The Larger Problem
The unrivaled reach of the internet and the emergence of a range of new digital technologies have transformed virtually every corner of the media industry for consumers and creators alike.The industry is being affected by the widely available commoditized content and widespread piracy of intellectual property
While consumers enjoy vastly more options, these market disruptions are presenting a range of important challenges for creators, producers, and distributors of music. There are significant challenges posed by digitization since content can be copied and distributed easily and without loss of quality. The copied and shared content takes away the artist’s royalties and music labels’ revenue. Added to this is the lack of a robust rights management system, which leads to loss of revenue for the artist. It takes long for the revenue to actually reach the artist.
The Business Process
There are different types of stakeholders in the media rights management ecosystem:
- Artist - An artist earns money from the purchase and playing of their recordings (Lady Gaga)
- Songwriter – A songwriter earns money from the recording and playing of their songs (whosoever wrote Lady Gaga’s songs; it may be possible that the artist and songwriter are the same people).
- Record company or label - Record labels are generally responsible for developing the artist, working with producers, paying for/arranging studio time, mixing, mastering, graphics, packaging, distribution, and marketing.
- Publisher - The publisher is the person who deals with the rights of songwriters. A music publishing company handles four different areas: performing arts rights (royalties for radio/internet play and live performances), mechanical rights (royalties when another artist records the works), synchronization rights (royalties for use in television, motion pictures or commercials), and sheet music (sales of sheet music — paper or digital).
- Digital service provider – Responsible for streaming, paid permanent download, or any other kind of digital distribution. They pay royalties to record labels for reproduction and distribution of sound recordings.
- Collecting agencies - Major music publishers can administer all of these rights. In addition, organizations called collecting societies, or collective rights management organizations, often administer these rights on behalf of publishers, for reasons of efficiency or collective bargaining power. This includes performing rights organizations and mechanical rights organizations.
Artists own the rights and royalties for their work. When an artist creates a song, a mechanical license is granted to mechanically reproduce music onto some type of media (CD, digital format, etc.) for public distribution. The content provider, such as a record label (it can also be the artist), grants permission for the music composition to be reproduced. The mechanical royalty is paid to the recording artist, songwriter, and publisher based on the number of recordings sold. One of the real-time scenarios is from digital music download services such as iTunes and Amazon. In this case, the music service pays a royalty to a record label for each track that a user downloads. The label passes mechanical royalties on to the publishers of the underlying composition (as above) and pays a percentage of the remainder to the recording artist. The whole process is very complex and suffers from the lack of tracking digital rights and simultaneous royalty payments to intended stakeholders.
What Went Wrong!
Nowadays, there are a number of efficient digital rights management tools and technologies which can help track media rights; however, they need to tackle bigger challenges when it comes to royalties management. The traditional digital rights management systems are not able to meet the ever-growing challenges of copyright infringements. The revenue leakage has been only partially recovered through new consumption models like micro payments.
Another area of concern is unpaid royalties, which are often delayed in various stages due to missing information or rights ownership. There is also a lack of access to real-time digital sales data. The lack of sales transparency also affects artists where although digital service providers (DSPs) report a huge volume of streaming transactions, they end up receiving payment for only 30 percent to 40 percent of these transactions. This has led to several artists choosing to keep their music off such on-demand streaming services, causing notable gaps in the libraries of popular services like Spotify, Tidal, Apple Music, and Google Play Music.
In 2014, singer Taylor Swift pulled her music off media streaming service Spotify, saying it was returning a very low rate on each stream. U2 singer Bono also raised the concern, saying the problem was not the new digital technologies such as Spotify. “When people pick on Spotify — Spotify are giving up 70% of all their revenues to rights owners. It’s just that people don’t know where the money is because the record labels haven’t been transparent,” he said.
Leveraging Blockchain for Digital Rights Management and Royalty Payments
There is a proposed solution for safeguarding digital information by the use of blockchain technology. Most of the industries are excited and anxious about the concept and use cases of blockchain. It has the potential to enable new business models and solve problems posed in the digital rights management space spruced up by digital technologies. It can connect artists/content creators/rights owners directly to the consumer. At the same time, the technology monitors the flow of payments from the rights owners to the end artists. It helps track digital rights across the process while ensuring artists and content providers receive the proper compensation. It can also remove less value-added steps from the value chain, allowing more of the money to flow to the content creators.
Blockchain could store a cryptographic hash of the digital asset which can be a piece of content created by the artist and associates it with the creators’ addresses and identities. It can help in the creation of a digital rights database. Copyright identification of a song and definition of how royalties should be split between songwriters, performers, publishers, and producers is difficult in the digital space. Often, artists lose out on royalties due to the complicated copyright environment. Blockchain-based irrevocable distributed ledger system, which ensures that no single stakeholder can claim ownership, provides the perfect solution. Secure files with all relevant information, such as composition, lyrics, linear notes, cover art, and licensing, can be encoded onto the blockchain, creating a permanent and inerasable record.
Smart Contracts-based instructions on how to compensate the artist can facilitate or verify the performance or negotiation of a contract. It also enables artists and the rights owners to set rules on exactly where and how the content may be used. In another way, Smart Contracts could enable is in splitting royalties in agreed proportions as soon as a track is downloaded or streamed. Such micro payments might not be feasible with current systems, but systems built around using cryptocurrencies could facilitate payments in fractions of pennies. The micropayments based on blockchain could also help pay per stream or use scenario.
One important consideration is that blockchain technology could enable reducing copyright infringement to a certain level. Blockchain technology plays the role of central authority to distribute data and validate transactions; however, enforcement of digital rights against infringers still triggers legal processes. Ownership is established by referring to the registration certificate. An author or artist can register a creative work on the time-stamped, unalterable blockchain to prove ownership and existence at a particular time. Establishing a claim for infringement requires a litigator to prove ownership of the asserted right and its unauthorized appropriation
Key Takeaways of Blockchain Enabling Media Industry are:
- Micro payment-based pricing for digital content which makes easier for the seller and the buyer to settle low-price content efficiently
- Blockchain-based tracking of content consumption and analysis of play times is possible which results in near real-time allocation of payments
- Platform-to-platform and consumer-to-consumer content sharing and usage becomes transparent and monetizable through blockchain
- Enabling traditional digital rights management system in tracking rights across the geographies. It will also increase customer experience through multi-country access of paid content
- Resolving the complexity associated with copyright infringement by providing the proof of ownership
Blockchain technology has created the next digitization wave. The music industry currently in a struggle due to age-old structures of complex DRM that are unable to cope with the present day demands of digital technologies. With this conjuncture, blockchain technology offers solutions to build a transparent and robust ecosystem that can benefit both artists and producers. Blockchain technology creates the opportunity for content creators and licensing organizations to be in the vanguard of change and propel maximum value from their content by radically simplifying this complex but critical process.