Blockchain Technology: How will it revolutionize the music industry?
Currently the music industry is characterized by the widespread presence of intermediaries, especially with regard to the deposit of copyright and the full enjoyment of the same by those entitled, as well as the distribution of profits and the proceeds from the streams (listens) recorded by the artists at the most used streaming platform today: Spotify.
- How will Blockchain technology affect the music industry?
- What will be the future application trends in the sector?
- When will real disintermediation take place?
1. The functioning of the music Industry
Wikström (2014) states that the music industry in its broadest sense is based on the creation and exploitation of intellectual property arising from the musical work; this is divided into three macro-sectors with different logics and structures: the recording industry, dedicated to the recording and distribution of music to the consumer public; the live music industry, which works to produce and promote concerts, tours and other musical events; and finally the music licensing industry, which deals with managing the licensing of musical ops that are exploited for different uses, such as the use of music within commercials or television programs. Music and technological progress are concepts that have always been an inseparable combination. Since its inception, the record market has been in constant transformation, thanks to the many technological innovations that over the years have changed the way music is distributed, consumed and promoted.
2. Current situation of the industry and list of intermediaries
The intricate music sector is divided into several phases: production, brokerage and final consumption and different players form the supply chain of the music industry . The Artists, authors, composers and interpreters of the songs; Publishers ; record companies (label and major); Distributors and Retailers; the Companies for the rights of execution and finally the Aggregators (Spotify, iTunes, Deezer, etc. ). The widespread presence of intermediaries has caused an imbalance in the sector. For an artist it is extremely complex to emerge without the help of intermediaries and, if he decides to use the services of a label, Label or major, he would see the their revenues reduced by at least 80%. In addition, the process by which royalties are calculated has always been convoluted , and the advent of the Internet and streaming services have made it so. considerably more complex and unfair to artists. According to reports from the International Federation of the Phonographic Industry (IFPI), the music industry generated revenues of $ 19.1 billion in 2019 , a large amount of money of which the artists were however the last beneficiaries. The systems by which licences and copyright payments are managed are inefficient, opaque and anchored in a structure characterised by centralisation, intermediation and information asymmetry. The digitization of the music industry has been a major challenge for players in the sector, due to the spread of piracy, already present in analog and inaugurated in digital with file sharing programs such as Napster. Although a solution to the problem has been found thanks to platforms such as Spotify, Apple Music and Pandora, this is far from being transparent and fair. These centralised platforms generate profits of billions of pains and therefore value for their shareholders, while paying completely marginal compensation to the artists.
3. Spotify, Conflict of Interest
Analyzing the ownership structure of Spotify (365 million active users), a complex structure emerges. Morgan Stanley in 2019 acquired between 2.3% and 7.3% of Spotify, for a sum of between 550 million and 1.75 billion dollars and gave the start of a loan of 1.1 billion dollars to Tencent Holdings, a Chinese company that owns 9.1% of Spotify, to allow it to buy 10% of Universal Music Group, which in turn owns about 3.5% of Spotify. In addition, according to accredited estimates of the Music Business Worldwide website, among the list of shareholders of the famous streaming platform also includes Sony Music Entertainment with a share of 2.3%. Despite the fact that the two co-founders Daniel Ek and Martin Lorentzon still hold 77.4% of the voting rights in the company, it would be naïve to think that the big players listed above do not exert a significant influence on the decisions and modus operandi of the company.
4. Blockchain Technologies as a solution
How does blockchain fit in as an element of change in the music industry? First, by eliminating intermediaries from the process of selling and enjoying music content. Although streaming platforms have revolutionized the way music is listened to , making it widely available to users, they have also created a whole new level of intermediation between artists and fans. As can be seen from the previous paragraphs, artists are not given equal and meritocratic treatment, both in terms of visibility on the platform and the adequacy of the remuneration deriving from streams. The critical issues of the music industry can be summarized in the following points:
- No standards for metadata collection and documentation: Record companies, streaming services and collecting societies have databases based on different rules , each of which contains only partial information about each work present on the music market.
- Pay-per-stream Model: The proceeds from the streams are calculated as the ratio between the listens recorded by the individual artists and the total of the listens recorded by the platform. In other words, the remuneration of artists derives from the absolute market share that they manage to achieve. However, streaming platform revenue comes from subscriptions, not ratings. It is clear that the remuneration parameter considered by streaming platforms for the purpose of paying revenues to artists is asymmetrical with respect to the main source of revenue for these companies. All this generates inequity and wage distortions to the detriment of minor artists who are not adequately remunerated.
- High levels of intermediation and information asymmetries that benefit few subjects: Record companies receive a much higher share of revenue than artists.
- Total lack of transparency on license terms and revenue calculations in the face of confidentiality agreements between record companies and streaming services.
- Inefficiency in payments that take months or even years to reach their beneficiaries .
Many of these critical issues can be solved through the implementation of blockchain technology . First, the blockchain would provide an innovative tool for the creation of databases and distributed networks, aimed at managing metadata and information related to copyright ownership. The use of cryptography would guarantee the unique identification of each song by highlighting, recognizing and certifying the contribution of all those who participated in the realization of the finished product. This happens thanks to the synergy between Blockchain and hashing that allows you to translate intellectual property and copyright data into alphanumeric strings.
The Italian Society of Authors and Publishers (SIAE) was the first collecting society in the world to apply blockchain to copyright , filing 4.5 millions of Italian copyrights in the form of Nft's on Algorand, a performing blockchain in terms of scalability, sustainability, Smart Contracts and Nft's. The maneuver is aimed at making metadata management and copyright transactions more accessible and transparent. The transaction has not yet been completed, but once completed it will result in the instant recognition of royalties due to those entitled, as well as a drastic reduction in payment fees. On average , artists receive compensation for their works after 18 months and a commission of 20% is applied to the gross value of the amounts. Smart Contracts would allow a significant reduction in transaction costs , making it possible to divide revenue percentages and distribute flows of money automatically between rights holders and in near real time to listen, download or purchase music content. The main benefits can therefore be summarized in the significant compression of payment times, transaction and administrative costs, the reduction of which is estimated around 90%.
All this is made possible by the low transaction costs of cryptocurrencies, which allow to optimize the management of micro-transactions in the music market.
Indeed, the creation of a distributed register containing metadata and information relating to copyright ownership is the basis on which to build other infrastructures capable of interacting and creating transversal synergies.
Currently there are several decentralized streaming platforms based on blockchain that tend to overcome the limits and criticalities belonging to centralized systems. Decentralized platforms differ in terms of business and revenue models used, packages and features for users, and especially in terms of benchmark cryptocurrencies. The common trait of all platforms is the goal of empowering content creators and their listeners.
Greater diversification of the music market could be achieved by improving conditions and expanding the possibilities of emerging artists. Characteristic of these artists is the strong involvement of the fan base / community that opens up space for new sources of monetization and loyalty. For example, many platforms such as Musicoin, Choon and Ujo give users and fans the opportunity to finance the projects of emerging and non-emerging artists . In this way , artists can make innovative use of the capital market, allowing their listeners to participate economically and financially in the launch of albums and actively in marketing and communication projects through Fan Tokens and Democratic Voting Systems Decentralized Autonomous Organizations (DAO). This function can be implemented through the release, by the artists, of Nft's representatives, depending on the purpose, different rights, such as: participation in royalties, transfer of a service, access to a live event, access to backstage, distribution merchandising and others. This phenomenon also opens the door to another form of monetization: the purchase and exchange of tokens representing the right to participate in the distribution of royalties. Such trades, carried out on the secondary market, involve both listeners and investors.
Another sector of the industry, that of live music, complains of some critical issues that could know solutions with Distributed Ledger Technologies (DLT) (Bo, 2018). With regard to live events, in fact, the problems dictated by phenomena such as secondary-ticketing and counterfeiting are not negligible. The blockchain, through immutable ledgers and transparent and verifiable transactions, promises to create a new and innovative approach to resolving such offenses whose spread is increasing globally (Bo, 2018).
5. Conclusion and personal considerations
As far as Blockchain technology is concerned, numerous challenges and barriers of various kinds have yet to be overcome, starting from the issue of scalability and arriving at the need for a regulatory framework that can regulate the new themes and applications of this multifunctional technology. Of course, in order for the new paradigm to become an integral part of the culture of individuals, whether they are artists or end consumers, it is essential to incentivize user-friendly innovation in order to facilitate the adoption and mass dissemination of the Blockchain. If in the years to come we are able to solve the problems that I have just listed and to promote active collaboration with the institutions of the sector, we will have the concrete possibility to revolutionize the music industry thanks to Blockchain technology.
Some institutions in the sector are preparing the ground for the revolution, and the SIAE maneuver mentioned in paragraph 4 is proof of this. The fact that such an important intermediary felt the need to embrace a technology that tends towards disintermediation is extremely significant. As already highlighted, the potential advantages offered by the Blockchain are multiple and transversal. Currently, the visionary users who have embraced and implemented this revolution fertilize various sectors of the international socio-economic organization. Small companies, multinationals and government institutions have recorded, thanks to the use of the Blockchain, significant improvements in terms of efficiency of business processes and greater transparency and traceability of information. It is up to us to spread the founding principles of this technology and promote the advantages deriving from its appropriate use, which in the long term will allow a more intimate and profound collaboration between individuals and society.
"Because collaboration is stronger than competition" (G.L. Comandini, 2020, From Zero to the Moon).
Bibliography:
- Wikström, P. (2014), “The music industry in an age of digital distribution”, In Change: 19 Key Essays on How Internet Is Changing Our Lives, OpenMind.
- O’Dair, M. (2016), “The networked record industry: how blockchain technology could trasform the consumption and monetisation of recorded music”, New Economic Models in the Digital Economy
- IFPI (2019), “Global Music Report 2019”, International Federation of the Phonographic Industry.
- Bo, F. (2018), "Aventus and blockchain ticketing", Medium. https://medium.com/fraglie-digital /aventus-and-the-ticketing-via-blockchain-1a49f3ddb65b
- " Spotify's shareholding structure" https://www.rollingstone.it/musica/chi-possiede-spotify/504382/
- G.L. Comandini (2020), "From Zero to the Moon" when, how, why blockchain is changing the world.
