Aim at becoming another main stream of digital music distribution
The music industry has changed from the era of “Physical” - records and CDs - to the era of “Digital” - downloads and streaming- as technology evolved. And now, a big wave of technological innovation "Web3" is born.
Through this wave, we Kleio Inc. would like to build a new business model that will allow music artists to benefit from technology and at the same time music fans to become more involved with artists.
Through this wave, we Kleio Inc. would like to build a new business model that will allow music artists to benefit from technology and at the same time music fans to become more involved with artists.
The graph below shows the overall revenue of the music industry in 2021 announced by IFPI, an international music industry group. It had been on a downward trend since the 2000s, but picked up in 2015 and finally reached the level of the 1990s in 2021.
Let's take a closer look at this breakdown. The red bar shows the revenue of the “Physical” music (record / CD). While overall revenue is rising, the downward trend continues. On the other hand, dark blue bar, “Streaming” has greatly increased its market share in place of “Physical”.
At first glance, this graph looks like the music industry itself has entered a period of expansion, but at the same time it also shows the difficulty of monetization that underpins music.
At first glance, this graph looks like the music industry itself has entered a period of expansion, but at the same time it also shows the difficulty of monetization that underpins music.
Streaming has rapidly increased its revenue due to the widespread use of smartphones and tablets as well as their ease of use. For example, Spotify reports that in 2021, 52,600 artists generated more than $ 10,000, and more than 1,000 generated $ 1 million on Spotify alone. However, this report indicates that views are concentrated on specific pieces in streaming. In addition, since the revenue includes payment for the master disc right, the amount actually gained by the artist him/herself is smaller.
Of course, there are artists who make a living by supplementing with live performances and selling artist items. And in Japan, the weight of CD sales is still large, so still playing the role of the lifeline of the music industry.
Of course, there will be many people who make a living as an artist by supplementing with live performances and selling goods. And in Japan, the ratio of CD sales is still large, and the current situation is that CDs are the lifeline for the music industry.
Of course, there are artists who make a living by supplementing with live performances and selling artist items. And in Japan, the weight of CD sales is still large, so still playing the role of the lifeline of the music industry.
Of course, there will be many people who make a living as an artist by supplementing with live performances and selling goods. And in Japan, the ratio of CD sales is still large, and the current situation is that CDs are the lifeline for the music industry.
Therefore, through NFT, we have developed a mechanism that allows the existing music industry to sell music in packages digitally without changing its rights structure.
NFT (Non Fungible Token) is a technology that maintains the uniqueness of digital content by recording the information of digital content and the address of the owner on the blockchain. It is attracting a lot of attention, for in 2021, the market size centered on art increased by about 100 times.
Meanwhile, with regard to NFT and music, many artists have felt the possibility since the beginning of 2021 and have continued various trials. Many projects have been created at the global level in the NFT music marketplace, and many companies are competing to set up a new standard of their own.
However, there are three major challenges in NFT and music.
1. Content data being open (viewable also by non-purchasers)
In a typical marketplace, when you try to sell music content as a NFT, the music file itself is displayed. In other words, you can listen to the music itself on the market. Therefore, in many cases, each platform does not sell the music itself, but sells it as a set with the artwork, only providing the user with a sense of ownership.
2. To be issued as one NFT per one music file
When it comes to selling music through NFT, at present, there is no choice but to use one NFT data format for each file, which is different from the existing music distribution. For example, a CD includes a jacket photo and a lyrics card as a set. In the case of album sales, more than one song will be set. All of them provide plus-on content, but conventional NFT sales cannot handle such extras.
3. Improper processing of rights
The music is "publicly transmitted" when it is uploaded to the NFT market. If this song is entrusted to an institution such as JASRAC, the platform operator must pay the copyright royalties appropriately. However, not all businesses are doing this processing of rights properly. Many of these royalty return schemes have not yet been established in the NFT market, making it difficult to sell old songs and songs that are on the existing distribution as NFTs.
Based on the above three issues, we have been discussing the best way to deliver music for the artists and the music industry, and at the same time a valuable way for the artist fans, together with people in this industry and experts of the blockchain technology.
We do not have the intention to make NFTs dominate the music industry. Perhaps the role of media such as streaming, YouTube, television and radio will not disappear and will continue to play an important role.
We do not have the intention to make NFTs dominate the music industry. Perhaps the role of media such as streaming, YouTube, television and radio will not disappear and will continue to play an important role.
On the other hand, the media of music packages represented by CDs, is expected to have finished their role and become some niche products, as many households do not already have a CD player at home.
Therefore, for the upcoming era in which NFT takes over CD as the revenue maker of the music industry and when NFT sales becomes a standard way of promotion in addition to streaming or live performances, we have built a mechanism to change the media without changing the music structure itself.
We define music NFTs as "packages". It is the role of traditional records and CDs as a medium for delivering music directly to the customers.
"Unboxing" is a big genre of YouTube. Unboxing is such an exciting and attractive ritual for people. Everyone can understand the joy of receiving and opening the box of a gift. We think we can make NFT music a gift box that provides such joy to the owners.
"Unboxing" is a big genre of YouTube. Unboxing is such an exciting and attractive ritual for people. Everyone can understand the joy of receiving and opening the box of a gift. We think we can make NFT music a gift box that provides such joy to the owners.
We also believe that building an appropriate distribution structure for NFT music is another important factor.
The distribution of CDs varies depending on the case, but in general, its costs are: master royalties 12-16%, artist royalties 1%, copyright royalties 6%, distribution 45%, and the remainder goes to music labels (manufacturing costs, etc. which the music labels take the risk). In case of streaming, the calculation is bascially “monthly usage fee” times “number of members” times approximately “70%” is generally the share of the copyright holder and the master disc right holder.
Every existing medium has an appropriate revenue sharing scheme for the right holder in its distribution. The music industry has developed to what it is today by securing those schemes. Therefore, we must also find the best methodology for NFT music distribution.
The distribution of CDs varies depending on the case, but in general, its costs are: master royalties 12-16%, artist royalties 1%, copyright royalties 6%, distribution 45%, and the remainder goes to music labels (manufacturing costs, etc. which the music labels take the risk). In case of streaming, the calculation is bascially “monthly usage fee” times “number of members” times approximately “70%” is generally the share of the copyright holder and the master disc right holder.
Every existing medium has an appropriate revenue sharing scheme for the right holder in its distribution. The music industry has developed to what it is today by securing those schemes. Therefore, we must also find the best methodology for NFT music distribution.
Often, discourses in NFTs claim that artists are able to get 100% of the profit without margin from NFT music, but we do not consider it an accurate expression. Certainly, it may be true for DIY artists and bedroom artists who do all the work of creating music just on their own. However, we believe most of the music distributed in the world is based on the existing structure of the music industry.
We consider it difficult for all artists to cover the entire music production process and possess 100% of their rights. Such a market shall be a very limited one. For this reason, we believe that making it possible to distribute the same master discs sold on streaming and physical CDs as NFT products adequately will lead to the scale-up of the music market.
Solution by Kleio Inc.
We have developed a way to distribute music packages adequately by leveraging NFTs on the public chain: the “NFT Music Metadata Standard”.
The de facto standard of NFT format is ERC721 and ERC1155, formats also supported by Opensea, the largest NFT market. We focused on the description of Metadata, which leaves room for free design without breaking this format.
Opensea defines a description method called "Metadata Standard" for appropriate display on its platform. It can be said that this description method is currently the de facto standard when minting an NFT. Thanks to this, we can enjoy the advantage that NFTs generated elsewhere will be displayed properly on Opensea.
This has great benefits for both the NFT generator and the marketplace, thus standardization of this Metadata Standard would be an important process to normalize distribution of NFT music.
This has great benefits for both the NFT generator and the marketplace, thus standardization of this Metadata Standard would be an important process to normalize distribution of NFT music.
Elements such as image URLs, descriptions, and attribute information are recorded in NFT Metadata, and such uniqueness of the data is guaranteed by recording them on the blockchain.
As a solution to the above-mentioned issues, here, we have prepared a mechanism to support the adequate distribution of NFT music by adding three elements when creating NFT music.
As a solution to the above-mentioned issues, here, we have prepared a mechanism to support the adequate distribution of NFT music by adding three elements when creating NFT music.
The three elements are "encryption / decryption of music files", "reading multiple file sources", and "specifying the copyright holder on Metadata".
NFTs created in this Metadata format will only display jacket photos on general marketplaces such as Opensea. You can only listen to the music by purchasing the NFT. A dedicated player is required to listen to the music. Regarding the player, we will publish the specifications and adopt an open architecture that allows various app makers to create music players.
Also, in order to make music available for sale as a package, the music file shall be in a format that can include multiple files. This will make it possible to sell songs that match the artist's worldview, such as albums and NFTs with special benefits.
In addition, the copyright of each song will be clearly stated on Metadata, and distribution will be realized in which the copyright (writing, composing, publishing) rights are retained at the time of sale and royalty generation.
We went back to the root question “What are NFTs?” and considered creating a mechanism that allows users to fully enjoy the benefits of NFT as the important factor: To keep “transaction safe on an open market in CtoC trade” and “being a standard on the public chain”.
For this reason, NFTs published in accordance with the NFT Music Metadata Standard can be distributed in the same way as NFT works such as art in general marketplaces. Furthermore, we can provide an environment for official music by adopting a mechanism that can be decrypted by that player. Just as a CD player was released by each electric manufacturer in the past, various app makers can build a player that complies with this NFT Music Metadata Standard.
Roadmap
We, Kleio, are preparing the following steps to build another mainstream of digital music distribution. We are eager to move into a new world of music experience with all music lovers.
Phase1
Verification of the effectiveness of digital music packages 2021/3Q～2022/3Q
Verification of the effectiveness of digital music packages 2021/3Q～2022/3Q
Wallet management by the user is still a major barrier to entry. Therefore, we preceded the sale of "limited quantity" "music packages" in the same way as the conventional digital content sales method. We gathered opinions from music labels, artists, management companies, etc., as well as confirming user demands and gaining marketing knowledge from that experience. We will reconstruct such precious knowledge in the context of Web3, and propose a further refined mechanism of digital music package.
Phase2
NFT conversion of digital music packages, verification of utilities 2022/4Q～2023/3Q
NFT conversion of digital music packages, verification of utilities 2022/4Q～2023/3Q
Users will be able to own digital music packages as NFTs. Here, we will carefully examine what kind of utility the owned NFT will perform. We are aiming for "open distribution" by building services centered on primary sales based on official rights and leaving secondary distribution to the existing market.
Among them, we will carefully watch market data, for example, initial NFT sales were subtle but later price rose by the artist becoming famous and rarity of the NFT increased, and build a system that gives greatest advantage to the artist.
Among them, we will carefully watch market data, for example, initial NFT sales were subtle but later price rose by the artist becoming famous and rarity of the NFT increased, and build a system that gives greatest advantage to the artist.
Phase3
Deploying digital music players to third-party apps 2023/4Q～2024/4Q
Deploying digital music players to third-party apps 2023/4Q～2024/4Q
We will release packages and develop a dedicated player. The player can be flexibly constructed in various scenes. For example, users can incorporate players into Metaverse to listen in your own Metaverse “room” or deploy copyrighted players for business to restaurants or bars for stores, and artists can prepare their own apps. We will continue to provide a mechanism common for use in any environment.
From Press to Mint: Dawn of a new era in the music industry
From Edison's gramophone, we have always been using the technology of the era to deliver music. NFT has the power to become one of such new technologies. The word “Press” used in records and CDs will change to Mint (creating NFTs) in the age of Web3. We would like to create such a new era of the music industry together with artists and with everyone involved in music.