Can Blockchain save the creative industry?

In the creative economy, blockchain can redefine how artists are remunerated by acting as a platform for creators of intellectual property (IP) to receive value for their work. A common complaint lodged by artists is that, as performance-rights organizations and new intermediaries such as Spotify and YouTube increasingly insert themselves into the value chain between artists and their audiences, artists receive smaller cuts of revenue and have less say over how their creative works are priced, shared, or advertised. For instance, on Spotify it would take between 120 to 170 streams for rights holders to receive their first penny.

This article will give an overview of the key forces behind blockchain that empower artists and IPR holders in the creative economy. The article will also highlight the main challenges inherent to blockchain.

Blockchain and the so-called token economies (tokenization) — can enable creative stakeholders, such as artists and inventors, unlock new financing opportunities, without having to sacrifice their IP rights and contract rights, including control of future royalties to intermediaries.

Token economies reward fans for coming to the stage and utilizing services. An artist is able to sell tokens to fans directly in order to raise funds for creative projects. By leveraging and utilizing smart contracts, artists are then able to receive immediate payouts and monies generated from the song, rather than waiting months or even years to see their hard work paid off.

Blockchain comes in many forms. It can be permission-less, permissioned, public, private, hybrid. Its main advantages are:

• Transparency (data could be visible to more parties and there is an in effect immutable record of transactions)
• Audibility/tamper proof (attempts to alter/forge data are more easily detected)
• Resiliency (data are replicated across the network, thus enabling them to survive even if some nodes are lost)
• Blockchain also removes the intermediary, if it is permission-less, so it serves as a P2P network

IP Management

Blockchain can be used by IP owners to keep hashed digital certificates of intellectual property rights (IPRs). Blockchains can contain “smart contracts” to help artists manage digital rights and allocate revenue shares to contributors to the creative process (collect royalties). IP owners could use the platform to license, assign, transfer IPRs. Smart contracts are self-executable computer protocols that digitally facilitate, verify, and/or enforce transactions/events. Unlike smart contracts, often conventional contracts leave artists with little power over the terms for the content they generate.

The smart contract component of blockchain can include which percentage of the revenue goes to which member of the band, the label, the manager, etc. It can even give a quick way of contacting all the involved rights holders for licensing queries. By logging all the rights holders to a specific song on the blockchain, one big transparent database is created that can be accessed and seen by anyone at any time. Artists are enabled to receive their share instantaneously instead of waiting for months or even years.

Inventors could also use blockchain for tech scouting/identification, upload, and exchange of invention disclosure records, patent applications, and invention assignment records. NDAs could be executed via blockchain. Inventions can preserve their novelty through encryption.

Royalties could be designed to be more inclusive, offering fairer terms for composers, lyricists, and musicians — all stakeholders involved in the creative process. PeerTracks is an example of a service for artists to seek immediate royalty payments and ownership of their content. The service works by attaching a smart contract to every song an artist uploads and dividing the revenue according to the terms the contract stipulates.

For instance, dance artist Gramatik created the GRMTK token and raised just under $2.5 million by releasing 25 percent of them for fans and the crypto community to buy. Anyone holding GRMTK tokens will get a share of his royalties.

Transparent and secure peer-to-peer (P2P) transactions

If the blockchain is public, all of the transactions for a creative work could be seen and validated, e.g. who accessed the work and how much revenue the work is generating at any point in time. This will allow stakeholders to have a better sense of the overall value of the creative work that is being produced, all in the form of a digital ledger provided in the blockchain.Blockchain could make it transparent who the owner of the creative material is. Services such as Binded offer to attribute ownership of creative works securely. The service works by providing each creative work with a unique cryptographic ID, verified with the blockchain. This means ownership can be traced and creative content securely shared.

Efficient and dynamic pricing

Creative content can be mispriced. By tracking the demand for creative content, pricing could be more dynamic. Prices for creative content could fluctuate according to supply and demand. Artists could control prices and have the ability to set prices themselves without having to go through a complex web of intermediaries.

As the blockchain could provide records of who has been granted access rights to creative works, this could then be harnessed to price creative works dynamically. Artsits may have a stronger voice in the pricing scheme and could, therefore, provide discounts on their works at certain times.

‘Micrometering’ & ‘Micromonetizing’

Digital music stores such as iTunes allow consumers to purchase individual song tracks. Using blockchain, snippets of creative works could be made available for a price, for example, a few seconds of a song for use in a movie trailer. This kind of “micrometering” works by having the blockchain record the precise components of the creative work that were used, defining the smallest consumable unit of creative content. The IP holder assigns a bitcoin address to a work and this allows for micropayments. This way financial networks can be bypassed.

This could have huge implications: Why purchase unneeded parts of creative material? Already, services such as Streamium are disrupting the traditional method of artists being remunerated through intermediaries by offering micrometering payment services. In advertising, Brave allows Internet users to pay content providers they support in Bitcoins in exchange for an ad-free experience.

Reputation system

Blockchain can help link reputations to specific “addresses” on the blockchain, thus allowing both producers and consumers of creative content to verify one another. This could encourage stronger collaboration and better behavior, by promoting cooperative terms for content creators and consumers alike. Participants who repeatedly don’t fulfill terms in a contract or try to game the system would have their actions recorded, acting as a deterrent against bad behavior.

Risks, challenges, and the future

As we can see blockchain offers many exciting opportunities in the creative economy. But it also comes with certain caveats, such as:

- Digital versus traditional. While some artists have embraced blockchain as a way to release tracks with greater control over the terms of their creative work, blockchain-ready artists remain a minority.

- Artist promotion. While blockchain may provide creators with a larger say and stakes in the revenue generated from their creative content, questions remain as to what extent they can market and promote their creative content without the help of traditional agents, be it publishers or record-label companies. There are concerns that self-publishing or self-promoting material may, in fact, lead to less revenue for some artists who would otherwise benefit from agents’ support.

- ‘On-chain’ versus ‘off-chain’ storage. Questions remain about where the creative media will be stored — on the blockchain itself, as metadata, or in the form of access keys? Current technology may constrain putting creative content directly on the blockchain, while storing just the metadata of the creative content presents issues of where the creative data will actually be stored and how it will be disseminated.

- Methodology for micrometering/micromonetizing. Bitcoin itself is not originally designed for micropayment features, thus requiring an off-chain “layer” that handles payment.

Legal and Regulatory

- jurisdiction (since blockchain is a technology that knows no boundaries and diffuses institutional accountability).

- Blockchain, if used as an IP management and registry system, will also challenge the centralized system of registering patents, trademarks and industrial designs.

- The tamper-proof design of blockchain can be seen as a disadvantage because it is impossible to make corrections in the system even though they might be necessary. Hence, modifications should be allowed in accordance with applicable laws. How are going to deal with increased data volumes and still guarantee tamper resistance?

- How do we link different blockchain systems and blockchain systems to the old systems (interoperability)

- If a blockchain is private can the public rely on the info in such registry? Can the blockchain ledger be considered a prima facie evidence in court/administrative proceedings? How do we provide for the right to terminate a smart contract?

- Also, blockchain will challenge the roles of some IP intermediaries in the creative industry such as publishers, labels and collective societies.

- Fair use rights might be diminished

- What do we do when smart contracts contain bad code or error or contain illegal instructions? If smart contracts are self-executable and their code is treated as the law, then any mistake, intentional or out of negligence, becomes part of the contract.

- Also, as with any other technology, blockchain is limited when human judgment is involved. For instance, blockchain can be used for patent registration. However, we know also that patents need to be examined and this requires human judgment, something that cannot be easily automated.