Wednesday, March 16, 2016

Will the blockchain free music from being free?

The idea of a path of least resistance makes only too much sense, yet so often it’s not the path we find ourselves on. And don’t worry, this blog, whose focus is the media and entertainment industries in the digital era, is not about to go all self-help on you. Instead, I will bring you some wisdom gleaned from a talk I attended yesterday, given by Grammy-nominated producer and musician Darryl Neudorf.

His name may not ring a bell but one of these names probably will: Neko Case, Sarah McLachlan, The New Pornographers -- all artists with whom he's worked. Oh, and he co-wrote this song, a Top 10 hit for Hootie & The Blowfish in 1997.

Neudorf took us through a fairly quick but compelling presentation that outlined the state of the music industry today, namely musicians getting fractions of pennies for streams on services such as Spotify, then explaining how we got here, and then laying out his plan for a better tomorrow for the music business. Lofty goals and a big vision, but incremental thinking is probably not what’s called for, 17 years post Napster, and still no working business model for the music industry.

Whether obtained legally or illegally online, the advent of digital music has meant songs becoming unbundled from albums; and the music industry’s unit economics were traditionally based on album sales, which tended to be 1 or 2 songs you wanted and 8 to 10 you didn’t want. Too bad, you’re stuck with the whole pizza, even the slices covered in anchovies that you don’t want to get anywhere near. That’s just how it worked.

Furthermore, platforms aka streaming services, such as Pandora and Spotify, have a business model based on the freeconomy, in which tens to hundreds of millions of users, at aggregate, create an attractive market for advertisers. A small percentage of users pay for an ad-free service, which usually runs about $9.99 month, but most do not, paying, instead with data, not dollars. Also known as the great 21st century tradeoff.

The economics of streaming services is that they generally pay out 70% to rights holders and retain 30% of revenues for themselves. The problem for many artists is that they, the artists, are not the rights holders; it’s a label or publishing company, and that is therefore where the bulk of the money goes. This is just one part of the landscape in which musicians today exist. Another is all the songs uploaded to YouTube by non rights holders, with, in lieu of visuals, a slide show, lyrics on screen, or sometimes just a picture of the album cover. Music on YouTube is a whole other thing, and for today’s post we’re limiting the discussion to the situation with streaming.

As Darryl Neudorf pointed out in his talk:

From the mid to late 90s the narrative was one of empowerment through the Internet; that there would be a revolution based on a direct-to-fan model; and to some extent this came true, with companies such as CD Baby and eMusic arising out of the first wave of music freed from its physical form factor

Then came Napster. Talk about three words that don’t even begin to describe the upheaval and draining of revenue from an industry. 

If you really want to dig into the full story, it’s recounted in detail in a book called “How Music Got Free: The End of An Industry, The Turn of The Century, and The Patient Zero Of Piracy”. Post Napster came what Neudorf termed ‘the dark ages’, from 2000 to 2010, in which revenues for recorded music continued to dwindle each year, despite the emergence of the iTunes store and at least some people getting into the happen of paying for downloads.

The next phase was the coming of the streaming services, and 2014 was the first year that revenues from digital and physical sales were equal in the music industry; 2015 was the year streaming became the main source of revenues for music labels.

Streaming services have tens of millions of songs, so unless you know exactly what you're looking for, you're going to be at least somewhat reliant on playlists. And playlists on streaming services -- which are essentially what radio once was – skew to major label bands, pointed out Neudorf. In other words, the same gatekeepers that were in place in the world of radio airplay are now inhabiting the world of streaming.

But wait, there's more. Several years in, not a single streaming service is even close to becoming profitable. In fact, there’s evidence that they’re becoming less profitable with time. 

As you can see, problems aplenty. But what about solutions? Sell t-shirts? Tour more? Do intimate gatherings for superfans? Yes, all of those things can and do help, but Neudorf has a more radical idea in mind, and he’s not the only one.

The idea is based on something called the Blockchain. If you’ve heard of Bitcoin – which, let’s face it, nobody really understands, then you’ve had exposure to blockchain, as it’s the technology that powers decentralized currencies, sometimes referred to as cryptocurrencies, the most well known of which is Bitcoin.

Boston’s Berklee School of Music published a report last year outlining the benefits of decentralization for the music industry. 

All of this inspired Neudorf to start this project in mid 2014 – The POLR – or path of least resistance, which he calls a new model for a 21st century music industry. The model is based on the concept of A2A – artist to appreciator, working around the usual intermediaries. Is this direct to fan but with a different acronym? Not exactly. Because using blockchain technologies the licensing can happen at the point of upload, and with metadata added that lists writers, performers, producers, and any others with a stake in the sound recording, micropayments can go be paid directly to them. As long as only rights holders are able to upload, unlike the situation on YouTube and Soundcloud. This particular system hasn’t yet been built, but with the thinking in place, it’s probably only a matter of time. Imogen Heap is an artist already using blockchain; in fact she sold the first song using blockchain, so we know that part of things can work. 

To conclude his talk Neudorf quoted software engineer Vinay Gupta, who said: “Whoever controls the database, controls the future of the music industry.”

And if music is going to be a service, not a product, the thinking of Gupta, Neudorf, Heap, and other forward-thinking individuals may be one way for the balance of power to be reclaimed by artists.

August 2016 update: Whitepaper from MusicTechFest on Blockchain Technologies & the Music Industry. Click here to read.

Related Posts:

Organizing Without Organizations: The DAO, the Blockchain & the world's biggest cash heist
Free-conomics: Signs of the end of the digital free-for-all?
Decentralization, Douglas Rushkoff, and the Digital Economy

Props to the crew at Toronto's Music Tech Meetup for organizing the event at which Darryl presented.
To learn more about the workings and potential impact of the blockchain, there's the book Blockchain Revolution by Don and Alex Tapscott, coming in May 2016.

Wednesday, March 2, 2016

We're back in the walled gardens of the Internet: A good thing or a bad thing?

“User experience always wins", says Dries Buytaert, lead developer of Drupal and champion of free, open source software.

In a talk given earlier this week at the Berkman Center for Internet and Society in Cambridge, Massachusetts, Dries rightly pointed out that people just do what’s more convenient without thinking too much about the trade-offs. This is how, for example, Facebook has become the de facto front page of the Internet for well over a billion people. This is the walled garden, or closed system of the Internet, in contrast to the wide open web, decentralized, and not owned by anyone in particular.

Dries characterizes the state of this corner of the  Internet as "the big reverse of the web", or the move from the radically open and uncensored Internet to one in which private corporations hold a kind and level of power perhaps only rivalled by governmental bodies.

One way to think about this big reverse is as follows: people used to go to multiple sites to get what they wanted  -- e.g. news from The New York Times or the Guardian, entertainment from online sites or the digital properties of broadcasters. The point is that it was the consumer actively seeking out and going to the content, as opposed to our actions and algorithms based upon them determining the information that gets pushed to us. The flip here is the content coming to the consumer, and it's  one of the defining characteristics of communications in the digital era.

And because we're generally not paying for the news, information, and entertainment we consume online, along with it advertising also comes to us, services come to us, and in the case of Facebook Messenger, now a separate app on our phones that pushes everything to the top layer of the interface, 1-to-1 interactions and transactions are about to come to us.

But are walled gardens, these privately owned portals to the Internet such as Facebook -- all bad? No they're not. Though I recall it being referred to as 'the trailer park of the Internet' I think we still have to credit AOL with getting mainstream America online in the 90s. The same can be said of services provided by Google in the 2000s and Facebook in the 2010s.

So what’s the problem? In Dries Buytaert's opinion it's the scale...of billions of users. And what’s the problem with that? Well, there are these pesky problems, such as Google technically being able to shape the results of the U.S. election by tweaking algorithms, and Facebook having the ability to introduce bias to the newsfeed.

And how did this all happen? The easy answer is that it's possible because of the storehouses of data built on our initial exuberance about everything being 'free' online. Could free be, as a friend of mine says, the most expensive price of all? Or are the tradeoffs -- the things we receive in return for the use of our data, the manifestation of the 'price' we're willing to pay for the services we get to use? 

Slide from Dries Buytaert's presentation illustrating who knows what
Click to enlarge

It's not a simple binary, i.e. that data collection a bad thing and no data collection is a good thing, because data collection becomes part of a filtering out of what could be thought of as the excessive noise of the firehose of the Internet. The processing of our data trails by 1st parties in some cases and 3rd parties in others means that we have move relevant information pushed to us, at the right time, so that, for example, a person who doesn't have kids doesn't get diaper ads, a person with diabetes doesn't get ice cream coupons, etc. The systems are not perfect, as most of us have experienced. I know Ivy league graduates who have received ads for community colleges and I myself have received targeted ads for products aimed at the teen market. (But maybe I shouldn't flatter myself, as I'm old enough to have teenagers, yet I don't; perhaps the ads were meant for the parent of a teenager to influence their kid's purchase?)

Why do we play along in this return to the walled garden Internet? The one that most of us thought we left behind with CompuServe, AOL, and Yahoo? Because the convenience, utility, and entertainment we receive are greater than the expenditure. And when I refer to the cost remember we’re not paying with dollars; therefore we’re paying with our data. And like any transaction it’s optional. But you know what they say...You can check out any time you like…

More on Dries Buytaert's proposed solutions to the walled garden vs. the open web can be found here.