14
Mar
17

The Blockchained Music Business – the Intermediaries’ Perspective

On March 3, 2017, an international workshop on “The Blockchained Music Business” was organized by the Department of Cultural Management and Gender Studies (IKM) of the University of Music and Performing Arts Vienna and the Music Information Center Austria (MICA). Carlotta De Ninni (Mycelia for Music Foundation, London), Peter Jenner (Sincere Management, London) and Benji Rogers (PledgeMusic & Dot Blockchain Music, New York) were the workshop supervisors focusing on different aspects of the blockchain technology’s impact on the music business. In the second part of the workshop’s summary, we focus on the discussion of the workshop-group on the impact of blockchain technology on the music industry’s intermediaries that was supervised by Benji Rogers (PledgeMusic & Dot Blockchain Music, New York).

 

The Blockchain’s impact on music industry’s intermediaries: More fairness and transparency in revenue streams among right holders?

Summary based on the notes by Lea Spiegl

 

The workshop group focused on three keywords: intermediaries, fairness and transparency. For the most part, the group talked about the role of intermediaries in a blockchained world, since all participants were representatives of intermediaries in the music business.

 

Intermediaries

First the group had to define what the participants understand by “intermediaries” and concluded that there are two types of intermediaries. On the one hand, there are on-demand streaming services like YouTube, Spotify, Pandora, and at the backend the artist. On the other hand, we there are various players of the music industry like recorded music companies, music publishers, music managers and music distributors and – again at the backend – the artists. After some consideration, the group decided to go with the second definition of intermediaries as companies that take on a certain role between the artists (or the artists’ products = music/track/song) and fans.

Following the media coverage about blockchain and the music business one will have stumbled upon the proposition of blockchain technology “cutting out the middlemen” defined as intermediaries above. Thus, the question arises whether this was a true threat and intermediaries would vanish as a result of the implementation of a more advanced form of this technology, or whether they would not be affected.

According to Benji Rogers there is no cause for alarm, since the music industry’s core value lies within human interaction and trust. For example: A publisher can add value by getting the best out of a synch deal, a machine on its own could not do that. In the end, it is the intermediary who adds value, but with the help of a machine.

It was abundantly clear that the role of intermediaries has already changed over the years. During the golden age of the music industry, major record companies dictated which production would be released and which not. With the invention of the MP3-format and digitalization, the majors had to adapt to their new role in providing services to artists. With blockchain technology, the function of majors could again change into verifying companies. By verifying companies, the group meant somebody who is able to verify an artist (authors, composers and interpreters) within the blockchain system. Verification means the entanglement or tagging with peers like labels or publishers, which also must be verified by an existing hierarchy. For labels, it would be the International Federation of the Phonographic Industry (IFPI); for publishers, it would be Performing Rights Organizations (PROs) that approve the chain of interaction. The blockchain technology is a self-controlled, and through that, a democratic system, by providing a transparent rating system to incentivize better data. The principle is simple: a high score of available data suggests trustworthiness, a low score on the other hand suggests misconduct. Thinking further, that could mean that a digital service provider could state that it only takes songs that have a rating of 80% or more. Of course, an ISRC or ISWC would be required to distribute the artist’s music, but a MVD (minimum viable data) is enough to get on the blockchain at first.

Spotify deals mostly with lawsuits concerning performance rights infringements. The problem doesn’t necessarily lie with Spotify, but with the sheer amount of metadata. For example, when changing your publisher, all your tracks have to be removed from every single platform and then uploaded again with the new information to make sure that your new publisher actually gets royalties. It is obviously an unnecessary complicated procedure, but for now there is no other way or technology to make it easier. The blockchain technology proposes a much more efficient way of dealing with such problems. When all parties (recorded music companies, music managers, music publishers, music distributor etc.) are willing to share information and speak the same language (in form of a universal data format), blockchain technology can update everybody involved at the same time. To get back to the publisher example above: with blockchain you would just need to change a number in the implemented code of the track and everybody, including digital service provider, would get the information simultaneously. The key point here is that when using blockchain technology, the property confirmation lies within the track itself. The rails of ownership will never vanish, every change made will be visible and relatable for ever. For instance, if somebody claims more rights than they have, the true rights holders will be, because of transparency, able to get in touch with the first person and can claim their shares, with help of other players involved to get the verification they need.

In future, Spotify might only accept tracks from the blockchain, since they get the verification that the information about rights holders is in fact legitimate. Blockchain provides a map to where the songs rights lie and by that, is covered by copyright.

The group was unsure what the role of collecting societies would be, if right holders just need an initial approval and how much use of copyright-protected work the blockchain could cover. The answer is clear regarding mechanical rights like copying and making available rights (in the case of streaming), but what about radio, TV and live performances? The group proposed a solution and by that got a bit closer to the question of which role collecting societies would take on. Nowadays, radio stations, TV-channels, or live promoters share their information about the usage of copyright-protected work with their local collecting society, who then pay out royalties accordingly. In a blockchained world, collecting societies could upload the information they receive to the file and, by that, make sure that the vital core function of blockchain – that is tracking usage of copyright protected work – is maintained. Another opportunity for collecting societies lies in key management for blockchain users, since there is only one original key, not a password. The necessity of adapting to new technology is clear, otherwise collecting societies will lose their market share and revenues, which in the long run could result in the collapse of funding systems.

When thinking of the future role of intermediaries the group mostly talked about recorded music companies or music publishers who hold certain rights on works, but what about the ones who do not hold any rights, e.g. music distributors. Benji Rogers’ opinion is that those who don’t hold any rights will be the first affected by the blockchain technology, since right holders can go directly to the digital service providers and get their shares.

 

The need for a universal digital music format

The group identified an unjust system of paying royalty shares. Rogers sees the real problem in the digital FORMAT. Firstly, if a universal format was to be embedded in the music industry and the various players involved started working together and shared information and files, the blockchain would be able to encode the current state of ownership. Secondly, in the digital music age, the core problem is that there is no “original” file. The big problem with not having an original is that one can profit from somebody else’s work. For example, I can easily upload one of Beyoncé’s songs on YouTube and by monetizing the video I could earn money, since there is no audio fingerprinting technology advanced enough to cover every provider or website you can upload a song on. But if all information of ownership is already encoded in a file, YouTube would know that I am not a right holder and the royalties would go directly to the right holders instead of me. The information on the file is like the track’s DNA, the blockchain can encode and split royalty shares equally. Benji Rogers sees the key in a digital first version, otherwise everything is built on sand, as a result there needs to be the concept of a living, breathing and evolving file.

The blockchain as imagined by Benji Rogers has two layers, a public and a private one. The public layer is visible to everyone by a dashboard interface, so ownership is transparent to everyone. The private layer is only to be seen by business partners. A film studio for example could make a synch deal with the artist’s publisher via blockchain and a smart contract and nobody but the parties involved would have access to contract details.

Benji Rogers does not aim to find a solution on payments, like the “Tiny Human” project did, since everybody would need to accept a certain digital currency and digital wallet which Rogers is very pessimistic of happening for now, since the technology is still too new and too complicated for most people or companies to use.

Having said all that, it becomes abundantly clear that intermediaries will play an important role after all – whether it is as a verification organization, or data mining organization – but the information in the track, that maybe on some point will split royalties automatically, is the true turning point when talking about blockchain technology. Blockchain technology does not claim to solve every problem the music industry has, but rather proposes a standardized system, a centralized databank, how intermediaries react to that is their own responsibility.

The group came to the conclusion that those intermediaries who use data properly, are honest and offer good services to their clients are the ones that will thrive.

 

Transparency

When it comes to transparency, the question arises if recorded music companies and music publishers are willing to share their information and if not where the disadvantage lies in knowing who wrote, composed or performed a song?

The group members argued that they are sceptical whether intermediaries will ever make their information accessible to the public. Benji Rogers on the other hand insisted that they will, giving following example: nowadays, licensing a song takes a lot of time and workforce, which results in more cost for e.g. the label. Sharing your information on blockchain and by that being able to do a “One-Click licensing deal” faster and more cost efficient. The label would not need to pay as many work hours as they do now, they would also get more money faster. And we all know that, in the end, a label does not care about creativity or cultural pluralism, rather than revenue and black figures on their bank account.

Benji Rogers already met with representatives of all three recorded music majors, but did not approach them by inviting them to use the blockchain technology, rather than asking them how they want to work with the data, once the blockchain technology is implemented in everyday (work-)life. Rogers brought up another interesting issue: Amazon’s Alexa. Nowadays we are arguing about Spotify, Apple Music, YouTube etc. all streaming services with a dashboard you must download or go to the website to listen to music. With an advanced technology like Alexa, the consumer does not enter a certain interface-based service provider, rather than saying “Alexa, play me song XY”. The consumer gets detached on a visual and tactile level from a favourite provider, toward a primarily auditive level.

When talking about transparency we came to the understanding that it is a status where all parties involved have equal information. The blockchain not only keeps right holders’ data up to date but also a notification system can be built to keep the right holders up to date as well (e.g. for every thousand streams the user receives a notification). The big plus of blockchain and its transparency initiatives also concerns administrative issues, the more can be solved directly and efficiently, the better it gets for creators. Taking a look at the movie industry, we can see new developments happening in the past few years. Netflix changed its business model from a physical to a digital distributor and a production company. The same goes with Amazon, next to Netflix, was also the first streaming service to win an Oscar this year. If the music industry doesn’t take that as an example, companies like Facebook, Apple or Google will follow that trend and start signing their own artists, prompting major consequences for today’s big players of the music industry.

 

Fairness
Unfortunately, the group had very little time to discuss the third and last keyword “fairness”. Nevertheless, when dealing with the question of fairness, the question arises: “Fair to whom?” Who profits from the current system and who would profit from a new blockchain-based system? And will new companies emerge with the blockchain-revolution that enable rights holders to dictate the pay-out structure of royalty shares?

In conclusion, one could say that visibility and efficient accounting systems are the two primary pillars of the blockchain technology as Benji Rogers imagines it with his company Dot Blockchain Music.

 

Workshop members:

Pepe Auer (Session Works Records and musician)
Walter Gröbchen (monkey music)
Robert Klembas (rebeat, digital music distributor)
Niko Kraft (Manak, Schallaböck & Partner laywers)
Iris Kühn (Etage Noir Recordings and Booking)
Rudi Schedler (Schedler Music Publishing)
Hannes Tschürtz (Ink Music)

 

See also:

Part 1: The Blockchained Music Business – the Artists’ Perspective

Part 3: The Blockchained Music Business – towards a Global Music Rights Database?

 

 

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