Canada: The Revolution Will Be Blockchained: Blockchains And The Future Of Digital Music

Some technological revolutions come suddenly, others come slowly, but this one is coming in regimented ten minute updates to a distributed public ledger. Heralded as the next great step forward for the Internet, blockchain technology is already turning heads in the finance world, [1] and is attracting major investment interest around the globe.[2] While much of the focus on the application of blockchain technology is centred on improving the efficiency of the financial sector, this technology has the potential to disrupt the music industry as well. Blockchain technology has the means to alter some of the foundational aspects of how music is licensed and how artists and songwriters get paid for the content they create.

In the past twenty years, the Internet has completely redefined how we think about sharing and transferring information, but it has done very little to impact the way we think about sharing or transferring value. Although more transactions are taking place on the Internet than ever before, the nature of these transactions has remained the same since the inception of modern banking. That is, the presence of a trusted third party, typically a bank, is still required to verify the integrity of every transaction. A verification process like this not only slows down the speed at which transactions can occur, but also adds costs and prevents real peer-to-peer exchanges of value.

This need for trust in online transactions arises as a result of one of the fundamental aspects of digital content—its reproducibility. Whether Mozart's requiem, videos of cats on YouTube, or a bank draft, digital files are inherently reproducible. Unlike physical goods, they can be copied, stored, duplicated and transferred without having any impact on the original. This creates a real problem for the digital exchange of value or currency, as the act of transferring a digital good does not necessarily remove its data from the ownership of the good's original holder. As a result, without the use of a trusted third party, someone could attempt to carry out a digital transaction with multiple parties simultaneously, essentially spending the same money twice. This is known as the "double-spending problem."[3] It has posed a major roadblock to the development of digital currency, and has until now prevented value from being shared and exchanged on the Internet in the same peer-to-peer fashion as information.

Bitcoin, the very first completely de-centralized digital cryptocurrency, solved this problem by maintaining an ongoing distributed public ledger: a blockchain. Through the blockchain, all of the transactions made with bitcoins are simultaneously verified every ten minutes, and the complete record of each transaction back to the beginning of the chain is shared publically with every other system using the currency. Despite the information being completely public, privacy in this process is maintained by the fact that the parties to a transaction are represented by the unique hash code of their bitcoin wallet.[4]  

Although originally developed to provide a public ledger for ensuring trust in transactions made with bitcoins, blockchain technology has moved beyond its usage in Bitcoin and has been inspiring more and more creative applications. From private blockchain networks shared between financial institutions to expedite and simplify transactions, to public networks that could ensure voting legitimacy, there are a multitude of possibilities that flow from the transparent, tamperproof, and near instant transfer of value over the Internet—not the least of which is the impact this technology will have on the way in which the music industry distributes value and manages rights. But before entering that discussion, it will be helpful to look at just what makes up a blockchain.

What is a Blockchain?

For those of you whose eyes may glaze over at the thought of discussing the intricate details of databases, cryptocurrencies, or encryption, not to worry; understanding the potential application of blockchains requires very little technical know-how. While the technology behind a blockchain relies on complex cryptographic principles, understanding its operation is straightforward—all you need are transactions and blocks.

Transactions are just what they sound like, consisting of any information or exchange of value between two parties. These exchanges of value can involve the transfer of almost anything, from Bitcoins, to land titles, to music licences. This variety is part of what gives blockchain technology such a plethora of potential applications, as it allows for a verifiable way to record transfers of any and all types of value over the Internet. These transactions get recorded on a block.

A block on the other hand, is a collection of transactions, as well as all of the additional information needed to verify the integrity of the block itself. To achieve this verification, each block is assigned a unique fingerprint (a hash code) which is produced using a cryptographic algorithm. This algorithm generates each fingerprint based on the contents contained within a specific block. The fingerprint is wholly unique to that block and its contents, and if any information within the block is changed, an entirely different fingerprint will be produced.

In addition to its own unique fingerprint, every block also records the fingerprint of the block that comes immediately before it—forming a chain. Once a new block is verified and added to this chain, it is shared among all of the other members of that blockchain ecosystem. This means that a blockchain operates as a distributed and decentralized database, where multiple copies of the entirety of the information exist across multiple computers, creating a consistent, verifiable, and unchangeable record of all the transactions within that blockchain. If any information within any of the blocks is changed, down to a single comma, the algorithm will produce a different fingerprint, and the changed block will be out of sync with both the subsequent blocks in the chain, and the version of the chain shared with the network at large. This provides a quick and easy way to ensure the integrity of the information within a blockchain, as any change to information within the chain will disrupt the sequential fingerprint identifiers.

Think of a blockchain as being a bit like a novel being read by a book club. Each individual in the club has the same copy of the book, and each copy of that book has the same pages in the same order. A block is like an individual page within that book, and the text on the page is the recorded information within the block. Each page of the book is assigned a unique fingerprint, its page number, and each page's position in the book can be determined by the fingerprint, or page number, of the page that came before it.

Now imagine that one member of the book club has tampered with the order of the pages in their copy of the book, and is now trying to convince the rest of the book club that this is the correct order of the pages. Not only will the other members of the book club be able to look at their own copies of the book to see that this is not the case, but they will also be able to refer to the page numbers that are clearly out of order.

In theory, a blockchain works in the exact same way, but with an added layer of security. Not only can the transactions in a blockchain be verified by comparison with the other copies that exist elsewhere, but if a single piece of information is altered on any block stretching back to the origin of the chain, the unique signature of the changed block will not match the subsequent block. As new blocks are added to the chain, they each bear the fingerprint of the previous block, and create a continuous link of verifiable information. Returning to the book club example, this would mean that if our book club trickster changed a single letter on page six of their book, instead of showing page number six, it would display a completely different and unique number. It is through this mechanism that a blockchain is able to be entirely public, while still ensuring that no one can manipulate the information that is contained within it. By using a blockchain, its users are able to create consensus and trust about value in an openly verifiable way, and in doing so enable transactions to occur faster, more efficiently, and with fewer intermediaries.  A blockchain creates a digital record that is verifiable, immutable, and permanent, and has opened the doors to wide range of applications that will reshape traditional methods of exchanging value.  

How can the Blockchain affect Digital Music Rights Management?

Under the current system for the management and exploitation of digital music rights, the transfer of value between a consumer and an artist takes a circuitous route through publishers, producers, labels, performing rights organizations, and many other stakeholders before reaching the content creators. Each of these stakeholders not only adds an extra step to the process of transferring this value, but also takes a share of the overall revenue before passing it on. Through the application of blockchain technology, this process could ideally be taken care of in one seamless step that generates more value for all of the stakeholders involved.

While many had thought that the Internet, and the rise of social media in particular, would create a more direct link between consumers and artists and redefine how music rights are managed, the opposite seems to be true.[5] With the rise of streaming services such as Spotify and YouTube, even more stakeholders have been added to the process and the proceeds of selling recorded music have gotten divided into smaller pieces. While streaming volumes and performing rights revenues have grown, total revenues for music sales have decreased since the heady days of the 1990s. Some estimate that today's artist makes approximately $0.000035 per stream on most major streaming services.[6] This has caused friction between artists and other stakeholders, leading to high profile disputes between artists and streaming platforms, and to the formation of artist based streaming services such as Tidal.  However, with blockchain technology, the industry as a whole may finally have the tool needed to create a system that can further benefit all of the stakeholders involved by being more transparent, efficient, and secure.

Using a blockchain, each piece of music can be published by an artist onto a block within the ledger and be given a unique and unalterable fingerprint. This block can contain the digital content of the song itself, and creates a permanent record of it along with any other relevant information, such as the song's lyrics, musical composition, liner notes, and even its licensing information.[7] This immediately solves two of the major problems that exist in the industry, namely, rights management and piracy. As a blockchain can provide a public and unchangeable ledger for each sound recording, artists and labels can be certain that any content they create is properly registered, and anyone can easily verify the ownership and rights information of any content at a glance. Second, each song registered on the blockchain can store information regarding ownership and licensing, and only allow users who have properly purchased the content to access it.[8] By applying blockchain technology, the relationship between consumers and artists can become more direct, and all parties will be able to verify the integrity of their ownership of the digital content exchanged.

Another of the major advantages to carrying out transactions of this nature via a blockchain is the ability to handle rights management and monetization by way of a smart contract. In the context of a blockchain, smart contracts really are not contracts at all, but computer programs assigned to automatically carry out some function as part of a transaction within a block. Smart contracts can clearly outline who is able to access a song and instantly assign value to any stakeholder with an interest in a particular piece of content. When a song is purchased, a smart contract can determine who receives what share of the sale and instantly distribute the funds to those parties on that basis.[9]

This was put into practice in 2015 by the English artist Imogen Heap with the release of her single "Tiny Human" using the Ujo Music platform within the Ethereum blockchain.[10] Through the use of a smart contract, the proceeds of each purchase of the song are instantly distributed to all of the parties who worked on the song's creation. Within a single instantaneous transaction, the artist, the producers, and the other musicians who contributed to the project are credited with their share of the song's sale. Applications like this are only one small slice of the potential processes that a smart contract can carry out within a blockchain, as they can be fully customized to perform an extremely wide range of possible functions.

The type of streamlined transactions that smart contracts allow for can serve to benefit all of the stakeholders in the music industry by drastically reducing the transaction cost in distributing the value generated. Bringing the current rights management system into the digital age through the use of a blockchain would add value and recapture a large portion of the expenses that go towards operating the current system. By utilizing a blockchain and smart contracts, these operating costs could be drastically reduced, freeing up more revenue for all of the stakeholders involved. Not only would a blockchain enable royalties to be processed nearly instantaneously, but smart contracts would allow performing rights organizations to assign those royalties with a level of precision that is simply not possible with current technology. Imagine the proceeds generated by each song being immediately disbursed to every individual involved in its creation, or better yet, imagine a seamless and efficient way to credit that network of content creators whenever a song is featured, remixed, or licensed.

Unlike the digital music revolution triggered by Napster in the 1990s which left the music industry in disarray, many players in the digital rights world are realizing the potential that blockchain technology has to improve the efficiency of the systems that handle the management of rights and the transfer of value. Though blockchain technology has the capacity to disrupt the music industry in the same fashion as MP3 sharing, it also has the potential to create a fairer, more sustainable, and more efficient way to connect all of the industry's stakeholders. In a commentary piece with Fortune magazine, artist Imogen Heap and author Don Tapscott discussed the role that labels, publishers and performing rights organizations can play in a blockchain based music industry:

As with all new technology, blockchain creates a shift in skill sets and opens up new opportunities. There is an ever-greater need for curation and marketing. Record companies could better help music lovers to sift through the hundreds of millions of hours of music and, along with the publishers and existing collection societies, verify that the data are indeed correct. At some stage, artists will invariably need to work with these and other parties.[11]

This shift in skill set is already beginning to take place within the music industry—with artists and performing rights organizations leading the charge. There is remarkable potential for organizations to be at the forefront of this technological wave, and to act as the pioneers for the adoption of this technology. Setting up and operating a blockchain network is no simple task, and the sheer volume of computing power needed to maintain such a system does pose a barrier to entry that may dissuade some artists from seeing the true potential of blockchain technology. However, this is where the new role for labels, record companies, and performing rights organizations begins to emerge. Whether through the curation of massive blockchain databases, or providing artists with the blockchain based tools and platforms needed to maximize the value captured from their content, the adoption of blockchain technology opens up new and exciting paths for the music industry as a whole.

Though the application of blockchain technology in the music industry is only now starting to pick up steam, there are a number of industry players right here in Canada who are looking towards blockchains as the next step for the music industry. For example, two of Canada's largest performing rights organizations, SOCAN[12] and Re:Sound have recently partnered with technology start-up Core Rights to develop a country-wide digital marketplace for licensing music rights that is based on blockchain technology. The aim of the project is to use the blockchain to create an electronic marketplace where businesses that play music, companies that supply music, publishers, and artists, can create content and manage rights in a way that maximizes value for everyone involved.[13]

While the introduction of blockchain technology may have a minimal direct impact on consumers, applications and digital marketplaces like this one are going to redefine how value is distributed and how rights are managed within the music industry. This is still early days for blockchain, and there remain many issues to be hammered out before we see begin to see its widespread application. Change is coming however, and the blockchain may just be the tool needed to reinvent the way music is licensed and monetized, allowing all of the industry stakeholders to benefit from a more transparent and efficient system.

Footnotes

[1] The Economist, "Blockchain the Next Big Thing or Is It," (July 9, 2015), http://www.economist.com/news/special-report/21650295-or-it-next-big-thing,  

[2] Forbes, "What Venture Capitalists Look For In A Blockchain Startup," (June 16, 2016), http://www.forbes.com/sites/jonathanchester/2016/06/16/what-venture-capitalists-look-for-in-a-blockchain-startup/#3cec48294c2d,.

[3] Arstechnica, "Bitcoin: inside the encrypted, peer-to-peer digital currency," (August 6, 2011) http://arstechnica.com/tech-policy/2011/06/bitcoin-inside-the-encrypted-peer-to-peer-currency/.

[4] For example, a transaction could look like this: 5a35b221129c41 thirty bitcoins to 0ad81938017e2. BitcoinCore, "Privacy," https://bitcoin.org/en/bitcoin-core/features/privacy.

[5] Futurism, "How Blockchain is Disrupting the Music Industry," https://futurism.com/how-blockchain-is-disrupting-the-music-industry.

[6] Fortune, "Blockchain Could be Music's Next Disruptor," (September 22, 2016), http://fortune.com/2016/09/22/blockchain-music-disruption/.

[7] VentureBeat, "Blockchain could completely transform the music industry," (January 7, 2017), http://venturebeat.com/2017/01/07/blockchain-could-completely-transform-the-music-industry/.

[8] TechCrunch, "How Blockchain can Change the Music Industry," (October 8, 2016), https://techcrunch.com/2016/10/08/how-blockchain-can-change-the-music-industry/.

[9] Medium, "How the Blockchain and VR Can Change the Music Industry (Part 1)," (November 23, 2015), https://medium.com/cuepoint/bc-a-fair-trade-music-format-virtual-reality-the-blockchain-76fc47699733#.yq48ti7wr.

[10] Forbes, "How Blockchain Startups Are Disrupting The $15 Billion Music Industry," (September 16, 2016), http://www.forbes.com/sites/jonathanchester/2016/09/16/how-blockchain-startups-are-disrupting-the-15-billion-music-industry/#54c516e652c0.

[11] Fortune, "Blockchain Could be Music's Next Disruptor," (October 23, 2016),  http://fortune.com/2016/09/22/blockchain-music-disruption/.

[12] Society of Composers, Authors and Music Publishers of Canada.

[13] SOCAN, "SOCAN partners with Core Rights, Re:Sound, to build new Canadian digital licensing marketplace/platform," (October 18, 2016), https://www.socan.ca/news/socan-partners-core-rights-resound-build-new-canadian-digital-licensing-marketplaceplatform.

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