Amid all the talk, hype, and activity around blockchain solutions for music, questions arise about whether large existing entities in the digital music value chain will adopt the technology, and if so, how. These fall roughly into four buckets: record labels, music publishers, royalty collecting societies, and DSPs (consumer music distributors such as Apple, Spotify, and Pandora).
One of the first integrations of blockchain-based music royalty processing with a legacy player was announced at last week’s SF Music Tech conference in San Francisco: a partnership between the startup Core Rights and a handful of collecting societies, starting with SOCAN in Canada. SOCAN, like ASCAP and BMI in the United States, is a particular type of collecting society known as a performing rights organization (PRO): it collects royalties on performances of musical compositions and pays them out to music publishers and songwriters. Core Rights is also working with Re:Sound, the Candian collecting society for sound recordings (roughly analogous to SoundExchange in the U.S.), and with Global Music Rights (GMR), the new U.S. PRO run by mega-agent Irving Azoff.
Core Rights is a Nashville-based startup run by Jim King, a former BMI executive who also has deep experience in B-to-B publishing and technology. They have identified a “pain point” in the music licensing business that should motivate collecting societies to work with them: getting more businesses to take general licenses for music that they play in their venues. When businesses such as bars, restaurants, hospitals, amusement parks, and retail stores play music for their patrons, they are considered public performances that require licenses under copyright law.
Until now, the approach that PROs have taken towards getting venues to license music for public performance has been somewhere between “educational” and “Hi, we’re the music police, please pay us these royalties.” The odds of getting caught playing music without a license aren’t all that high, and relevant venues open and close all the time. So it’s not surprising that PROs estimate that well below 50% of the venues that they believe should be taking licenses are doing so.
Venue licensing typically represents around 10% of PROs’ revenues. So for SOCAN, with annual revenues of about US $230 million, the growth potential for more complete venue licensing is at least $23 million a year — minus the fees that Core Rights charges, of course. For a larger PRO like ASCAP, with $1 billion in revenue, the upside is over $100 million.
According to King, Core Rights is attempting to remedy that lack of compliance by turning it into a “value sale” rather than a “responsibility sale.” Core Rights is building a digital marketplace that will consist of venues that play music, rights holders that want to engage with them, and businesses that want to market themselves to those venues. For example, a business software vendor may join the marketplace and offer venues a discount for participating in the market.
This is an approach to venue licensing that — to put it mildly — PROs haven’t done very well. Part of the challenge is finding the venues to approach (hundreds of thousands of them across markets); Core Rights has patent-pending technology for identifying venues through social media feed data analysis.
How does blockchain technology fit into this scheme? In its first version, Core Rights is using IBM’s implementation of the Linux Foundation’s open-source Hyperledger technology to build a private blockchain with smart contracts that represent each license that a venue takes. Venues purchase licenses as blockchain transactions (though payments take place “offline” through credit cards and other conventional means). The blockchain will interface with the collecting societies’ existing infrastructures, through which they will apportion royalties to their rights holders according to their standard formulas for venue licensing.
SOCAN is one of a handful of major collecting societies that are diversifying their offerings and moving towards becoming full-service rights management companies for music. Earlier this year, SOCAN acquired both MediaNet, a “white label” digital music distribution platform, and Audiam, a collecting society for interactive streaming music. Both companies have proprietary databases that link together information about compositions, recordings, and rights holders.
This is the way to get a new technology like blockchain adopted in the music industry: instead of trying to change the entire industry at once, find a pain point and build a solution. That’s basic tech market strategy.