Hackernoon logoWhy the Music Industry Needs Blockchain by@reza

Why the Music Industry Needs Blockchain

Reza Jafery Hacker Noon profile picture

Reza Jafery

Blockchain Lead @Akoin / Blockchain Consultant @PwC / Partner at @BMA

How centralization hurts creatives, and what we can do about it

Blockchain can do wonders for the music industry. At BlockchainWarehouse, we help companies launch token sales — in a past life, I managed artists and producers. I’m knowledgable regarding the music industry, and fluent in blockchain (or at least that’s what I like to tell myself).

Photo by Skylar Sahakian on Unsplash

Let’s think about some things blockchain is good for:

  • Processes with numerous middlemen
  • Over-centralized industries
  • Tracking the flow of assets or digital items
  • Creating trust by removing the option of dishonesty

One of my favorite explanations of blockchain and its applications is this excerpt from TheConversation. You can find the original article here.

Blockchains can be used for a wide variety of applications, such as tracking ownership or the provenance of documents, digital assets, physical assets or voting rights.
Blockchain technology was popularized by the Bitcoin digital currency system. But, essentially, a blockchain is just a special kind of database. The Bitcoin blockchain stores cryptographically signed records of financial transfers, but blockchain systems can store any kind of data. Blockchains can also store and run computer code called “smart contracts”.
What makes a blockchain system special is that it doesn’t run on just one computer like a regular database. Rather, many distributed processing nodes collaborate to run it. There can be a full copy of the database on every node, and the system encourages all those nodes to establish a consensus about its contents.

I’ll refer back to the excerpt throughout this article, it’s important to completely understand the potential solutions if you want to understand the depth of the problem.

Now let’s look at the music industry. There are two main areas where I see blockchain disrupting the music industry.

Artist Funding

Record labels and their A&Rs (artist and repertoire agents) are the gatekeepers to the industry. They decide who gets the capital. Think of record labels as venture capitalists (VC), except their investing in higher risk investment vehicles than any sane VC ever would. The chances of an artist succeeding are extremely slim. Because of this, record labels get to put terms in their artist contracts that are extremely favorable to the label. The typical deal is 70–80% in favor of the record label. These deals tend to come with an advance, anywhere from $50,000 up to millions of dollars depending on the speculative value of the artist in the future. The catch is, that 20% you get from the money you generate as an artist — you don’t see a dime of that until you recoup the advance you’re given. On top of the fees you’re now paying to your label, you have even more people you need to cut in if you want to succeed. You need a manager, you need a PR team, a booking agent, a tour manager — I can go on and on. Some of these expenses are covered by the label but more often than not at least the manager is taking a cut of whatever % the artist is making. After the labels cut.

“Record labels can work both in your favor and against you. All depends on the type of deal you sign, but if you sign the wrong deal you very easily can get lost in the system, lose creative control & always be in debt to your label. Also you can easily get shelved if you don’t compete with the labels top artists, and can become a low priority to the team. But for Kid Buu, that will never happen haha!” — Kid Buu, Hip Hop Artist
Independent artists: Kid Buu and Colacino (1/2 of OohdemBeatz)

Kid Buu is an example of an artist who is paving his own path, and exactly the kind of artist that can benefit from decentralization. He built up an impressive audience around his persona and music before he started conversations with record labels. He’s bringing something to the table (an audience), and therefore he’s getting more favorable offers. However, with the size of his fanbase, he’d be able completely fund his career and only give up a fraction of his royalties if the fund raising process was decentralized. If the risk were spread across his fans, and not resting solely upon record labels — the system is more balanced.

I’m not saying that record labels are the enemy. There are plenty of cases where record labels help up-and-coming artists capture momentum and create great success in their careers. The only problem is, this is only the case for a small fraction of artists who sign deals with labels. Many of them get “shelved”, meaning their projects are put on the back burner so the label can focus on artists that they see as more promising revenue opportunities.

“We honestly always dreamed of being apart of a major label just to see what it is like, but the honest truth to the music industry nowadays is you have to build it by yourself. You can not expect a label to help develop your career. You basically have to do absolutely everything independent to the point where, by the time a label is even interested in signing you, you basically don’t even need them anymore! This is why we have stayed independent so long. Now that labels and management etc want to get involved after 6 years of blood sweat and tears, we almost don’t even need them anymore. It’s almost like getting a credit card. You need credit to get a credit card, but you can’t get credit without a credit card. Ironic!” — OohdemBeatz, Producers

The low hanging fruit here would be to ask record labels and royalty distributors to move over to the blockchain, so the artist, and the fans, could see where all the artists’ revenue was going.

There can be a full copy of the database on every node, and the system encourages all those nodes to establish a consensus about its contents.

This would establish trust amongst artists, labels, and fans. If one artist on a labels roster wasn’t being financially supported as much as they should be- it would be known. But in all honestly, the likeliness of this occurring in my opinion is close to zero. So lets get back to record deals and these “advances” that entice most artists into bad contracts.

The problem with advances, is that they’re a catalyst to a form of financial slavery.

Most artists never pay off their advances, they live their creative careers constantly paying the record label they signed. When and if they ever do pay off their advances, they get the huge reward of 20–30% of the revenue their music generates for the rest of their contract term.

Blockchain can be used to decentralize the process of fundraising for artists. If you distribute the risk amongst, let’s say, 100 stakeholders as opposed to 1 (the record label), than the artist could potentially see a more favorable royalty split.

The centralization of capital sources in the music industry also means that record labels essentially get to dictate what music, is “good” music. Unless an artist makes it independently (which is becoming more common, but still rare), they were at one point signed off on by a record label. Decentralizing the industry to allow fans and music enthusiasts to decide which artists receive funding democratizes the process of discovering new talent.

Royalty Distribution

Royalty distribution in its current form is a mess. There are several companies that handle digital distribution and royalty distribution, but the list of individuals that need to be paid out on most professionally made songs is extensive.

For example, check out the credits for Drake’s song “Glow”.

“Glow” f/ Kanye West
Preliminary Publisher Information: Sandra Gale/EMI Pop Music Publishing (GMR), Please Gimme My Publishing/EMI Blackwood Music Inc. (BMI), Mavor & Moses Inc./Kobalt (ASCAP), EMI April Music Inc. (ASCAP), Downtown DMP Songs (BMI), Sony/ATV Songs LLC (BMI), WB Music Corp. (ASCAP) Kobalt Music (ASCAP)
Written by A. Graham, K. West, N. Shebib, L. King Jr, M. Yusef, J. Sakiya Sandifer, N. Goldstein, Phillip Bailey, Maurice White, Aubrey Graham, Carlo Montagnese, Majid Al Maskati, Gabriel Garzón-Montano, Anthony Jeffries, Ilsey Juber, Kenza Samir, Noah Shebibm Jordan Ullman, C. Young
Sample Credits: Contains samples from “Devotion” written by Phillip Bailey and Maurice White published by EMI April Music Inc. (ASCAP). Used by permission. All rights reserved. Excerpts from “Devotion” performed by Earth Wind & Fire courtesy of Sony Music Entertainment. Contains excerpts from “6 8” performed by Gabriel Garson-Montano, Courtesy of Styles Upon Styles, Inc. Used by Permission. Contains excerpts from “Jungle” performed by Drake courtesy of Universal Music Enterprises
Produced by Noah “40” Shebib for Mavor Moses Inc. and Kanye West/Additional Production by Noah Goldstein
Recorded by Noel Cadastre, Noah Shebib & Harley Arsenault for Evdon Music Inc. & Noah Goldstein at SOTA Studios, Toronto, CA, Park Hyatt, Paris & No Name Studios, CA
Mixed by Noel “Gadget” Campbell for Evdon Music Inc. / T.O. Music Group at SOTA Studios & Studio 306, Toronto, ON
Kanye West appears courtesy of Getting Out Our Dreams II, LLC

This isn’t even the longest credit list I’ve seen, if you have the time, Google the credits for the song “Fade” by Kanye West.

The moral of the story is, the majority of the people in that list have to be paid out royalties — and I’ve heard many cases (and experienced first hand) where producers or song writers don’t get paid out at all. Think about cases where an artist is under the radar for years before starting to build a lot of momentum. In these situations, there can be hundreds of songs the artist has already released independently. All the producers and features that artist worked with deserve royalties when the artist “makes it”. Yet, its not uncommon for the creatives who contributed to the start of an artist to be completely forgotten when record labels get involved. They don’t see royalties, recognition, some don’t even get mentioned in credit lists. The process of tracking distributing royalties is far from transparent, whoever uploads the song essentially controls who gets paid as it generates revenue.

Blockchains can be used for a wide variety of applications, such as tracking ownership or the provenance of documents, digital assets, physical assets or voting rights.

Blockchain can be used to create an immutable system that’s completely transparent — so if someone isn’t getting paid, they’ll know, and be able to address it.

If an artist was able to tokenize each project they launched, and offer tokenized royalty shares, royalties could be distributed to each person contributing to the album automatically. Further, this would also allow the decentralized funding we were just talking about.

An artist can issue 100 tokens, each token equally 1% of the royalties generated from their album. The tokens can be distributed to everyone who contributed to the song, a portion can be set aside for the artist as their share of the profits, and the rest can be sold off to fans in order to raise funds to produce the album.

I don’t think blockchain can disrupt the music industry, I think it needs to disrupt the music industry.

Reza Jafery Hacker Noon profile picture
by Reza Jafery @reza. Blockchain Lead @Akoin / Blockchain Consultant @PwC / Partner at @BMARead my stories


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