Thursday, June 28, 2018

Blockchain’s Building Blocks for the Entertainment Industry

In a recent segment of This Week Tonight, comedian John Oliver described the blockchain, and its most popular application, the bitcoin, as “everything you don’t understand about money combined with everything you don’t understand about computers.” And Oliver is probably right. Despite countless articles and explainer videos, for most of us, a mention of the decentralized digital ledger system of the blockchain elicits a furrowed brow.

Creatives and producers may at first think that blockchain and cryptocurrencies are not part of their universe, but recent developments both in Canada and abroad suggest otherwise. A 2017 global benchmarking study conducted by the University of Cambridge revealed that 8% of blockchain applications are focused on media, entertainment and gaming. This is the same percentage as for those built for the healthcare industry.

Here is a handy mental shortcut when it comes to the blockchain and entertainment industry: anywhere a transaction involving an intermediary or middleman exists, the blockchain can probably prove useful. Creative examples of using the blockchain include for micropayments, settlement of royalty payments, automated billing, simplification of rights management and copyright tracking.

Though these are early days in the evolution of the blockchain, the space is abuzz with activity because the blockchain represents an entirely new way of doing business. Instead of a world of people, paper and offices, it automates transactions and does so in a way that is updated and constantly verified in real time. This does not mean that no one is in charge, but rather that no single entity holds sole power.

“The whole world runs on supply chains that are contracts between dozens of people. On blockchain, it could be one contract,” explained Christine McGlade of Toronto’s Analytical Engine Interactive, during Canadian Screen Week, which took place in Toronto in Spring 2018.

She invoked the example of a cup of Starbucks coffee and how it took a journey of many stops along the way to go from coffee bean to the palm of her hand. At each of these stops, transactions occur and each one of these transactions becomes part of a supply chain that costs money to operate and therefore adds costs to the final product.

In a recent Forbes article, UK-based Nick Ayton, co-founder of The 21 Million Project—which is said to be the first film and TV production company living on the blockchain—claims that working around the usual industry intermediaries can have a significant impact on budgets. Just how significant? By as much as a factor of 6, claims Ayton. Is this a hyperbolic claim? It may well be, and amid the frenzy surrounding both bitcoin and blockchain, wild claims are going to be made and aggressive believers (or salespeople) are going to try to get us to buy into their vision of the future. We probably won't know how things will really take shape until, say, 2025 or 2035, so for now the best we can do is survey the landscape of possibilities.
“One needs $100 million in Hollywood to make a film and grease the middlemen,” said The 21 Million Project’s co-founder. “In [our] production there are no middlemen… so a $5 million budget delivers $30 million.” Furthermore, anyone can invest and/or make creative contributions to 21 Million’s productions. “Fans […] can influence what gets made and can enjoy the benefits of success and receiving royalties while knowing that the production process was gender equal, pay equal, fair and transparent.”

There are costs and there is value, and artists and producers are increasingly asking if the costs charged by middlemen are worth the value that is ultimately created. One of the solutions proposed to solve this problem is the blockchain-based smart contract, a piece of code that creates automated, yet still trusted, contracts that make it possible to remove the middlemen from transactions and agreements. In the case of the entertainment industry, a smart contract could ensure that everyone in the supply chain receives the payments due to them, without delay and without additional fees and percentages being added on by third parties.

During Canadian Screen Week, Christine McGlade mentioned the importance of thinking about agreements in Canada’s entertainment industry that are value-based rather than money-based. In this category fall budgetary items such as in-kind contributions and deferrals, which have a dollar value but only become revenue flow if and when a production is profitable.

There may be no better illustration of the utility of smart contracts than the now famous picture of a Degrassi royalty cheque in the amount of $8.25 posted by Drake on his Instagram account last summer. The cost of the labour required to make the calculation, draft the cheque, place the cheque in an envelope and send the physical cheque to wherever Drake receives his correspondence had to exceed the amount of the cheque.

The issue at hand isn’t that the $8.25 payment could have been, say, $15 if it was handled by a smart contract, but that payments in the amount of $825 or $8,250 due to artists could potentially become $1,000 or $10,000 or more in the world of automated workarounds enabled by blockchain technologies.

Ed. Notes: 

For a follow up post on a more skeptical view of blockchain & the creative industries, click here
This article is an edited version of a post that originally appeared on the CMF's Trends Blog

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