The past decade has been host to a constantly evolving conversation surrounding ownership in music. Ownership of masters. Ownership of streams. Ownership of audiences.
It’s a conversation that’s gradually shifted the landscape of the recording industry in more ways than one. For artists willing to put in the elbow grease, it’s equated to more favorable deals and all-new alternatives altogether, while others still continue to fall prey to predatory contracts and lack of leverage on the opposite side of the spectrum.
In a pandemic that required nearly every industry in the world to rethink delivery of goods and interactions with consumer bases, the music industry was no exception and with it came the unprecedented boom of Web3 and NFTs, offering yet another route for artists when it comes to monetizing the art that they create. While a wave of major label artists set off a series of headlines throughout 2021, independent and underground artists have proven to be the true darlings of this space, leaving ample opportunity for emerging artists to tap into a unique way of interacting with fans while retaining 100% ownership and profit for their work. Naturally, such open opportunity leaves plenty of room for confusion and far more questions than answers when it comes to navigating the novel space with tact.
Enter: PHLOTE, a decentralized autonomous organization (DAO), that has evolved into a larger music discovery network that is owned and operated by its community of users and contributors. It’s one of many equitable organizations that exist on the blockchain in hopes of revolutionizing their respective industries of focus. For PHLOTE, founded by Wall Street vet AJ Washington and Illroots founding contributor Hallway, the mission is to upend the recording industry as a whole in hopes that Web3 and NFTs pave a sustainable route that keep independent artists, well, independent.
Since its inception in April of last year, PHLOTE has had a hand in helping independent artists generate over $200,000 in revenue from NFTs alone. With so many misinterpretations clouding the Web3 space, the act of demystifying it alone is a task daunting enough to dissuade most artists without the proper support system. In a conversation with PHLOTE, we detailed the necessary steps that most independent artists should take when trying to break into Web3 as well as the pitfalls to avoid and keys for longevity.
First things first, what is a DAO?
So, the technical definition of a DAO is a decentralized, autonomous organization. To most people, that’s just three words that don’t mean really much. But in practice, a DAO is a headless organization — an organization that does not have a hierarchy. It’s a flat organization that anyone can contribute to and get ownership of. It’’s like a company that has no barriers to entry — anyone can work for it, anyone can contribute to it. And for that contribution, they get some sort of stake or ownership, typically through tokens. There’s no application process. There’s no resume. You just show up, and you contribute and reward yourself. The DAO is the company structure of choice in Web3.
So, why was creating one an essential step for reforming the music industry?
A DAO is an essential part of allowing as many contributors as possible to enter and to make an impact in a very efficient way. So, if you think about an organization, an organization is really bound by contracts and agreements that you have with your employer. You have a specific thing that you were hired to do. The organization is trying to organize labor in a way that allows them to achieve some financial objective or goal, right?
The seamless way that people can enter and leave a DAO is important, especially if you’re trying to attack a large industry like music. Music is a $56 billion dollar a year industry. The behavior around music has been ingrained for a very long time and in order to reverse that, it’s going to take a broad coordination effort. The bigger teams are, the more impact we’re going to have in changing things for the better. So, the DAO structure is an important part of performing music because it allows massive coordination, on a global scale, that would not be easily done in a traditional company structure.
As far as Web3 as a whole is concerned, why is it a missing piece not just for artists in general but particularly for indie artists?
Couple of reasons. Indie artists have faced two big problems and these are the two problems that we’re trying to solve– one is visibility. Spotify alone has 55,000-60,000 songs uploaded daily, right? So that’s ninety seven years of music. If you’re an independent artist, that’s what you have to fight through to get seen on that platform. If you do gain visibility and you get a million streams the day that you upload a song, the reward for that is $3,400 a month. No independent artists can survive off $3,400. It’s a losing battle. And you know what? Even if they do get on a playlist and get streams, it doesn’t necessarily equate to any lasting customer or new fan. Typically, it just means they get stream counts up and, again, no pay.
Ultimately, every artist wants to get paid to do this work and to make money from making music. That’s just not an opportunity that’s available truly in the world right now, outside of getting signed by a major label. So, what Web3 enables right now is a smaller ecosystem. So, the visibility problem isn’t as big of a problem. In actuality, visibility is not really necessary, right? Because in the old model, you need it to have mass adoption in order to earn a living. You need mass adoption in order to get signed and noticed by labels.
You don’t need a million fans anymore. You could survive off a hundred who are supporting you, your NFTs, buying your tokens and allowing you to continue to create art. The business model is flipped in Web3. It’s not about getting broad exposure to make a little bit of money. It’s really about finding your niche audience and serving them and allowing them to support your work so that you can make art for the masses.
For artists, particularly in hip hop and R&B, what sort of barriers to entry do artists have to prepare themselves for?
Information. That’s the biggest barrier, and that’s why we love having these kinds of conversations — so that we can get good information out into the universe. Information is freely available, but the biggest issue we see in this space is that there’s a lot of misinformation. So go into any Twitter space, go on YouTube, and you’ll see a lot of content, a lot of people talking, a lot of material that is making people more confused. The biggest barrier is trustworthy, quality information that outlines opportunity in a way that clarifies how this technology can be used by artists.
What is the best way for an artist to go about actually getting that information?
The best way is to actually do it. Go to a marketplace, and mint your art. Download a crypto wallet first, put some sort of crypto in it, go to a marketplace and list an NFT and learn from what’s happening. The space is too young for any “experts.” There is no expert in NFTs or Web3. The space hasn’t been around long enough for anyone to develop an expertise in this.
So, the people who know more are those who are doing and learning while they’re doing. The best way to learn is by doing this, messing up, buying NFTs, being active in the ecosystem, making mistakes, losing crypto, getting scammed. In two or three years, what’s going to happen is anyone who’s trying to come in at that point is going to be way behind because the people who have been here playing with this technology are going to be so far ahead. I think it’s going to be a very big barrier at that point to sort of catch up. So, that’s why we’re telling people to get in now. Get in early, be active. Be very active.
NFTs started to really gain notoriety within the music industry in early 2021 when bigger label artists began to tap into the space and had large amounts of money attached to NFT sales. What sort of realistic expectations should an indie artist have stepping into the space?
The real opportunity is made for independent artists not signed artists. The opportunity is made for emerging artists. Not established, well-known artists — because what crypto really is built around is speculation. People want to buy the coin when it’s cheap so that they can hold it until it’s expensive, right? And they want to find the artists when they’re not known and hold their NFT. The expectation for emerging artists should be that they can use this technology to identify core believers in their art. Find out who wants to support you early in ways that will enable them to buy equipment, pay bills and ultimately do this full-time. Now, the other thing that artists should expect is that, you know, they need to face the market. What happens when I mint an NFT and no one buys? Does that mean my art is not worth anything? Or, does that mean that the right eyes haven’t seen it or the right ears haven’t heard it?
I think the other expectation is that when they first come into the space, you should price your NFTs low, and let people bid them up. Let people collect them just to discover what their price is. A lot of artists list their first NFT for so much with no track record. It’s very hard for someone to give an artist money if they don’t know them or aren’t familiar with their work. So, we always advise an artist to start pricing reasonably so that they can increase in price over time. Musicians, especially, should expect that the biggest job that they have is bringing their fans into Web3 with them, right? Recording artists typically come with a fan base that knows them, has consumed their work, and is in the thousands at least. The benefit of that is now you can bring these people; bring these fans in. Educate your fan base so they’re coming on this journey with you because you want your day ones to be invested in you. The people who are there early, it’s to their benefit. And ultimately, I think the artists that are going to exploit this opportunity the best are the ones who are going to be able do this work and educate their own fan base and bring them in.
What are the actionable strategies that you think are best for indie artists who are getting started or looking to get started in Web3?
The way to begin making money is … instead of selling a one-of-one NFT for whatever price, the better strategy is to sell several editions of an NFT, which means one of 20 or one of 50 or one of 100 so that you can price that lower, and more of your current fan base has a chance to come in. The bigger the number of editions, the more there is secondary trading of that NFT. You’re selling your work for $150 or $200 a pop, you can sell 10 of those and make fifteen-hundred bucks.
The other thing that artists should really focus on is the benefits and utilities that they are delivering to the holders of their NFTs. I want to hold an asset that I think is going to go up in value, and I want to help an artist become more popular because I own this asset that will grow in value and age. Deliver specific rights and privileges to the holders. “I own this entity and now, whenever an artist comes to my city, I get first access to buy merch, or I get first access to buy tickets.” There has to be some exclusive rights or access that NFTs hold that really would make them valuable.
On the flip side, if we’re looking at NFTs for what they are — investments — there’s an upside to being a fan that becomes an investor. What’s the best way fans can tap into that space and be very strategic about it?
So the best thing to do, honestly, is up-and-coming artists who they really like and believe in and bring them to Web3. Invest in them, right? If we had done that with someone like Kendrick Lamar, we would have legacy heirloom assets right now. So, that’s what a fan can do. A fan can identify talent that they believe in early and encourage them to submit NFTs, so they can buy them as investments. It would make a lot more rational sense instead of supporting someone on a platform like Patreon. I could give them the same amount of money that I would deliver to them on Patreon, but instead I got these other benefits in return. It’s a much better value proposition for everyone. The artist gets the money; now they know the fan is invested. That fan now has an asset in their hands that they wouldn’t have had if they just bought a mixtape or just bought a subscription on Patreon.