Wednesday, 27 January 2016

Of Royalty Problems and Distributed Ledgers

January has been a whirlwind of meetings and discussion around the idea of using 'blockchains' and other distributed ledger technology to help track and collect royalties on creative works, starting with music and the Digital DNA Genome Project. The potential is certainly there for a new ledger-based environment for creative works. But whether distributed ledger technology will address the root causes lurking beneath the biggest problems that the creative industry faces is another question. Here are some observations relating to problems in the music sector, which I know from other conversations and reports resonate in other creative industry sectors...

The current processes for producing and distributing music are clearly broken.  A trawl through the comments below this 'story' on how much YouTube pays in royalties to artists gives you some insight into the problems faced even by those who work really hard at tracking and claiming what they are owed. Responding to a Wall Street Journal report on claims that Spotify fails to properly account for royalties, musician and critic David Lowery wrote to the Attorney General of New York State demanding action. Civil litigation has followed, seeking $150m in unpaid royalties. 

But the more you dig into the royalty problems, the more you realise they are just a symptom, not the cause, of the music sector's woes. One has to be careful about apportioning blame among the multitude of different types of participant involved in the overall process for creating, distributing and performing musical works. What some see as misconduct can easily be attributed to poor systems and record-keeping and a failure to address the root causes of those failures. But, again, go easy on the blame: it's a huge and daunting task to figure out all the processes involved in such a diffuse sector and then how to improve and control each of them so you know when things are going awry and how to respond.

Ultimately, however, one can't help feeling that listeners are not getting access to the sort of range and quality of music that a more efficient sector could deliver.

So, where to start?

The high level problem statement is that the ability to efficiently monetise music has simply not kept pace with the ability to generate and consume it. Why? Well, let's say that the back-office processes have not kept up with the front of house processes. How so? Back office staff at record labels and collection agencies, artist's agents - and even the artists themselves - manually reconcile paper contracts and bank statements to figure out who is owed what; and royalties are often still paid by cheques, even for tiny amounts. At the other end of the process, consumers can stream music and watch video clips on their smartphones. The distribution processes in the middle are also far from operationally efficient. They don't properly track and account for what is made available to consumers at the front end, and don't interface efficiently with the back office.


Well, this is where the sector seems to have stopped analysing the situation, which is what we humans tend to do in such situations. We leap to conclusions and solutions. "It's in the interest of the big labels to do nothing about it," has been the most popular refrain, although "Google and Spotify don't care" seems to the latest chart-topper. Current 'solutions' range from sending in the auditors, to filing law suits, to preferring to stage live gigs and concerts as the way to make money. From a technology standpoint, we have the Codec idea from Benji Rogers - not to mention the distributed ledger initiatives that we'll come to.

But these are really just solutions in search of the root cause to the sector's actual problems, spawned more by a sense of helplessness and frustration than any pure insight.

To identify the solutions that will give the most bang for the buck there is a lot more work to be done in understanding all the processes; defining the key problems more precisely, measuring which cause the most pain, then analysing the range of root causes of those problems; before then figuring out which improvements are worthwhile implementing. Finally, all that work will be lost unless there are controls in place to know when the processes are starting to fail again.

Any new system for monetising music efficiently must be “customer-centric” and not merely ‘consumer-centric’ or ‘artist-centric’. It has to cater for the entire set of end-to-end business processes and treat all industry participants fairly. We have to recognise that each participant may be a supplier in one step of the overall process, yet the customer of another step; and which hat they are wearing when they complain. One could argue, for example, that artists are perhaps most upset not in their role as suppliers of music, but in their role as customers in process steps related to distribution, consumption and payment.

To become sustainable, 'the system' must evolve in a customer-centric fashion at each step, otherwise the participant in the role of the ‘customer’ will not buy in to the solution for that step. Equally, however, no one can afford to get caught up in anger and blame. The whole sector needs to move along the change curve to accepting that the system is broken and participate positively in the work required to fix it.

So it's simply too early to say what role, if any, distributed ledgers have to play in solving the creative industry's problems. It's not about imposing a solution, but rather fostering agreement on root causes of the problems and the necessary improvements and controls to be implemented.

That's not to say work should not continue on the use of ledgers in relation to music and other works. It is exciting to see the work on releasing music into ledgers by Ujo Music and MyCelia; Audiocoin; Aurovine; Revelator; Colu; and OCL (One Click Licence); as well as the work of the Kendra Initiative on the wider development of a distributed marketplace; and collaborative forums like the Digital DNA Genome Project mentioned earlier. I just don't think we should saddle these initiatives with the responsibility for solving the current woes of the creative industry - the two can co-exist quite peacefully.

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