vendredi 24 juillet 2015

The music industry at the dawn of a financial revolution

The fintech revolution, bringing new financial technologies to the Web, has begun to shook the major banking institutions in recent months. It could also bring about a massive influx of capital in the music industry, and thoroughly disrupt copyright management in the digital world.

An adaptation of my blog post in french

A host of startups are developing new financial services on the Web - crowdfunding, peer-to-peer lending, equity crowdfunding, crypto-currencies... - allowing us to do banking without banks. As the general feeling is that banks are no longer doing their job since the 2008 crisis, and as their image of "trusted third party" has sharply deteriorated, the quest for an alternative to traditional finance is becoming increasingly topical.

The fintech revolution brings together companies or startups "adressing all areas of finance in a disruptive manner, breaking with previous models [...], and favoring an approach leveraging the use of technology and media," says french business lawyer Hubert Vauplane, in a paper about financial industry changes published by the french Revue d'économie financière (Journal of Financial Economics).

Music without banks

After fifteen years of massive disruption of its economy, the music industry is paradoxically one of the first that could take advantage of the Fintech revolution. Few of its stakeholders have a dream relationship with their banker. And it's not so easy, for a label boss or an indie publisher, to obtain a loan or even a credit line. For banks, music is often nothing more than a way to target young audiences in their marketing campaigns; it remains a mountebank business, not a very serious one.

The more the music industry will adapt its business to new models emerging from the new digital economy - and the more it will leverage the main growth drivers for music today (streaming, market globalization, live music, new media, etc.) -, the more its stakeholders will have access to new funding models developed in the fintech ecosystem. This will probably be the most significant effect of the fintech revolution on the music industry.

It could also have a much deeper impact on the whole industry value chain, from initial investment to the distribution of rights. In its report Fair Music: Tranparency and payment flows in the music industry, Rethink Music explores the way it would be far more transparent and efficient to put the Blockchain technology, created for the decentralized administration of the Bitcoin virtual currency, at the heart of a new system of rights management in the digital environment. Tranparency on all financial flows in the music industry would be key.

Towards a new contract of confidence

All the confidence in the Bitcoin network - a large number of computers running the same Bitcoin protocol and providing the processing capabilities needed to ensure the safety of all the crypto-currency system – is based on its "blockchain": a distributed database, through all computers in the Bitcoin network (called the "miners"), handling a time-stamped history of all transactions, and allowing to know the state of provisions for each peer at any moment. Informations in the blockchain are encrypted and only accessible to computers running transactions or money transfer operations through the Bitcoin protocol, before being updated accordingly with new time-stamped blocks. In the case of Bitcoin, cryptography acts as a trusted third party. A service previously provided by banks.

With a very detailed database of copyrights (ID of works and recordings, eligible music rights holders, etc.), enriched by all revenue sharing key established on a contractual or statutory basis, the blockchain technology would ensure real-time rights management and dynamic allocation of royalties on the Internet, in a fully automated mode. In such a configuration, all intermediaries involved in the distribution of rights would disappear in the process, in the same way as bank is no longer in the loop of a peer-to-peer lending or a funds transfer over the Bitcoin network. When buying a download, or according to the monthly report of any streaming platform, mechanical rights and performance rights would immediately be credited on the bank account of each individual beneficiary (author, composer, performer, publisher, producer), without any external intervention.

Some artists, like english singer Imogen Heap, already advocate such a redistribution of cards in the music business. The use of blockchain technology would also allow every right holder to know in real-time how, when and where his works or recordings are used. A way to introduce a new contract of confidence and transparency in the management of musical rights on the Internet.  

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