The continuous problems of the music industry - FFC Media
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The continuous problems of the music industry

Music as a form of art, a way of telling stories and glorifying heroes as well as an integral part of rituals has always been an integral part of the humankind’s culture. Between years 1930 and 1950, musical recording have gradually replaced sheet music as the main physical product of this art form, essentially giving birth to the entity that is the music industry.

The music business, just like any other industry, is fully geared towards the maximisation of profit: in 2017 alone, the worldwide industry made $17.3 billion in revenue. These days, major artists have to have entire teams of middlemen — record labels, managers, PR representatives, distributors, lawyers as well as separate agents, publishers and promoters for separate jurisdictions — all working towards getting as much money out of a record as possible.

The commercial success of those musicians depends of dozens of people, which means that all the profits made from selling records, show tickets and officially licensed merchandise have to distributed among the entire team. As a result, it’s not uncommon for musicians to only receive around 10 – 20% of total revenue, which in some cases can take months and even years to actually reach their bank accounts.

For a very long time, record sales remained the main source of revenue for record labels, but with the development of Internet and, more specifically, the emergence of a peer‐to‐peer file‐sharing network Napster, people just stopped willingly spending their money on music. Labels suffered colossal losses, and it seems that virtually every celebrity out there — from Alanis Morissette and Christina Aguilera to Dr. Dre and Metallica — tried to sue Napster at some point.

These days, the music industry is actively trying to adapt to the modern day market and find the right approach to the modern audience. While the never‐ending fight against piracy continues, the market is being flooded with legal streaming services offering paid subscription: Apple Music, Spotify, Deezer, Google Play Music, YouTube music and so on.

And then there’s Tidal, a streaming service created and fully funded by Jay‐Z that seems to be standing apart from everyone else. Back in 2015, the legendary musician Prince released his album HitNRun on Tidal, noting the importance of supporting the services created by musicians, for musicians. On top of that, Prince advised young artists to avoid signing contracts with major record labels, comparing those contracts to slavery.

Even though the industry seems to be doing well on its crusade against piracy, the streaming market itself isn’t a smooth operation at all. There’s a huge financial gap between volumes of music consumption on streaming platforms and the revenue that musicians and songwriters receive. Moreover, because of a loophole in US law, artists who recorded their music before year 1972 are not guaranteed any royalties at all.

For many decades, the music industry has been functioning in a way that leaves artists and songwriters as the most deprived and oftentimes almost involuntary participants of the process. In addition, there is probably no other industry that can match the music business in terms of the amount of intermediaries so deeply entrenched in it.

Is the blockchain technology capable of rectifying the situation?

Theoretically — yes. The blockchain technology has all the attributes necessary to change the situation.

In the blockchain-anarchist’s ideal world, there can be a single, unified database of musicians and songwriters, which will enable them to sell their music directly to fans, without the need for intermediaries. In such database, the rights to any song can be tokenized and distributed among the participants of the creative process according to their respective contributions, while pre‐written smart‐contracts will ensure an honest and timely distribution of revenue between all parties involved.

Smart‐contracts are programs that are stored and executed on the blockchain. As a rule, they are executed automatically once a certain event occurs. For example, every time a smart‐contracts receives any amount of money, it will automatically redistribute it between any number of counterparties according to a scheme of any difficulty, which can include many additional conditions. The main thing here is the fact that a smart‐contract, being written and executed on the blockchain, is protected from any form of retroactive modification by any of the counterparties. Another important thing is that none of the counterparties — even the one that wrote the smart‐contract — will not be able to stop the execution of it at any point. Thus, a smart‐contract can guarantee a fair and timely execution of transactions between parties that don’t necessarily trust each other, without the risk of one of them refusing to do their part or change the terms of an agreement.

Essentially, this will be a substitution of an endless stream of paper contracts and agreements for an automated contract recorded on a distributed online ledger, a copy of which is stored on every counterparty’s computer. Tokens with limited emission can be allocated in certain proportions between musicians, songwriters, producers, promoters, venue owners and so on. Smart‐contracts will store all the information regarding contracts and obligations, upon fulfilment of which the revenue will be distributed automatically and almost instantly, in proportion to the number of tokens held by a particular party.

In the real world, however, the situations just isn’t that simple. Still, the work on creating alternative music platforms is well underway. In 2015, the two‐time Grammy winner Imogen Heap released her track Tiny Human on the Ethereum blockchain in collaboration with a crypto‐startup Ujo. This was a unique venture at the time and it ended in a relative failure — the song was downloaded a mere 222 time.

Still, it was a very important precedent that proved that music can actually exist on the blockchain. Ujo continued working on their own platform, which utilises the blockchain technology to create a transparent database of authors and their copyrighted creations, as well as smart‐contracts to automate the payment of royalties.

In turn, Imogen Heap founded Mycelia, with the ‘Creative Passport’ feature being the project’s core. It’s a form of a digital ID for musicians, which includes their portfolio, all the credits and contributions, a list of creative and business partners as well as payment mechanisms. Essentially, this is an attempt to create a unified worldwide database of musicians.

Other crypto‐projects are actively trying to move streaming services onto a blockchain. One of the main problems of popular platforms like Apple Music and Spotify is that musicians have to basically blindly trust in the accuracy of the streaming statistics they’re provided with and, by extension, in the honesty of payment on the part of the service. In theory, the blockchain technology could ensure the transparency of user‐content interaction. Several startups, such as Bitsong and Choon, are already working on similar solutions, although at the time of writing all of them are at the ICO stages, meaning they’ve only just started crowdfunding the implementation of their ideas.

Other projects are trying to go all‐in by making promises to replace the entire music ecosystem. The Potentiam startup, for example, is also creating a worldwide database of musicians on blockchain, but they’re also trying to implement a private social network in which musicians should be able to easily get in touch with each other to collaborate, form a band, or contact venue owners, as well as a crowdfunding platform.

Is the blockchain really necessary?

The music industry, in its current shape and form, can be roughly divided into two categories: the superstars, who are basically owned my major record labels, and independent artists that only work with small labels or release their music on their own.

Personal computers and the Internet gave an unprecedented boost to the development of independent music: these days, musicians can record song in their bedrooms and promote their music on social networks. For instance, Lily Allen posted demo versions of her songs on her personal MySpace account back in 2015, collecting an army of dedicated fans in the process, who only a year later went out and bought her debut album which eventually went platinum.

Soundcloud and social network promotion gave fame to several dozens of new‐wave rappers: Lil Pump, Post Malone, Lil Uzi Vert, Playboi Carti, Travis Scott and many others started off by posting their self‐made songs on Soundcloud and just a couple of years later they’re selling out huge arenas worldwide.

In recent years, Bandcamp established itself as one of the best platform for independent musicians. Artists can upload their music free of charge and set any price for their songs. The service takes just 15% of the sales, and this number goes down to 10% after the record makes $5000. Fans can stream music for free and only have to pay if they want to download. At the time of writing, independent musicians made a combined $315 million on Bandcamp.

Clearly, independent musicians of the XXI century are doing just fine even without the blockchain technology. Yes, the have to blindly trust services like Bandcamp in terms of numbers of downloads and fair payments. And yes, they have to communicate with each other and look for venues to perform at through specialised Facebook groups and word of mouth. Theoretically, a unified service based on the blockchain technology can make their lives a little bit easier, guarantee honest and timely payments and further secure their intellectual property. The problem is that such platform simply doesn’t exist yet.

The implementation of the blockchain technology should rid the musicians of the incredible amount of intermediaries, but the problem is that all the modern day superstars simply need their huge teams in order to keep making money and stay relevant. However, the blockchain‐based smart‐contracts can definitely make the redistribution of revenue a lot easier for all parties involved.

At the moment, though, it seems that the commercial artists are only interested in the blockchain technology as an alternative way of making money. For instance, electronic producer Gramatik has recently decided to ‘tokenize’ his music by releasing his own cryptocurrency and making $9 million in the process. According to him, those who buy and hold the GRMTK tokens automatically become legal co‐owners of his music and can expect to receive royalties. In reality, this looks more like just another ICO.

At this point, it’s quite obvious that the blockchain technology will not turn the music industry upside down. First of all, the weight is simply too heavy for such a young technology. Secondly, most of the people in this industry don’t actually need it right here and right now. In addition, at the moment there are too many blockchain‐related projects on the market, and none of them is able to compete with currently existing large, centralised platforms.

On the other hand, it would be foolish to deny that a careful and precise implementation of the blockchain technology into the industry will be beneficial for literally everyone. Smart contracts that facilitate the timely fulfilment of all counterparties’ obligations and a universal system of quick automated money transfers are essential for the music business.

Using blockchain as a ledger for recording copyright and intellectual property is also a very promising concept, but there is a lot to be done before it can actually be implemented — first and foremost, the legislative bodies need to develop a legal framework within which the blockchain technology, smart‐contracts and cryptocurrencies can actually operate in full accordance with the laws.

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