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Splitting the difference: Music and Web3’s multiplayer problem

September 7, 2022

tl;dr — Continuing Water & Music’s exploration of the legal maze around music and Web3, this article takes a closer look at nascent smart-contract developments around collaborative splits for Web3-native music releases. Informed by interviews with artists and developers, we present an overview of on-chain music splits tools including 0xSplits, Slice, Reveel, and Revelator, comparing their capabilities and limitations to what’s possible with Web2 distribution rails. We also explore projects that are working on processes that bridge Web2 and Web3, i.e. integrating music royalties from the traditional legacy industry into on-chain structures like Stem and Bridg3.

We conclude with a spotlight on an underused setup of a multiplayer, consensus-driven wallet that can deploy and control a “split” contract. We were able to deploy a custom artist smart contract via Zora, a split contract, and mint an NFT using a “multisig” wallet (which you can view here), but only after months of research and direct support from platforms to help troubleshoot. The process is unattainable for most, and up until this point, we have been unable to find another example of a music NFT being deployed using such a wallet.


In our 2021 music NFT sales report, we identified split protocols — or those that enable the automated distribution of NFT revenue across multiple parties at once — as one of the most urgent areas for further research and development in the music/Web3 ecosystem. After all, from creative collaborations to the networked nature of marketing and distribution, music has been an inherently multiplayer endeavor throughout history and across technological change.

And yet, many music NFT platforms that have received ample social-media hype (and VC funding) do not yet enable this fundamental ingredient of splits into their NFT minting process. Many creators moved into Web3 in 2021 with the promise of trustless and eternal royalties, but this narrative was largely false. OpenSea, the largest NFT marketplace in the world, still does not support splits; nor does Nifty Gateway, one of the highest-earning NFT platforms in our own database. Foundation does support splits, but the platform is closed in terms of how it curates artists, and splits are limited to just three parties — largely useless in many music scenarios.

In fact, on-chain splits capabilities are just getting started this year. 0xSplits, which powered successful music/Web3 drops like Songcamp’s CHAOS, rolled out in February 2022; Slice v1, which has supported large, collaborative, on-chain art projects like Mosaico, launched in April 2022.

This in part reflects the market: According to our 2021 music NFT report, 64% of primary sales in the format have gone to independent and unsigned artists — many of whom are producing, engineering, and marketing their work as one-person shows, to the point where the concept of splits might not be as relevant. For those who do have collaborators, they’ve been largely able to operate more in good faith, and with less red tape, than their major-label counterparts.

That said, in order for the music/Web3 ecosystem to scale and for blockchain to become viable as a widely used tool for music IP and beyond, we will need to move past good faith as the operational default.  With the rise of on-chain split protocols such as 0xSplits and Slice, in combination with emerging standards for Ethereum such as EIP 2981 (covering cross-platform royalties for NFTs), creators are finally able to patch together a solution for perpetual and trustless royalties for NFT sales.

This study aims to unpack the current state of split protocols and their role in establishing monetary flow around Web3-native music projects, and the current need for implementation of on-chain splits to establish creative provenance that accurately reflects off-chain IP ownership. To better understand split-protocol capabilities and limitations to date, we studied proprietary marketplace contracts, as well as the blockchain architecture and design behind leading Ethereum token standards such as ERC 20, ERC 721, and ERC 1155. We also structured and executed our own product tests that helped us better understand protocols, tokens, and accounts, and how these components fit together to create systems where money can flow and be distributed automatically on-chain.

At large, music IP has been riddled with transparency and efficiency issues for decades, and the newly energized blockchain ecosystem is encouraging the exploration of technological developments that propose fairer, more transparent solutions to data and money management. This is especially appealing to creators who have, at least on paper, a simple ask: Have their creations find value, and have that value find its way back to them with as little friction as possible. 

At the same time, there is a graveyard of music data- and rights-management efforts both inside and outside of Web3 — the prevailing tune being “garbage in, garbage out,” referring to how the efficiency of a given set of technical rails for data is irrelevant if the data being fed into the machine in the first place is inaccurate or incomplete. This is an ongoing challenge for music and Web3 that these nascent split protocols still have a long road ahead to solve.


Methodology 

For this project, we interviewed several independent artists, including Xcelencia and BlackDave, as well as the developers behind split protocols and the platforms that use them, including 0xSplits, Slice, Reveel, Stem, Bridg3, and Revelator. The interviews helped us understand not only our subjects’ driving philosophies for engaging with Web3, but also the real-world technical implications of executing splits on the blockchain.

We examined these tools across the following dimensions:

  1. Open vs. closed — Can artists and platforms use the tool right now, or are they limited to a more curated customer base?
  2. Who controls the split — Is the split deployed in consensus or made and controlled by one account?
  3. Mutable vs. immutable — Is it possible to change the split after the contract has been deployed?
  4. Web2 asset integration — What are the assets from which I can split revenue? Exclusively music NFTs or on-chain assets, or can I integrate other off-chain or “Web2” revenue streams?
  5. Number of recipients — How many people can I split revenue with?


A refresher on music splits

The concept of “splits” is age-old — answering two basic questions: 1) Who created what, and 2) How much of it do they own?

Pertaining specifically to music, split sheets are widely used legal agreements in the music industry that dictate who wrote a song, who produced it, how much of the song copyright each writer owns, and who their respective publishers and record labels are. As soon as the number of parties involved in the creation of a work goes above one, multiplayer mode is activated and things can get complicated — even before we introduce blockchain technology.

Songwriting splits are usually signed by:

  • Songwriters, who contribute lyrics and melody to a composition.
  • Music producers, who contribute to the song with melodies, beats, hooks, or any other music composition elements.
  • Publishers, in the case of the use of preexisting samples in which the copyrighted recording and composition in the sample are considered compositional elements of the new song.
  • Artists, who will usually ask for a percentage of ownership in the songwriting copyright of a song regardless of their contribution. This practice is derived from the age when radio dominated, in that that revenue stream only paid writers. It became customary to make the artist a writer so they can participate in the upside across revenue streams.

Master recording splits are usually signed by:

  • Music producers, who are in charge of embodying the ephemeral song into a recorded form, turning the composition into a physical or digital preservable archive, the recorded song.
  • Artists, who are the primary performers on the song. 
  • Record labels, managers, or any other executive participants (e.g. equity investors) who facilitate the recording process with capital or infrastructure. 

The negotiations around these splits are fairly unstandardized and often messy. As the speed and ease with which music is made and released has increased, it has become common for songs to be released before splits have actually been agreed upon and signed (especially for songs that rely heavily on samples). In these cases, funds are either incorrectly distributed or not distributed at all, and withheld until the “dispute” is settled and an agreement is officially reached. 

A refresher on blockchain architecture

Crypto wallets are currently the most common representation of identity for Web3 participants. After creating and signing into one’s crypto wallet, an individual is ready to interact with the blockchain, which is the first layer where agreements and transactions happen, and hence where consensus mechanisms start to allow for creativity and the financialization of assets.

Learning the architecture of the blockchain requires a deep understanding of how the small pieces work together, so we will revisit some basic concepts below.

There are two types of accounts in public blockchains with an app layer like Ethereum:

  • Externally-owned account (EOA) – An account controlled and managed by a human, controlled by anyone who has access to the private key. EOAs are encrypted digital identities that usually represent one individual each on the blockchain, and are the only type of accounts that can initiate or sign a network transaction.
  • Contract account – a smart contract deployed to the network, controlled by code.
(source: MakerDAO blog)

While an EOA essentially functions like a bank account holding currency, a smart contract can be programmed to be automated and perform transactions on behalf of EOAs. All actions on the Ethereum blockchain are set in motion by transactions fired from EOAs. These accounts usually work in conjunction with a wallet – a software application that allows an EOA to interact with the blockchain, mainly to sign transactions as a method for authentication. Most wallet products will let you generate an EOA for free, so that you don’t need one before you download a wallet app. A wallet can be considered a Web2 application if the users’ private keys are stored in a centralized server (often called a “custodial wallet” in this case), or Web3 if the private keys are stored by the user and generated locally, which is the case with MetaMask.

It’s important to understand that split protocols in and of themselves are smart contracts, which means they cannot themselves fire transactions or mint tokens.

When an EOA signs off to deploy a smart contract or mint a music NFT, a registry is created on the blockchain. Media associated with that token is generally stored in a decentralized storage system like IPFS or Arweave. Since blockchain architecture has a single-player (i.e. one private key) entry point, there needs to be a trusted entity designated to do this process.  One can also deploy a multisig wallet like Gnosis Safe where governance and multi-signature features can be programmed allowing for the multiplayer deployment of contracts and assets.

(source: authors’ own analysis)

The current state of split protocols 

Web3-native split protocols are building tools with flexible functionality that make the distribution of funds more efficient on-chain than in traditional systems. Several of the more notable projects in the space like Headless Chaos or BlackDave have used split protocols to distribute income from their sales amongst collaborators and even collectors.

While what we are looking at below is rather technical and process-oriented, the goals and missions of all of the companies currently offering split functionality mention one thing: Aiding and incentivizing collaboration. Whenever a music NFT with multiple collaborators or beneficiaries is bought in a marketplace, the funds are directed to a split protocol address, which subsequently divides and distributes the funds based on how the ownership of the split was programmed.

How to split on-chain revenues

A. Open, on-chain split protocols

An open protocol is a computer program or a set of publicly available standards that make their code available for everybody to use and modify.

0xSplits, Slice, and Reveel are all open protocols available for use now, working as composable smart contracts allowing for flexibility in modeling different splits scenarios. 0xSplits is a trustless, composable, gas-efficient tool built for splitting on-chain income. Each split has a unique address where it can receive funds and distribute ETH or ERC-20 tokens to the programmed recipient addresses.

The team at Slice defines their product as a “decentralized commerce protocol,” designed to split payments among multiple addresses for any type of on-chain sales. Each split contract or “Slicer” is a fungible and tradeable ERC-1155 token that represents percentages of ownership. Similarly, Reveel is a fully decentralized revenue share protocol that allows creators to deploy what the company calls a “Revenue Path,” where creators entitled to a given split can withdraw their share of revenue from the contract whenever they want. 

B. Web2<>Web3 Bridges

In the context of software, a bridge is a tool for facilitating interactions between systems. In music and Web3, bridges focus on connecting blockchain infrastructure to traditional Web2 applications, especially around the transfer and distribution of Web2 royalty payments on-chain. While traditional music-industry royalties depend on legacy accounting systems that include third parties like PROs or record labels and usually have waiting periods for settlements, on-chain royalties derived from NFT sales are automated and settled instantly.

In the world of Web2<>Web3 bridges for music, Revelator is a B2B platform built on the cross-chain Original Works (OWN) protocol, helping labels and publishers manage music IP and automate payments (including advances on streaming royalties based on predictions of future revenue) across several L1 and L2 chains including Ethereum, Binance Smart Chain, Solana, Flow, Near, and Polygon. Music IP rights holders bridge their traditional music royalty payments to the OWN protocol by creating an OWN Music Asset (or OMA), a programmable smart contract that represents their share of royalties in a given music asset. The OMAs and associated cash flows are verified, facilitated, and transferred via their distribution partners. For Revelator, the case for Web3 technology is to make these payments not only more transparent, but also quicker and eventually real-time or even advanced ahead of time.

(source: Revelator)

Bridg3 is a centralized, chain-agnostic tool hosted on Amazon Web Services that receives music metadata in a DDEX-compliant manner from the legacy music industry, and redelivers that information to Web3 platforms under DDEX guidelines. Their frontend user interface is inspired by Spotify for Artists, providing a self-serve tool enabling artists, labels, and their teams to re-distribute their music as an NFT collection to various marketplaces. (Bridg3 is still in development and has no public website yet.)

C. Closed platforms

Outside of Web3, there is a small but growing number of closed, centralized platforms (i.e. walled software ecosystems where a single entity controls who has access to the application) that are providing music consumption data to Web3 companies, for the purpose of facilitating splits of on-chain revenues based on off-chain data inputs.

(source: Royal)

One of the most active companies in this category is Stem, a curated Web2 distribution platform for independent artists.  They have partnered with the music NFT platform Royal, which gives token holders proportional shares in streaming royalties from their partner artists’ songs. In this relationship, Stem provides Royal with clean, ordered consumption data on the songs attached to NFTs so that that data can be recorded, valued, and split correctly by the platform among token holders. At large, they believe that a song’s exploitation in Web2 needs to be captured and recognized in order to provide the full visibility and transparency on the song’s past, present, and anticipated future performance for the Web3 consumer in a more holistic way.


Critical components for unlocking multiplayer mode in Web3

A. Consensus wallets

We can suggest that the main functionality of a decentralized public ledger is the immutable, timestamped registry of human interaction. The blockchain then serves as an automated notary-like registry that witnesses and timestamps private and public agreements on a global scale (notarization referring to the process of assuring the parties to a transaction that a document is authentic and trusted).

As we discussed above, however, group notarizing on-chain seems to be a complex process, in which singular controlling entities or EOAs are trusted to sign and deploy registries and contracts on behalf of larger groups. In fact, a surprising revelation in our analysis is that most split protocols today are deployed and controlled by a single account. This is not a choice that the split protocol teams have made per se, but rather an inherent limitation in the current blockchain and wallet infrastructure that is available, which makes deploying contracts and minting tokens in consensus using a multisig a complicated process exclusive to developers.

There is currently no user-friendly way to deploy tokenized music assets to the blockchain in multiplayer mode, i.e. directly from a multisig wallet.

We were able to run our own successful tests in deploying an artist contract, a split contract, and a music video NFT using a multisig — but this was only after months of interfacing with blockchain engineers such as Sweetman and Neodaoist and getting bespoke assistance from platforms like Zora, a level of hands-on service that is not scalable across the entire artist ecosystem.

The result is that artists generally have to put a huge amount of good faith and trust in a single party’s hands to deploy multiplayer contracts on the blockchain.

There is a legitimate need for a system that allows for establishing ownership in consensus, ideally facilitated as close to the moment of creative genesis as possible. It could be described as a “Consensus Wallet” that facilitates collective endeavors — creative or otherwise — through the multiplayer governance and deployment of split contracts, integrating creative workflow and administrative control of digital assets and IP.  

(source: authors’ own analysis)

You can access the mint we deployed from our own multisig using the test flow here.

B. Mutability of split data

Something is “mutable” if it can be changed. Here lies one of the most direct points of tension between the Web2 and Web3 music industries. A defining element of blockchain infrastructure is its immutability, in the sense of a blockchain’s ability to store a permanent, tamper-proof history of transactions. Yet, in the context of splitting both on- and off-chain music funds, it is arguably important to be able to change which wallets or parties are entitled to a given percentage of revenue, especially if said parties change deals or partners over time. 

Almost all interviewees for this research share the belief that mutable functionality around splits is needed to serve music creation and distribution at scale in Web3. Though it should be common practice that ownership splits are agreed upon before the mint, teams understand that a 100% immutable world does not map well onto the messiness of real-world collaboration and ownership over time. Ideally, mutable split contracts have one EOA or controller assigned with the ability to modify the owners and their respective ownership percentages, and ultimately to switch the split to being immutable if they choose to do so. 

We noticed a wide array of uses for mutability in our interviews as artists look for automation features that make their workload and life simpler. Xcelencia, one of the leading artists in Web3 from Latin America, mentions how his work relies heavily on collaboration with producers outside the US. He also mentions the possibility of an extreme but realistic event like the death of a participant and not having access to their private keys as an example of the need for mutability of on-chain splits.  

0xSplits offers valuable functionality where a split can be launched as mutable, and then set to be immutable at a later date. They have observed this function being used multiple times in projects where teams will review the mutable version of the split first to make sure everything is functioning correctly, possibly taking the time to iron out any final arrangements, and then set the split to being immutable upon the NFT release. For instance, in this 0xSplits contract for the NFT project Blockchain Bandits, you can see that the splits were created, updated twice, and then made immutable. 

Sound.xyz, which uses 0xSplits for their drops, uses a multisig wallet by default as the controller for all splits created through their platform. Sound has structured this process so artists can ask the platform to update the split if needed, without the artists needing to manage it themselves. While this setup still treats Sound as a trusted, centralized authority in the matter, it has ultimately served Sound.xyz artists well, as a few projects have given incorrect wallet addresses and needed Sound.xyz to go in and rectify the split after release. Without this mutable functionality, which goes against the ethos of trusted permanence of the blockchain, certain funds would have been lost forever. Over time, Sound is likely to make these splits immutable by default, as “so far I think [the platform has] retained control of the splits,” in the words of Abram Dawson, a founding developer at the protocol. 

Editor’s note: A previous version of this article stated in the above paragraph that 0xSplits would likely make splits on Sound immutable by default. We have corrected the sentence to reflect that Sound would be the one to change the immutability status of splits on their platform, since 0xSplits inherently has no control over any of the splits created via its protocol.


Conclusion: Legal considerations beyond protocols

All of the above options for on-chain split protocols can potentially offer a significant improvement over the traditional music industry when it comes to the quick, transparent, and consensual deployment of multiplayer payments around music assets.

And yet, split protocol technology alone will not solve the issue of fair and timely payments of off-chain music royalties — a lot of which hinges on having a robust identity model for which artist or asset is receiving the payment, which is in itself a messy issue in the traditional music industry (e.g. matching ISRCs with ISWCs) and has no solid parallel model for Web3 yet.

Within the effort to redesign best practices for music rights management, some teams have opened up the discussion around the on-chain registry of Web2 ownership and rights metadata — not just Web3 splits percentages — in order to build using true consensus across the lifecycle of a given music project moving forward. In that vein, a global, on-chain database ideally should become a registry for copyright and deal terms at large, in a way that optimizes for transparency in licensing as well as money flows.

Of course, putting together this global database is easier said than done, requiring consensus to share rights data openly from multiple incumbent industry stakeholders who are traditionally slow to adopt new technology. This will likely take several years to wrangle together; in the meantime, enterprising artists and their teams who want to experiment with multiplayer Web3 projects need to balance blockchain-native infrastructure with a solid grounding in “Web2” legal agreements.

This need to balance Web2 and Web3 agreements has underpinned much of our research at Water & Music through projects like our music NFT contract template, and we are seeing this duality reflected in how most multiplayer music/Web3 projects deal with splits. For instance, Reveel offers artists not only Web3 splits functionality, but also bespoke legal counsel in the form of off-chain legal documentation that reflects the project’s split agreement. 

“People still need something written on paper to feel safe, to trust and feel they own something,” Xcelencia tells us. “That’s why this kind of documents are used and works for most of the people i’ve been working with that aren’t totally Web3 onboard”. Tom Vieira from Slice added that it is important to note the legal challenges of having people from all over the world working together, as global jurisdictions present one of the most important challenges to modern day application of copyright laws.

However, we believe that blockchain has a unique potential to solve these challenges, by helping to standardize best practices from the bottom up around the transparent flow of funds for a new, interconnected generation of artists.


Disclosures

Co-lead Andres Botero owns several music NFTs, including but not limited to those from Songcamp/Chaos, Zora (Zorb), Xcelencia, Sweetman, Yuri Beats, and MusicFund. His wallet address is 0x0e35B828026F010A291C1DC0939427b2963D8d5a.

Co-lead Paula Amaya currently owns a MusicFund NFT. Her wallet address is 0x98fFFe681D271827C6100b2ae1CA1515209Eb879.

Co-lead Yung Spielburg owns several music NFTs, including but not limited to those from Songcamp/Chaos (of which he is a member), Koodos by BlackDave, Diplo, and Vérité (via Royal). His wallet address is 0xa8c37C36Eebae030a0C4122aE8A2eb926b55Ad0c.