Is it a hype or a real chance for the music industry?
Over the past few decades, the music industry has undergone constant change. Physical ownership has lost importance in the face of 24/7 digital availability, and audio streaming players like Spotify have emerged as market leaders. Though digital transformation has changed the stakeholder landscape, the old structures that formed the music value chain have hardly changed. And although the volume of data has increased manifold, there is still no global database for copyright and neighbouring rights. Not only does this mean slower payments to artists, it also exposes fledgling digital businesses to significant risks.
Blockchain technology is aimed at changing this status quo. Since the technology is based on the ideas of database decentralisation and enhanced security, it holds huge potential for the music industry, particularly for rights management. Not only can blockchain help securely manage music rights, it can also be used to optimise automatic payments to rights owners through smart contracts.
The interest in blockchain technology has been growing considering its potential in solving some of the pressing issues of the industry. Start-ups and incumbents have already discovered various business models and monetisation opportunities . In the Netherlands, DJ Hardwell was among the earliest proponents of blockchain use in music. He collaborated with the company RightsShare (also Dutch), and announced in 2016 that he will use blockchain to manage his rights and payments. Since then, more start-ups and newer business models have sprung up around the country.
Apart from streaming platforms and smart devices that are backed by blockchain, Dutch start-ups are also attempting to leverage the huge live music segment in the country. One such start-up, GUTS Tickets, implemented the GET protocol to create a smart ticketing service. London-based blockchain company Bitfury is planning to launch a music and entertainment division that will create an open-source music platform secured by blockchain, with operations in Amsterdam and Berlin.
Established stakeholders in the industry are also not far behind. Since two years, Buma Stemra, the collection agency in the Netherlands, has been hosting the innovation platform Buma Music Meets Tech to support start-ups. It also participates in the Open Music Initiative, which aims at creating an open-source protocol for the uniform identification of music rights holders and creators. Warner Music is a pilot participant of the blockchain network KORD (launched by London-based start-up, JAAK).
Despite the vibrant start-up landscape and experimental incumbents, there are many challenges, regulatory and structural, that need to be addressed for blockchain to reach the critical level necessary for industry-wide adoption. For instance, the lack of a global, comprehensive database of rights is one of the most pressing issues for the music industry. With multiple stakeholder categories, such as creators, music publishers and labels, collecting societies, and event organisers, achieving consensus on data standards is inherently challenging. If blockchain is to be adopted at industry level, it is all the more crucial to have correct and complete rights data at the onset, since once recorded on the blockchain it will be inherently unalterable.
Another major challenge is the lack of guidelines, legislation, or established case law for using blockchain in the music industry. Consider the issue of data protection. Just as other industries, the music industry is also required to comply with the EU General Data Protection Regulation (GDPR). When using blockchain to record personal data, these rules become especially complex since the technology is designed to prohibit retroactive changes to the ledger, which is directly at odds with the GDPR guideline allowing individuals the right to ask for their data to be deleted. Other areas like intellectual property laws will also need to be revisited in the light of new ways of working.
Finally, there is the issue of disintermediation, as is common with many, if not all, tech-driven disruptions. With blockchain adoption, the role of labels and copyright collection societies could be diminished with the increase in smart contracts and micropayments. Disintermediation could be seen as a threat by established players that do not modify their value propositions and business models. Though blockchain is unlikely to be a zero-sum game, and could drive a lot of efficiency improvements, steering the industry past the chaotic phase will be critical for it to achieve its full potential.
Despite early successes, blockchain in music is still very much in its formative years. We expect the music market will undergo structural change as blockchain adoption spreads. The roles played by traditional stakeholder groups will evolve, and so will the manner in which the business was conducted. The decentralised storage of data in blockchain systems will simplify governance and ensure data integrity. The costs of intermediaries and transactions will be reduced considerably. And ultimately, the financial benefits to artists will likely boost overall creativity.
While it is almost certain that blockchain technology will touch the music industry, when and how it will happen is relatively uncertain. However, if first indicators are anything to go by, the technology must not be underestimated. While it may take a few years for its impact to become apparent, the time to establish early leadership might very well be passing by. Therefore, our recommendation is to engage with the technology early enough to have the necessary expertise in-house when the evolution within the industry begins.
How is Surround currently approaching blockchain? What are your plans for the future?
The Bitfury Group is one of the most established blockchain companies (founded in 2011). That, along with our experience in the music industry, makes Surround uniquely positioned to bring blockchain to the music industry. Surround’s first initiative is to create and launch the open-source SurroundTM platform (to be set up as a cooperative), which will allow secure transfer of copyright assets, streamlined connectivity, better monitoring and management systems. The Surround ecosystem will be built on Bitfury’s Exonum private blockchain platform, creating a transparent environment aimed at closing the value gap between the creative side of the industry and the platform economy.
The platform will include an extendable backend and frontend framework with built-in services and features that can be expanded.
We have been focused on developing the Surround platform since the past year, and plan on launching the first version soon. We aim to take a soft touch approach, testing everything before we expand to more use cases.
What do you think is the biggest challenge for blockchain in music?
The biggest challenge for blockchain in music is the dated infrastructure and incompatible systems of the industry. A quick win would be having a universal data language for exchange of rights data. That is long overdue, even though there are various initiatives that are looking at resolving that gap - including initiatives from educational institutes. I believe that having clear data standards would be key in simplifying the collection and registration process in the music industry. We personally believe change needs to come from within the industry, then followed by regulation.
Who do you expect to challenge with the Surround platform once it is launched?
Music is inherently a collaborative industry, so it is not a question of challenging any existing stakeholder. When talking of blockchain you constantly hear the message of “cutting out the middlemen”. We do not believe that is the way forward. The only thing that blockchain will challenge is the efficiency and ethics of the music industry. When talking of collection mechanisms, we have to appreciate the original purpose of that part of the business. The intention was to pay artists for their work, and not to complicate and over administrate. There is a need to create a clean collaboration model based on trust that will bring us back to original purpose of the business.
What is the long term vision for Surround?
In a business such as ours, it is difficult to talk in terms of five and ten years ahead. Blockchain technology is developing rapidly, and we aim to accelerate the innovation and close the value gap between the creative industry and the platform economy in music. We are already looking at various use cases, such as ticketing and reporting, and will initially focus on testing and launch of the platform.
In the long term, our vision is to carry over our technological edge to other markets where intellectual property needs to be managed through its lifetime – this includes in the music industry but potentially other verticals as well. We believe blockchain can act as an enabler as well as a differentiator, helping us act as a common denominator for all businesses where copyrights need to be managed on a global scale.
Stefan Schulz, CEO at Bitfury Surround - Alex Shevchenko, CTO at Bitfury Surround
What do you think are the biggest challenges for the industry at this moment?
One of the biggest issues for the music industry is the availability of a complete data picture of musical works and associated rights. At the moment, most of the data sits in different places, in multiple formats and without adequate sharing mechanisms in place. Even with these complications, they are often incomplete and inaccurate. This issue is at the core of the music industry. It is a big challenge, but it is also important to note that this is not just a data management issue. Every piece of music (or any type of content) generates a complex mesh of rights data that keeps growing with time. The music industry lacks a consensus mechanism by which different rights holders’ claims can be verified and recorded. Once verified and recorded, blockchain could help in making the data immutable, but using blockchain will not automatically solve the issue of data verification. Blockchain could offer ways to create such consensus models without a governing authority, but it might not be the only way to achieve that result.
How is Buma Stemra currently approaching blockchain?
We consider blockchain to be an interesting technology for our industry. Last year, we worked on a pilot project along with our sister organisation SENA. The solution was all about metadata management by using blockchain technology (Hyperledger to be exact). To be more specific, we worked with unmatched works, where we didn’t know what those materials were. The premise was that the crowd knows, or might know, and can seek consensus among themselves using blockchain-based technology. The pilot allowed the creatives to manage the metadata themselves, instead of relying on rights societies. In turn, the rights societies could act as users of the data instead of the authority that maintains the data, which is their current role. By using a crowd sourcing mechanism to verify rights data (each right owner could vote and verify the data on the platform), an efficient mechanism to generate accurate data was created. While the pilot was interesting and successful, it is not scalable at this point. Apart from such initiatives, we are also involved with the start-up community and support upcoming innovations in the area.
How bullish are you about the potential of blockchain for the music industry?
We are definitely bullish about blockchain for music, though relatively cautiously. At the moment, on the scale of scepticism we would score a reasonable 6-7 out of 10. As I mentioned earlier, the music industry faces multiple challenges at this time, but the technology (blockchain specifically) does not yet have all the answers. While it has potential to solve many of the issues including rights management and payments, there is still a long way to go.
Some of the limitations that need to be resolved first: blockchain applications are not yet standardised, and for any use case to have long-term potential and scalability, standardisation is important. It is also not (yet) very transaction friendly for high volumes. At the current stage of technology, it is also far too costly to implement on an international scale. Having said that, we are experimenting with blockchain technology and are keeping a close eye on the developments in the area. There are benefits to be reaped from blockchain, but the right timing is vital.
What do you think will help bring the benefits of blockchain to this industry?
At this time, technology needs to develop before serious and scalable use cases can be established. An early solution to global rights management issues would be a significant enabler for blockchain use in the industry. All things considered, the technology needs to mature a little bit for its full potential to be realised. Other regulatory issues such as data privacy will also need to mature with time before blockchain can be used on a wider scale in the music industry.
Eric Hol, CIO at Buma Stemra - Frank Lucassen, Business and Innovation at Buma Stemra
Where do you see the biggest opportunities for blockchain use in live music?
In live music, the area where there is still the most ground to cover is in protecting the fans. Everyone acknowledges that the problems of ticket fraud and exorbitant ticket prices from scalpers are very real and very urgent, yet no one seems to act. Convincing consumers and artists that their tickets can indeed be distributed fairly and safely, with blockchain, is slowly changing this from the ground up. Fans are waking up to this reality and are starting to demand to be protected when buying tickets.
How is GUTS currently approaching blockchain?
We use blockchain for its core advantages: Transparency and accountability, for ticketing. The solution that we use, GET Protocol, registers all state changes (purchases and resales) of every ticket on the blockchain. We want to ensure that the way consumers buy their tickets does not change from what they are used to; the only changes are ‘under the hood’ so to speak. We believe this is the quickest way to mass adoption and usage of blockchain technology. Similar to the internet, not everyone needs to know how it works, but everyone should be able to reap its benefits.
Do you think blockchain can act as a big differentiator?
It can. It all goes back to accountability. Blockchain technology has the capacity to shine light in areas where none used to be. This can lead to quick and massive changes in the entire sector, as there is no need to wait for slow regulatory change or an unrealistic sector-wide overhaul coming from the inside. The right application of blockchain technology can, especially in the case of honest ticketing, have an enormous impact.
In your opinion, what are the biggest hurdles to use of blockchain in music in general and ticketing in particular?
Firstly, it still needs to prove its benefits for mainstream usage in a lot of instances. Innovative technology is great, but blindly applying it everywhere is not a formula for success. Fine-tuning and battle testing its application is an important step that should be done carefully and rigorously.
For ticketing in particular, the biggest hurdle is probably the established order. The way things are currently set up with event ticketing (and especially in live music events) provides fertile ground for dishonest business practices. No one knows how many tickets exist, who owns them and for how much they are being sold. That ‘black box’ system plays into the hands of any players who want to maximise their profits at the expense of the consumer. This leads to some resistance, but the overall benefits for consumers and artists are becoming more and more clear. At the moment, this is the biggest hurdle, to ensure artists and fans truly understand the power that they have.
Olivier Biggs, Community Manager at GUTS Tickets and GET foundation
Entertainment & Media Industry Leader in the Netherlands, PwC Netherlands
Tel: +31 (0)88 792 65 20
Jan Willem Velthuijsen
Chief Economist, PwC Netherlands
Tel: +31 (0)88 792 75 58