Would you invest in a musician or band? Towards tokenized fandoms

Catalogue sales keep dominating the news, but would anyone actually invest directly in a musician or a band? What would the return need to be to get interest for this? And, can we move beyond investing related to future streaming revenues? Perhaps towards tokenized fandoms?

It’s still Hipgnosis that dominates the market news, just recently with their annual report stating that net revenue increased by 66%. Something that MBW learned from the report was that 60.2% of the Hipgnosis catalogue consists of songs older than 10 years. There’s more to the catalogue playing field than just Hipgnosis, with Universal Music‘s acquisition of Bob Dylan’s catalogue back in December particularly eye-catching. More recently, Reservoir acquired Tommy Boy‘s catalogue of songs. All of those catalogues share the common trait of consisting mainly of songs older than 10 years. This makes sense, because those songs have all proven their value and with music’s nostalgia factor will likely hold on to their value or grow it. This is much more difficult to prove or predict for new songs, let alone with the music of artists operating in more niche genres.

Are musicians creators?

First, we need to define what we’re talking about when I say creator here. I like to follow the following definition from eMarketer which they put forward in 2019:

Creators: People or entities that develop original video content for digital properties, and who consider creating that content to be their career or livelihood.

Swap video for audio, and that’s a decent definition of any musician or band. It’s necessary anyway to stretch this creator definition. At Snapchat, for example, creators include people who create AR features.

Looking at musicians as creators, however, puts them in what I’ll call the Daniel Ek corner of needing to create regular output to satisfy the various platforms and their algorithms. This is a very (very) different mindset than the traditional music release strategy of record in studio, release single – single – album, tour, record, and start again. Instead, the creator mindset requires a strategy of audio and video with a big storytelling element that will further strengthen the bond between artist and fan.

Investing in royalties

The easy route to investing in a musician is to invest in future royalties. Quite similar to how a major fund like Hipgnosis works, it’s possible for individuals to invest based on future royalties. There’s a reason Hipgnosis and others are investing hard and growing fast: royalties seem a certain investment. Streaming revenues continue to grow and even if streaming services will be replaced by another mode of consumption, people will still want to listen to their favorite songs.

There’s myriad ways to invest in artists by buying a future share of their royalties. Examples are Songvest and Royalty Exchange, which are basically a marketplaces for trading royalties.

my screenshot

The three benefits for investing in music like this are clear from the screenshot. It’s seen as a safe bet. Moreover, it’s seen as easy investing because music as an asset operates outside of the regular marketplace and its volatility (it’s an uncorrelated asset) and it requires no effort for income generation (royalty distribution is mostly an automated process).

But it’s not just about the investor, it’s also about the fan. Other platforms focus more on fans, for example, helping their favorite musicians or bands create new music. It’s like crowdfunding with monetary benefits for the fans putting in the money. AmplifyX is one platform that allows this type of support and transition.

my screenshot

The details of the investment and the return are as follows:

deal terms Keithian offer on AmplifyX

This type of transaction resembles more regular financial structures. It works, basically, as a guaranteed return on investment. But that’s not how fandom necessarily works. For fans value can be measured in different ways.

Other models of investment and return

Fans are happy to help musicians they love achieve their dream album or global tour. Fans are also happy to help by taking out a subscription, especially if that comes with perks such as access to the artist, limited edition merch, etc. In a way that’s also investing but I would argue that these direct-to-fan monetization models are a small first step towards larger questions around ownership and collaboration. If we look at where we are in the development of the internet as a technology and its impact on our lives those same questions pop up.

Jeremiah Owyang tends to focus on that final stages of this map: modern wellbeing. But it’s interesting to see how he sees the ‘now’ era as the collaborative economy. The facilitator for pushing this economy forward is Web3.

Digital creators, musician or otherwise, have the opportunity through the tools and protocols of Web3 to not just collaborate but also to claim ownership. This is why YouTubers create their own websites to engage their superfans. This is also why locally organized raves should be DAOs.

Towards tokenized fandom?

A community doesn’t have to be big, it can be one artist and some friends or one band and 20 fans. However small or big the community, what’s important is that the model of investment becomes almost reciprocal. Hipgnosis is looking for ROI, but fans are not necessarily interested in purely monetary returns. They would, however, enjoy claiming some form of ownership over what they love. This can express itself in the form of song ownership with the benefit of future royalty revenues. It can also express itself as a form of patronage, where the fan funds the creation of the artist not for monetary reward but different rewards such as insights into the creative process. It’s when this investment becomes collaborative that value needs another revision in its definition. Tokens allow for this because they represent value but do so mainly within a community. All actions to build on that value thus strengthen the community. That’s an ideal worth investing in.

Inspiration for this piece came from this panel discussion on investing in creators.