Web3 vs Traditional Record Deals: How Do They Really Compare?

There’s little more to say about the state of the legacy music industry that hasn’t already been said. These days it’s common knowledge that labels and execs rake in the dough while artists make pennies. And to top it all off, touring — which has anecdotally been a major breadwinner for artists — has increasingly become unsustainable thanks to monopolized ticket marketplaces.

This is precisely why, to take a better crack at independence, artists and musicians have been flocking to Web3. Due in no small part to the fact that the blockchain is revolutionizing the artist-fan dynamic, those looking to break away from traditional music career structures have found themselves doing so by way of NFTs. Many have said goodbye to the idea of securing a major record deal in favor of adopting the 1,000 true fans model. Here’s why.

Traditional record deals are severely restrictive

To some accounts, traditional record deals, in some form or another, have been around for over a century. As they are most often conceived and executed by labels — many of which own the means of production within the music industry that independent artists cannot afford — the terms that govern major recording contracts are almost always dictated by the label itself.

In our current age of music, which is dominated by digital streaming platforms (DSPs), there exists a wide variety of record deals. There are distribution deals through which an artist provides fully complete records to a distribution company that manages the process of getting the songs to DSPs — simply taking a cut of the wholesale price in the process. There are production agreements that serve to help budding artists produce high-quality records. These usually most aid artists who can’t afford to produce music by themselves. Then there are joint venture deals that can be established between an artist and a production company. These help both parties split profits amongst themselves rather than splitting royalties.

But above all else, there exists the infamous 360 deal.

In a 360 deal, the label essentially takes a cut (often somewhere between 10 – 25 percent) from an artist’s net income, even if not accrued directly from music revenue. Hence the 360° figure that is assigned to this type of contract. While a cash advance is still offered to an artist, as is often the standard when initiating a deal, from publishing and endorsements to touring, merch, and even revenue streams, like acting, outside the sphere of an artist’s music career, a label can lay claim to percentages at large.

Because these types of deals first originated during the era when the music industry began transitioning from physical to digital sales (thanks iTunes), they have become overwhelmingly popular in the age of DSPs. Yet, they are very obviously insidious to an artist’s career, considering the restrictive nature of being beholden to a label in all creative endeavors, no matter how small.

360 deals exemplify the larger problem with traditional recording contracts, which is that they all basically act as an exchange of music rights for money. i.e., an artist is nearly always prompted to give up their rights of ownership of their intellectual property (master recordings) in exchange for a sum of money from a record company. But with Web3, things don’t have to be this way.

Web3-centric models could be the answer

While going full steam into Web3 music may have seemed daunting in the past (or perhaps even still seems so today), success stories of musicians making it on the blockchain have become more commonplace. Increasingly, it is becoming possible to ditch traditional record deals in favor of the aforementioned 1,000 true fans model and community ownership.

Perhaps one of the best examples of this is prominent Web3 artist and music producer Daniel Allan.

First turning heads with the completion of a nearly 50 ETH ($140,000 at the time) crowd-fund for his EP, Overstimulated, Allan established early on that there was a market for shared ownership of music through NFTs. With his raise, Allan essentially invalidated the idea that, to make money starting out in the music industry, an artist or band needed a label’s cash or other forms of assistance.

After carving out a unique niche for himself within the NFT ecosystem with a laundry list of impressive releases on curated music NFT platforms like Catalog and Sound, word of the LA-based artists began to spread, spurred on by placements in Billboard and TIME Magazine. Then, in March 2023, with music NFTs continuing to prove to be a lucrative model for digitally-native artists, Allan took his Web3-centric efforts a big step further with the completion of a $1 million seed funding round to support the next stage of his career. But how?

While Allan had been succeeding in selling music NFTs for some time, his seed funding round drew on more traditional crypto sensibilities, moving slightly away from the “music NFT” space and further into the broader section of music powered by Web3. By setting up a C-corp, Daniel Allan Entertainment, to act as the holding company for the Daniel Allan project’s IP and income, Allan utilized a more corporate structure as a means to bring in outside capital.

Led by Coop Records with support from Palm Tree Crew CryptoNoise DAOWoodstock DAO, and Fire Eyes DAO, the $1 million seed funding round allowed investors to purchase equity in Daniel Allan Entertainment, essentially giving them exposure to all aspects of Allan’s career to come. And if this sounds familiar, there’s a reason for it. Because what Allan orchestrated was essentially a blockchain-powered, artist-dictated 360 deal.

Fueled by, as Allan put it, “the intention to build a team and an evolving business around Daniel Allan,” the up-and-coming Web3 artist created a blockchain-centric parallel to a traditional recording contract. And one that benefits both the artist and investors equally, as it gives each equal incentives for a project to succeed, rather than a label receiving the lion’s share of a deal under the guise of recuperating costs.

Yet, while Allan’s efforts may seem quite significant, his raise is but a single-use case of Web3 tech breaking the cycle of traditional record deals. The reality is that there are a wide variety of Web3 record labels that have also launched initiatives as an antithesis to traditional structures.

By building relationships with artists and consumers through deeper social engagement, on-chain revenue streams, and decentralized governance, entities like Hume Collective, Dreams Never Die, SongCamp, and more are inherently defying the standards perpetuated by the big three legacy labels (Universal, Sony, and Warner Music). Yet, notably, even consolidated Web3 music efforts such as these are all fundamentally dependent on the transformative power of blockchain technology and its effects on fan engagement.

Web3’s overall benefits to fandom

All things considered, the undeniable reality of Web3 music is that few musicians have reached a level near what Allan has achieved. But even so, the blockchain has continued to prove to be a wonderfully robust place for artists to create sustainable business models through community ownership.

Especially in the case of musicians, artists finding sovereignty in Web3 often has nothing to do with traditional facets of the creative industry. Because in Web3, conventional communication channels have substantially widened. Now, musicians are incentivized to do more than simply drop music and wait for fan feedback. On the blockchain, they can derive real-world value from their fans by selling ownership of their music and reaping the benefits alongside their community.

let the press know that I made what I would have made in a record deal in a summer thru web3.

let the press know that a black woman artist made $50k+ in a day for a music video that lived on YouTube.

let the press know that they are missing some of the most important stories.

— LATASHÁ.eth (@CallMeLatasha) March 24, 2022

Although it may take some time for Web3 music (or any NFT use case) to become more widely adopted, the innovation being driven on the blockchain is becoming increasingly difficult for those in the Web2 music industry to ignore.

This seems especially true where record deals are concerned. Because with established players like Steve Aoki, Snoop Dogg, and more becoming champions of the NFT space, metaverse record labels are surely on their way to securing a slice of the DSP revenue pie, undoubtedly making digitally-native artists and blockchain-based music endeavors more important than ever.

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