Free distribution for artists means they keep more of their royalties and one more middleman bites the dust

Music, unfortunately, is a volume business. The great democratizing force of the internet has increased access a thousand-fold, where 60,000 songs arrive on Spotify every day, funneled through distribution pipelines and marketing campaigns. But now we have an attention saturation problem, and ultimately, increasing access hasn’t done much to decrease wealth disparity. How are you going to get your song heard when there are millionaires playing the same game?

Whoever you are, the process traditionally starts the same way: by choosing a digital distributor and paying them to send your songs to Spotify, Apple Music and all the other streaming services. Essentially, distributors function as toll collectors between the artists and the listeners – one of many rent-seeking intermediaries that have materialized during the streaming era.

In the latest edition of his excellent Penny Fractions newsletter, David Turner builds a case against music distributors, arguing that they fall “squarely in the middle” of a streaming paradigm using “increasingly desperate attempts to wring a few dollars from fans.” Their emergence exposes “the weak foundations of numerous business models over the last fifteen years,” he wrote.

But what if you could build a business model around free distribution? Unchained Music is banking on that premise, promising “completely free web3 integrated digital music distribution.” There are no upfront fees. They don’t take any of the artists' royalties. And artists keep 100 percent of everything they make.

Sounds too good to be true, right? Maybe not. Unchained uses a protocol called Charged Particles that allows non-fungible tokens (NFTs) to contain digital assets – in this case, the music royalties. Charged Particles is integrated with the DeFi platform AAVE, so those assets can be staked and then earn interest over time. 

It works because Unchained is using something they call “royalty capture” to generate revenue, where they lock earned royalties in AAVE for a month, earning interest during that period. The majority of the interest is then siphoned into their treasury and 100 percent of the principal royalty amount is made available to the artist.

I reached out to Unchained’s CEO, Matt Waters, to better understand the vision and the business model. Waters is a professional musician, educator, web3 builder and one half of the electronic/acoustic act Intro to Music Theory. He’s shared the stage with likes of the Rolling Stones and Placido Domingo, and during a call from his new spot in Cartagena, we talked about assembling a co-founding team through Burning Man and drum corps, and building a more equitable, enduring business model for Unchained that isn’t wholly reliant on web2 or web3. 

DeCential: Hey Matt, great to connect. I'd love to learn a bit more about your background and understand when your relationship with music started.

Matt Waters: I've been a musician pretty much my entire life. I started when I was really young, taking piano lessons, then jumped into the school band, the school choir – the whole nine yards. I went up to LA for both my undergraduate and my masters and spent about 10 years in Los Angeles being an independent musician. 

I'm a trombonist by trade, and I also do a little bit of electronic production. I played on albums, played in studios. I opened for The Rolling Stones, which was really cool. I was on Glee for a little bit. And then I got hired to come over to China to start a university music program.

I started two businesses out there before Unchained, but those both got shut down due to Covid. One was a live events business and one was a music marketing business, both of which were severely impacted and just weren't possible to do during Covid times. So we shut those down and went, okay, how are we doing? How do we make money and music? So we started Unchained music and it’s gotten quite a bit of legs at this point.

And all my co-founders are also musicians, with the exception of our technical co-founder – he's more of a music lover.

Unchained’s website

DC: Hey, those are important too. So how did the kernels of Unchained begin? How did you first connect the people you’re building it with?

MW: I've known my first co-founder Matt Busch for a long time – about 15 years now. We did drum corps together back in the day. We were doing summer marching band tours over the United States, competing against other groups and we hated each other. Actually he was the one who hired me for the gig in China. We built those companies together. 

I met Corey, our technical co-founder, through the Burning Man circuit out there. We have a regional burn called Dragon Burn in China. I met Scott through the art launches by Charged Particles. He's a music manager, so he had an artist who was performing in addition to my personal group and we connected through that. 

DC: Can you give me a better sense of what you’re building at Unchained?

MW: To give you a base level, we're building infrastructure for musicians to start being able to compete a little bit with some of your larger entities in the space. At its core, we are a distribution platform, but beyond that, we're taking some of the newest tech and making it available for independent musicians and small and mid-sized labels – hopefully pulling away some of the market share from big labels.

That takes the form of AI mixing, AI mastering – basically taking a track, getting it ready to be put on those platforms, actually putting it on the platforms through distribution, and then being able to promote and do algorithmic playlisting on the back end. 

So you don't necessarily have to be super connected as a young artist. You don't have to know the best mixing or mastering engineers. You don't have to shell out hundreds of dollars for that sort of thing. You can get 90 percent, 95 percent of the way there via our platform.

DC: Cool. And obviously one of the more striking bits is free distribution, which is amazing as a value prop. I'm curious to learn more about Charged Particles and what you're doing with royalty capture as a monetization mechanism. Do you see that as sustainable?

MW: Well, DeFi for us is valuable when DeFi has higher yields than US treasuries.

When we were starting this project, some of those DeFi yields on stable point pools were 10, 12 percent. Now a lot have crashed down to a percent, half a percent, so we're really not focused on whether we have to be web3 or web2. The idea behind what we're building is: let's take the best of both worlds. So if we're able to break even with all of our distribution at a 2 percent return – or whatever it ends up being – we just use the correct technology for the job. At this point it makes sense for us to invest more in US treasuries.

Exactly what that looks like – the mechanism by which we decide allocations and how we do our treasury management – we're still working on that. But there is a huge DeFi component there, and we definitely understand the space and we understand how to manage those treasuries. It's just a matter of: where are we gonna be able to extract the most value in these markets? 

It’s the same thing you're going to see on our platform as a whole – we're not saying, oh yeah, screw Spotify. It doesn't make sense, right? Spotify is a great platform for people to hear your music, but are you actually monetizing from that? Probably not. So that's why we take a look at all the options available to artists and figure out what’s right. 

DC: That makes sense. Another thing that was intriguing to me when I was going through the documentation was the upcoming peer-to-peer marketplace. Can you talk a little bit more about that?

MW: That's pretty far off right now. We have the base smart contracts already developed here, but as far as rollout goes, we need to roll distribution out of open beta and we need to roll out these end-to-end services. So we're looking at 2024 most likely for that. 

But the idea behind that is that we connect people to experts in their field. If you’re a good mixing engineer, connecting you to someone who knows how to do promotion, or to how to book tours – very similar to the Spotify platform SoundBetter, except you're not taking a 40 percent cut out of it, you know? 

You take 2 percent out of it and you let people connect. You implement a rating system, then you tokenize it and allow people to pay with their credit card or with a token – or get a discount using our native or utility token. We wanna create a space in which people are able to connect without having a major amount of value being extracted by a third party. I mean, we should be compensated for building that, but it doesn't have to be 25 percent. 

DC: That makes sense. I’m curious: a lot of artists are still averse to the web3 space for various reasons – it’s still very stigmatized. How do you present Unchained to artists and what have the responses been like?

MW: We talk to them about the selling points: free distribution, right? And it's base level, if someone wants to come on and use us as distribution only to web2, they can do that. That's fine. We have no issue with that, right? What we're doing is we're allowing people to be their first touchpoint into web3.

And so when they come in, they say, okay, um, cool. I can distribute to all the places I can distribute to. DistrictKid does all of this. TuneCore does this. Fantastic. We're still able to monetize. But if they're web3 curious, we're also opening up the web3 vertical and saying, ‘Hey, if you want to drop an NFT, here are the platforms we offer.’

And then beyond that, our academy section is a section where people can learn about the space. Why should I do this? Why should I care? 

So when we're approaching people, we're not saying, ‘Oh, hey, come mint your NFTs.’ We're saying, ‘Hey, come distribute your music for free.’ Right. That's the difference here. We're stripping out the complexity of web3. 

DC: Have you seen that be an effective approach to onboarding [to web3]? Have you seen artists come in, use some of your standard tools and then be like, ‘Oh, what is this? How can I use this?’

MW: Yeah, it's been working so far. We have limited options as far as web3 goes right now, because there are many other things we need to build on the base layer before we can do a lot of integration, but the people who have been coming to the platform are very keen to get moving on that front.

And a lot of people are asking questions on Discord and asking, ‘Are you doing this? How do you do that?’ Conversations are happening. We can't force them to move forward, but even if web3 music completely implodes, it doesn't matter for us. We're very much Switzerland – we have a model that works regardless of whether the music side of web3 kicks off. As long as Defi still works and the US government doesn't go under, we have a business model.