28
Feb
17

The Music Business in the Blockchain

When the Economist article “The Trust Machine. The Promise of the Blockchain” was published in October 2015, a broader audience beyond the bitcoin community has become interested in the disruptive potential of the cryptocurrency’s technology. Meanwhile, further articles on the blockchain have appeared in the main press and Don & Alex Tapscott published “Blockchain Revolution” (2016), which highlights in detail the (revolutionary) impact of blockchain technology on the music business in chapter 9. We also discussed the relevance of the blockchain for the music business with the Blogchain-Hub founder Shermin Voshmgir in a music business research jour-fixe in Vienna on June 20, 2016.

On March 3, 2017, Carlotta de Ninni (Mycelia for Music Foundation, London), Peter Jenner (Sincere Management, London) and Benji Rogers (PledgeMusic and Dot Blockchain Music, New York) will supervise the international workshop “The Blockchained Music Business” at the Department of Cultural Management and Gender Studies (IKM) of the University of Music and Performing Arts Vienna. After the workshop(16:30-18:00) our guests will discuss the opportunities and challenges of blockchain technology for the music business in a public panel discussion in the Large Conference room of IKM (Anton-von-Webern Platz 1, 1030 Vienna).

In the following, I’m going to explain the fundamentals of blockchain technology and I outline its opportunities and challenges of the blockchain for the music business.

 

The Music Business in the Blockchain

What’s the Blockchain?

Initially blockchain technology was closely linked to the bitcoin cryptocurrency. If person A buys a product from person B spending bitcoins from her/his virtual wallet, person B need to feel certain that person A has not used a particular bitcoin in a previous transaction. Blockchain technology solves such a “double-spend” problem by clearing every transaction with the help of a peer-to-peer network (P2P). The participants of the network time stamp every transaction in order to avoid a subsequent spending of a still used bitcoin. The network participants are called “miners”, who run bitcoin nodes. They gather transactions, link them to a still existing block of data so that each block refers to the preceding block (see Tapscott & Tapscott 2016: 30). Since all blocks of transactions are time stamped, the information saved in the blockchain cannot be manipulated. Additionally, the blockchain is public. All transactions can be monitored by all participants in the network. The entire process is secured by a crytographical mechanism – the so-called proof-of work mechanism: “Because we can’t rely on the identity of the miners to select who creates the next block, we instead create a puzzle that is hard to solve (i.e., it takes a lot of work), but easy to verify (i.e., everyone else can check the answer very quickly). Participants agree that whoever solves the problem first gets to create the next block. Miners have to expend resources (computing hardware and electricity) to solve the puzzle by finding the right hash, a kind of unique fingerprint for a text or a data file. For each block they find, miners receive bitcoin as a reward.” (Tapscott & Tapscott 2016: 31). Blockchain, therefore, is bullet-proof, since it takes a lot of work to find a cryptographic solution for a block of transactions. It is a totally secure mechanism, since no central clearing point exists that can be attacked by spams, malware and hacks. Thus the blockchain can be seen as a network of transactions distributed among network nodes – a so-called “distributed ledger”. With the help of time stamps it is possible to trace back the blocks of transaction to the very first transaction made. IT experts, therefore, consider the bitcoin currency as a forgery-proofed, but totally transparent payment mechanism (Kuppinger 2016: 42).

 

Why the blockchain technology is relevant for the music business?

Bitcoin is just one of several already existing cryptocurrencies. The disadvantage of the bitcoin is that a block of transaction is limited to 60 kilobytes. This ensured that the verification process in the P2P network lasts on average 10 minutes (Silver 2016: 15). The developers of the bitcoin blockchain, do not want to alter the initial protocol. Otherwise the processing capacity of an average miner’s computer is not sufficient anymore to verify transactions. As a result large corporations and government bodies with sufficient processing power could take control of the further development of the bitcoin blockchain (ibid: 17).

However, if larger blocks of data have to be verified, different technical solutions are needed. Such an alternative blockchain technology is Ethereum. Ethereum is a cryptocurrency that was published for the first time in 2013. It is based in the Interplanetary Filing System (IFPS) protocol that allows to store, encrypt and to disseminate a nearly unlimited amount of data (ibid).

Ethereum does not only allow to process transactions with the Ether cryptocurrency but also to link further information e.g. as smart contracts. A smart contract is a simple algorithm to verify transactions. If a particular amount of money X is paid to a virtual wallet Y, this automatically triggers a specific action (e.g. shipment of a commodity) (Mey 2016a: 50). Smart contract, therefore, do not rely on a costly and time-consuming verification process by a notary, solicitor and governmental body, since contracts automatically process literally by themselves.

 

Imogen Heap‘s “Tiny Human” project on ujomusic.com

Since cryptocurrencies allow micro payments up to 8 decimals, digital music can be sold without intermediaries. The revenue split among all involved parties can be defined in a smart contract. Internet platform ujomusic.com has already developed a prototype for a new business model. British singer/songwriter Imogen Heap published “Tiny Human” as first song ever on the Ethereum blockchain on October 2, 2015. Everyone can buy the song online or can license it for further use. According to the revenue splits – defined in the smart contract – the payments are directly transferred to the involved artists. Thus, the usual transaction costs related to the digital music business are significantly reduced.

 

For a US $0.60 download and US $0.006 stream, the following revenue splits were defined in the “Tiny Human” project:

Composer, author & vocals Imogen Heap 91.25%
violin 1 Stephanie Appelhans 1.25%
violin 2 Diego Romano 1.25%
viola Yasin Gündisch 1.25%
chello Hoang Nguyen 1.25%
bass-trombone Simon Minshall 1.25%
french horn David Horwich 1.25%
mastering Simon Heyworth 1.25%

Source: https://alpha.ujomusic.com/#/imogen_heap/tiny_human/tiny_human

 

The split for licensing the audio files for remixes are also defined: US $0.45 for non-commercial use and US $1,500 for commercial use. The creator of the derivate work earns 50 per cent of the revenue and the other half is paid according to the pre-defined split.

Composer, author & vocals Imogen Heap 70.625%
violin 1 Stephanie Appelhans 0.729%
violin 2 Diego Romano 0.729%
Viola Yasin Gündisch 0.729%
chello Hoang Nguyen 0.729%
bass-trombone Simon Minshall 0.729%
french horn David Horwich 0.729%
mastering Simon Heyworth 0.729%

Source: https://alpha.ujomusic.com/#/imogen_heap/tiny_human/tiny_human

 

If synchronization rights are licensed for “Tiny Human”, Imogen Heap earns 100% of the revenue. The synch-fees are agreed on a case-to-case basis and depend on the type and size of the organization as well as on the type of the media and the scale of use. All rights are reserved for Imogen Heap, who has full control of the use of the song. Since the release of “Tiny Human”, the artists have earned US $133.20 across all licenses and all the revenue streams are visible on the ujomusic’s webpage.

Thus, the music sale on a blockchain application such as Ujo does not only accelerate payment to artists and lower transaction cost, but also provide transparency in the payment process. This raises the question if all artists welcome such a high degree of transparency. One may doubt that intermediaries such as music publishers, labels, collecting societies, synch rights agencies etc. like the idea of such a transparent payment process.

 

Further blockchain-based music start-up companies

Ujomusic‘s aim is to build a music database for commercial exploitation. Similar to Ujomusic Blockchain music platform PeerTracks allows the download and streaming of music that is made available on the MUSE P2P filesharing network: MUSE therefore “(…) serves as a global database for copyrights, a means of payment for all music related transactions as well as a tool to simplify licensing of musical works. It provides artists with transparent accounting, automatically split up royalty payments and the capability to create their Notes so they can get discovered and engage their fan bases. Fans can interact, participate and even benefit from the success of their favorite artists.”[1] PeerTracks‘ cryptocurrency “Note” is kind of “Artist Coin”, which can be traded by the artists’ fans. Thus, a kind of equity market for artists should emerge: “Being limited in number, Notes can rise and fall in value depending on that artist’s popularity on PeerTracks. The more an artist is streamed, the more music he sells and the more he engages his Note holders, the more each one of his Notes can be worth. Not to be confused with equity – the fan does not own stake in a song, album, project, business or copyrights. Notes should be seen like fan club 2.0 memberships. The artist that created the Notes decides what he offers to his Note holders just as he decides what to offer to his fan club members – only in this case the memberships are quantifiable and tradable.” [2]

The Australian based Bittunes has developed a blockchain-based super-distribution network for music. Bittunes uses bitcoin technology to support artists to sell their music on a P2P platform. The music buyers – ” so-called music movers” – purchase single music tracks for US $0.50. The artist earns 50% of that amount and the rest of the royalties is shared with up to 5 pre-sellers of the song. Songs entering the top-100 chart are sold for US $1. The artist and the uploaders share 40 per cent of the royalties and Bittunes earns the rest of 20 per cent (Mey 2016b: 13).

 

Figure 1: How Bittunes works

abbildung-3-funktionweise-von-bittunes_neuSource: http://www.bittunes.org/general-explanation/ (accessed February 27, 2017).

 

A further application for blockchain technology are music rights licensing platforms. After the Global Repertoire Database and the International Music Registry failed due to conflicting interests of the music industry’s major players, the blockchain seems to be a promising new attempt.

Israel-based Revelator offers a rights management platform for artists, managers and labels to upload music tracks, music videos, photos and metadata on its server. Revelator works like a digital content aggregator by channelling the music to online music stores for downloading and streaming. Revelator supports the dissemination of music by a fully automated set of marketing tools. The rights owners then can track the use of their works as well as the revenue streams. A reporting and analytics tool allows the further processing of the data. The service is similar to that provided by digital music distributors, but makes a step further. In August 2015, Revelator has teamed up with Colu. Colu is a bitcoin-based blockchain application for a safe and less expensive exchange of digital content. Revelator founder Bruno Guez expects to solve the following problems of the digital music business by collaborating with Colu:

“1.) The long history of lack of trust between parties due to lack of visibility and transparency

2.) Speed, security and efficiency of one-to-one transactions, including distributed content, transfers or assignment of full or partial ownership of IP per territory, per licensor, and per product, and mass payments and micro-payments to all marketplace participants at fractional costs

3.) Creation of new business model possibilities with engagement marketing, distributed crowdfunding, fan co-ownership

4.) Global registry of rights information and distribution of assets with complete tracking, transparency and trust.”[3]

 

PledgeMusic founder, Benji Rogers, takes a step forward and wants to revolutionize the music business by his DotBlockchain project. Rogers wants to launch a new format of music distribution “.bc” that includes all relevant meta data – a so-called minimal viable dataset (MVD): (1) full information of rights owners; (2) ISCR-, ISWC- and ISNI codes; (3) music publisher’s data; (4) mechanical rights’ data; (5) interpreters’ data; (6) rules for global licensing; (7) range of usage rights; (8) lyrics and photo credits; (9) payment information; (10) contact information (Silver 2016: 36). If all those meta-data are encoded in a bc-file, music tracks can be disseminated to still existing digital music providers. The pre-defined rules are a kind of digital rights management system allowing direct payment transfers to the rights holders. The project’s main aim is to build a comprehensive rights database for the exploitation of music rights in a one-stop shop.

 

Figure 2: How dotblockchain works

abbildung-4-funktionsweise-der-dotblockchainSource: Rogers, Benji, 2016, How the Blockchain and VR Can Change the Music Industry (Part 1) (accessed February 27, 2017)

 

Despite sceptical comments of collecting societies’ and music publishers’ representatives on the dotblockchain music project (Silver 2016: 43-49), the relevance of blockchain technology for establishing a global music rights database should not be under-estimated. Whereas GRD and IMR failed due to the music majors’ concerns to lose control, the blockchain enables to regain control over their rights. Silver is cautiously optimistic: “[P]erhaps there is a chance that the music industry too eventually recognises the long term value of achieving a truly distributed global repertoire database, which might actually make more money for more people, more equitable, than it cost to build.”

 

Challenges for blockchain technology

Blockchain technology is of course in its infant years with all problems involved. Thus, it cannot be seriously estimated if and how the blockchain will change and even revolutionize the music business. Several concerns cool euphoria down. The challenges are multifaceted and refer to blockchain technology in general and its application in the music business in particular:

1. The problems with blockchain technology in general

Tapscott & Tapscott (2016: 253-277) devote an entire chapter in their book listing 10 showstoppers:

  • Blockchain technology is not ready for mainstream use, since the system lacks the transactional capacity. The bitcoin protocol needs on average 10 minutes for verification of a transaction. Ten minutes, however, is too long for larger data packages including smart contracts. Further there are concerns about the long-term liquidity of bitcoins, since the bitcoin developers have limited the quantity to 21 million coins to avoid inflation. Thus, the last bitcoin will be mined in 2140. However, bitcoins can be divided up to 8 commas, which will enable transactions even after the last bitcoin was mined.
  • The energy consumed by blockchain technology is not sustainable. The proof-of-work process consumes a lot of electricity. US $100m in electricity is needed to process US $3bn worth of bitcoins that are currently mined annually. Such a share is also economically inefficient. However, the current financial system burns more energy each year. Further alternative verification methods such as Ethereum are on the way to save energy.
  • State authorities could hinder the dissemination of blockchain technology. Copyright and patent legislation as well as courts can be instrumentalized against blockchain applications as it was the case with P2P file-sharing. If influential rights holders oppose the new technology they likely sue innovators to damn or even avoid the dissemination of blockchain-based business solutions.
  • Authoritarian and totalitarian regimes could also misuse the blockchain for their ends. A despot could seize the mining power to a point which puts him over the 50 per cent hash rate threshold. He could then decide which transactions are included in blocks and which not. Such an assault would challenge the democratic foundations of the distributed ledger. It is still a fact that two of the three largest mining pools are operated in China that consume a considerable share of the global computing capacity.
  • The incentive to mine additional bitcoins decreased with the lengths of the blockchain. Downloading the bitcoin software to an average Windows PC takes currently three days. The mining process to verify a transaction consumes 200 MB of memory and 10 percent of CPU time. However, in a 137-hour session 152.8 micro-bitcoins can be minted, what equals 31/2 US cents. This is not an overwhelming motivation to become a bitcoin miner.
  • If the blockchain turns out to be a job killer, since current clearance operations won’t be needed anymore, affected intermediaries could fiercely oppose the new technology.
  • If data blocks become too large, e.g. by including smart contracts, the processing capacity of an average laptop/PC is limited. Thus, computing power by commercial providers and governmental bodies will be needed to circumvent the bottleneck. Thus, blockchain technology could be hijacked by global Internet conglomerates and governments of powerful states.
  • Criminals and terrorists could hack in automated smart contracts to channel money to their virtual wallets. There is still no legal framework to protect blockchain-based companies and blockchain users from fraud and misuse.
  • Blockchain technology’s advantage is to provide transparency in transactions. However, transparency is also an incentive for Internet companies and intelligence services to collect even more data on Internet users and citizens.
  • Criminals still use bitcoins to trade illegally arms, drugs and even humans. A darknet market place called Silk Road was closed down by FBI to put a stop to the game of organized crime. The use of blockchain technology by criminals could undermine the trust into the new technology and its social acceptance.

 

2. The problems to implement blockchain technology in the music business

In addition to general problems associated with blockchain technology, particular obstacles may arise in the music business.

  • All blockchain-based music applications such as ujomusic, bittunes, peertracks and dotblockchain need a critical mass of users to be successful. We can learn from history that just a few innovative Internet applications prevail despite legal obstacles and limited initial demand by (potential) users. (O’Dair et al. 2016: 19-20).
  • The current structures and processes in the music industry’s sectors (recording, publishing and live business) are centralized and thus contradict a decentralized distributed ledger to register music rights. However, if you want to build a comprehensive global music rights database, the three recorded music majors must be as well involved as the collecting societies. It is questionable if the majors have an incentive to support a blockchain-based decentralised register that is fully transparent but not fully controlled by them.
  • If the blockchain will prevail in the music business, it is not given that the outcome is a democratic and decentral solution without intermediaries. Silver (2016: 11-12) points out that not all blockchain applications are open to the public and fully transparent. Some still existing blockchain applications are permissioned. Thus, a permission is needed to participate in the network and the identity of all participants are known to each other. Relevant players of the music business, thus, could establish a permissioned music blockchain network gatekeeping the access to the network and controlling the transaction processes. In the financial industry such as permissioned blockchain networks already exists. A consortium of Deutsche Bank, UBS, Bank of America and Unicredit collaborate in setting up a private blockchain solution to validate financial transactions (Mey 2016a).
  • Transparency in transactions might not just deter record companies and collecting societies to adopt blockchain technology, but also artists. Not all artists are so open-minded in publishing revenue splits like Imogen Heap. Thus, it is possible that the transparency related to the blockchain is an obstacle rather than incentive for artists to engage in blockchain-based music applications.

 

Conclusion

The blockchain is an innovative technology that could revolutionize existing value-added networks. The decentralized cryptographic verification mechanism allows a transparent but fully anonymous transactions. Smart contracts enable the immediate clearing of transactions by dramatically lowering transaction cost. Intermediaries seems to become obsolete in such a distributed network.

Some music related blockchain applications already exist. They aim at building music rights databases for further commercial exploitation. Compared to existing digital music services, blockchain applications enable direct payments with a cryptocurrency based on smart contracts without a costly clearing processes. The claim for a global music repertoire database could by fulfilled with a blockchain-based distributed music registry if the relevant players in the music industry advocate for such a decentralised solution.

If they are not interested in the blockchain and if they even oppose it, the euphoria on the new technology in the music business will quickly vanish. The same could happen if the majors and other relevant parties in the music industry try to hijack blockchain technology for their commercial ends. The blockchain is currently not ready for mainstream use and it has to overcome several obstacles. More development work and an increase in computing power is needed to bring blockchain technology into everyday (music) life. However, it is all but certain: the future is here to stay.

 

Sources

Kuppinger, Martin, 2016, “Ausgezahlt. Chancen und Risiken für Blockchains”, iX – Magazin für professionelle Informationstechnik, Nr. 6: 42-45.

Mey, Stefan, 2016a, “Gut vereinbart. Smart Contracts und Blockchain”, iX – Magazin für professionelle Informationstechnik, Nr. 6: 50-53.

Mey, Stefan, 2016b, “Die Blockchain in der Musikindustrie”, Musikwoche Nr. 18 vom 29. April 2016: 10-14.

O’Dair Marcus, Zuleika Beaven, David Nelson, Richard Osborne, Paul Pacifico, 2016, Music On The Blockchain, Report Nr. 1 des Blockchain for Creative Industries Research Clusters der Middlesex University.

Rogers, Benji, 2016, How the Blockchain and VR Can Change the Music Industry (Part 1)

Rogers, Benji, 2016, How the Blockchain and VR Can Change the Music Industry (Part 2)

Silver, Jeremy, 2016, Blockchain or the Chaingang? Challenges, opportunities and hype: the music industry and blockchain technologies, CREATe Working Paper 2016/05.

Tapscott Dan & Alex Tapscott, 2016, Blockchain Revolution. How the Technology Behind Bitcoin Is Changing Money, Business, and the World. New York: Portfolio.

The Economist, “The Trust Machine. The Promise of the Blockchain”, 31. Oktober 2015 (accessed February 27, 2017).

 

Endnotes

[1] See http://peertracks.com/faq.php (accessed July 22, 2017); it seems that the webpage is not accessible anymore.

[2] See http://peertracks.com/faq.php (accessed July 22, 2017); it seems that the webpage is not accessible anymore.

[3] Billboard.biz, “Blockchain Platform Colu Partners With Revelator in Push to Fix Music’s Data”, 18. August, 18, 2015 (accessed February 27, 2017).

 

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1 Response to “The Music Business in the Blockchain”


  1. February 28, 2017 at 3:06 pm

    The image you have used to describe Bittunes process is a PNG that needs a white background.. can you provide an email address using the contact form on Bittunes.com and I will send you a corrected image. ~ Thanks


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