THE MUSIC INDUSTRY'S TRENDING TOPICS THIS WEEK
 

> Deep Dive: The Rihanna NFT That Isn't A Rihanna NFT, and the Questions It Raises. 

Tl;dr: Selling future royalties via NFTs can generate serious revenue today. But buyers--and the artists selling them--should be aware of risks. 

FRNC: 

While sports fans everywhere are excited for tomorrow’s Super Bowl (Go Birds!), for music fans, the big event is Rihanna‘s halftime show. Given that the Super Bowl is the single biggest annual broadcast event on earth, it makes sense that anyone and everyone who might be able to capitalize on the attention tries to.

This brings us to the curious case of anotherblock, an NFT platform that sells stakes in future royalties of specific songs, and the sale it held a couple of days ago, auctioning off future royalties of the Rihanna blockbuster, “Bitch Better Have My Money.“ In doing so, anotherblock became the latest company to showcase both the opportunities and the huge questions that surround these sorts of royalty sales.

For starters, and as best I can tell, the sale has nothing to do with Rihanna herself. I managed to contact at least one member of her management team, who is in Arizona preparing for the big show, and understandably not focused on this issue. But they were unaware of the anotherblock sale. What anotherblock did do is partner with Deputy, a credited producer and writer on “Bitch Better Have My Money.“  The MLC database lists him as having an 8.75% stake of the publishing rights of the song. Anotherblock facilitated 300 sales of a .0033% stake of Deputy’s stake for $210 per purchase. So if I’m doing my math right, what investors are getting for $210 is actually .028% of the publishing of Rihanna‘s old hit.

So let’s start with the good: if you do the math, Deputy wound up auctioning off 1% of his stake and raised $63,000 with the first round of sales. I note “the first round” because when you dig into the contract, you see that Deputy and anotherblock will take 5% of resale in perpetuity. You can see how this sale showcases the artist empowerment aspects of Blockchain that have been much written about (some would say overhyped). It is unclear what cut of this money anotherblock takes. 

Some aspects of the sale are less rosy, however. For starters, the site advertises “probable“ return on investment of 6.5% in year one but no amount of back-of-envelope math can get me anywhere close to the ballpark of that return for an investor now holding .028% of the publishing on this one Rihanna song. Forget the ballpark—I’m not sure I can even get into the right state or country. Let’s take out our pencils.

Above screengrab from anotherblock

The song is currently averaging 886,000 streams per week for the past five weeks, according to Luminate. If we use a fairly standard ballpark of $4000 to the rights holder for every million streams, that nets out to be about $3500 per week. From this amount, the publishing rights will charitably take about 20%, so now we’re at around $700 per week. Now let’s apply Deputy’s 8.75% stake of that and we are down to approximately $61 weekly. And now, finally, let’s do the math of that .0033% stake of Deputy’s stake: that gets us to about 20 cents per week.

There’s obviously a ton of assumptions and rounding errors in this math, and many things that we don’t know. Does Deputy have a co-publishing deal? If so, cut that 20 cents in half (I suspect he does, as the MLC lists his administrator as Universal Music Publishing). Does he have an admin deal? If so, take only 5 to 15% off of earnings. Are we talking about global revenue, and not just US? If so, that 20 cents weekly probably becomes approximately 28 cents, using the roughly 60/40, US/rest-of-world revenue picture for the last full year of data we have from 2021. Where and how does anotherblock take a cut? I couldn’t find that on their site.  Does this .0033% stake include all revenue? Mechanicals on physical product? PRO revenue? Sync revenue?

The answers to all of these questions could shift earnings up or down. But if we use that 20 cent weekly figure, that gets you to about $10.40 annually. After taxes you’re probably taking home around seven dollars, annually. At that rate, it would take approximately 30 years to recoup your initial $210 investment. So either I’m fundamentally misunderstanding a key part of this math, or anotherblock defines a 6.5 percent rate of return very differently than I do.

I reached out to the company for comment and clarification on this math, and on some other questions. Admittedly, they didn’t have a lot of notice, but a communications person did get back in touch with me and told me they would try to get me answers. But then I didn’t hear from them again.

We could explore some other issues, such as whether or not the advertising and social media postings to market this sale, which included an image of Rihanna, violate her rights of publicity. While the site is clear in the smaller print that what is being sold is a share of the producer's royalties, it's still Rihanna's name at the top of the anotherblock site and "Rihanna" in all of the headlines about this, which has clearly created some market confusion. 



But more than anything, I think this BBHMM sale probably illustrates why the SEC needs to provide more guidance about, and be more involved in these sorts of Blockchain-based sales against future artist royalties. So far, the SEC has generally ignored these sorts of sales, but most experts I have spoken with tell me there are conversations happening behind the scenes, and an expectation that clarity will come.  

There has been a lot of discussion in legal and financial circles about whether or not these sorts of sales pass the Howey test—a list of questions used to determine if a transaction is considered a security, and should therefore be regulated. I’m no expert on that question, but having had several conversations with people who are, it’s hard for me to see how sales like this aren’t a security. Artists and producers selling future royalties in this way, and of course, the platforms that are supporting them, should be aware that the SEC doesn’t play once it decides to crack down. Your personal liability may be at stake. If you’re considering a sale like this, a conversation with an attorney would be advised.

It's worth noting here that non-Blockchain sales of future royalties exist, and ARE SEC-regulated. SongVest has been running these sorts of sales for a couple of years now, and buzz-y newcomer JKBX plans to launch later this year with $4+ billion in investable rights. 

In the music business as in the world, I try to discourage binary thinking. Most everything that's interesting and worthwhile involves a spectrum and not a toggle, so please, don't consider this essay a condemnation of anotherblock's approach. There's a lot of potential for artists to do well for themselves while experiencing more control in the realm of blockchain-enabled business models.

But these are still early days. Without regulation, the risk of fans being exploited – lured by the promise of ownership stakes in their idols – is very, very high. Not to mention the more pedestrian reality that anotherblock is advertising returns that seem unlikely, given what we know (while absolutely acknowledging all that we don’t). Perhaps anotherblock and all of the other blockchain-based royalty sellers will share their math and their feelings about SEC regulation in the near future, and I will share it with you. Until then? Buyer beware. The “Bitch” may turn out to be you not having your money after all.

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> ICYMI 

> The Grammys in Two Charts 


FRNC: CBS extended their deal with the Grammys in 2016; you can see in the above charts that ratings were still holding very strong at the time of that renegotiation, in line with highs, if we exclude the one breakout year of 2012. Since that time? Even with the Grammy's reported 30 percent bump in ratings this year, the show's audience is still basically half the size it was when the CBS deal was executed. The Recording Academy has three more years before the current deal expires. Given the light speed rate of fragmentation going on with broadcast television (and media in general), it's difficult to anticipate the Recording Academy not taking a haircut on their next deal. I've been told by media buyers that prices for 30-second spots have held stronger than the ratings, with ad prices generally coming in at or just below $800k. That's more of a 15-20 percent drop from highs. Will advertisers eventually balk at paying this much, considering how much lower ratings have been?

A couple of advertisers that I was able to speak with on condition of anonymity said that they were very happy with this year's edition. They were pleased that new Academy leadership seemed to be taking seriously and making progress with race and gender issues, and were generally optimistic about the show's continuing cultural importance. However, one advertiser did acknowledge that they would be watching to see if the 30 percent bump in ratings was the beginning of a new trend, or a dead cat bounce. There's a lot at stake: nearly two-thirds of the Recording Academy's $90m in annual costs, as listed on their most recent, available tax filings, are paid for from show-associated revenues.  

> Beyoncé tour sales are off to a smoother start. What does that mean for Ticketmaster? (NPR)
FRNC: We spoke with a number of attorneys and folks in the live biz while at Grammy Week. Consensus seems to be settling on the idea that Congress will pass a legislative package to reign in some of the issues that fans have been complaining about when it comes to concert tix. But I spoke to at least one well-connected exec in the live biz who told me calls between the Justice Department and key Ticketmaster competitors are very much ongoing. In no small part, this is because a number of State attorneys general still plan to press ahead with suits. What scares me is that this issue has become so political and stupid, when it should be much more simple, at least as it relates to ticket prices. Cap fees and let artists limit resale, and you've effectively created a clear lane in which artists could have unilateral control to set prices for fans, with no secondary mark-up. A boy can dream, right? 

> Is TikTok About to Pull Off A Heist on the Music Industry? (Music Business Worldwide)
FRNC: Yes. 

Also: The Problem With Taking TikTok Away From Americans 

This is just a brilliant read by Murray Stassen, which essentially serves as a very up-to-the-minute state of thinking in the ongoing negotiations between TikTok and the recorded music biz (licenses are or will be expiring, and TikTok wants to know exactly what those licenses--aka all major label and big indie music--are worth. So they are testing TikTok in Australia by removing these songs. It's a high stakes game. As the piece notes, if TikTok realizes music is actually pretty dang important, they may be hurting their own position. And of course, if removing music doesn't hurt engagement, Big Music is screwed. They will be forced to accept that the massive platform they helped to build owes them very little in terms of direct revenue, while TikTok hurtles towards being a $20 billion business as soon as next year. Read this whole essay, though. There's a lot to unpack, all of it absolutely important.

> Ice Spice, PinkPantheress, Warner On to Something With "Boy's A Liar."
FRNC: This track is awesome. PinkPantheress has been bubbling just under superstar status for a while now, and Ice Spice, who is undeniably blowing up, hopped on the remix of "Boy's A Liar" and it looks like that track might take them both to the moon. 
I love the data here, courtesy ChartMetric.


You can see how "Boy's a Liar" was already shaping up to be PinkPantheress' biggest streaming hit, but now you have the remix off to an even faster start, driving heat for both versions. Well played.  

> Shamrock Capital Raises $600m for "Content" 
FRNC: There is increasing data and opinion that we may not be headed for a recession after all. This is a important context for the increasing data and opinion that a much-discussed slowdown in music catalog acquisition may also not be happening after all. Clearly, billions of dollars are still flowing into investment vehicles targeting music. At this point, the only thing we see slowing that down would be a legitimate downturn in overall growth rates for the global biz. But watch this space, because that's on the table. 

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