Cryptocurrency is the Next Brick in the Digitalization of the Entertainment Industry

The entertainment industry has started making the move from physical sales to streaming services. But this digitalization isn’t quite complete until we’ve removed the unnecessary middlemen with smart contracts and cryptocurrency payments. In this article we show the evolution and the new opportunities that arise in the music and film industries and give real examples of decentralized projects.

Recently there has been a huge upsurge of interest in everything related to the blockchain. Though it was mostly provoked by Bitcoin’s rate fluctuations, blockchain technology has fostered public awareness of its implementation potential in a number of other industries outside of the financial sector, and the music and entertainment industry is among them. According to a report published by Middlesex University, the blockchain can become the stepping stone for a variety of improvements regarding copyright, royalty payments, transparency, alternative sources of capital, and even the elimination of middlemen.

Music industry evolution: from vinyl records to streaming services

The evolution of the music industry was driven by the invention of new recording technology and distribution approaches. Having started out with vinyl records, it moved on to magnetic tapes, and then compact discs, which reigned in the industry for several decades. Then, the MP3 format came into the picture and made it possible to share music over the Internet. In 1999, Napster (the first peer-to-peer sharing resource) was launched, triggering a lot of negative reaction from the artists’ side (multiple lawsuits finally lead to its shutdown less than three years later). Nevertheless, it was the beginning of a new era for music consumption: you did not need to buy an album’s physical copy in order to listen to your favourite music. Besides, new file sharing websites appeared too fast to control them all. In 2001, BitTorrent protocol was introduced and made file sharing much faster. It may be a coincidence, but in 2000 the overall revenue of the music industry began a steady decline. That then stopped in 2015.

In 2003, a legitimate variant of digital downloads appeared; Apple began to sell music via iTunes. The popularity of iPods lead to a shift of the revenue model: music labels could earn money without having to manufacture physical copies and pay for their shipping. The next step forward happened in 2005 when public attention was drawn to Pandora — a music streaming service that also recommended new music on the basis of user preferences. Soon, streaming technology was implemented by other music-on-demand and video-on-demand services, which quickly became the leading tools of content consumption. In 2014, the music industry’s revenue generated by streaming services surpassed CD sales ($1.87 billion and $1.85 billion, respectively).

Streaming has dramatically changed the music industry, as well as its distribution and revenue models. Thanks to its affordable pricing, music piracy has decreased by 50%: why download music illegally and risk getting a virus if you can get a premium subscription on Spotify or Apple Music for just $10 a month? In the 1990s you would be able to buy a single CD for this modest sum, but in 2018 you get unlimited access to a huge music library. No wonder streaming services account for 43% of global music revenues in 2017. There is even a good number of young music lovers who have never bought a CD in their life.

Spotify and Netflix

There are a lot of streaming services out there today, but Spotify and Netflix dominate the landscape. Launched in 2015, Spotify is a cross-platform music streaming service that offers both paid subscription and free ad-supported music. According to the statistics, Spotify has more than a third of all subscribers in the world (which comprises over 70 million users) and shows an astonishing growth rate: 10 million new members every six months.

Netflix started in 1997 as a DVD rental service and grew into the world’s leading entertainment service after switching to video streaming in 2007. It provides its services to 125 million paid members from more than 190 countries, and is currently considered the most disruptive force in the movie industry. In 2010, Netflix started to produce its own exclusive content: House of Cards, Stranger Things, The Crown, and other shows and films that have won worldwide popularity and eclipsed Hollywood blockbusters. Subscribers can watch Netflix on more than 250 supported devices, from game consoles to Blu-Ray players.

The undoubted advantage of streaming services’ prevalence in the music and entertainment industry is the increased level of accessibility: new musicians can release their albums without taking the trouble to manufacture and distribute physical copies of their work. The power of decision-making, once monopolized by major record labels, is now shared by the consumers and artists themselves. The enormous number of Spotify users provides a good chance for finding a receptive audience sooner or later.

There is still, however, a grave problem associated with streaming services. They take the lion’s share of the revenue, paying only small fractions of it to those who created the content (this is especially true for musicians). It took almost 10 years for streaming revenues to surpass CD sales, because artists are paid notoriously meager royalties (less than one cent for one play). Songwriters are paid even less — about $0,00009 for one play.

Fortunately, this issue can finally be solved. Streaming services once disrupted the music and video industry, and now they are facing the prospect of being disrupted by the completely new, blockchain-based model of decentralized content distribution. Although international attention is currently locked on FinTech, the notion of EntTech (entertainment technologies) has already emerged and is likely to spread around the world in the near future.

What are the benefits of using the blockchain in streaming services?

Faster and fairer royalty payments

To begin with, blockchain technology can make royalty payments quicker and easier, without the hefty administrative fees charged by intermediaries. Smart contracts are computer protocols that automatically execute the agreed-upon terms without any need for a third party. It means that musicians can get their royalties much faster, in a transparent and effective way — without having to wait for months, like they do today (e. g. Spotify’s aggregator DistroKid pays royalties monthly, TuneCore — with a 2-month delay, PRS — on a quarterly basis or twice a year).

When a music composition is sold, all parties involved in the smart contract (artists, producers, studios, streaming services) get their pre-arranged payments almost instantly. Besides, smart contracts allow content creators to set the terms for cooperation instead of accepting whatever streaming services offer them. Several decentralized music platforms that support smart contracts have already been launched. For example, Zimrii provides musicians an opportunity to be in control of their collaborations. Another similar project is OPUS (currently in beta). These platforms do not impose any limits or restrictions on smart contract terms: the artist who owns the original copyright is in complete control.

Copyright evidence

First, the blockchain can be used to create a distributed database for content copyright. As of today, there is no single comprehensive database that would contain all recording copyrights — there are only several databases run by different performance right organizations (PROs). With this system, it can be quite difficult to find the owner of a specific song and get the license for it, not to mention if the composer and the lyricist of the desired song may be represented by different organizations. If terms of use and contact information were embedded into every music composition stored on a global blockchain database, it would be much easier.

Second, musicians and other creators would not have to register their copyright on numerous national databases, which takes time and effort (the same goes for license holders — they would only have to acquire one license instead of many). Also, currently existing copyright databases are not always accurate or consistent — a tamper-proof distributed ledger would eliminate errors and quickly facilitate copyright dispute resolution. Once a song is registered on the blockchain, no one can delete or alter this information. Besides, this transparent and easily accessible register would prove useful for third parties: they would be able to see the complete chain of ownership (not only the copyright owner, but also all licensees and sub-licensees).

There have already been several attempts at creating a single worldwide database for music copyright: International Music Joint Venture (2000), Global Repertoire Database (2008), and International Music Registry (2011). But they all turned out to be too costly to manage and maintain, so the projects got shelved despite the obvious benefits. A decentralized blockchain registry would be much more effective, but the crucial issue is that currently there are several separate blockchain-based music platforms (Zimrii, OPUS, Ujo, Mycelia, MUSE, etc.), and none of them is big enough. They would need to cooperate in order to succeed in creating a truly global database. Alternatively, one of them should be much better than the contenders and become the de-facto standard.

Crowdfunding

Third, blockchain-based tokens are effective crowdfunding tools. Platforms such as Zimrii connect musicians directly with their audience, allowing users to carry out crowdfunding campaigns with considerable simplicity. The artists retain their control over their music, while their supporters (investors and fans) can count on getting a certain cut of the profits if a certain project gains popularity. Another obvious advantage of the blockchain over traditional online crowdfunding is its complete transparency, which also increases the trust of potential investors. No one would be able to raise funds and disappear to spend the money quietly on something unrelated.

Besides, independent artists can use their tokens to incentivize promotion.Those fans who promote certain musicians via their blogs, websites, or reviews get rewarded — the more their influence, the higher their reward.

Booking of gigs

Booking live music venues can often be a complex process that requires a lot of time and effort. A musician or a band should call venue agents or promoters, arrange a meeting, provide a promo package, negotiate the date, financial arrangements, soundcheck, equipment provision, rider, etc., and physically sign a paper contract. However, live performances are a great way of promoting (or sustaining) your music career — not to mention the revenue they generate.

Blockchain-based platforms take the burden of search, negotiations, and logistics off of the artists’ shoulders so that they could concentrate on the quality of their performance. The speed, efficiency, and transparency of the whole gig booking process is increased with the help of automated contracts on the blockchain that do not require the parties’ physical presence. The result is a mutually positive experience for both the musician and the live music venue (the latter will benefit from the simplified booking process as well by getting a steady supply of performers to attract customers).

Easier project management

Film creation can also be decentralized with the help of blockchain-based platforms like SingularDTV. The studios in Hollywood will no longer dominate this industry: SingularDTV offers a comprehensive set of features encompassing the full cycle of movie production (project launch, token creation, talent management, equipment rental, crew search, etc.), marketing, and distribution. Independent content creators will surely make use of this media ecosystem built on the Ethereum network.

Conclusion

It seems to us that the future of the entertainment industry will be shaped by EntTech platforms. Though they might not solve all the existing problems, they will definitely have a deep impact — but it is still for us to discover how soon blockchain-based streaming platforms will take over the industry. For the most part, it depends on their ability to provide a sophisticated audience with the desired speed and convenience.

To truly disrupt the existing streaming landscape, blockchain-based music platforms need to overcome some challenges in close cooperation with music communities. That may take some time, but the work has already begun.

About the author:

Kirill Shilov — Founder of Geekforge.io and Howtotoken.com. Interviewing the top 10,000 worldwide experts who reveal the biggest issues on the way to technological singularity. Join my #10kqachallenge: GeekForge Formula.