How Blockchain Will Revolutionize Music Industry Relationships and Practices

February 25, 2019 5 min read

Blockchain is revolutionizing the way companies handle digital data, contracts, money, and transactions. For the music business, streamlining these areas could completely transform the relationship between artists, labels, managers, publishing companies, and streaming services — a relationship which has been somewhat rocky over the last few years.

From Spotify being sued in 2015 for $150 million by a group of artists who claimed that the service had reproduced and distributed their music without permission to Tidal over inflating streaming numbers in 2018, the lack of transparency across the board seems to be a major issue that is holding the industry back. The good news is, emerging technologies are providing new innovative solutions to clear the murky waters of the business. And many labels, both public and privately owned, are listening and adopting.

For instance, a recent report by Deloitte Private found that 45 per cent of private companies are evaluating blockchain and expect to implement it at some level in the coming year. If this is any indication of how music companies are preparing for the future, the music industry could see a much more transparent business that opens up new advance models, more transparent royalty payout systems, and new artist monetization opportunities built around blockchain technology.

Transparent Royalty Payouts

Currently, the global music industry has an estimated $2.5 billion worth of uncollected royalties. Dubbed the “royalty black box”, there have been more than 46 million instances of unidentified songwriters or unknown copyright owner notice of intents (NOIs) filed with the US Copyright Office by streaming services since April 2016. Why is this? Well, there may be many variables, but it usually starts with the accuracy of metadata. For those who don’t know, record companies, publishers, and streaming service providers have their own separate databases to keep track of who owns the rights to the music and who is owed what money. But none of these databases is connected or is advanced enough to talk to each other. The lack of interoperability combined with the complexity of the way music is being both created and consumed globally, has created an issue where hundreds of millions of dollars are not sent to their rightful owners. A solution to this issue is to create a blockchain-centric distribution model that allows metadata to interact with different systems. Closing the gap between metadata errors and artist payout periods will be collectively important for the music business to move forward.

Reshape the Way Artists and Labels Think About Advances

An “advance” is almost always defined as a pre-payment of royalties, whether the advance is paid by a record company to an artist, a publisher to a writer or a merchandiser to an artist. In almost every situation, advances have always come with two negative aspects. First, artists are always on the hook to recoup the advance from dollar one, and second, the financier (typically a label) always takes on a majority of the overhead risk. In today’s business, both labels and artists need to put aside their former understanding of advances and think about them through the lens of blockchain technology. If deployed correctly, blockchain could distribute the risk of advances among numerous stakeholders, resulting in a more favorable sharing of royalties and less up front risk from the financier. Innovations like this could fundamentally shift the way artists think about, and even go about funding their projects and entertainment endeavors.

New Artist Monetization Models

How many streams does it take on average for artists to make the monthly US minimum wage of $1,260? Well, according to a report from Information Is Beautiful, it would take on average about 1,117,021 streams a month if you are a signed artist (assuming the label takes a cut 30 per cent cut) and about 180,000 streams if you are an independent artist. Now, add in monthly recurring expenses an artist sees per month such as the cost of making music, touring, and marketing. An artist would likely have to gross more streams than what was mentioned above to feel “comfortable”. Instead of focusing solely on traditional revenue models, artists and their teams need to consider incorporating blockchain technology to develop new revenue pipeline models.

One area where there is massive opportunity lies in the use of cryptocurrencies. By creating a cryptocurrency that ties to a specific song or album, artists could create a virtual “stock market” where fans could buy into pieces of the song’s rights, while receiving money accrued from the streams. This compound revenue model would be handled by the security of smart contracts built within blockchain technology. Solutions like this are creating new opportunities for artists to monetize their creativity.

Overall, the music business must scale blockchain technologies if the industry wants to create a more transparent playing field for the creatives of the business.

Originally published at www.entrepreneur.com on February 25, 2019.