New Kid on the Blockchain

Solutions to Issues in the Music Industry Through Blockchain Integration

By: Cam Verbeke

 

The diffusion of blockchain-based technology into the music industry would provide enormous financial and legal benefits for musicians, copyright holders, and service providers alike. As blockchain has become much more prominent, many industries are eager to see how they might be able to adopt the technology. The music industry ought to be at the forefront of blockchain integration. For decades the music industry has struggled to adapt to developments in technology. Each major innovation seems to have adversely affected overall revenue – from tapes to CDs to digital media, each has caused its fair share of headaches for those in the industry and driven revenues down. While peer-to-peer networks were once non grata in the industry, the emergence of blockchain-based networks could very well turn the former foe into a very good ally. A blockchain-based system could prove to be a vital asset to those who hold copyrights in songs by creating an efficient and cost-effective database of information needed to properly pay out royalties. This would also lead to a spill over benefit to service providers who sometimes avoid the costs of procuring proper royalty information and face expensive litigation as a result. Moreover, blockchain would give music artists a myriad of greater controls over their music and could prove quite lucrative by cutting out the numerous middlemen that take from an artist’s royalty payments. But before looking at blockchain’s potential place in the music industry it is worth reflecting on the first wave of peer-to-peer networks in the music industry.

 

Background: The Music Industry’s First Exposure to Peer-to-Peer Networks

The idea of a peer-to-peer system is by no means novel to the music industry. However, up until now, they have been more of a nuisance than benefit. The first wave of networks came in the form of Napster and other file sharing programs. While it was built on a peer-to-peer system, Napster was different from how we commonly think of blockchain today. Napster’s network was not entirely decentralized. Users would request a song on Napster’s host server which would process requests for a given file. [1] The server served as an index for all files uploaded by other Napster users. [2] Napster’s server would then give the requesting party those computers that had the file and the requesting party would then download the file of the computer. [3] In this sense, Napster served as a broker of sorts. A stark contrast from the decentralized network described in Satoshi Nakamoto’s White Paper. [4] With the emergence of decentralized peer-to-peer networks, the music industry seems primed for a second wave of peer-to-peer technology – this time through blockchain. While peer-to-peer networks once pained many, it may soon become a very useful tool to many in the music industry – beginning with copyright holders.

 

How Blockchain Can Help Copyright Holders and Service Providers

One major issue copyright holders in the music industry face relates to licensing and royalties, given the emergence of music streaming services that now dominate the market. Section 115 of the Copyright Act establishes a compulsory, mechanical licensing process, in which copyright owners must provide a license to anyone seeking to copy any work already released to the public. [5] To help facilitate the process, mechanical licensing agencies serve as intermediaries between the flow of licenses and royalties. [6] However, even with such intermediaries, the process can be expensive and time consuming for streaming services such as Spotify.

 

Though there is a national copyright database in the United States, they often provide insufficient information when it comes to procuring copyright holder information. [7] So far, any attempts to better streamline this process have been nothing short of spectacular failures. Most notably, the Global Database Repertoire (GDR), which was composed of music publishers, artists, companies such as Apple and Google, and governmental bodies of six countries. [8] Ultimately, the development of the GDR collapsed, leaving only a bill of nearly $14 million left in its wake. [9] Among the reasons listed for GDR’s failures were disputes within the participating organizations over control of the database. [10] The lack of any database unsurprisingly has led to services such as Spotify opting to outright ignore the process entirely. This in turn led to a $350 Million lawsuit for Spotify. [11] While the following proposal is by no means a defense of Spotify’s actions, it is a potential solution, mutually beneficial to all parties involved in the licensing process.

 

A blockchain-based database would be able to mend the shortcomings of the failed national database attempts. The transparency and immutable nature of blockchain would be immensely useful for music rights. All necessary copyright-related information would be kept on a public ledger. All participants in the blockchain would help ensure the information is accurate and easily accessed. Another benefit of a blockchain-based database would be that it is publicly maintained and therefore much more cost-effective generally-speaking than one operated by government or organizations. This public control would also prevent power disputes, such as those that killed the GDR. This blockchain-based solution would aid services like Spotify to avoid litigation by giving them little incentive to risk lawsuits in favor of cost-saving measures. Copyright holders would not be the sole beneficiaries if blockchain is integrated into the industry, as music artists also stand to gain a great deal from it.

 

How Blockchain Can Help Musical Artists

It is basic fact of the industry that music artists either hold limited rights or no rights to their own songs. Perhaps the most significant demonstration of this is the fact that in 1985, Paul McCartney attempted to purchase publishing rights to 251 Beatles songs (and was subsequently outbid by Michael Jackson). [12] It is sure to surprise many that the most commercially successful musician of all time had to try and purchase his own songs. Moreover, the advent of music streaming has made the industry even less lucrative to those who do hold rights. In a public filing, Spotify estimates that per-play a music artist makes somewhere from $0.006 $0.0084 (pre-division among all rights holders). [13] There are a myriad of reasons for this low amount including: illegal downloading, poor recording of the metadata that determine payout for music streaming, and the number of middlemen who each get compensated for their role in music distribution. [14] While it will not serve as an immediate cure-all to ensure musicians get their fair compensation, blockchain offers some promising solutions.

 

The transparent nature of a blockchain would mean that music placed on the blockchain would be immutable. This could prove to be extremely useful for artists in combatting piracy. Some developing processes specifically to combatting piracy involving a combination of a unique ID associated with the work and a smart contract which can search for unauthorized copies of the ID and automatically triggers any desired copyright mechanisms. [15] Furthermore, blockchain-distribution would allow artists to entirely control their songs without needing any of the current intermediaries to aid the distribution process. Cutting out the intermediaries also has the added benefit of bringing artists in direct contact with their fans. Finally, using the proposed database of rights described above, all rights holders of a given song could be placed in the file’s metadata with smart contract mechanisms automatically ensuring all included get paid. While the potential to help is quite large, there are still issues regarding the integration of blockchain into the music industry which deserve mention.

 

Issues in Implementing Blockchain to the Music Industry

Promising though it may be to the music industry, blockchain-integration faces its share of issues. The current state of blockchain technology is ill-equipped to process the amount of data currently transferred in the music industry at any given time. The average blockchain can transfer at most 1,500 transactions per second. [16] This number is absolutely dwarfed by the 18,000 songs being streamed per section on Spotify. [17] It should come as no surprise that a technology still in its relative infancy will need time before it can be implemented on a widespread scale in a major industry. Moreover, whatever limitations exist now should not prevent blockchain from being adopted on a relatively small scale throughout the music industry. Another issue is that one-third of global revenue in the music industry still comes from the sale of physical records. [18] The current renaissance of music on vinyl further frustrates any attempt to transition the music industry into the world of blockchain. However, with two-thirds digital, there still is enormous potential for blockchain applications to capture that amount. While these are only a couple of potential issues in attempting to integrate blockchain heavily into the music industry, neither are significant enough to render the idea unworkable. The fact remains that blockchain offers a tremendous amount of potential benefits and the music industry should respond accordingly as it continues to face its own issues.

 

Conclusion

The application of blockchain technology to the music industry has substantial potential for multiple players in the industry. Both copyright holders and musicians generally would benefit from the efficiency, cost-saving opportunities that blockchain offers. Both parties would be able to capture a virtual subindustry of money lost in intermediaries and unpaid royalties. It offers artists the possibility of exerting greater control over their work. Blockchain could also aid the process of licensing for service providers related to the industry such as Spotify. This helps them save costs as well as avoid unnecessary litigation. Blockchain Integration will take much time, effort, and investment to implement and numerous issues will still exist. Nevertheless, the potential for blockchain in the music industry is so great that it cannot be ignored.

 

[1]Jeff Tyson, How The Old Napster Worked (Oct. 30, 2000), https://computer.howstuffworks.com/napster2.htm.

[2]Id.

[3]Id.

[4]Satoshi Nakamoto Bitcoin: A Peer-To-Peer Electronic Cash System (Oct. 31, 2008), https://bitcoin.org/bitcoin.pdf.

[5]17 U.S.C. §115.

[6]Sofia Ritala, Pandora & Spotify Legal Issues and Licensing Requirements for Interactive and Non-Interactive Internet Radio Broadcasters, 54 IDEA 23. (2014).

[7]Klementina Milosic, GRD’s Failure, http://www.thembj.org/2015/08/grds-failure/ (last visited May 14, 2019).

[8]Id.

[9]Id.

[10]Id.

[11]Charlotte Hassan Spotify Now Faces One Big Fat Class Action Lawsuit (May 25, 2016), https://www.digitalmusicnews.com/2016/05/25/david-lowery-melissa-ferricks-lawsuit-spotify-now-combined. See also Lowery v. Spotify USA, Inc., 2016 WL 6818756 (C.D. Cal.).

[12]Colin Bertram How Michael Jackson Bought the Publishing Rights to the Beatles’ Song Catalog at the Advice of Paul McCartney (Jan. 29, 2019), https://www.biography.com/news/michael-jackson-paul-mccartney-beatles-music-catalog.

[13]Amy Wang, How Musicians Make Money – or Don’t at All – in 2018 (Aug. 8, 2018), https://www.rollingstone.com/music/music-features/how-musicians-make-money-or-dont-at-all-in-2018-706745/.

[14]Id.

[15]Craig Adeyanju Blockchain in Media: How Can Blockchain Fight Piracy (Aug. 8, 2018), https://cointelegraph.com/news/blockchain-in-media-how-can-blockchain-fight-piracy.

[16]Kirill Shilov Why Blockchain Might not be the Perfect Technology for the Music Industry (Nov. 24, 2018), https://hackernoon.com/why-blockchain-might-not-be-the-perfect-technology-for-the-music-industry-936db6aa2b35.

[17]Id.

[18]Angel DeForge Can Blockchain Technology Disrupt The Music Industry? (Jul. 19, 2018), https://medium.com/blockstreethq/to-which-extent-can-blockchain-technology-disrupt-the-music-industry-e6182fb5741a.