual concert, ABBA Voyage, in which the four members’ youthful avatars will be backed by a 10-piece live band in a custom-built London arena.

Then there’s Gorillaz, the animated group formed in 1998 by Blur frontman Damon Albarn and artist Jamie Hewlett. Such tracks as “Clint Eastwood” and “Feels Good, Inc.” helped make Gorillaz international stars, tour the world, sell millions of albums and win a 2006 Grammy for best pop collaboration with vocals — a perfect category for a real band represented by cartoon characters. Gorillaz did not have to start from scratch: Albarn had already reached rock star status when the group’s first recording was released in 2000, and Hewlett was known for being the co-creator of the comic strip Tank Girl. Still, the group’s success and longevity are surprising because no other artists have done it — yet.

The saying in the music business is “it all starts with a song.” Before an artist goes into a recording studio, a songwriter crafts lyrics, chord changes and melodies in hopes of capturing listeners’ attention. A great song has a fighting chance to find an audience eventually. The saying deserves a flip side that says, “it all ends with a bad song.” That will be the difference-maker here. No star, celebrity or NFT-based virtual artist — no matter how well-known — is immune to failure when the music isn’t good. That’s the real risk.



Through April 15, the % change over the last week, and the year-to-date change

Spotify (NYSE: SPOT): $136.27, -3.5%, -41.8% YTD
Universal Music Group (AS: UMG): 24.89 euros, +4.5%, +0.4% YTD
Warner Music Group (Nasdaq: WMG): $35.65, -4.4%, -17.4% YTD
HYBE (KS 352820): 294,000 KRW, +3.7%, -15.8% YTD
Live Nation (NYSE: LYV): $111.31, +3.2%, -7.0% YTD
MSG Entertainment (NYSE: MSG): $80.71, +2.8%, +13.8% YTD
Cumulus (Nasdaq: CMLS): $14.21, +40.7%, +26.3% YTD

NYSE Composite: 16,511.51, -1.1%, -3.8% YTD
Nasdaq: 13,351.08, -2.6%, -14.7% YTD