Blockchain in the Music Industry

In the increasingly streaming-dominant industry of music, PROs like ASCAP are struggling to pay their artists adequately. Disruptors in blockchain technology hope to overhaul the entire landscape of music royalties, promising a bright future for artists and listeners alike.

The state of the music industry is constantly in flux, and has been ever since a traditional “music industry” was established. Music has been the benefactor of technological advancements throughout history, changing like a chameleon to fit these new conditions. The gradual transition from analog to digital has brought a tidal wave of industry changes, both in terms of production and consumption. It’s now easier than ever for aspiring musicians to create music on their laptops and release it to the public. Artists who effectively utilize social media have the capability to make impressions on millions of people, letting their music grow globally instead of locally. In terms of consumption, streaming has made it easier than ever to listen to what you want, when you want it. Streaming’s ease of access and competitive price point has made it a very popular technology, and has accounted for 47% of the industry’s revenue this year according to Medium. However, streaming coupled with outdated industry practices has created a dissonance in the realm of artist royalties. Many artists are expressing their disdain for streaming, particularly due to the paltry sum they receive from streaming royalties. With artists like Taylor Swift and Adele withholding their music from streaming services, its clear the practices of artist royalties are due for a facelift.

Artist royalties have traditionally been handled by performing rights organizations, such as ASCAP and BMI. Proliferating internationally around 1915, performing rights organizations sought to adequately compensate artists for their work. It’s safe to say the music landscape 100 years ago was a fair bit different from what it is now. Back then, public performances of music were much easier to track; PROs would send out scouts into the world and collect royalties as pieces were performed (a practice that still exists today among most PROs). Even a century ago, there was a level of uncertainty and inaccuracy in royalty collection. Artists were forced to accept a ballpark figure for their music, often amounting to very little. While streaming and data analytics have made it easier to track royalties, “freemium” streaming models and piracy have decreased artist income on royalties. Also, it can take years for artists to receive their royalties from their PROs; this coupled with excessive membership fees have made PROs increasingly illogical for independent artists.

If we were to analyze the music industry with the Kondratieff wave, we’d find PROs inhabit the stage of winter. Struggling to adapt to modern technology, the outdated practices of the traditional performing rights organization are weighing it down. There are only three music PROs in the USA, making it hard for artists to diversify and break from the mold. The advent of streaming symbolically pushed the royalty industry from fall to winter. However, the state of the royalties in general is in the phase of spring. While artists are trying to cope with difficult PROs, the environment is beginning to thaw due to some promising disruptors. The metadata and analytics in this modern age have opened up expansive opportunities for startups, and could signal a global shift in music industry practices.

There are a bounty of legal roadblocks in regards to music publishing and royalties. Since there are only three industry-mandated PROs for artists to choose from, there is plenty of red tape protecting them from dissolution. Perhaps the biggest legal struggle in the royalty space has been the recent Department of Justice ruling on “consent decrees.” ASCAP and BMI had lobbied the DOJ to change some of the outdated rules on royalties, which in a post on ASCAP’s website describe as “not being updated since the invention of the iPod.” This was clearly a proactive move on behalf of PROs to adapt to the modern industry climate, and was reviewed by the DOJ for two years. After deliberation, the DOJ decided not to change these conditions and to keep the status quo. The DOJ also instituted a new practice of “100% licensing,” which is a very real threat to artists. This would mean that only one copyright holder of a song (i.e. producer, songwriter) would need to consent to their song being licensed. Traditionally, all copyright holders of a song needed to approve the licensing of a work. While this could theoretically open up more opportunities for licensing, the ruling infringes on basic creative freedoms of the artist. PROs are visibly frustrated with the decision; in a Billboard article, BMI and ASCAP are already seeking to appeal the decision. With this ruling, it seems legal barriers to licensing aren’t letting up any time soon. This creates a dire need for alternatives in royalty distribution, and developments in blockchain technology are validating these alternatives faster than ever.

When analyzing the industry with Larry Kramer’s C-scape, we can begin to predict trends for its future. Consumers are the driving force of the music industry, and are increasingly moving to streaming from music downloads.

The Atlas

This graph from The Atlas projects music streaming to overtake downloads by 2018, which is looking to be a very real possibility. In content, we’re seeing more of it than ever. The benefit of streaming is its unparalleled ability to reach as many people as possible, and the digital era in general has spread IP further than ever before. In terms of content, it’s hard to overstate the value of streaming services as well. Services like Spotify, Soundcloud, and Pandora all carefully curate playlists for their listeners, even on an individual basis. Spotify’s “Discover Weekly” playlist analyzes a listener’s habits via an algorithm and recommends songs, proving to be massively successful. It’s clear the cookie-cutter mentality no longer works in the music space, chiefly due to the multiple convergences we’ve seen take place. Digital consumption, social media, and eased means of production have all converged and manifested themselves in today’s music industry. The most promising trend, however, is undeniably blockchain technology. In a desire for a practical, decentralized method of royalty distribution, blockchain promises significant advantages for artists internationally.

Blockchain is mostly simply described as the underlying technology of bitcoin and “cryptocurrencies” in general. It works by creating a public ledger of any online transaction using bitcoin, which cannot be modified after the transaction. Blockchain technology is almost impenetrably secure, and eliminates the many middlemen of traditional banking. Its ability to host millions of discrete, secure transactions has made it the preeminent solution to traditional banking, and is being adopted more than ever. In an article from Coin Desk, there are now more than 12.8 million people with bitcoin wallets, more than a 50% increase from the previous year. Accordingly, blockchain is gradually popularizing as well, handling over 2000 online transactions per second. While this technology is already efficient, efforts are already being made to improve it. Many bitcoin lobbyists are pushing to increase the blockchain cache from 1 MB to 2 MB, theoretically doubling the amount of transactions the blockchain could process. Disruptors are pushing the capabilities of this technology, and are looking for more holistic ways to implement it across all technology.

Now, imagine blockchain technology attached to a piece of musical data, such as an MP3 file. This ledger could keep track of the sales, uses, and distributions of any singular song, essentially making every song accountable for itself. This is the first chance at music having a traceable history, which would undeniably increase accuracy and efficiency in royalty collection. While this technology may seem far off, there are promising disruptors already working to bring this solution to life. PeerTracks, an up and coming startup in the music space, is working to develop a peer-to-peer network for music utilizing the Muse blockchain. This would allow artists to sell “coins” to fans, giving them a personal license to a piece of music. This would eliminate the fear of 100% licensing and cut out the middlemen of the music industry. iTunes takes a 30% share of every song sold, but blockchain circumvents this issue entirely. The artist’s coin increases in value as the song gains more transactions, which incentivize fans to share as well. PeerTracks eloquently describes how each user is “now a potential talent scout” for an artist, financially benefitting from the popularity of an artist. This exciting financial incentive provides good reason for consumers to hop on adoption, and truly distills the relationship of artist and consumer to its core.

Screenshot of UjoMusic website

Artists are adopting the advent of blockchain technology in music, as well. In October of 2015, popular indie artist Imogen Heap partnered with music blockchain startup UjoMusic to release her song “Tiny Humans.” This experiment was an excellent case study for the startup, and received unanimous buzz when it launched. In a Forbes article, UjoMusic explains how users would pay Ether (an altcoin under the Ethereum blockchain) to receive the MP3. The song came with a “smart contract,” providing a secure ledger of the transaction and granting a license to the user. All of the song’s writers had Ether wallets, and would automatically receive their portion of the royalties whenever a transaction was made. This essentially cuts the royalty supply chain in half, bypassing all PROs and publishers. Where artists could traditionally wait two years to receive any royalties from a PRO, blockchain distributes artists’ payments instantly and accurately. Theoretically, this smart contract could track whenever and wherever the song is played, allowing for a close-to-perfect accuracy for specific royalty distributions. Blockchain doesn’t want to adapt to the traditional licensing system, but instead seeks to overhaul it entirely. A change like this could be potentially disastrous for the powers-that-be, and would dramatically expedite the fair compensation of artists internationally.

The DEGEST acronym is very useful for approximating the adoption of blockchain into the music industry, showing us all the factors impacting its development. Demographically, millennials are gaining the lion’s share of music consumption. These naturally tech-savvy and explorative listeners are eager to adopt new technologies, especially when it comes to music. Music is a shareable and impressionable art form, which benefits from the eager, over-sharing millennial generation. Economically, traditional banking practices have grown stagnant and cryptocurrencies are on the rise. With a product as humanly universal as music, it makes sense why people are pushing for a universal, decentralized economy of distributing it. The biggest obstacle for blockchain is the government, which clearly prefers the traditional climate of music royalties. It will be a while for these disruptors to navigate the legalese of music licensing, and could also potentially face opposition from the three major labels as well. Environmentally, there’s a growing disconnect in the music industry; the implementation of old rules in new conditions is proving to be flawed. Society is obviously becoming increasingly digital, warranting changes in old media legislature. The most exciting aspect, of course, is the technological trends we’re already seeing in the world. Streaming and blockchain have coexisted for a decade, and its high time the two converged. All of these DEGEST trends together validate the adoption of blockchain in music, even if these disruptors are in for a battle.

Bitcoin is still an early adopter in the technology adoption lifecycle. Bitcorati

A world where blockchain is fully implemented into the music industry is an exciting prospect, and more realistic than one might expect. Attitudes among artists, distributors, and consumer alike all seem to favor the adoption of a smarter, more reliable system for royalties. Companies would no doubt adapt to a blockchain-based royalty system, and are showing signs of adaptation already. Take YouTube for example, which is technically the most popular music streaming service in the industry. YouTube has constantly struggled with the effective monetization of music in videos, which led to the substantial Digital Millennium Copyright Act being established. This channeled ad revenue from videos back to labels and artists, using a “blanket fee” to approximate royalties generated by ads. As we’ve seen, the blanket fee model has become outdated and especially troublesome for such a huge percentage of music streams. A company like YouTube would benefit tremendously from implementing blockchain into its royalty system. By providing each video with a smart contract, YouTube could efficiently and accurately pay out artists and labels for the specific uses of any one song. It’s likely that if YouTube instituted this change, all other streaming services would follow and the PROs would fall like dominoes.

The implementation of blockchain would tear down the barriers to entry of music licensing, and startups would flourish in this new environment. Dedicated music blockchain startups like UjoMusic and PeerTracks could develop their own currencies and consumer bases, while artists and fans alike would financially benefit from its adoption. It’s also likely that some bitcoin startups might pivot towards an entertainment/media focus, which seems to be the biggest untapped market for cryptocurrency in general. Ethically, this innovation would be creatively freeing for artists but potentially destructive to PROs and music publishers. While publishers (unbound to PROs) might be able to navigate this new trend, the three major PROs would likely crumble. PROs have been practicing business as usual for a century, and are currently struggling to grapple this eminent threat to their business. The dissolution of PROs could be devastating for the industry as a whole, resulting in thousands of jobs lost and a deep rift within the industry. It is out of this fear that an alternative reality is totally possible, in which blockchain is never fully adopted and the PROs maintain control. The legislature would remain, and artists would still receive fractions of pennies for their streams. This might cause a growing distaste from artists with streaming, and could cause an even bigger pendulum shift than predicted. Blockchain’s utilization in music is undeniably an uphill battle, but artists’ sentiments seem to be it’s a battle worth fighting.

In the ideal future where artists receive timely and fair compensation, the 4 C’s from the C-scape might look a little different. Consumers will have a much more personal relationship to their favorite artists, and vice versa. The adoption of blockchain in general promotes the concept of trust, and would galvanize the relationships music foster. Content consumption would become expedited tremendously, and content creation would soon follow. The increasingly efficient music market would warrant new creation be made, providing creators a fair and effective way to distribute their intellectual property. As such, content could be curated on an individual basis with the advent of the smart contract. This ledger could track the habits and metadata of a user more efficiently than ever before. In this new climate, technologies would converge at an increasing rate. The decentralization of money has leagues of potential for the economy, and would incentivize the adaptation of the blockchain into spaces never seen before. A possible new business model could be a hybrid of iTunes and blockchain, essentially an online music marketplace that would take no share from the sale of a song. The current global music industry is valued at around just under $43 billion in an article from Statista. This figure is largely due to the convergences the industry has already experienced, where music has been manifested into countless new technologies. With obvious friction between artists and industry conditions, blockchain could be the saving grace the music industry needs to flourish.

As an independent musician myself, I’ve experienced the advantages and inherent drawbacks of the modern music industry. My solo indie rock project, Super Defense, has been a hobby and passion for the past two years; I write and record all the instruments myself, produce it, and rightfully earn 100% of any and all royalties. My music is in a sense vertically integrated, since I alone am in charge of all stages of development and production of the music. My music can only reach so far, however, warranting the need to put my music on streaming services. Using the distributor TuneCore, I pay a monthly fee for my songs to appear on all major streaming services (Spotify, Apple Music, Pandora, the lot). Even with over 100,000 streams on Spotify, I’ve received next to nothing in terms of royalties. Any small royalties I do make go right back to the monthly TuneCore cost, creating a self-perpetuating cycle of mediocrity. As an artist with no label affiliation, my revenue streams are sparse at best. Also, I rely on analytics from Spotify and Bandcamp to connect with the listeners I have. From an artist perspective, blockchain technology would make my life so much easier. When I have to rely on what little income I make, this trend would truly ensure all my royalties are accounted for. I’d also be able to connect to my fans on a personal level, and benefit from the buzz my music makes. Overall, blockchain provides the creative and financial freedom an independent artist desperately needs to survive.

The success of blockchain in the music industry completely depends upon its adoption. While bitcoin is gaining in popularity, it still only makes up a fraction of all global banking transfers. PROs, while flawed, remain intact for the time being and uphold all of music royalty distribution. The successes of bitcoin and blockchain, however, are symbiotic. As bitcoin becomes even more streamlined and easier to use, blockchain will naturally converge with other technologies and industries, music at the forefront. Music is the only true universal language, and it could massively benefit from the freedom and efficiency of blockchain.