Why is NFT the best medium to implement the theory that ‘1000 fans can support a KOL’?

Author: STARZQ,

Last week, I wrote about how creators can build their personal brands in 4 steps. Many friends left comments asking how to generate income. Founders also came to discuss how to help personal brands generate income.

In my opinion, the most feasible method for creators/personal brands to generate income is to practice KK’s “1000 Fan Theory,” and NFTs are the best medium to practice this theory in the new era.

Musicians are an important category of Web3 creators. In this article, I take independent musicians as an example to analyze the problems and reasons they encounter in the present, and then share new practices in the Web3 era, hoping to inspire you. At the same time, this is also a development history of music media. Enjoy~

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TL;DR

• Problem: Only 0.4% of musicians can earn $50,000 a year through streaming

• Root cause: Digital music started with the single model, and the subscription model of streaming brought prosperity to platforms but was unfriendly to independent musicians in the long tail

• 2003: iTunes Store pioneered the single sales model

• 2008: Spotify pioneered the streaming subscription model

• The impact of streaming subscriptions on musicians: It is difficult to make money and brings a “toxic culture”

• Independent musicians are not suitable for streaming and need new methods

• Independent musicians in the new era: Practicing the “1000 Fan Theory” with NFTs

• Summary: Web3 is the new era for personal brands

1. Problem: Only 0.4% of musicians can earn $50,000 a year through streaming

In 2022, streaming accounted for 67% of global (recorded) music revenue. This means that for a long-tail musician who relies on recorded music, the majority of their income comes from streaming platforms such as Spotify. However, here’s the problem: only 0.4% of musicians can earn over $50,000 a year through streaming.

According to estimates by the UK Intellectual Property Office, only about 0.4% of musicians on streaming platforms (1,723 musicians) can generate enough streaming plays (1 million plays per month) from their music creations to sustain a living.

The fees that music streaming platforms pay to musicians are usually between $0.003 and $0.005 per play. Calculated using the average of $0.004, the income from 1 million plays per month is $4,000, which amounts to $50,000 a year.

5w US dollars happens to be the median level of personal annual income in the United States and the United Kingdom, which means it can allow you to live a socially average life.

According to data from the US Bureau of Labor Statistics, the median personal annual income in the United States in 2021 was $45,792. This means that half of US individuals have incomes higher than $45,792, while the other half have incomes lower than $45,792.

By the way, the median personal annual income in New York State in 2021 was $63,172, and in California, it was $72,848. This means that if you want to live in New York State or California, 5w US dollars is not enough, and you need a higher income.

To sum up, in the era of streaming media, only a very small proportion (0.4%) of musicians can earn 5w US dollars a year and live a socially average life. This is obviously not a healthy ecosystem.

How did this result come about, what are the reasons behind it, and what opportunities for breakthrough are there? Please continue reading.

2. Tracing back to the source: Digital music started with the single mode, and the streaming subscription model brought prosperity to platforms but was unfriendly to independent mid-to-long-tail musicians

2.1 2003: iTunes Store pioneers single sales model

At the beginning, digital music was not in the form of a streaming subscription model, but a single sales model.

On April 23, 2003, Apple launched the first digital single on iTunes Store, which was U2’s “Vertigo”. The price of this song was $1.29, and it sold over 100,000 copies within 24 hours, setting a record for digital music sales at that time.

Digital singles are cheaper and more flexible than traditional music formats (such as CDs), and the launch of iTunes Store marked a major turning point in digital music sales, helping to propel digital music into the mainstream.

The commercial model of music is driven by changes in how users consume music. The increase in the number of songs and the emergence of digital music formats (mp3, aac) allowed users to listen to thousands of songs on their computers, but they could only listen to 10 songs from a CD in a mobile scenario. Users still couldn’t “listen to thousands of songs anytime, anywhere”.

On October 23, 2001, Apple launched the first iPod with a capacity of 5GB, which could store about 1,000 songs, meeting users’ needs to listen to music anytime, anywhere. At the same time, a series of ads with the theme of “a thousand songs in your pocket” were released, conveying the core concept of the iPod.

The iPod can indeed hold 1,000 songs, but the process of importing 1,000 songs from CDs is actually painful (I have personal experience with this), requiring the execution of the following 6 steps repeatedly:

• Insert the CD into the CD drive.

• Open iTunes and click on the “Music” tab in the iTunes window.

• In the “Music” window, click on “Import CD” under the CD you want to import.

• In the “Import CD” dialog box, select the songs you want to import and click “Import”.

• Wait for the import to complete, and the songs will be saved in your iTunes library.

• Drag and drop the songs from iTunes into the music library on your iPod to complete the import.

After the introduction of digital single sales on the iTunes Store, users have more flexibility in their purchases (from CD to single), and it is more convenient to import them into the iPod (as the purchased singles are already in the iTunes library, they can be directly dragged and dropped into the iPod).

The combination of iPod and the iTunes Store completely changed the way people consume music in 2003.

2.2 2008: Spotify pioneers streaming subscription

The digital single sales model made it easier for users to carry music with them, but it also faced three practical problems:

• If you want to listen to a lot of music (e.g., 1000 songs), buying singles can be a significant expense;

• Each device for listening to music has management costs. For example, if you switch to a new phone, you need to import the music again;

• You need to manage playlists yourself, which is also a hidden cost. However, in reality, most listening scenarios are casual and don’t require creating playlists.

These pain points became more prominent as the number of online music increased (growing 25 times from 2003 to 2008) and users’ music tastes diversified.

For musicians, if their goal is to become popular and reach a large audience (hit big), having to charge for each individual song becomes a hidden barrier.

Around 2005-2010, internet service providers began offering high-speed broadband services ranging from 10 Mbps to 100 Mbps, and cloud storage technology emerged, making audio and video streaming services possible.

• On February 14, 2005, YouTube was founded;

• On March 14, 2006, Amazon launched Amazon Web Services (AWS), a cloud storage service.

Against this backdrop, Spotify was launched in Europe in 2008, combining “free” and “paid subscriptions” and pioneering the streaming subscription model.

• Free: Free users can play music online without restrictions but will hear ads between songs. Additionally, free users cannot freely select songs on mobile devices and can only listen to music in shuffle mode.

• Paid: For monthly paid subscribers (€10/month), Spotify offers ad-free, high-quality audio streaming, offline playback, and the ability to freely select songs on any device.

As we can see, Spotify allows users to “access a large amount of music at a relatively lower cost” and “enjoy personalized recommendation services” “anytime, anywhere, on any device”. At the same time, it allows musicians to reach a wider audience. The following set of numbers shows that the streaming model represented by Spotify can reach more than 100 times the number of users compared to the single-track model represented by iTunes.

• The best-selling single on iTunes: Michael Jackson’s “Billie Jean”. This song was released in 1983 and has sold over 10 million copies on iTunes;

• The most popular single on Spotify: Drake’s “One Dance”. This song was released in 2016 and has been played over 2 billion times on Spotify.

In 2011, Spotify entered the United States and began its rapid growth with the help of smartphones and mobile internet. As of April 2023, Spotify has over 420 million subscribers in more than 180 countries and regions (accounting for 74% of global digital music subscription users). Among them, 172 million users are paid subscribers and 248 million users are free users.

Spotify’s successful model has also inspired other companies. Apple launched Apple Music in 2015, and Amazon launched Amazon Music in 2016. In terms of the share of music product revenue, streaming music has been constantly climbing and eventually becoming the main source of revenue.

• In the early 2010s, digital sales of singles and albums (such as through iTunes) still accounted for a significant share.

• In 2016, streaming revenue surpassed digital download revenue for the first time in the U.S. music industry.

• In 2018, streaming music revenue accounted for 75% of the entire recorded music market revenue.

2.3 Impact of Streaming Subscription Model on Musicians: Difficult to Make Money and Brings a “Toxic Culture”

The streaming subscription model better meets the diverse listening needs of users and has made Spotify the world’s largest music streaming platform with a market value of $220 billion. However, it has also brought about the problem mentioned at the beginning of the article: only a very small proportion (0.4%) of musicians can earn $50,000 a year and live a middle-class life.

In fact, streaming has brought about more problems:

1. The streaming subscription model has almost reached its ceiling in terms of user numbers and revenue. The income generated by 1 million plays is decreasing, making it increasingly difficult for musicians to earn $50,000;

2. 66% of streaming consumption comes from old songs (released over 18 months ago), making it difficult for new musicians to break through;

3. Musician no longer create for the audience, but cater to recommendation engines, pursuing quantity over quality;

4. The platform acts as an “intermediary” role, users belong to the platform and cannot directly contact musicians.

Now let’s go into detail one by one.

The subscription model for streaming media has almost reached its user and revenue ceiling. The decrease in revenue from 1 million plays makes it increasingly difficult for musicians to earn $50,000.

The subscription model for streaming media started in Europe and the United States, and later growth mainly came from the international market, especially in Asia, Africa, and Latin America. However, non-Western consumers are not accustomed to paying for music streaming, which lowers the per capita revenue contribution. At the same time, Spotify’s share of revenue is increasing.

These two reasons combined have led to a continuous decline in the fees artists receive for every 1 million plays. From 2014 to 2022, it has decreased by 50%.

In 2014, Spotify paid artists an average fee of $0.0078 per play. In 2018, this fee decreased to $0.0038. In 2022, it further decreased to $0.0034.

In other words, in 2022, a musician would need twice the amount of plays compared to 2014 in order to earn $50,000. Meanwhile, because the overall pie has not grown larger, competition among musicians has become more intense.

66% of streaming media consumption comes from old songs (released more than 18 months ago), making it difficult for new musicians to break through.

Friends who understand recommendation algorithms know that the more sku accumulated data, the easier it is to be selected by the algorithm. However, music itself is a long-cycle consumer product. When the market growth is limited and the company’s performance needs to continue to grow, the easiest way is to reduce the exposure of new songs in the recommendation algorithm, increase the exposure of old songs, and improve short-term user metrics.

But as emerging musicians continue to join and the market also needs fresh blood, this is not a practice that is conducive to the long-term health of the ecosystem.

Musicians are no longer creating for the audience, but catering to the recommendation engine, pursuing quantity over quality.

Emphasizing quantity over quality is another characteristic of recommendation algorithms. This has also led to musicians releasing a large number of music works to increase exposure. Douyin will have “XX hit songs” every once in a while, and Spotify releases 100,000 new songs every day. But ironically, these hit songs are almost forgotten after a period of time. Even after 20 years, Jay Chou still stands at the pinnacle in the Chinese music industry.

It is not an exaggeration to say that the recommendation engine has brought “toxic culture” to creators.

The platform acts as the “middleman,” users belong to the platform, and cannot directly contact musicians.

As mentioned above, the streaming media model can reach more than 100 times the number of users compared to the single model represented by iTunes. However, this is only “reaching,” not “contacting.” You become a member of Spotify, not a member of a specific musician; the platform acts as an intermediary business and will not let musicians know who their loyal fans are, but this is very important for independent musicians.

2.4 Summary: Independent musicians are not suitable for streaming media and need new methods

Streaming media, represented by Spotify, operates on the logic of economies of scale. The goal of success is to become popular: to transform musicians from “selling works” to “selling exposure,” and to have the “opportunity” to reach more listeners and generate income from other sources (album sales, tours, endorsements, etc.) after becoming a star.

However, the probability of becoming a star is extremely low, which is not suitable for all musicians, especially independent musicians who rely on fan support. They need new methods.

3. Independent musicians in the new era: Practicing the “1000 True Fans” theory with NFT

In fact, there is another way to earn $50,000 or even $100,000 a year, which is to practice the “1000 True Fans” theory proposed by Kevin Kelly as early as 2008:

If you have 1000 loyal fans, each willing to spend an average of $100 a year to support you, you can earn $100,000 a year (which KK considers to be the amount needed to live a majority of people’s lives, perhaps because he lives in California, where $50,000 is not enough).

Let’s review the four key points of the “1000 True Fans” theory.

Requirements for these 1000 fans: Willing to purchase any product you produce

• These die-hard fans will drive 200 miles to see you perform; they will buy the hardcover, paperback, and audio versions of your book; they will buy your next figurine without you knowing; they will pay for the “best” DVD version of your free YouTube channel; they will visit your chef’s table once a month.

How did the number 1000 come about?

• Your work, as well as your relationship with fans, is enough to make your loyal fans spend a day’s wages each year to support you, with an average of $100.

• To live the lives of most people, KK believes that around $100,000 a year is needed, which means 1000 fans are required.

• In 2020, Li Jin iterated a “100 Fan Theory” based on a sample of course creators, with an average sales amount exceeding $1,000. In this case, only 100 true fans are needed to live the same life.

1000 is a feasible number

• Anything you create or think of can at least generate interest from one out of a million people – this is a very low standard. However, if only one out of a million people is interested, there may be 7,000 people on Earth who can become your fans.

• You can count to 1,000. If you add one fan every day, it will only take 3 years, and you can even remember the name of each fan.

• If you focus on gaining an additional fan today, that is very powerful. One customer at a time, are they satisfied, have I provided value to them? If you can focus on this, it is truly a superpower.

You must have a direct relationship with your fans

• They must pay you directly

• If you rely on intermediaries, the first intermediary will take a cut, and the second intermediary will not maintain the fan relationship, resulting in a continuous loss of fans

• If you don’t like dealing with fans (only enjoy drawing, sewing, or making music), it is recommended to add a partner to form a duet; at the same time, the number of fans required for “making a living” needs to increase linearly

In Web2, many creators have been practicing the “1000 true fans theory” through tools such as Substack/LianGuaitreon. For example, Justin Welsh mentioned in our article last week earns $1.3 million annually by selling his course “Content Operating System”.

• The price of this course is $150

• Justin Welsh sells 8667 copies annually, 23 copies per day

Of course, Justin Welsh is already a top-level creator. The point I want to make here is that if you have 1000 loyal fans and create a product that allows fans to pay $100 annually, based on the tools provided by web2, you can live a decent life.

So, you must be wondering, since web2 can already achieve the “1000 true fans theory”, what additional value does NFT bring? My answer is:

(Music) NFT is a perfect representation of “work + fan relationship” and combines “work + fan rights + social identity”. It has a low barrier for creators to issue, making it a better target for user support.

In the example of Justin Welsh mentioned above, $150 basically represents the value of the work. But to be honest, it is quite difficult to create a work that is worth $100 and can be distributed repeatedly. Is there any way to lower this barrier? In fact, KK has already answered this question in the article: $100 = work + fan relationship

Your work, along with the relationship with your fans, is enough to make your loyal fans spend a day’s wages to support you, with an average of $100.

A CD alone is definitely difficult to support a price of $100, at most $20, and the remaining $80 represents the value that your fan relationship can produce.

On the other hand, NFT = work + fan rights + social identity, which not only perfectly represents “work + fan relationship”, but also provides more capabilities: assetization of works, fan rights, and public social identity in the digital world.

Take independent musicians discussed in this article as an example,

1. NFT itself is a work, a digital CD or a digital single; at the same time, NFT restores the asset attributes of CDs, which may appreciate if independent musicians become famous in the future;

2. NFT can realize a series of fan rights based on token gated and open loyalty, such as verifying NFT to enter the musician community, priority ticket purchase rights, and anti-scalping. Specific cases can refer to A7X’s use of NFT to connect fans and distribute rights;

3. NFT itself is also a public social identity in the digital world. In Web2’s streaming platforms, only Spotify and QQ know that you are a fan of a certain musician, but everyone can know that you own the NFT of a certain musician;

4. NFT has a low issuance barrier, which is also a very big advantage. In the web0 era, fans could also buy signed CDs or signed books to support independent creators, but there were still many barriers to issuance. NFT has almost reduced this barrier to 0 (it is expected to increase later, but it is definitely lower than physical costs).

This is also why independent musicians actively embrace Web3.

TK, a singer-songwriter from Los Angeles: In November 2022, he released his first on-chain album “Eternal Garden”. He sold 700 copies at a price of 0.07 ETH (about $70) each, earning 38.26 ETH (about $70,000) in revenue. It is estimated that TK can only earn $500 to $1,000 in streaming royalties from Spotify per month. The profit TK made from this NFT sale is equivalent to the streaming revenue of 70 months.

Violetta Zironi, an Italian musician: In April 2022, she released a music NFT collection called Moonshot, which included 5 songs she created and 2,500 unique hand-drawn artworks by her father Giuseppe Zironi. The collection was priced at 0.045 ETH each, and she earned 112.5 ETH (about $200,000) in revenue. Inspired by this success, she released another music NFT collection called Another Life in January 2023, based on 5 songs she created and PFP. The collection had a total of 5,200 copies, priced at 0.1 ETH each, and she earned 520 ETH (about $1 million) in revenue. She is also the first musician to sell over 5,000 copies of a music NFT.

It is worth mentioning that the success of Violetta and TK is built on their communities and fans (special thanks to Henry for his input).

• Violetta has 66,000 Twitter followers and a high level of interaction. She once claimed to livestream for 20 hours a day.

• TK has spent years building his Web3 community, and his Telegram group is one of the most active in the music field.

In my own insight, for creators, NFT combines “work” and “fan rewards” into a “culture-based fan reward”, which is something that Web2 cannot easily provide.

• For example, being a beautiful live streamer is also about making money through fan relationships. The top streamers can earn up to $100,000 by receiving rocket gifts, but it lacks a cultural flavor.

• In comparison, fans are more willing to support creators by buying NFTs, and NFTs also include “work + fan ownership + social identity”, giving them more utility.

• We also have users in our reader community who share that after reading a physical book by an author, they subsequently purchased an NFT-based e-book to support the author.

Therefore, the ability model of independent musicians in the new era is to have both creative ability and a certain level of community operation ability. In the Mastercard Music Program we introduced before, AI and Web3 empower both of these abilities.

• Students create works faster through AI;

• Mastercard helps students release single NFTs and build communities after graduation;

I will also continue to pay attention to Web3 music-related communities, including Lens and Farcaster.

btw, I don’t think the “1000 true fans theory” and streaming subscription model are conflicting. If you are an independent musician and want to earn $50,000-$100,000 a year for a more free lifestyle, the “1000 true fans theory” is more suitable for you; if you want to become a globally renowned star, Spotify/Tiktok/Youtube are your best tools.

4. Web3 is a new era for personal branding

At this point, I have to admire Kevin Kelly’s foresight. In 2008, when Spotify was just launched, KK wrote an article called “1000 True Fans”. The reason for writing this article was that at that time, it was generally believed that the goal of success was to become popular and hit big, but technology allowed us to have another choice.

However, what followed was the emergence of massive-scale platforms in the mobile internet era, where the user dividend made “scale” not difficult to achieve, and creators didn’t care that much about the intermediaries taking a cut and whether fans/customers belonged to them.

Until the past two years, people have started to pay attention to “fans” again, which is driven by three narratives:

• The disappearance of user dividends, the increasing platform fees, and the lack of transparency. Both brands and individual creators hope to connect directly with fans;

• When users pay 100 yuan on Spotify, musicians actually receive a minimum of only 10 yuan, due to the complex industry structure and chain of interests in between;

• Fans collectively create value, but cannot capture that value;

• The emergence of digital nomads and solopreneurs. In their value system, freedom >> getting rich, and “making a living through fans” has opened a door for them.

Web3, decentralization, and communities happen to meet these three narratives. Individual creators bypass intermediaries and earn income from fans and communities; as fans, they also have their own identity and assets, and increase their value through community co-creation, forming a healthier ecosystem.

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