Sustaining a Living in Decentralized Music with Sound.xyz

**Flashback to 2000**

--You’re in your bedroom

--Your Dell Dimension Desktop is screaming

--It’s screaming because you’re on Napster downloading Radiohead’s “Kid A”

--Life is good

For those who were fortunate enough to experience the cultural tailspin which were the early aughts, you were on the precipice of witnessing the titan that is the music industry almost collapse. Peer-to-peer (P2P) platforms like the aforementioned, including LimeWire, SoulSeek, BitTorrent, and others, tore at the seams of the record industry, battered copyright infringement laws into dust, and conversely, enlightened a whole new generation of youth to question why they would want to pay for music at all. The industry—utterly clueless on how to navigate, litigate, and ultimately annihilate these metastasized sites—was stripped to its bones, bereft of the imagination to bridge the generational divide from analog to an emerging digital epoch.

Enter two Swedish entrepreneurs who recognized a vacuum for a platform to tamp down online piracy and file sharing through a novel concept called “streaming”. Spotify premiered in 2006 in Stockholm, and the United States five years later; Apple Music hopped on the bandwagon in 2015. With streaming, industry bigwigs found the panacea they needed to adapt in a modernizing world. The percentages and dividends speak for themselves: Spotify, for example, has monopolized the space from 2010 when it only took around 7% of the U.S. market, to roughly 80% in 2020.

There’s been an undeniable Faustian bargain at play: streaming saved the industry, but at the expense of the artists themselves, who reap anywhere from $0.003 to $0.006 per stream. Any semblance of a livelihood still lies in concert revenue and merchandise, the former of which has been decimated due to the ongoing pandemic. Partners David Greenstein, Matt Masurka, and Vignesh Kanth, don’t see this as an equitable, nor sustainable, model—and rightfully so.

Like many things Web3 or decentralized, their newly available protocol, Sound.xyz, aims to transfer creative and financial agency to the creators themselves, not executives, and build up community support in the process. ZORA’s Michail Stangl caught up with Sound on the “In Rainbows” model, capturing the full demand of music, and matching incentives with mission statements.

Michail Stangl (ZORA): Matt, David, could you please very quickly introduce yourselves, your life before Web3, and how the two of you found each other?

David Greenstein: I just got lucky to be honest. The CEO of Atlantic Records, Craig Kallman, who's still there to this day, went to my high school, and I started interning [there] when I was thirteen throughout every single department: A&R, marketing, business development. Now as much as I loved my internship at Atlantic...I would say the problem that I've always been obsessed with is that artists, which are some of the most creative people of all time, are in this business model with just some of the least creative thinking of all time, to be blunt. So I've always been approaching the problem from how can I solve that and help as many artists as possible freely live off their music? I worked in tech as a PM at Pandora [and left] to start a company that was like a “Moneyball” record label through Y Combinator. After that didn't end up working out, I was like, ‘Should I do a second music company’?

I basically started DMing anybody who would answer me and I ended up really early in Friends With Benefits, which changed my whole life. I was looking at the original admins of Friends With Benefits and saw a bunch of artists [and] music people, whether it was Trevor, Dexter, Matt, Raihan. So I cold DMed Matt on Discord and that's kind of how we got started here. I hadn't heard the name Gigamesh in about a decade since he put out a big song that I listened to in high school.

Matt Masurka: I went to school for music and worked my way into the industry by making bootleg remixes, and eventually my own music, and rode the wave of SoundCloud and Hype Machine back before streaming really took off with Spotify. My music career had this trajectory of being on the long tail and going upward through 2015, taking advantage of all the economic growth after the financial crisis and the Web2 revolution. But then all the monetization spigots were turned on, and that's when things started to plateau for me. I'm not the kind of person who loves to self promote all the time, and when you're trying to cut through the noise, that becomes more and more difficult to do when, for example on Facebook, you have to pay for a post rather than being able to reach your fans directly.

That led to some frustration and lack of creative output, because I was struggling with writer's block. It all culminated in me getting into crypto. By the end of the last bull cycle, I was down the rabbit hole with Ethereum and my music career was kind of on the rocks, so I was like, ‘All right, I think now is the time to try something new’. I started to learn how to code, and at the time I wasn't thinking I would do a full career transition, but it eventually became that. I worked at some Web2 companies, but in the back of my mind was very much wanting to get into crypto. I eventually ended up at Optimism earlier this year. Shortly thereafter, David reached out on Discord, we started talking and trading ideas back and forth, and it eventually became Sound.

MS: At what point did you understand, at the intersection of blockchain, crypto, and Web3, that there's something new to be had, a new frontier? The moment of awakening?

DG: One of the core problems with music, way before Web3 even existed, is that the lack of experimentation that exists heavily restricts wherever the music industry is heading. Music basically changes every 10 years: We had cassette players, we had CDs, we had iTunes, we have streaming, and we're now 10 years into streaming. We're right on track for the music industry to change again. That once-every-10-years time frame is largely in place because of the lack of experimentation in music. It's so hard to experiment with music today because of the forces of the major labels, then licensing and whatnot. So what really got me excited with Web3 was seeing some of the experimentation come back. Truthfully, I don't think anybody has all the full answers right now, but the best thing that we can do is experiment as a community and uncover things that we didn't know existed.

When I realized Web3 could challenge the fact that people who love music could pay more than people who don't love music as much—that really blew my mind.

Today, music is artificially priced. We've had this weird phenomenon where we've always artificially fixed music: Albums were $9.99, [songs were] 99 cents, Spotify was ≈0.003 cents per stream, and nobody said that music has to be one price for everybody. When I realized Web3 could challenge the fact that people who love music could pay more than people who don't love music as much—that really blew my mind. I've always been inspired by the Radiohead “In Rainbows” example: Pay what you want. Web3 is like the perfect toolkit to be able to experiment with business models like that.

MS: How did it play out in the end for Radiohead? Was there some data that showed that this was a smart thing to do?

DG: They said to fans: ‘Pay what you want, if you want to pay us for it’. And they made, I believe over $3 million doing so. By my standards, that seems like a pretty solid success. But I think the macro point is there's two schools of thought: One is the Martin Shkreli-Wu-Tang Clan, which was recently obviously acquired by PleasrDAO; I think that's a really fascinating experiment, but I don't believe music is meant to be owned by one person, I think music is about a community [and] getting as many people involved, irrespective of where you come from; And I think the pay-what-you-want model is more of an inspiration to me, because it brought everybody into the fold. It didn't make it about how much money you had. It let everybody participate but still feel some of the emotional connection associated with it.

MS: How did you identify the problem that you needed to address? What is the problem exactly? And what are the elements you used to approach a solution?

DG: Spotify is the greatest consumer product of all time: $9.99 a month for every song. Nobody, as a consumer, is complaining about the price of Spotify. But there's two problems [they] left unsolved. The first is if I am a huge fan of an artist, and you are a really casual fan of that artist, there's no button on Spotify—or any music platform more broadly—that'll give that artist 10 subscriptions worth of money, or give that artist two pennies per stream instead of one penny per stream. You're not capturing the full demand for music. It's impossible that every single music fan would like to pay 0.003 cents per stream; some might want to pay less, some might want to pay a lot more. We should find out what that number is. The second problem is that the streaming services today are structured in a way that the incentives don't match their mission statement. So Spotify is a subscription business model. They make $10 a month and they take $3 of that $10 subscription. Spotify has no incentive to promote new music, which basically has turned it into radio with a very pretty UI.

The way I know this is that there's only 7,500 full-time artists, according to Spotify, that make $100,000 or more per year, which basically means that there's only 7,500 artists on Earth that make a full-time living off Spotify, despite the fact that 8 million artists are on the platform today.

The way I know this is that there's only 7,500 full-time artists, according to Spotify, that make $100,000 or more per year, which basically means that there's only 7,500 artists on Earth that make a full-time living off Spotify, despite the fact that 8 million artists are on the platform today. The current solution just doesn't work for the vast majority of artists. The north star for us at Sound is: how many artists can we help live off their art alone? Just music alone—not concerts or t-shirts. Those revenue streams are amazing and super complementary, but music itself is valuable, and you should be able to make a living just off your music, without running 99 fan clubs, advertising campaigns, merch, sales, touring, and concerts.

MS: But isn't the pivot towards fan-centric distribution of the monies not a counter strategy to what you described? For example, Tidal just recently announced that they are going to do exactly that.

DG: In general, I'm always a little skeptical of big announcements until you read the fine print. While I think it's an incredibly progressive initiative, there are a lot of things that got revealed, where the user has to opt into it and the artist has to have a lower royalty rate. And two, is, Tidal is still running the relationship between the fan and the artist. The artist itself doesn't own their fan relationship. The fans listen, and they get calculated. What if I show up on the artist page and I just want to support that artist directly? That button should still exist, to be able to support that artist directly, which is what I think streaming services today don't capture.

MS: Capturing that data and monetizing that data is the actual business model, it's not really paying the artist. Spotify's been very transparent about that: their intention was never to get artists paid; their intention was to get music heard. The money was not ever the question for them.

DG: Their incentive is to grow their user base every single month. And when that happens, the key metric that you track for is average revenue per user, which is consistently going down. So the more users that join the platform, the less and less artists are getting paid, which signifies that the business model is pursuing growth at all costs. The problem today is that the subscription business model is basically a fixed pie. The pie isn't growing fast enough, meaning that if I stream Kanye, then that's essentially coming out of another artist's pocket. [In] Web3, I don't think it's about pinning one artist against another; I think the entire pie can expand, and therefore many more artists can eat at the table as well.

MS: Not enough artists making a living off their art is a big issue, but also the value for these platforms lies in the audiences that the artist brings, and the artists don't have access to audiences. What kind of toolset are you looking to build to address this?

DG: That's exactly how we describe it: we're building tools to help artists monetize and engage their communities in new ways, starting with what we're calling ‘listening parties,’ to basically release their songs in a Web3-native format. The solution to the problems that I just talked about was essentially something that lets an artist upload their song, stream directly to fans, and monetize via NFTs; you can give away the music for free, and charge for these scarce complementary NFTs that surround the music.

When thinking about crypto and Web3, a lot of what goes on on the internet is fun and social. We've taken a lot of inspiration from the SoundCloud era, because that was probably the last big site for music discovery, and we've also taken a lot of inspiration from Bandcamp in terms of the direct monetization and direct support from fan to artist. So the three ingredients that went into this were: we wanted to give people an incentive to check out new music; we wanted to give people an ability to directly support that artist; and we wanted something that you could do with this NFT that was fun.

One of the core features that inspired Matt, myself, and our other co-founder, Vignesh [Kanth], is the SoundCloud comments. What if you needed the NFT to leave a comment on the song? Anybody can listen to the music; music is meant to be heard by as many people as possible—but you needed the NFT to leave a comment on the song. That would provide a really clear framework to understand who discovered or supported this artist. And if you sell your NFT, you lose your comment on the wall, and the new person can come in and write a comment. The comments are stored in a decentralized manner as well, on IPFS, so a kind of open-source SoundCloud comment.

MS: It's like a social signaling that also carries over through time, but also creates an interesting conflict between loyalty as a fan, and a monetary incentive to sell the NFT in case that artist explodes, and ownership of an NFT might become quite valuable. What's both of your takes on the idea of fans as cultural investors? Because obviously there's a lot of tools and businesses that turn fandom into stakeholding.

DG: First and foremost is to preserve the music as a community; music shouldn't be about how rich you are, or where you come from, or what you look like. Music is the universal language of the world. That to us was really important. I do think that there's a pocket of music listeners that maybe wants to invest, but I find that to be a minority of the larger music ecosystem. Most music listeners want to just be fans and connect with other like-minded people, and that's what we're solving for. The primary motive should be about forming strong communities around a particular artist, or song, or album—not making money.

MM: I think it's kind of self-defeating to focus too much on the money aspect from the standpoint of trying to attract artists and fans. You can attract a lot of interest early on, but the majority of musicians don't want to have this hyper-financialized relationship with their fans. So that's the delicate walk that we're trying to walk right now. It comes down to how we present things in our UI and how we write our contracts, but we think we've landed on the right starting point and we're just going to see how it's received and iterate from there.

MS: Ultimately, building a UI means that you make decisions on behalf of the users, which means that they lose a certain amount of agency, but receive a certain amount of convenience in return. Now with music, everything gets commodified by the UI. The Spotify interface, or Apple Music, or Tidal for that matter, put all music—no matter the context—into one uniform interface. They also erase a lot of the creativity. When you were designing the UI for your product, were there any thoughts given to that particular aspect of how UI limits creativity? It's not also about limiting creativity, but also the experience for the user, in terms of what they can get from the creativity they are looking for in the artist's work.

DG: There's actually two sides to it as well: there's the artist side and then there's the listener side. This is about artistic freedom and expression, so you obviously want to give artists the ability to express how they feel, and we did that a couple ways. One is that there's no limitations to what the album artwork can be: it can be a movie, it could be an image, it could be a GIF. We also provided a space for artists to tell the story behind their song. Just in my conversations with artists about music, there are so many deep reasonings behind their music, but no space to talk about it.

From a listener's side, we're trying to get listeners...supporting artists in this music-NFT manner. Bringing in some UI patterns that are consistent across other apps makes sense from a standardization and building consistency. Because we're storing this in a centralized manner and people can build experiences on top of this in the future, there's no limit to what can be built on top of it, right? If you want to go out and build your own experience, and have access to the same catalog, we're going to be able to support something like that in the future. That to me is less about us creating—prescribing what exactly the experience should be—and more about building the tools so that other smarter, more creative people can come along and build equally exciting experiences, but still take advantage of the same kind of tech stack that we're having.

MS: One of the biggest issues is that engaging with these technologies requires so much knowledge, and many artists might not have the capacity to engage with them. Again, it’s agency versus convenience. How do you think the music industry will adapt to that? How do music labels and management companies fit into what you are building on?

DG: ...I actually see the music industry shifting to more of a service-oriented industry. Today it's a very one size fits all [model]: either you sign to a label and get all their services, or you don't. This is largely why labels exist, they are the funders of music. The way I see the music industry headed, there's going to be more and more economic tools for artists to be able to build careers as full-time musicians. And I think that's the best possible thing, so that we can stop having predatory terms or deals that don't reflect the current state of affairs. For me, it's about an artist having the ability to raise money for their new album from their community, having the ability to release their songs in new and novel ways, and having music curators, for the first time, be able to make money curating music. We're hoping to bring back this music experimentation layer, where all parts of the music industry ecosystem are treated equally, valued equally, and everybody can contribute towards getting music heard by as many people as possible...

MM: I really hope that the curation part is going to be improved with what we're doing. I expect to see a rebirth in, or a re-imagining of, what was going on five, ten years ago, with all these music blogs that have mostly died out because of Spotify; I guess there were gatekeepers in some way, but there were just so many of them that it was far easier for a new musician to get access because they had so many different ways of getting their music heard. Just as with visual art NFTs increasing the number of famous collectors and curators, the same thing is hopefully going to be happening with music NFTs.

DG: At Sound, artists will be our primary customer first. Artists will get paid before anybody else does. That, to us, is really critical to what's going on in the Web3 world. Just like every other movement, it's going to start with the up-and-coming, unsigned, independent music that's already experimenting with the Web3 tools.

MS: How do you think other so-called legacy music industry infrastructures will fit into all of that? Like publishing rights, syncing rights, and similar monetization models. Is there a way of compatibility, or will it be at large one or the other?

DG: In the short term, I actually view these things as very complementary. Even Spotify: there's a reason why an artist's music should potentially be on [it], because they have that many listeners and music. This is obviously about adding in new revenue models that capture some of the demand curve that's missing from the fact that Spotify has artificially fixed music. I think it's totally okay for artists to make money on syncs and all the other revenue streams that you mentioned. This is about expanding the pie, as I said, versus cutting out parts of the pie and pitting different sources against each other. I would like the problem in the music industry to be [that] there's too many sources of revenue...

MM: Definitely for the next few years it'll likely be two parallel industries that aren't really competing with each other necessarily. But over the long term, if you believe in this idea that all intellectual property will eventually be represented by an NFT, then the existing industry is going to need to adapt to that, but it remains to be seen how that's going to work.

MS: What does your ideal musician look like? Who would you want to do a call out to find you?

MM: I think in the near term, it's people who are crypto/Web3-curious, or already working in the space. There's a lot of skepticism—and a lot of it is warranted—around crypto and Web3, because of all the money sloshing around. So I think a lot of musicians, if they did a drop, their audiences might not appreciate it. I guess the outreach would be for the ones who are willing to look a little bit deeper and try to see through all the noise of crypto, and really understand it from first principles.

DG: We're starting with the Web3-native artists for that very reason: they're the ones who have already educated their fan base, they're the ones on the fringe. We like to believe that typically great things start on the fringe. I want to just demystify what being a Web3 native artist means. Our hope is that the people that have already gone down this rabbit hole will then inspire other artists, because one thing that's always been true is artists follow other artists.

Then there are some other artists that we're already talking to that are maybe not as crypto native, but have curiosity, because of the fact that again, most people don't make a full-time living. Then we'll work our way up to some of the bigger artists. I always tell people, it's not Billie Eilish—it's the next Billie Eilish, or the next big artist, that we'relooking for. We think that there's going to be a whole class of Web3-native artists that reach wide adoption. And even if they don't, we think the middle tier, the middle class of artists, is going to be a lot bigger in Web3 than it was in Web2.

Note: This interview has been edited for length and clarity.