Web3 push: GEMA experiments with music tokens

They show the inexhaustible urge to improve technical progress: shellac, vinyl, cassettes, CDs, MP3, streaming. Music has always sought new forms as a carrier. The hype surrounding NFTs has recently made the industry sit up and take notice. Blockchain should open up new sales structures and sales markets. Split royalties and licenses into tokens and trade them. The music industry is about to take another leap forward.

music in transition

Even if sales have recovered somewhat thanks to the cult of retro records, the digital sales market has been outstripping the physical for years. In the streaming age, royalties are an ever-increasing part of the revenue opportunities in the music business. According to CISAC, the international umbrella organization of collecting societies, income from music licenses increased to 9.6 billion euros in 2021. 5.8 percent more than in the previous year.

And although the proportion of digital royalties has already increased by a “whopping 28 percent”, CISAC attests “much more room for growth”. Especially with music creators, i.e. artists and performers. The largest share, about three quarters, of streaming revenue remains according to GEMA hanging at labels and platforms. The license income is correspondingly undistributed. CISAC therefore calls for “giving more value to the value of creative creations in the digital market”. One way to do this is tokenization.

GEMA is pushing into the tokenization business

With the help of smart contracts, royalties can be mapped and traded via the blockchain and remuneration can be transferred directly from them. Tokenization means the denomination of assets, such as real estate, vintage cars, watches or music licenses, for a large number of (small) investors. The idea is a win-win situation: for artists who can sell rights directly and generate additional income. And for investors who can enter the market at affordable prices.

Gradually, the established music industry is also discovering this niche. For the first time, GEMA was the first collecting society in the world to announce the sale of a security token for music licenses. In cooperation with 360x Music AG, licenses for the film composer Hans Günter Wagener (auslandsjournal, Terra X) were tokenized and sold. A model that could do the rounds.

“We will see how strong the trend develops”

“For the members of GEMA, tokenization opens up the opportunity for the first time to monetize their music independently and at the same time to be able to hold 100 percent of the rights,” explains GEMA legal advisor Dr. Tobias Holzmüller to BTC-ECHO. For several years now, “a strong trend towards investing in music rights has become apparent”. Therefore, there must be “a possibility of transparent and direct trading for authors of music and publishers” at GEMA, says Holzmüller.

Will works be tokenized more often in the future? “We will monitor how strong the trend develops”. According to Holzmüller, “in times of rising interest rates and tensions in the crypto community”, it will become clear “which use cases are sustainable and in demand”. It is unlikely that the music industry will ignore the opportunities in Web3: “One can already say that the music industry is taking a very close look at how Web3 and NFTs can be integrated in the course of digitization”.

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Fair value creation

For Jan Denecke, CEO and co-founder of 360X Music AG, it is clear: “Asset tokenization is a strong trend”. Blockchain technology enables “assets that are not really tradable to be made tradable,” Denecke told BTC-ECHO. This applies in particular “to the asset music as an alternative asset class”.

Ultimately, tokenization strengthens everyone involved, says Denecke: “The rights holders in the music industry, such as labels, publishers and artists retain their rights, while investors and, in the future, fans can also participate in the success of a specific IP and benefit from it” . As an “alternative asset class”, music is “usually accessible to only a few”. Tokenization is now opening up “access to alternative financing options” for a “middle class of rights holders”. Denecke reveals that further collaborations with GEMA are already planned for next year.