Bitcoin Can’t Save The Music Industry Because The Music Industry Will Resist Transparency

By May 22, 2015Bitcoin Business
Click here to view original web page at www.forbes.com

Here’s a strawman that I believe fairly strongly: Bitcoin can’t save the music industry because, the music industry will resist the transparency it might bring. My recent post – The Bitcoin Blockchain Just Might Save The Music Industry…If Only We Could Understand It – discussed how Bitcoin could potentially prove to be an effective tool for tracking the rights and transactions surrounding musical intellectual property.  However, in my quixotic rush towards some form of musical utopia in which every transaction can be tracked and the appropriate rights holders compensated, I lost track of the very thing that nearly always frustrates this type of progress.

Fortunately for me, an astute reader pointed out this omission via Twitter:

Aston Tweet
Aston Tweet

I’ve spoken to the author of this tweet, Aston Motes – the first hire at Dropbox and now an advisor to many music related startups and entrepreneur in the music space – a few times over the years, and was unsurprised, given his experience and background, that he made such a spot-on comment.

His comment tracks directly with something I’ve talked and written about over the years. Bluntly: the parties who benefit most from the lack of transparency are the ones who will resist anything that ends the lack transparency.

Of course, the parties who benefit the most from lack of transparency in the music industry are the labels, publishers, and streaming services. The record industry was built upon a firmament of information asymmetry – that is, the labels/publishers have more knowledge than those signing the contracts. Given this, they are able to exploit this information imbalance to their benefit. At the extreme end, this meant blatantly lying to artists who were under-educated, under-represented, under-experienced (or all of the above) to strip them – often, forever – of their rights. At a slightly more benign level, these labels and others create agreements and “reporting” so byzantine in nature that only the most experienced (and expensive) lawyers can parse them, which forces many artists who don’t have the resources for such representation to accept the deals/reports prima facie.

Yesterday I Skyped with Mr. Motes, and he elaborated on his tweet, “Even indie labels – it’s not clear that they’d be willing to disclose who makes what, and what people sell. The whole industry is driven on smoke and mirrors.”

He continued down a path that I’ve been harping on for what seems like forever: the idea that these services could provide more than just economic value – but he tied this to Crypto Currency.

Painting by Ashley Longshore. (c) 20015. All Rights Reserved. Used With the Artist's Permission.
Painting by Ashley Longshore. (c) 20015. All Rights Reserved. Used With the Artist’s Permission.

“Why doesn’t Spotify give fans or artists more access to the raw numbers, etc.?” Mr. Motes questioned before adding, “Crypto currencies could play a role here because they’re decentralized, but even centralized companies like Spotify could show more; they could expose actual plays by user, or disclose to artists what songs were listened to, or be transparent about how much money is going to the artist. All of this is interesting information that the majors or any label don’t want out there.”

Mr. Motes added: “from a technology perspective nothing is stopping [labels or streaming services] from building these types of transparent reports. The streaming services fear the same things the record labels fear: If you let people know how complicated these deals are and how the money is split up it compromises the nice shiny facade Spotify has put up. Showing what’s behind this will make them look bad.”

If you doubt that labels or publishers have benefited from a lack of transparency, it’s instructive to look at how the fast-growing publishing company Kobalt distinguishes themselves from the other, more established/older publishers. The first lines of their About page state:

We create technology solutions for a more transparent, efficient and empowering future for rights owners, where artists, songwriters, publishers and labels can trust they will be paid fairly and accurately, regardless of how complex the digital world becomes.

If Kobalt has been able to gain market traction based on the competitive advantage of transparency, what does that say about the industry at large?

Certainly, the artists are not blameless in not demanding less obtuse agreements/reporting, but they simply don’t have the leverage to do so, and – being artists – their impulse to create/the potential for their creations to be heard will outweigh virtually any other consideration.

Therefore, while my thoughts with respect to Bitcoin providing transparency may or may not be accurate (I stand by the fact that it could greatly help, but absent better education holds little chance), there is little to no incentive for those who benefit from lack of transparency to adopt Bitcoin or any other technology that would force them to make less advantageous deals, or render more accurate reporting that would negatively impact their bottom line.

So where does this leave us?

Eventually, the incumbents will face the same fates that befall all companies who myopically focus on their existing customers/business models while blithely ignoring the changing needs of the market – essentially, they face The Innovator’s Dilemma. Perhaps the disruption will come from new models that, as Mr. Motes suggests, charge varying amounts for people with different consumption patterns, which would increase the number of frequent micro-transactions.

However, Mr. Motes noted that while crypto currencies could play a large role in this scenario, Bitcoin will likely not be the crypto currency utilized. According to Mr. Motes Bitcoin doesn’t have the transaction speed to handle the number of transactions necessary to keep track of the rights. This limitation is echoed by Mike Hearn, formerly of Google GOOGL -0.12% and a Bitcoin Core developer, who states that Bitcoin is limited to about 7 transactions per second.

Painting by Ashley Longshore. (c) 20015. All Rights Reserved. Used With the Artist's Permission.
Painting by Ashley Longshore. (c) 20015. All Rights Reserved. Used With the Artist’s Permission.

The Bitcoin Blockchain just might save the music industry, but first we have to take the time to understand it. Admittedly, Bitcoin, generally, and the Blockchain, specifically, are not easily understood at first glance. However, the implications of the Bitcoin Blockchain not only for currency, but for intellectual property are too great not to expend the time and effort needed to see its applicability.

The alternative is to let the technology go the way of Creative Commons; another tool with tremendous application, but equally tremendous misunderstanding – and thus underutilization.

Via my work in the visual art world with Artgasm, the company the brilliant artist Ashley Longshore and I recently started, I’m immersing myself in visual IP.

Painting by Ashley Longshore. (c) 20015. All Rights Reserved. Used With the Artist's Permission.
Painting by Ashley Longshore. (c) 20015. All Rights Reserved. Used With the Artist’s Permission.

This led me to a company called ascribe. ascribe utilizes the Bitcoin Blockchain to, in their own words, “enable you to share your digital creations without worrying about losing ownership rights.”

I’m genuinely excited about Bitcoin. Dominantly, this excitement comes from the fact that transactions using Bitcoin that are confirmed are included in the Blockchain. The Blockchain is a record of all transactions.

This has tremendous application for IP. ascribe is focused on visual elements, however, the utility of this approach extends way beyond visual IP. Music, for instance, seems to me a prime candidate for this type of use-case.

Certainly, such a process would allow for the better trackage of usage of music, which would lead to more accurate compensation for rights holders.

For example, if I am a performer signed to a label, I could assign the rights to my Sound Recordings, and monitor – via the Blockchain – the ways in which the label exploits this Sound Recording (sales, licenses, streams, etc.). This would greatly reduce controversy (and related transaction costs – audit time/money) around royalty payments, etc. Similarly, the label/publisher (or – as I would encourage – artist) who releases the work could lend (i.e. license) the Sound Recording and underlying Composition to streaming services, broadcasters, etc., and monitor – via the Blockchain – the ways in which these rights (Sound Recording/Composition) are used.

In this manner a great deal of transparency would emerge. With increased transparency comes increased speed and desire for deals/transactions.

Certainly, if the music industry has any hope of taking advantage of the new opportunities available to them via the transformation of music to information it will require this type of transparency that will lead to more accurate information, and thus better decision making with respect to deals.

My fear is that the Blockchain (and innovative companies like ascribe) will struggle to gain the understanding required to achieve widespread usage. In short, my fear is that the same fate will befall Blockchain (for artists) as seems to have befallen Creative Commons; people just do not understand it, and CC does a bad job of explaining it (which is a shame), and thus most don’t utilize it.

This is really as much an educational (or marketing/branding) issue as it is a technological one. The stakes are too high not to at least try to create the same transparency around the understanding of the technology even as the technology itself attempts to create transparency around its usage.

Artists – visual, musical, or otherwise – really must educate themselves about these emerging technologies, or suffer the fate of being exploited by those who do.

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