Blockchain: Embracing the Revolution – Part Two

September 17, 2021

Royalty Collection: A shady world of questionable morality and unquestionable inefficiency

Blockchain is already being exploited within the music industry, especially in the realms of streaming databases, music creation and distribution. However, it is in royalty collection that blockchain could address the main issue afflicting artists. Namely, the accurate and timely payment of the income generated by their creative activities.

Within the industry, millions of transactions are enacted daily, each of which should be creating value for creators. However, it is conservatively estimated that approximately $2.5 billion ends up within the industry’s Black Box. A catch-all for royalties that cannot be matched to their rightful owners, and which, once placed in this unforgiving receptacle, can no longer be claimed by them.

The Berklee Institute of Creative Entrepreneurship’s Rethink Music Initiative stated that between 20% to 50% of royalty income does not reach the copyright owners. This is primarily because of ingrained inefficiencies within the labyrinthine configuration of royalty collection, poor metadata, and a lack of standardisation. However, it should also be acknowledged that certain parties within the value chain are eager to maintain as opaque a picture as possible, to continue benefiting from the present discord.

This situation is exasperated by the presence of innumerable intermediaries, all intent on extracting their slice of the pie. In 2015, Kobalt counted 900,000 revenue sources in respect of one unspecified hit song, and that was only in relation to the song copyright on the publishing side of the equation. At the time, Willard Ahdritz, Kobalt’s founder, believed that, with each source taking a cut of the revenue along the way, up to 75% of the royalty originally paid for a track was deducted before it got anywhere near the rightsholders. Other industry sources assert that this is too pessimistic and estimate the deduction to be somewhere between 50%-60%. But, regardless of which figure is accepted, when payments are eventually forwarded to the rightful parties, there are little more than crumbs remaining at the backend for many artists.

Transformative saviour of the music industry?

Two outliers within the UK music industry to recognise the potential of blockchain and to champion the technology early on were Imogen Heap and Benji Rogers. Central to their respective attitudes is a recognition of the importance of metadata, both on a central database, and embedded within the music itself. Both believe implicitly in the technology’s ability, through its transparency, to create a fair-trade future for the industry, and have been active in promoting their respective visions.

This is echoed in the foreword, by Pink Floyd’s Nick Mason, to Middlesex University’s ‘Music on the Blockchain’ study, which states that blockchain ‘appears to offer solutions to problems artists have highlighted for decades – around transparency, the sharing of value and the relationships with intermediaries that sit between the artist and the fan …’

A central tenet to both the Middlesex University and the Berklee Institute’s studies is the establishment of a networked global database as the starting point for the transformation of this shamefully broken system. A decentralised and transparent public repository for all music copyright information, that could be created incrementally over a period of years, as the metadata for existing works is gradually transferred from the existing menagerie of databases, alongside the metadata from new works.

At present, every song must be registered many times over on numerous databases around the world. None of these are compatible with each other, denying any opportunity for information to be shared between them. In addition, despite the obvious need for consistency, there are no standard software parameters for entering the required information. Which means that what works on one database, will be rejected on another. As entertainment lawyer Jeff Becker of Swanson, Martin & Bell states, ‘if a credit is sent to a database that says ‘Pro Tools engineer’, but that database doesn’t have that field, they either choose to change it, or ignore it altogether. Typically they ignore it, and that credit has nowhere to go.’

Another issue relates to inaccurate metadata. It was estimated that in 2016 the average hit song had four songwriters and six publishers. This trend towards collaboration, driven by specialisation, has increased since then, with a dozen writers not uncommon for many pop songs. Every individual or entity involved in a song that has a claim to percentage points must provide the relevant metadata. Not unnaturally, the more sources of information there are, the more likely that errors will arise when it is put together. Especially as the process must be repeated many times over on each separate database.

Whilst the metadata can be subsequently changed, this presupposes that the interested party is aware that there are errors. It is not unusual for data to be amended by third parties, without the artists’ knowledge. Even if they do become aware of the problem and resolve it, Black Box income is still irretrievably lost to them. An unnamed musician missed out on $40,000 in royalties ‘because a glitch between two databases removed many of his credits.’ The two companies subsequently refused to pay him, citing the time-factor before the discovery of the problem as the disqualifying determinant.

Point five of the Rethink Music initiative revolves around the education of creatives, not just in terms of their rights, but in relation to the importance of accurate metadata. Too often, song information is quickly cobbled together at the last minute to facilitate single and album delivery obligations. Often from hurried conversations or hastily written emails, and usually from multiple sources, encouraging the likelihood of further errors and missing information. It is therefore imperative that musicians and songwriters are aware that even the smallest error in the metadata they provide, can have an profound impact on their income.

Chris Howitt

As a Partner and Responsible Individual (RI), Chris is part of the Hentons Senior Leadership Team and also heads up our Leeds Audit and Small and Medium-Sized Enterprise (SME) teams.

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