The modernization of the music industry -- and the rise of streaming services like iTunes, Spotify and Pandora -- have transformed the way people buy and listen to music and consume digital content. But as the industry has transitioned into a streaming-based model, issues with rights management, copyright enforcement and royalty payments have led to new challenges that could force the music business to rethink how payments are made to artists and creators.
There are a bevy of technologies to consider in the payment space, but one gaining traction in the music industry is blockchain, best known as the technology behind Bitcoin. Boiled down, blockchain is a secure, encrypted database architecture that logs and links all transactions on a tamper-proof ledger distributed among multiple parties. As a result, a blockchain creates an immutable golden record of time-stamped transactions related to any product that can be bought and sold.
In the context of buying music, news and other digital content, the promise of blockchain is to provide decentralized control, trust, and transparency when transacting virtual property. For the creators of digital content and virtual property, this means enforceable copyrights, transparency around royalty payments, and payments made securely without an intermediary.
In the music and news media industries in particular, the blockchain could be key to rights management, procuring micropayments of advertising and eventually paving the way for a pay-per-stream/read model. As the market shifts to blockchain over time, consumers could see lower prices for content, while the content creators see increased returns.
Simply put, blockchains could cut out the middlemen and enable musicians and other digital content creators to get paid directly by their audience.
"As an artist, you are reliant on what others say and have to trust that your royalties are calculated accurately," said Ben Golub, CEO of Storj Labs. "Blockchains are great at creating transparent, zero-trust environments where people can easily send payments programmatically and verify the information immediately."
Improving a flawed system
A major pain point in the media space today is the lack of transparency around royalty payments and rights management.
In music, royalty payments are often difficult to calculate when there are multiple collaborators on a single track. Record companies, publishers, and streaming service providers also operate in siloed databases, making it difficult to keep track of music rights and who is owed what money.
With a blockchain-based payment system, data from disparate systems could interact and facilitate precise payments to a number of individuals, bolstering transparency around the entire royalty system.
"With a blockchain, any artist could easily track funds over any period of time to see flows to various parties," said Golub. "This trust-but-verify approach minimizes work for intermediaries -- or eliminates the need for them -- simplifies payments at a global level by allowing the artist to accept payment in a single currency with minimal transaction fees, and ensures artists actually make what they're due."
Blockchain is also seen as a means of addressing rampant infringement within copyright structures.
"With smart contracts on the blockchain, copyright becomes more enforceable," said Tim Leonard, CTO of transportation software company TMW Systems. "People from around the world can see the copyright information on the ledger, and the copyright laws become a lot more defendable within a court of law."
The online news business faces its own set of challenges when it comes to monetizing content. As print publications fizzle out and online news operations take over, media companies are erecting paywalls to generate revenue and fund quality journalism. The catch is that most casual news readers would rather miss out on a story than sign up for a monthly subscription.
With blockchain-verified micropayments, however, readers could pay for only the stories they choose to read.
What's more, blockchain inherently provides evidence of ownership of content, in both digital media and music. For example, with a blockchain-based cryptocurrency, accessing an article would automatically send a micropayment to a smart contract that's been originally coded to pay out all of the parties involved in the creation and publication of that article, with the appropriate payment splits, in a transparent and immutable manner.
"Also, because of blockchain's trustless consensus mechanism, content producers will be able to distribute their content directly to users, removing the long chain of middlemen, hence reducing content cost, while enhancing the speed of content delivery," said Christian Ferri, president and CEO of BlockStar, a firm that incubates decentralized technologies.
One of the early pioneers experimenting with blockchain as a new model for music is British singer-songwriter Imogen Heap, who in 2015 turned to the Ethereum blockchain-based Ujo platform to launch the song 'Tiny Human' for $0.60 per download. Heap has also founded her own blockchain-based offering, Mycelia, that aims to give artists more control over how their music is sold and circulated.
Challenges to adoption
There are challenges, of course, to achieving a blockchain-based panacea for digital content purchases. Questions linger over whether there's a single blockchain capable of scaling to an entire industry, and the effectiveness of reconciliation if multiple blockchains were required.
"Micro payments and high volume transactions still have some technical hurdles such as scaling," said Bruce Fenton, managing director of Atlantic Financial, and board member of the Bitcoin Foundation. "Many blockchain apps run into technical challenges in the last mile. Overall, it's exciting and has potential but is still a ways away from being fully realized."
There are also certain legal considerations associated with blockchain's transparency, including the potential to violate data privacy laws, applicable privacy policies or data security regulations. Mass adoption is also hindered by the barrier of human understanding, as many people still struggle to grasp the mechanisms and utility of blockchain.
"People look at blockchain as almost taboo," said Leonard. "But when people get past that and start to understand the power of blockchain and completing transactions, it can take a lot of things to the next level."