Assignment: Explain the definition, commercial uses and legal implications of Blockchain on the music and entertainment industries.
Shannen Marie Simpson-Pike 
2219913

Legal and Business Affairs
BMTY7002_LON
Lecturer: Ian Penman




Explain the definition, commercial uses and legal implications of Blockchain on the music and entertainment industries.

The digital revolution has reoriented life as we know it, however, technology’s rapid acceleration has initiated questions of existential proportion within the contemporary recorded music industry. Not only has the era of streaming highlighted preexisting precarities that have long plagued the music business, it has further exacerbated them, widening the gap between a select few major label powered superstars and the critical mass of independent artists. On demand streaming platforms like Spotfiy and Apple Music have prompted a shift from the age of a ‘distribution economic model’ to an ‘access model’ (Leonhard, 2022), thus, rendering consumer access to music instantaneous and unlimited, however, this shift has also introduced a heightened level of intermediation between artists and fans, leading to inefficiency in royalty payment systems (Sitnonio, Nucciarelli, 2018). 

Data from 2019 and 2020 showed that 90% of streams went to the top 1% of artists, whilst an absence of metadata, information and transparency from intermediaries such as record labels, collection societies and digital streaming platforms has led to huge sums of unpaid royalties “sitting in so called black boxes, doing little but generating interest”. (Hall, 2017). Studies show that around 20% of streaming royalties go missing, unmatched, or unpaid. (Coldrick, 2019). 

The pre-internet era of the music industry benefited from a long period of exponential growth, with the physical distribution (e.g CDs, vinyls and tapes) granting record labels absolute control over the entire supply chain, with most of the industries value captured by labels along with all the data from the transactions. (Sitnonio, 2018, Nucciarelli 2018). It is appropriate to deduce that with each revolutionizing development of the industry, musicians and artists have consistently accrued the least capital for their labour. 

In this report I will analyse blockchain’s commercial uses and legal implications within the music industry with regards to its transformative potential for royalty systems, digital rights management, automated micropayments and direct artist to fan interactions. I will also consider the limitations that may arise with blockchain’s widespread adoption in the music industry and analyse the different ideologies emerging from the current surrounding discourse. 

Initially, blockchain was designed as the technology that powered the bitcoin cryptocurrency, however its uses continue to evolve exponentially. In its simplest terms, blockchain is commonly described as a decentralised, secure and unalterable digital leger or database that keeps a permanent record of all transactions. (Raine, 2017). The information uploaded into the blockchain is not only timestamped but immutable, meaning it is almost impossible to modify a block once it has been added to the chain, with a copy of the data secured in a large number of independent locations. Due to this, its security is not dependent on any central server, authority or organisation, rendering it a peer to peer technology. (Khouri, 2017)

Beyond the music industry, blockchain has already radically challenged the status quo by using math and cryptography to provide an open database for any transaction containing value. Uses of blockchain include digital transactions and the sale of goods, properties, storage of records etc, for which the authenticity can be verified by the entire community. Blockchain is transparent, with every transaction recorded on a public and distributed leger, with some arguing that mainstream adoption of blockchain technology could threaten the very survival of certain intermediaries like banks, lawyers and in the case of recorded music, record labels and collection services (CMOs) like PRS. 

Arguments for blockchain technologies as the conduit for developing a new standard within the industry are permeating artist and stakeholder communities alike. There are multiple schools of thought that have defined the last decade of discourse around the technology and as we edge closer to a Web 3 reality, an ideological battle for the future of the internet unfolds. Distinctions in thought span from techno determinist camps that may romanticise and overscope blockchain’s potential, to those who propose the technology be used as a step by step sober tool that grants artists new options within a long broken system. (Dryhurst, 2022)

The digitisation of the music industry has made it increasingly complex for copyright owners to track, record and understand their income. In every song, there may be a contribution of a number of songwriters, performers, musicians, publishers and producers. Furthermore, in the recorded music industry there are two types of copyright, that of the song, composition and lyrics as well as the copyright for the individual sound recording. CMOs like PRS for music, which is a merger of the Performing Rights Society and the Mechanical Copyright Protection Society - and is considered the main collection service in the United Kingdom - and commercial users like Spotify often have to pay for services to track rights-holders of numerous musical pieces. (Linh Tam, 2018) Collection societies generally sign exclusive agency agreements with copyright owners or owner companies, which results in music resources being scattered across different platforms. (Li, 2021). 

Within Europe, there are over thirty CMOs whose databases are not completely accurate and disconnected from each other. As copyright is an intellectual property it can be bought, sold or passed on and these potential changes in rights holders can result in incomprehensive records and bad data. (Linh Tam, 2018). Furthermore, if commercial users are unable to obtain the necessary information required to lawfully use a musical work, copyright infringement occurs, resulting in the music becoming inaccessible to fans and consumers due to it’s removal from platforms, as well as an increase in music piracy and the failure to remunerate rights holders for use of their music or a misdirection of royalties. 

Artists and content creators need different contracts in each jurisdiction, often via multiple intermediaries, to protect their copyright and enable distribution of their content. (Harle, Burchardi, 2018) In the traditional system the complexity of these procedures can also culminate in rights holders having to wait for prolonged periods to receive their royalties even once they have been attributed to the rightful recipients. In some cases where negotiations with commercial users like Spotify are led by CMOs like PRS, artists and other rights holders have expressed discontent with CMOs inability to negotiate reasonable remuneration. In some instances, Non Disclosure Agreements between CMOs and other intermediaries such as record labels and DSPs further exacerbate the distrust of rights holders in the current system. (Linh Tam, 2018). 

Blockchain has been proposed as a networked database for music copyright information and digital rights management, with copyright information stored on the blockchain through a cryptographic hash, resulting in data records that are immutable, permanently stored and transparent. A defining pledge in the field is that blockchains are a trustless technology, with the rules embedded in its design that interacting parties remain honest, removing the necessity of third party intermediaries to oversee transactions and distribute payments. This design attribute stems from early crypto anarchists who developed cryptocurrencies with the intent to circumvent the intermediation of central banks and State in the regulation of financial transactions (Bodo et al, 2018) and is an ideology that has rallied calls for complete decentralisation and disintermediation in the music industry and beyond from blockchain and crypto enthusiasts alike.  

Calls for complete decentralisation in the industry are largely regarded as utopian and crypto evangelist, overscoping the potential that the wide scale adoption of blockchain in the recorded music industry would wipe the slate clean, with the technology replacing third party actors such as record labels, collection services and any other intermediaries due to the creation of an industry wide royalty tracking system and instant and automated micropayments using smart contracts. This could reduce the long periods rights holders often have to wait before receiving royalties and in theory harnesses the potential to pay creators as soon as a song is downloaded whilst minimising the number of excess names on payroll. (Mire, 2018). This school of thought exists beyond the music industry in other crypto communities, with Bitcoin often cited as an example of what is possible when “blockchain achieves scale”. (Hall, 2017). 

When developing his initiative dotBlockchain (now called Verifi Media and under new management), founder Benji Rogers stated his aims were to apply a distributed leger system to music and to develop a new standard music format called .bc, an alternative to .mp3 or .wav. However, .bc would not only contain the music itself, but also meticulous metadata attached to the song, like rights holder details, terms of use, licensing restrictions, essentially any information that can be included in a machine readable format. He similarly expressed a proposal for blockchain’s use with music identification technology to automatically distribute funds to artists when their music is played by DJs and that with smart contracts, this can be achieved without human input. (Hall, 2017).

Whilst in theory these are valuable propositions on how the industry’s long standing data management issues could be solved via blockchain, it is not the first time a centralised repository for music copyright information has been attempted, and even with the use of blockchain technology, obstacles remain. Examples of previous attempts are the International Music Registry launched by the World Intellectual Organisation in 2011 and the Global Repertoire Database initiated by E.U commissioner Neelie Kroes in 2008. The failure of such initiatives can be attributed to disputes over the right to control the database (Linh Tam, 2018), alongside lack of funding and information as collection societies withdrew their involvement. The sheer masses of information required for a global database made the system increasingly difficult to organise. (Dredge, 2016). 

Blockchain is highly efficient at solving binary scenarios, however, most licensed songs involve multiple writers and performers, a label, publisher and PRO, which suggests it’s current best use within this context may be for licensing independent music with one rights holder (Raine,2017) due to the complexities in music copyright law, and the common issue of multiple parties being involved in the creation of a song. Problems in identifying all necessary parties may occur with older material like remixes, cover songs and samples where the metadata may not be correctly recorded. In this case, blockchain may be more useful for direct artist to fan transactions on a simpler scale, for example, the sale of an NFT or an unsigned piece of music. Michael Raine argues that to legally upload music to blockchain systems depends upon the agreement of all rights holders and for this reason, absolute disintermediation is unlikely (2017). In the copyright domain, disintermediation would affect incumbents at every level, including those that host user-uploaded content. (Bodo et al, 2018). There would need to be a clear incentive for data giants to get on board with such a system and this would likely require significant collaboration across multiple stakeholders. The current intermediaries control critical assets for disintermediation and if blockchain were to significantly penetrate mainstream copyright licensing markets, active competition and cooperation between new and old middlemen is likely. (Bodo et al, 2018). The very platforms promising disintermediation may themselves become intermediaries and perpetuate existing power dynamics. 

A more sober argument for the adoption of blockchain technologies in music can be found in the interdependence model, an ideology for which technologist and underground dance musician Mat Dryhurst advocates, stating that we are ‘beyond the point of catch-all DRM [Digital Rights Management] logistics’ and views blockchain as a conduit to develop toolboxes for individual artists to make these calls themselves (Hall, 2017). Dryhurst states that blockchain enables artists to encode ideology into their work. (Vickers, Obrist, 2018.) This model calls for interdependent collaboration between artists, labels and media platforms, to develop alternatives to the platform economy and a sustainable counter-industry to monopolies like Spotify, and that blockchains composability and open source principles can help to alleviate issues faced by the critical mass of artists. 

The interdependence model can be attributed to the platform cooperativism movement, a term coined by Trebor Scholz to characterise digital platforms owned by multi stakeholder cooperatives and governed by its users. Within this context, in the platform economy, corporations like Spotify act as ‘investor-owners’ and independent artists and listeners as ‘user-workers’. (Schneider, 2018) The dominant platforms fail to uphold high labor standards among user-workers and other contractors, even bending the law in the process, misleading users to believe they are participants in ‘peer production’ (Scholz, 2016, Slee, 2016) leaving platform owners to reap the benefits of having a fluid workforce without a large fixed payroll. (Schneider, 2018) Artists and fans generate and share data and content for the platforms to trade without fair remuneration for their labour. 

Blockchain holds potential as a democratising tool in making it possible to distribute platform ownership across multiple stakeholders and build out networks as public goods, whilst mitigating the ‘platform risk’ (Dryhurst, 2022)  that may arise for artists when building careers around centralized, privately owned platforms that function as shared cultural utilities, like bandcamp or Myspace, where the risk of unsavory acquisition, price hikes, loss of data and intellectual property, or the platform ceasing to exist along with the musical histories, social networks and fan communities stored within it persist. If bandcamp was on chain, a disseminated public good, open and permissionless, users could “fork the code” and preserve the site and its data. (Dryhurst, 2022) Such principles were foundational in the design of the world’s first blockchain powered, streaming cooperative Resonate - owned and governed by its artists, users and volunteers, operating by a stream to own model, splitting the cost of a digital download into nine plays, with its use of blockchain ensuring that artists payments are transparent. (Wilson, 2019) 

Platforms like Resonate demonstrate blockchain’s potential to accommodate concrete alternatives to the unsustainable conditions of the contemporary music industry, representing a building block toward a more democratic creative marketplace. In its current form, Resonate best serves independent artists and labels in alleviating total dependence on the good will of select decision makers who prioritise the overclass of their highest grossing artists. Whilst such platforms are symbolically and ideologically valuable, there are limitations in scalability and impact as sociopolitical activism is not an objective of the industries most powerful actors. An obstacle to a commercial implementation of blockchain platforms lies as much with the listening public as it does with the industry. Users are acclimated to the on demand, subscription based models offered by the dominant platforms like Spotify.  Due to inaccessible discourse and lack of familiarity, large portions of the general public remain wary of cryptocurrencies, and while blockchain is disruptive to the status quo, for mainstream adoption its platforms must provide the same level of service and quality of user experience.  

In the case of absolute disintermediation, Blockchain doesn’t solve the issue of the expertise and specialised services like marketing and developing artists, assistance with touring, administrative activities like resolving copyright infringement that record labels and CMOs provide. Blockchain solutions have been proposed to restrict top down power structures, however translating the complexity of the old system into the inflexible logic of computer programming, without introducing new power injustices will be a challenge. (Bodo et al, 2018) Resonate keeps a 30% commission from sales essentially performing as an intermediary platform and the inclusion of the industry’s most popular music requires the approval and cooperation of the record label rights holders. While decentralised platforms with no unilateral governing body may be designed with a vision for change their development lies with the will of it’s builders, investors and ever sprawling community. Entities like Ethereum hold transformative power in regards to accountability and transparency, it has also become a vehicle for tax evasion, money laundering and mind boggling scams”. (Chow, 2022). 
 
To conclude, these factors do not invalidate the potential of blockchain as a tool of empowerment for artists or it’s uses for protecting intellectual property. Recent ventures like Spotify’s acquisition of blockchain startup Mediachain, intended to ‘entrench timestamps and data regarding ownership within a specific media asset, and Verifi Media’s 2022 Verifi Rights Data Alliance confirming Warner Music Group, Deezer, FUGA and Unison as inaugural members (Griffiths, 2022) suggest a willingness for inter-oragnistional cooperation from major players in the industry. A defining factor in revolutionising the industry must be the education of artists, songwriters and performers around copyright, data ownership and intellectual property in the digital sphere.















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