3d rendering NFT or non fungible token for music.
The NFT scene in the music industry has gone through some wild gyrations since its inception in late 2020. Musical artists’ NFT activities have started to coalesce over this past year, and as 2022 draws to a close, there’s finally enough data about music NFTs to tell us something about what they will look like in the year to come.
Water & Music is a firm that does research into Web3 technologies in the music industry. It maintains a database of music-related NFTs, available to Water & Music subscribers, that is by far the most authoritative source of music NFT data available anywhere. This database lets us go beyond the hype and anecdata and look at how the market is progressing. And at the end of 2022, it finally contains enough data to enable us to discern trends and suggest directions that the music NFT market will take in the coming year and beyond.
An NFT is a record of purchase—of something, often but not necessarily a digital asset. So what is a music NFT? Although artists have minted NFTs on such things as stage props (Katy Perry), guitars (John Lennon), and concert experiences (various artists), the usual configuration is an audio file with an associated piece of digital visual art. Visual art components are often “generative,” meaning that they have an AI component that creates or adapts the artwork dynamically so that it’s more than just a pile of bits.
Water & Music’s data covers almost 5000 NFT campaigns since June 2020, which have resulted in 2.1 million total NFTs sold (not counting resales). The data from 2021 reflects that it was a year of massive hype and experimentation. February through April saw huge spikes in both activity and revenue from music NFTs, followed by equally steep declines through the summer months. Prices for individual NFTs varied widely from $1 (for “When It’s Dark” by Canadian rapper Tory Lanez) to over $1 million (for a work by electronic music artist 3LAU). The number of NFTs in a campaign ranged from one to a million (for “When It’s Dark”). Even monthly median prices swung madly, such as from $2 to over $2000 and then down to $5 between August and December of last year. It’s impossible to draw any conclusions from such wild, erratic activity.
2022 has been a different story, as the market has started to coalesce. This chart shows monthly median prices and unit volumes of music NFTs since January:
Music NFT monthly unit volumes and median sale prices, 2022. Source: Water & Music.
As the chart shows, the monthly median price of music NFTs has plummeted from over $1100 in January to less than $50 in November. One reason why the median price has dropped so much has to do with the so-called gas fees that platforms charge for minting NFTs on blockchains such as Ethereum ETH , which is the blockchain used for the majority of NFTs, to offset the cost of energy used in validating transactions. Back in September, Ethereum transitioned to a new type of algorithm for validating transactions that requires far less computing power—and therefore less energy consumption—to calculate. Other blockchains that support smart contracts (and thus can be used for NFTs) and have lower gas fees, such as Polygon MATIC and Flow FLOW2 , have emerged as competitors to Ethereum. As a result, gas fees overall have been dropping steadily. Ethereum gas fees started the year around $100, are currently below $20, and should continue to decrease.
This means that it makes increasing sense to mint NFTs at lower price points; it’s not practical to mint an NFT at a $25 price when the fees add another $100 on top. This suggests that the $49 median sale price from November is much more indicative of the true market value—that is, the public perception of value—of music NFTs than the $1151 figure from January. As gas fees (and other NFT transaction fees) continue to decrease, prices of music NFTs are likely to continue to drop too.
Therefore it’s likely that music NFT prices will end up in the realm of prices for vinyl LPs, i.e., in the $20-30 range. NFTs are meant to be digital simulacra of physical objects that can be owned and resold, and vinyl has emerged as the most popular type of physical music item. The vinyl analogy has not been lost on the music industry: for example, Warner Music Group recently announced a “Virtual Vinyl” campaign of music NFTs on the Polygon blockchain that will launch next month.
The chart above suggests dwindling interest in music NFTs. Sales volumes are still variable, but they are ending the year at less than 10,000 per month. (The spike in September 2022 is an outlier, attributable to music NFT platform SAN Sound’s drop of 10,000 free NFTs during that month.) Total monthly revenue from music NFTs has been hovering around the $1 million mark since August and was only $300,000 in November.
These numbers are microscopic in music industry terms; the commercial impact of music NFTs is orders of magnitude less than their hype. In comparison, 2022 midyear RIAA sales figures show that vinyl sales are on track to reach about $100 million per month, on volume approaching 4 million units, by year end. In other words, music NFT sales amount to a rounding error on the vinyl market, which itself makes up about 7% of the overall recorded music market.
Yet other data from Water & Music’s database shows that something else is going on. This chart shows numbers of artists who minted NFTs each month, from the beginning of 2021 through last month, and the total number of NFT campaigns from those artists.
Monthly totals of music NFT campaigns and artists, January 2021 through November 2022. Source: Water … [+]
The chart shows peaks in March and April of 2021. These corresponded to spikes in music NFT revenue around that time: total revenue in March exceeded $27 million. Those peaks show that a small number of artists were minting lots and lots of NFTs. Yet even when revenue was nosediving towards the end of 2021—it collapsed to less than $2 million by June—more artists started to experiment with NFTs. December 2021 was the peak month: over 200 artists minted NFTs, and monthly revenues picked up to $5 million by then. Minting activity decreased steadily since the start of this year. But it started to pick up again around July and August and has been growing ever since.
It’s likely that the growth in musical artists’ NFT activity will continue in the coming year, as tools and services make it easier to mint NFTs, fees continue to drop, and the contents of NFT packages continue to converge on experiences that not only resonate with fans but also differentiate themselves from other music experiences (streaming, vinyl, MP3 downloads, etc.). Vinyl should serve as a familiar point of reference for a while before new approaches to NFTs in music—such as those based on experiences as well as digital assets—emerge. In other words, we’re likely to see NFTs become a small parallel to the vinyl market—think box sets or other deluxe packages—over the coming year. What happens after that is anyone’s guess.
