Op-Ed: Blockchain and the Music Industry

Today, the easiest way for musicians to distribute their art is through large streaming services such as Spotify and Apple Music. Some aim to do this professionally, hoping to one day make it big. Some do it as a hobby or side hustle, yet only a choice few bring in any more than a couple dollars each month.

This is a good month’s earnings for many artists on Spotify. Photo by Jeff Weese on Pexels.

Seeing such incredible effort rewarded so pitifully can be a real letdown. Even as the services grow, they continue to report massive losses each year. For example, Spotify reported a loss of more than $186,000,000 in 2019 (page 109 of the annual report).

Even though the music industry has consolidated into a new power structure which has completely undermined all but the most elite since the advent of the Internet, that business model is in danger. This is potentially to the great advantage of content creators. There is a new sector in blockchain that is promising to give musicians (as well as other content creators) access to full equity in the distribution of their own art without fear of piracy. This technology is still emerging, yet it already exists in the form of small, but revolutionary cryptocurrencies such as TRON, Gifto, and DECENT. [Note: I don’t advise investing in any specific cryptocurrencies].

There is a new sector in blockchain that is promising to give musicians access to full equity in the distribution of their own art without fear of piracy.

While blockchain cryptocurrencies have traditionally been sold on the merits of their technological security, the main problems are the lack of value stability and that they have become too easy to create. The first cryptocurrencies to use blockchain transactions — a tool that ensures the validity of a given token or coin — were marvels of cybersecurity genius. However, today an entrepreneur with little coding knowledge to speak of can hop on GitHub (a repository with source code for many popular applications) and copy the necessary code to create a simple blockchain framework. In a matter of minutes, someone can have a new currency on the Ethereum Network, one of the most popular networks for processing smart contracts.

Once the pearl is taken from the oyster’s mouth, it’s gone. Photo by Anastasiia Rozumna on Unsplash.

Sometimes this code doesn’t work as intended. This was the case with Oyster. A vulnerability in the code led to a hacker injecting new coins into the market and then selling them at the nonadjusted market value, making a quick $300,000 in October 2018. In the end, it turned out that this was carried out by one of the founders of Oyster, Bruno Block. The rest of the team was determined to not let this bad actor destroy the technology they were building, yet in the end the security vulnerability served as a representation of the critical need for security in blockchain companies. The trade value fluctuated violently before suddenly becoming nigh worthless as 2018 came to a close.

Without the deep privacy features of more established cryptocurrencies, these types of vulnerabilities may emerge. If there is no way to differentiate between a counterfeit pearl and a real pearl, all the pearls become worthless. This may be a challenging concept for those unfamiliar with blockchain, as computers are generally able to mutate and recreate a file. Blockchain aims to solve this by maintaining a ledger which verifies and keeps a record of transactions. This means that a coin can only be in one location at one time, and the ledger knows the address of that location. Thus, once a transaction occurs, it is final.

If there is no way to differentiate between a counterfeit pearl and a real pearl, all the pearls become worthless

While Oyster demonstrates that this is not always a perfect solution, it does provide a vivid illustration of the importance of digital verification and security as it relates to retaining the value of data and data-based currencies.

Creative content is of value, yet that value has been exploited through piracy in the Digital Age. Oyster was one of the first organizations (as well as the list I mentioned earlier) trying to use blockchain to solve the need for supplying unique copies of creative digital content. The rift between the founders of Oyster illustrates the particular importance of integrity and character in creative business.

This technology promised to allow content creators to process transactions on their site and then deliver an immutable (can’t be copied or modified), blockchain-verified version of their content. As the music industry has moved toward independent distribution, nearly everyone involved has been hurt financially. Even the most successful musical artists only make a fraction of what their counterparts were making 30 years ago.

For the independent artist, where they used to be able to sell a CD and make $5 or $10 in a single moment, it is now exponentially more difficult to generate that amount of revenue. Many are operating at a loss as online distribution has never quite been cheap compared to returns, although some services like DistroKid and Amuse are offering more affordable plans which improve margins for independent musicians and labels. Yet is still challenging to turn a profit even with these highly discounted and unlimited distribution plans by account of how much more difficult it is to raise $10 through streams compared to the one-time sale of a physical disc or cassete required in previous generations. Many record labels and nearly all streaming services are operating at massive losses.

Not surprisingly, some artists from previous generations, such as the band Tool, have completely jumped ship on music streaming. This is not really an option for the not-yet-established musician today as it is generally better to be growing an audience and fan base in the hope of being able to put on a successful tour and sell merchandise — two of the only ways an independent musician today can hope to make a substantial career out of their music.

Hundreds to thousands of hours practicing a skill to bless others generally pays less than simple labor. Photo by Gustavo Fring on Pexels.

While most see only these issues at the surface, there are three major factors that are converging to change the way equity is divided in the music industry music industry. First, musicians have demanded democratization and independence so-much-so that the tools of the industry have become much cheaper and more reliable. This has extended to everything from software and education to distribution and marketing. Not just in music, but everywhere, more creativity and a wider skill set will be demanded of those who wish to be successful.

Second is the long-standing psychological effect of media piracy on independent creatives. Artists have had to learn to micromanage every aspect of their careers and work diligently if they are to have any hope of being moderately successful. Compared to most sectors, music and art are volatile and financially precarious. As the tectonic plates of the technological landscape shift in the direction of blockchain, many will be shaken by the disruption caused, yet media-based industries are equipped to harness that seismic energy.

Now the third major factor is the fulcrum in this equation… blockchain.

The Crypto Crash of 2018 changed everyone’s perspective on blockchain, yet it was really only the traders who were affected. Those selling digital content or looking to harness the blockchain algorithm for business have a lot to gain still. Photo by Chris Liverani on Unsplash.

There has been a dark cloud which surrounds the public perception of cryptocurrency ever since the entire cryptocurrency market bubbled give or take 1200% then crashed in a span of only two months in early 2018. Even in the worst of times, this sort of fluctuation doesn’t happen in the New York Stock Exchange. Because of this, many are focused on what cryptocurrency could do to the financial system, few are focused on what blockchain can do for business.

Many are focused on what cryptocurrency could do to the financial system, few are focused on what blockchain can do for business.

Entertainment is just one sector in this great content and value distribution revolution. Still, it is one that I am grateful to see as content creators have been so underpaid in the digital era. There are a handful technologies that have begun to enter the market seeking to solve this problem using blockchain, although they are mostly in their infancy. Look at this short description of just one of these technologies that is currently available in crypto exchanges:

“TRON (TRX) strives to build the future of a truly decentralized internet and global free content entertainment system that utilizes blockchain technology. The TRON Protocol represents the architecture of an operating system based on the blockchain which could enable developers to create smart contracts and decentralized applications, freely publish, own, and store data and other content. According to the TRON Foundation, the ecosystem surrounding this network specializes in offering massive scalability and consistent reliability capable of processing transactions at a high rate via high-throughput computing.”

To help parse the meaning of this, think of this technology as a way to verify that a specific file was paid for properly. Further, it is not controlled by any governing body, but rather by the free market. This is an Adam Smith vision of the entertainment industry, where the content creator truly interacts with the market to decide the value of content.

Still, the idea that the value of the currency a content creator collects could fluctuate as wildly as cryptocurrencies did in early 2018 would frighten most content creators out of using this technology. However, blockchain can be used more as file verification and security than as currency (and this is the direction that tech such as TRON is moving in, although it still very much remains a currency). There will be many variations on this theme as the process of democratization kicks in before the ideal blockchain technologies disrupt the industry in the migration from streaming to file-selling.

Some artists lived lavishly during the boom of the Dutch Art Market, yet when the value of paintings crashed, the guild masters and artists who chose to spend frivolously were thrown into poverty. Paintings from this period that were relatively valuable became dirt cheap, yet today they are worth tens of millions of euros. Photo by Boston Public Library on Unsplash

Just as the Dutch Art Market fell in the 17th century, so the streaming services will fall as they are replaced by an artist-to-patron blockchain system. The fact is, with art markets there is historically a significant trough before higher peak. Blockchain is the next revolution in art markets, but it won’t be a smooth transition from the massive aggregate streaming platforms of today to the laissez-faire art markets of tomorrow.

Now more than ever, content creators must decide how they will prepare for the disruption that is coming before these better systems emerge.

Andrew Lowe is a serial music entrepreneur. Founder of True Vine Music Group, Producer Cast, Champion Gold Music, and KeyPlugs. FREE BEATS: championbundle.com

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