It feels like only yesterday when “the metaverse” was just a hot new buzzword – a thing of the distant future. Now, the music industry is catching up to the world of web3 and the rapid pace with which it is growing and changing.
Whether it be Lil Nas X performing in Roblox, NFTs (non-fungible tokens), or AI musicians, web3 is opening the door to many exciting new opportunities. However, this comes with a subset of issues that the music and tech industries will have to address as soon as possible.
Back in the early 90s, when hip-hop artists were looking for ways to legitimize sampling, music industry executives tried to fit a square peg into a round hole by applying existing terminology and licensing criteria to a new field that they considered was just a “fad.” Of course, sampling only grew more popular, and eventually, new licensing framework was created to accommodate it.
At the moment, we are having the same problem with web3. It begins with mechanical licenses, which cover the publishing side of a composition. The mechanical royalty rates are set by the government and are not subject to negotiation — if an artist would like to cover a song and release it on their album, they simply need to provide notice and pay the government-mandated royalty.
Things get tricky when a song is paired with a visual, like in an advertising campaign, TV show, or movie, for example. At that point, a synchronization license will be needed, which requires negotiations with the publishing company and also the label that owns the master recording of a piece of work. Either party can request whatever sum of money they want, and they are able to shut down the usage completely by saying no.
Over the past few years, mechanical and synchronization licenses have become antiquated. For example, sometimes music usage in audiobooks and podcasts is paid for via mechanical licenses, the argument being that there are no visuals linked with the audio. But shouldn’t the right-holders of a song have the opportunity to decide which kind of audio content they want their songs to be associated with and for how much?
Web3, the metaverse, and NFTs are challenging these licensing definitions even further. With the traditional synchronization licenses, rights-holders can see exactly what they are agreeing to connect their music with. However, in the metaverse, the vast majority of content is user-generated, and that should come into consideration. NFTs can take many forms, from an exclusive track, which could fall under a mechanical license, or video/audio set to music, which requires a synchronization license. Also, NFTs can be resold, and rights-holders should be able to receive a portion of each resale.
So, what is the solution to this problem? I would argue that the best way around this is to introduce the following new licensing terms:
- Art-Driven Mechanical – for mechanical reproduction in another art form
- Art-Driven Synchronization – for syncing music to another art form
By creating these new terms for web3, we could grant permission to music copyright holders to generate at least two values or quotes as a means of collecting proper compensation for new web3 music uses, whether or not music is the primary art form (including the written word and other media).
With this setup, an NFT would be subject to three fees:
- A specific art-driven mechanical royalty rate to generate income from included songs
- An art-driven synchronization flat fee to cover video/audio syncs
- An ongoing resale fee that would provide a portion of future revenue to rights-holders on a pro-rated basis
Music usage in the metaverse would then be subject to two fees:
- An art-driven synchronization flat fee to use the song on the platform
- A separate user-generated content fee, in addition to the performance fees for recording and compensation through PROs (performing rights organizations) and CMOs (collective management organizations)
The music industry is constantly evolving, and it’s crucial that we have more discussions about embracing the world of web3 and the metaverse so that we can protect the art and everyone involved. Redefining terminology can be a scary task and a lot of work to figure out, but by doing so, we’ll all be left better prepared instead of playing catch-up.