For the past month and a half I’ve been working at an investment bank. I never thought my first job out of college would be in the banking industry, but after a barrage of crushing rejections from a couple of dream jobs and a serendipitous encounter with a banking recruiter on a plane, I’m here. Those dream jobs were in music, so I’m actually much further away from where I thought I’d be.
I’m on the tech side of the bank working in digital strategy so the majority of my day is spent wading through a thicket of data and news about finance tech, or Fintech. Originally I assumed Fintech to be a parochial subset of the tech world, narrow, and incompatible with other industry trends. But, the reality is that innovations in Fintech are interchangeable with any industry in need of disruption ala Schumpeter- lack of transparency, and a middle-school-like resistance to change being the litmus test for group membership. Lucky for me, the banking and music industry both meet the criteria. To be specific, music and finance share two ugly blemishes: expensive and ponderous legal processes, and inefficient payment structures (money “falling through the cracks”). So, a lot of the technologies I’ve investigated for finance end up having direct applications in the music business.
One of the most exciting technologies with applications in both sectors is the blockchain. Blockchain is the name of the architecture underlying bitcoin that administers, verifies, and stores bitcoin transactions on a public ledger. The technology has been around for a couple of years, but in the past few months it’s gotten the attention of major players in both industries. Goldman Sachs and BBVA have invested $50million and $75million respectively in bitcoin startups to explore the use of blockchain in trading, and UBS is opening a blockchain research lab in London. In music, Billboard, Forbes, SXSW, Hypebot, and a report by ReThink Music out of the Berklee College of Music have all evangelized over the same question “Can the blockchain save the music industry?” I won’t go into the details of how it works (it warrants its own post) but I’ll explain what blockchain architecture can do. Put simply, it can verify the validity of a transaction and can publish data with the highest level of security that exists on the web. Its application in the music and finance industry will come from the all of the apps that are built to support functions in each industry. An article published by the BBC explains the scope of this project best; blockchain will improve “any kind of data you can think of that is transactional in nature and requires immutability-i.e. information that absolutely cannot be changed after it has been created.” And so to the blockchain we give music rights management, and financial clearinghouses as a sacrificial offering.
How would music rights, and settlement clearing be changed by the blockchain? The two most pertinent use cases are smart contracts and micropayments. A smart contract is a contract that automatically performs an action (e.g. releasing payments) once a predetermined condition is satisfied. And micropayments are the drip-drop payments artists get when you stream their music, or when it’s played from an app like Pandora. As explained before, any information can be stored on blockchain, including details that specify the legal use of a song. A smart contract built on the blockchain would be airtight and transparent, opening up information to both parties so the artist knows exactly where and how the money flows. Beyond just transparency, the contract also acts as an intermediary by processing the agreement and performing the action by itself. This decentralizes the process and eliminates the hassle of dealing with “black box” publishing entities like BMI or ASACP. An article by Billboard recently reported that “on average about 12.7 percent of royalties that go through performing rights societies are used for operating costs,” so a technology like this could drastically increase profits for both artists and record companies. In terms of micropayments, blockchain also allows you to link a musical work on the blockchain so you could track a piece of intellectual property as it’s purchased, changed, played, or even used in a class video posted on YouTube or in a cover by a bedroom DJ on SoundCloud. After the information is archived, micropayments are automatically disbursed to every individual involved.
Blockchain technology will certainly be resisted by the music and banking industry but with possible entry points from many different angles, the technology will find its way through the cracks, bringing with it the centrifugal, decentralizing power it carries.
I know that most of the people at my bank researching blockchain are not learning the technology by studying it from several different industry perspectives. But this alone has helped me find value in what I do. I’m cross-pollinating ideas and what might bloom is impossible to say; it could be freaky (like a dog-chicken) or brilliant (like Reese’s Cups).