The wild boom and bust of art NFTs made many onlookers wary of blockchain-based technology — but new developments in gaming, ticketing, and music royalties reveal NFTs’ true power

Q-Tip of A Tribe Called Quest, the hip-hop group who saw a percentage of their catalog sold as an NFT without their involvement

Earlier this year, when a person with the username “JeffBezosForeskin” paid around $40,000 for Monty Python actor John Cleese’s NFT — a crude iPad sketching of the Brooklyn Bridge complete with disproportionately sized, stick-figure fishies — I lost a bit of whatever faith I had left in humanity.

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At the time of that transaction, in the first few days of April, it seemed like NFTs (a.k.a. non-fungible tokens) were all anyone could talk about — despite the fact that practically no one knew they existed in January. By June, the market for these digital files had absolutely plummeted. The NFT market saw a 90 percent drop before the start of summer, according to studies. What’s unclear now is if they’ll fade back into obscurity or, as many tech-obsessed entrepreneurs still hope, if they can still transform the entertainment industry.

NFTs (if you’re lost, see our field guide) are massively innovative, but public frenzy has focused on all the wrong value propositions. Cleese’s chicken scratch is not intrinsically worth bags of cash. A photo of model Emily Ratajkowski posing with a photo of herself has a subjective, not objective, value. But therein lies the issue: The true potential of NFTs doesn’t have anything to do with expensive digital art, but rather with how NFTs shift the nature of ownership — and add to a buyer’s wealth long after the sale itself.

Let’s turn to music. If you buy an NFT that holds a contract for partial rights to a song, for example, you can grab streaming royalties for as long as you own the NFT and you’re quite literally getting richer as the minutes pass. And if you buy an NFT that holds a concert ticket, you’re trading currency for an experience that would have a price tag on it whether or not it was tracked on a blockchain. Video game applications also show promise: If you buy an NFT that equips your favorite character with some special skill, you’re getting richer in the metaverse.

As NFTs mature — and as the tech behind them continues to get greener — they dangle exhilarating possibilities for the music business in particular. Here are some of the biggest.

A Tribe Called Quest and a musical stock market

In June, Royalty Exchange, an online marketplace for buying and selling royalties, was the first company to sell the publishing rights to a song — Lil Dicky’s 2015 hit “Save Dat Money” — as an NFT. A few weeks later, Royalty Exchange stepped up its game, auctioning off a 1.5 percent ownership stake in A Tribe Called Quest’s sound recording royalties from the hip-hop group’s first five studio albums. That NFT sold for 40.191 ETH (equivalent to about $85,000 at the time.) “We created this new type of income-producing NFT,” Royalty Exchange CEO Anthony Martini tells Rolling Stone.

But to be clear, A Tribe Called Quest did not sell their stake. Another rights-holder did so, unbeknownst to the group, which upset its members. Billboardalleged that Royalty Exchange had partnered with the band to auction off the share of royalties, and A Tribe Called Quest’s Ali Shaheed Muhammad criticized the article on social media for its “misleading headline” that “worded the story in a way to gain clicks” and adamantly said that the band had not had a hand in the deal.

In a way, this kerfuffle actually highlights exactly why royalties should be handled as NFTs in the first place.

Muhammad was a teenager when he signed a five-album recording contract with Jive Records in 1989. For negotiations, he and Q-Tip were represented by Ron Skoler and Ed Chalpin, who owned PPX Enterprises. In his recent post, Muhammad says that Chalpin deceitfully added a clause to the agreement so that PPX could get paid a percentage of the recording fund for every album. The group did not discover the “hidden clause” — which they’d eventually dispute — until they started recording their second album, The Low End Theory. “Neither Ed or Ron ever told us about this bullshit language in the agreement,” Muhammad claims. “It was unwarranted and where I come from ‘crooked.’ Ed sued us and he lost. He appealed the case. He was rich and had deep pockets to litigate. We however were not rich. We were kids with a dream, an album slowly selling and deeply in debt to our record company.”

At the end of Muhammad’s age-old story of the music business screwing over the very people that fuel it, he shared that “it wasn’t until reading this incomplete article by Billboard … that I learned PPX Enterprises wasn’t entirely out of our business.” Apparently, PPX had sold its share of a settlement made with Jive Records to an individual who then partnered with Royalty Exchange.

Martini called Muhammad after seeing the post. “It’s a sore spot for the group,” he says. “He was really upset by the positioning of the headlines, which caught them off guard. We talked about it. We had a great conversation and hung out in the studio.” Martini says Muhammad’s anger reflects some of the problems of the music industry he hopes to help fix: “Those are the inherent pitfalls of these old school music industry structures.”

Firstly, blockchain technology could have prevented the group from having to discover that secret arrangement. And not only is it more efficient for all the buyers and sellers to see these transactions transparently, it’s also more enticing to the artist. A person who owns a royalty-holding NFT will receive revenue generated from areas like sales, streaming, satellite radio, samples, and TV, film, and commercial placements every quarter, but should they ever decide to resell these rights, the token’s smart contract ensures that the original creator gets a percentage of the transaction. Catalog sales, though red-hot right now, only provide artists with a one-and-done opportunity: “You sell it and you get paid at that time, but if the next owner resells it, you don’t get money again,” Martini says. “If we do that with NFTs, the original artist will always receive a royalty on secondary sales.”

“The art boom made people think of NFTs as a fad, but the underlying technology is what’s important. The future of NFTs is going to be based in functionality.”

Martini, whose past includes stints at management and record companies, sees NFTs as business game-changers. “Transparency’s an issue, it’s fragmented, and there are control issues with it being a top-down type of industry,” he says. “Blockchain is a way to break down some of those walls and democratize things more. The art boom made people think of NFTs as a fad, but the underlying technology is what’s important. The future of NFTs is going to be based in functionality.”

Martini says he has no interest in the kind of inflated value that currently exists in art NFTs. “The assets we’re selling have a value, and we tell you the value,” he says, explaining that Royalty Exchange provides investors with detailed information on its catalogues with notes on top-earning songs, what they earned over the last few years, and where those earnings come from. “It’s not about hyping it up and trying to get some insane price. Whether you think it’s a great piece of music or not, it’s earning X amount. We’re arming the buyers with information. If they want to overpay, that’s up to them. We want it to be a good investment on both sides. We want to get the artist and the seller the highest value possible, but we also want the investors to buy something that’s going to make them some money, so that they feel good and become repeat customers.”

Massive catalogue deals are also only one part of the plan. Martini believes fans will want to invest in baby bands in a manner that’s akin to the stock market. If a fan can help pay for an indie artist’s studio time so they can record their debut album — and is promised a percentage of the revenue generated from its eventual streams — it’s a win win.

“Imagine if you had the Drake rookie card,” Martini says. “Let’s say he sold a thousand NFTs for his mixtape at 10 dollars. That piece you bought for a dollar is going to be worth a lot more. Everyone likes to say, ‘Oh, I knew about this guy before everyone else.’ With NFTs, you could prove that.”

Before the world gets there, though, Royalty Exchange wants to popularize the idea of single song deals. “Younger artists aren’t ready to sell their whole catalogues yet,” Martini says. “It’s not at a good value, because it’s not old enough to give them the multiples they’d want. A song sale is a much easier way to dip your toe in the water. Before we were doing NFTs, it didn’t really make sense to sell one song.”

A cover of “I Apologize” by Kacey Musgraves is up next, but Martini says the public will hear about many more single-song deals in the next few weeks. “We want to convert any potential sale we have into an NFT if possible. It opens it up to a wider market,” he says. “The crypto investors may not normally be looking at royalty investments, but this opens them up to the market. We’ve seen new buyers come on board. With the first NFT we did, we had over 500 people sign up within 24 hours.”

Skin in the game (literally)

NFTs could also help bridge the narrowing gap between the gaming world and other areas of entertainment and storytelling, like music.

This spring, rapper 6ix9ine developed a series of rainbowfied NFTs with help from the Bondly platform and game company Atari. Notably, some of the NFTs unlocked “special significance” in the Atari metaverse, according to item descriptions. What that really means, however, is still unclear — mainly because Atari was not yet finished designing the special perks when Bondly let the cat out of the bag. Even Atari’s CEO, Fred Chesnais, was surprised when Rolling Stone reached out for details: “[The descriptions] must’ve been done by Bondly, because I was not aware of that,” Chesnais tells Rolling Stone before confirming that the company is indeed working on a new “virtual world” and stressing that he’ll only talk about it in general terms for now. He promises, though, that all will be revealed in due time.

“The idea is: If you buy an NFT of an artist, you can basically play with it in the digital world. All these worlds [in video games] are about building and evolving. You may want to look at them and say, ‘Oh, this is super complex.’ But, at the end of the day, every game revolves around three factors, which are health, wealth, and happiness.” Imagine, for instance, that your digital avatar is running low on health. What if, instead of buying a “health pack” as a boost, you buy an NFT from an artist that has a song attached to it? “So, you watch an exclusive video from your favorite artist [in the game] and that increases your health.” Another idea he’s been ruminating on involves future concert tickets being linked to NFTs that unlock an in-game meet and greet between the celebrities and their fans. “Those are just two examples,” he says. “If you give me like five hours in a room with three designers, we’ll come up with 50 examples.”

Despite the naysayers, Chesnais believes that NFTs are key to making once-futuristic developments and experiences like in-game concerts more streamlined and approachable. “Think about it,” he urges. “What is a token? The token is a way to measure and count something, and it’s verifiable. With tokens, you could organize the waitlist for the meet and greet.”

He also envisions a future wherein bands make merch for gamers’ avatars, so artists can promote their music in a new way and expand their reach globally. “Let’s say there are 10,000 tee shirts in the digital world,” he says. “And then, all of a sudden, the band decides to make a real-life tee shirt. They could say, ‘Hey, we’re going to prioritize the ones who own the NFTs.’ And since those are numbered, it’s not first come first serve. [Fans] send in their orders. Whoever has an NFT is given priority. And, if two people have the same NFT. If you have the second out of 10,000 NFTs, you will be served first.”

“I think this is just the beginning,” Chesnais says, who adds that he started looking into the ways in which crypto could be applied to Atari’s business back in 2017. “You will see more stuff starting online and then moving into the real world as we make progress.” While he recognizes that there are cash-grabbers infiltrating the NFT scene right now, he doesn’t think that matters. “It’s the responsibility of the buyers to look at what they’re buying and keep their heads cool. People are always going to try and sell you stuff. So, please just be careful. If you buy some bad stuff, that’s your problem. If you don’t like it, don’t buy it, but you have to give the product a chance. It’s a product like any other.”

Atari introduced its own Atari token last year — and, this March, the company announced its plans to develop a cryptocurrency casino in partnership with Decentral Games. Gamers can find the Atari-branded digital property in “Vegas City,” a district in the Ethereum-based Decentraland‘s metaverse. Chesnais says users can gamble with the Atari token in that casino, which opened in April with a virtual launch party that included a “live” performance by DJ Dillon Francis. Given how hard it is for smaller-scale acts to book shows right now, Chesnais thinks these types of events provide artists with more opportunities to “make money and stay relevant.” As for next steps, Chesnais will only vaguely allude to “many, many other musical partnerships in the works.”

Tickets to ride

NFTs aren’t just reserved for the digital events space. As long as you own a mobile smartphone, they can act like an inimitable ticket or backstage pass. Next year, Lewis Capaldi hopes to host the first-ever show to require entry through NFT ownership, according to press materials reviewed by Rolling Stone.

Capaldi’s Big Fat Sexy Collectible Cards, which are actually NFTs, unlock a variety of perks, including access to a 2022 album playback. The most expensive card also includes two spots on any of Capaldi’s future headlining shows for life.

Lewis’s is a niche example, but companies like Yellowheart — in which Live Nation invested — are trying to put NFTs at the center of the concert industry’s modus operandi. (Yellowheart also designed NFTs for Kings of Leon that housed lifetime VIP concert passes.) “What Yellowheart does is it writes the rules for a concert’s tickets in a smart contract,” Adam Alpert, who manages The Chainsmokers, runs a record label through Sony Music, and partnered with with veteran executive Josh Katz to launch Yellowheart in 2018, told Rolling Stoneearlier this year. “So, it can say, ‘This is how many seats there are. These are the rows and seat numbers. This is how much the seats cost. This is what they can be resold for. This is how many times they can be resold. This is how old you need to be to buy these tickets.’ Any kind of information that can be governed by a smartphone or computer.”

NFTs can also ensure that the revenue generated from the ticket sale is easily and transparently split between any involved parties, including promoters, venues, artists, and even charities. That applies to the initial sale as well as the resale. “The secondary [i.e. resale] market is a ten billion dollar market — if not more,” said Alpert. “That money is the biggest elephant in the room of the music business… Venues, promoters, and ticket-sellers all want to solve this together. There are [random] people, not promoters, not venues, not artists, that are getting this money.”

While it’s true that no one really needs a 52-minute recording of flatulence in the form of an NFT, it’s also clear that the music industry does need more transparency and tech savviness at its core — especially as modern life becomes increasingly digitalized. Blockchains that make NFTs possible provide just that. Not all NFTs are created equal, but, if the pandemic taught us anything, it’s that there’s so much room for growth online.