Jaclyn Wishnia. Cardozo Arts & Entertainment Law Journal. Volume 37, Issue 1, 2019.
Introduction
Prior to the digital downloading era, the music industry shared a harmonious relationship with technological innovation. A new trend in technology often meant the industry was receiving a lucrative update that improved both its products and corporate dealings. Over the past two decades, however, advancements in technology have reputedly proven costly for the music industry, transmitting waves of discordance rippling throughout its entire business structure. That premise is now obsolete. So, why are parts of the industry still struggling with heavy revenue losses?
While it is true that digital formatting initially caused some setbacks for the industry, it eventually overcame those problems. In fact, the International Federation of the Phonographic Industry’s (IFPI) 2017 Global Music Report disclosed that digital streaming revenues in 2016 accounted for a record-breaking high of $15.7 billion. The material explication as to why various parts of the industry have continued to suffer financial discrepancies is due to two factors that have plagued the industry long before digital music platforms became the mainstream medium and exacerbated the rifts in revenue. These matters are rights management, which is a copyright law issue, and royalty distribution, which is hindered by its capitalistic management principles.
Recently, there has been industry-wide chatter of implementing blockchain-based solutions, predominantly to rectify the foregoing sets of issues. Proponents of blockchain argue that its technological properties will offer key players in the music marketplace a more efficient way to organize and identify creators’ works, expose the multiple avenues of transactions for monetary distribution amongst the relevant contributors of a musical work, and aggregate a global database that could grant anyone access to this wealth of information.
This argument presents only a superficial analysis of its features, portraying blockchain technology as the seemingly ideal design. Markedly, the proponents neglect to incorporate many of its overriding pitfalls, including, primarily, its incompatibility with how copyright law operates, which extends to the law’s various licensing schemes and their attached statutory fees. What the blockchain proponents’ arguments do indicate, however, are the most significant areas of the music industry that warrant serious reform measures. Once the legal foundation is amended, the concept of blockchain, or at least some of its properties, can eventually be revisited.
Accordingly, the purpose of this Note is to provide an in-depth analysis of the problems the music industry is facing in order to demonstrate why applying blockchain technology is an insufficient resolution. The Note will also propose two alternative recommendations and argue for adopting those blueprints instead. The Note unfolds in three parts. Part I examines the ongoing struggles of the music business and its failed attempts to remedy them. Part II provides a primer for blockchain technology, featuring a discussion of emerging use cases, and evaluates whether implementing blockchain technology is a viable solution for the music industry. The final portion offers two proposals prescribing more suitable measures Congress can undertake and explores the only possible value that the industry can currently extrapolate from blockchains: tokenization.
Digitizing the Music Industry: From Auto-Tune to Out-of-Tune
In the 1980s, a phenomenon known as the Digital Audio Revolution conducted the music industry in its first lesson concerning the limitations of analog technology.” Digital processing allowed for a myriad of improvements during the recording and production stages of a work. By the 1990s, analog had officially lost the battle to digital, signifying a pivotal moment in the history of the music industry.
Digital processing also gave rise to innovative consumer products. Cassettes were superannuated by compact discs (CDs), and CDs were soon replaced by MP3s. The introduction of MP3s taught the music industry its next lesson in technology: the highly controversial art of file-sharing, along with its notorious counterpart, bootlegging. In 1999, Napster, a file-sharing program, was developed. Its purpose would permanently restructure the entire music industry.
As Napster’s popularity spread, the music world exploded into a frenzy of peer-to-peer file-sharing software. Numerous prototypes spawned from its concept, such as KaZaa, Morpheus, and LimeWire. Eventually, consumers’ habitual use of these programs severely impacted music sales, causing record labels, artists, and the music industry to implode. Although Napster and its various illegal counterparts have since been shut down via lawsuits and settlements, their legacy of piracy and bootlegging remains.
Apple’s iTunes provided an initial solution to restoring the revenue lost due to Napster and its progenies. The success of iTunes spurred other commercial streaming services to evolve, including Pandora and Spotify. In their continued efforts to combat music piracy, streaming services made it easier and cheaper for consumers to access music. They also eliminated the need for MP3 players as well as the requirement of having to download a physical copy of a song in order to listen to it, effectively freeing up storage space on consumers’ hard drives. Despite the advantages that these services continued to offer, it only enabled those wishing to procure free music to pursue a different method of piracy, called “stream ripping.”
In short, tracking the events originally offset by the 1980s Digital Audio Revolution demonstrates how the rise of digital downloading prompted the decline of the music industry. In addition to piracy, digital technology is also responsible for many of the other issues highlighting the music industry’s shortcomings, including copyright protection, distribution of royalty payments, storage management in licensing databases, artists’ rights, and unenforced Digital Millennium Copyright Act (DMCA) regulations. Note that aside from introducing piracy on a magnified scale, digital technology illuminates this conglomeration of issues, but it is not necessarily the cause of them. For instance, royalty payment problems are strictly associated with business decisions, and enforcing DMCA regulations should fall to Congress.
The next subsection will focus on these major challenges and how prolonging their resolution has deeply afflicted the industry.
Rights Management: The Link to Who Owns What
Music is one of the most complicated copyright environments with one of the worst data management practices. A major key to resolving the issues of the music industry depends on copyright law and how certain rights are tracked or managed. For every piece of recorded music, there are two copyrights: one for the composition and one for the recording itself. Each of these types of copyrights involves multiple parties and creates a “bundle” of several exclusive rights, which are exercised by obtaining various licenses. Large music publishers can administer these rights, but usually organizations, called Collective Management Organizations (CMOs), do so instead on behalf of the publisher to maintain efficiency or collective bargaining power.
The licenses become a more complex organism to track when digital streaming music services are added to the mix. These services create additional licenses, which depend on whether they are interactive (e.g., Spotify) or non-interactive streaming services (e.g., Sirius XM Satellite Radio). Since there are distinct rights holders that each possess their own copyright law rights and multiple administrators that are responsible for processing the licenses associated with the rights, the industry must track the complete set of rights for both the sound recordings and the compositions they embody. This requires at least two unique identifiers for sound recordings and linkages between those sound recordings and their compositions.
The main problem with music rights management is that there is no single authoritative source for mapping recordings to their underlying composition. There are several unique identifiers for sound recordings that are spread widely across many record labels; but some are not implemented universally, and there are alternative identifiers to track other miscellaneous uses within the music industry. This has the effect of producing a profusion of fragmented databases. Consequently, no verifiable database exists to search for ownership or rights information, which leaves errors or gaps in the system, that, in turn, affect the owners’ legal rights as well as the distribution of royalty payments.
The music industry has previously attempted to find methods that would aggregate this data and restore owners’ rights. Napster is notoriously credited with the technical term Digital Rights Management (DRM) and its reactionary legal component—the DMCA—but the concept of rights management existed long before Napster.
In 1983, a primordial form of DRM was grounded in the idea of superdistribution. Superdistribution included protections for content owners that alerted the creator to whenever a product was copied, tracked the usage of the product via a system that enabled the owner to control the terms of the product’s use, and incorporated a payment system that permitted users to make secure transactions with the content owner. This basic idea led to enhanced methods of “tamper-proof’ protection, monetization, and security. Early on, developers had realized that without protection for content rights, electronic files would consist of nothing more than a collection of limited, disconnected applications.
Fast-forwarding to 1998, several companies tried to achieve this goal again and formed the Secure Digital Music Initiative (SDMI). The purpose was to create an open framework for sharing encrypted music by not only respecting copyrights, but also by allowing the use of them in unprotected formats. Although this music initiative also failed to provide a universal DRM standard, it prevailed by further exposing the problem.
As technology evolved, the digital revolution radicalized copyrights by enacting fees to permit both the copying and transferring of rights. In a particularly famous essay, Steve Jobs explained that the cost of implementing DRM protections and ensuring information is being used fairly is greater than the cost of obstructing its purpose and obtaining works illegally. He urged major record labels to abandon the practice of affixing DRM technology to their files and instead negotiated with them to license their music to services like iTunes. Eventually, DRM came back into play circa 2008 when Spotify increased in popularity and helped to abolish the idea of music ownership entirely.
The concept of creating a global, comprehensive music database is not a novel idea either. Since 2000, collection societies have attempted to resolve the issue of a lack of centralized database through multiple international coalitions. Every single one of them has failed. The latest, and incidentally most ambitious venture, was the Global Repertoire Database (GRD) effort. The objective of the GRD was to create a singular, compiled, and authoritative ledger of ownership and control of musical works around the world. Over eighty organizations and more than 450 individuals across six continents elected to participate, ranging from recording artists to tech titans.
Similar to what blockchain enthusiasts believe its technology can solve for music, the GRD offered the same potential benefits of transparency in regard to tracking, collecting, and allocating royalty fees properly, as well as lowering the administrative costs of these operations. The GRD also alleged its purpose was to create an authoritative, comprehensive, open, and multi-territory database to benefit the world of music, which would permit copyright applicants to register only once—as opposed to re-applying for registration in various jurisdictions. Finally, the GRD initiative claimed it would facilitate licensing processes.
The GRD required two rounds of financing: the initial start-up funds and the funds needed to cover the annual operating budget. After significant contributions were made, the GRD collapsed in July 2014, leaving behind a debt of more than $13.7 million. Collection societies, most notably the American Society of Composers, Authors, and Publishers (ASCAP), began pulling out of the project and ultimately ceased funding it. The combined loss of funding and information prevented the GRD from moving forward.
Some sources suggest that the failure was attributed to the collection societies’ fears of losing revenue from operational costs under a more efficient system. Others speculate that it arose from a dispute over who would control the global database and administer its catalog. Another reason cited for the failure was the concern that if publishers could license songs directly, collection societies would no longer need to serve as the intermediaries that facilitate the process.
Despite the failure, there remains a fairly wide consensus across the music business that a fine-tuned system of rights ownership information management is crucial to developing the digital music industry, and the best way to achieve this is still through a global database. The tools necessary for building such a globalized structure share analogous properties with blockchain’s features, which explains blockchain enthusiasts’ strong support for implementing the technology.
Royalty Distribution: The Descent of the “C-Note”
The issue of rights management directly impacts royalty distribution. Two types of royalties are paid out each time a song is played: one for the sound recording, which compensates the artist (or, more plausibly, the record label), and the other for the musical work, which compensates the songwriter or company that holds the rights to the song. If a person using the music material does not know who owns it (i.e., the purpose of organizing metadata), then the individual will not know whom to pay for its use.
Like the rights management problem, this is not a new matter, but digital streaming platforms have contributed to its escalation. Streaming services depend on major labels to provide licenses to pay for the content. Major labels are docking large cuts of what should be paid to the artists, justifying their acts as if they were still producing physical copies of the material, i.e., vinyl records and CDs. Complicated contracts and non-disclosure agreements help to ensure artists and listeners remain uninformed of the allocation of these profits. Without physical evidence, artists lack the ability to prevent labels from distributing royalties at will.
Another issue that needs to be addressed is how payments are actually distributed to the parties. Aside from the confusion that accompanies procuring numerous service licenses to correctly disburse subsequent fees, copyright law is outdated and does not protect creators as sufficiently as it did prior to the digital age. In regards to royalty fees, government regulations require low rates, as well as statutory mechanical royalty rates for both physical recordings and permanent digital downloads. Finally, to further these complexities, the Department of Justice (DOJ) had threatened to revoke the 1941 consent decrees from ASCAP and Broadcast Music, Inc. (BMI), which would destroy royalty fee negotiations for everyone involved in the industry.
In conjunction with the legal hurdles is the quandary of how to account for digital streaming revenues in this new era of music consumption. Recently, the Recording Industry Association of America (RIAA) tweaked its gold and platinum certification process, making it easier to “go platinum” while simultaneously devaluing it as a medium of consumption for music. As a result, artists are suffering the subsequent pecuniary disparities between physical album sales and streaming.
Owners and publishers also must take into account the type of streaming service they use. Interactive streams accrue more money than non-interactivc, but interactive pay a greater portion of the revenue to the record labels, and non-interactive are bound to a compulsory license rate. Additionally, there arc tiers built into those two types of streams, premium and “freemium,” which create further fiscal discrepancies. The average range of rates varies between $0,005 to $0.0022 for the artist and label, but the publishers depend on a different set of criteria to calculate what is owed to them. The diverging rates ultimately become an accountant’s worst nightmare to untangle.
If tackling these issues separately sounds intimidating, blindly implementing blockchain technology as the potential, overarching solution when there is currently no evidence available to support that it works, is just as daunting. Most of the positive press about how blockchain technology can save the music industry is based on theoretical implications. Blockchains are much more limited in their capacities than the articles seem to suggest. The next part of this Note explores these concepts by elaborating on what blockchain technology is and the emergence of potential use cases for its application in the music industry.
Blockchain: A Record on Loop
Blockchain technology was originally developed as part of the digital currency, Bitcoin. Although they are not the same concept, an explanation of Bitcoin is a necessary prelude to fully comprehending the concept of blockchain technology.
In 2009, Satoshi Nakamoto introduced the world to an electronic form of cash known as Bitcoin. Its goal was to reestablish trust in the financial system by eliminating the use of an intermediary, i.e., a bank, and instead distributing that trust through a decentralized network, which could display transactions through cryptographic proof. The decentralized ledger that was formed to record Bitcoin’s anonymous transactions became blockchain; inadvertently it was the more significant development between the two.
Blockchain, a type of distributed ledger, is maintained across a network of servers called “nodes,” that get duplicated thousands of times. The ledger contains a continuous and complete record (the chain), of all transactions performed, which then gets grouped into blocks. A block is only added to the chain if the nodes—essentially the member computers associated with that chain—comply with the new block attempting to be added to the chain. If all of the nodes on the network can verify that the transaction is valid, then a new block is formed. To determine whether the transaction can become a certified block, the nodes compete to solve a highly complex algorithm entitled, “Proof of Work.”
Each block contains certain components: a cryptographic hash (a random and unique string of numbers mapped to the information stored within the block); a time stamp; and the hash of the preceding block. When information gets added to a blockchain, it triggers the “Proof of Work” process to generate a new hash, which then associates the data with that particular blockchain and secures it to the latest block. Once this information attaches to the blockchain, the data becomes intricately interwoven with the block’s “hash,” which not only enables it to immediately detect any changes, but also makes it extremely complicated to alter the data due to the enormous amount of computing required to complete the “Proof of Work” algorithm that supplies the unique “hash.”
Additionally, a blockchain network may be open and public (permissionless) or structured within a private group (permissioned). Members opting to use a private blockchain can preapprove its participants, govern how entries are recorded and under what circumstances they can be modified, and demand electronic passwords to gain access to the permissioned network.
Another notable feature of blockchains, which could eventually become the most compelling application for the music industry, are smart contracts. A smart contract is a computer program that is capable of facilitating, executing, and enforcing the negotiation or performance of an agreement—the contract—using blockchain technology. A programmer inserts a logical code akin to a normal legal contract (i.e., “if this, then that”), which acts as a set of instructions for the computer. The code is then encrypted and dispatched to other computers via a distributed network of ledgers. Once these computers receive the code, they each formulate an individual consensus about the results of the code and its execution.
Thus, the functions of a blockchain make it well suited for certain business purposes. It can be applied to track digital transactions, store large quantities of data, create smart contracts, secure valuable information, and verify authority instantaneously. In theory, blockchain’s description sounds like the ultimate comprehensive tool for business solutions, which is why numerous industries, e.g., music, find its concept so appealing.
Beyond Bitcoin
Though the emergence of Bitcoin is partly responsible for the initial hype surrounding blockchain technology, the barrage of Internet articles speculating on the potential efficiencies blockchain can provide for numerous industries is instrumental to the rate in which companies are urging to have it implemented. With the exception of Bitcoin—blockchain’s only proven use case—many of these claims are either undeveloped ideas or hypothetical possibilities for a given industry. In reality, blockchain technology still has much to prove.
Although some companies are already employing its use, blockchain is limited in its application by the ways in which it can be manipulated. Blockchain is most favorable in business conditions necessitating decentralization, tracking and storing large amounts of data or historical information, and creating trust or security for managing the records. Other potential applications for it include identity creation, income generation through social media networks, and as a tool for forecasting. More specifically, blockchain has allowed companies to roll out some extremely useful and innovative platform ideas, such as creating secure and transparent voting methods for election results, improving anti-counterfeit measures across different industries, and certifying the authenticity of artworks. It has even had an impact on non-profit organizations handling international development overseas.
Blockchain is largely still in its developmental stage. State governments have been reluctant in responding to the need for blockchains regulations, but even without strict regulations in place, some companies have forged ahead by instituting their own blockchain initiatives. As a result of this initial success, professionals within the legal and music industries have started linking up with the tech sphere to analyze how blockchain’s innovative structure can possibly reform some of the music industry’s ongoing problems.
One of the primary issues, which will be discussed in more detail below, focuses on modifying the industry’s financial scheme, and particularly the payment process—this is essentially how blockchain was formed in underlying Bitcoin currency. Although no laws currently exist explicitly connecting blockchain technology and the music industry, there are some cases, state statutes, and financial codes, that assist in developing the legal framework for cryptocurrcncies. Thus, blockchain’s progressing legal foundation, coupled with the fact that many of the music industry’s problems stem from its antiquated financial system, results in utilizing blockchain technology for monetary purposes as a solid first step towards improvement for the industry. Unfortunately, that step is at least five to ten years away.
Emerging Use Cases in Music
Among the plethora of touted use cases for blockchain technology, there are several rapidly emerging in the music industry. Proponents of blockchain applications are primarily conducting research for the major areas of the industry that need improving: digital rights management and royalty payments distribution. To reiterate, rights management refers to the system controlling copyrighted material, i.e., songs; royalty distribution pertains to how revenue is allocated to each of the parties involved in creating a musical composition. The rest of this section explains why blockchain is not necessarily a sweeping solution to the problems currently crippling the music industry and the emerging use cases in those arenas that are responsible for promoting this hype.
Revisiting the Issue of Rights Management
As previously described in the rights management section, the music industry has already experimented with several efforts to cure the rights management issue, which shared analogous properties with blockchains. Despite the fact that each of these attempts failed, the same logic is being applied again to fix these problems, except this time by utilizing different technology: blockchains.
Many articles detailing the ways in which blockchain can be used as a global database to restore rights management ignore the fact that blockchain is simply a tool, not a software enabled to solve this problem. The reasons put forth for using a blockchain, described below, mirror the ones for the GRD. For instance, several of the articles mention that blockchains are networks that could permit decentralized, global, public access in a secure and transparent manner. They also claim that blockchains could eliminate the use of intermediaries, which has the effect of directly connecting the artist and consumer. Lastly, the articles emphasize that blockchains’ unique storage of information, through its time-stamping and cryptographic hash properties, could incorporate the metadata—data pertaining to a musical work’s ownership information—of each song into its records.
Notice that the majority of articles employ the verb “could” and not “does.” That is because not only does this technologically advanced form of blockchain not exist for the entertainment industry yet, but also for the same reasons that the GRD failed, namely, for reasons of transparency, storage, non-repudiable records, managing metadata, and worldwide public accessibility. This is not a technological issue; if the GRD had failed because of technological limitations, then implementing blockchain “could” potentially be the solution to the rights management problem.
Although the music industry recognizes the demand for metadata, the incentive to supply it is severely lacking. As mentioned above, a legacy of bad practice is to blame for this dilemma. Artist contracts are complex, uniform industry standards do not exist, and file maintenance has been essentially non-existent. Record labels, publishers, and Performing Rights Organizations (PROs) benefit from this muddled mess of private data, because it costs less and leaves unaccounted revenues behind for them to collect as profit. Blockchains will not eliminate this problem; if anything, they will intensify it.
If it took strenuous and excessive efforts to convince PROs to collectively combine their data during the GRD initiative, it will be equally as hard now to compel PROs and labels to comply again when the failure is fresh and debt is in the millions. Also, this time may require even stronger persuasion tactics because PROs will be betting on a brand-new business model with no proof of success to support the risks. The positives will always have to outweigh the negatives before a major industry sector decides to adopt a new system, especially one attempting to change its traditional methods and diminish its profits.
Even if blockchain advocates somehow managed to gain the cooperation of all music organizations and blockchain’s capabilities were advanced enough, there are further drawbacks to using blockchain. Its application may not be necessary at all to fix an issue so embedded in bad business practices. Aside from the initial extravagant costs and the issue of scalability, there are several other points to consider before deeming blockchain as the superior option to adopt over the conventional private mode of a centralized database.
For one, advocates argue that eliminating intermediaries, such as publishers, will provide creators with greater control over their intellectual property rights and afford more accurate data collection. Advocates also argue that removing the middlemen will return profits solely to artists, as opposed to lawyers and distributors. This simply is not true. Blockchain will have to establish intermediaries, i.e., service providers, to build the system, aggregate data, ensure the database runs smoothly, and so on. Blockchain does not function on its own, so money will have to generate from somewhere to pay the new middlemen to maintain this complex system, and it will most likely get deducted from those benefitting from it: the artists.
Additionally, since blockchains are tamper-resistant, if there were a central authority to contact, the data could not be changed or deleted without affecting the entire system (i.e., deleting one file from five years ago disrupts the whole chain). For an industry that is suffering due to its longstanding adherence to stagnant business practices and wrought with legal battles over erroneous data, the last thing the industry wants is to implement a lawless system sans an “edit” button.
Returning to the Issue of Royalty Distribution
One of the primary reasons for the persistent hype—proclaiming blockchain as the music industry’s savior, especially among artists—is blockchain’s properties. If a decentralized ledger is instituted to act as a transparent, publicly available, non-repudiable resource, then the owners of works can trace their creations and know exactly where they can collect their royalties from, or at the very least, the person using it will know whom to pay. Therefore, in theory, instituting blockchain is allegedly the advocates’ key to resolving the rights management issue, which effectively solves the royalty distribution problem. Accordingly, artists can recoup more of the money that they arc owed.
This has sparked a wave of new start-ups to arise. Although they have a common goal, there seems to be a split between two methodologies in approaching the situation. One avenue focuses on using blockchain applications for payment systems. Another is looking into quasi-blockchain type databases to archive and account for all the information without a payment option. For example, the Open Music Initiative and companies, such as Songspace or Kobalt, are concentrating their efforts on aggregating the metadata and creating systems where everyone involved in a musical composition can upload their information in one place, as opposed to storing it separately within their own entity’s private centralized databases.
As for implementing blockchain from a payment angle, companies are eagerly joining the race to be the first ones to successfully achieve this goal. They intend to reinvent the monetization of music through smart contracts, cryptocurrencies, micropayments, and direct fan-to-artist contact, which is the idea of eliminating the middlemen, e.g., financial brokers or purchasing platfons, that deduct a portion of revenues. The following are examples of some of the larger companies already executing these strategies and how each of them is experimenting with their own unique concepts.
For instance, PledgeMusic is building a Fair Trade Music Database that houses all of the metadata that companies and consumers can use to search for songs and play them. Once played, a smart contract will automatically release payments to the owners whose information is linked to that song. PeerTracks is an equity trade-like system for artists to manage royalties and revenues, and incorporates cryptocurrency tied to individual artists’ profiles that are valued through the popularity of its creator. Musicoin plans to facilitate all major aspects of music distribution, copyright, and royalty payments through the application of smart contracts, including equipping music fans with the power to decide how much they want to pay for songs in a pay-per-play format. Payments will be accepted in the form of its own cryptocurrency, the “musicoin,” which “will not be tied to any particular sovereign currency to allow users from all over the world to buy music from their favorite artists.” The final example, which incidentally is gaining the most traction, is UjoMusic. UjoMusic’s platform assembles the metadata for creations, gives artists direct control over their works by authorizing them to set their own rates via licensing schemes, selects the distribution channels to sell them through, and lastly, uses Ethcreum as both the payment method and copyright protection, enforceable through Ethereum’s smart contracts.
While all of these concepts are worth exploring further, they are not without incredible complications. In addition to first having to resolve the problems discussed under the rights management issue, royalty distribution has its own inherent set of obstacles. Both rights management and royalty distribution issues must be fixed before even attempting to apply blockchain, because implementing its technology will generate a new, third set of problems that will also need to be addressed.
The aforementioned start-ups recognize the importance of a transparent, comprehensive database to keep track of owners’ rights in order to facilitate payments. Hence, they are recommending some form of blockchain as a panacea. The formation of these companies, however, is aiding in reproducing the issues that they were initially trying to solve: fractured data. This is precisely the same scenario that produced the fragmented data initially, pre-digital streaming era— multiple corporations possessing similar ideas, but establishing different standards with varying sorts of information, which results in fractured data. Just as with the GRD, the music industry has already attempted to agree upon a transparency code for streaming royalties, and it failed too. Ultimately, any plan involving blockchain will have to assess how to organize, finance, and administer its application as one mega ledger, if its advocates ever want it to operate effectively.
Rewinding to the storage issue, even with the help of blockchain’s transparent and organizational characteristics, inputting metadata that is fraudulent or erroneous will remain at such status on a blockchain. As the industry witnessed with Napster, the decentralized aspect that peer-to-peer technology offers makes it extremely difficult to pinpoint whom to hold liable when unauthorized files are uploaded to a system in which there is no controlling authority to contact to remove the material. This can lead to compromising the entire database.
Also, if the information is missing but belongs to a major label or publisher, those owners will treat it as a threat to their business, claim it as proprietary, refuse to share it, and employ the same business tactics that resulted in the current predicament. If alternative approaches could not accomplish this feat in the past, what will change when blockchain start-ups attempt to gain control over already established entities? Without collected or corrected data, artists will still fail to be paid properly, or worse, there will be no entity to hold accountable for unauthorized or pirated copies. This time, it will not be as simple as ordering a company akin to Napster to shut down.
The industry is motivated by capital, and thus, its possessive attitude towards royalty statements is not likely to change. If prominent industry members did decide to adopt a blockchain design, they could easily customize it as a private and permissioned system, so as to assert their power. On another note, implementing blockchains will pose many secondary questions that will require answers. How will artists market themselves without the push of a label? How will these companies secure compensation to run their blockchains without taking a cut of the profits (i.e., a middleman)? How will consumers know which new start-up to subscribe to or which start-up will offer the music that they want?
Again, there is the problem of issuing payments. Aside from outdated copyright law, missing metadata, statutory royalty rate standards, and digital streaming revenue discrepancies, there are also limitations to the cryptocurrcncy features in blockchain applications. Adding a layer of blockchain to the music industry’s already corrupted foundation is not going to improve much, and for those who believe it can through smart contracts and cryptocurrencies, there will definitely be a prolonged lag-time. That leads into the second half of blockchain’s conundrum: the reality behind these financing mechanisms.
There are two glaring issues to resolve before a blockchain solution ever becomes a serious reality: how to apply blockchains and how the legal system will conform to their abilities. These issues apply generally across all blockchain applications, but are especially disconcerting in regard to structuring payment systems, cryptocurrencies, and smart contracts—one of the primary reasons advocates are promoting blockchain for the music industry in the first place.
Smart contracts are praised as a transparent way to automatically pay in real time and split distributions among the correct owners according to its terms, or for their potential to create varying scenarios, e.g., where an artist may elect to be paid an amount per song. Proponents of cryptocurrencies, which can operate through smart contracts, reference how they could support micropayments, may be used as a way to increase royalties for an artist based on supply and demand, and perhaps even enable consumers to become distribution channels for their own digital music and receive payments for downloads taken from their personal music collections.
Irrespective of the lack of financial regulation and the obvious risk of hacking that all new technology imposes, there are plenty of drawbacks for dispensing royalty fees through smart contracts and cryptocurrencies. In conjunction with the outstanding problems left over from the rights management issue, the standards set for royalties must be in accordance with statutes and copyright law. Therefore, a consumer or artist cannot arbitrarily decide how much to pay or how much they want to be paid for the music, respectively. Also, contracts frequently change when creating music because of the plethora of parties that are usually involved. What if one party wants to remove itself from a work or does not want any affiliation with a particular political cause that the work may symbolize, but the rest of the parties do? There is no way to amend this request when operating under the terms of a smart contract.
In addition, the scalability and cost of devising multiple transactions need to be considered. For example, Spotify alone uploads approximately 20,000 songs per day and over five million playlists are generated or edited daily on its platform. Every time one of these actions is performed, the blockchain would have to refresh itself and record the transaction cost, tacking more and more data to the chain. Currently, blockchain cannot handle this storage capacity. It would also cause transactions to slow down at a substantial rate given the volume of users. The cost to house all of this information on a blockchain, which will remain there in perpetuity, would vastly exceed any costs the industry is attempting to wrangle with now.
Finally, on top of the split being launched by numerous companies attempting this venture, the industry is simultaneously trying to remedy the situation in its own ways. Some solutions proposed by the industry include cracking down on royalty fees via settlements or lawsuits; advancing services like Pandora Premium that return higher royalty fees; launching the new Spotify and BMG Apps, which allow artists and their managers to view streaming data and take control of their presence on the streaming platform; and developing the Royalty Claim Initiative and the Open Music Initiative.
There are also five major battles erupting between the largest corporations that own music rights and politicians over whose global database should be constructed as the final standard. Most importantly, both a budgetary proposal linking directly to the Copyright Office through API and a Congressional bill regarding mandatory copyright registrations were recently introduced, which would render the notion of implementing a new global blockchain initiative moot.
Suppose one standard, aggregated database is chosen. Even if a proposal could bypass the red tape of copyright laws, music industry regulations and practices, and implementing blockchain—unless it is completely free, which would defeat its entire purpose for artists—how would a music blockchain convince consumers to not only start paying for music again, but also to gamble with these new forms of digital assets, risking hacks and non-refundable transactions?
Proposal for Rebuilding the Music Industry Using “Off the Chain” Mentality
In the future, blockchain technology could have an enormous impact on the way business is conducted in many industries throughout the world, but presently, its over-hyped potential is dangerous. Apart from security issues, blockchain will have to dissolve technological, governance, organizational, and even societal barriers as a preliminary step. While it could offer new foundations for economic and social systems, it will take decades for these infrastructures to not only fully embrace the concept, but also to properly adopt the technology and adapt to the changes it induces. As such, blockchain is not yet ready to be implemented as the cornerstone of the music industry.
Before even considering applying blockchain, the start of a better music industry should commence with devising an attainable solution for missing metadata so that the technology does not limit the extent of existing possibilities. Since the problems outlined here affect the entire music industry, the final solution will most likely not please everyone involved with the decision. Thus, a broad resolution would work best and should fundamentally focus on setting common standards for the two primary issues being discussed. The rights management issue must be tackled first, because most of the remaining issues rely on repairing the fractured data. From this perspective, blockchain’s properties embody the perfect analogy for defining a potential metadata solution: improving the music industry requires a shared media network to operate effectively.
Instead of having to solve more problems like who owns the global blockchain or who will fund it, the attention should pivot to how to integrate systems that are already built and functioning. As demonstrated by past experiments, such as the GRD, the industry consistently struggles to embrace a sole modus operandi. Given the amount of response that blockchain has garnered in the industry— prompting new start-ups to form almost monthly—it seems as if those struggles would conceivably shift to the application of new technology, should the industry continue to operate under its current status quo.
For instance, the music industry should enforce a common procedure for tagging unique identifiers to new music by creating one numeric system. Also, advanced software can be developed for existing companies, but moving forward, every new music business should be required to incorporate a database system that allows for interoperability. This will resolve any political friction over power and establish compatibility across all entities and their systems.
Furthermore, continuing to operate through the conventional structure of private centralized databases ensures trust through accountability and indemnification, which blockchain is not equipped to do. The industry does not need to reinvent the wheel in order to fix itself (just the record); only tweaks reinstating some common ground are necessary.
The last two decades prove that the music industry will never successfully adopt a universal standard on its own. There are too many conflicting ideologies attempting to be represented among the chief organizations that these business decisions will affect. Ultimately, since the Constitution of the United States vests Congress with the power to enforce industry-wide regulations, Congress should initially wield its authority so that the industry will then be forced to follow suit. It should start by proscribing new legislation that amends copyright laws and institutes fairer royalty rates. Until then, discussions regarding blockchain technology, other open database initiatives, and payment systems should be postponed.
Lobbying for Legislation: A Chorale for the Choir of Congress
Recently, Congress introduced some new bills that follow such sentiment. Thus far, Bill HR 3350, Transparency in Music Licensing and Ownership Act, is one of the most crucial pieces of legislation proposed, since upon approval, the bill would immediately begin to remedy the situation. If passed, it will require creators to register their songs with the U.S. Copyright database or forfeit their entire legal right to defend their copyright, which will simultaneously preclude them from collecting payments on their works. Though this may seem like a harsh measure to its critics, it is essential to begin the process of fixing copyright law and, eventually, foster progress across the entire music industry.
Congress also has the power to revoke legislation that is harmful to artists. For example, 17 U.S.C. § 115(c)(1) provides that “the owner is entitled to royalties for phonorecords made and distributed after being so identified … but is not entitled to recover for any phonorecords previously made and distributed.” If Congress were to either remove the clause pertaining to retroactive collection by owners as being allowable, or, better yet, discard compulsory license requirements altogether, then identified artists could recoup or negotiate more of the earnings that they are entitled. Alternatively, Congress can increase statutory mechanical license royalty rates.
The Copyright Board also recently advanced some input of its own to Congress. Many of its recommendations advocate for legislation that focuses on administering uniform royalty rate standards, which would have the effect of treating all creators alike; increasing the transparency involved with payment systems; establishing a more efficient licensing regime; and amending copyright laws to reverse the lack of protection afforded to pre-1972 sound recordings. Its suggestions arc supported by an incredibly in-depth study and are worth pursuing to save the music industry.
The Copyright Board’s recommendations prompted Rethink Music and the Berkeley Institute to organize their own case study based on similar factors. After reiterating the importance of some of the Copyright Board’s points, they also proffered several of their own suggestions. These included adopting a bill of rights for creators, a decentralized distributed registry governed by a non-profit administration to enforce common standards, and most notably, an education initiative to ensure creators arc aware of their rights. Between both of these exhaustively comprehensive and highly analytical reports concerning the music industry, as well as several substantial bill proposals, it is readily apparent that Congress needs to act first before any new technology can be implemented in this arena.
Instead of forming various start-ups or initiatives, musicians and the industry should continue working together to lobby Congress for a newly amended Copyright Act and a revised creative process. Following this approach will allow Congress the opportunity to finetune regulations, which in turn, will provide blockchains with more time to become sophisticated enough to then house a hopefully revitalized music industry; now, without any existing cracks in the foundation. Both remedies can then blend together simultaneously.
Tokenization: Notes on a Chain
Ideally, proponents should wait for Congress to address these issues before testing whether a blockchain solution is feasible; however, there is one potential application that blockchain may be useful for and it should be the only reason it is being considered yet. That application is for tokenization. Tokenization is the process of converting rights to an asset into a digital token on a blockchain. The earliest form of proof to demonstrate how this could potentially work is comparable to a phenomenon known as the “Bowie bond.”
In 1997, David Bowie bundled up almost 300 of his existing recordings and copyrights into a security that paid its buyer. The socalled Bowie bonds were among the first in what would become a wave of esoteric asset-backed securities deals based on intellectual property. Although music sales and royalty rates began to eventually diminish due to the progression of the digital era, the concept inspired other notable artists to embrace the trend.
Eminem is the latest of these artists to adopt the idea of selling off a music catalog. One start-up, Royalty Flow, used the investments garnered from buying Eminem’s royalty rights to file for an Initial Public Offering (IPO), which could be the first music royalty-backed security open directly to ordinary people on an exchange. As long as streaming revenues continue to lag, catalog sales will increase because songwriters recognize that selling their copyrights will entitle them to reclaim their owed payments faster.
Tokenization might be a good approach to facilitating the sale of music catalogs. Since most music is now consumed digitally, converting a song into a digital asset could be a much simpler task. While copyright metadata and other requisite legal reformations will still pose an issue, token technology allows for the possibility of subdividing payments among the various owners involved in a work’s creation, and the digital transferring of those payments may become easier to process. Additionally, tokens could enable individual artists to manage, distribute, and recoup income for their own music, which also means that the public could invest directly into their musical works. Finally, the token start-up, SingularDTV, has already demonstrated that this method is feasible through its first successful sale of a song via crypto-token.
Again, although tokenization has been proven through the use of cryptocurrencies and the SingularDTV model, it does not mean that the music industry is ready yet for a full-scale, rollout of blockchain applications. Legislative reform must take precedent if the music industry wants to thrive in the future without its prevailing hindrances.
The Final Verse to the Unchained Melody: Why the Pitch for a Blockchain Solution Ultimately Falls Flat
To conclude, the solution to the music industry’s problems involves a chain, not a blockchain, reaction. First, it necessitates that Congress intervene to amend the current Copyright Act and to pass new legislation that conforms to digitized music standards. Once these provisions are in place, then the music industry as a collective whole can decide on secondary technological decisions, such as which rights database to support or whether to establish interoperable blockchain applications across the industry for tokenization purposes. Eventually, after the laws and technology behind blockchain are adequately refined to support records as abundant and complex as those required for music, then it can finally be implemented as a permanent solution.
Thus, the blueprint for rebuilding the music industry ultimately belongs to the architects of the law. Until Congress constructs a new copyright foundation to expand upon, the duetting developments between music and technology will have to push back the release date of their newest remix.