DJ and crypto startup founder 3LAU explains the value behind music NFTs

When people think of NFTs, the first use case most of them likely think of is visual art. From Beeple’s $69 million sale of a digital collage at Christie’s to the Bored Apes Yacht Club collection, visual art has seemed to be most prominent use case for NFTs due to close similarities with traditional fine art investing. The fact that digital art can be viewed and replicated endlessly online has led to some confusion for plenty of consumers with what exactly they’re buying, however.

“The idea that someone can just say, ‘hey, this is mine now, I just saved the image to my laptop, and I’m using it as my background,’ — it seems really obvious. But then when there’s a real, true owner, and you can validate that on-chain, it makes that other person look kind of foolish, at least within the web3 community,” DJ and NFT art collector Justin Blau explained in an interview on the TechCrunch podcast Chain Reaction.

Blau, who is better known by his stage name, 3LAU, co-founded Royal, a startup that uses NFTs to allow users to buy “shares” of songs through its marketplace and earn royalties as those songs gain popularity. The company raised a $55 million Series A round from Andreessen Horowitz’s crypto investment arm last November, less than three months after bagging $16 million in seed funding led by Founders Fund and Paradigm.

NFTs sold on Royal represent two things, Blau said. First, they represent the intrinsic value of copyright ownership, and second, the emotional value of owning something scarce that’s associated with your favorite artist. Blau sees utility in use cases for NFTs beyond the visual art world, but said he doesn’t think the same form factor and manifestation for those NFTs will apply to every different form of media.

Music, for example, is invisible, so it wouldn’t make sense for music NFTs to be applied the same way as NFTs for visual art, he said.

“It’s not a commoditized type of asset. The only way people have collected music in the past is with CDs and vinyl, and right now with a streaming service. Everyone’s music collection is theoretically the same, right? You pay the subscription, you get access to everything,” Blau said.

To evaluate whether an NFT project makes sense, Blau likes to use the framework that if a behavior exists in reality and can be replicated in the digital world, it will likely be a successful use case for NFTs. If a behavior doesn’t already exist, it probably isn’t the best manifestation for NFTs, he added.

“I think the music example is specifically the most interesting, where collecting an actual audio file for thousands and thousands of dollars just doesn’t seem to make sense, because no one would do that in the real world,” Blau said.

That’s why at Royal, Blau and his co-founder JD Ross (who also co-founded homebuying startup Opendoor) have chosen to apply NFTs to the copyrights behind songs. The copyright of a song is what’s scarce, not the audio itself, which can be streamed by any user, Blau explained.

Streaming income represents about 84% of all income generated by music, he added. The reason artists receive so little of that income, in Blau’s view, is because of middlemen like record labels taking a cut, not because streaming itself is not lucrative.

As an independent artist himself, Blau shared the example of his song “Is It Love,” saying that he turned down a deal that would have paid him $15,000 for 50% ownership of the song, which he said ended up taking off and generating upwards of $700,000 in revenue.

“My fans probably would have given me a better deal. They probably would have been willing to pay more than the $15,000 … and should that song have succeeded, they all would have had some sort of return — both from a pure asset value appreciation standpoint and from a cash flow standpoint,” Blau said.

Royal’s platform will eventually allow digital asset holders to be able to engage directly with artists and access exclusive perks, such as token-gated shows, he noted.

You can listen to the entire interview with Blau on our podcast, Chain Reaction. Subscribe to Chain Reaction on Apple, Spotify or your alternative podcast platform of choice to keep up with us every week.