Blockchain Revolution

CHAPTER 9

FREEING CULTURE ON THE BLOCKCHAIN: MUSIC TO OUR EARS

t wasn’t your typical yearling’s birthday party. The celebration took place at the Round House an hour outside London, in a massive barn complete with sound- reactive LED tree, a bouncy castle, and a buffet fit for Henry VIII. The crowd was
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eclectic: a “contact” juggler, two dozen toddlers, their parents, neighbors, musicians, and a handful of blockchain developers. There was Vinay Gupta, a Scottish-Indian engineer best known for inventing the hexayurt, a small disaster relief shelter. Gupta is now explainer-in-chief when it comes to communicating blockchain technology to the masses. There was also Paul Pacifico, CEO of the Featured Artists Coalition.

After a career in banking, Pacifico is now fighting for the rights of musicians. And, of course, there was our host, Imogen Heap, an accomplished composer and musician, voted “inspirational artist of the year” by readers of Music Week,¹ and the mother of one-year-old Scout.

“I want to know that the stuff I’m making could be worth something to Scout someday,” Heap told us. She was expressing her deep concerns about the music industry. “It’s so fragmented; there’s so little leadership, and there’s so much negativity around the business side of it,” she said. “Everything is topsy-turvy. It’s all upside down. The artists are at the end of the food chain. It just doesn’t make sense. Music is everywhere, all the time. It’s on our phones, it’s in our taxis, it’s everywhere. But the artists are getting less and less.”²

And therein lies the rub. The Internet is a marvelous muse, both a medium of creativity and a channel for free speech. There’s no shortage of ideas for what talented artists, designers, and coders—and their many fans—can do with one another on the World Wide Web. Nor is there a dearth of ways to make money from all this creative collaboration. Creative industries such as music publishing and recording have been tapping new revenue streams like digital downloads and streaming audio. The problem is that, with each new intermediary, the artists get a smaller cut and have little say in the matter. David Byrne of Talking Heads fame summed up the situation

in an op-ed piece: “It seems to me that the whole model is unsustainable as a means of supporting creative work of any kind. Not just music. The inevitable result would seem to be that the Internet will suck the creative content out of the whole world until nothing is left.”³

This chapter looks at ways that blockchain technologies are putting artists at the center of the model so they can not only “have their cake,” that is, exercise their freedom of expression, but also “eat it, too,” maximizing the value of their moral and material interests in their intellectual property. In other words, to restore their rights. No more big, greedy intermediary, no big government censors. Here, we survey the cultural landscape—art, journalism, and education—where basic human rights and livelihoods hang in the balance.

FAIR TRADE MUSIC: FROM STREAMING MUSIC TO METERING RIGHTS

“If Scout ever did end up being a musician, how on earth would she make money? She wouldn’t be able to,” said Imogen Heap of her daughter’s music career, were it dependent on the current music industry model. “We need something really simple and core, something trustworthy, for people to feel that music is something they can do for a living.”⁴ Paul Pacifico agreed: “We want a music industry that reflects the cultural, technological, social, and commercial sense of our times and allows for a sustainable and viable future for creators and consumers alike.”⁵ Heap has teamed up with Pacifico, Vinay Gupta, and others to create this new music ecosystem.

If there were a prediction market for innovations, we’d bet on Team Heap. In 2009, she became the first woman to win a Grammy solo for engineering her own album, Ellipse. She took all her Twitter followers to the award ceremony by wearing what has become known as the “Twitter dress.” Her outfit, designed by Moritz Waldemeyer, featured an LED zipper that streamed her fans’ tweets around her shoulders. In 2013, Heap kick-started the nonprofit Mi.Mu to invent a musical glove system. It combines mapping software with motion detection sensors so that performers can control lights, music, and video with user-customized gestures. The invention won top prize at the 2015 Berlin Awards for WearableIT/FashionTech. The gloves are quickly catching on. Pop star Ariana Grande posted this message on YouTube with her video cover of Heap’s “Hide and Seek”: “want to thank my idol @imogenheap for allowing me to use the Mimu gloves on my first ever world tour.”⁶ If anyone doubts Heap’s ability to rally a community around new technology, think again.

“We really know what we want,” Heap said. “We’re not a bunch of airheads who like to smoke pot in our living rooms and make music. We’re hardworking entrepreneurs.”⁷ Heap views blockchain technology as a new platform for creators of intellectual property to get fair value for it. Smart contracts in particular could eliminate the magnitude of industry complexity, simplifying a mission-critical role of music labels in this ecosystem.

Rube Goldberg Strikes Again: Complexity in the Music Business

To paraphrase Talking Heads, how did we get here? How do we work this?⁸ It starts with a basic problem for artists—that they signed contracts drafted for the vinyl age, when huge analog production and distribution costs stood between recording artists and their potential consumers. Heap told us, “When I first found a record label, I think I managed to get something like fifteen percent. My last record deal a few years ago, I got maybe nineteen percent. If people are lucky, they might get more now.”⁹ Artists may have assigned their rights to a label for the full term of copyright. In the States, that’s either ninety-five years or the life of the artist plus seventy years. Imagine all the unforeseen innovations that a contract would have to cover to keep the deal fair for artists and their heirs.

Initially, the labels were small, radio was king, the record store was queen, and artist and repertoire personnel not only scouted for new talent but also oversaw their artistic development. In the last twenty-five years, the industry has consolidated from thousands of labels down to three global superpowers—Sony Music Entertainment, Vivendi’s Universal Music, and Warner Music Group—and a few hundred indie labels. These three majors have a combined 15 percent stake in Spotify, the most popular and lucrative streaming music service.¹⁰ So they will get an extra cash infusion if and when Spotify goes public. Apple has become the world’s largest music retailer, and Live Nation the world’s largest live entertainment company.

So control of music copyright is concentrated in the few. The labels and the tour promotion companies have started asking for 360-degree deals from artists. That means getting a cut of all the revenues an artist generates—publishing rights to the underlying composition, usage rights to the sound recording, performance rights when the artist goes on tour, potentially even merchandise and sponsorship rights— regardless of whether they invested in the cultivation of those rights.

With consolidation comes systems integration, and that’s never easy. Each conglomerate has its own process of accounting and its own version of a contract and a royalty statement, making side-by-side comparisons a challenge. “We have a big problem in that the industry is very fragmented. With all of its different platforms, it’s

a bit of a nightmare,” Heap said.¹¹ These systems must accommodate innovation in production, format, distribution, and context of usage. But rarely is an element immediately outmoded, and so every party must maintain two or more models concurrently, the most obvious two being the physical and the digital.

To add to the complexity, there are many members of the supply chain, not just the publishers and the performance rights organizations (PROs)—organizations that monitor public performances of music and collect performance royalties such as the not-for-profit American Society of Composers, Authors and Publishers (ASCAP), not-for-profit Broadcast Music, Inc. (BMI), and the enterprise formerly known as the

Society of European Stage Authors and Composers (SESAC)—but also the producers and the studios, the venues, the concert tour organizers and promoters, the wholesalers, the distributors, and the agents, each with its own contract, accounting, and reporting system. They take their cut and pass along the remainder to the artists’ managers and agents. Whatever’s left goes to the artists themselves, per the terms of their contracts. That’s right—the artist is the last to be paid. It could be six to eighteen months before the first royalty check arrives, depending on the timing of the release and the label’s accounting cycle.

Finally, an entirely new layer of intermediaries—technology companies like YouTube or Spotify—inserted themselves into the supply chain between artists and labels, slicing the artists’ piece of the pie even thinner. Let’s look at streaming music. Spotify pays on average between $0.006 and $0.0084 per stream to rights holders, usually the labels.¹² The calculation of this initial payment may seem transparent at first. Spotify’s site states that it pays 70 percent of its advertising and subscription revenues to rights holders. But we reviewed its forty-one-page “Digital Audio/Video Distribution Agreement” with Sony USA Inc., and the payout of some $42.5 million in nonrecoupable advances to Sony artists is anything but clear. In fact, the first paragraph of the agreement calls for confidentiality. It appears that neither Spotify nor Sony can inform Sony’s artists of the impact of this agreement on artists’ revenues.

Rich Bengloff, president of the American Association of Independent Music, said that, in his experience, the labels don’t usually share money not directly tied to usage.¹³ Industry analyst Mark Mulligan said, “Artists are going to feel pain for at least another four to five years, just as they did in the first four to five years after iTunes launched.”¹⁴

So what value do the labels add? Certainly, they attempt to manage this

complexity, police piracy, and enforce rights. For example, Universal Music Publishing Group had dedicated a third of its workforce to royalty and copyright administration in local markets around the world.¹⁵ Universal recently deployed an artist’s portal that allows artists to peek at the status of their royalties and to request

advances against future revenues for no fee. The portal also provides “insights into Spotify usage: how many times a song streams, what kinds of people are streaming it, what else is on those listeners’ playlists, and how specific songs resonate with certain audiences.” Universal has devoted sixteen staffers to upgrading the portal and interpreting data for artists.¹⁶ The labels also have huge teams of lawyers and lobbyists. They can launch new artists globally, demanding their boilerplate terms, marketing through local foreign media, distributing their music in foreign markets, licensing rights to foreign publishers, supporting international tours, and aggregating all the revenues. The cost of policing royalties has increased with the complexity of the business—that is a cost that directly affects artists everywhere, because it functions like a tax.

Smart contracts on the blockchain can eliminate the magnitude of this complexity, replacing a mission-critical role of music labels in this ecosystem. According to Imogen Heap, “If you’re a computer program, a piece of software, a database . . . these issues disappear, as it’s just maths half the time. This bit goes to this person . . . and it doesn’t take a year or two to reach the artist, writer, performer It’s instant

because it’s automated and verified. On top of this, culture-shifting new music distribution services gather really useful data from artists’ fans, which could massively help us be more efficient if the artists themselves could get to it.”¹⁷ That’s the future of music on the blockchain.

Emergence of a New Music Business Model

The combination of blockchain-based platforms and smart contracts—plus the artistic community’s standards of inclusion, integrity, and transparency in deal making, privacy, security, respect of rights, and fair exchange of value—could enable artists and their collaborators to form a new music ecosystem.

“Wouldn’t it be nice if I could just decide how I’d like my music to be shared or experienced?” Heap asked. “To simply upload a piece of music, for example, and all its related content to one place online, for all to tap into and derive from. Usage rights, ownership, the equivalent of today’s liner notes. Video, latest biography,” and all other parties—not just record labels, music publishers, and tour promoters but also corporations looking for jingles, TV producers looking for soundtracks, mobile service providers looking for ringtones, and the many fans looking to do fan videos— could decide whether to agree to Heap’s terms of use. “Wouldn’t it be amazing to feel the presence of the artist, that if they make that decision about their music, it’s really felt in a real physical sense, even from one day to the next?” she said. “I may decide, hey, it’s my birthday today, all my music is for free or if you’re under sixteen or

over sixty, it’s on me! Or to divert all payments due to me to a relief fund, with just a few alterations of wording in the smart contract.”¹⁸

That’s the goal of designing an artist-centric model on the blockchain, not a model

centered on music labels or tech distributors. Artists could produce music and be paid fairly for the value they create, and lovers of music could consume, share, remix, and otherwise enjoy what they love and pay a fair value. This model wouldn’t exclude labels or digital distributors, but they would be equal rather than dominant members of the ecosystem.

The new music industry is not a pipedream. In October 2015, Heap launched her first experiment by releasing her song “Tiny Human,” and all related data—the instrumental version, seven stereo stems, front cover image, music video, liner notes on musicians, gear, credits, lyrics, acknowledgments, and useful links, and the story behind the song—on the Internet.¹⁹ These details would increase her discoverability on the Internet, that is, to help potential collaborators to find her.

Heap invited fans, developers, and services to upload her song to their various platforms and to share their work as well. She granted them nonexclusive rights to create an Imogen Heap artist profile, provided that they gave her the login details and permissions after uploading her files to their systems. If they expected revenue streams, then she asked them to provide payment models, percentages, and amounts so that she could factor those details into her analysis of the experiment. Finally, she welcomed donations to her bitcoin address and promised to direct half the proceeds to her charitable foundation, Mycelia, her name for this new ecosystem. Usage data and participant behavior would inform the next stage of development on the blockchain.

Various companies are working on its design and collaborating with Heap and other forward-thinking musicians. This new ecosystem has a number of features that the existing industry lacks: