It seems that every day there is a new article or new platform claiming the blockchain will revolutionize the music industry. There are at least 20 companies developing ways to write write music metadata into the blockchain. The Open Music Initiative has brought together over 120 companies trying to find new solutions to the current problems that plague the music value chain. DDEX has also been leading the way in interoperability standards since 2006.
Unfortunately, many of the problems aren’t technical; they are business related. They will require artists to take the initiative if they expect change, regardless of the technology used.
Blockchain is an exciting topic. When Bitcoin started gaining traction as a viable alternative to fiat currencies, everyone started looking at the blockchain as a potential framework for disrupting other industries. Over US $1 billion has been invested into blockchain related companies as of the first quarter of 2016. It’s a gold rush not seen since the first Internet boom. With this much investment being made, it’s very tempting to find a way to apply blockchain as a solution to a problem. When you have a hammer, everything looks like a nail.
One of the first problems everyone would like to solve is the music industry’s metadata problem. The lack of a central global registry of rights has wreaked havoc on the value chain. Various organizations have made noble efforts to clean up their databases, yet that data remains behind walled gardens. Previous efforts to create one registry accessible by all have failed miserably. Many think blockchain will provide a framework that will succeed where others have failed.
Private databases are not inherently bad, and the blockchain is not always better
It is said that the blockchain is an ideal solution because it’s decentralized, transparent, and inherently works for untrusted parties. Unfortunately, these can also be weaknesses, depending on who you ask.
- Trust: Private centralized databases can provide accountability. Blockchain is inherently trustless and depends on reputation and consensus to provide trust. A private company can provide trust through indemnification, assurance, and accountability.
- Cost: Providing group consensus of transactions can be expensive. Private databases can process transactions much cheaper.
- Speed: Private databases can process transactions faster because they do not require consensus.
- Transparency: Private databases are not inherently more or less transparent. Private databases can provide any level of transparency. Transparency is provided based on the demands of the voluntary participants.
- Speed of innovation: Open source frameworks are developed by consensus. While this provides stability and transparency into the code, it is very slow to develop. As the user base grows, it becomes even more difficult to implement change because of the many competing interests. For example, the Bitcoin blockchain has been unable to fix the issue of block size limits for almost 2 years. A private database can provide more effective solutions much more quickly. There are many companies today offering the same capabilities the blockchain promises in private networks.
This is not to say blockchains don’t have some value. They do. But in some cases a better solution with fewer tradeoffs can be implemented in private databases. The ideal is probably in the middle: using existing private databases as pegged sidechains to a blockchain, where two parties can agree to expose some data to mutual benefit and to reduce transaction costs. Figuring out what that data is will be the key determinant of success of many current efforts. However, we should not assume that there is a single solution to the problem. There are many ways to approach the problem technically once you have agreement from everyone to participate.
It’s a business problem, not technical problem
Creating a database is not that difficult. We have many private databases that are extremely powerful and easy to deploy. Performance rights organizations (PROs) like ASCAP and BMI, and companies such as Kobalt and SoundExchange, already manage much of this data. Labels and publishers all have databases of rights ownership. However, all of these organizations lack public APIs to access the data. There are plenty of companies ready and willing to organize this data if there were access to it. So the question remains: why does this data still reside behind walled gardens?
The first reason that comes to mind is control. Maintaining control over the data is these companies’ raison d’etre. If you were to decentralize the data that these companies control, then we would eliminate some of the value they provide. It is, by definition and design, the disruption that the blockchain solutions promise. Asking them to participate in a system that disrupts their own businesses is like asking a central bank to participate in Bitcoin. They wouldn’t unless they knew for sure the potential benefits exceeded the potential losses.
Bitcoin was able to get initial traction because it originally promised anonymity and the ability to skirt the the traditional banking system in order to conduct illegal transactions such as money laundering, tax evasion, and the trade of illegal goods. Once the anonymity of Bitcoin was greatly reduced by regulation, its value diminished greatly. Luckily it managed to get a critical mass of users and get stability.
If you were to try to launch the Bitcoin blockchain today with the participation of the banks, it would never happen. It still provides value for certain types of transactions and uses, but its value to consumers for anonymous transactions has been diminished sharply. It also provided an alternative to private and central banks. However, most people still prefer to exchange financial data through their banks (private networks) than with Bitcoin. Banks provide certain capabilities that Bitcoin cannot, and now they are starting to look at ways to use blockchains to their advantage.
The lesson here is that Bitcoin gained traction because it presented a huge value to end users, so they had incentives to participate despite the lack of participation of the existing value chain. The incumbent companies only saw its potential value instead of a threat later on.
What’s in it for me?
So, what incentives would get people to participate in a disruptive technology? It depends on whom you ask. For labels and publishers, the larger they are, the more they benefit from the current chaos. There has to be a pretty compelling, proven, and quantifiable case that exceeds the current benefits and the costs involved in participating in a new system. A few use cases are compelling:
- Verifiable rights tokens: This is similar to DRM. However, it is not intended to restrict access, but instead to ensure that licensees (i.e., other businesses) are properly tracking and paying according to their licensing agreements. This scheme would also serve as a whitelist of content for service providers looking to avoid content takedown requests. I estimate this could generate $1-2 billion in previously unattributed revenue.
- Smart licensing contracts: Smart contracts would enable rightsholders to monetize their existing catalogs far more than than they currently do through manual content licensing. Based on my analysis, I estimate that $5-7 billion dollars in additional revenue can generated through license automation and pricing optimization. This includes user generated content, games, apps, mashups, DJ mixes, sync rights, and other social platforms.
- Rights registries: A system that allowed rights holders to directly claim their rights and keep data updated and accurate would allow PROs, labels, and service providers the ability to pay more accurately and effectively, thus allowing them to focus on their core functions of collecting from licensees, marketing, and monetization.
Unfortunately, as compelling as these use cases are, they are not enough until you can prove and quantify them. So, how do you prove the use cases? Much like individuals did with Bitcoin, artists will have to lead the way.
Looking to service providers
Service providers such as Apple, Pandora, Spotify, and YouTube could potentially move things forward. After multiple class action lawsuits for failure to pay royalties, Spotify has committed to doing more to solve some of these problems. YouTube has made some progress with content ID but its platform remains fraught with unlicensed content.
However, like other established players, service providers’ interests are not completely aligned with artists. Despite the lawsuits, they have minimal incentives to invest resources into something that would bring them little benefit. YouTube draws a massive audience, not because of its licensed content but because of its unlicensed content. Policing it more aggressively or ensuring that it pays the proper rightsholders first would reduce its content and its user base. YouTube will do enough to placate the major rightsholders only where it’s more cost effective than litigation.
Cutting out the middlemen
For independent artists, the case is even more compelling. They control all their rights at the moment of creation. Rights are the only things that allow them to fight back. Artists willing and able to keep control of their rights would have a lot more leverage when dealing with labels and publishers. Just as the Internet took away the labels’ leverage by reducing distribution costs, rights management platforms — whether private or decentralized — have the ability to reduce licensing costs, increase exposure, and increase licensing revenue. They would also provide greater transparency and reduce ‘breakage’. Inevitably, labels and publishers will see the new value created by artists who are moving the industry forward.
Blockchain still holds promise as a potentially disrupting technology. Yet we must be wary of talking about it like it’s a magic bullet. Disruption does not depend on the technology alone. It requires a critical mass of users to do things differently than the way it’s always been done. There are many companies and technologies out there trying to do things differently. Artists and creators are the ones with the most to gain, and they need to support these efforts by trying new tools with the potential to disrupt.
Daniel Anders is the founder and CEO of ClearTracks, a rights management and rights clearing market platform for labels, publishers, and independent artists. They use smart contracts to optimize licensing transactions. More information can be found at https://www.cleartracks.com/register.