✘ What would 'Exit to Community' look like for artists?
And: Napster announces token & litepaper; DJs sharing income with producers; Spotify's music creation AI; Meaningful NFT experiences; Tokenized flywheel
Startups have traditionally had 2 main ways for founders & investors to ‘exit’: an acquisition or an IPO. Over the past years, a new model has started to emerge which is referred to as ‘exit to community’.
Exiting to community can take many forms, but it involves putting the future of a company into the hands of its ‘community’. I’d define community broadly here: not just the users of a product, for example, but also other types of stakeholders such as team, partners, supporters, etc.
Let’s describe a simple scenario. A company that’s been building a creator economy product has always given its users a way to participate in its roadmap through tokens earned based on their usage, participation, and for each month they’re subscribed. Its users are passionate and its team is deeply embedded in the user community. The founders want to hand the keys over to the community, so they can step down for a new generation of leadership and become more equal participants in the ecosystem of their product. The community finds people who believe in the long-term value of this product and put together a DAO to gather funds and create a plan to buy the majority of tokens from the company’s treasury. Once successful, they can distribute the tokens to the community and start a new phase in the journey of community governance.
This type of model works especially well for earlier-stage organisations and gives teams & founders a different way to build products than the traditional venture-funded startup model. It can also provide an option for organisations that have a product people love, but fail to raise funds (or sell) — an example of this can be gleaned from Mat Dryhurst’s 2017 proposal to tokenize SoundCloud when the company seemed like it would go under.
Can the ‘exit to community’-model also provide alternatives for musicians?
First, what does it mean for a musician to ‘exit’? I think the clearest form of this is by selling the rights to one’s catalogue. We’ve seen a number of high profile catalogue purchases by organisations such as Hipgnosis in recent years (e.g. Justin Timberlake, L.A. Reid, Rick James, more). For the artists, these transactions mean swapping recurring revenue for a large sum of money at once. Therefore I think it’s one of the best analogies for a startup’s exit.
So what does that look like as an exit to community? There are a few required components:
A critical mass of people that care about the music. This gives it two forms of value: speculative value that will bring investors into the community, and patron value which is what will energize the community to take stewardship of the catalogue.
A framework for decision-making (ie. governance) and value distribution.
Tooling to represent that framework (e.g. tokens and a DAO-like organisation).
I don’t believe, at present, music fans are all that interested in participating in fanbases which require a thorough understanding of the music business, economics, and finance to participate fully. This means that the DAO needs to have an experience-layer that is about more than just the business. That layer should strive to make the fan experience ‘headless’, so that contributing to the narrative around an artist’s music is like participating in memes. For examples that predate all this web3-terminology, you can look at what the fanbases of the Grateful Dead, Phish, and Insane Clown Posse have created.
The only good example of an artist exiting to community through web3-tools that I know of is Jonathan Mann. Mann has been making one song a day for nearly five thousand consecutive days. He decided to mint all his songs as NFTs and move the rights of the songs into a DAO that is governed by the buyers of the song NFTs, or in his words:
“SongADAO is a legal co-op that owns the copyright to every Song A Day song. That means that if you're a member, you CO-OWN the rights to every single song.”
The model is described in more detail here.
Mann’s model is interesting, because since selling his whole catalogue as NFTs and moving the rights into the DAO, he’s been exiting to community every day when he releases a new song. It gets auctioned and a new DAO member can be onboarded. To lower the economic barriers to participate, the community also experimented with onboarding people to the DAO who make one creative thing every day for a month.
At the moment, the barrier to use the above as a template is still high for most artists & fans. However, that barrier is significantly lower than it was for Mann who had to figure it out from scratch. What’s also lowering the barrier is that new tools to help artists build tokenized communities are launching all the time (feels like there’s a new one every week, at the moment).
This gives artists, and fans, the option to move beyond the streaming relation, the social media relation, or the monthly subscriber relation through tools like Patreon, towards models that can engage a large variety of fans: from industry experts to casual music listeners, from people who want to lean in heavily to people who just want to hang out. I expect exiting to community to remain rare for artists for now, but as more examples emerge over the next years, more artists will take the plunge and innovate entirely models with their fans and stakeholders.
LINKS
🪙 Napster Reinvents Itself As a Web3 Company — Complete with a $NAPSTER Token (Sabrina Toppa)
“Among the things that the $NAPSTER token will give access to is the streaming subscription service, premium features on said service, exclusive content from music acts, and even the ability to buy goods and services from third-party apps.”
Litepaper here (PDF).
🎧 Inside the Fight to Fix Economic Inequality in DJ Culture (Philip Sherburne)
"Aslice is currently building a social sharing tool to encourage DJs to post screenshots of their post-gig payouts—a not-so-subtle nudge that their peers should be doing the same."
🤔 Spotify Is Developing AI Tools To Hook Users On Music Creation (Bill Hochberg)
“Spotify’s project smartly moves AI music from a lab experiment to a recreational toy, a better fit than trying to best the Beatles with bytes. The idea is that Spotify users will engage more when they have a hand in creating the music with the help of AI.”
⛰ On Value and Utility: Creating Meaningful Experiences Through Music NFTs (Dot)
“To be able to write for performance and distribution contexts of my own creation is exactly why I was drawn to Web3 in the first place, and is very important to me as an artist.”
📈 What Makes Tokenized Communities Valuable? (Jihad Esmail)
“Most communities today are building with a scarcity mindset, because token value only accrues through decision-making power, and decision-making power is useless if there’s no treasury to make decisions over.
Given limited resources, core teams create intensely bureaucratic governance processes, making it extremely difficult for token holders to leverage their supposed governance power.”
MUSIC
Bought a music NFT yesterday by Jonathan Mann. It’s his 4932nd consecutive daily song (‘Song a day’) and comments on the political situation in the US.
