This post is Part 2 of the MTP Interview with Alan Graham.  Read Part 1 here.

Chris Castle: How are licensing payments fulfilled using blockchain?

Alan Graham:  Hard to say exactly without examining an actual business model, but for the sake of argument, currently the mechanism for this would require the use of a crypto currency. One of the benefits of something like Bitcoin is that parties who require payment can have what’s called an “address” and payments can be “instantly” made to this address.

There are a few a negative sides to this however.

Nothing is free. In order to ensure a prompt delivery of payment, there is a cost associated. The party sending the payment is the one who pays the fee.

For large payments, this isn’t cost prohibitive, but once you start delving into a micropayment world of  fractional pennies per “play” this cost is quite significant. Now you can do “free” transactions, but there are drawbacks to that and not a topic worth going into at this point.

So if we looked at a DSP platform like Spotify, it would be pointless for them to send billions of payments out each month, which is why PROs would still be a critical partner in this process. Spotify could perhaps use addresses to identify works and therefore improve the efficiencies of the accounting, but it would make more sense for them to just pay one party who has the expertise of paying rights owners.

But that’s not all. Seeing as there is this general idea of using blockchain to generate a database of works and the ownership data associated with it, it is important to note that there would be a cost associated with registering all of these works. Going forward, this might be a negligible cost of business, but for legacy catalogue, the costs associated with this could be prohibitive for many, if not all, labels and publishers. And seeing as we need both the label and publishing data, who will pay this cost?

Lastly, cryptocurrencies tend to be volatile markets. The value of it can go up and down on any given day, typically prone to greater swings than fiat currencies. That means you could have a $10,000 payment made to you one day that by the time you remove it was worth $15,000 or $5,000.

Castle: Spin out the “dark social” concept that you mentioned in your article.  How does your company solve for that problem?

Graham: Dark social is something I’ve been banging on about to those in the music industry for the past two and a half years. While everyone was going on and on focusing on the web and the YouTube issue, I was trying to point out that apps and private social networks are the primary problem on the horizon.

Apps, for example, are closed and walled environments. You can’t crawl them like the open web we’re use to today to search for infringement or improper use. Adding to that complexity is that we’re also heading into a world where peer to peer encryption is becoming commonplace. That means that even if you could analyze what is going on behind these walls, you cannot audio or video fingerprint an encrypted file. So the Content ID type model that has become so popular as a way to monetize infringement, becomes pointless.

Extrapolate this out a few years with current safe harbor protections, the importance of privacy, and the likelihood of fully encrypted networks and new hybridized P2P networks, how would you as a rights owner be able to prove, enforce, or monetize your rights? The answer is you can’t. So simply fighting over YouTube and the open web is a distraction from what’s coming.

This is a massive issue that goes ignored by almost everyone I meet in both tech and the creative industries. Well, actually, I’m not sure it is ignored by tech, so much as it isn’t advertised as something to be concerned with. I think they’d rather surprise rights owners with it after it is too late to do anything. That day is almost upon us.

I won’t bore you with how we deal with this issue, suffice to say we started working on that solution two and half years ago, figured out how to solve it, built that solution, and we’ll ship that code/solution this year.

We knew it was coming so we prepared for it. We’re actually capable of identifying works behind these walls and in encrypted systems without using any fingerprinting at all. In fact, our method is many factors more accurate than YouTube or anything else on the market. Efficient, requires fewer computing cycles, indemnifies developers, and creates an automated license between the rights owner and rights user. I like to say we do it faster than instantly. 😉

We built this for creators as a framework so they would finally have their own technology, with the added bonus of building bridges between developers and citizens.

Castle: If Spotify had blockchain technology, would blockchain allow them to license shares of songs for writers who did not participate in the blockchain ledger?

Graham: Well let’s clarify this a bit in that we’d first have to think about how Spotify would utilize blockchain technology. I’m not sure the current models being proposed solve any issues without creating other complexities. I think there are certain methodologies that could be addressed which might lend themselves well to aiding DSPs like Spotify, but those have to come from the industry itself. I touched on some of these in a piece I wrote back before the first meeting of the OMI: https://thetrichordist.com/2016/06/16/thoughts-on-the-open-music-initiative/

Frankly, however, I don’t see how you can simplify licensing with blockchain without some type of collective agreement via a collection society, for example (rights not rates).

That said, I do think there are ideas to be borrowed or lifted from blockchain that could immensely aid both DSPs and rights owners, especially when it comes to accounting and the efficiencies of processing payments, but again, I recommend people go read my other piece because I believe many of those guidelines need to be addressed first and foremost.

Castle: Since the U.S. government likes to compel songwriters to behave in certain ways, could the government mandate that all songwriters participate in blockchain?

Graham: Who can say what the U.S. government might attempt to do, but the challenge with that is the last time I looked we were a round planet where technology was making it harder and harder to respect borders. I’m not generally an anti-regulation person, however, in this case I feel a hands off approach by the government would be a smarter strategy. You simply cannot legislate this at the speed of technological advancement.

The U.S. government doesn’t own the bitcoin blockchain nor any blockchain for that matter, they can’t control it, and they certainly can’t tell European or (ahem) Brexit…er British songwriters what to do.

A smarter approach would be for the music industry to stop jerking around trying to maximize their bonus checks and start getting serious about fixing some of these issues before there isn’t a music industry left. As an outsider who has now worked with the music industry for 4 years, I find the level of disfunction amazing. This needs to stop. Labels, publishers, artists, songwriters, developers, and citizens all need each other. We need to stop thinking about what camps we’re in and recognize we’re all in this together.

Castle: If I understand what little information there is about OMI, it is not a payment fulfillment mechanism.  If that is correct, how does OMI help artists and songwriters get paid?

Graham: My interpretation from participating in the first meeting of the OMI was that their primary goal is not to wade into issues of rates or payments, but focus strictly on data. I think this is a smart approach, since the moment you dip your toe in the rates pool, you realize it is a pool of acid and acid resistant piranha.

What I found encouraging from the first meeting was the thought that this is about working on details of how do we get good data into the industry so that we can improve not only on just efficiencies, but also create new opportunities.

The OMI wants to see some standards evolve, but they aren’t looking to force them, just encourage the market to discover what might work best.

Now to their credit, while MIT is experimenting with blockchain and crypto currency solutions, OMI isn’t pushing everything in that direction. Their view is whatever wins, wins. Forced standards are hard to establish, but market traction tends to drive new standards pretty well.

Castle: If a company like Spotify fails to take advantage of the existing means of licensing under compulsory licenses, how would blockchain force Spotify to license and pay for all the apparently millions of songs or song shares they have failed to license so far?

Graham: It won’t. Again, blockchain can’t enforce anyone to do anything they don’t want to do. I guess in a perfect utopian world, Spotify wouldn’t be able to access and provide music to their customers if smart contracts prevented them, unless they obeyed the set rates and terms enforced by the smart contracts…the hundreds of millions of smart contracts. We don’t live in this world and even if possible it is years away. Who knows if Spotify will even be around?

Castle: How would an artist conduct a royalty compliance examination of a smart contract?

Graham: I’m not entirely sure, as it isn’t a database. Let’s just speculate on how something like this might work, and ignore the complications that currently make this impossible. If you have a public immutable ledger, and all transactions are written to the ledger via a smart contract, then as long as you can prove you are who you are (cryptographic proof from the rights owner), you can see every use of the works in question. This would require every system on earth using this process, whatever it may be. This is theoretically doable.

The question isn’t so much compliance and being able to automate a trusted audit, it is more about is it even feasible from the view of scalability? We’re talking about hundreds of trillions of different types of transactions per year, which will represent petabytes of data that would absolutely bring all current blockchain based systems today to their knees. So even if you can do the smart contract aspect of tracking and auditing, you can’t currently handle the scale.

Castle: I noticed that the companies participating in OMI include Spotify and YouTube, two of the biggest offenders in trafficking in unlicensed material as well as Pandora whose name is synonymous with litigating against songwriters.  Given that so few people trust one, two or all three of these companies, why should anyone have any confidence that OMI is not just a delaying tactic to continue the status quo?

Graham:  I think what’s important is having them in the room. While the major labels didn’t show up, to their credit, YouTube and Spotify did make an appearance for the first part of the meeting. I was later disappointed, however, that they didn’t stick around for the technical talk, which was less really about technology than process. It would have been important to see their participation at that level.

I don’t believe the OMI is a delaying tactic, but that’s not to say those who participate may or may not cause delays. If the majors put their name on it but don’t show, and the tech giants show but don’t stay, we’re not going to get very far. But it is early days. Let’s see where we are at  six months to a year from now.

Castle: At SXSW this year, I went to a panel with Panos Panay who leads the Berklee OMI program.  That panel was hosted by the lobbyist for the MIC Coalition which is dedicated to blocking the Fair Play Fair Pay Act and any other legislation that would pay artists fairly.  MIC Coalition includes Google and Pandora, two of the OMI members.

That lobbyist asked Panos whether Berklee students complained (I think she actually said “whined”) as much as their older counterparts.  Panos replied (and I’m paraphrasing now, but just a bit) that what was refreshing about Berklee students who grew up in the post Napster era is that they don’t have a sense of loss in the same way that older musicians do, so their expectations were lower.  I guess they can’t lose what they never had.

So does blockchain and the OMI respond to these lower expectations to keep them low, or should we think of the effort as technology that can facilitate negotiations, licensing and collection?

Graham:  I can’t speak to what Panos meant at that moment, but from my own conversations with him, and some of the feedback from the first meeting of the OMI, my impression is that when you’re expectations are already so low, then there’s a lot of incentive to go up. That said, there were a lot of hard won battles by artists that many people likely took for granted that have been eviscerated in the past 15 years. Here’s a group of kids that have nowhere to go but up. However, they still need the infrastructure and the opportunities and the rights afforded to them in order to go up. Plus we need the diversity provided by an entire spectrum of artists and songwriters. We can’t just have a world of Kanye’s augmenting their income with fashion lines or branding deals. Not everyone gets endorsements or sync deals. They need to be recognized and protected from becoming exploited by the system we’ve become accustom to, which in all fairness was really an accident born out of piracy.