Plugged In: Can Blockchain Really Fix the Music Biz?
This week: Blockchain's potential in the music industry, and are celebrity investors in blockchain startups in over their heads?
“I think that there is more misunderstanding and false analysis on blockchain than any topic I’ve ever seen in the music industry,” says one CEO. “I don’t think it’s well understood. I think that what it actually might be good for isn’t what people are talking about and the things that people sometimes talk about are unrealistic. There’s a sense that somehow this is a novel concept that requires a completely new thought process about how music is used. That’s not true. It’s the same principles that have been involved in multiple different previous iterations of new licensing opportunities or uses. The rules aren’t different just because it involves blockchain.”
Blockchain may not solve all the issues many in the music industry expect — or hope — it will, the CEO adds. “One of the biggest misnomers about the concept is the idea that the technology solves the information problem of who owns what,” they say. “Blockchain can be more efficient the way that an Excel spreadsheet was more efficient than paper, but if you don’t know of the information that goes into the system it doesn’t make it any better. I don’t think that blockchain is the solution for what ails the industry with regard to ownership data or efficient payment systems or things like that. It might be an efficient tool, but it doesn’t replace the need for the knowledge.”
As for the rush of musicians and managers investing in early funding rounds at a wide swath of blockchain-based startups like Audius (which raised $5.5 million in its third round of funding from artists including Katy Perry, The Chainsmokers, Jason Derulo, and Steve Aoki) and Royal — the startup founded by 3LAU which has raised $71 million to date from investors including The Chainsmokers, Nas, Logic, Stefflon Don, Kygo, Joyner Lucas and Disclosure — the moves have raised concerns among traditional executives and seasoned investors alike.
“I think people are seeing only the good news,” one investor says, “And there’s a lot of good news, there’s a lot of potential. They’re not seeing the obstacles. Or the bad news like what could go wrong or how hard it is to make this stuff a reality, they’re totally overlooking that.”
A chairperson echoed those comments. “People don’t quite understand blockchain and its application and what it means,” the chairperson says. “They just know that it’s not going away. It’s a big deal, and so I’d rather be in then out. There’s a lot of jumping on board and maybe overestimating Blockchain’s role. But I also think people should not deny its importance and how useful it can be, and it will become a bigger part of the industry.”
“There are very few artists — and I say very few intentionally because there’s always going to be a couple who do completely understand how technology is built and what good versus bad tech looks like — who are able to really ascertain if a startup leader understands what they’re building,” one senior executive says. “How it works, what engineering is possible and what isn’t is so crucial in the success of a startup, and few artists are really advised by those who understand how to look for those things effectively. Those who aren’t have no idea how important that piece is in investing in these startups.”
One investor says the “D-day” strategy employed by bigger venture capital firms shouldn’t be mirrored by smaller investors like artists.
“The D-day metaphor: you send a hundred soldiers to the beach, ninety-nine of them gets shot and killed. The one that makes it through wins the war. For people who have really deep pockets like Andreessen Horowitz, it makes sense, it’s rational,” the investor says. “The one that gets through is going to be such a massive payday that it’s all worth it. There are a lot of people who are trying to trade in and out of deals where they’re trying to get in at one price and sell it at a higher price. That’s like flipping homes. It’s not the smartest real estate investors that are flipping homes…. And so if that’s what you’re doing, there’s going to be winners, and there’s going to also be a lot of losers. And if there’s ever a reconciliation, like a real reckoning of this market, a lot of people will get wiped out.”