The Royal Thesis: Blockchain Ownership of Real World IP
Why Royal is going to change the music business forever.
Originally posted as a Twitter thread
What does Royal do?
The basic idea is that instead of going to a label for funding, artists should be able to sell royalties to their fans. Royal is a platform that facilitates this.
- The artist gets funded on more flexible terms;
- Fans of music now get to invest in the music they love.
Music ownership is fundamentally a legal construct. Every individual song is split into two separate copyrights: composition (lyrics, melody) and sound recording (literally, the audio recording of the song). When somebody listens to a song, both types of copyright (usually) kick in, generating two sets of royalties that are paid to the respective parties. (Source)
The important thing here is that basically every song has its own cap table.
Now, let’s say we want to exchange ownership of music royalties today. We have a Buyer with money and a Seller with a contractual right to royalty interests from a song or catalogue.
Before the Buyer forks over her hard-earned cash, she needs to trust that the contract she’s buying isn’t a forgery (or a duplicate or a fraud).
However, there is not a global database tracking ownership across the music industry. It’s all currently tracked via the digital equivalent of paper contracts and filing cabinets (probably Google Drive… but whatever, you get the point).
Achieving the requisite degree of trust to satisfy the seller is conventionally done by sending the contract to a lawyer to perform diligence and verify that the contract is legit.
Once the rights are verified, the buyer and seller may complete the transaction.
However, if the new owner ever wants to sell her rights, she must now repeat the verification process, because the New Buyer needs to establish trust through verification. Notice how the ‘verified’ badge no longer applies in the context of the next transaction.
Each time a royalty contract is transacted, trust must be re-established. This introduces transaction costs (legal fees) at every link in the chain of ownership, which puts a high floor on the minimum increment of royalty interest that can be reasonably transacted.
You will almost never find royalties for sale today in parcels of less than $10,000. This puts music ownership out of reach for most fans, and means that songs are valued by investors as annuity-like assets with zero affordance given to the music’s emotional value.
It’s been said that one way to find opportunity is to ask “What sucks?”
Royal is bringing legal ownership on-chain. Once ownership has been tokenized, it can be transparently transacted in perpetuity without further need for verification each time it changes hands.
Here’s what that looks like on an oversimplified diagram:
Tokenization creates a chain-reaction of unlocks:
- By removing the need for per-transaction verification, we reduce transaction costs to ~zero.
- By reducing transaction costs to ~zero, we’re lowering the floor price of owning music by a factor of 10–100x.
- By lowering the floor price of owning music by 10–100x, we’re making it possible for a new class of owner, fans, to buy music rights. Fans can now own a piece of the music they love for the same price as concert tickets: $30, $50, $500… it’s all doable.
- By enabling fans to buy music, we’re creating a market that values music holistically (rather than purely as a financial asset).
- In turn, the artist gets funded on better terms, and fans get to come along for the ride in a far more meaningful way.
For artists, shared ownership means creative freedom, and a “street team” that is literally bought in.
Who could possibly be better stewards of your music than your fans?
For fans, shared ownership means the chance to own a slice of the soundtrack of our lives; a chance to ride sidecar alongside our favorite artists’ careers; and the opportunity to prove with cryptographic certainty that, yes, I do have great fucking taste.