May 19, 2021

Cash ‘gifts’ and strong-arm tactics: music’s problem with NFTs

Blockchain technology makes non-fungible tokens unique, but uncertainty surrounds how the rights and ownership of songwriters, producers and session musicians apply in sales

Just as livestreamed concerts moved from esoteric to ubiquitous at light speed this time last year, NFTs (non-fungible tokens) are suddenly everywhere in music. Artists including Gorillaz, Calvin Harris and Kings of Leon have all jumped on the bandwagon in search of an art-tech utopia – and a payout.

At the end of February, Grimes sold 10 pieces of digital artwork as NFTs for $6m, while Deadmau5 has offered bundles including music and collaborative artwork. The Weeknd generated $2.2m by selling digital artworks with clips of a new track, as well as a single work that includes the full track, which he says will not be released anywhere else in the future.

NFTs are digital tokens linked to tangible or intangible value – such as a photo, drawing, video, song or experience such as collaborating with an artist or VIP tickets. The tokens are secured using blockchain technology which cannot be tampered with or hacked. Those NFTs can be sold or re-sold, primarily on the Ethereum blockchain (the decentralised network for trading with Ether, the second-biggest cryptocurrency after bitcoin), and come with certificates of ownership that confirm the provenance of their exclusivity or uniqueness.

Despite the clear traceability, there remains enormous uncertainty about just how the rights and ownership of the original creators – from songwriters and producers to session musicians – apply in an NFT sale that includes music. One songwriter behind tracks with tens of millions of streams has found themselves in the middle of this debate.

Speaking anonymously because they are preparing for legal action against the sellers, they said a song they co-wrote was sold as part of an NFT package for reportedly in excess of $10m. Neither they nor their music publisher were informed until the vendor contacted them with the offer of a cash “gift” that worked out at 0.07% of the reported sale. Attached was a contract waiving any future claim on the NFT or share of any re-sales. “Even though I asked repeatedly for them to break down how they got to this calculation, they wouldn’t reveal how much money it had made,” they said.

There is no real precedent. Music sold this way tends to be new pieces specifically for an NFT sale, not preexisting songs that have already been commercially released. Songwriters are increasingly calling for a fairer share of streaming revenues, as well as an end to strong-arm tactics whereby major pop stars take a cut of songwriting royalties they had no involvement in writing: any further grabs on their rights are likely to be seen as callous.

Cliff Fluet is a partner at legal firm Lewis Silkin and does not represent either party. He says the argument of the NFT sellers would probably be that they are not selling the music, but the wider experience. “The sellers may argue until they are blue in the face – and they are probably correct – that the vast majority of the value is not for the music; the vast majority of the value is for the experience, the scarcity of the token and multitude of components and rewards in an NFT.”

The songwriter is concerned that in accepting the “gift” they could be in breach of their publishing agreement whereby the publisher typically needs to be involved in – and get a share of – all commercial and licensing negotiations. They also regard it as tantamount to a buyout as opposed to a licensing agreement. “I would never outright sell a piece of music,” they said. “You can ask for a period of exclusivity but I don’t think any publisher or songwriter would say, ‘Yeah, absolutely, go and take that for ever.’”

They suggest that the timing of this move cannot be discounted given how many musicians are still struggling a year into the global pandemic. “My first reaction when I got the email was thinking how generous this was,” they said. “I haven’t had much work for the past year and this felt like the universe finally delivering something. There are people, who are naive or new to the industry, who would sign immediately. The sellers are playing on that mentality – that they just need to sign this bit of paper to get paid.”

Fluet suggests the core of what an NFT is does not have to change, but rather those selling them must be more precise in their intent. “Anyone who is considering an NFT sale needs to make it crystal clear what is and isn’t being made available by way of the NFT, what proportion of the value is for that and clearing the rights accordingly,” he said. “You’ve got to pick a lane. You’ve got to know what you’re selling.”

He cites the example of Nathan Apodaca, who sought to sell an NFT of his viral TikTok video in which he skateboarded while miming to Dreams by Fleetwood Mac, but claims the cut he offered Warner Music Group and Stevie Nicks to include the song was rebuffed, so has had to strip it from the video. In late March, he started bids on Rarible.com at $500,000, but has not yet confirmed if the auction has met his reserve price.

These are early days for NFTs and music and so mistakes – as well as heavy-handed legal tactics – seem inevitable until there are more precedents set and greater transparency requirements. For now, however, artists and their art fear becoming a secondary concern as the tech hype takes hold.