How will blockchain impact the music industry?

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While the financial industry is on the brink of disruption, the music industry has been on a steady decline as digital has replaced physical distribution the last ten years. Even though revenues in the music industry is growing for the first time since 1995, the gap between music consumption and artist revenues is growing. This is due to several factors, but one of the contributors for lesser known artists is how streaming platforms calculate royalties. The way it works, the artist’s monthly streams is divided on total monthly streams, effectively favoring whatever becomes that months huge hit, instead of dividing revenues per play. This has enraged both fans and artists, and some artists have chosen to pull their music from streaming services such as Spotify.

This is where many are advocating the use of blockchain for a more fair music and royalty distribution. I had the pleasure of meeting Imogen Heap last year, who then had released her last single on blockchain. By doing this, she hopes to create a “fair trade” music industry that aims to sidestep intermediaries like iTunes and Spotify and giving musicians ownership of their own work as well as giving the artists control of pricing and terms of use.

Cutting out the middleman is only one area where blockchain could benefit musicians. Royalties are often divided amongst several artists, where the performing artist(s) get one fraction, another to composer, another to the producer as well as fractions to the publisher, the record company, A&R depending on your contract. For sampled music, it gets even more complicated. In addition to providing an immutable proof of ownership for each recorded song, a blockchain-based solution might even sort out the payments of those royalties in real-time opposed to today’s streaming world where it takes forever for an artist to receive any payment from music published on digital distribution platforms.

Copyright administration is another area where complexity in today’s system creates room for intermediaries like performing rights societies to track and collect royalties whenever music is played public. For a small country like Norway there are no less than two different performing rights societies. A distributed database of ISRC codes could potentially automate and make this process more transparent and reduce the need for intermediaries.

Lastly, blockchain could enable new business models when it comes to funding. Crowdfunding has already become an option for many artists, and sites like Indiegogo and Kickstarter feature lots of artists hoping to raise funds for their next release. Based on how much is raised, backers receive various rewards in forms of both physical and digital copies of upcoming releases, merchandise and concert tickets. A blockchain-based crowdfunding solution would enable fans to invest in the next release of artists they love, and smart contracts would entitle the same fan a small fraction of future royalties. This would also incentivize fans to promote artists the support, creating a stronger bond between artists and fans, as well as give independent artists supporters that have a mutual financial incentive to promote the music.

A blockchain –based approach to digital distribution of music could benefit the entire value chain from funding, rights management, copyright administration as well as payments. However, as in most blockchain use-cases the real change need to occur in the business model. Technology is only an enabler that could provide transparency and provenance of digital rights.

Photo taken at Oslo Marathon 2015.

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