When people think of NFTs, the first use case most of them probably think of is visual art. From Beeple’s sale of a $69 million digital collage at Christie’s to the Bored Apes Yacht Club collection, visual art appears to be the most important use case for NFTs due to close similarities with the traditional investment in the fine arts. However, the fact that digital art can be viewed and reproduced endlessly online has confused many consumers as to what exactly they are buying.
“The idea that someone could just say, “Hey, it’s mine now, I just saved the image to my laptop and I’m using it as a background” seems really obvious. But then when there’s a real, real owner, and you can validate that string, it makes that other person look a bit stupid, at least within the web3 community” DJ and NFT art collector Justin Blau explained in an interview on the Podcast TechCrunch Chain Reaction.
Blau, better known by his stage name, 3LAU, co-founded Royal, a startup that uses NFTs to allow users to buy “shares” of songs through its marketplace and earn royalties as those songs gain popularity. The company raised a $55 million Series A round from the crypto investment arm of Andreessen Horowitz last November, less than three months after $16 million seed funding led by Founders Fund and Paradigm.
NFTs sold on Royal represent two things, Blau said. First, they represent the intrinsic value of copyright ownership, and second, the emotional value of owning something rare associated with your favorite artist. Blau sees utility in use cases for NFTs beyond the visual arts world, but said he doesn’t think the same form factor and manifestation for these NFTs will apply to all forms. of media.
Music, for example, is invisible, so it wouldn’t make sense for music NFTs to be applied in the same way as visual arts NFTs, he said.
“It’s not a commoditized type of asset. The only way people collected music in the past was with CDs and vinyl, and right now with a streaming service. The music collection of everything the world is theoretically the same, isn’t it? You pay the subscription, you get access to everything,” Blau said.
To assess whether an NFT project makes sense, Blau likes to use the framework that if a behavior exists in reality and can be replicated in the digital world, it’s likely to be a successful use case for NFTs. If a behavior doesn’t already exist, it’s probably not the best manifestation for NFTs, he added.
“I think the music example is specifically the most interesting, where collecting an actual audio file for thousands and thousands of dollars just doesn’t seem to make sense, because nobody would do that in the real world” , Blau said.
That’s why at Royal, Blau and his co-founder JD Ross (who also co-founded home-buying startup Opendoor) opted to apply NFTs to the copyrights behind songs. A song’s copyright is what’s rare, not the audio itself, which can be streamed by any user, Blau explained.
Streaming revenue accounts for about 84% of all music revenue, he added. The reason artists get so little of that revenue, Blau says, is because middlemen like record labels take a cut, not because streaming itself isn’t lucrative.
As an independent artist himself, Blau shared the example of his song “Is It Love,” saying he turned down a deal that would have paid him $15,000 for 50% ownership of the song, which , according to him, ended up taking off and generating upwards of $700,000 in revenue.
“MYour fans would probably have made me a better offer. They probably would have been willing to pay more than the $15,000…and if this song had been successful, they would all have had some sort of return – both in terms of asset value appreciation and cash flow point of view,” said Blau mentioned.
Royal’s platform will eventually allow holders of digital assets to engage directly with artists and access exclusive benefits, such as token-enabled shows, he noted.