There’s been a lot of buzz over Tron’s BitTorrent since its $7.2M token sale last week, and rightfully so — the platform allows over 100 million existing users to share computing resources, incentive consumption and reward content creation.

But as a student of history and long-time entertainment executive with experience in the corporate strategy departments of Disney and Fox, I see the potential for something much more profound…

In short, not only does BitTorrent have the potential to release consumers and content creators from the stranglehold of FAANGS, it could also serve as a catalyst for a flourishing of culture unseen since the invention of the mechanical printing press (which spawned the Renaissance, Reformation and Enlightenment).

I know that may seem like a bold statement, but I’m prepared to defend my logic in the sections below:

Problem: The Centralized Internet is Killing Culture

There’s no denying that the proliferation of the internet has spawned numerous advantages for society — it’s led to an unprecedented sharing of knowledge, connected billions of people and revolutionized dozens of industries. It’s also been a boon to the media consumer, allowing users to watch what they want, when they want and how they want.

But these benefits belie a dark secret — the digitization of content has also carved a swath of destruction across the media value chain. While we’ve seen this force devastate numerous corporations in the industry — studios have seen broadcasting revenues stagnate, record labels have eliminated thousands of jobs and countless newspapers have gone bankrupt– the artists themselves (especially independent ones) have taken the brunt of the damage.

Consider the plight of the recording industry over the past 20 years — At the turn of the century, a musician could expect to earn over $1.20 for each CD she sold (and that is with the 47% cut taken by her label). But entrance of digital distributors such as Spotify has now plunged this share to between $0.006 and $0.0084 per stream (and this is an average — independent artists who lack the leverage of an established brand and label support often fare much, much worse).

Figure 1: Music Revenue Has Nearly Halved in the 21st Century

Source: Talking New Media

And while the effects of the internet on the recording industry is probably the most well-known warning, the consequences of digitization are by no means limited to music — movie producers, publishers and game developers have also complained that they’re no longer capturing fair value for their work.

In particular, the rise of the internet has created three new challenges for artists:

Monopolization: The unique “winner-takes-all” economics of network effects has created a new generation of monopolies in Facebook, Amazon, Apple, Netflix, Google and Spotify (aka FAANGS). As these companies and their spawn — such as iTunes, Google Play, Amazon Prime and Facebook’s newsfeed — insert themselves into the value chain, the share available for content creators continues to shrink.

The unique “winner-takes-all” economics of network effects has created a new generation of monopolies in Facebook, Amazon, Apple, Netflix, Google and Spotify (aka FAANGS). As these companies and their spawn — such as iTunes, Google Play, Amazon Prime and Facebook’s newsfeed — insert themselves into the value chain, the share available for content creators continues to shrink. Piracy: Digital rights management hasn’t kept pace with technological evolution and, as a result, piracy has blossomed to a $125+ billion problem.

Digital rights management hasn’t kept pace with technological evolution and, as a result, piracy has blossomed to a $125+ billion problem. Censorship: Centralized corporations now control the means of distribution, deciding whom to feature, how to monetize their content and whom to censor.

In short, while the ubiquitous availably of content may have increased the public’s appetite for music, television, films, journalism and gaming, the form of digital distribution has all but destroyed the market for these art forms.

Solution: Decentralized Networks such as BitTorrent Have the Potential to Empower Artists

The decentralized ledger technology employed by BitTorrent is poised to transform the existing paradigm and redefine the relationship between the artist and the end consumer, serving as a vehicle to disintermediate the middlemen, secure intellectual property and allow creativity to flourish.

Indeed, there are three key features of blockchains that are poised to help the technology transform entertainment as we know it:

Decentralization: Decentralized organizations can store information, coordinate distribution and facilitate transactions through smart contracts. As such, they enable frictionless cooperation across complex networks, eliminate the need for intermediaries and provide a faster, cheaper and more secure alternative to traditional systems.

Decentralized organizations can store information, coordinate distribution and facilitate transactions through smart contracts. As such, they enable frictionless cooperation across complex networks, eliminate the need for intermediaries and provide a faster, cheaper and more secure alternative to traditional systems. Immutability: Once data has been written to a blockchain it’s immutable — no one can alter or delete it.

Once data has been written to a blockchain it’s immutable — no one can alter or delete it. Democracy: On blockchains, code is law and stakeholders are the lawmakers. Unlike traditional organizations, decision making power isn’t controlled by an exclusive group. Instead, token-driven economies align incentives among network participants and give all stakeholders a voice.

Decentralization

Today’s internet is built on “centralized” aggregation and distribution, with the gatekeepers at FAANGS controlling over 70% of web traffic.

While these institutions do serve a purpose by supporting critical components such as web hosting, cloud computing, DNS services, social media, search engines and messaging services, they also levy heavy taxes on those seeking to do business on their networks and, as a result, greatly reduce the share available to content creators.

Figure 2: An iTunes Download Yields 9% of a CD and a Spotify Play Yields Less than 0.01%

Source: Information is Beautiful

This not only effects the artists, but can transfer to the entire ecosystem, including the salary, pension and benefits of the hundreds of workers that support the creative complex.

One solution to this problem is the creation of peer-to-peer ecosystems, but historical attempts to this end ultimately failed because participants had no real motivation to maintain the network. In fact, some studies estimate that fewer than 30% of users acted as “seeders” in any capacity.

BitTorrent however, uses game theory and cryptoeconomic incentives to eliminate the “leecher” problem and spawn a new generation of decentralized, crypto-based distribution networks. These ecosystems have the potential to drive a tectonic wedge through the value chain, as disintermediating FAANGS would drastically reduce the cost of content delivery, massively increase the share available to artists and perhaps even serve as a long-term catalyst for cultural growth.

Immutability

Since the creation of Napster in the late 90s, intellectual property protection has failed to keep pace with digital distribution. Users paid over 300 billion visits to piracy sites in 2017, costing the global entertainment industry in excess of $125 billion in revenue per year and nearly 750,000 jobs. This problem is often worse in developing economies (e.g. Bollywood, Nollywood) and some estimate that over 90% of content is pirated in these markets.

Figure 3: Piracy Can Cost an Artist Almost 50% of Their Potential Revenue

Source: Digital TV Research

Piracy impacts the creative economy in many of the same ways as the reduction of share detailed above. For every Taylor Swift, there’s dozens of artists struggling to survive. These entertainers need capital to subsist and support their art, and a system that repeatedly infringes on their creative property undermines these efforts.

Unfortunately, this problem has been difficult to solve. Firms seeking to enforce intellectual property rights have faced limited options, mostly composed of (largely empty) legal threats and imperfect DRM technologies that are often ephemeral and easily-eluded.

Ironically BitTorrent, which has historically been seen as major cause of piracy, now has the potential to be the solution.

This is due to its inherent property of immutability, a notion that has the potential to catalyze a radical concept borrowed from the art world — the provenance of digital assets. In other words, decentralized ledgers can allow artists to see the chronology of the ownership, custody and location of any given piece of content.

As such, networks like BitTorrent have the potential to: 1) allow artists to register their assets on a blockchain, 2) provide a unique “fingerprint” to each piece of content that can’t be altered, tampered with or edited and 3) help monitor the asset through all stages of distribution, redistribution and consumption (determining who owns it, who can access it and who is authorized to share it).

If successful, the Company may usher in a new era for intellectual property protection — one that not only protects the original creator, but also makes it much easier for those who wish to legally consume, license or redistribute creative works (a substantial number indeed, as Muso found that 83% of all music, film and TV piracy is motivated by a lack of paid options).

Democracy

The sheer magnitude of FAANGS’s dominance in entertainment is undeniable. In publishing, music and video these companies hold upwards of 60% market share — well above the standard Herfindahl — Hirschman Index benchmark for an oligopoly.

Figure 4: FAANGS Claim Over 60% Market Share in Publishing, Music and Video

Source: Newsweek, Digital Music News, Mashable

Unfortunately, the cost of this centralization extends well beyond declining revenue and threatens the very nature of a free web envisioned by pioneers such as Tim Berners-Lee.

While there have been many who claim outright censorship by FAANGS, let’s use Hanlon’s Razor and assume that they’re not acting out of malice. Even then, the very centralized nature of these entities can result in a form of de facto censorship for many independent content creators who often face:

Impossible Distribution: Getting on platforms such as Netflix requires navigating a complex labyrinth of gatekeepers, third-party distributors and arcane rules. The problem is so bad that some studies estimate that as many as 80% of the films produced each year are never seen by an audience.

Poor Monetization Options: Historically, companies such as YouTube have forced creators to rely solely on their advertising — artists had little to no say in what ads were shown on their channel, how much they could charge per ad and how often they were shown. Only recently has the company begun to offer a pittance of alternatives, and many of these require at least 100,000 viewers to qualify.

Capricious Rules: Algorithm changes by Facebook in 2016 caused publishers to lose 42% of viewers and a recent set of changes has caused several high profile bankruptcies such as Little Things. YouTube experienced a similar problem in 2017, when it suddenly began demonetizing certain websites in what many refer to as the “Adpocalypse”.

Coupled with the financial pressures detailed above, these forms can have a devastating effect on creative culture. Repressing independent artists can trigger a retreat from riskier content, pressure to accept investments with creative restrictions and reduced ability to finance essential staff and equipment.

Fortunately, decentralized distribution platforms such as BitTorrent eliminate censorship and create a host of benefits for independent artists, including:

Democratic Distribution: Artists will be completely free to create whatever they want and make it available to consumers instantly — no need to need to pitch a studio, woo a record company executive or get the backing of a gaming publisher. Furthermore, companies such as Facebook, Google, Amazon and Apple won’t be able to prohibit the cross-platform migration of content.

New Monetization Models: Content creators will no longer be forced to rely on third-party advertising to succeed. Blockchains allow artists a variety of options such as micropayment subscription services, “micrometering” for snippets of their content, dynamic pricing and, in general, the ability to set prices themselves without having to go through a complex web of intermediaries.

Self-Determination: These decentralized platforms all have one thing in common — users own the platform and they decide on the rules. As such, creators are free to conduct business without the fear that they will be shut down by an arbitrary rule change from a centralized overlord.

A Decentralized Creative Economy Could Realize the Promised Potential of the Internet

When the internet began to achieve mass penetration in the late 20th century, idealists such a John Perry Barlow envisioned a flourishing of culture driven by techno-utopianism.

He believed that “we are creating a world that all may enter without privilege or prejudice accorded by race, economic power, military force, or station of birth…a world where anyone, anywhere may express his or her beliefs, no matter how singular, without fear of being coerced into silence or conformity…”

Unfortunately, the immense power of network effects undermined this promise, giving rise to a cabal of economic powerhouses that often impoverish artists, control distribution and stifle creativity.

While disintermediating these incumbents could have untold benefits to the humanities — birthing a beau ideal combining the universal access of the internet with the individual autonomy afforded by blockchains — many struggle to envision a world without Facebook, Apple, Amazon, Netflix, Google or Spotify.

Unfortunately, the visceral need for centralization has been hard-wired into our shared culture. Throughout the history of mankind, all of our important institutions — governments, banks, churches, charities, schools, etc… — have been structured around consolidated hierarchies (and entertainment is no exception to this rule).

Why is this the case? It’s not because systems designed around centralized authorities are necessarily the best solution, but because they have historically been the only solution. In other words, due to what computer scientists call the “Byzantine General’s” problem — which states that large and distributed groups need a trusted intermediary to govern themselves and enforce rules — networks tend to evolve into hierarchies, giving rise to kings, CEOs, presidents and popes.

But the invention of the first blockchain in 2009 not only solved the General’s problem, but also created a mechanism with the potential to upheave political, social and economic systems that have existed since the Late Neolithic civilizations of the Fertile Crescent.

In other words, projects such as BitTorrent (and many of the other initiatives being undertaken by Tron) represent the potential — for the first time in history — to organize large networks of people without the need for a centralized hierarchy.

And if that promise does materialize, then disrupting companies such as FAANGS may fulfill the original promise of the internet and engender a new cultural renaissance.