How 'the Blockchain' Could Actually Change the Music Industry
The blockchain is a decentralized system, with no single entity controlling it. The servers keeping its backbone upright are scattered across the globe, and for that reason the technology is transparent; everyone can see its anonymized data. It could also replace notaries, as every transaction is time stamped automatically and receives a unique ID. No exchange rates apply either, because cryptocurrencies are oblivious to borders. And because there are no intermediaries involved, monies are transferred instantly.
Two companies, both still in development, show the technology's potential for the music business. PeerTracks, which plans to launch in about two months, plans to use the technology to create a type of artist equity trading system. Another, Ujo ('container' in Esperanto, the international auxiliary language made semi-infamous by William Shatner) is building a system designed to address two major problems in global royalty distribution and licensing.
PeerTracks, according to its president Cédric Cobban, is a "music streaming and music retail platform that allows for fan engagement and peer-to-peer talent discovery." PeerTracks will use the blockchain for its transactions, paying streaming revenue on a per-user-share basis, meaning that the revenue each user generates will go directly to the artists users are actually listening to.
PeerTracks hopes to garner marketing dollars -- it aims to stay ad-free for users -- through "artist tokens," a concept comparable to baseball cards. Consider it A&R, gamified. Every artist on PeerTracks can create their own token, bearing their face and name. The artist sets the amount of available tokens. "Since it is limited edition," Cobban explains, "once you create your tokens, you can't create more." The idea is to create a type of sub-cryptocurrency, the valuation of which directly reflects the appeal of an artist.
Just like the real world, the valuation of PeerTracks tokens is determined by supply and demand. Tastemakers can buy tokens of unknown artists while they are cheap, speculating on that creator's future potential. "Boom! Your incentives have been magically aligned with that of the artist," Cobban explains. "You now want that artist discovered, you want him to sell music. You want him to be streamed and sell merchandise, because your tokens can go up in value as that artist becomes more successful."
"Some users might not be interested in combing through newly uploaded content," Cobban continues, instead opting to listen to what's rising.
Artists themselves will be able to influence their tokens' value through a buy-back mechanism, using income from streams, sales, merch, tickets -- anything -- on the platform towards buying back their own tokens (increasing demand) and burning/destroying what was bought back (decreasing supply). That increased demand and decreased supply means that, all else being equal, the token's value would go up, and their profile would rise on the platform. Demand can also be influenced by what the artists offer their token holders: discounts, free tickets, giveaways, attention in the form of a private chat-session etc. These rewards incentivize fans to collect tokens of their favorite artists, also raising the tokens' value. And it is these rewards that are supposed to tempt advertisers to pay PeerTracks for the right to sponsor more well-known artists with products they can then give away to their fans. That ad money will then be used to cover streaming royalties. At least that's the plan.
PeerTracks' CEO Eddie Corral says that "every single song uploaded will be attached to a smart contract. And that smart contract divides up the funds depending on the actual real-life contract: this is the lyricist, this is the composer, this is the performer. It's all divided up automatically."
Smart contracts are an important part of the blockchain evolution. Phil Barry, who worked on Thom Yorke's BitTorrent-released Tomorrow's Modern Boxes last year as a consultant on user experience, business model and media strategy, is collaborating with a group of around 20 technologists based in New York, Europe and South Africa to build an "open and free, decentralized platform, on which anybody performing a role in any creative industry will be able to interact free of intermediaries to do business. Above that, people will be able to build new business models that have never been imagined before, because the costs will be lower and the data is open", to use Barry's own words.
Ujo is envisioned as a rights database and payment infrastructure, intended to be free for anyone to use and build applications upon. "Our view is that there is no advantage in multiple people all building the same infrastructure -- it should be shared and open", explains Barry.
Ujo is attempting to tackle two major problems. The first, echoing PeerTracks, is how money is distributed to artists and rights holders. The other is determining the ownership of a creative work, a convoluted structure when songs can have ten or more co-writers attached. That, in turn, makes licensing difficult. "We in the music industry should be doing everything possible to make it easy for people to license music, because that is when you get new business models and new revenue opportunities that might benefit the music industry in the future", says Barry.
The music industry's last attempt at cataloging songs and their creators, the Global Repertoire Database (GRD), failed. To be sure, getting the industry-at-large to jump on the blockchain will take a long time. "People have their own vested interests in keeping data private," Barry says, "and all the existing systems are outdated and don't match up. [But] if we wait for all the music publishers and all the collecting societies and everybody to organize themselves, sit around a table and reach an agreement about creating this central database we'll be waiting until the end of the next century."
Instead, Barry hopes that, bit by bit, his will replace those outdated systems. "It will save a lot of money," he claims. "On average, about 12.7 percent of royalties that go through performing rights societies are used for operating costs. That money would be available instead to artists and record companies. Secondly, the music industry absolutely needs new revenue and business models, new ways of consuming music and simplify the way music is managed and licensed."
In the future if an artist creates a song, it is forever stored in the blockchain via a unique ID. If even one note of that song was to be changed, a new ID would be created, so even remixes, dub plates and flips would be instantly recognizable. Money won't land in one big pot as a flat-charge to be paid out pro-rata, but distributed instantly and proportionately to each rights holder.
Barry recalls: "One of the reasons I got into this is that when I was a musician, I ran my own record company and at the time PRS did a big deal with YouTube. It was secret, they didn't tell you what the terms of the deal were and they represented my music. I thought it was outrageous that I didn't know at what price my music was being sold for. I thought, 'That has to change.'"
Ujo will provide artists with tools for voting and negotiation, so the artists themselves can set the parameters of how their work is used.
"Just standing in the middle, collecting money, waiting a year, sending it on and taking 10 percent won't work anymore," says Barry. "If anybody wants to build a new curation or streaming service, a negotiating service or other things that no one has imagined yet they can just build it on top of the blockchain. If it is a good model that benefits the creative community it will succeed, if not, it won't."