Why we started Bittunes..

It had nothing to do with money (for us), but everything to do with monetization. Something terrible had happened to music, and needed to be fixed. In this piece, we explain the nature of the problem, and our solution.

We also tell the story of the Chinese Company Xiami (虾米音乐) that had a very similar idea around the same time as us, (2006/07), which quickly gained 20m users, but ultimately gave up on their proposed solution. We explain why we believe their model did not work, and why we believe the conditions are now right to start to fix global music distribution.

Nothing to do with money?

That’s right.. For us, this was about principles, and doing the right thing. We had a theory that if we got the principles right, we might not go bankrupt, because other’s would also see our vision for a new kind of user-centered monetization of music distribution, and join us.

So far, it’s working.. and we grow stronger every year. Ok, here’s the story.

atching what happened to Napster and Limewire et al, (the breakthrough P2P file sharing applications that thrived for a few short years after 2000) and how they were destroyed by the RIAA [1] and the Record Labels, was a bit like watching a slow motion tragic car crash.

Couldn’t you guys have just worked something out? You know.. compromised a little perhaps?

So let’s do a quick re-cap of recent history. Here are two common narratives used to explain what happened regarding “Music Piracy.”

The (reactionary forces of the panicked) music and movie industries crushed illegal file sharing, (AKA: the best content distribution system on the planet), to stop the evil scourge of copyright Piracy. (Cough, cough.. AKA: To protect their tired old dinosaur business models). Clear enough?

(NOTE: Far more music is shared on USB drives and through drop box etc, but apparently they don’t want to talk about that)

The Music Industry’s prolonged ‘Kodak moment’

It’s easy to see the RIAA and the Big Labels as the villains here, but in reality they were just indulging in a very prolonged Kodak moment.. i.e. Any legacy industry that is ripe for disruption never sees the need for the innovation to replace themselves. Ice factories didn’t invent the refrigerator, Film camera companies couldn't see the inevitability of the digital camera, etc. etc. But, like all dinosaurs before them, they thought the problem could be fixed, at least for the time being.

Then oops.. along comes Steve Job’s 10,000 song Piracy friendly iPod

As at Q3/2005, Apple had apparently sold approximately 500 million songs from the ITMS and approximately 22 million iPods, so this equals roughly 22.7 ITMS songs purchased per iPod and this in turn equates to only around 0.7% of a 3,000 song iPod. (Any questions?)

The Big Labels were now dealing with two foes at once. The P2P file sharing applications, and their ‘frenemy’ Steve Jobs, who had just invented the best place to store all those “Pirated” music files.. The 10,000 song iPod. (which allowed MP3s not just Apple’s own proprietary AAC format) A brilliant, if devious strategy.

Spotify has a cozy relationship with the Big Labels which pay to get their Artist’s on Spotify playlists. Spotify has already paid Labels more than $US5Billion in royalties [2] and these Labels stand to make huge profits when Spotify goes public with an IPO.

So, fast forward…. The P2P file sharing Companies have gone, streaming music is the new normal, and the Big Labels now own 20% of Spotify.

Digital downloads were just too tricky, apparently.. So the Industry opted for Streaming music instead. Pretty good for music fans, terrible for Artists. In short, the industry has not provided any real leadership, and here we all are, heading toward a world in which no one owns any music.. But let’s focus on the real issue, Money.

Show us where the money goes, and we’ll show you both the problem, and how to create the solution.

With 78% of global music industry revenue being non-artist revenue, [3] it is no wonder that there is not enough money to pay Artists properly. Too much money is being siphoned off at the top. So, what’s the solution?

It's simple, just push the money down to the network

Unless we change how music’s money is distributed, big music corporations will continue to hoard it in ever increasing percentages. That is the corporate way.. To create meaningful change, we need a total re-set for music. Bittunes does this by sharing revenue with fans as a new distribution channel. However, this system can only work by completely stepping outside of the music industry, and allowing Artists to ‘self publish’. If the Artist assumes this primary right, all sorts of problems are potentially solved.

When the Artist sets the rules for distribution, it’s a game changer.

If the Artist, (as primary publisher) can be certain of a reliable and instant payment process, by working in cooperation with their own fans as a distribution network, and the system has a high level of technical integrity, then numerous issues begin to resolve. This is because, if these conditions are met, then..

a) So called ‘piracy’ becomes a non issue.
b) Earnings from sales are delivered instantly, to all stakeholders.
c) Artists can build direct relationships with clusters of partner-fans.
d) Previous restrictive rights territories disappear.
e) The whole world becomes one marketplace.

In Bittunes 2.0, the Artist as primary publisher, grants permission to trade a track using the Creative Commons license framework, the ownership of the song is recorded in the Bitcoin Blockchain. The Bittunes core business logic controls the division of earnings which are distributed anywhere on the planet using Bitcoin.

The original Bittunes microearning system*

The way that Bittunes ‘pushes the money down to the network’ is by the use of our microearning system. It is based on rewarding previous buyers of a track with a percentage of the revenue from sales of that track. In this way, a song purchase is no longer a ‘sunk-cost’, but in fact goes on earning for the buyer, if that buyer stays engaged with the platform and the Artist.

This is the original configuration for the microearnings system in Bitutnes 1.0. In Bittunes 2.0 Bittunes will introduce variable transaction ratios. See more detailed information on Bittunes MicroEarnings here.

Bittunes has been doing this for 3 years, so we can show real world examples of how the system works.

The graph below is from a real Bittunes user who has bought hundreds of songs. 156 of those songs have generated microearnings for that user, and this user has received US$121.62 from accrued microearnings generated automatically, by subsequent buyers of those tracks. The songs were purchased for $0.50 (all songs in Bittunes start off at the 50c price point until they reach the overall top 100, when they double in price to $1.00 and only then does Bittunes take a percentage).

156 tracks (purchased for $0.50) that have produced earnings, giving an overall earnings total for this user of US$121.62 or 0.09752982 BTC, meaning that this user has paid back their investment in these tracks and is in front by $43.62 (this graph reflects sales when Bittunes had less than 1000 overall users and fairly low trading volumes)

In Bittunes, a user's earnings grow with new sales of the tracks they have purchased, and their overall earnings float (usually up) with the price of Bitcoin.. What’s not to like? So, let’s extrapolate that..What happens when we have one million song sales?

After 1M sales of a $1.00 track, the Artist would make $400k, Bittunes $200k and the remaining $400k would be divided among the previous buyers of that track, with many users making up to 1000% profit on their $1.00 purchase.

This is how to push the money down to the network.

It could not and will not happen if we were to partner with the mainstream music industry, and to all those blockchain companies cozying up to that industry, maybe it’s time to do a reality check. This industry does not want transparency, or to change how the money flows and whom it flows to.

So, let’s frame Bittunes with an historical analogue

Ponder for a minute if the Independent music sector had worked with Limewire (and its 300M users) to fix it’s copyright compliance problem and although Limewire was shut down and seized by the music industry in 2010 [4]
(just a year after Bitcoin was invented), imagine if there had been Bitcoin to monetize independent song trading on this network? So..

Think of Bittunes as ‘The Monetization of Limewire’ but for Indie Music, with full rights compliance and global trading enabled by Bitcoin and it’s Blockchain.

Limewire was essentially a user powered network

The nature of P2P networks is that they are powered by users, who contribute their computer storage, bandwidth and PC’s processors to collectively power the service. So it is a distributed rather than a centralized process. The problem for Limewire was that the content they were distributing was not wholly ‘user-generated’ but in fact largely a centralized resource, with most of the content being owned by the Labels.

‘User-Powered’ service provision meets ‘User-Generated’ content provision.. Game Over.

If Artists as ‘primary publishers’ could authorize a service such as Limewire to distribute their ‘user generated content’ then we would have a system that would fit perfectly into the green box in the matrix diagram opposite. The only enabling component missing in that diagram is the financial mechanism to drive it, and that of course is Bitcoin.

Bitcoin earning and music distribution

Although it is still relatively early in Bitcoin’s evolution as a financial payment and earning system, the signs are very encouraging that it holds enormous promise for underpinning user-powered service and content provision, as described above.

New companies like 21 Inc in the US (left) are part of the same trend as Bittunes in that they focus on users earning Bitcoin rather than simply using Bitcoin as a kind of PayPal substitute, and 21 Inc stresses the same global currency idea: “You get paid in Bitcoin, so it works in any country”.

Xiami (虾米音乐) vs Bittunes.. It’s all about timing

(Timing and strategy.. The important thing is not to compromise)

Bittunes was incorporated as a company in May 2013, but the concept of Bittunes had its birth six years earlier in 2006, three years before Bitcoin was invented. We had been waiting for a reliable digital currency to arrive to enact our plan for an ‘Independent Digital Music Marketplace’ (see History of Project). When it seemed like Bitcoin was very likely to survive, we jumped.

Xiami was conceived around the same time

It was based on many similar ideas, but primarily it was the promise of user’s being able to earn by sharing music that enabled them to quickly grow to 20M users. However, in our view they not only jumped too soon, but made some strategic mistakes. Just like Napster and Limewire, Xiami underestimated the difficulties of tangling with the legacy copyright system.

In 2006, four Chinese Software Engineers working for Alibaba quit the Company to launch Xiami, (虾米音乐) in early 2007, with the aim of “Revolutionizing China’s Music Industry” (see Technode Article on Xiami)

From the Technode Article on Xiami:

“(The) Xiami team came up with an ideal mechanism based on peer-to-peer file sharing: any Xiami user is allowed to upload MP3 files, no matter where they are from, for other users to stream or download. But downloads are not for free.

A user has to pay 0.8 yuan for one download. By the rule, 0.4 is supposed to go to copyright holder(s), 0.2 to the user who uploads it, and 0.2 to Xiami. Users are encouraged to promote songs with rebates; for instance, a user earns 0.1 when anyone downloads a song from a list he/she built. Transactions are conducted with Xiami’s virtual currency.”

Problem #1 ~ Complexity

There were just too many loose ends in Xiami’s system and too many untested assumptions. In a model that was intended to split revenue from downloads, only 0.5% of registered users actually downloaded songs.[5]

Problem #2 ~ Trying to please everyone

Xiami set out to revolutionize the Chinese music industry, also to help independent artists and also to offer payments for sharing for consumers. In the end the interests of these different sectors were divergent. For a new platform to get a strong enough foothold to eventually dominate, it should not have 3rd party dependencies that can interfere, or pull the plug.

“Xiami expected this model would make everyone happy: copyright holders would get a dividend from every download of their music property and users are motivated to help distribute music and, hopefully, stop seeding other free music sites.”

Problem #3 ~ Ignoring the Copyright monster

Allowing users to upload whatever music they liked was never going to end well. It was one of the things that we always knew at Bittunes, that only rights holders should be able to upload songs, (the power of the concept of Artist as primary publisher is terribly important to understand). However, the Bittunes approach requires a lot of patience, because the new service must attract quality Artists to attract loyal users, and this takes time. Xiami, like many other startups was drawn to whatever could give them instant results. Bittunes alternatively, decided to bootstrap a global community, and this has taken several years.

The Bittunes Android App was a very useful Sandbox

It has allowed us to put various innovative elements into play, develop and fine tune them and gradually build an engaged community. We now have users in more than 90 countries and have had the benefit of interacting with independent Artists from all over the world, discussing their issues and finding out what their problems and concerns are. This represented the ‘Investigation’ phase (see below). Then we seriously began to work out how to apply these learnings in a massively scaled up new version of Bittunes.

Now we are moving into what we see as the ‘Integration’ phase. Integration of a range of exciting new features, and also integration of the core Bittunes services into the fabric of the web. If you are interested to work with us, or would like to know about investment opportunities in the Company feel free to contact us at: admin (at) bittunes dot com

See also: What is the ideal Music Stack?

[1] The Record Industry Association of America https://www.riaa.com/
[2] http://www.hypebot.com/hypebot/2016/10/spotify-paid-out-over-a-billion-to-labels-this-year.html
[4] https://musicindustryblog.wordpress.com/2014/09/29/digital-ascendency-the-future-music-forum-keynote/ [5]http://technode.com/2013/01/13/xiami-story-an-ideal-online-music-model/

A complete reset for music distribution

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