Blockchain: Embracing the Revolution - Part Three

GLOBAL DATABASES: CASE STUDIES IN FAILURE

The last two decades have seen numerous attempts to create a single global database, which indicates the importance of the endeavour. Their respective demises have also highlighted the problems the industry faces in attempting to impose order on the situation. Vested interests have undermined every effort, operating behind the scenes to ensure failure, even at the cost of millions in already invested cash. A financial sacrifice that hints at the revenue these parties believe is at risk should the present chaos be deconstructed.

The most recent attempt at a single database is the Mechanical Licencing Collective (MLC), a corollary of the Music Modernization Act 2018. A US-centric initiative to address the Black Box issue, this is song copyright only database designed to match digital income, but not physical, to its rightful owner.

Worryingly, doubts have already been raised about the MLC’s fitness of purpose. Whilst the Music Modernization Act 2018’s intention to impose a minimum royalty rate is laudable, the act fails to address the main issue facing creatives. If the metadata is incorrect or incomplete in the first place, the MLC will still not be able to pay the correct amount to the correct people. Not only has the MLC refused to impose a standard layout for the metadata the database requires, the burden for the submission of this metadata has been pushed onto the Digital Service Providers and the labels.   Essentially duplicating the inefficiencies that are already inherent in the system.

Moreover, questions should be asked concerning objectivity and undue influence over the awarding of certain no-bid contracts. A situation manifested in the awarding of a lucrative contract to the Harry Fox Agency, with many critics labelling the deal ‘crocked’. Despite claims of an ‘exhaustive selection process’ by the MLC, it is widely believed that the contract was awarded to placate HFA’s owners, the Blackstone Group, who had lobbied vigorously against the Music Modernization Act being enacted in the first place.

David Lowery, the prominent artist advocate, who resigned from the MLC following the award of the contract, although he declined to specify the reason for his departure, was especially vocal: ‘HFA was the third-party licensing contractor hired by Spotify and other streaming services to obtain licenses from songwriters and publishers … HFA did not properly do their job leaving streaming services exposed to massive copyright infringement lawsuits … They created the problem that led to the creation of the Music Licensing Collective so now they are rewarded with the contract to run the matching of musical works and paying artists?!?! … Didn’t they just fail spectacularly when asked by Spotify to do this job?  Didn’t the Spotify class action and the four other private lawsuits prove HFA incapable of doing the job?’

 

AN INDEPENDENT BLOCKCHAIN DATABASE

There is clearly a need for an independent global database. One that captures all the necessary information for all copyright controls, for both the song and recording rights. It is equally clear that this database should be artist-led, to avoid the infighting which has terminally undermined all previous attempts to establish this database.

The use of blockchain technology to store the metadata, creates both a database and a readily accessible network. Blockchain protocols mean that amendments to the metadata can only be made with the mutual consent of all the copyright holders that have a stake in the track. Failure to obtain this consent would result in the blockchain essentially ignoring any attempt to change the information currently being held, mitigating the risk of software glitches or human error.

A standard format would need to be introduced for this metadata, which could also be embedded into the music itself, and would include details of the copyright holders, their percentage points, how to contact them and how to pay them. Imogen Heap believes that the information provided should also tell the story of how the music was created. This would not only include technical considerations, such as key and tempo, but the location in which the music was written, the story behind the song, even the type of coffee she was drinking as she wrote it. All of which, as the Middlesex University study notes, offers up the possibility of sponsorship deals to the artist.

 

AUTOMATED SMART CONTRACTS AND CRYPTOCURRENCY

By aligning the metadata to smart contracts within the blockchain, royalty payments can be triggered the moment the contractual obligations are satisfied. This would be achieved without incurring the costs normally involved with third-party mediation and administration. Typically, payment will be actioned and received within seconds of this contractual fulfilment, as opposed to the artist being forced to wait months, or even years, to receive what is due to them.

Another advantage inherent within a blockchain database would be the possibility of utilising a cryptocurrency to make these payments. This could be either an established currency like Ethereum, or one created specifically for the database. Most royalties received will be in a fiat currency, although new licencing deals could be negotiated in a cryptocurrency. The database could be set up to allow the artist to choose between fiat or cryptocurrency payments for every smart contract. There could also be a further option for a notification to be sent to all copyright holders prior to payment, requesting clarification as to the payment option before the funds are released, should they wish to exploit current market forces.

The main benefit to the artist accepting payments in a cryptocurrency is that it allows for the option of micropayments being made. In view of the well-documented complaints about the number of plays required to make a living from streaming income, this is particularly pertinent. Streaming income is usually shown to twelve decimal points, which is then rounded up or down for payment purposes by the collecting society. With a fiat currency this is to two decimal points, but for a cryptocurrency this can be to eight decimal points. This not only makes for more accurate payments, but provides the opportunity, as Tapscott & Tapscott1 suggest, for the micro-metering of streamed content for both video and music. This would ensure that even a few seconds spent viewing or listening to this content would generate value and provide income for the artist.

The employment of blockchain could also spell the end for the service-centric payment system which dominates the industry at present. This is where monthly subscription fees are paid pro-rata to the highest earning artists, regardless of which tracks were played by the subscriber. A system that provides revenue to those artists who are already earning significant income, whilst seriously disadvantaging non-mainstream artists. It would allow user-centric accounting to become the norm, ensuring that only the tracks played by the subscriber generates income.

 

CONCLUSION

There can be no doubt that the current royalty accounting system is deeply flawed. A blockchain-centric global database will not solve all the industry’s problems when it comes to music royalties. However, it is a starting point, and should, provided the importance of accurate metadata is acknowledged and acted upon, ensure that efficient, frictionless, and timely royalty payments are made. This incorruptible trust-machine will provide creators with the opportunity to make a decent living from their talent, rather than allowing a cornucopia of remorseless intermediaries to bleed them dry with total impunity.

 

NOTES

  1. Tapscott D, Tapscott A. 2016 Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business and the World. Penguin Random House: New York