How blockchain could remix the music industry (and why it hasn’t yet)

October 26, 2020 Editor Blockchain 0

What you’ll learn in this article:

  • What effect streaming has had on the music industry and earnings by artists
  • How blockchain can give artists greater control over publishing, distribution and monetization of their music
  • How much artists make from their streamed songs
  • Why smart contracts and cryptocurrency could make payments to content creators faster and more transparent while stemming illegal downloads

In the era of streaming, the likes of Spotify and Apple Music have been paradigm-shifting for how the world listens to music. The next big disrupter for the music industry, experts say, may be blockchain. 

Though the market is still nascent, blockchain-powered streaming platforms have recently cropped up, with backing from power players like ConsenSys and Warner Music Group.

Fueling the emergence of blockchain upstarts has been the reaction against the big music streaming platforms that favor established artists, with independent musicians having little opportunity to gain the audience needed for monetization. 

What independent artists do earn on the major streaming platforms bring little in cash, as record labels and the platforms take the majority of revenue earned. As the music industry continues to change and grow, blockchain  technology — as record players and radios once did — could upend and redistribute power and the industry’s earnings. 

“We hope that in five years, the power is back in the hands of the audio content creators,” said blockchain streaming platform Audius’ founder and CEO, Roneil Rumburg. “In our eyes, we see this meaning they’ll have full control of publishing/distributing/monetizing their work, and will own the relationship with their fans in an unmediated fashion… As this new music economy matures, replacing existing constructs like advances and distribution with decentralized equivalents, there won’t be a need to sign deals with major labels; artists will be able to scale their reach and grow their fans without giving up the rights to their music.”

Streaming revolution

Streaming now accounts for 79% of U.S. music industry revenues, the biggest in the world, according to the RIAA. Though the market is already saturated with streaming services, a subset of blockchain-powered platforms are trying to join the mix with varying success.

Within the music streaming industry, Spotify dominates subscriber numbers, accounting for 35% of total subscriber share, with Apple Music, Amazon, Tencent and Youtube lagging behind at 19%, 15%, 11% and 6% respectively. Yet the streaming giant is not without its controversies. Complaints have been made that — contrary to its claims — Spotify does not do enough to “democratize” the music industry, with 87% of the content on the platform coming from the top four music labels in the business. 

Accusations that Spotify underpays its artists also abound, with Taylor Swift famously pulling her entire discography off the platform in protest, in 2014. 

“Music is art, and art is important and rare. Important, rare things are valuable,” Swift told the Wall Street Journal. “Valuable things should be paid for. It’s my opinion that music should not be free, and my prediction is that individual artists and their labels will someday decide what an album’s price point is.” 

See related article: Are PewDiePie, Manny Pacquiao and Spencer Dinwiddie riding the blockchain wave?

Pop star Taylor Swift has had issues with the music streaming platform Spotify. Photo: Eva Rinaldi, CCASA 2.0

But even an artist as popular as Taylor Swift was no match against Spotify. Swift caved in 2017 (notwithstanding her deals with other streaming platforms) and quietly put her catalogue back on Spotify. 

Time for massive disruption?

Just as radio, record players and compact discs once caused seismic changes to the music business, mainstream internet music streaming is now almost into its third decade. The industry may be overdue for another big shift in tectonic plates, industry insiders, in this new era of blockchain. 

Former Hollywood film producer Steven Haft, currently the head of global partnerships at ConsenSys and treasurer of the Blockchain Social Impact Coalition, told Forkast.News that music is “an industry that is controlled by labels, mega-publishers and streaming platforms [that] are, by nature, centralized gatekeepers in the music supply chain… Blockchain introduces a remedy with its decentralized platforms and databases.” 

Although the music industry would not exist without its content creators, the way that recording industry copyrights are structured, coupled with the dominance of recording labels, result in a system that does not pay artists very much. Musicians are paid only 12% of industry revenues — and current streaming services aren’t helping. Spotify’s average pay-per-stream ranges from a measly US$0.006 to $0.0084, which is then distributed among “rights-holders” — including “labels and publishers” — the same people who gobble up the lion’s share of the revenue before leaving musicians their 12%. 

Unless an artist is an already established pop star garnering streams in numbers like Ariana Grande’s, they make only a negligible amount from streaming services. This is why even Taylor Swift got upset.

For their part, the streaming platforms claim to be struggling financially as well. Despite its outsized market share and raking in US$2 billion in revenues in just the first three months this year, Spotify still operates at an annual loss — which it has done since its inception in 2008. Spotify says it has prioritized growth over profit and has lost royalties to illegal downloads.

Enter blockchain — a technology that experts say could help stem illegal downloads while alleviating or even breaking the big players’ chokehold on the music industry. 

Blockchain’s use cases in the music business

One way that blockchain could redistribute power within the music industry is through the use of smart contracts. If recording contracts are recorded on the chain, lawyers and record label executives might find it harder to claim the lion’s share of profits, perhaps making room for the artists themselves to claim more than 12% of the revenue. 

Let’s return to Taylor Swift as an example. The megastar moved record labels last year after a drawn-out, publicized spat with her previous label and its executives. The dispute over whether or not the terms of Swift’s initial contract — signed when she was just 15 years old — were fair could have benefited from transparency. Despite celebrities weighing in left and right on the controversy, the original document itself was never disclosed.

Cryptocurrency could further allow artists to be paid more directly and efficiently, instead of having to wait up to six months as they do now. And blockchain doesn’t just benefit artists. A publicly visible registry on the chain showing the various copyright ownership of certain works could address the lack of a verified universal database may help stem illegal downloads and piracy, which costs the music industry an estimated US$2.7 billion in revenues annually. 

While blockchain could take power away from record labels, Haft is hopeful that open-minded and forward-thinking music companies would be willing to get on board.

“The labels know they will lose overarching dominance over what music gets listened to when the artist becomes an entrepreneur,” Haft said. “We can, however, look to innovative labels such as Minerva to show the rest of the industry what a win-win looks like for label and artist.” 

Getting in the blockchain act

Minerva is a blockchain platform launched last year by dance artists RAC and Goldroom, following the former’s successful release of his music on Ujo, an Ethereum-based platform backed by ConsenSys. The company aims to streamline the release and payments process and take greater control over the commercialization of artists’ intellectual property.

Even Spotify has jumped on the blockchain technology train. After relinquishing US$20+ million in a settlement payout for owed royalties, the streaming platform acquired Mediachain Labs in 2017, a blockchain startup whose Attribution Engine promises to remediate the legitimacy and lineage of copyright claims to reduce chances of neglecting royalties owed. 

Open Music Initiative is a similar project aiming to create “an open-source protocol for the uniform identification of music rights holders and creators,” backed by labels such as Universal, Sony and Warner, and streaming services such as Spotify, Pandora Radio and YouTube alike.

Blockchain streaming platforms have started cropping up in recent years as well. There are now upwards of 25, and many of them serve the same purpose — connecting artists with paying fans while cutting out the middleman. 

Platforms such as PeerTracks, Musicoin, and Dsound are platforms similar to SoundCloud but backed by blockchain, paying their artists instantly in cryptocurrency (Soundac token XSD, MUSIC and STEEM respectively). They are, naturally, more popular with independent musicians who not only are the fastest-growing demographic in the recording industry but also don’t stand to gain much from the lower-paying mainstream platforms. 

Warner Music Group also wants a share of this action. The music giant has joined a group of investors including Silicon Valley venture capital firm Andreessen Horowitz to invest US$11.2 million into Flow, a DapperLabs project using blockchain to authenticate non-fungible tokens such as signed digital album art, as well as “looking into how cryptocurrency could be used to let fans tip its favorite artists, and testing two different blockchain platforms for directly connecting musicians with their fans without the need of intermediary distributors.”

Another blockchain-based music streaming platform is Audius. Having raised US$5.5 million in August 2018, the app claims to be “the first truly decentralized, community-owned and artist-controlled music-sharing protocol” that pays artists immediately for streams via smart contracts. As of October 2019, Audius had “a combined monthly audience of 10 million people,” and was lauded by Yahoo Finance as “adequately addressing the most pressing needs within the industry.” The dApp most recently hosted #AudiusFest in May, taking advantage of pandemic-induced global quarantines to attract audiences — much like many Instagram Live concerts. However, Audius is not without its problems, and copyright infringement is perhaps the most pressing one. The Verge has explained how “there is no content ID system in place to catch potential infringement,” and that by design, even if copyrighted material is identified, its creators do not have the power to remove it.

Audius did not return requests by Forkast.News for comment.

Challenges ahead

Copyright infringement is not the only problem decentralized streaming platforms face; Choon is a cautionary example of a flawed payment system. Having launched in May 2018, the Ethereum-based platform attracted “over 12,000 artists uploading over 45,000 original songs, and 22,000 registered users with over 5,000 monetized playlists” in just over a year and was called “the largest and fastest growing music streaming platform on the blockchain.” It enabled smart contracts between artists and song contributors, and paid them per stream instantly, in $NOTES, its cryptocurrency. In August 2019, it was paying over 13x more than Spotify, with a Choon 2.0 in the works. Yet a mere four months later, Choon’s cryptocurrency had devalued to the point of worthlessness, prompting investors to pull out and the site to close.

With the rise and fall of many early streaming platforms, the future of blockchain in the music industry is difficult to predict. While the technology may seem poised to topple a long-standing, inequitable market, the challenges it faces in penetrating a saturated market are considerable, as are copyright and payment issues. 

But failures — even colossal ones — may be part of the normal growing pains of any new technology. The automotive industry had its Edsel. The internet’s early days saw Pets.com come and go. However, from Limewire to Napster to Spotify, technology has always been a crucible for innovation, and people’s demand for music and convenience has never flagged. 

“Blockchain continues to demonstrate its ability to create opportunities for independent artists and challenge traditional gatekeepers within the industry,” said Haft, of ConsenSys. “Defi is simultaneously making inroads on the enterprise side, where the bulk of the industry revenues are generated.”