NFTs, or non-fungible tokens, have gained massive popularity in recent years, touching industries from fashion to video games. They are non-fungible, meaning each one is unique, and their status as a token indicates they stand in for something else – i.e. they’re linked to a specific benefit or good, but the token itself is just a certificate of that. When it comes to what an NFT can represent, it could be anything from a digital replica of Starry Night to a particularly well-worded tweet. On the flip side of non-fungible tokens, fungible tokens have also gained popularity in the form of cryptocurrencies. Each token, like Bitcoin, is exactly the same as the next token so is therefore fungible, but still a token. It is important to note that while both tokens are bought and sold on marketplaces like stocks are, their value is speculative. Their value is incredibly subjective, even more so than a stock which can represent a tangible stake in a company.

Both fungible and non-fungible tokens leverage blockchain technology, which in simplest terms is a series of ‘blocks’ that each contain information and are connected to each other. This chain of blocks (get it?) means the information contained in each block becomes an immutable record. To create an NFT, someone must ‘mint’ one, or publish the digital asset on the blockchain. NFTs can be bought and sold on a marketplace like a tangible good can, and the immutable record created by the blockchain provides proof of ownership for whoever has purchased the NFT. While ownership is solidified and proven with blockchain, another characteristic of blockchain technology is anonymity. We easily know who owns an NFT, but not the actual identity of that owner.

NFTS UNDER COPYRIGHT LAW

NFTs occupy a unique space under copyright law, but are subject to the basic rules other art forms are. The law protecting digital assets, the Digital Millennium Copyright Act (DMCA), was passed in 1998 before NFTs were prevalent. The DMCA allows any artist to request a work be taken down if it something they have ownership over, and did not authorize the publication of. This extends to artists with any ownership stake, whether they are a singer-songwriter with sole ownership over a song, or a whole team of writers and producers.

Basic copyright laws also apply to NFTs; NFTs that are derivatives of other work are only allowable if the person who created the derivative work is a copyright owner of the original work, since a copyright owner automatically acquires rights to reproduce the work or create derivatives. So, for example, Harry Styles could mint an NFT of his song “Treat People With Kindness,” which would then be considered a derivative work even if it’s the exact same song available on Spotify, because now it’s a digital version of the song tokenized within the blockchain. Despite being a big Harry Styles fan, I could not legally mint this NFT because I do not own the copyright like Harry Styles does. To legally mint this song as an NFT, I’d need to make considerable changes to it to be allowable under the fair use doctrine of copyright law – like sample 10 seconds within an original work of mine. For NFTs that are copies or very close derivative works of an art work, the minter will need to follow basic copyright law to get permission from the copyright holder or license the work.

NFTS: AN EASY TARGET FOR COPYRIGHT INFRINGEMENT

We’ve established that NFTs are subject to basic copyright laws. However, they are much more challenging to monitor and regulate than other digital assets, and the NFT industry is hesitant to put stronger protections in place.

While the process for copyright owners to flag a violation and take their unauthorized work down is the same with NFTs as it would be otherwise thanks to DMCA, it’s the anonymity and lack of regulations that make it difficult. On marketplaces like OpenSea where someone mints, sells, and purchases NFTs, it’s easy to remain anonymous and there is little internal or external regulation. Additionally, the fact that the actual works are often not actually stored in the blockchain, just the representative tokens, makes it hard to take down the actual work and not just the listed NFT.

People are motivated to infringe copyright to mint NFTs because of its boom – demand for NFTs still outweighs supply. While popular marketplaces like OpenSea technically have policies against copyright infringement, enforcement is lax. On OpenSea and Rarible (another popular marketplace), there is no verification required to prove that something you’ve minted and/or listed is your own. Experts also point out that copyright is less relevant because of the speculative valuation of NFTs. As a token, there’s no intrinsic value to it, and that’s another reason why the industry is reluctant to put protections in place.

Additionally, minting NFTs is anonymous by default because of the blockchain. This makes the jurisdiction of where to take legal action murky, which makes taking action difficult despite laws outlining protection. Further, marketplaces make commission on sales, so there’s little motivating them to crack down on thousands of their hosted NFTs. Some marketplaces are working to create processes that better identify plagiarized content, but artists are still calling on them to do more.

NFTS & THE MUSIC INDUSTRY

NFTs have potential to benefit musicians. They offer a new revenue source, which is especially important when streaming platforms have significantly reduced the income artists get from their music. Artists can create hype with NFTs because of their rarity – each can be unique and quantity can be closely controlled. DJ Steve Aoki released NFTs while COVID-19 forced his usual concert revenue to slow. They can be a new form of memorabilia, something a fan can buy like they would a tour t-shirt at a concert to remember their experience.

However, in practice the music industry has fallen victim to the copyright issues NFTs present. Many musicians and other copyright owners are finding their work on NFT marketplaces, selling for vast amounts of money, without their permission.

Music piracy has always been an issue, especially as easily-accessible digital formats of music have become the norm. When LimeWire and Napster came onto the scene in the early aughts, they quickly rose in popularity. These websites made music sharing via digital files accessible to the masses who were burning CDs to share otherwise. This quickly led to a wave of pirated music being sent all over the internet. While Napster was acquired and set down the legal path and Limewire was sued out of existence, similar websites have always cropped up in their place. As new technological capabilities evolve, it is expected that the pursuit of piracy follows, which is exactly what is happening with NFTs – while not free to share music like their predecessors, NFT marketplaces are in a way the next generation of music piracy.

Earlier this year, HitPiece was created as a marketplace to sell songs as NFTs, just one of each recording. It touted exclusive access to the NFT version of fans’ favorite songs, and additional benefits like access to exclusive experiences with the artists behind the songs. However, it was not the artists or any owners of rights to the songs who were authorizing, creating, and selling these NFTs. There was a large public outcry from professionals in the music industry, in reaction to a company they’d never spoken to illegally profiting off their work. HitPiece was able to lift songs to mint them as NFTs via Spotify’s API, pointing to how easily anyone could do this.

HitPiece voluntarily shut down its operations after the negative reaction, including a scathing statement from the Recording Industry Association of America, but as of this article the company has not faced any legal trouble. The vulnerability of the music industry within NFT marketplaces remains.

LOOKING TO THE FUTURE: SOLUTIONS

Ultimately, better NFT copyright enforcement within the music industry will benefit artists/copyright owners, as well as NFT buyers who don’t want to buy counterfeit NFTs.

Some marketplaces and sites that are related to NFTs have listened to artists’ calls to do more about copyright infringement. Sites that promote artists, like DeviantArt, have set up blockchain alerts that flag when something listed as an NFT is found on their website. This could be replicated within the music industry, with a site like Spotify, for example.

Outside of marketplaces and music platforms, some third parties see an opportunity to step in. MarqVision is a 3rd party that monitors sites that partner with them for NFT theft.

There is also an opportunity for the government to step in. NFTs are amongst a variety of digital changes that the DMCA is not equipped to regulate after 24 years since it was signed into law. Although COVID-19 slowed momentum here, there have been updates proposed in Congress that we could see come into effect in the near future.

There is much work to do in this space to improve copyright protection in the NFT industry. While some of the aforementioned solutions may gain traction, not everyone is optimistic. One expert offers the opinion that the only solution to avoid copyright infringement is for artists to stop creating art, as scammers will ‘always be able to outsmart them.’ In any case, music industry professionals should understand the vulnerability of their work and consider monitoring NFT marketplaces to get ahead of being victims of copyright infringement. And, if someone out there is thinking about buying an NFT, make sure you are certain there’s no risk it is infringing copyright in any way.

References

Beckett, Lois. “‘Huge Mess of Theft and Fraud:’ Artists Sound Alarm as NFT Crime Proliferates.” The Guardian, January 29, 2022, sec. Technology. https://www.theguardian.com/global/2022/jan/29/huge-mess-of-theft-artists-sound-alarm-theft-nfts-proliferates.

De, Nikhilesh. “People Keep Tokenizing Other Users’ Art. Here’s How Artists Can Protect Their Work,” March 11, 2021. https://www.coindesk.com/tech/2021/03/11/people-keep-tokenizing-other-users-art-heres-how-artists-can-protect-their-work/.

JD Supra. “NFTs and Copyright Law.” Accessed April 18, 2022. https://www.jdsupra.com/legalnews/nfts-and-copyright-law-7361836/.

JD Supra. “Sweeping Changes Proposed to the DMCA’s Notice-and-Takedown System.” Accessed April 25, 2022. https://www.jdsupra.com/legalnews/sweeping-changes-proposed-to-the-dmca-s-2305255/.

Jr, Edward Ongweso. “Site Sells Famous Songs as NFTs Without Permission, Sparks Global Outrage.” Vice (blog), February 2, 2022. https://www.vice.com/en/article/pkpqyy/site-sells-famous-songs-as-nfts-without-permission-sparks-global-outrage.

McIntyre, Hugh. “The Piracy Sites That Nearly Destroyed The Music Industry: What Happened To Limewire.” Forbes. Accessed May 2, 2022. https://www.forbes.com/sites/hughmcintyre/2018/03/21/what-happened-to-the-piracy-sites-that-nearly-destroyed-the-music-industry-limewire/.

Marketplace. “How NFTs Could Change the Music Industry,” November 2, 2021. https://www.marketplace.org/2021/11/02/how-nfts-could-change-music-industry-better-worse/.

“MARQVISION | Protect Your Brands from Fakes.” Accessed April 18, 2022. https://www.marqvision.com/.

Middleton, Ryan. “RIAA Sends Letter Over ‘Copyright Theft’ To ‘Scam Site’ Music NFT Company HitPiece.” Magnetic Magazine. Accessed April 16, 2022. https://www.magneticmag.com/2022/02/riaa-sends-copyright-theft-letter-scam-site-music-nft-company-hitpiece/.

Munster, Ben. “People Are Stealing Art and Turning It Into NFTs.” Vice (blog), March 15, 2021. https://www.vice.com/en/article/n7vxe7/people-are-stealing-art-and-turning-it-into-nfts.

NFI. “What Is Minting an NFT? Everything You Need To Know,” April 13, 2022. https://www.nfi.edu/what-is-minting-an-nft/.

Rhett / Mankind. What Is an NFT? (Crypto Beginners), 2020. https://www.youtube.com/watch?v=a8ww4aNlPQU.

Stokel-Walker, Decrypt / Chris. “NFTs Have a Problem With Copyright Theft.” Decrypt, April 3, 2022. https://decrypt.co/96637/nfts-have-a-problem-with-copyright-theft.

Stephen, Bijan. “NFT Mania Is Here, and so Are the Scammers.” The Verge, March 20, 2021. https://www.theverge.com/2021/3/20/22334527/nft-scams-artists-opensea-rarible-marble-cards-fraud-art.

“The Digital Millennium Copyright Act | U.S. Copyright Office.” Accessed April 16, 2022. https://www.copyright.gov/dmca/.

The Young Turks. Website RIPS OFF Musicians By Selling Their Music As NFTs, 2022. https://www.youtube.com/watch?v=J8FgioSpENo.

Twitter. “Steve Aoki (@steveaoki) / Twitter.” Accessed April 25, 2022. https://twitter.com/steveaoki.

“U.S. Copyright Office Fair Use Index.” Accessed April 23, 2022. https://www.copyright.gov/fair-use/.

“What Musicians Should Know about Copyright | U.S. Copyright Office.” Accessed April 18, 2022. https://www.copyright.gov/engage/musicians/.

“World’s Largest Online Art Gallery Deviantart Collaborates With Opensea to Detect Potential NFT Infringement – Blockchain Bitcoin News.” Accessed April 23, 2022. https://news.bitcoin.com/worlds-largest-online-art-gallery-deviantart-collaborates-with-opensea-to-detect-potential-nft-infringement/.

TIDAL

Since its founding in 2006, Spotify has been one of, if not the, dominant music streaming service. Other major services include Pandora, Deezer, Apple Music, and Amazon Prime. All of these services notoriously prioritize profits over artists, the worst offender arguably being Spotify, which has come under fire recently due its controversy surrounding one of its top podcasts, the Joe Rogan Podcast. This has brought attention to the privilege that major artists such as Neil Young and Joni Mitchell have to simply pull their music from Spotify, not having to worry about the financial consequences of loss of streaming revenue. The majority of artists on the platform do not have that luxury and are torn between standing up for what they believe in and receiving the measly royalty payments they’re dependent on for income. Moreover, this controversy has reignited a debate over fair payments to artists for streams. Publishers and managers, as well as musicians, are hoping that this conversation continues and leads to Spotify and other platforms considering how much they really value the artists that utilize their services.

Tidal was founded in 2014 and offers a different perspective on what a music streaming service should look like. Its values are to deliver the highest sound quality as intended by the artists, create deeper connections for fans through unique collaborations with the artist community, and a commitment to empower artists to create and deliver their art exactly as they intended. Tidal pays its artists nearly three times the amount per stream that Spotify does, $9.27 per 1,000 streams compared to $3.30 per 1,000 streams. Just by this increase in payment, Tidal has conveyed how much more value it places on artists than the typical streaming service. They also allow their artists to upload their music directly rather than having to go through a third party distributor, putting more power in the hands of artists.

Artists should consider, however, that in a popularity contest between Spotify and Tidal, Spotify still reigns supreme. Tidal is right on Spotify’s heels when it comes to artist discovery by curating a “daily discovery” for users based on their listening habits. But the number of playlists available on Spotify based on genre, mood, activity, and decade is vast. And many have found mainstream success by having a song of theirs featured on a Spotify playlist, which led them to get picked up by a major label. One such story of success is that of indie artist Wallice, whose song “Punching Bag” was featured on the Lorem playlist of over 900,000 followers. From there, the song was streamed 4 million times and caught the attention of London-based indie record label Dirty Hit.

But could Tidal eventually replace Spotify as the preferred streaming service by the masses? It’s quite possible. More listeners are seeing what a listening experience could be like when the needs of artists and fans come first. As one article from the Weekly Ringer puts it:

As the debates over fair compensation for streaming evolve, it’s fair to say that Tidal is taking a step in the right direction. Music fans are slowly ditching Spotify, causing Tidal to gain even more traction. By prioritizing the needs of artists by providing higher pay, delivering their music in high quality audio, and empowering them to upload their music directly onto their service, it will be interesting to see if other streaming services follow suite.

SoundExchange

In light of the issue of paying artists fairly for their recordings being streamed, SoundExchange offers another solution. By administering statutory licenses, artists are able to stream their music on digital radio services while being paid a fixed rate for each play. This differs from agencies such as ASCAP or BMI as they only pay out to songwriters, composers and publishers, versus owners of recordings and the artists on them. SoundExchange collects playlists from internet, satellite, and cable radio services and combs through the data. They then pay out 50% to the rights owner (often time the record label), 45% to the featured artist, and the remaining 5% to non-featured artists. To date, they have paid out over $7 billion in royalties. Registration on SoundExchange is free and easy for artists. Often times, there are royalty payments waiting to be paid out to them until they sign up.

In the for-profit sector, streaming royalties are a complicated mess, to say the least. Payouts depend on several factors and are not even among all platforms. Spotify, for example, pays out somewhere between 60 and 70% of its total revenue to artists. SoundExchange is unique in that it is a non-profit that was designated by the Library of Congress as the sole U.S. organization authorized to collect royalties from services that transmit sound recordings under statutory licenses.

With this tie to the federal government, SoundExchange uses its position to advocate for issues related to the rights of creators of sound recordings. Their website provides valuable information for artists, fans, and industry professionals about the Music Modernization Act, American Music Fairness Act, CLASSICS Act, and several other relevant issues. Thanks to their litigation work in 2021, the Copyright Royalty Board increased royalty rates at +17% for music played on commercial non-subscription digital streaming services and +8% for music played on commercial subscriptions services. Their focus on policy and advocacy makes them stand out as a true leader for the recording industry.

TikTok

Today, a core component of measuring an artist’s success is the amount of engagement they receive from fans. This is especially true for major record labels who have taken to social media and streaming platforms to find their next big artist. TikTok has revolutionized the way artists and fans can connect, even collaborate.

A prime example of this mutually beneficial relationship is between singer Doja Cat and a teenaged TikTok user named Haley Sharpe. Sharpe recorded a video of herself performing a dance to the Doja Cat song “Say So,” it went viral, Doja Cat noticed, put it in her music video and then performed it at the Grammy Awards. Artists can retweet something from a fan or read a DM from them, but TikTok offers something more unique. The platform almost feels like it was designed to be communal, as opposed to Instagram or Facebook where the focus is very much on the artist’s branding of themselves and less so on engagement with the fans.

One artist that found success through the app is Tyler Colon, otherwise known as Tai Verdes. When Verdes decided to become serious about pursuing music, he started putting his music on TikTok. He noticed that listeners were especially engaged, flowing from TikTok to his YouTube and Spotify pages for more. After Tai got picked up by a major label, his song that led to it all, “Stuck In The Middle,” was streamed over 100 million times on Spotify.

Major labels are realizing the value of the app from a cost-benefit analysis. Rather than paying for an extensive social media campaign to promote an artist, they have found more success with much less. All they have to do is pick an artist with an extensive following on TikTok, pitch one of their songs to Spotify to get it put on a playlist with millions of followers, and let the music make its own case to listeners.

There’s a formula for success that has been identified on TikTok. The three primary characteristics users look for are simplicity, vulnerability, and unique song/dance challenges. Lyrics play a big part in how big a song blows up, as users look for songs with relatable themes such as heartbreak, nostalgia, or partying with friends that they can lip sync to. A song must also be short and catchy enough to grab someone’s attention, maybe even have a good rhythm for a memorable dance to be invented alongside it.

If Instagram and Vine had a Gen Z baby, it would be TikTok. It reflects the fearless, eccentric, creative attitude of the youngest generation and through it, record labels are picking out the artists that best represent Gen Z personas. It’s a disruptive technology in an industry when, for the longest time, major labels were deciding what was going to be popular, what kind of music an artist should be releasing, what they should be wearing, saying, basically having total control over them as a branded entity. Now, fans are deciding what they like, how to dress, what to sing about, what to dance to, and the industry is listening.

The disruption of these three technologies comes in the form of a redistribution of power from major labels and publishers to the artists and fans. We are living in a unique time where independent artists have more tools and resources than ever before to make it on their own. Living in obscurity, having to support oneself through other means and adopting the “starving artist” trope should not come at the expense of the expression of oneself through music. More people are realizing that music is a viable career option, and now the technology is catching up to it.