Guest post: “Blockchain And The Music Industry” by Deborah Newman
ED note: The following is an excerpt from the upcoming IAEL book, “Monetization of the Global Music Business – From Creators to Major Industry”. Its author, Deborah Newman, is a recognized digital music thought leader who founded MusicStrat in 2008 to combine her deep experience in the music, television and video businesses with her interest in copyright and digital media. MusicStrat advises music and technology companies on content acquisition, rights & licensing, strategic marketing and partner relations.
“BLOCKCHAIN AND THE MUSIC INDUSTRY”
Deborah Newman, Esq.
I first heard about the Blockchain in early 2015 while attending an interview with D.A. Wallach – recording artist, songwriter, investor, and essayist – who had just published the seminal article about the Blockchain and the music business entitled “Bitcoin for Rockstars: How Cryptocurrency Can Revolutionize the Music Business.” In it he explains how the lack of a central database to aggregate and track information about music is preventing artists and songwriters from getting paid for the legitimate use of their music and compositions.
Every day we hear artists and songwriters complain about the music industry’s “lack of transparency,” and how they are not getting paid what they deserve from the digital exploitation of their music. Yet global subscription streaming in 2015 was up 39% from the prior year, and ad-supported streaming was up 38.6%. All the while, companies like Pandora, Spotify, Deezer, Apple, YouTube and others are paying hundreds of millions of dollars to rightsholders for the privilege of performing and distributing music on their online and mobile music services, making it almost impossible for them to turn a profit.
How can this be? Why is the money being paid by digital music services to record labels and music publishers (and collection organizations on their behalf) not making it to the bank accounts of artists and songwriters? There are a multitude of possible reasons, but an important one is that a portion of the money being paid is not being allocated because of the difficulty of identifying the contributors and how they should get paid. What happens to these royalties? They end up in the proverbial “black box,” where royalty revenue is held because it cannot be accurately identified. “Services and PROs that can’t distinguish a rightful royalty recipient end up placing this money into escrow accounts and eventually distributing these unattributable monies to labels and publishers based on market share. Such monies are usually not shared with artists or composers signed to those labels or publishers since they can’t be attributed to any rightful creator.”
This article will attempt to describe how new technology can help solve the problem of artist royalties and payments by providing transparency to the complicated chain of rights ownership and usage in the digital distribution of music.
The Lack of a Rights Database
Today’s music business involves millions of daily micro-transactions, generating revenues in fractions of pennies. For every song that is downloaded or streamed, there are writers, musicians, producers, recording artists, record companies, music publishers and others who can claim ownership rights to some aspect of the recording. But it’s extremely difficult to determine who owns what, in what percentage, and how much to pay to whom. As a result, payments get held up or don’t get made at all.
Although there are millions of sound recordings with many performers, the copyright in a sound recording is most often owned by a record label, which assigns a unique identifier — the International Standard Recording Code (“ISRC”) — to each track on an album. It is permanently encoded into the music file as its ‘digital fingerprint.’ Encoded ISRCs provide the means to identify recordings for music services to distribute sales and royalty payments to artists, record labels, and music distributors. Publishers, collection societies and music services use ISRCs to match recordings to underlying compositions.
The more challenging data problem is the underlying composition, where there are often multiple writers of a song, and each of these writers might have different publishers (who also have rights to the song). There is also a unique identifier for the musical work – the International Standard Musical Work Code (“ISWC”) — that accurately identifies each specific composition, facilitating the match with the ISRC. However, the ISWC does not indicate the shares of composers or copyright owners of the work (there are often too many of them and they change with time and according to the territory and rights), nor does it indicate the date or the place where the work was initially published. Further, the ISWC is not nearly as widely used as the ISRC; not having the ISWC makes it more difficult to match the sound recording to the composition.
Currently, there is no central database to keep track of all this information about music. It’s a unique metadata problem — lots of data exists, but no one wants to share it. In Bitcoin for Rockstars, DA Wallach explains: “The root of the problem is…the absence of a single dataset containing credits and rights information. Today, this information is fragmented among a large number of territorial organizations. Every entity treats its data as proprietary and intrinsically valuable. This is understandable, given that these organizations invest heavily in their datasets.”
There is also still no widespread industry adoption of a standardized reporting format for digital music services to provide complete and accurate data about music usage, and most labels’ and publishers’ royalty accounting is managed on old, out-of-date legacy systems that are unable to create reports that artists can read and understand. Without a central database, users who want to license music have a hard time identifying who owns it.
There is broad consensus in the industry that there should be one master database which contains every song ever written and every recording ever released with all of the proper data – recording artist, label, distribution company, publishers, all songwriters with correct splits, every backup musician, producer(s), ISRC code, ISWC code, name and addresses of all rights holders, etc. The most recent attempt to build this came in September 2011, when a group backed by the music publishing sector officially launched an effort to create a Global Repertoire Database (“GRD”), intended to be the single point of registration of all sound recordings and musical works and all the metadata associated with those works. Unfortunately, in July 2014, the GRD died. After £8 million in investment, the venture was “scrapped due to a fall-out of collection societies over funding.”
What is the result of not having accurate data? It means that many artists and songwriters are not getting paid. In “Bitcoin for Rockstars,” Wallach presents a solution: a new system that would increase transparency and efficiency in the music business based on a “decentralized rights management and payments system upon which any music service or application could be built.”
Bitcoin and the Blockchain
Most people have heard of Bitcoin — a virtual currency that enables peer-to-peer transactions where users can transact directly without a financial intermediary. Although they are often used interchangeably, Bitcoin and the Blockchain are not the same. Bitcoin is the first “decentralized digital currency” that operates with no central authority or banks. Managing transactions and issuing bitcoin is carried out collectively by the network; Bitcoin is open-source — its design is public. Nobody owns or controls Bitcoin.
Understanding Blockchain requires understanding some new concepts, including “decentralized consensus,” “trusted computing” and “smart contracts.” Bitcoin sits on top of a peer-to-peer public ledger or database of transactional data called the Blockchain. It is a decentralized digital platform for recording and verifying transactions using Bitcoin with no central authority governing it. The servers running the Blockchain are all over the globe – it is a shared, trusted, public ledger that everyone can inspect but which no single user or owner controls. The participants collectively keep the ledger up-to-date, and it can only be amended according to strict rules. The Blockchain is able to process transactions using cryptocurrencies that are transferred instantly, because no intermediaries are involved between buyer and seller. The data is distributed using blockchain technology to create a transparent and decentralized database of rights and rights owners, and automates royalty payments using smart contracts and multiple servers that allow this transactional data to be written into a permanent record.
“Smart contracts” refers to the ability for “transactions” to be made that enable machines to read the terms of a contract as represented in computer code. They can govern the copyright interests of writers, musicians and other parties, including their interest in a track and the amount of royalties each of them is owed. Musicians and authors can decide for themselves what licenses to grant and how much the licensing fees should be. If a music service decides to play a song, the royalties can be automatically transferred (in real time) to rightsholders and split into the appropriate percentages.
Although smart contracts are still in their nascent stage, there is huge potential. Once the smart contract can verify a “triggering condition” — for example, a download -– the contract goes into effect and payments are made directly to the various rightsholders according to the “rules” embedded in the contract.
This could not be done before because there was no digital financial system that could support programmable transactions. The advent and increasingly widespread adoption of Bitcoin is changing that, so that smart contract technology is now being built on top of Bitcoin (and other virtual currencies’) platforms. “Because Bitcoin is itself a computer platform, smart contracts can speak to it just like they would any other piece of code. Now a computer program can trigger payments, both large and small. Some say smart contracts are the “killer app” of the cryptocurrency world.
Blockchain for Music – “The Nirvana State?”
In an interview with Berklee College of Music’s George Howard for Forbes Magazine online, Andy Weissman, a venture capitalist at Union Square Ventures (investors in SoundCloud, Kickstarter, Foursquare and many other innovative tech start-ups) discussed how blockchain technology could be applied to the music industry. Weissman describes how the Blockchain could create what he calls the “Nirvana State” for the applicability of the Blockchain to the music business:
1. “Assume no change in copyright laws in the US.
2. To afford yourself of those protections, you must “register” your copy on the Blockchain. In that way, the “rights” will be publicly listed. As those rights may be transferred, the chain of ownership will as well.
3. One benefit here could be that one could also stamp your own rules on that copy. Programmatically, we would see what you desire as to that piece of media and how it may be used. These of course could change over time, as you desire.
4. This would then be a decentralized registry, but even more as the rules would be machine-readable. This could enable apps and services to be built on top of them.
5. This could achieve the end state of being the nirvana music API.”15
The “nirvana state” that Weissman describes goes way beyond a mere registry. It is not just a database containing information regarding rights owners and percentages. By enabling smart contracts, the copyright owner can control the usage of his/her music by embedding that information in the file. For example, the owner may choose to make the music available for free streaming, or only available for on-demand subscription services. The owner may further set territorial limitations on usage as well as the prices for individual uses. The owner of the copyright in the musical work may choose whether or not the song may be synched to a video or whether a derivate work may be created and, if allowed, what restrictions may be tied to such usages. The end result could be that a machine would be able to read and understand those rules, and build a music service based on well-defined criteria without human intervention and endless contract negotiations.
What’s Happening Now?
The past year has brought a media frenzy surrounding blockchain technology and its potential applications. Starting with the financial industry, well-funded companies are exploring how to use blockchain for a variety of uses, including real property, art and collectibles, music and copyright, to name a few. There are a handful of companies experimenting with Blockchain in music, although since there is no template to follow, they are all doing their own thing, creating applications to sit on the Blockchain for specific problems.
The Rethink Music Initiative — a Project of Berklee Institute of Creative Entrepreneurship (BerkleeICE) – issued a comprehensive report in July 2015, with recommendations on how to increase fairness and transparency in the music industry. Some of the report’s proposed solutions include adoption of the following:
- “A “Fair Music” seal, similar to a fair trade certification to encourage fair pay-out rates and protect creators;”
- Decentralized rights database, controlled by a nonprofit, that lower the number of unclaimed royalty payments;
- Blockchain technology, which powers Bitcoin and other cryptocurrencies, to manage and track online payments directly from fans to music creators; and
- Education initiatives for all music creators regarding their rights and the operations of the industry.”
One of the biggest challenges will be getting artists and rightsholders to embrace blockchain technology. Today, independent artists who own and control their own masters and publishing are driving experimentation with the Blockchain. One is Imogen Heap, an English singer-songwriter and composer who has been a pioneer in self-releasing her music long before it became fashionable to do so. In October 2015, out of frustration with the “opacity of the music industry,” Ms. Heap released a new song, “Tiny Human,” using blockchain technology and crypto-currency payments. She worked with Ujo, an Ethereum blockchain-based platform that allows anyone to create specialized applications on top. Ujo uses blockchain technology to create a transparent and decentralized database of rights and rights owners, and automates royalty payments using smart contracts and cryptocurrency.
Heap has said she wants to build a similar distributed music database for artists that she calls Mycelia.The idea, she says, is to create a system of identifying everyone who was involved in a piece of music, and identifying how each will be compensated for the finished song — as well as rules around how and where and when the music may be used, either for free or in return for a fee.
Israeli-based Revelator sees the Blockchain as the “operating system for music rights management and distribution of assets.” According to Revelator’s Founder and CEO Bruno Guez, “Our mission is to bring transparency to the industry, so that all players—from artists to managers to labels—have easy, quick and shareable access to data. The way we see it, the only way to fix the transparency problem is to give labels and artists a tool that assembles data automatically and makes it easy to view, understand, and share that data. Our platform allows artists to see their shares on-demand with one click.”
Revelator has partnered with Colu’s Bitcoin Blockchain platform. The two companies are working on a “Rights Management API,” which will “apply transparency to the digital distribution of music, displaying both the rights of ownership and the usage.” Guez says that record companies and music publishers have outdated technology and inefficient processes, and a lack of good metadata. His company is trying to bring the parties together to create a system that provides a “trust exchange” to validate identification and ownership of assets.
A Look Into the Future
There are certainly issues the Blockchain will have to solve to get past the point of novelty (or being “the next big thing”). There are questions about trust and authority, immutability and scalability. However, that is not stopping many forward-thinking artists and entrepreneurs in pursuing ideas to use blockchain technology and smart contracts in a new era of the music business. Some are already operational in a limited way, and others seem more aspirational.
Joe Conyers III, VP Technology at Downtown Music Publishing, has been advising Imogen Heap on the publishing side of the business as she develops Mycelia. He sees this as a “small step in a bigger movement.” Conyers says that Downtown is looking for various uses for the blockchain, and that he “can envision a day when Downtown might shift its entire song database onto a blockchain-like platform.”
Phil Barry of Ujo says, “Many companies and performing rights organizations share a really quite bold vision of what the future might look like if blockchain is widely adopted,” he said. “I think everybody can see that sooner or later blockchain is going to bring about change in not just music but all creative industries.”
Benji Rogers, Founder and CEO of direct-to-fan music platform Pledge Music, has proposed the idea of establishing a blockchain codec (a .bc file format) that includes the necessary rights information, or what he calls “Minimum Viable Metadata (MVD)” for a piece of music that allows the creators of that work to be paid correctly in the proportions that have been agreed upon. With the explosion of audiovisual productions and new kinds of music licensing environments, Rogers predicts that Virtual Reality (VR) and Augmented Reality (AR) will be the next new format, and that this is a “singular moment in the cycle of technology to create and adopt a fair trade format and roll it out through VR and AR.” George Howard, Associate Professor at Berklee College of Music in Boston says “if the music industry has any hope of taking advantage of the new opportunities available to them via the transformation of music to information, it will require this type of transparency that will lead to more accurate information, and thus better decision making with respect to deals.”
Is all this hype? Is the Blockchain really 1994 all over again — or just another harebrained techno-dream? The roadblocks to the music industry embracing the Blockchain are more than technical. The parties who benefit most from the lack of transparency are the ones who will resist anything that ends the lack of transparency. Current intermediary companies exist to collectivize the monitoring, accounting and payment for the consumption of digital music. They profit from the friction in the system, on fees, and on the float they get by holding money until they have to pay the rightsholders they represent. We’re moving rapidly towards a transparent world, one where accountability will be the norm. Artists should be entitled to know how and where their music is being used, to set the price for his/her royalties, and to know the payment streams (including who participates and for how much). They should be at the forefront of advocating for this change.
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Author’s note: There is a debate in the relevant community over when/whether “blockchain” and “bitcoin” should be capitalized when used in a writing. Despite the controversy, for the sake of uniformity, this author will use the following format
 Wallach, D.A., Bitcoin for Rockstars: How Cryptocurrency Can Revolutionize the Music Industry, Dec. 10, 2014, Backchannel, A Medium Corporation, https://backchannel.com/bitcoin-for-rockstars-ca8366802f9#.yr3ncippv (last visited Jan. 2, 2016).
 IFPI Digital Music Report 2015, available at http://www.ifpi.org/downloads/Digital-Music-Report-2015.pdf
Fair Music: Transparency and Payment Flows in the Music Industry, July 13, 2015. Rethink Music Initiative, A Project of Berklee Institute of Creative Entrepreneurship. Available at http://www.rethink-music.com/news/rethink-music-report-on-tranparency
 Matteo, Louis, Two Sides of the Same Coin: ISRC and ISWC, Hypebot.com, Aug. 2015, http://www.hypebot.com/hypebot/2015/08/two-sides-of-the-same-coin-isrc-and-iswc-draft-1.html (accessed Feb. 15, 2016)
 Frequently Asked Questions, ISRC International Agency, CISAC – International Confederation of Societies of Authors and Composers, http://www.iswc.org/en/faq.html
 Wallach, D.A., supra.
 Global Repertoire Database Working Group Launches, Sept. 27, 2011, Press Archive, PRO for Music, http://www.prsformusic.com/aboutus/press/latestpressreleases/pages/globalrepertoiredatabaseworkinggrouplaunches.aspx (accessed Feb. 14, 2016).
 Cooke, Chris, PRS confirms Global Repertoire Database “cannot” move forward, pledges to find “alternative ways,” July 10, 2014, Complete Music Update, http://www.completemusicupdate.com/article/prs-confirms-global-repertoire-database-cannot-move-forward-pledges-to-find-alternative -ways/ (accessed Feb 20, 2016).
 Wallach, D.A., supra.
https://bitcoin.org/en (accessed Feb 1, 2016)
“Decentralized consensus breaks the old paradigm of centralized consensus, i.e. when one central database used to rule transaction validity. A decentralized scheme (which the Bitcoin protocol is based on, transfers authority and trust to a decentralized virtual network, and enables its nodes to continuously and sequentially record transactions on a public “block”, creating a unique “chain”, the blockchain. Each successive block contains a “hash” (a unique fingerprint) of the previous code, therefore cryptography (via hash codes) is used to secure the authentication of the transaction source and removes the need for a central intermediary. The combination of cryptography and blockchain technology together ensures there is never a duplicate recording of the same transaction.”Mougarar, William, Understanding the Blockchain, Jan 15, 2015, Radar, O’Reilly Media, http://radar.oreilly.com/2015/01/understanding-the-blockchain.html
Cassano, Jay, What Are Smart Contracts? Cryptocurrency’s Killer App, Sept. 17, 2014, Fast Company, http://fastcolabs.com/3035723/app-economy/smart-contracts-could-be-cryptocurrencys-killer-app
(last accessed Feb. 14, 2016)
Howard,George, Union Square Ventures’ Andy Weissman on the Blockchain and the Music Rights ‘Nirvana State,’ July 19, 2015, Forbes.com, http://www.forbes.com/sites/georgehoward/2015/07/19/union-square-ventures-andy-weissman-on-the-blockchain-and-the-music-rights-nirvana-state/#76b5fc052f22
Botsford, Libby, BerkleeICE’s Rethink Music Released Report on Transparency and Fairness in the Music Industry, July 14, 2015, Berklee College of Music, https://www.berklee.edu/news/fair_music_report (accessed Feb. 24, 2016).
George Howard interview with Imogen Heap, Imogen Heap Gets Specific About Mycelia: A Fair Trade Music Business Inspired By Blockchain, July 28, 2015, Forbes.com,http://www.forbes.com/sites/georgehoward/2015/07/28/imogen-heap-gets-specific-about-mycelia-a-fair-trade-music-business-inspired-by-blockchain/#
Ingram, Matthew, Using the Blockchain to Reinvent the Music Business, Fortune.com, Nov. 27, 2015, http://fortune.com/2015/11/27/blockchain-music/ (last accessed Feb. 20, 2016).
Holmes, B., Transparency issues in the music industry could be solved by blockchain technology, Nov. 24, 2015, Brave New Coin, http://bravenewcoin.com/news/transparency-issues-in-the-music-industry-to-be-solved-by-blockchain-technology/ (accessed Feb. 1, 2016)
Guez, Bruno, CEO of Revelator, speaking as panelist at the New York State Bar Association panel entitled Bits Better Have My Money: An Overview of the Challenges Concerning Music Rights Management, Metadata, Proper Payments and Emerging Innovations, New York Hilton Hotel, New York, January 16, 2016.
Hogan, Mark, Imogen heap Inks ‘Forward-Thinking’ Publishing Deal, Planning ‘Fair Trade’ Payment System, Dec. 15, 2015, http://www.billboard.com/biz/articles/6812706/imogen-heap-inks-forward-thinking-publishing-deal-planning-fair-trade-payment (last accessed Feb. 15, 2016).
Three Startups Trying to Transform the Music Industry Using the Blockchain, Bitcoin Magazine, November 13, 2015, at https://bitcoinmagazine.com/articles/three-startups-trying-to-transform-the-music-industry-using-the-blockchain-1447444594 (accessed February 19, 2016).
 B. Holmes, supra.
Rogers, Benji, How the Blockchain and VR Can Change the Music Industry, Nov. 13, 2015, Cuepoint, a Medium Corporation, https://medium.com/cuepoint/bc-a-fair-trade-music-format-virtual-reality-the-blockchain-76fc47699733#.lnf6h6dd6 (accessed Feb. 19, 2016).
Howard, George, The Bitcoin Blockchain Just Might Save the Save the Music Industry…If Only We Could Understand It, May 17, 2015, Forbes.com, http://www.forbes.com/sites/georgehoward/2015/05/17/the-bitcoin-blockchain-just-might-save-the-music-industry-if-only-we-could-understand-it/#6fb3200e70dd (accessed Feb 21, 2016).
Howard, George, Bitcoin Can’t Save the Music Industry Because the Music Industry Will Resist Transparency, May 22, 2015, Forbes.com, http://www.forbes.com/sites/georgehoward/2015/05/22/bitcoin-cant-save-the-music-industry-because-the-music-industry-will-resist-transparency/#15eba74734bd (accessed Feb. 18, 2016)