Tag Archives: phonographic

99 problems of the Music Industry- Can Blockchain technology be a panacea?

The music industry peaked in 1999, owing to sales of CDs and DVDs. The music industry had been on a downward spiral till the last couple of years but the Global Music Report released by IFPI (International Federation of the Phonographic Industry) reported a growth of 8.1% in 2017, expanding it to 17.3 billion Dollars.[1] According to the report the streaming industry was the frontrunner in the growth of the industry, accounting for around 29% of the total revenue at 6.6 billion Dollars. All forms of digital revenue combined amounted to around 9.4 billion Dollars.[2] While these numbers should curb the claims that the Internet and digitization are killing the music industry, it cannot be denied that certain music industry troubles from the vinyl era still plague the music industry.

While the number of people accessing and streaming music has gone up exponentially, the industry’s revenue and the royalty earned by the artist have not increased proportionately. Various factors could be attributed for the same. Given the peculiar nature of legal rights in a song, there are multiple rightful owners of royalty revenue in a song, the record label, the artists involved and the lyricists. In many suits regarding non-payment of the royalty due, the defendants have claimed that it was the inability of the defendants to figure out the right holders which resulted in the non-payment of royalty. In the Spotify case[3] it was highlighted that as there is no single or uniform database with respect to music and right holders, it was difficult for players like Spotify to pay the royalties, leading to lengthy litigations which affect the music label as well as the artists involved. Further, at times funds end up being paid to the wrong party.[4]

It is noteworthy that often the artists involved in creating music are unaware till the release of tracks (and even beyond that) whether their work was ultimately used in the released music or not. Since the specific details of the streaming deals are shrouded through non-disclosure agreements, the artists and their managers find it difficult to ascertain if they are being paid their fair share.[5] Given the fact that a listener just needs a few taps on his phone to access the music of his choice, it is preposterous that there is so much friction involved in the artists getting their due.

In early 2000s, the music industry fought tooth and nail, to fight peer to peer file sharing platforms such as Napster and Limewire as such platforms were being used to distribute illegal copies of music. In fact, Napster saw the highest user growth for any company owing to such practices, leading to massive losses for the music industry.[6] While the bigger culprits such as Napster and Pirate Bay have been ‘nabbed’ the music industry is still reeling under the effects of digital piracy. The digital restrictions (or rights) management system introduced in the early 2000s has been largely ineffective even though scrambling of DRM is prohibited under the law.[7] For example, the Section 65A And 65B were inserted in the Indian Copyright Act, 1957 through the 2012 amendment restricting people from circumventing any such digital rights management systems or tampering/removing of any such information contained in the copyrighted works.[8]

Lastly, lack of funds is a major concern for budding artists and independent record labels. Younger artists claim that big record labels are unwilling to nurture new artists, rather they are interested in picking up already established artists. Hence, an artist is required to be ‘big’ even before record labels notice them. Further, even independent record labels which initially grew with the motto of helping budding artists, are now unwilling to share the revenue with the artists because of lack of funds.[9]

Is Block-chain the Panacea?

Blockchain has been the buzzword across the globe since Satoshi Nakamoto published his paper on Bitcoin and block-chain in 2008. Tech enthusiasts, private entities and even regulatory bodies (such as India’s TRAI) have been lapping up block-chain as a solution to many problems. The popularity of the idea of block-chain can be gauged from the fact that a company’s shares surged by around 400% just because it added the term “blockchain” to its name.[10]

A blockchain is a distributed ledger or database that is not stored centrally (a departure from the tradition hub and spoke model); it can have duplicate copies on multiple devices across the world.  Information is added to this database in so-called blocks, each of which holds a unique code, that is generated cryptographically on the basis of older blocks and a timestamp. Once the data is recorded, the new block is linked to the ‘chain’ of older blocks. A blockchain can take various forms. It can be permissioned, i.e. one may not be allowed to join the network as a node unless specifically permitted to do so. Similarly, the rights granted to a node could vary, while some could be allowed to just view the data, others could be allowed to modify the information on the ledger.

A distributed database could be an answer to the lack of transparency in the music industry and the corresponding issues. The digital rights information along with the metadata for any piece of music could be updated by a permissioned node (say a record label or a copyright society). Information on the blockchain could be updated instantly that is, the same information would also be available to all nodes automatically. Some initiatives like Mycelia also allow for storing of meta-data such as tempo, key etc, hence a piece of music can easily be differentiated from its cover or ‘radio edit’ version.[11] The information contained in the blockchain could be freely accessible to everyone while only select participants would be allowed to modify the data. This could lead to drastic improvements in transparency and hence the quantum of royalties received.

The blockchain discussed above could be coupled with a content distribution network (CDN) thereby decreasing the friction as well as the number of middlemen involved. Further smart contracts or blockchain 2.0 could be used for smooth licensing and distribution of music. Smart contracts can be used to establish and enforce IP licenses and allow the transmission of payments in real time to the right holders. The information about IP rights a song or an image, could be encoded in digital form. For example, Ujo uses Ethereum blockchain for payments, rights management, and identity storage for artists. Effective digital rights management would involve a threefold approach a) access control, b) cryptography to restrict the data from being saved in a plain text format and c) digital watermarking techniques to identify legitimate copies of files. The same could be achieved through a well-designed blockchain based CDN. Attempts at achieving the same through various pilot projects such as Mycelia have demonstrated limited success as the acceptability of a particular crypto-currency, seriously limits the target audience. Yet, the limited success of such progress is proof of the fact that such ideas are becoming mainstream.

It has been widely accepted that people resort to pirated versions of a work, primarily when they are unable to access the content (preferably at a reasonable price) as evidenced from the fact that the leak of the Orange Is The New Black episode had no significant impact on Netflix. While the subscription model of Netflix could be the primary reason behind the failure of such ransom demand, yet it cannot be denied that allowing for micro payments on a content distribution network would expand the audience base of such networks.  A digital ecosystem could allow for micro-metering for viewing/accessing content and the user could pay for the same though micro-payments. The micro-metering could be achieved by the blockchain recording the components of the work that were used, defining the tiniest consumable unit of the work.[12] Low transaction costs in involved in blockchain couple with permissibility of really small denominations using the corresponding crypto-currency would allow for micro-payments.

Lastly, funding / investment –a crucial step between start-up and venture capital investment – is a major challenge in the music industry. Blockchain technology promises to solve some of these issues. Through tokenization, artists can crowdfund their projects by issuing/selling tokens to fans. The artists can use these funds to cover the expenses related to recording, touring, marketing and producing music videos instead of relying on traditional music labels for the same. As the fans own tokens issued by the artist, they would benefit from the success their favourite artist achieves. The transparency inherent in distribution of music through a blockchain based platform would improve investor’s ability to monitor the artists’ activities, sales figures and also the opinions of the fans. The possibility of having an accelerator model for artists would open up the sector to new sources of capital seeking highly scalable businesses for seed or venture capital.

Rights holders, especially music labels and copyright societies find it difficult to enforce their IP rights due to other factors such as difficulty in identifying acts of infringement as well the costs and efforts required follow the legal procedures for enforcement of rights. These issues are exacerbated for independent labels. A few start-ups such as Binded are helping photographers enforce their rights in the digital space. When a photographer uploads an image on Binded’s[13] portal, the same is registered with the copyright office and times-tamped on Binded’s blockchain. Similarly, other start-ups allow for reverse image searches to look for infringement of images online. Copytrack[14] would even take control of the legal proceedings on behalf of the photographer whose work has been infringed (in consideration of a share to be received from the damages/settlement amount). Old players like Kodak have managed to capture the minds of the new-age audience through the launch of their image protection, distribution and licensing solution KodakOne[15]. KodakOne makes use of its native token, KodakCoin (using the Ethereum hash function).

Needless to say, given the complexity of music as a work of art, having similar procedures in place to track infringement of musical is a tougher task. But given the success of music recognition apps such as Shazam, it is not difficult to imagine a world in which management of rights of music artists and the enforcement of their rights can be done in a smoother fashion.

While, it cannot be denied that blockchain technologies can revamp the music industry take care of the artists’ woes, but there are multiple challenges that need to be tackled to make practical use of the technology in the music space. Global Repertoire Database (backed by music labels and tech giants from across the globe) which sought to create an alternate and comprehensive database for the music industry had a spectacular failure, clearly establishing that ideas which look great on paper might have little or no impact in the real world[16].

Unlike conventional means for digital rights management, where only the hub was required save the massive amounts of data, in the distributed ledger system, each node would be required to store a copy of the data. New standards and models have to be developed and widely accepted to make the blockchain based model tenable. Similarly, to achieve interoperability of various databases, common standards need to be accepted among the parties involved. Similarly, users (non-artists) have to deal with user registration and sharing of payment details to take advantage of micro-metering and micro-payments. The privacy of the user needs to be handled in a transparent manner, to make sure that the users are confident of the privacy/security measures. Lastly, resistance from existing aggregators and intermediaries who might end up losing their piece of the pie needs to be dealt with to ensure the successful acceptance of the blockchain technology by the music industry.

Author: Mr. Asis Panda

[1] Global Music Report 2018 available at https://www.ifpi.org/downloads/GMR2018.pdf–

[2] Ibid

[3] Wixen Music Publishing, inc v Spotify USA inc. 2:17-cv-09288-GW-GJS

[4] Fair Music: Transparency and Payment Flows in the Music industry, Rethink Music available at https://novojurislegal.files.wordpress.com/2018/12/9f5c6-rethink_music_fairness_transparency_final.pdf page 3

[5] Cooke C, Dissecting the Digital Dollar Part One: How Streaming Services are Licensed and the Challenges Artists Now Face (2015) Music Managers Forum report.

[6] Roxanna Maddahi, The Music Industry: From Piracy To Profits available at https://www.forbes.com/sites/forbesfinancecouncil/2018/07/10/the-music-industry-from-piracy-to-profits/#1897df0d70f8

[7] What happens with digital rights management in the real world? available at https://www.theguardian.com/technology/blog/2014/feb/05/digital-rights-management

[8] Also see Article 19 of the WIPO Performances and Phonograms Treaty, 1996 (WPPT)

[9] Richard Smirke, Beggars Group’s Martin Mills on Why He’s Abandoning the 50/50 Streaming Split, Billboard available at https://www.billboard.com/biz/articles/6077399/beggars-group-martin-mills-streaming-money-reduction-spotify-revenue

[10] https://www.bloomberg.com/news/articles/2017-10-27/what-s-in-a-name-u-k-stock-surges-394-on-blockchain-rebrand

[11] Catherine Jewell, Mycelia: shaping a new landscape for music April 2016 available at https://www.wipo.int/wipo_magazine/en/2016/02/article_0002.html

[12] Jack Loechner, The Forces Of Blockchain available at https://www.mediapost.com/publications/article/305715/the-forces-of-blockchain.html

[13] https://binded.com/

[14] https://www.copytrack.com/

[15] https://kodakone.com/

[16] Klementina Milosic, The Failure Of The Global Repertoire Database available at https://www.hypebot.com/hypebot/2015/08/the-failure-of-the-global-repertoire-database-effort-draft.html

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