Professional musicians know that royalty payments and the concept of transparency are mutually exclusive. As we mentioned briefly in our seventh episode , “The Transparency Moment,” the current performance royalty payment system is antiquated and fragmented. Payments can take months to be sent out and usually arrive via paper check. Some payments don’t even reach rights holders because records of who owns what are incomplete or incorrect. Those payments are trapped in what David Byrne called the music industry’s black box. Black box lost revenues are said to be in the millions of dollars, but we might not be locked out of that box forever.
Cracking into that revenue is one of the biggest challenges facing the industry and the solution might be found in blockchain, an important part of the inner workings of Bitcoin. But before we get into how to solve one of the music industry’s biggest conundrums, let’s take a look at the conundrum itself.
Each time a song is broadcast via terrestrial or digital radio — in supermarkets, cafes, your Spotify feed, or anywhere trackable — the broadcaster owes the rights holder a performance royalty payment. To receive those payments, rights holders must sign up with a Performance Royalty Organization (PRO) like the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI) or SESAC, who collect those royalties for their members — but that’s not such an easy task. Payments per play or stream are often tiny, micro-payments no more than .0015 cents per stream, and there are thousands upon thousands of them pouring in every minute. PROs are stuck with huge mountains of data to sift through without an adequate system by which to process, accredit, and pay-out all those streams, micro-payments, and corresponding royalty checks.
Here’s where Bitcoin comes in:
Bitcoin is a cryptocurrency, unregulated by a central bank — but any currency needs a method by which to keep track of itself, and for Bitcoin that method is a permanent public ledger called blockchain. Through a process called “mining,” every Bitcoin transaction is tracked and recorded on the blockchain. You can see where each bitcoin changes hands, to whom it was sent, and from whence it came. This allows transactions to be completely transparent, preventing money from being skimmed or otherwise improperly distributed by a middleman.
In theory, a like-minded system could be implemented for royalty payments in the music industry. This would create a central database containing information for all rights holders, streamers, broadcaster, and record labels. Using a similar process to Bitcoin’s “mining” we could track how often each song is played, automatically compute who is owed how much money, and distribute the royalty payment to the correct parties. The author, publisher and label could all be payed exactly what they’re owed in a dramatically shorter timeframe.
D.A. Wallach, investor and artist-in-residence at Spotify, explains blockchain and the music industry in a simple way, comparing it to a VISA system for royalties. The VISA credit card system is the underlying structure that connects most major banking transactions throughout the world. You might use Bank of America in the United States, and another person in Brazil might use Citibank, but the VISA system is what allows those two entities to communicate and perform transactions. The blockchain could become the music industry’s common system in which all involved parties — Spotify, Apple Music, Deezer, the PROs, songwriters, performers, and publishers — can communicate and keep record of their communication.
Of course, this is easier theorized than done. In 2008, EU Commissioner Neelie Kroes started the Global Repertoire Database Working Group (GRD WG) in an attempt to create a blockchain-inspired system for the music industry. The GRD WG never made it off the ground. In 2014, after spending $13.7 million, the GRD WG was abandoned because of coordination issues, lack of quality technical guidance, and a misalignment of interests among major PROs in the U.S. and Europe.
Any new royalty payment system will only be possible when the US Copyright Office updates its policies and frameworks to allow the growth and regulation of such a system. PROs will have to learn to work together amidst interests that are not always 100% aligned. Moreover, running and maintaining a system that processes such a large amount of data on a daily basis, as the GRD WG learned, is expensive — and there’s no clear party willing to pay. However, if these obstacles can somehow be conquered, blockchain could be a vital part of a new-look music industry where transparency and timeliness aren’t just fantasy and the music industry’s black box is no more.
by Alonso Villagomez