GEMA experiments with a music token

Digitization is opening up new markets for the music industry.

Digitization is opening up new markets for the music industry. For the first time, GEMA now has a safety token to issue licenses.

They show a willingness to push technical progress: shellac, vinyl, cassettes, CDs, MP3s, streaming. Music has always chased new formats as carriers. The NFT hype has recently woken the industry up. The blockchain will open up new distribution structures and markets. Royalties and licenses can be bundled and traded as tokens. The music industry stands on the cusp of a new evolutionary leap.

Music in transition

Even though sales have recovered somewhat thanks to retro records, the digital sales market has outpaced physical for years. In the streaming era, royalties are becoming a bigger slice of the revenue pie for the music sector. According to CISAC, the global umbrella for authors’ rights organizations, licensing income from music is expected to rise to €9.6 billion in 2021, a 5.8% increase from the previous year.

And while the share of digital royalties has already jumped by an impressive 28%, CISAC says there is "much more room to grow." Especially among musicians, artists, and publishers. According to GEMA, the bulk of streaming revenue still stays with labels and platforms—about three-quarters. Licensing income isn’t evenly distributed as a result. CISAC therefore argues for giving more value to works in the digital market. One way to do that is to issue them as tokens.

GEMA starts using tokens

With smart contracts, royalties can be mapped and traded on the blockchain, and rewards can be paid out directly. Tokenization here means denominalizing assets—like real estate, classic cars, watches, or music licenses—for a broad base of small investors. The idea is a win-win: artists can sell rights directly and generate extra income, and investors can enter the market at affordable prices.

The established music industry is gradually discovering this niche. GEMA was the first rights organization in the world to announce the sale of a safety token for music licenses. In collaboration with 360x Music AG, licenses for film composer Hans Günter Wagener (auslandsjournal, Terra X) were sold as tokens. A model that could gain traction.

"We’ll watch how strongly the trend develops"

"For the first time, tokenization opens the door for GEMA members to monetize their music independently while keeping 100% of the rights," says GEMA attorney Dr. Tobias Holzmüller. For several years there has been a noticeable decline in investments in music rights, he notes. So GEMA needs "a way to provide transparent, direct trading for songwriters and publishers," Holzmüller adds.

Will art be tokenized more in the future? "We’ll see how strongly the trend develops." Especially in times of rising interest rates and crypto market tensions, it will become clear which use cases are sustainable and meaningful," Holzmüller says. It’s unlikely the music industry will ignore Web3 possibilities: "We can already say the music industry is paying close attention to how Web3 and NFTs can be integrated as part of digital evolution."

Fairer value creation

For Jan Denecke, CEO and co-founder of 360X Music AG, the trend is clear: "Tokenisation of assets is a strong trend." Blockchain enables assets that aren’t easily tradeable to become tradable, Denecke says. This is especially true for music assets as an alternate asset class.

Ultimately tokenisation strengthens all players: rights holders in the music industry, such as labels, publishers, and artists, keep their rights, while investors and, in the future, fans can participate in and profit from the success of a given IP. As an "alternative investment category," music has typically been accessible to only a few. Tokenisation now opens up access to alternative financing for a middle class of rights holders. More collaborations with GEMA are planned for next year, Denecke reveals.