When NFTs gained immense popularity last year, many people wanted in on the investment. However, most people saw NFTs as crypto-like assets sold at insane prices. Today, these perceptions have entirely changed. NFTs are now being applied as use cases in various industries. The music industry is one such industry.
Over the past year, many musicians have ventured into the world of NFTs by releasing music NFTs. Music NFTs are digital assets tied to an underlying single or album. These NFTs allow fans to invest in their favourite artists’ works and sell the same NFTs to get profits. However, some music NFTs are more technical than that. Some months ago, Royal issued NFTs that gave investors rights to the underlying song. Essentially, the agency sold music rights as NFTs. These rights also gave investors a stake in royalties. As expected, this system has numerous legal implications. This article will discuss some of them.
Legal Issues with Music Royalty NFTs
Content Ownership:
When a song is made, the rights to the song do not only belong to the musician. Song-making involves many processes, from producing to marketing. At every step, a new owner comes into the picture. For example, a producer could have a stake in a song’s ownership alongside the record label. Hence, an artist must seek the permission of these owners to sell music rights or royalty stakes as NFTs. Failure to do this will lead to messy legal battles.
Money Laundering Tendencies:
As stated earlier, many people are eager to jump on the NFT rave. However, other investors trade NFTs to execute financial crimes like money laundering. Issuers of music NFTs might experience their assets being traded to finance these crimes, which could attract regulators’ attention. These regulators might impose anti-money laundering laws on music NFTs to discourage criminal activities.
Jurisdictional Challenges:
One of the significant advantages of NFTs is that they do not have territorial restrictions. An investor from the United Kingdom can decide to trade the same NFTs as a Saudi Arabian investor. However, this territorial freedom can result in challenges for issuers of music NFTs. This situation is because many countries have different laws governing NFTs. These different laws can make compliance increasingly difficult for issuers.
NFTs as Securities:
NFTs are digital assets, but many countries have still not decided on whether they can be accurately termed securities. However, royalty NFTs are different from traditional NFTs. This is because investors can easily get royalty profits on NFTs depending on how well a song performs. These features are highly similar to features of securities. Legal problems may arise if regulators determine that music NFTs are, in fact, securities.
Conclusion
While music NFTs are innovative, issuers must take extra precautions to predict legal challenges and devise solutions.
