Is Blockchain The Answer To Better Royalty Accounting and Payments?

Apr 27, 2017


Are you getting all the royalties you’re owed?

The move to streaming helped drive the music business to its first year of double-digit revenue gains since Napster. But it’s also created accounting mess.

The accounting systems in the music business were designed for a physical world, where fans bought CD, cassettes, and vinyl. The massive volume of millions of downloads and billions of streams is putting undue stress on these systems.

There are also too many organizations responsible for tracking different music rights. They either don’t share the information with each other, or the information they have is incomplete (or wrong).

The result—some rightsholders may not be getting all the money their owed.

But, many of the problems technology has wrought, technology can also solve. One such potential solution is a new format gaining momentum—blockchain.

Put simply, the blockchain format can embed all the necessary accounting, usage rights, and creator credit information right into the song file itself. That means wherever that file goes, the information needed to know who to pay, how it can be used, and more travels along with it.

The music industry has tried, and failed, on several occasions to build one master database for all music information due to a mix of political and funding challenges. Even had those efforts succeeded, getting information from one master database to the many digital music services who need the information would have been a bloated, slow process.

Blockchain, meanwhile, is a distributed format that builds this database in a decentralized fashion on the fly. Supporters say a decentralized system is better and more efficient than relying on many third parties to keep good records or communicate information to each.

The opportunities are significant.

Payments

When digital services don’t know who to pay, they put the money owed into a “black box” until the rightsholder claims ownership. Blockchain, embeds this information into the file itself, removing that ambiguity.

Usage Rights

Rightsholders can code into the file the permissions for use. For instance, it might be OK to stream it on YouTube, but not in videos that have objectionable content. Services adopting the blockchain format won’t need to check, the file will either play or it won’t.

Credit

Blockchain would end the instances of duplicate song files stored in services’ databases. It would also contain all the track credit information, like background singer, songwriter, producer, and more. Both fans and services could use this information for better music discovery.

Another benefit of blockchain is that its flexibility. Any change in ownership or rights after the original was created would simply result in an update to the blockchain and broadcast to all others in the chain. This includes covers, mashups, and yes… even the addition of private investors who buy into the song’s royalty stream.

The upshot is that everyone owed money for the use of a given song will get paid more accurately, and faster.

However it’s not without its challenges.

First among them is the need for all labels, publishers, PROs, and digital services to adopt the format. The logistics alone are significant, not to mention the fact that the music industry has a long history of not working together on technical standards. Even if the industry does align on the format, there’s a trove of previously released music that would then need reformatting. Digital music files would have to change from .wav or .mp3 files to .bc files. That’s not going to happen overnight.

But market forces could ease these concerns should blockchain prove successful. Technology shapes markets. And if a real marketplace emerges atop blockchain, the economic benefits may outmuscle the challenges. Only those who profit from lack of transparency and slowing of payments would benefit from holding it up.

“For the first time in history, there’s more money to be made over the table than under it,” said Benji Rogers, founder of the dotBlockchain Music initiative. “If there’s more money to be made in the sandbox than outside of it, everyone will join.”

Already, we’ve seen significant progress and momentum. Spotify, the largest streaming service in the world, just this week acquired a New York-based startup called Mediachain Labs. The given rationale is that Spotify wants a more effective method to determine which artists to pay for the use of music on its platform, and wants to use blockchain to do so.

(In March, Spotify had to pay a $30 million settlement with NMPA over unpaid royalties. Part of that agreement was a commitment to make “reasonable efforts” to better match streaming activity with rightsholders. This seems like a first step.)

Earlier this month, collection societies ASCAP, SACEM, and PRS For Music joined together to create a prototype system to better match song codes to rightsholders using open source blockchain technology.

This announcement followed similar news in January where the dotBlockchain Music initiative gained Canadian collection society SOCAN and its MediaNet rights administration subsidiary MediaNet, Songtrust, CD Baby, and FUGA as partners.

Finally, several blockchain-based music services like Token.FM are launching in the months ahead, using the standard to offer not only better fan-artist interaction, but also more control over pricing, distribution, and revenue splits.

Perhaps summing up the issue best is songwriter rights advocate and music industry lawyer Dina LaPolt, who strongly endorsed the need for the music business to embrace blockchain in a recent Billboard op-ed.

“Since I’ve been involved in policy making for the past several years, I understand that we can’t rely on governmental bodies, like Congress and the Department of Justice, to help solve all our problems. It is also not fair to put all the blame on technology for moving faster than we’re prepared to handle. Technologists can’t help us until we help ourselves-- for example, by making data tracking more accurate and feasible for those who are responsible for payments.”

There's still a good bit of work to do before blockchain becomes a reality. But artists, songwriters, and other rightsholders can get started now in a number of different ways.  

The best first step is to sign up for dotBlockchain Music. This newsletter sends periodic updates on development milestones, educational resources, and more. 

There are also several blockchain-centric music services artists can participate in and register their music with today. They include: