In recent years, Cherie Hu has become one of the most reliable prognosticators in the music industry - the kind of expert who knows exactly where the market is headed and how to get there. As the founder of Water & Music, a research platform and newsletter focused on the intersection of the music and tech industries, she has provided her loyal subscribers with meticulous research on topics such as social tokens, non-fungible tokens (NFTs), and conventional music tech startups.
This article is part of Road to Consensus, a series that features speakers and the big ideas they will be discussing at Consensus 2022, CoinDesk's festival of the year, June 9-12 in Austin, Texas. Learn more.
Late last year, after participating in a crypto acceleration program called Seed Club, Hu began reorganizing that community around tokens, rather than Patreon subscriptions. The result was the Water & Music DAO, or decentralized autonomous organization - an online space centered around a homegrown cryptocurrency.
The Water & Music roster includes executives from pretty much every major music project in the crypto world; if you're interested in music and technology, you're probably already a member.
Ahead of their panel at Consensus 2022, Hu spoke with CoinDesk about the state of music NFTs and where things might go from here.
This interview has been edited and shortened for clarity.
Water & Music just announced a report on music in the metaverse - what interests you most in this area right now?
I've thought about this a lot, with any technology, but especially with Web 3: what forms of music production, consumption, or monetization fit a particular technology and aren't just copying and pasting an existing business model?
I'm excited to see what happens when music production becomes much more tactile. There's a startup called Wave XR that did this early on-they've since changed their focus-but they partnered with artists to create these interactive, immersive worlds around their music in VR, so you could literally pick up stems, and depending on how you interacted with them or moved them around the room, different kinds of sounds were triggered. It was about making or remixing music through movement. I find that idea very interesting - I feel like there are so many different ways to play with it in these virtual environments.
Personally, I've done a lot of research on music and games in the past, and there's a lot of hype in the industry about the commercial possibilities. Travis Scott, for example, is making millions with a Fortnite show, or Lil Nas X in Roblox.
But I think game worlds are even more interesting to me as new storytelling mediums. The best games are not only interactive, but also very personal and dependent on the players. So what happens when you take a more standard, linear way of telling stories through music - like a song - and put it into this kind of interactive environment? How does that change the way you convey the underlying story or the way fans, players or members interact with that story?
Did you feel like Travis Scott's Fortnite show was a turning point for the idea of the virtual concert? At the time it was a bit unexpected, but in hindsight it feels like the start of a trend.
Timing played a big role, of course, because it was right at the beginning of the pandemic. I remember a lot of articles coming out at the time saying, "This format is the future of concerts." I guess because there just weren't any IRL alternatives. And even looking at how Epic Games has evolved its music strategies since then, I think they've only done these types of concerts with a very small handful of artists.
I think Ariana Grande is the only other artist they've done a concert of this scale with, and it was a fully immersive, interactive concert. And they've done a number of other music events in the battle royale part of their game, but those were just YouTube videos embedded in a screen, so it wasn't very interactive.
The main takeaway from this is that I don't think this model is the future. Shows of this scale are very expensive, and because they're so expensive, game developers only want to work with the biggest celebrities to make it worthwhile. So this model doesn't seem particularly accessible to me.
I was very intrigued by all the Minecraft festivals that were going on at the same time that were very customized. And there it's sort of the opposite model: anyone can set up their own Minecraft server and create their own world and invite people to join. It's more or less completely open. Also, the aesthetic is much less "individual" - you can build so much in a Minecraft world, but it's a very specific Minecraft aesthetic.
That's more where I see the future, in terms of tools that allow more artists to create their own worlds. Minecraft isn't free, but in terms of access to building these custom worlds, it's just much more accessible.
I remember in the early days of Pandemic, after Travis Scott's collaboration with Fortnite, there was a Minecraft show with 100 Gecs and Charli XCX that felt much more lo-fi. Less polished, more customizable and accessible.
It's to Fortnite's credit that Travis Scott's show was so unique to the game world. That's also a big challenge and something we'll be looking at for next season: how those experiences may or may not fit with real-world experiences. I think the demand for live streaming music has stagnated or declined. There's been a lot of hype around online concerts in general, and a lot of startups have formed around that, but I think the overall activity or demand has declined.
Or if you look at the metrics on Twitch, the music category has stayed about the same over the last year. I don't know if that's partly because the novelty is wearing off - but partly it's because, despite COVID, actual IRL music experiences and concerts are coming back. So in terms of people wanting to have these experiences online, I think there's even more pressure, but also a need to make sure it's really interesting and can only be experienced online and in a digital environment, without physical constraints.
There's also the caveat that most Metaverse "concerts" aren't really live - they're usually just pre-recorded, right?
Yes. The audio is recorded, but you can see people's avatars reacting in real time. The social part of the concert was live, but the performance part was not. As for future music metaverse experiences, I think there will be a lot more active experimentation and cool things that can be done on the social level as well, not just the performance level, within today's technological possibilities.
What place does cryptocurrency have in that, if it has a place at all?
There is a whole school of thought about what the metaverse needs to be realized that is inextricably linked to Web 3. I think a central theoretical foundation of the Metaverse is the notion of interoperable identity, and I think that also fits very well with what a lot of people are striving for in Web 3, which is this platform-independent identity model, platform-independent assets and data ownership that you can take with you. It's not centralized or dependent on any particular platform.
There's a lot of discussion and interest in the idea - for example, in games - that you can have an avatar or some sort of NFT or PFP [profile picture] travel with you through the game worlds. And then, of course, there's already an established economy in the gaming industry around virtual goods, which drives sales for many games. That, too, probably translates well to NFTs.
On the complete opposite side of the spectrum is Facebook/Meta. I would also put Epic Games in this category of an extremely centralized vision of the metaverse. And it's strange because that side of the spectrum uses very similar language. The way Mark Zuckerberg talks about the metaverse and how it relates to all the different platforms under the meta parent - it's interoperable, in this very centralized context. So you can take your identity and your social graph across all these different applications.
Of course, it's still one company that owns all that data, and Epic Games is definitely similar. I'm thinking of the Bandcamp acquisition, which was part of a whole series of acquisitions that the company has made in the indie art marketplaces that cater to indie artists. They've centralized this network of indie marketplaces because they want to make it easier for indie game developers to create their own games using Epic technology.
We hope that at least in the music industry, through our research, we can help people realize that there are these fundamentally conflicting visions for the Metaverse.
How does the idea of interoperability or platform resistance reconcile with existing competition between companies? Why would private companies want users to use assets outside the platform? And how would that even work logistically?
The ironic thing is that because of the decentralized nature of Web 3, there is no consensus or common standard on what kind of information should be included in an NFT. And I think, especially as the music/Web 3 landscape expands, I can imagine this becoming an interoperability issue very quickly.
For example - and this is similar to a problem in the music industry, without considering the complexity of Web 3 - but the vast majority of NFT platforms for music, the way they structure their metadata, I consider to be "single player." The assumption is that there is only one coin purse. [And] not only is there only one coin purse, but there's only one purse that should receive all the revenue. It definitely favors DIY artists - they're their own managers, they do their own production, songwriting and engineering.
The concept of even acknowledging collaborators, let alone sharing revenue with them, is relatively new. Split protocols on music NFTs have only been in public use for a few months. And NFTs geared toward OpenSea - the fields they have to designate collaborators are completely different than what a more music-specific NFT platform like Sound or Catalog might want to make room for. I don't know if that's a competition per se, but because it's decentralized. All these different platforms will have their own incentives, with the irony being that an NFT developed on one platform may not work as well on another.
What is a music NFT in 2022, anyway? How can we define it if there are no standards for what types of data music NFTs encompass? And how do you think the market will evolve?
At the end of the day, NFTs are just data containers. They represent a relationship between the person who coined the NFT and the person who buys it, and they show that relationship on the chain. The possibilities that you can do with it and the experiences that you can have with it - the possibilities are still so open, and yet there's still so much hype or attention that's only given to this "limited rare drop" model or this "10k PFP" collection model. It's just very, very limiting.
I think as long as you cite the fact that it's an NFT as the main selling point, the market to appeal to is limited. Because then you're only appealing to an audience that is more Web 3-savvy, that has enough money in their wallet, and that is wealthy enough to have disposable income to spend on something like a music NFT, the value of which may not be as well known. This is similar to the dynamics of the visual or fine art market.
I believe there is a market for Web 3 music experiences, but ironically I think the word "NFT" needs to take a back seat as a leading indicator of the value of such a project. If the goal is to reach a broader, more general fan base, then I think it's critical to make clear the "why" or the "what" or the resulting experience related to this technology, so that the complexity of the technology takes a back seat.
Do you feel that there is still a stigma attached to NFTs in the music world?
Absolutely. The stigma relates to financial accessibility and environmental concerns, for sure. And I think it's a broader Web 3 thing, but there seems to be some momentum toward L2 chains in general.
I'm still trying to process the whole thing that happened over the weekend with Yuga Labs - I wasn't happy about not trying to buy NFT over the weekend, but the idea of gas fees going up to several thousand dollars - in that musical, cultural context, thinking about the already negative perception of the technology - is definitely not helpful when it comes to adoption and acceptance.
I think the message needs to be not about the technology, but about the experience of it and how the experience that the technology provides is really delightful and not complicated and doesn't lead to all these obstacles that I think a lot of fans are still encountering.