Blockchain vs. iTunes: How Startups and Established Brands Change the Status Quo

If we look at the music industry today, all of its key performance indicators grow exponentially from year to year, which marks a certain level of maturity. However, it remains a highly fragmented market, with large and famous record labels being at the forefront and indie labels lagging behind in terms of revenues and digital transformation.

Not to be unfounded, let’s take a look at some stats.

Music streaming industry in a nutshell

The total revenue of the global music industry grew by 9.7% to $19.1 billion in 2018. Almost half of the total revenue came from paid subscriptions to streaming audio services, according to a report by the International Federation of Sound Recording (IFPI). A global streaming services user base has increased by 44% and reached 255 million users last year. Copyright holders’ royalties from music streaming have increased by almost 10% in recent months and reached over $2 billion globally. All revenues from music streaming are shared between the authors (i.e., artists, bands, composers, other media content creators) and the companies that buy their copyrights and then share the profits (i.e., record labels, indie studios, producers).

How different music industry actors can win from distributed ledger technology

In 2016, TechCrunch was among the first media outlets to have published an article describing the prospects for blockchain solutions in the music industry and streaming in particular. The article claimed that “one of the advantages of a blockchain ledger is that it can establish a more direct relationship between creators and consumers. Music can be published on the ledger with a unique ID and timestamp in a way that is effectively unalterable. This can solve the historic problem of digital content being downloaded, copied, and modified at the leisure of users.” As a matter of fact, each record can store ownership and copyright metadata in an immutable and completely transparent database that anyone can verify and make sure that the right people get paid for their content use by 3rd parties.

Among other benefits that blockchain can offer to music content creators are:

New Monetization Opportunities

Since all blockchain-based cryptocurrencies support micropayments, it helps eliminate any transfer costs for content owners. Also, blockchain allows users to select a record of their choice and reward stakeholders immediately with cryptocurrency.

Independence from the Monopoly of Large Record Labels

It can allow indie artists to finally gain independence from large record labels and, thus, make money and increase user base without giving the lion’s share of their royalties to expensive producers.

Distributed ledger technology can help remove middlemen from the market and enable indie record labels to sell their content directly to users.

“Token economies recognize and reward fans for coming to the stage and utilizing services. On this stage, an artist can sell tokens to fans directly in order to raise funds for creative projects. By leveraging and utilizing smart contracts, artists are then able to receive immediate payouts and monies generated from the song, rather than waiting months or even years to see their hard work paid off.” Andrew Rossow, Forbes

This statement suggests that blockchain will also push indie artists to make an effort and increase their digital literacy and find new and outside-the-box ways of interacting with their target audience (e.g., selling memorabilia, collectibles and own virtual merchandise on the blockchain along with tracks and tunes).

Despite the optimism of some experts, creating a highly secure royalty distribution system on the blockchain has yet to make a long way from ideation to the workable and effective solution. While it’s a matter of the future, some innovative startups and established brands are already working on it now. Let’s review a couple of demonstrative cases.

Using Blockchain for Building Royalty Distribution and Management Solutions

One of the projects that has offered the most feasible solution to the above issues is Choon founded by a famous DJ and music producer Gareth Emery and software developer John Watkinson.

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Choon goal is “to destroy the monopoly of major labels on the distribution of musicians’ works.” What Choon essentially does is when you pay to play a song on their platform, your money goes directly to the artist via their internal cryptocurrency called Notes ($NOTES). Besides, platform users get paid for listening to new music and thus helping unknown artists and bands gain popularity and spread the word of their music. Even playlist curators get paid for streams from their playlists.

As we can see, Choon is going to evolve as a blockchain-based ecosystem that will provide different win-win opportunities for absolutely all stakeholders. All revenue splits are handled automatically thanks to smart contracts. Artists and listeners will be able to withdraw fiat money on any crypto exchange that lists Notes.

How will Choon make money? Through advertising. At the moment, the platform already features over 5,000 registered artists, but mostly the indie ones. This can pose a particular risk as the platform may be struggling to attract really “big fish” in the future, i.e., famous labels and artists.

Competitive platforms include Musicoin, Ujo, Resonate, Bittunes, and more.

Another case is from the corporate world. Large and established brands that build multi-level blockchain-based platforms have better opportunities to create effective royalty management systems, as they have a better chance to attract the best blockchain architects and developers.

In June 2018, two large corporate players, Microsoft and Ernst & Young launched a blockchain solution for media and entertainment content rights and royalties management. The system is designed to “enable increased trust and transparency between industry players, significantly reduce operational inefficiencies in the rights and royalties management process, and eliminate the need for costly manual reconciliation and partner reviews.” In addition, the solution provides real-time visibility of all sales transactions in the blockchain network and help all stakeholders respond faster and smarter to new market needs by providing in-depth analytics and insights and fostering informed decision-making.

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The system is based on the Azure platform; EY will be in charge of creating smart contracts and legal support of the solution along the entire value chain.

Due to the lack of working blockchain systems for distribution of royalties, it is difficult to talk about the growth of profits for musicians and composers so far. However, according to a 2017 study of the Inter-American Development Bank (IADB), the introduction of such a solution will benefit first of all large platforms.

“While the transformative nature of blockchain ought to be celebrated, it would be naïve to hope that, absent good policies, the industry as a whole (principally artists) will be well served merely by technological advances fueling novel business models,” said Ignacio De Leon and Ravi Gupta of IADB.

When it comes to the music industry, cyber piracy inflates the cost of policing IP infringement, especially in jurisdictions that lack adequate legal protections for copyrights and enforcement.

So the question is whether distributed ledger technology will be able to change the status quo and help artists and content creators overcome existing hurdles. We’ve yet to see if blockchain will be able to eliminate a high fragmentation of the industry as a whole and who’ll benefit from this technology the most — artists, indie studios or large labels. The latter traditionally stay ahead of the curve because they can allocate huge budgets and attract top developer talent to bring their ideas to life faster and generate substantial word of mouth among all market participants.

What’s your take on this? Leave it in the comments below.

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