What Jay-Z and Tidal got wrong, or how the blockchain will change music forever, again.

Genesis

At the dawn of the internet a novel idea sprang from an american college campus that transformed the Internet into an unlimited library of free music. Perhaps the most revolutionary technological concept to emerge in the super-heated days of the internet investment bubble, the peer-to-peer .mp3 file transfer system developed by barely reformed computer hacker Shawn Fanning fueled a company that at its peak claimed 70 million users and ranked as the fastest-growing company in history.

It did not take long for the music industry to declare war, one that has now engulfed the biggest entertainment and technology companies on the planet. And from the ashes, a new war has dawned; one that grew from the schism of Itunes, the record labels, and the artists who still feel like they are not being duly compensated.

What napster did to the music industry I truly believe the Blockchain will do for civil, legal and financial services, as well as a variety of different non-financial uses; namely music.

Fresh out the frying pan into the fire
I be the, music biz number one supplier
— Jay-Z

Leadership Capital

In conception, Tidal, must have seemed like a great idea, however without a “great team of rivals” or being constantly surrounded by flattering yes men, it’s hard to get clarity or a 360 degree understanding of decisions, which invariably leads to leadership bias, hubris and marketing myopia.

With so much leadership capital; a currency, that allows one to influence the behaviors and perceptions of other people, it’s unfortunate to see it spent so un-thoughtfully: A stage packed with the world’s most famous, and rich, musicians joining together to sing the praises of the first artist-owned digital music platform, designed to single handedly rescue the music industry — by providing the artists a bigger slice of the pie at the expense of the consumer.

The seemingly trite business concept like: “know your customer”, is a basic foundation of any planning or strategy that even the most nubile entrepreneur understands; but in this case, it just goes to show that the most elementary concepts can prove to be an essential truth that invariably can lead to failure if unheaded

Jay-Z certainly wasn’t thinking about his millions of fans and their willingness to pay for the music of their favourite artists.This coming from the guy who says I “check cheddar like a food inspector”. He definitely wasn’t thinking about the technology that he bought for 56 million dollars and if it really provides consumer and artists with the proper platform to create a disruptive innovation that dis-intermediates the layers of middlemen in the industry that actually squeeze artists out of their royalties.

Tidal and the internal decision making is a case example of what it means to design a strategy from the bottom up AND the top down that really starts with an effective business, investment and value proposition that incorporates the competitive landscape, the environmental sentiments, and the core capabilities of his team. Moreover, this is a classic self delusion of a technical leader who is inconsiderate of the comprehensive tenets and skills sets of a wide and broadly distributed team that aids in advising a leader on decisions and strategy.

New Kid on the Block

A blockchain is a magic computer that anyone can upload programs to and leave the programs to self-execute, where the current and all previous states of every program are always publicly visible, and which carries a very strong cryptoeconomically secured guarantee that programs running on the chain will continue to execute in exactly the way that the blockchain protocol specifies. — Vitalik Buterin

The statement above, is a broad and approachable definition of a blockchain that omits any financially laden language, because in fact, the technology has wide and varied uses, many of which have not even been conceived yet. I would endeavour to detail that one of the best uses of the blockchain in the future will be its application to intellectual property and physical goods.

One of the most innovative uses of the blockchain is the idea of “proof of asset” or “user issued assets” which helps to facilitate profitable business models for certain types of services, in this case; music, copyrights and licensing. The term refers to a type of custom token registered on the platform, which users can hold and trade within certain restrictions. The creator of such an asset publically names, describes, and distributes its tokens, and can specify customized requirements, such as an approved whitelist of accounts permitted to hold the tokens, or the associated trading and transfer fees.

The current economic model for buying music gives the listener two choices: one free, and one paying. People getting their music for free are the majority. People that pay for music do so for a variety of reasons but none of them involve self-interest. Our new model favours everyone’s self-interests. Unlike the current one where artists hesitate before putting their music online for fear of file sharing / pirating, a properly designed blockchain application for music now makes it profitable for the artist to upload and share everything he has.

Imagine if you will, an independent artists, with some acclaim, who has an audience and wants to bypass all the intermediaries that slice out her earnings on a song or album. By harnessing the power of the blockchain, a programmable contract and a cryptocurrency/token; she now has the power to be her own, record label, licensor, and distributor. She can create, say, 10,000 units of her currency/tokens and can sell, or give away, the newly created tokens to her fans to fund her career. The artist sets the price of her token and sells it just as she would sell a baseball card. These newly created tokens, are now distributed throughout the artist’s fanbase. The income generated by her fans buying up the token will go straight to her account, directly funding her music and career.

Every single token is linked to her “Asset” (song and copyright) is recorded, and kept track of in the blockchain. Through the programmable contract with her fans and collaborators, they can be paid directly every time a song is bought, or traded, and she knows exactly who has her songs and who it was traded to. Invariably she will also have a built in CRM solution and community building ability to expand her audience.

With the ability to issue tokens, artists can interact with their fans who can help promote the artist and trade the tokens. “Asset” holding fans will likely promote and support the artist helping small bands and singers gain exposure. As there is liquidity for the tokens, they can be exchanged for fiat currency at any time, so there is an incentive to help the artists distribute the music/asset.

Invariably this same model can be applied to video providing an alternative to the advertising saturated user generated content websites that currently house the worlld’s most entertaining videos.

(A similar concept can be applied to other “assets” such as luxury goods and Art, although in a different incarnation, which I will get into in another blog, where I will describe how the blockchain can be used to enhance supply chain transparency and reduce counterfeiting for luxury brands.)

I love Jay-z and I hope that he bounces back from this, as most great entrepreneurs do, but I would encourage anyone in the music business to explore the blockchain, because in the same way that Napster and P2P file sharing broke the music business; I believe the transformation opportunities that the blockchain has can bring it back in an entirely new and democratic way that serves the artists and the fans simultaneously.