The Reed Smith Guide to the Metaverse - 2nd Edition

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As one of the first of the content industries to be heavily disrupted and changed beyond recognition in the early days of the Internet, in many respects, the music industry has, since the turn of the century, been one of the first to adopt change and new business models online.

When the possibility of performing and delivering live music performances to large crowds disappeared almost overnight with the advent of the COVID-19 pandemic, the music industry and, particularly, performing artists were forced to innovate and find new ways to reach their fans. Naturally, they started performing online. It is worth noting at the outset of this discussion that online livestreaming is not a new thing – the Rolling Stones were doing it in 1995, and many companies were delivering livestreams of musicians, including Internet pioneers such as AOL and Yahoo!, long before musicians started using platforms provided by modern players like Twitch and Facebook.

Several defining characteristics distinguish this new form of music consumption in the metaverse from traditional “vanilla” livestreaming or even subscription streaming:

  • A walled-garden platform environment
  • The ability to build, style, and control, or just perform in, a virtual venue
  • The possibility of using an avatar or other visual representation of the artist, sometimes comingled with a true video representation of the artist
  • New production capabilities, including manipulating the virtual environment and combining digital visual production with the artist’s own musical production
  • The ability to interact with the audience in real time
  • In some instances, the combination of more than one artist performing from a different location or virtual venue

There have been many fantastic examples of this innovative musical art form in recent years, but perhaps the most striking and commercially successful was the Travis Scott performance in the Fortnite video game. The traction and audience for this event were phenomenal, with Scott himself commenting: “It was an opportunity to go to the max, to create a world that permits won’t let you do, fire marshals won’t let you do, building codes won’t let you do.” Little did he know that these comments would gain prescience after a tragedy at one of his concerts involving people in real life. Where Scott started, others followed; Future, Zara Larsson, Ariana Grande, and other superstars have pursued performances in virtual environments.

Aside from virtual events and NFTs (covered elsewhere in this guide), another metaverse phenomenon affecting the music sector has been the emergence of virtual “artists.” While the idea of engaging with a virtual artist, created by artificial intelligence and not having a human personality, may be anathema to many true music fans, there is no denying that such artists are gaining huge traction among digital natives. We’ve already discussed FN Meka, described as a “robot rapper who is known for his extravagant style and Hypebeast aesthetics. He has the appearance of a cyborg with green hair and eyes, lots of tattoos, and a hand made of gold.” While this may all seem to be a bit of harmless, somewhat futuristic fun, it has a foundation of serious commercial potential, as FN Meka’s fanbase shows. As a means of comparison, at the time of this guide, Chance the Rapper – often spotlighted as one of the new breed of superstar rappers – has only two million TikTok followers.

Is the metaverse an opportunity or a threat to music?

As the prominent examples above demonstrate, the metaverse can be an opportunity and a threat to the music industry. Certainly, as the production and experiential capabilities of technology continue to push boundaries and create new consumer experiences, artists who rely on old-style production techniques and traditional channels to reach their audiences risk getting left behind. Some of the more one-dimensional approaches to the music industry – such as purely owning rights and monetizing through subscription streaming channels – will quickly become commoditized and mechanized to the extent that they don’t yield the profit margin to make them worthwhile.

Meanwhile, the commercial promise available to those who are prepared to push the boundaries and use all of the available technology to engage and create is galactic. Even the biggest arena tours cannot accommodate anything close to the instant, one-time global audiences that can be attracted to an online metaverse performance. The COVID-19 pandemic, which forced the world to migrate online for entertainment, has shown the music industry that ticketed, cleverly produced, and engaging livestreaming will be here for the long term. It is likely that the most significant concerts and festivals that happen in the real world will, in the future, have a more dedicated, slick, and transactional online component. For that reason alone, the metaverse is here to stay in music.

More interestingly, we can already see that the combination of virtual value tokens and music is a match made in heaven. Companies are furiously trying to work out how to enable fans to invest directly in their artists and engage with them in a way that enables value exchange and support. Royalty streams could be fractionalized, with the blockchain underlying such royalty streams acting as a permanent record of who gets paid, and how much.

What are the legal issues for music in the metaverse?

As always in music, the primary consideration when music is created, performed, streamed, and exploited online is rights clearances. Mostly, the traditional legal and licensing rules applicable to online exploitation apply equally in the metaverse. However, the proliferation of music, performance, and exploitation within new, closed, or even open online environments adds yet another potential layer of complexity to an already complex chain of rights in the music licensing process.

To take an example, a digital music service provider (for instance, Spotify) could promote and host a live-streamed concert on a global games console platform (let’s say, Sony PlayStation) during the interval of an eSports tournament being held and promoted by a leading games publisher (perhaps, Electronic Arts) working alongside a famous brand (maybe, Nike). To attend the concert, a consumer would need to be a user of the gaming platform and have purchased ticketed access to the eSports tournament. However, the live-streamed concert would only be available to a limited number of superfans who had entered a prize draw by buying an original NFT token issued by the headline performing artist (for example, Drake). Prizes might include, at the top level, attendance at the live virtual event and an authentic piece of digital merchandise, while runners-up might still get to see the concert on an on-demand basis at a later date, missing the live show.

The network of contractual obligations to navigate and the rights-clearance issues to think about that are illustrated by the example above are not wildly different from the issues that lawyers may be dealing with in the real world. The half-time performance at the NFL Super Bowl is well known in the music industry for being a highly prestigious, but complex, production and clearance exercise. However, in many respects, the level of complexity associated with clearing music and artist imagery for the metaverse can be significantly more complicated.

Key takeaways
  • The metaverse offers wide music streaming options and the ability to perform in a virtual venue.
  • Artists relying on traditional production techniques and channels to reach their audiences risk getting left behind.
  • Music across different online environments adds complexity to an already complex chain of licensing rights.
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