How Patreon Used Bootleg to Turn Live Performances into the Gift That Keeps Giving for Cash-Strapped Musicians

Another Story from the Near Future by ConsenSys Web3Studio

This story is fiction…for now.

Photo by veeterzy on Unsplash

Earl Potts is one of a new breed of concert goers. He’s there for the show, for sure. But he’s also there to make art — and a lot of money — as a Bootlegger, using his iPhone and Patreon’s latest breakthrough service.

A few years ago, Earl would have been thrown out of a concert for doing what he does. But now, he’s the key to liberating bands from the treadmill of having literally to sing for their supper.

A Brief History of Music Economics

Decades ago, musicians could dream of getting a hit on the radio, selling records and reaping the royalties. Then came mp3s and streaming services, which promised even less friction for selling songs. But things didn’t turn out well for musicians, who saw music revenues drop by two-thirds since their peak in 1999. Since then, the music industry flipped from groups playing concerts in order to promote record sales to groups peddling CDs and t-shirts at concerts. Ticket sales became their only real money-maker.

This reduced musicians economically to the status of taxi driver. They could make a percentage off ticket sales but gave a lot of that up to ticket outlets and venue organizers. And concerts only generated revenue while the band was healthy and happy to live on the road.

Without record sales, they didn’t have a repeatable business model.

Patreon, co-founded by legendary musician and Silicon Valley tech exec, Jack Conte, started to flip things back to a recurring revenue model for creators in 2017. Patreon’s first service was a membership model that allowed musicians and other creators to raise funds from people who wanted to support their work…patrons. It was like turning each creator into a mini public radio station (without the bi-annual pledge drives). This started the ball rolling, but by 2019, the model hadn’t replaced the lost revenue of the golden days of record-sales and royalties.

Conte and team are true innovators, both in music — go check out Pomplamoose and prepare to have your mind blown — and in business. They are constantly experimenting with new ways of increasing recurring revenue for creators.

In 2020, Patreon entered into a relationship with Web3 pioneer, ConsenSys to launch Bootleg. And by 2021, Patreon’s Bootleg service was flipping the music world upside down again.

Here’s how it works

Bootleg is all about scarcity-marketing, a thing that became popular with the advent of blockchain and digital assets. It works in three parts:

Bootleg concert seating; Submitting a Bootleg video and minting Bootleg tokens; Pay-it-backward — how the band and everyone who has ever held the token share revenue every time a Bootleg token changes hands.

Bootleg Seats

Unlike in the past, when recording a concert risked you getting tapped on the shoulder by security, concerts today designate some seats as Bootleg seats. Venues did this at first by selling the seats at a premium or sometimes giving them away. But nowadays, most of these seats are auctioned to professional and semi-professional videographers like Earl, who use the Bootleg feature on Patreon to scan for these seats and bid on them.

Film, Edit, Upload

Holders of Bootleg tickets are permitted to film the concert. There are rules for this. For example, they can’t bring in a big distracting rig with lights. Earl just uses his iPhone, but he takes the footage home and adds his own brand of color commentary, trivia and effects. People love Earl’s live concert videos, which he brands “EP3s.”

The Rise of Scarcity Marketing

Here’s where things get interesting. Bootleggers like Earl can’t release their content to services like YouTube or iTunes. If a Bootleg is caught on the open Internet, that Bootlegger is flagged and can no longer buy Bootleg seats.

Instead, they submit their videos through the Bootleg service to the band. The band can reject the video, request changes, or grant a number of Bootleg tokens (more on the new Bootleg ERC tokens below).

The band could grant Earl just one token or thousands. Each is a single right to sell that token — not the video…the token — to someone else.

Reviewing and approving these videos for bands in order to ensure compliance with band image requirements (and other considerations) has become a service unto itself. Small bands just do it themselves, but the big acts farm it out.

Say the band grants Earl 100 Bootleg tokens. Bootleg renders Earl’s footage into one big video file with, effectively, a slice cut out of it. That slice is made into 100 transactions on a sidechain rooted to the Ethereum mainnet, each with a payload containing a unique identifier based on the new Bootleg Token ERC standard. That blockchain record is the actual asset, and it’s what makes the video you purchase unique and rare.

Think of this like an artist that makes 100 copies of a print, then destroys the lithography plates and numbers each of the copies. Manufactured scarcity. You own #33 of 100 prints.

The process renders the bulk video file unusable without combining it with one of the 100 unique records and the private key of the account currently holding one of those records. The video itself can be stored anywhere — on conventional edge servers, Bittorrent, a thumb drive…doesn’t matter. It’s just a blob of bits without that little extra slice of data sitting on the Ethereum mainnet that transforms it not simply into a watchable video but into Bootleg #33 of 100 of a specific concert. The holder of the account that buys #33 isn’t really buying the video. They are buying a verified, unique digital asset, like a Bitcoin or a Cryptokitty, which confers both ownership rights and the ability to watch the video.

Sure, you could buy one of the licenses, then tape the video while playing it and pirate it out, diluting the scarcity, but here’s why you probably won’t:

Pay It Backward

When you buy #33 of, say, Earl’s video of Pomplamoose’s June 1 concert at the Greek Theater, what you’re really buying is a right to a set of future cash flows, which occur whenever that little slice of the video stored on the blockchain — the digital asset — is sold. If you buy #33 from Earl for $10, the Bootleg smart contract will give Earl $8 and send $2 to the band’s account.

Each time a sale occurs, the band gets a percentage (say in this example, 20%) and the most recent holder — the seller — gets a percentage. Then the second most recent holder gets a percentage, and so on back to the original Bootlegger, Earl.

Bootleg right now uses only one algorithm for this distribution, but word is that it’s adding the ability for different payout schemes that bands can use for different purposes. For example, you could have everyone get the same percentage, or each successive holder could get a larger percentage. The percentage the band and the bootlegger take will also soon be something they can change.

Concert Videos as Collectible? Really?

At first, I never thought I’d actually buy a concert video this way. The major concert videos of my favorite bands are all available on any number of streaming services.

But Earl’s awesome commentary and unique way of capturing the performance hooked me. And I love that only a few of us have ever seen it. Feels like I’m in a special, tiny community. I’m not just buying a tape of the concert I was at. I’m buying Earl and my position in the chain of custody for this one experience. And now, I find myself buying Earl’s EP3 Bootlegs (and a few others) for concerts I was never at, for bands I’m just getting to know.

Bands let Earl build this following, because he can’t infringe on their mass market business model. Thanks to scarcity-marketing, Earl gets to build a lucrative, exclusive, small following that he can manage without being a global powerhouse of distribution maintaining millions of followers.

Not all bootleggers do as well as Earl, of course. Earl has been making a living income while doing what he loves. Earl’s main frustration today is that major music bloggers like Alex Ross and YouTube influencers like Jenna Marbles are starting to make their own bootlegs and earning legendary fees. Last month, Kim Kardashian herself posted a single bootleg that went for $25,000.

Ed has never cleared more than $500 for a first-turn bootleg. Some of them go up in value (and some go down) with successive turns, but usually the initial sale is smaller. He sees famous people getting into bootlegging kind of like how they got into writing picture books for kids. It’s annoying, and the quality isn’t nearly as good as his work, but at least they’re drawing attention to the craft. There definitely seem to be more buyers of bootlegs since the big names got into the act.

Why Is This Good for Bands?

The important thing to remember is that Earl and the other bootleggers wouldn’t be allowed — or have a real incentive — to do what they do if it weren’t for the modern stateful Internet’s ability (thanks to hybrid public/private blockchain) to manufacture and enforce scarcity without locking buyers and sellers into one vendor’s platform. Patreon is the app I use to buy bootlegs, sure, but the assets are not housed on Patreon’s servers. I could just as easily sell someone my #33 EP3 straight on Ethereum or through any service trading Bootleg tokens. That increases trust that these assets are really mine forever.

Any time a band can turn an unused resource into revenue without exploiting their fan base, it’s probably a good thing. Concert goers can still buy recordings of the official concert footage at venue kiosks, usually for $9.95. And those who want to brave retribution can use their smartphone and post YouTube videos of the performance. Not supposed to happen, but it does.

But the official concert video is a professional job produced only every-so-often and heavily marketed to get mass audience exposure. And it’s just one asset, sold one time. Even if people tended to sell their recordings to someone else — which they don’t — the band sees nothing from that transaction. And of course, the band makes zero off the personal “piracy” of their fan’s concert videos on YouTube and Facebook.

The “pay-it-backward” Bootleg token, on the other hand, earns the band money with every sale, and every buyer has an incentive to sell it to someone else. Pretty neat trick.

Future Plans — Streaming?

One thing Bootleg gets asked a lot is how these “rare” bootlegs could be set up for streaming. Streaming is a big thing in the age of Twitch having expanded from just games to live streaming everything from the local soccer match to the family dinner fight.

The problem for Bootleg is how to keep the value of the bootlegs up for their rarity (which turned out to be the big surprise in the business…it’s amazing what people will pay a premium for if they think it’s rare). If anyone can stream the video, then many people without the “pay it backward” incentive against copying will be able to set up a video-camera and make a copy for Bittorrent or YouTube.

Bootleg’s idea is that maybe a kind of reputation/attestation system could work. Each stream could have a digital watermark embedded in the video marking it as the nth owner’s iteration of that #33 token. If that shows up anywhere outside bootleg, then it can be detected and the violator never gets to stream again…you’re locked out. But, of course, then you just create a new account or you run the video through software that detects and scrambles or removes the watermark, so that it’s not obvious it was you. This idea may have to wait until self-sovereign identity is well established.

Still, with all the money being made on bootlegs today, the company has a reasonable fund to research the problem and come up with a way for bootleggers to have their cake and eat it too: be allowed to tape the band’s concert on the promise of not competing in the mass consumption business model (which most successful bands wants for themselves) while also getting additional revenue from viewers, not just collectors.

Royalties and the Gift That Keeps Giving

Sales of merchandise are a sure thing, but they are a one-time event with only one asset. For a single concert, there can be hundreds of authorized bootleggers, each pushing their tokens. The band (and the bootlegger) make money not just once at a single point-of-sale but forever, with every turn of every asset. The revenue math on that is more complex than single-payment retail sales, but it is also far more compelling, with real potential to generate multiple streams of long-term cash flow from every authorized bootlegger at every concert.

And now, the industry is waking up to the fact that the Bootleg token looks a lot like an ideal way to improve the way creators get royalties.

It’s not surprising that the Bootleg token standard (ERC) is now being considered as a foundation for the new global royalty system.

The bootleg token model was conceived just for concert videos, but it really has become the gift that keeps giving, finding more and more uses in all kinds of business models in many industries.