New research by Research Analysts Charles Brennan CFA and William Lunn from financial services giant Credit Suisse seeks to analyze the impact of Blockchain on on a number of sectors, including media. The 135 page report covers a lot of ground and offers some interesting analysis of the potential disruption Blockchain offers in a number of financial instances, but also, for the media sector.

‘In the race to adopt new technologies, the music industry historically has finished just ahead of the Amish.’ – American record label executive Stan Cornyn

Batttered by P2P file sharing in the 2000s, the global music industry’s revenues remain under half their peak and the analysts see an inflection point this year as the cost vs convenience relationship of streaming outweighs illegal downloads, and subscription rates increase.

There is irony that a protocol borne of P2P may come full circle from enabling the piracy that hit the traditional music business to 1) rendering piracy impossible, and 2) disintermediating the distributors.

It has been suggested that content like music, and all of its meta-data (detailing rights holders), could be irreversibly recorded on a Blockchain, and according to the report, the one could potentially create a comprehensive and exhaustive content database – a single ‘source of truth’ to determine the authenticity of content – a ‘hash’ of the songs file data.

Some believe a music industry built on Blockchain rails has the potential to drastically reduce piracy, and may be a force of disintermediation for distributors and streaming solutions, putting greater content control in the hands of the artist. In 2015 Imogen Heap made history by being the first artist to release a song – ‘Tiny Human’ – exclusively on a Blockchain-based platform – Ujo Music, which is run on Ethereum.

She, along with other artists, start-ups and companies (Bittunes and PeerTracks) envisage a world in which all content and its metadata (information identifying those with legitimate revenue claims: creators, owner or beneficiaries) is transparently, accurately and immutably stored – on a Blockchain. Music has multiple rights owners – from the writers, to labels, licenses and the artists themselves.

Given the single ‘source of truth’ proposed above, smart contracts could be embedded in content, creating autonomous rules that would ensure, for example, that once purchased, revenue is correctly distributed to the designated parties. This potentially enables more direct interaction between artist and audience and smart contracts.

The implications of this are potentially powerful and in the case it was possible to query this permissioned (content creators/owners would likely be those best positioned to govern consensus) public (everyone can see the Blockchain) ledger – it would be easy to confirm the authenticity of the digital content file in your possession. It is not a stretch to imagine media players being optimized such that only content which matches its ‘hash’ in the Blockchain may be played.

Were this Blockchain also paired with a distribution platform the potential implications are even broader. Content has multiple rights owners – music, for example has the writers, labels, licensees and the artists themselves. Smart contracts could be embedded in content, creating autonomous rules that would ensure, for example, that once purchased, revenue is correctly distributed to the designated parties.

The benefits are potentially manifold:

Attribution: Current content databases lack ‘hygiene’ and are highly fragmented. Attribution of content to its rightful creators and rights holders could be more easily achieved through a Blockchain given its properties of transparency and immutability. It would be easy to confirm authenticity/integrity of content, a hash of the contents data could be saved on the Blockchain, a simple comparison of your copy of the file with the hash on the shared ledger would confirm (or dismiss) its authenticity.

Royalty payments: Under a Blockchain system, those with a legitimate claim to content are remunerated for content usage under terms they define; execution is performed autonomously by smart contracts. Heap speaks to the import of this saying “the single biggest problem for an artist right now is payment. We need a fair trade industry … [the Blockchain] could spark up many new platforms and services that would enrich all of our lives”(TechCrunch Disrupt London, 8th Dec 2015).

Reduced IP costs: Eleven Advisory (strategy consultant for audio & music & digital media) reported to the British Screen Advisory Board in June that whilst not disposing of the need for lawyers and contracts, this approach could “significantly reduce bureaucracy, paperwork and deal memos that currently need to be put in place around the digitization of virtually all content”—in addition to embedding ‘non-invasive’ rights management directly into the content.

Flexibility and control: The artist can define conditions in the embedded smart contract around how the sold content should be paid for. Flash sales could be initiated at the artist’s discretion, pricing structures defined based on age, or profits automatically siphoned to relief funds reacting to a natural disaster.

Data: Interrogation of Blockchain data could give artists valuable data regarding their fans’ purchasing habits, listening patterns and possibly location data. Broadly, Blockchain in a content ecosystem could potentially enable more simple attribution, simplify royalty payments, reduce IP related costs, increase flexibility and control over content and provide more, better data.

Credit Suisse View:

Were this to happen, the most practical benefit would be reduction of piracy. Quantifying the potential “piracy opportunity” is challenging and has significant inter-country variance. We nevertheless attempt to illustrate the potential opportunity in the context of the music industry, were a Blockchain system capable of reducing piracy to the extent that the 4 most populous EM countries (China, India, Indonesia and Brazil) were to increase spend per capita up to the Global average of $2, this would result in $6.1bn or 40% incremental revenue for the Global music industry.

Although this is a very simplistic example which does not account for challenges surrounding IP enforcement in the countries analysed and is heavily skewed by India’s and China’s vast populations and low ($0.08) spend per capita, it does illustrate that the potential opportunity for the recorded music industry from even a small reduction in piracy (either through a Blockchain-based platform or otherwise) is significant.

However, implementation (which requires total adoption) appears challenging:

Content databases have failed before. The International Music Joint Venture IMJV, the International Music Registry IMR, and finally Global Repertoire Database GRD, have all tried, and ultimately largely failed, despite millions in aggregate investment.

Content owners have proved they can’t work together. This inability is exemplified by their seeding of current streaming platforms (Spotify, Deezer etc) to ensure a competitive (and therefore cheap) distribution platform.

Standard data format does not exist. A single interoperable data format standard whose codec was intrinsically linked to rights stored on the Blockchain would need to proliferate as a single standard. This does not yet exist.

Although the report writers have mainly discussed the use-case for audio, the extension to other content media, particularly video, is natural.

Benji Rogers, Founder & CEO of pledge music, for example, proposes a ‘fair trade’ format whose codec cannot be separated from its rights – media can only be consumed if its integrity is confirmed through a query of the content Blockchain, embedded smart contracts then ensure consumption is in line with agreements (number of plays, for example), and rights holders are remunerated in accordance with their ownership rights.

Credit Suisse View:

Market opportunity

We believe the most practical benefit of Blockchain technology would be reduction of piracy. Quantifying the potential “piracy opportunity” is challenging and has significant inter-country variance. In 2014 US recorded music revenues were almost $5bn or c.$15 per person; this is in contrast to China where revenues in the same year were only $105m, translating to just $0.08 per person. We therefore think the opportunity to reduce piracy is far greater in countries which do not currently have strict IP law enforcement. However, we believe that in order to exploit the opportunity it would require a shift in consumer behavior away from piracy which we do not believe Blockchain alone can achieve. In order to try to quantify the potential impact of a reduction in piracy globally we analyse spend per capita on music, which in 2014 was $2. Assuming the 4 most populous EM countries (China, India, Indonesia and Brazil) were to increase spend per capita up to the Global average of $2, this would result in $6.1bn or 40% incremental revenue for the Global music industry. Clearly this is a very simplistic example which does not account for challenges surrounding IP enforcement in the countries analysed and is heavily skewed by India’s and China’s vast populations and low ($0.08) spend per capita. However, it illustrates that the potential opportunity for the recorded music industry from even a small reduction in piracy (either through a Blockchain-based platform or otherwise) is significant. How likely is this to happen? The only way to migrate the music industry (and other content) to a Blockchain-based system is total adoption. In our view this is only achievable if: ■ There existed an interoperable single data format standard whose codec was intrinsically linked to rights stored on the Blockchain. This does not yet exist.

■ Credible alternatives for customers in terms of data standard, media player or distribution platform were lacking. Currently this is a competitive and growing arena. Given the great challenge in retrofitting data format standards, it is suggested that implementation would have to span an entirely new type of media – VR has been proposed. We think this makes full adoption particularly challenging, given that media consumption would have to migrate almost entirely to VR for the format to achieve full penetration. Suggesting distributors are disintermediated assumes, we think wrongly, that: 1) a new Blockchain-based distribution platform is created and is preferred to incumbents by the end user, and 2) that distributors themselves don’t move to a Blockchain-based model. Given James Duffett-Smith, Spotify’s head of Publisher Relations has commented ‘we want to fix the global problem of bad publishing data once and for all’, we think it unlikely incumbent platforms are disintermediated because of a failure to act. To interrogate further the first point, we think that any new Blockchain-based distribution platform would likely have to be the product of a collaboration of content owners. Historical indications imply that content owners are challenged by collaboration and comprehensive content databases seemingly destined for failure. The content owners have proved they can’t work together; this inability is exemplified by their seeding of current streaming platforms (Spotify, Deezer etc) to ensure a competitive (and therefore cheap) distribution platform. Content databases have failed before. The International Music Joint Venture IMJV, the International Music Registry IMR, and finally Global Repertoire Database GRD, have all tried, and ultimately largely failed, despite millions in aggregate investment In sum, while the idea is sound, and we think would reduce piracy in principle, and thus represent an incremental revenue opportunity for content owners, in practice we worry the logistical realities of implementation present an insurmountable challenge, at least on a 5 year view.

Implications for other Media subsectors

Although on balance they don’t think Blockchain is a widely discussed topic by media analysts and investors, the potential to impact the music industry has gained the majority of the limited attention directed towards the technology in media.

Ad-funded TV It is hard to see how a Blockchain system would disrupt the eco-system for advertising funded TV. Aside from an existing structural move towards SVOD consumption and online video consumption consumers will continue to consume free content on TV. Verified micro-payments for regular TV programmes through the set top box seem unlikely to us (although this might appeal to a minority of viewers if the quid pro quo was the removal of advertising) and any system which still uses free TV aerial communication is not set up for them. Pay TV/SVOD There is a trend for studios (where they are strong and distinctive enough, like Disney and HBO) to go direct to consumers. In a minority of cases where economics are favourable compared to distributor/aggregator payments to content owners, this has also been the route used by sports owners. The content owners selling direct to consumer might find some uses for Blockchain, possibly in order to limit piracy, but we believe for the next 5 years at least most content will continue to be sold in the traditional way through the pay TV distributors and SVOD providers which bill consumers through direct debit or credit cards without using Blockchain. Digital video/social networks Blockchain could in theory allow content creators to charge consumers directly for content using authenticated micro payments using a kind of digital wallet and allow creators to control distribution of and access to their content. While both professional and usergenerated content creators might benefit from making their content part of Blockchain, at the moment we do not see any major disturbance to the advertising eco-system as likely. Consumers are still far more likely to view digital video for free on platforms such as Facebook and YouTube, in our view, than they are to pay small amounts for each video they view, even if the charging process is unseen and automatic. Some have suggested that Blockchain will allow advertisers such as large FMCG companies to cut down on the amount of advertising they pay for by paying consumers directly through Blockchain to trial their products and become brand advocates. However, our view would be that a) this is just another form of below the line promotion and b) heavy advertising would still be necessary to build consumer awareness and for consumers to discover new products. Publishing It is conceivable that newspapers could benefit from micro payments for content/articles hosted on Blockchain and this would be a different way of introducing another form of paid model in addition to the monthly or annual digital subscription. However, there is not much evidence so far that consumers would welcome this a la carte model en masse and they are likely to prefer certainty of payment levels in return for unlimited consumption. In addition it is not clear Blockchain could do anything to reverse the migration of classified advertising from print to specialised online portals. Therefore the future of the existing dominant online classified businesses is unlikely to be upended through Blockchain. For Scientific, Technical and Medical publishing it is possible to see existing publishers using Blockchain to host content, take payment from universities and governments and understand reader behaviour, although we would acknowledge existing technologies are capable of these functions. However, it is not likely in our view that scientists and academics will be able to subvert the STM journal publishing industry using payments for individual articles or pieces of research. This is despite the fact that the publishers, like the labels and other intermediaries between music artists and music consumers, take an outsized share of economic value. On balance we believe that Blockchain will not overturn the existing economic model because the branded, peer reviewed journal is still needed for prestige, quality control and acquisition of funding and tenure by academics.

Read paper in full here.