Can Blockchain Save the Music Industry?

The music industry has certainly not taken the digital revolution in its stride. Over ninety-nine percent of artists (composers and performers) are currently unable to make a living from their work. Despite value being created faster than ever, no-one seems to be able to work out how to capture it. This is due to shifts in the value-chain, alongside consumer behaviour moving considerably faster than the industry’s ability to change and innovate.

I’m writing this article from a very personal perspective. TRILLS (www.trillsband.com), my musical sisterhood, has given me a very real view into the ridiculousness of being an artist right now.

The collective challenge is to design a strategy moving forward which avoids artists settling for traditional business models which capture almost none of the value they create in the digital age.

What is blockchain?

I will leave the blockchain intro to Harvard Business Review — their explanation is the most eloquent I have come across: “At its most basic, blockchain is a vast, global distributed ledger or database running on millions of devices and open to anyone, where not just information but anything of value — money, titles, deeds, music, art, scientific discoveries, intellectual property, and even votes — can be moved and stored securely and privately.”

There are a number of positive applications for blockchain technology within the music industry. These applications are surrounding two main areas that are very much linked to each other: the first of these is royalty distribution and the possibilities linked to making this process transparent, faster and more efficient. The second is surrounding extensive issues the industry is having with the accuracy of metadata.

What are royalties and why do they matter?

Royalties, for artists in the music industry, are fees paid when other people play or perform their music.

Every single time radio one plugs an Ed Sheeran song, Ed Sheeran is owed a little bit of money because he owns it. Every single time. Even if they play the same song a hundred times in one day.

Ed Sheeran has lots of people working for him so he doesn’t have to worry about collecting his royalties or making sure they are distributed to him fairly. If he did have to do it himself he’d be in a whole world of pain.

It’s horribly complicated and very easy to miss out on the royalties you are owed as an artist. It’s also very easy for companies who owe royalties to ‘forget’ to report them.

Say you’re a 4-lady girl band and Sky Atlantic uses two of your tracks on Game of Thrones trailers. You might think that would be pretty exciting. But it turns out Sky Atlantic have some sort of immunity where they don’t pay to acquire music. This could be ok if you get featured enough times that the royalties add up, however, it also turns out they don’t always ‘remember’ to report how many times they’ve featured a track.

The big problem.

The current system for royalty collection and distribution is pretty much broken. In 2013 there was an attempt by the ‘European Composer and Songwriter Alliance’ to bring together key players in the music industry to build a Global Repertoire Database. This aimed to fix the system with a global database, but a year into the project it was dropped. It wasn’t made clear to the hopeful onlookers exactly why the project fell apart, however it was apparent that it wasn’t in the interest of many of the stakeholders for the project to succeed, along with a whole host of conflicting interests.

Not too long ago, Spotify was hit with a $150 million class action for allegedly allowing users access to music that had not been properly licensed. This case is interesting because the reality of the situation is that the lawsuit is no use. The underlying issue is that the data necessary to confirm the appropriate rights-holders is just not there most of the time. Spotify puts aside millions of pounds in revenue every year to deal with claims related to music that hasn’t got appropriate licensing attached.

So what are the opportunities?

1. Transparency

One of the greatest barriers to artists owning the rights to their work and operating with independent business models is the complex and mysterious nature of rights and royalty distribution. Spotify stands as a great example — artists have consistently stated that they have no understanding of what exactly they will be given back by Spotify or what Spotify’s margins are on their work. PRS and PPL, the two major royalty collection organisations make it notoriously difficult for artists to understand what exactly their rights are and what royalties they are entitled to. I have experienced this first hand as TRILLS — we’ve signed contracts based on misinformation and spent hours wading through PRS and PPL information swamps.

We are far from being the only artists undervaluing their work due to misinformation and most of the time this isn’t incumbent firms in the industry attempting to misinform artists — it is simply that the system is so complex and flawed that there are very few people capable of understanding it.

With new systems that allow artists to understand their rights clearly, will come a wave of independence among artists. This will not only empower artists to make better informed decisions, it will also put major labels and publishing firms in a position where they will really have to re-consider what value they’re adding.

2. Smart Contracts

Payments that take seconds, not months (or years):

Extremely slow payment processing is another great barrier for artists. The issues related to how data is organised, stored and shared, teamed with the complex industry structure that requires many middle-men involved in each transaction, often means that artists do not receive payment for up to a year after the transaction date. This causes huge cashflow issues and often pushes artists to sign their assets away to labels for the wrong reasons. Instant payments made possible by blockchain-enabled smart contracts will relieve cashflow issues and allow artists to design management/ recording/publishing contracts based on how they will help them to progress in their career and reach their target audiences, not based on their desperation for steady cashflow. (CREATe, 2016)

Licensing without the expensive middleman:

A smart contract could theoretically manage an entire transaction of a music license, the complete set of all complex information necessary to make sure the transaction is legal and fair, and also, as mentioned above, rapid distribution of revenues to all relevant interested parties. A ‘Minimum Viable Dataset’ is already in development (or that’s what someone’s saying anyway).

The implications of this are that many of the costs of processing these transactions will disappear. These costs are currently most specifically related to time, human resources and expertise. Artists will be able to process the transactions themselves, re-setting the balance between them and their publishers (the sales teams who pitch their music in the right places/networks and traditionally also deal with the complex licensing process). This will also open up a new side to the market as new uses for music licensing will appear that were previously transactions too small to be worth the trouble or costs. Brands and marketers will have easier and cheaper access to music than ever before.

There are a load of challenges too, of course

Gang Culture

From an artist’s perspective, the major worries and challenges are related to how the industry big-dogs will chose to respond to these new technologies and how they will manage the change. There are two possibilities for blockchain networks that currently exist: ‘permissioned’ networks are shared with a select group under agreement. Permission-less networks are what is attracting artists and industry ‘visionaries’. These networks operate in a way that allows transactions to be transparent whilst also protecting specific information related to identities and some contents of transactions. This is the future that most artists are excited by, however incumbent are likely to be more attracted to private blockchain consortiums, given that transparent, permission-less networks could affect competition.

Shifting Data

Difficulties transferring and moving existing databases will certainly be a hurdle for existing artists with extensive bodies of work. The affect of this could be to slow down adoption of blockchain quite considerably.

Fake IDs

The way that blockchain validates information related to transactions is essentially to crowd-source validation. A number of stakeholders are concerned that current blockchain technology leaves room for people to falsely register as rights-holders of a certain piece of music by rallying support to validate their identity.

Too Many Cooks

Although fairly unlikely, If artists start to create individual blockchains, it would undermine the expected benefits. It would certainly be confusing and unclear for consumers.

Conclusion

The current business model still used by the majority of artists within the popular music industry is unsustainable and flawed in the digital age. There is no doubt the industry will shift drastically over the coming years, and there is very good chance blockchain technology will play a large part in this. If the technology is used to build products that offer the industry a way to start organising and unifying databases and offer smart contracts for licensing, we will see new and exciting business models for artists that are more flexible and dynamic — instead of rigid and restrictive contracts with record labels we will see artists building teams around them (PR, Digital Marketing, Radio, Distribution) according to what they really need, when they really need it.