The Legit Ledger Podcast Ep. 18

Trends and Innovations with NFT-Based Music (Part 2)

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Listen to the original podcast released February 28, 2023 here:

In this episode of the Legit Ledger, Achilleas Sarantaris of Async Art joins Sheppard Mullin attorney Sam Cohen to continue their discussion of the latest trends and innovations with NFT-based music, including the implications of using the Creative Commons “no copyright reserved” tool, or “CC0”, and common misconceptions and pitfalls to look out for when minting NFTs relating to music.


About Achilleas Sarantaris

Achilleas Sarantaris is leading product at Async Art, an innovative platform exploring ways NFTs make sense above and beyond purely speculative use cases. A musician who’s been on both sides of the music industry, Achilleas is also pursuing a research degree in Philosophy at UCL in the United Kingdom.

About Samuel J. Cohen

Sam is an associate in Sheppard Mullin’s Entertainment, Technology, and Advertising Practice Group in its New York City office. He represents emerging and established companies and creators in their business ventures across all facets of the entertainment and media industries, and frequently advises on transactions, intellectual property, and regulatory issues involving music licensing and exploitation, and disruptive technologies including NFTs, blockchain technology, interactive media, and broader web3 matters. A former in-house counsel at Sony Music, his extensive experience within the music industry allows Sam to provide artists, record labels, publishers, distributors, performing rights organizations, and other media companies with the guidance needed to effectively navigate the music, technology, and intellectual property aspects of their business endeavors and strategic transactions.


Sam Cohen:

Welcome back to the Legit Ledger. I'm Sam Cohen from Sheppard Mullin's entertainment practice. This is part two of our discussion of NFT-based music with Achilleas of the innovative NFT platform, Async Art. If you missed the previous episode, you can find it on the Legit Ledger podcast episode page. Let's jump back in.

This kind of brings us to another point and another trend. This is kind of on the flip side of granted commercial rights is the trend of granting the creative common license known as no copyright reserved or CC0, which essentially means that if you implement it correctly, you are waiving all of your copyrights in and to that music or art or whatever the creative content may be, and essentially putting it in the public domain. A lot of people, and probably a lot of lawyers, their initial reaction to this is, "Could that decrease the value of the IP?" If the NFT owner is not the exclusive person who can use and exercise those rights, and if anybody can do it, then what's the value of the IP? Why would someone buy it if anybody has the right to take whatever art is associated with that NFT and do whatever they want with it?

Some of these projects I think have generated more interest, and this is the interesting thing that I think we’ve seen. By releasing things under CC0, projects can generate more interest in the original NFTs, increasing their value despite the relinquish copyright protection with the underlying assumption being that the value of the original NFT will increase as more copies and derivatives are disseminated. This is not a completely foreign concept. We've seen the potential power that remixing and reusing and recontextualizing can have across all forms and mediums of art. In music sampling in hip hop comes to mind, and in electronic music you have DJs who encourage or are even flattered by other DJs taking their tracks and remixing them, blending them with their own tracks, and playing them out for new audiences, which can potentially help drive the popularity of both the newly-created remix or derivative work and the original work or the underlying track or music.

Increasing copies, derivatives, encouraging derivatives to be created in the community, many could see this as harmonizing with the ethos of Web3 and really, truly creating a permissionless environment, and it can help artists achieve cultural significance, even if they've waived their rights under CC0, just by people using their work and creating derivatives and more and more derivatives of it, putting more and more out there, that can help the value and popularity at the original NFT. This seems to be kind of harmonizing with the traditional ethos of Web3 and doing that, harmonizing with the ethos of Web3, are what many see, at least in the Web3 community, as a key success. Having said that, there are important legal issues to keep in mind for both the artists using the CC0 waiver and those who want to use and exploit the relevant content.

Dedicating a work to the public domain is not a straightforward process. Laws vary from jurisdiction to the jurisdiction as to what rights can automatically be granted and how and when certain rights can be voluntarily waived. Depending on the jurisdiction, CC0 may not effectively waive rights such as moral rights and rights of publicity. Also, keep in mind, CC0 does not waive trademark rights, so you may still have some of those rights in the work, even if you use CC0, and that should be carefully considered because you might want to waive your rights under CC0 but not waive your trademark rights. Maybe you want your fans to be able to use your art and create derivative works in any way you want, but maybe you want to draw the line on them using it as the trademark for their brand. Some of these things are possible since CC0 does not waive your trademark rights, it is only your copyright rights.

So CC0 could lead to issues like the art being used in ways that don't align with the creator's values. Since people can use it in any way they want, they could theoretically use it in ways that the original IP owner really doesn't want to see. You likely don't want to see your art being used in a hateful manner, for example, or by extremist groups. On the flip side, what many would say is that, "Well, if you care about that, retaining ownership of the IP helps creators control the narrative." But having said that, we're seeing, and some people may be surprised, CC0 projects are growing in popularity, that there was even a CC0 NFT project featured in the 2022 Super Bowl commercials, the project Nouns, which listeners can look more into. But Achilleas, any more thoughts on CC0 for you?

Achilleas Sarantaris:

Yeah, I find it very exciting and interesting the way that CC0 kind of flips the formula in its head in a way, rather than having the reproduction rights be the thing that gives value to the underlying work of art. You said earlier it's despite CC0 that these things find success. I would say in some cases it's exactly because there is no gate keeping to its use case that defines success. I think that sort of close analogy to this is something like I guess works in the public domain or prior to that, I guess pre-legally, the sort of ancient artifacts and the ability to produce them and there's no sort of clear rights holder there. The reason why I think we are seeing this strength and why it's so exciting is because there actually now is a corresponding object to the artwork itself that is in no way able to be confused with a forgery of it or derivative work with, right?

For example, if you think of, I don't know, I'm not sure exactly what they legal treatment is, but let's assume for now that anyone can create a copy of Kant's original philosophical works in the categorical imperative, the groundworks on Philosophy of Reason or whatever, so everyone can sort of print it out and have it and sell it even. I'm not saying that's the case, but I assume it is. There is still a value to the original manuscript he wrote, the one that has his handwriting on, probably a value that is commensurate and a result of the fact that this is a very, very widely read book and one on which many other philosophers have responded to. I think pre-NFTs, we didn't have a musical object that corresponded to that originality of it, except for the master tapes which are sort of inaccessible and cluttered and big.

The vinyl was always, say, an instance of the art that, as we said before, its value stems from the fact that it is a legitimate instance of the copyright, right? In this case, you start with the object, so you start with 100 master tapes of a certain song or whatever and then you sort of let them out in the open for anyone to use. The more use there is, the more value, sentimental value, and signaling value accrues to the original object. The moment that the first instance is not the intellectual property itself, but is an object that the intellectual property almost stems from or is associated with, then you're seeing that this is a very good way of monetizing things. So XCOPY is probably the biggest artist in the NFT space who we've worked with a lot and I'm big fan of his work personally.

What he did recently was he made all of his back catalog CC0, right, so anyone could create any derivative of his work and monetize it any way they wanted. The moment he did that, the price of the original sort of skyrocketed and has remained very high ever since. I think the reason why that's the case is because Twitter is flooding now with memes and derivative works and people are selling them, but only one is the original and the fact that only one's the original, I think, there is even more reason to collect something if there's a bunch of other things that look like it, but only one of them is the original one. I don't know, I find it exciting because it's sort of goes against anything I've ever learned as a musician in the music industry and anything that I think makes sense from a legal perspective, which is almost an obsession to protect copyright for the sake of the musician, of course, and the rights holder.

In this case, in some cases, it feels like the opposite might be more beneficial and probably in the long term I think exciting because it means that listeners and the audience can consume and recreate works without any fear, and the original, if this works out, of course there's many different corollaries as to maybe with a new artist for example, who doesn't have a brand name as big as some of the established ones, they won't be able to protect their brands if they do not have copyright protection, so it's much harder in those cases. But in other cases, it might very well be the case that this is the most sort of... that's the best equilibrium for the original creators of the work who essentially have... What they do is they keep reserves of the work, so they made 100 of these tokens, they keep 10, and so the sale of the process of the 100 tokens and then the sales that they have of the 10 that they keep, in a way, over time is the ongoing monetization way, rather than from some sort of copyright distribution.

Yeah, I think it's great. I think it's very exciting. I don't think it works for everyone, but it is just showcasing a bit how the moment you introduce these new technologies and these new ways of distributing value you have new use cases and new arrangements of value that were not possible before, and that's just one of those examples. I think the key sort of high level, to put my philosophy hat on, I guess, the high level differentiator here is I guess the ontology, right? You now have objects that are provably the first ones that no one can copy, therefore maybe it's less important that no one can copy the intellectual property behind it because you have an encore for value, in which case you didn't before.

Sam Cohen:

I think you're absolutely right there and it's really a balance that you as a music creator or rights holder really has to balance when you're kind of considering whether to release your work under CC0. There are still many reasons why you would want to retain your copyright to the work. There's various reasons. If you do CC0 and you waive your rights, you can't grant exclusive rights to that work anymore and there's other reasons you want to take into account. But just to echo what you're saying, Achilleas, it is very interesting how this is something that completely diverges from the way the music industry used to be, in that you can create something that is probably the original and you could license it out under specific commercial license terms or you could waive it under CC0 and allow anybody to take the work and modify it and do whatever they want, and create their own works, and create new arrangements and create new derivative works, kind of increasing the engagement of the fans and kind of spreading the work around, at the same time that there are still the original NFTs that the art corresponds to.

Having said that, if you waive your rights under CC0, other people could potentially take your same work and make NFTs out of it. However, you'll always be able to see and verify the original NFTs that the artist released. Kind of creates and it maintains that scarcity, which is I think one reason that we're seeing so many CC0 projects gain so much popularity. It increases the value of those original NFTs. That's just a couple of the use cases and thoughts around it. It's still a very careful consideration that any musician or anyone, any creator, or anybody who's going to mint an NFT really has to carefully consider when you waive your rights under CC0, for many reasons as we discussed. To add, once you waive your rights under CC0, you can't take it back. Once it's out there, you can't change your mind later. That kind of effectuates the whole idea of really waiving your rights and putting in the public domain.

If you're going to consider doing a project like this, you really have to go through all the considerations, all the possibilities, all the implications, because once you put your work out there as a CC0 and you've waived your copyright, there's no going back, so that is something everyone should keep in mind.

Related to that topic, some common misconceptions and pitfalls, unless you've waived your rights under CC0, your copyright still applies at all times. Some things we're seeing that are kind of either entail a misconception or pitfall or something that you should take into account, if you are somebody who is planning to mint an NFT tied to music or really any content or any functionality. For example, we've seen on websites and marketplace pages that the owner grants the IP rights, literally uses those words. They grant the IP rights to the NFT holder who then earns a percentage of streaming revenue.

Sometimes there's a more comprehensive license that comes with it, or sometimes that's kind of the only language you'll see on a project’s website or on a marketplace that by buying this NFT you get a portion of the streaming revenue, 0.05% of the streaming revenue of the song. This could be an issue, and it's just not clear because in many of these examples that I'm talking about, it's not clear what royalties are being generated and which are being shared. The music industry entails a patchwork of different kinds of royalties generated by different kinds of rights. If you're saying that you're getting a percentage of the streaming revenue, does that mean it's a percentage of the royalty generated by both the master recording or the composition or both?

Does that include public performance royalties? Because that's different royalty stream that is implicated by streaming. Will the royalties be paid from the first stream or after the artist recoups its costs or the advance the artist got? These are some of the things people have to be talking about if they're actually going to be granting some kind of rights or granting rights to royalties in music, keeping in mind that for better or worse, music copyright is complicated. One reason, one of the main reasons being just how many rights holders there can be and how there are two copyrights in any given sound recording. There's the copyright in the actual recording itself and then there's a separate copyright in the composition of the music or the notes, and if you boiled it down, into the sheet music of the music. If you have different rights owned by the person or the organization or the record label who actually invested and created the recording, that's separate or could be separate from the person who actually wrote the song, and they would be the copyright holder in the composition or perhaps the publisher would be.

It gets complicated and we've seen a lot of kind of misleading or incomplete kinds of descriptions of what an NFT might offer an owner. These are the kind of things that really need to be addressed in a well-drafted NFT license to ensure what ownership rights you are retaining, what royalties are being paid where, and on top of that, you need language in the NFT license, and you really need a separate legal analysis as well to ensure that if you're going to be granting a fan a royalty stream, does that implicate securities laws? Again, that is outside the scope of this episode. Maybe it'll be something discussed next time, but whenever you see that, whenever you see someone kind granting rights to a royalty stream that the NFT holder is going to assume or believe that is going to grow in value because the song is going to grow in value, there could be legal issues there. It's something people really need to be aware of.

Okay, so to kind of wrap up this episode, we've covered a lot of the new and interesting trends in the music industry as it explores how to use NFTs and blockchain technology and the really wide variety and the wide range of uses in which you could use it. It really runs the gamut and the NFT doesn't even have to be tied to music itself. It might be tied to other things that the artist is offering. I think the important thing to understand, whether you're an artist or platform planning NFT drop or you're a fan considering purchasing an NFT, it's important to know what you're actually getting with the NFT. This is kind of like a broad conclusion of everything we've been talking about. Unless you've waived your rights under CC0, you're usually getting a limited set of rights.

As the industry innovates new ways of providing utility and benefits through NFTs, becomes even more important to make it clear what rights and licenses come with the purchase of the NFT. This really should be effectuated through cleared, enforceable license agreements and implementing and enforcing a license agreement as we've explained in previous episodes, there's no clearcut way of doing it. The industry has kind of scattered technologically right now in terms of how marketplaces present their license terms and how separate projects may present their license terms from their websites, and including the issue of how do you make sure the license follows through to secondary purchasers.

Obviously there's high importance of having clear license agreements, but there's also going to be a lot of technological development that's needed to hopefully be able to get to a point where there's more enforceability, where you're making sure that if you're an artist and you are getting secondary royalties, that you are actually getting paid those royalties and there's some way for you as an artist to make sure that you are getting those royalties. It's not a clear cut question, given the pseudo anonymity of people on the blockchain and not having a clear view into what a secondary purchaser might be seeing on their end and what they might think they're getting and whether a license or whether any restrictions are clear to secondary purchasers, as they continue to buy and resell NFTs down the line.

Further to that, people need to be thinking about the misconceptions there are around ownership and what it actually means to own certain rights and whether you own rights and whether you're licensing rights. Both NFT license and your marketing around it has to be clear and you have to make sure you don't conflate different kinds of copyright ownership or copyright rights in music. It's really best if these things are clear upfront so that people know what they're getting at the start before they buy the NFT, and that's kind of a gap right now. There's a variety of risks there in terms of just how the technology is going to pan out, how certain rights or licenses are going to be granted or assigned, and you have to do the due diligence to make sure you're clearing the proper rights.

You really have to ensure buy-in from all IP owners, assuming that we're dealing with something that has multiple IP owners. If you are, you really have to have buy-in from all of them, both of the recording side and the publishing side. That includes all licensing use cases and territories where a digital asset, or for example, a metaverse installation may exist. You may have to engage multiple rights holders, which may be an intensive task with potential dead ends. That's why we're seeing even more experimentation in the industry around people creating music that they truly own the rights to and exploiting it in specific ways or under CC0, and overall exploring new ways to generate income and popularity and buzz around your work, outside of the traditional models, which have always been kind of siloed off way back from when it was vinyls, to the CD age, to the streaming age.

We're kind entering a new age that enables a lot of new ways of thinking about these kinds of issues. I think, if anything, people should take away just the pure broadness of how this technology can be used. Just the pure variety of ways that artists can take advantage of it is a good indication that the technology is here to stay. It might continue to evolve over time and it likely will. It's possible that the use cases we see today will not exist in a year, two years, five years, and that completely new use cases will be created that we are can't even conceive of right now.

Obviously this applies to NFTs in general, but especially the music industry given its history and given the status quo and how affected music is by technology and technological advancement and new ways of technologically consuming music and interacting with artists and engaging with artists and music. With that, I think we'll conclude there. Thank you, Achilleas, for joining us. Everyone should check out Async Art. It's a really cool platform, doing innovative things and thinking of new ways to use NFTs in music. Hope everyone's enjoyed the conversation and thank you, Achilleas.

Achilleas Sarantaris:

Thank you, Sam. That was all very interesting. Thank you.

Sam Cohen:

Thanks, everyone.


Async Art

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