On the Decentralization of Spotify and Similar Platforms

While “Tokenization” and NFTs have made strides in the art world and allowed some digital marketplace like Opensea to go mainstream it so far has had less success in the music industry. Decentralized streaming music services like Audius have appeared but their scale and usage are still limited, and music is still sold to users as a fungible item online.

On the one hand, blockchains are only starting to resolve scalability and network latency issues. On the other hand, most of the music rights reside with legacy labels limiting the potential userbase, and thus networking effects of such decentralized services.

Established music streaming services organizations like Spotify or YouTube Music currently benefit from substantial market power within their ecosystem. To paraphrase Christian Catalini, as platform operators, they allocate rents between content publishers, users and advertisers who all rely on both their scale and their accumulated knowledge.

While Blockchain Technology can help such services better capitalize on the “New Content Economy” (Accenture.com) thanks to its ability to establish property rights at a finer level (Catalini) it also poses threats to the current balance of power within their ecosystem.

Moreover, the rapidness at which the technology can be used to scale networks without the need for a traditional central intermediary when combined with the right “cryptoeconomics” also poses a competitive and existential threat (Catalini).

Spotify or Youtube Music do not need to experiment with blockchain or “tokenomics” for funding purposes nor to build a network, but they could benefit from introducing a token in order to slowly change the way value is allocated in their ecosystem and to create new marketplaces. They should harness all their accumulated knowledge to do so.

When launching a coin, Spotify and Co. should design incentives that promote the creation of “new content” without damaging their relationship with legacy music labels while leveraging their position as collectors of data to continue satisfying advertisers and curating their content.

A way to do that would be to create two new “marketplaces” on their current music platform. One would focus on new artists with no current association with any labels and the other one on exclusive content from existing artists.

On both marketplaces, content can be defined as music, exclusive audiovisuals, concert tickets, memorabilia, or any type of artist-related assets that can be tokenized. Artists can auction content or set it at a fixed price.

The rationale in having 2 platforms is that the one with “known” artists will help in establishing a real benchmark value for the '“SPOTITUBEcoin” without the need for excessive liquidity. If “SPOTITUBE” was to list assets of unknown value with a token of unknown value, it would have to flush the market with liquidity and content to enable a price discovery.

If a “U2” new exclusive release costs 1 “SPOTITUBEcoin” and the new song from an unknown artist cost 0.1 '“SPOTITUBEcoin” it gives users an idea of the potential value of the new artist thus creating a positive feedback loop.

The rationale for not flushing the market with neither token liquidity nor content is both to leverage the potential diffusion effects that “New Early Adopters” can have on the technology when their need for feeling special is satisfied (Catalini & Tucker) but also to keep content scarce.

Songs or content should only be available in a limited amount (at least some of them or for some time) to create value and further boost NEAs egos. As opposed to the classic streaming service everything that is purchased with “SPOTITUBEcoin” has a unique value and is not fungible.

Artists or labels will also be able to issue equities in their next album or virtual concert (3LAU) and any other engagement activities between content providers and consumers will be encouraged to create a positive feedback loop.

The coin should initially be issued and offered to current premium subscribers as they are more likely to be NEAs (course material). Non-redeemable large stakes should also be awarded (or sold at a discount) to current platform legacy content providers (music labels) to encourage their involvement in the new marketplace and slowly redefine their roles (course material). They will be the principal initial “stakers” (Ethereum.org).

In time they will focus on creating and monetizing virtual events. Other users will either have to buy the coins or earn them through ad watching on the traditional streaming platform as with the “basic attention token”. (brave.com) so they only slowly gain access to the new marketplace. As in Brave, users will also be able to gift tokens to artists to support them.

Finally, everyone will be able to redeem their “SPOTITUBEcoin” but large publishers like those publishing multiple artist or live VR concerts will have to keep part of their holdings “staked” to be able participate at such scale.

Also published on BlockAdvisors.