Brainstorm HealthBrainstorm DesignBrainstorm TechMost Powerful WomenCEO Initiative

Musicians turn to NFTs and other digital goods to disrupt the music industry and reward loyal fans

December 1, 2021, 5:15 PM UTC

The market for NFTs is booming at an incredible rate, despite public skepticism over their merits and criticism for their environmental impacts. It’s a trend that’s caught the eye of many musicians, who see it not only as a new revenue stream but also a way to bring passion and excitement back to the relationship between their fans and their industry.

“What we saw was, the demand curve for music has been pretty much flat,” said Justin Blau, an electronic musician who performs as 3LAU, at the Fortune Brainstorm Tech conference in Half Moon Bay, Calif., on Tuesday. “Either you pay 99 cents on iTunes for a license to listen or you pay a subscription fee to get access to everything, but there’s so much more emotional value in music that’s not really being captured.”

This year, Blau, 30, cofounded Royal, a marketplace that allows fans to buy partial ownership of songs as LDAs, or limited digital assets. The company just garnered $55 million in a Series A round that included support from Andreessen Horowitz’s a16z crypto fund, Coinbase, rapper Nas, and fellow electronic artists the Chainsmokers. 

“We started to see this trend in NFTs in digital art with artists like Beeple who created this immense emotional value with their virtual work for humans, and thus, humans are paying these enormous prices for his artwork,” Blau said.

The prices are enormous—and growing. The third quarter of 2021 saw $10.7 billion in NFT sales, up from $1.7 billion in the second quarter, according to a report by analytics group DappRadar.

Blau has a clear idea how this kind of marketplace can work in the music world. In October he gave away 50% of the master recording ownership of his song “Worst Case” to Royal members, allowing them to either sell it or hold on to it and reap the benefits of royalties or other revenues.

“After we gave away these assets that represented that ownership, they started trading, and what we saw was incredible,” he said. “As of today, in the past month, there’s been a million dollars’ worth of secondary trading volume, but the song valuation based on the floor price of the asset is actually now $12 million for a song.”

Katie Haun of a16z, another Brainstorm Tech speaker, added that this “proof of concept” release/giveaway is also a way that artists can use to reward their earliest fans and allow them to participate in the artists’ growth.

“Under the Royal model…the earliest supporters of a particular artist, before that artist’s star really rises, actually get to share in the upward participation of an artist,” Haun said. “It’s not just really financial, it’s also to be part of a community. It’s kind of like ‘fan 2.0,’ is how we think of it.”

Blau also points out the benefits that a digital asset market could offer artists. Kanye West received $2.5 million from a label in return for an 80% stake in his first five albums, Blau notes. “[But] those albums are worth a lot more than $2.5 million today.”

“I think what’s really interesting is our model follows this concept of your fans can be your record label,” Blau said. “Your fans can be your source of capital and your primary means of distribution, if they’re incentivized to. There hasn’t really been a way to align fan incentive with artists before, and what NFTs can do; it unlocks this new complete model for creator economics.”

The key to the success of NFTs and LDAs, according to both Blau and Haun, is that younger fans want to own digital art because it’s widely shareable, unlike a vinyl record that can be played only for the people in your immediate space.

“They might have thousands or even tens of thousands of friends on online platforms or in the metaverse, whereas their audience is much more limited in the physical world,” Haun said. “The potential for democratizing access and allowing people a new form of economic participation and ownership, we haven’t even seen that yet. We’re just scratching the surface.”

Subscribe to Fortune Daily to get essential business stories straight to your inbox each morning.