With AUS Music T-Shirt Day just around the corner, there couldn’t be a better time to look back on memories of lining up at the merchandise stand after a concert, and look forward to the future of what music merchandise may hold in the digital arena.

Limited movement during the global pandemic has meant artists and fans alike have embraced the digital economy as a means of maintaining connection. This has perhaps been seen most acutely in the recent frenzy of creation and sales of non-fungible tokens (NFTs). NFTs have been released in relation to a variety of assets, including traditional music merchandise such as t-shirts, posters and even collectible ticket stubs, as well as rarer assets such as Kings of Leon’s live recording of their recent single ‘Time in Disguise’ that was played in space by a crew member of Inspiration4,[i] a recontextualised version of Jay Z’s ‘Reasonable Doubt’ album cover,[ii] and collectibles and experiences celebrating the GRAMMY Awards.[iii] These innovative forms of digital merchandising come with similar intellectual property considerations as those relevant to traditional merchandise, which we have discussed in our previous article.

NFTs as music merchandise

As set out in our previous article on the benefits and shortfalls of NFTs, NFTs are reminiscent of digital assets such as Bitcoin or Ethereum, as they involve blockchain technology. NFTs, however, are non-fungible: they cannot be directly exchanged with one another as NFTs do not have a set, defined value.

NFTs act as the digital certificate or ownership record of real-world assets or digital items. Those real-world assets or digital items in the context of music could include a master edition of a song, album cover art, music videos, animated versions of album cover art as GIFs or a real-life experience such as front-row tickets or backstage access at a concert.

By selling or buying an NFT you are not necessarily giving up or receiving rights to the counterpart asset, such as the right to reproduce. For example, if you ‘minted’ (i.e. created an NFT attaching to) a master edition of a song and sold the associated NFT, the purchaser of the NFT would not then own the master edition of the song and any underlying copyright. Rather, the purchaser would receive the right to claim ownership of the NFT, not ownership of the counterpart asset itself.

The appeal of NFTs to artists and audiences

Due in part to the digital scarcity of NFTs, and their potential to offer an alternate revenue source, NFTs have been embraced by audiences and artists across the world.

Digital scarcity (meaning a credibly maintained limitation on a digital resource, imposed via software) is the key reason NFTs have value. In the case of NFTs, their digital scarcity comes from the underlying blockchain technology that establishes a decentralised shared agreement about the vesting of NFT ownership. Someone cannot simply right-click, save or download the NFT. The decentralised agreement cannot be changed or falsified and this is what ensures that every time the NFT is traded, the original seller automatically and accurately receives royalties. For audiences, NFTs offer a new way in which to support their favourite musicians and access unique real-life experiences offered by the artist.

The benefits of NFTs as music merchandise are valuable to both upcoming and established musicians. For upcoming musicians, NFTs present the opportunity to fan-fund and to benefit from higher payout rates than distribution or streaming platforms. For established musicians, NFTs can serve as a vehicle by which to offer new experiences to loyal fans, and to give back to the industry.

This takes us back to the heart of AUS Music T-Shirt Day: raising funds for the Australian music industry, which has been particularly hard-hit after nearly two years of lockdowns and uncertainty. Given the enormous sale prices of some NFTs, a number of musicians have donated the proceeds back to industry and other related causes. For example, Kings of Leon have donated over $500,000 of their NFT sales to Live Nation’s Crew Nation fund to support live music crews during the coronavirus pandemic.[iv]

Must-ask questions

To address intellectual property considerations surrounding NFTs as music merchandise, here are four must-ask questions for every musician or fan before they mint or purchase an NFT:

  1. Who owns the relevant intellectual property in the associated asset? As the potential seller, do I have the rights to the associated asset (such as album cover art) to sell it? Should I register the rights to strengthen my position?
  2. What are the terms of the NFT set out in the description? As the potential seller, do I want the potential purchaser to receive rights beyond the right to claim ownership of the NFT? As the potential buyer, what do I receive with the NFT and what actions are permitted?
  3. Do the terms of service of the NFT marketplace impose further limits on the terms of the NFT, beyond those set out in the description? For example, is there a gross revenue limit on the commercial use of an associated asset if the potential purchaser is allowed to on-sell the associated asset?
  4. Does the NFT marketplace offer any take-down procedure to ensure that any unauthorised NFTs circulating in the marketplace are swiftly detected and removed from sale?

Outro – Watch this space

There is no disputing that the interconnectedness of the digital arena has shaped how music is produced, performed, preserved and consumed. Now, with arrival of NFTs, the way music is merchandised and musicians engage with their fans is being transformed.

It will be interesting to see how the uses of and interactions with NFTs continue to evolve. In the future, could we be lining up at virtual merchandise stands in the metaverse, video games or even relying on NFTs to verify resale tickets in real life?