Yes, Blockchain might well revolutionise music royalties. No, it’s not going to happen anytime soon. – Music Business Worldwide

In this MBW op/ed, Tom Allen (pictured), Co-Founder and CEO of Curve Royalties Systems, discusses his thoughts on Web3 and its potential for processing royalties and managing rights.

Whenever we are presented with exciting new technological ideas and advancements, whether it’s self-driving cars, VR or blockchain technology, we often overestimate the effect it may have on our lives in the short term, whilst under-estimating any long term impact.

There is currently a lot of noise around NFTs, smart contracts and crypto currencies – and some wild claims that these new innovations are going to change the way we live and work in the next couple of years.

Realistically, especially when it comes to the global reporting of music royalties, this timeframe is overly optimistic. I suspect we’re looking at a horizon of more like 10 or 15 years-plus before we see mainstream, tangible benefits from these dial-changing ideas.

It can be argued, of course, that rapid change will continue to accelerate. Yet even though bold new technologies do exist, the changes in behaviour required to fully embrace them can still take years to properly manifest and align.

An example of this short term vs. long term viewpoint can be seen through my company’s own experience. When we launched Curve in 2016, I remember saying to my partners, “Let’s not do this, someone is bound to use blockchain technology and just blow us out the water.”

Yet here we are six years later, and the music industry is still only at the very beginning of being able to properly utilise blockchain’s full potential.

The major stumbling block in the adoption of blockchain technology, particularly in applications such as managing royalties, is the sheer scale required to do so effectively at a truly global, industry-wide level.

When we look at how artist deals actually work, and how royalties are required to be reported, we can see quite clearly that that requirement for granularity in the data – details such as per-track or work, per-territory, per-usage type – means that the volume of transactions passing through any network would be HUGE.

“At Curve, we calculated over 4 billion lines of royalty data in 2021. In comparison, the Ethereum network currently manages around 1.2 million records per day – and, significantly, the cost per transaction on Ethereum is currently $1.80.”

At Curve, we calculated over 4 billion lines of data in 2021. In comparison, the Ethereum network currently manages around 1.2 million records per day – and, significantly, its cost per transaction is around $1.80.

Conclusion: to harness the true potential of blockchain-based royalty reporting, the scale of the networks needs to be 100x bigger, and the cost needs to be 10,000x less.

It could be argued that using blockchain for this level of granularity is foolish, and that actually the music industry should be aggregating more instead to reduce the number of transactions companies like Curve process. And this of course is true.

The issue, though, is the music industry just doesn’t work that way. A simple royalty split of 20% to Composer A, 20% to Composer B and 60% to Composer C can mean a publisher needing to separately report on usage type, territory and many other parameters.

It is naive to think we can just calculate a couple of splits and it will fundamentally change the way the music rights business operates.

“It is naive to think we can just calculate a couple of splits and it will fundamentally change the way the music rights business operates.”

These issues can be overcome, and it’s clear that the long term potential around blockchain-powered solutions is enormous. Yet we also continue to see great advancements in other technologies to manage such problems, so there will be many ways to skin this cat in the future.

One fascinating area can be found in the concept of partition of ownership via blockchain, particularly the idea that fans could buy a share of an artist’s future royalties.

The opportunity this affords the fan, giving them a financial stake and incentive in the careers of their favourite artists, is amazing. Conversely, an artist can continue to monetise and reward their invested ‘super-fans’ with experiences, exclusives and limited edition items.

The elephant in the room though is this: can any actual financial value be delivered to fans investing in this type of model?

A typical model we see today is someone purchasing 0.05% of an artist’s streaming revenue for a particular recording for $1k with the artist selling a total of 20% of the track for total revenues of $400k.

In turn, that ($400k as 20% of the whole) gives giving the future streaming revenue of that track a valuation of $2 million.

“To generate $2 million on a single track, it would take 500 million streams at an average rate of $0.004/stream.”

To generate $2 million on a single track, it would take 500 million streams at an average rate of $0.004/stream. If the artist is signed to a label, and receives, say, a 20% royalty, this makes it more like 2.5 BILLION streams, of a single recording.

Are any of these innovative fan-funded/split-streaming revenue projects actually producing tracks that stream to these levels? And therefore are any of them actually giving fans a return on their investment?

We have a way to go before this becomes a proper investment vehicle, and not just another high-ticket price item to sell to the “thousand true fans”.

For the fans, this kind of project is often bundled with sweeteners, such as meet and greets, or memberships.

But remember these sweeteners are only viable to deliver to the initial purchaser; they have no resale value. The value of the asset owned by fans in many of these projects will end up as a fraction of the price they paid in the first place.

There are other unanswered questions about this type of model, too.

Will royalties be paid from the first stream, or only when the artist is recouped?

Is this track’s revenue being cross-collateralised with other tracks on the album (and so any marketing costs being recouped first) or being paid out individually?

And, frankly, are these the type of things that the average consumer can understand when making such a financial commitment?

What we do know is this: some artists are making a lot of money on the back of some of these NFTs, so fans (or perhaps it’s just the ‘crypto-bros’?) are obviously keen to get involved, but real value needs to be demonstrated if fans are going to continue parting with their cash.

Whilst the current hype around NFTs is very loud, what’s happening beneath all the noise is very interesting.

The use of the technology for issuing and managing the separation of rights into ever thinner slices does open up the opportunity for artists, or rights-holders of any type, to split and sell their holdings across many more parties than had previously been viable to manage.

An interesting parallel might be the opportunities that crowdfunding brought to businesses a decade or more ago.

Perhaps this potential long term effect therefore is that copyright, of any sort, can be split into a thousand tiny pieces and sold off.

And in a world where it’s hard enough to ensure you keep the artist’s bank details up to date, blockchain technologies could provide a nifty, elegant and sophisticated solution to this new way of thinking.

The best way to approach the future of blockchain technology is this: once all the hype dies down, and blockchain stops being the answer to EVERY SINGLE PROBLEM, it will become just another tool in the professional arsenal of developers.

Is blockchain the right tool for providing good traceable provenance and ownership of something? Probably.

Is it useful in bringing payment infrastructure to places that have struggled to implement good financial systems or suffer from mass corruption? Definitely.

Is it the right tool for representing complex rights associations, or managing large scale transactional data? Almost definitely not… at the moment!

Whilst the NFT space will become an exciting, volatile and oversaturated market in the next six months it too, in time, will become just another product format.

Easier access to blockchain technology, more stability in the marketplace, and a runaway success for an exciting project could be just the tipping point needed to kickstart a more mainstream adoption.

Generally speaking, I’d recommend ignoring the hype today, and looking longer term.

Eventually, there may be a few nuggets in these (currently) over-hyped crypto projects that might, just might, revolutionise our lives.Music Business Worldwide