A Music Industry Unchained: Blockchain Solutions to Music’s Big Data Problem
“No area of copyright law is more complex, or productive of more controversy over recent decades, than the tangle of copyright rules and industry practices that govern the music industry.”[1] The haphazard legal history of music copyrights has led to an unwieldy network of industries that work to license and claim royalties on behalf of copyright owners implicated by these rights.[2] Incorrect or misattributed copyright data is a source of litigation and further delays of payments.[3] When royalty payments are misattributed due to inaccurate or missing licensing information, they are held in a “black box” by the collection agents and redistributed among record labels based on their market shares.[4] From 2019 – 2021, the value of unclaimed mechanical royalties (just one of the many streams of royalties in a given song) in the United States was $424 million.[5] This level of misattribution exists largely due to the inexistence of metadata standards between parties in the supply chain, and a lack of incentive for industry players to correct or share their data.[6]
Enter: Blockchain. More than just a way to scam people out of their money,[7] the technology has been hypothesized as a clever fix to the tangled mess of copyright and royalty distribution in the music industry by facilitating a unified, decentralized music copyright database. Blockchain is thought to solve the data problem because it is a distributed, decentralized ledger operating by consensus, so there is a trustless, agreed upon, singular source of truth.[8] Likewise, transactions on the blockchain are transparent and immutable, making it easier for stakeholders to verify and follow the path of royalty distributions.[9]
Additionally, smart contract technology can facilitate quick and easy payments once that data has been lined up.[10] Coined by American computer scientist and cryptographer Nick Szabo in 1994, smart contracts are “open-source, self-executing code that runs when certain conditions have been met.”[11] The Ethereum Blockchain introduced this concept to decentralized ledger technology to automate legal contractual obligations and payments.[12] Blockchain smart contracts rely on an oracle to receive external information.[13] Oracles are software applications that are external to the blockchain and initiate the smart contract when the expected outside conditions defined are met, linking the smart contract to the outside world.[14]
Music’s Big Data Problem
For many years, the music industry has been looking for a solution to the complex web of incomplete and inaccurate copyright and royalty data throughout each sector of the business.[15] There was most recently an unsuccessful attempt at creating a “Global Repertoire Database” for musical works in 2008 that was ultimately abandoned in 2014 because it was too complicated, expensive, and the major stakeholders could not agree as to its utilization and ownership.[16] In 2018 Congress passed the Music Modernization Act (“MMA”) which, among other things, created a non-profit called the Mechanical Licensing Collective (“MLC”) that was tasked with creating such a database.[17] Before the creation of the MLC, streaming services were obligated to perform all rights identification for their digital files, and were vulnerable to litigation for inevitable mistakes.[18] In exchange for a release from potential liability, streaming services pay for and maintain the new rights database.[19] The ownership of this potentially valuable database, however, is unclear and has come under scrutiny.[20]
The Blockchain Solution
Several companies have begun to attack the royalties problem through novel Blockchain solutions, attempting to induce creators and stakeholders into creating decentralized, unified, database systems. A description of three such enterprises is below:
Open Music Initiative (“OMI”) is a non-profit started by MIT and Berklee College of Music that has many significant industry stakeholders.[21] signed on to collaborate and develop an API specification to build a “uniform identification of music rights holders and creators.”[22] The idea behind OMI is not to create or unify a metadata standard per se, but instead to develop a “technical architecture comprised of core functional blocks and APIs that will allow developers and stakeholders to build their own systems and tools that are OMI compliant.”[23] OMI sees Blockchain as a decentralized bridge, managing and authenticating transactions and links between various data standards that interact with each other through their API.[24] The non-profit has put this concept into practice with its startup RAIDAR, which is a decentralized blockchain music licensing platform currently available for use by Berklee’s students.[25]
Mediachain is a “decentralized, global data layer for powering serverless applications.”[26] It relies on creators and stakeholders to upload their information to the database, using decentralized collaborative efforts to match identifications to works.[27] Mediachain was acquired by Spotify in 2017 in an effort to address their data identification problems that were resulting in significant lawsuit payouts.[28]
Finally, VerifiMedia is a “multi-party rights management services company” that uses their technology to interact with and keep track of various parties and data sources for dynamic works.[29] In order to keep track of changes in rightsholder information, for instance when a songwriter sells a portion of their rights to a publisher, VerifiMedia uses blockchain to keep an immutable “audit trail” of changing rights information pertaining to individual works.[30]
These three companies illustrate some creative Blockchain solutions that have begun to be applied to the complex data problem of music copyright management. An analysis of some of the positives and challenges, from a legal perspective, follows:
Ownership
Blockchain is a creative solution to democratizing the ownership of a potentially valuable database.[31] The MLC, as a government mandated nonprofit, is particularly well positioned to oversee its creation and implementation. Many decentralized Blockchain projects utilize nonprofit entities to carry out managerial tasks for their protocols – most famously the Ethereum Foundation.[32] On the other hand, the MLC, whose board is composed of a majority of music publishers, is problematically disincentivized from being efficient and accurate.[33] Recall that, when rightsholders are unable to be matched to their works, the unclaimed royalties will be distributed amongst the major stakeholders.[34] Still, because the government is ostensibly a disinterested party in the matter, it can direct the overseeing U.S Copyright Office[35] to develop this database in as equitable of a fashion as possible. For their part, the MLC website currently states that it “does not have any current plans to incorporate blockchain technology into its systems.”[36] If effectuated as a blockchain, the database will be decentralized and thus reliant on a vast network of validating nodes running perpetually instead of one centralized server. Ideally the data can be viewed by the public, casting light on the black box of royalty distributions to the delight of artists, their accountants, and attorneys.
Under the MMA, streaming services are paying for MLC’s database.[37] Since Spotify already owns a data centric Blockchain company, Mediachain,[38] the streaming service giant could exert its considerable weight within the industry[39] to bring other stakeholders on board. Streaming services have a lot to gain from minimizing label power over them at the negotiating table.[40] A transparent, decentralized database could shift some leverage to creators, since record labels currently benefit from the opacity of their accounting practices.[41]
Collaboration
Blockchain can also streamline and incentivize collaboration by multiple parties. The MLC already relies on stakeholders and creators to supply the labor to input the correct data from their works into this database.[42] Right now, creators and stakeholders are incentivized to input data in order to streamline royalty collections and avoid the redistribution of their earned mechanical royalties if the data does not match up. On a blockchain network, however, the necessity of consensus would require each party implicated by a given composition or recording to agree to the royalty distribution splits in advance. As a positive, this pre-distribution consensus will save money by heading off future litigation over the correct distribution of royalties. As a negative, stakeholders may be able to exert their influence over artists through financial pressures – if a record label disagrees about a royalty split with an artist, they likely have more money and patience to delay royalty distributions.
Smart Contracts
If a Blockchain database were adopted, the next legal question would be in direction of payments via smart contract technology. Direct payments to artists through smart contracts would perhaps be the most revolutionary usage of the technology, allowing for close to instantaneous royalty payouts that currently can take professional collection agencies multiple years to distribute.[43] It has not yet been thoroughly tested, but it seems likely that automatic smart contracts would be legally enforceable in any situation that a normal contract would be, though not without some peculiarities.[44] The most obvious difficulty would be the immutability of such smart contracts. Typically, no party can alter a smart contract once it is on chain – a smart contract needs to be scrapped and written anew to make any changes.[45] On the other hand, immutability is also one of the biggest positives of smart contract technology. Disputes over a longstanding contracts should be virtually eliminated by self-executing code. Likewise, when changes are made by replacing a smart contract, a history of all such changes will be perpetually available on-chain for analysis.[46]
International Harmony
A decentralized blockchain meta-database has the potential to simplify or harmonize the diverse and idiosyncratic copyright regimes throughout the world. Smart contracts could be programmed to be region-specific, or in the case of an interoperable API, could have region-specific input layers. One barrier to such adoption is the recent trend towards enhanced data privacy regulations in major markets. For instance, the perpetuality and immutability of data on the Blockchain is directly counter to some of the rights proffered by the European General Data Protection Regulation (“GDPR”), which includes a “right to be forgotten.”[47] The United States is also considering new comprehensive digital privacy legislation on the Federal level, while states such as California, Colorado, Connecticut, Virginia, and Utah already include similar “right to deletion” laws.[48] Removal of your information and history from a blockchain database might be impossible, making compliance with these data privacy regimes problematic.
Payment
Finally, in regards to royalty payments themselves, cryptocurrencies are native to a given blockchain but would likely not be preferred for payment due to their current volatility.[49] Likewise, lack of mass adoption could leave many artists desiring conversion into more accepted fiat currency. Quick conversion to fiat right now requires the utilization of a cryptocurrency exchange, adding an additional volatile element to the chain, since conversion would require willing buyers on the other side of each transaction.[50] Though volatility could feasibly even out over time, one solution to this problem is the advent of stablecoins, or cryptocurrencies whose values are pegged to a reference asset like the US dollar.[51] Stablecoins operate in a variety of ways,[52] and currently exist in a regulatory legal gray area, where some issuers of stablecoins may be considered banks, market mutual funds, trusts, money services businesses, or securities.[53] Depending on the stablecoin ultimately tapped for usage in a blockchain database and royalty distribution platform, there could be additional legal challenges to address for the entity facilitating currency conversion, the entity issuing the stablecoins, and for the people receiving funds that they may then want to convert into fiat currency.
Conclusion
Blockchain technology has exciting aspirational use cases for fixing the big data problem in the music industry’s digital age. Though the tech is still in its nascent stage, the industry and government are largely motivated to develop this solution to the benefit of creators and stakeholders alike. For music makers, the hope is that this new technology will “unchain” their royalties in the years to come.
Footnotes
