Are Music NFTs dead after OpenSea killed required resale royalties?

Leading NFT marketplace OpenSea recently upended the NFT world with an announcement that it will stop enforcing promised royalty collection on secondary sales. Does that mean that music NFTs and their usefulness for musicians are over? Not so fast, says the smart team at ArtistVerified.

bfrom ArtistVerified

Leading NFT marketplace OpenSea recently announced that they will no longer enforce royalties on secondary sales of NFTs listed on their marketplace.

This has raised more than a few eyebrows — its one of the latest battles in the NFT marketplace wars between various generations of incumbents: OpenSea, LooksRare, Blur amongst others, as they jostle for market share in the growing NFT economy.

OpenSea’s position of supporting music artists to collect 5–10% royalties on resales was an arguably significant reason why it had gained market share and strategic partnerships in the music space. But how this royalty optional change affects music artists who have released NFTs motivates an understanding of who actually buys (and sells) NFTs.

Some categories of music NFT buyers

If we think about who buys music NFTs, we could consider a few different groups: collectors, investors, traders, fans, bots and perhaps artists themselves.

• Collectors — typically long term holders of assets who either curate collections that reflect their interests or who believe that the music or artist will have some kind of enduring cultural significance
• Investors — typically short to medium term holders of assets who believe that the value will increase over time, perhaps those seeking some non-traditional asset class diversification
• Traders — short term holders of assets who mainly buy and sell to create profits, or to qualify for other opportunities (eg offers restricted to holders of specific assets at a specific time)
• Fans — ultra-long term (forever?) holders of assets, who buy because they love the artist and their music and want to show off their fandom
• Bots — ultra-short term (seconds to hours or perhaps days) holders of assets, who buy as the result of hunting new airdrops, joining new platforms, establishing presence on new protocols. Evidence suggests bots create and use many wallets and employ other techniques to increase their chances of getting drops, but what is not debatable is why: looking to automatically on-sell assets for profits essentially via contract-for-difference (CFD).
• Artists themselves — likely long term holders, there’s evidence that music artists do buy music NFTs from other artists to either show their support, to develop their own taste and style or perhaps demonstrate their commitment to web3 as a new platform

Like any business, in an ideal world there’s a mix of customers for an artists’ music NFTs as each customer group gives you something different.

What happens with music NFT royalties?

Given the current early state of web3 and the music NFT market, you could argue that buyers are more likely to be music fans as opposed to profit seekers. That being said, crypto-trading investors and bots are myriad, and are active in the music NFT space alongside other types of NFTs and tokens in the crypto-economy.

In terms of platforms like OpenSea making NFT royalties optional, the best case for artists is that collectors and true music fans will show some propensity to continue to pay royalties even when they are optional — they have a vested interest in the artist and their career longevity, and superfans are known to spend more.

But if the bulk of music NFT trading activity norms to the bulk of NFT and crypto-trading patterns — ie investors, traders, bots are the majority of transactions, its a different story. Anyone (or anything) that is profit driven in the ultra-short to medium term are extremely unlikely to fork out what amounts to a “transaction tax” on secondary sales as it impacts margins and profitability. Indeed, there’s already been a flight of these buyers to other NFT markets who have made a point of difference against OpenSea by not accepting assets which require secondary sales royalties, or not enforcing that contract component.

How music artists can respond, and still “win” with music NFTs

True music fans will invest time and money in the artists they love. We believe this is a behavior that transcends the real world and digital contexts.

For music artists (indeed, for creators in general) these changes to NFT secondary sales royalties presents a new challenge: how to find those true music fans and collectors and longer-term investors as the specific audience to whom to promote scarce crypto-asset sales such as NFTs.

A secondary challenge is how to do this effectively with the mass of largely pseudonymous crypto-wallet holders who compete to buy NFTs without primary concern for the nature of the asset, but rather a pure profit motive.

There’s definitely a place in this for traditional artist-fan relationship management and outreach tools, although most of those are not connected to web3 customer identities or marketplace dynamics. There’s also a place in this for music-focused NFT marketplaces to facilitate connections and maximize artist value, which are starting to emerge.

Understanding who your fans are, and what their engagement behavior and patterns are across real life, web2 and web3 is critical in targeting releases of scarce digital assets to those who not only truly appreciate them, but are willing to dig deeper to support the artists they love. Many artists are grappling with how to connect to their fans in web3, and bring or find their superfans into this new environment. Even before changes to secondary sales royalties for NFTs, there was already a risk that an artist’s digital works would be somehow captured by parties who are profit seekers — this is exacerbated even further now.

At ArtistVerified, we’re building a solution that provides artists with the means to really understand who their fans are and engage more authentically with them while protecting their brand and IP across Web2 and into Web3. If you’re interested, please visit us at: https://artistverified.com