The Ledger: How Big Is the Potential Music NFT Market?

The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.

It seems everybody is getting — or wants to get — in on the NFT business. It’s reminiscent of the late ’90s when companies rushed to launch websites because, well, there was money to be made and everybody else was doing it. Many companies stumbled out of the gate, but the internet turned out to be a pretty good business opportunity. The jury is still out on NFTs but there’s obvious potential. It’s no surprise that people spend hundreds or thousands of dollars on digital tokens that confer rights to anything from digital art to fan club-like perks. Some fans spend dearly to support their favorite artists. And with NFTs, people get immutable proof of ownership on the blockchain and the ability to re-sell at a higher price (and charge a royalty on re-sale).

The size of the addressable market for music NFTs is, however, hard to pin down. NFTs are a unique product that’s purchased by a small subset of music fans willing to jump through hoops to spend cryptocurrency rather than fiat currency on a credit card, and the jury’s still out on their long-term potential. Early cryptocurrency investors are buying NFTs using digital wallets bursting from skyrocketing prices — it’s like spending found money. And analysis found that what looks like demand for NFT can be “wash sales” where creators bought their own NFTs to drive up prices. Those aren’t signs that NFTs, in general, have less value than people think.

One small clue of the potential of NFTs came back in 2013 when Nielsen surveyed U.S. music fans’ spending habits on concert tickets, music purchases and other music-related goods and services. The goal was to quantify the market opportunity available to artists and labels for selling premium products and experiences to their biggest fans. At the time, 40% of U.S. music fans accounted for 75% of music spending, according to Nielsen — between $20 billion and $26 billion annually. That subset of music consumers could spend an additional $450 million to $2.6 billion annually “if they had to opportunity to snag behind-the-scenes access” and “exclusive content” from their favorite artists, wrote Nielsen. Again, that’s only the potential U.S. market.

The question was how artists would get that content and access to fans. In 2013, fan-funding platforms such as Kickstarter, PledgeMusic (which commissioned the survey), Indiegogo, ArtistShare, RocketHub and Sellaband were young and gaining momentum. Artists realized they could use crowdfunding to offer special packages to “superfans” that went beyond the standard CD or LP release. The typical fan might buy a CD or digital download.

The most casual fans — which is most of all music listeners — spend little on music. In 2013, they bought downloads. Today, they’re more likely to stream music and listen to the radio. For a few fortunate artists, these are significant revenue streams, but many acts rely on superfans to spend more on music, merch and concert tickets. About a third of all music spending came from a group Nielsen called aficionados that accounted for just 14% of music consumers.

Nielsen didn’t anticipate the existence of NFTs, but many NFTs offer two of the main things Nielsen talked about in 2013: exclusive content and behind-the-scenes access. Take the NFTs that give the owner lifetime tickets to Coachella — two per year for one weekend — plus various VIP perks to this year’s festival, free access to virtual events and invites to private functions. Those NFTs have received bids over $10,000, and the NFT that includes a fully stocked trailer in the VIP compound this year has a high bid of $115,000 and a “buy now” price of $1 million. Snoop Dogg’s NFTs sold through Gala Music were described as “access to a superfan club” that makes owners of all 17 NFT tracks “part of the VIP scene” and provides “exclusive access to parties at Snoop’s LA mansion.”

It’s difficult to draw direct comparisons between NFTs and fan clubs, though. Buying NFTs for perks requires far more faith than joining a fan club for an annual fee. An NFT is a single, lump-sum purchase for goods and services to be rendered at some point in the future. Exactly what and when the goods and services will be delivered might not be spelled out. The buyer trusts they’ll get what they’re promised. Sure, NFT companies and artists have a motive to deliver value to NFT holders rather than risk angering their most fervent fans. But people are spending a lot of money expecting they’ll get perks for many years.

Superfans want more than high-priced, autographed vinyl box sets. NFT technologies can open the door to a diverse range of products and services in the digital world. Regardless of the uncertainties surrounding music NFTs, fans are already showing a willingness to buy and collect them. Over time, the market could reach and exceed Nielsen’s nine-year-old estimate. In the meantime, though, it could get difficult to separate hype from reality.

STOCKS
Through Feb. 25, the % change over last five trading days and year to date.

Spotify: -6.2%, -35.1% YTD
Universal Music Group: -8.7%, -22.6% YTD
Warner Music Group: -0.3%, -15.4% YTD
Live Nation: +7.3%, +19.7% YTD
iHeartMedia: +1.2%, -1.8% YTD
Anghami: +7.7%, +73.4% YTD
NYSE Composite: +0.2%, -4.3% YTD
Nasdaq: +1.1%, -12.5% YTD

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