NFTs won't save the recorded music industry, but they might save the live events industry

The blockchain could put an end to counterfeit concert tickets.

Years ago, I worked for the US Department of Energy, looking for security vulnerabilities in the Bitcoin protocol that could be exploited with a quantum computer.

I wasn’t very successful. While I did end up with a deep respect for the security protections built into Bitcoin, I never understood what regular people would use blockchains for.

Blockchain enthusiasts have been looking for ways to use their favorite technology to improve regular people’s lives—inspiring this past year’s gold rush in non-fungible tokens (NFTs) in the art and music worlds.

This Click Track post makes two predictions about NFTs:

  1. Art and music NFTs are misguided. They do not give consumers anything they want.

  2. NFT tickets could revolutionize the live events industry. Blockchain technology could be effective at preventing ticket counterfeiting and other dishonest sales practices.

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What do people want to use NFTs for in the music industry?

Cherie Hu does a great job covering the art/music NFT market in her posts Digital music’s new drop culture and Music NFT market update.

There are many different types of art or music NFTs, but I have the same set of concerns for all of them:

Music rights can already be bought or sold without NFTs

Some music NFTs are aimed at investors. For example, various artists like A Tribe Called Quest and Lil Dicky auctioned off NFTs that represent a share of their sound recording or publishing royalties.

In cases like these, the NFT itself merely functions as a purchase receipt. The actual collection and payment of royalties still happen off-chain via traditional channels.

Furthermore, music royalties don’t have to be turned into an NFT to be auctioned. Both Lil Dicky and A Tribe Called Quest sold their royalties on Royalty Exchange, an online platform where music royalties have been bought and sold for many years without the involvement of blockchains or NFTs.

Ultimately, the NFT itself is unnecessary to the entire transaction.

Blockchains cannot make the music itself more enjoyable for listeners

Other music NFTs are marketed as merchandise for music fans, such as Post Malone’s World Pong League NFT collection.

Blockchains are effective at creating authentic digital merchandise and maintaining a public chain of custody. In reality, most music listeners don’t care about these issues:

  • Most people don’t care about the origins of a digital good. The rise of digital piracy in the late 1990s showed us that most listeners consider pirated music good enough to listen to. Music is post-scarcity. On the other hand, sports trading cards tend to be valued specifically by their relative scarcity—explaining the massive success behind the NBA Top Shot collection of NFT trading cards.

  • Most people don’t care if artists get paid every time a song is played. Many blockchain projects are centered around changing how artists are paid without significantly changing the experience of consuming those artists’ work. An example is Resonate—a blockchain streaming platform with an innovative “stream2own” model. Unfortunately, rightsholders and streaming sites rarely get to dictate terms to listeners—the economics of streaming are decided based on what listeners will pay for. (And they want to pay as little as possible).

  • Most people (no longer) care about owning music. People no longer purchase FairPlay-DRMed songs for $1 each on the iTunes Music Store, let alone CD or vinyl albums. Instead, the real source of growth in the recorded music business comes from music streaming. Blockchains are a natural fit for tracking ownership, leading blockchain projects to emphasize ownership to potential users. Still, most music listeners don’t behave as if they want to own music.

Why do NFTs make sense for selling concert tickets?

Ticket marketplaces are screwy

Online ticket marketplaces are plagued with several problems, such as:

  1. Counterfeiting. Dishonest ticket scalpers often sell counterfeit tickets to buyers or sell multiple copies of a single legitimate ticket. Sift, a vendor of anti-fraud software, has claimed that “between 3% and 20% of second-hand tickets aren’t real.”

  2. Dishonesty around ticket supply. Many ticket sellers falsely or illegally imply to their users that tickets for an event are about to sell out. Other sellers mislead buyers into paying for tickets before the seller even has them. The New York State Attorney General and the UK Government Competition and Markets Authority have been investigating these issues for years.

  3. Artists who scalp their own tickets. If artists price their tickets too high, they risk facing a backlash from their fans. If artists do not price their tickets high enough, then scalpers profit at both the artists’ and fans’ expense. Some artists have solved this dilemma by anonymously scalping their own tickets. In 2019, Live Nation admitted to helping artists scalp their own tickets.

Government regulation is hard

Some governments have been trying to solve the above problems with ticket marketplaces, but it hasn’t been easy:

  • Laws must be continually enforced. For example, US President Obama signed the Better Online Ticket Sales (BOTS) Act at the end of 2016. But passing the law did little good because the Federal Trade Commission didn’t bother to begin enforcing the law until 2021.

  • Regulators often have narrow jurisdictions. Online ticket marketplaces are global businesses, but city, state, and federal regulators usually cannot control how tickets are sold outside of their jurisdiction. Ticket sellers often avoid anti-scalping laws by simply scalping on the other side of a city or state border.

  • The law does not always keep up with technology. In 2010, New York State passed a law placing strong restrictions on how electronic ticket platforms could be implemented. The lawmakers wanted to protect buyers’ rights to resell tickets, but the law’s wording might make it impossible to implement an electronic ticketing platform with strong anti-counterfeiting technology1.

  • Often, the government makes things worse. For example, in 2010, the US Department of Justice approved the merger between Ticketmaster and Live Nation. Since then, many industry experts [a,b,c] have argued that the merger harmed fair competition in the live events industry.

Government regulators are struggling to enforce some very simple principles of fairness and transparency. On the other hand, enforcing transparency in a marketplace is what blockchains are best at.

The blockchain’s security guarantees are a natural fit for ending ticket marketplace corruption

Blockchains and smart contracts offer an elegant solution to the aforementioned problems with today’s ticket marketplaces:

  1. Anti-counterfeiting. Blockchains are specifically designed to prevent the counterfeiting of a digital good. The original Bitcoin whitepaper specifically framed the technology as a solution to the “double spend problem.”

  2. Honesty around ticket supply. If we adopt the convention that all of the tickets for a concert are created at once as non-fungible on-chain2 assets, then anybody in the world can inspect the true number of tickets up for sale. This preempts the type of dishonest “pressure selling” tactics that the UK Advertising Standards Authority has been trying to stop with regulations.

  3. Artists can collect royalties from resales. It is possible to create an NFT that pays a royalty to the original creator every time the NFT is resold. This allows artists to set a reasonable sale price for their tickets without giving up all of the upside to scalpers3. This removes the temptation or need for artists to scalp4 their own tickets.

So, who is building ticketing solutions on the blockchain?

Some of the most notable blockchain ticketing projects include:

  • The GET Protocol is a blockchain project used to implement ticketing platforms. GUTS Tickets is a company building the leading ticketing platform using the GET Protocol. The GET project has recently launched getNFT, a protocol for selling NFT-based tickets.

  • Mark Cuban has discussed his plans to issue NFT-based tickets for the Dallas Mavericks during the upcoming 2021-22 season. Cuban outlined that traditional non-NFT tickets would still be sold through Ticketmaster, but that they could use the Ticketmaster API to enumerate ticket purchasers and send them an NFT representing the ticket.

  • UPGRADED is a blockchain ticketing platform that was acquired by Ticketmaster in 2018.

  • True Tickets is a ticketing platform built on top of IBM’s blockchain, but not using NFTs. Matthew Zarracina—CEO of True Tickets—recently wrote a post arguing that tickets should not be represented as NFTs because the purchaser doesn’t literally own the seat that they sit in during the event5.

Conclusion

Blockchains are extraordinary at creating artificial scarcity for a digital good and then authenticating ownership and transactions for those goods. This makes blockchains and NFTs the perfect solution for eliminating ticket counterfeiting and other dishonest sales practices.

On the other hand, music is arguably a non-rival post-scarcity good. Whether you are listening to an MP3 file, a radio broadcast, or a busker in a public park, your enjoyment of the music does not reduce how much somebody else can enjoy it. Blockchains—and the artificial scarcity that they imply—are a step in the wrong direction for recorded music technology in general.

More Click Track articles

Updates

  • July 9th, 2021: Added footnote with Leif Gensert article links.

Footnotes

1

The New York State lawmakers were concerned that electronic ticketing platforms might charge fees or otherwise restrict buyers’ right to resell their tickets. They were also concerned that powerful companies like Ticketmaster might create electronic tickets that could not be resold on a competing marketplace. If a ticket seller’s electronic tickets are not compliant with the law, the seller must offer buyers the option to buy a paper ticket which can easily be resold anywhere.

The problem is that it is difficult to build a ticket marketplace that processes resale payments without charging any fees. And whether the blockchain is involved or not, the strongest way to implement anti-counterfeiting measures is to have all resales handled within the marketplace. But if the law requires that buyers must have the option to buy a paper ticket, then there will be no way to stop counterfeit paper tickets from being sold on secondary markets.

2

On-chain refer to the tickets being represented as distinct assets on the blockchain itself, as opposed to being assets within a marketplace’s internal database. For example, you can send bitcoins to another person in an on-chain transaction. But you can also use an exchange like Coinbase to send bitcoins in an off-chain transaction only recorded within Coinbase’s internal database.

3

Of course, ticket scalpers can avoid paying an on-chain royalty to the original artist by simply selling the ticket in an off-chain transaction—such as by selling a private key that contains a ticket instead of selling the ticket itself. However, in such an off-chain transaction, both the buyer and seller are consciously giving up the security benefits of keeping the transaction on-chain.

Additionally, it is possible to add off-chain restrictions to prevent scalping. For example, the blockchain ticketing platform GUTS Tickets ties each ticket to the purchaser’s phone number and IMEI.

4

Blockchain ticketing platforms can effectively stop counterfeiting, and can remove the need for artists scalping their own tickets, but blockchain ticketing platforms cannot stop all other scalping in general. Leif Gensert has written one post about why blockchains cannot stop price gouging and another post about how GUTS Tickets and the GET Protocol try to handle scalping.

5

I don’t think his argument makes any sense. An NFT is merely a “pointer” stored on a blockchain. Owning the pointer is not the same as owning what the pointer points to.