Rihanna NFT that is not a Rihanna NFT, and some serious questions raised.

Selling future royalties via NFTs can generate meaningful income today. But buyers – and the artists who sell them – should beware of risks. The following analysis comes from Bill Werde (pictured inset), director of the Bandier Music Business Program at Syracuse University and a former editorial director of Billboard. An earlier version of this essay originally appeared in Full Rate No Cap, his free, weekly music industry analysis email.

Fans may have been thrilled when Rihanna opened the Super Bowl halftime show with her 2015 hit Bitch better have my money. But perhaps no one was more ecstatic than the Swedish executives behind anotherblock, an NFT platform that sells stakes in future royalties of specific songs.

They had just days earlier completed the sale of small percentages of future royalties of that particular Rihanna movie to investors.

The same executives, and the producer whose main royalties they sold, saw and are now seeing – and profiting from – the resale of the same. With the sale, anotherblock became the latest company to showcase both the opportunities and the enormous questions and concerns surrounding this type of royalty-based NFT paper.

First, and as best as I can tell, the sale had nothing to do with Rihanna herself.

I was able to contact at least one member of her management team in Arizona for the big show, and I understandably did not focus on this issue. But they were unaware of another block sale, and Rihanna has no posts on Instagram or Twitter sharing the sale. What another block actually did was partner with Deputy, a credited producer and writer Bitch better have my money.

Another block says they sold stakes in the master, so we’ll assume the deputy has a possibly generous 3% stake in the master (typically a star producer will get 4-6%, though it can be lower, especially when there are multiple producers on a song; BBHMM credits at least four producers).

Another block enabled 300 sales of a 0.0033% stake in Deputy’s stake at $210 per purchase. So if my math is close to correct, what the investors got for $210 was actually 0.0099% of the master rights to Rihanna’s old hit.

So let’s start with the good: If you’re doing the math, Vice President ended up auctioning off 1% of his stake, raising $63,000 with the first round of sales.

I note “the first round” because when you dig into the contract, you see that Deputy and anotherblock will take 5% of the resale in perpetuity. The same NFTs that sold for $210 are now generally sold for $1,200 to $1,800, so another block and deputy share $60 to $90 each time a BBHMM share is resold. You can see how this sale showcases the much-hyped (some would say overhyped) artist-empowerment aspects of Blockchain. It is unclear what cut of this money another block takes.

However, some aspects of the sale are less rosy.

First, the website advertises a “likely” return on investment of 6.5% in year one, but no amount of back-of-the-envelope math can get me anywhere near the ballpark of the return for an investor who paid $210 for 0.0099% by the master right on this one Rihanna song.

Forget the ballpark – I’m not sure I could ever get into the right state or country.

Let’s get out our pencils.

The song is currently averaging 886,000 streams per week over the past five weeks, according to Luminate. If we use a fairly standard estimate of $4,000 to the rights holder for every million streams, that would be around $3,500 per week. From this amount, the main side takes about 80%, or $2,800. If the Deputy gets 3% of that, that takes us to $84. And the .0033% stake of the vice president’s stake? Just under 28 øre per week.

There are obviously a ton of assumptions and rounding errors in this math, and a lot of things we don’t know. Does the deputy have a manager? If so, take a 5 to 15% discount on the earnings. A lawyer? A business manager? If so, keep trimming. Are we talking about global revenue, and not just the US? In that case, 28 cents weekly becomes about 39 cents, using that roughly 60/40, US/Rest of World earnings picture for the last full year of data we have from 2021.

Where and how does another block make a cut? I couldn’t find it on their site. Does this 0.0033% stake include all revenue, including sync licenses?

The answers to all these questions can move income up or down. But if we use the weekly figure of 39 cents, you get about $20 annually. After taxes, you’ll probably take home about $14 – $15 a year. At that rate, it would take about 14 or 15 years to recoup the initial investment of $210. So either I’m fundamentally misunderstanding an important part of this math, or another bloke defines a 6.5% return very differently than I do.

I asked another block leader and also their communications representative to share specific, transparent math that might indicate a path to their advertised returns. They refused to do so.

We may examine some other issues, such as whether the advertising and social media to promote this sale, which included an image of Rihanna, violates her rights of publicity. Although the website is clear in the fine print that what is being sold is a share of the producer’s royalties, it still has Rihanna’s name at the top of the anotherblock website and “Rihanna” in all the headlines about it, which has clearly caused some market confusion.

But more than anything, I believe this BBHMM sales likely illustrate why the SEC needs to provide more guidance about, and be more involved in such Blockchain-based sales against future artist royalties.

So far, the SEC has generally ignored these types of sales, but most experts I’ve spoken to tell me there are conversations going on behind the scenes, and an expectation that clarity will come. Certainly, the SEC has asserted jurisdiction over foreign-based companies that sell securities to US investors in the past.

There has been much discussion in legal and financial circles about whether this type of sale passes the Howey test – a list of questions used to determine whether a transaction is considered a security, and therefore should be regulated.

I’m no expert on that question, but having had several conversations with people who are, it’s hard for me to see how sales like this aren’t a certainty. Artists and producers who sell future royalties this way, and of course the platforms that support them, should be aware that the SEC is not playing when it decides to crack down. Your personal liability may be at stake. If you are considering a sale like this, a conversation with an attorney would be wise.

It is worth noting here that non-Blockchain sales of future royalties exist, and is SEC regulated. SongVest has been running this kind of sale for a couple of years now, and buzz-y newcomer JKBX plans to launch later this year with $4+ billions in investable rights.

In the music business as in the world, I try to discourage binary thinking. Almost anything interesting and worthwhile involves a spectrum and not an exchange, so please don’t take this essay as a condemnation of legitimate artists and/or their representatives who sell NFTs, and maybe not even NFTs that offer a stake in future royalties, if the calculation is transparent and the pricing is sensible. There is a lot of potential for artists to do well for themselves while experiencing more control in the realm of blockchain-enabled business models.

But these are still early days. Without regulation, the risk of fans being exploited – lured by the (sometimes false) promise of stakes in their idols – is very, very high. Not to mention the more pedestrian reality that another block is advertising that seems unlikely, given what we know (while certainly acknowledging everything we don’t).

Perhaps another block and all the other blockchain-based royalty sellers will share some more transparent math and their feelings about SEC regulation in the near future.

Until then? Buyer beware. The “counter” may turn out to be that you don’t have your money after all.Music business worldwide