The Future of Digital Content Distribution: Cryptocurrency-like Trading
Blockchain technology can reshape the digital media industry through the tokenization of content by allowing songs, videos, and other virtual goods to be traded as crypto-assets.
Since the advent of Bitcoin in 2009 and the launch of Ethereum in 2015, the world’s cryptocurrency frenzy peaked on December 16, 2017 when Bitcoin price reached $19,783[1]. At the time of this writing, there were 1,656 cryptocurrencies listed on coinmarketcap.com. But almost all the cryptocurrencies out there are just cryptocurrencies; they can be used to pay for goods and services or exchanged one type (e.g. BTC) for another (e.g. ETC). Why not tokenize digital content like songs, videos, and virtual goods in video games and trade them as crypto-assets just as one trades cryptocurrencies?
We believe that blockchain technology can reshape the digital media industry through tokenization of digital content.
Today’s media industry is controlled by media giants from traditional studios and record labels to Silicon Valley Internet giants. It has been widely reported that content creators earn a fraction of the multi-trillion-dollar revenue generated by the industry. For example, Spotify pays rights holders $6–8K for 1 million streams, or $0.006 — $0.0084 per stream.[2]Why such low payout? It is because there are too many middlemen each taking a piece of the pie. The record labels often take up to 70% of the streaming revenue but very little is paid to musicians[3]. Similarly, on social media platforms like YouTube, people who produce user-generated content (UGC) are also only paid a small portion of the advertising revenue.
An obvious solution to this problem is to reduce the number of middlemen. In a traditional centralized digital content distribution model, middlemen serve their purposes because a content creator often finds it hard to reach their end users. Blockchain technology makes possible the establishment of a decentralized infrastructure on which content owners and purchasers can trade digital content directly with each other without middlemen.
A key piece of enabler of this new distribution model is the ability to tokenize digital content on blockchain networks. Very similar to issuing cryptocurrencies and trading cryptocurrencies of different types on an exchange, a digital content exchange lets users trade content as if they were trading cryptocurrencies. For example, when Drake decides to issue his next hit song on the exchange, he goes through the following steps:
- Issues his new song as a new token on the blockchain;
- Declares the initial price of the token;
- Declares the total number of tokens he will issue (once the number is fixed, it can no longer be changed);
- Declares the royalties (e.g. as a percentage of the sale price, some fixed amount, or some amount based on some formula) when the token is later traded peer-to-peer.
- Lists his tokens on the exchange for sale.
Once the token is listed on the exchange, Drake can start selling the digital content up to the total number of the tokens he has issued. The price of the tokens will be determined in real time based on supply and demand, just like the trading of cryptocurrencies. Because the total supply of the song is limited, the value of the content can appreciate as the demand increases. Drake can even hold a number of tokens while waiting for the value to appreciate, thus making more money down the road.
It is understandable that some artists may not want to limit the number of copies as they want “giant hits.” They can easily set a very large number as the total token supply. For example, 1 billion tokens, which is essential unlimited supply. Nonetheless, we believe that limiting the supply of the content to the right number benefits content creators as the token price will likely go up if a song turns out to be a real hit. Part of the reason Bitcoin is now the most valuable cryptocurrency is that it has a limited supply which is capped at 21 million. For a normal artist, determining the right number of tokens to issue will be difficult. This is where the exchange can help by asking its community members to preview the content and vote for the content to determine its value. Then the exchange can use AI technology with the data it possesses to recommend the supply limit and the initial price. This is similar to Airbnb’s ability to recommend its host to set the rental price of an apartment on any particular day.
Third party content owners (those who purchased the content) can also trade the tokens they own between one another. Every time a token is traded, a portion of the sale price is deducted and paid to Drake as royalty. This provides an incentive for the content creator to allow the trading of his content amongst third parties. Today, content creators often disallow third-party trading of their content via the use of digital rights management (DRM). For example, if one purchases a Kindle e-book from Amazon, he is not allowed to sell the e-book to someone else. The other person must purchase a copy of the e-book directly from Amazon because Amazon can sell unlimited copies of the same e-book and there is no incentive for it to allow peer-to-peer trading. In the world of tokenization of digital content, the total supply of the song is limited by the content creator.
Moreover, each token is serialized so the public address of the person who purchased a tokenized copy of the content is transparent on the blockchain. The sequencing of the tokens will enable a slew of new use cases such as fan base management. Although a purchaser can choose to remain anonymous if he chooses to, Drake can reach out to purchasers who have opted to be contacted. For example, Drake can track the first 100 purchasers of his new hit song and those 100 people are more valuable than the rest. He can then reward those first 100 purchasers by inviting them to a special event.
Digital content is encrypted and requires a key to decrypt. Ownership of the tokens are recorded on the blockchain. By using the mechanism of cryptocurrency, we ensure that only the true owner of the content can view the content.
In short, tokenization of content will change the paradigm of digital content distribution from a one-to-many scheme to a many-to-many scheme. The tokens (encrypted copies of digital content) can be traded as cryptocurrencies and the value of tokens can fluctuate based on supply and demand, which incentivizes content creators to generate high quality content while limiting its total supply. Middlemen are significantly reduced, as the exchange enables users to trade digital content directly with one other, thanks to decentralization provided by blockchain technology. More use cases favorable to content creators and consumers, such as fan base management, can be introduced.
REOS is the world’s first cryptographic exchange for digital content, striving to maximize earnings for content creators while incentivizing them to generate more high-quality content for consumers. The exchange connects content consumers with content creators through AI-powered content voting mechanism, and our patent-pending technology to tokenize digital content empowers content creators to bypass middlemen and sell content directly to consumers while also receiving royalties when content is traded peer-to-peer.
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