Can Crypto Change The Music Industry?

Musicians have a complicated relationship with monetizing their art.

They create the songs, but the record labels that distribute them tend to own the song catalogs, which, over the decades, has led to a series of thrilling legal disputes over ownership. Think Paul McCartney’s now 40-year fight for the rights to the Beatles albums, or Prince’s decade-long standoff with Warner Brothers. Jimi Hendrix reportedly died with so little money that he had to borrow from bandmates to buy his lunch.

Most issues stem from a complexity around who “owns” a song. While most people tend to associate music with whomever most famously performed it, performance does not convey rights; writing does.

The de facto owner of a song is the writer or writers — though writers can sell their ownership rights (and often do, particularly early in their career via their contracts with record labels.) Ownership is critical because it’s what secures rights to royalties; every time a song is used in a movie or an advertisement, is bought online or in a store or is legitimately streamed, the royalty holders are paid for that use in agreement with their share of the ownership. Of those sources, streaming has emerged as the most important — representing 62 percent of royalty revenue: worth about $5 billion in 2017.

Notoriously, artists and songwriters have complained that the era of streaming has been very bad for their bottom line. Because of the way contracts for streaming rights are written, record companies tend to walk away with the lion’s share of revenue while only the most popular artists (and songwriters) gain relatively small sums of money relative to the popularity of their output.

Taylor Swift quite famously pulled her catalog from Spotify a few years ago, in protest of the bite streaming services take out of artists in the name of providing “free” music to consumers. But Swift is actually one of the few artists to encounter streaming as a multi-million dollar opportunity a year. Others, however, have complained that a million listens on a streaming service are worth about $100 to the writer of the song, once the music industry has taken its cut.

Spotify, as it moves close to a public listing, has made some concessions to artists in the age of streaming. New releases are now held back from the free tier of the service, but the complaints persist about the monetization of music and how easily (or not) artists can access the fruits of their labors.

As it turns out, there is a blockchain-based solution for this.

Creating Harmony (and Melodies) with the Blockchain

In fact, there are a few blockchain-based solutions for getting musicians paid out more easily for the content they create.

As of last week Bitmark, a crypto startup that uses blockchain technology to enable property rights for digital assets, has partnered with Asia’s largest streaming platform KKBOX to create a mechanism for artists to see instant payments when their songs are streamed on the service.

Out of The International Consumer Electronics Show (CES) last week — and with several high-profile artists and a few million new dollars in funding — music industry blockchain startup Vezt has recently captured an awful lot of mainstream attention.

The Los Angeles-based blockchain startup brought in its funds via an initial coin offering (ICO) worth $4.7 million, which it’s planning to use to launch its royalties management platform. The team at Vezt is serious enough that it has already landed the rights to some 30 songs — from artists mainstream enough to be nearly universally recognizable: Dr. Dre, Kanye West, Jay-Z, John Legend and Drake.

“We’re onboarding song IP (intellectual property), and we’re actually having people invest into the song IP. Then we’re working on the royalty collection side to collect on those rights on behalf of our investors,” Vezt CEO and Co-Founder Steve Stewart noted in an interview. “We’re going to issue a unique wallet address for anyone interested in participating in that ISO. So they will receive the specific wallet address where they can deposit their Vezt tokens.”

It sounds complicated, Stewart noted, but it’s actually fairly straightforward.

How It Works

The platform allows the rights holder to a song to sell off their portion of the rights through what Vezt calls an initial song offering (ISO).

Artists and rights holders can then chose how much they’d like to raise from a fraction of their song, set the reversion term and set a date for the ISO. Rights are purchased with the tokens issued by Vezt. Musicians are paid with the funds from the crypto offering (minus Vezt’s cut, of course), and the digital rights to the song move to the buyer’s Vezt digital wallet.

The song rights information is encoded on Vezt’s blockchain, and the startup will distribute purchaser royalties and allow users to store profits on the platform.

Changing those profits out of Vezt tokens and into fiat currency, or just another form of digital currency, comes with a fee of at least 5 percent.

“It is a financial transaction platform,” Steward explained. “So we will at some point be collecting banking information, credit card information, any type of information that is necessary for them to participate financially as the holder of the song rights.”

Under Construction

Vezt has an impressive stable of associated artists so far: Drake with his “Jodeci Freestyle” as part of the platform’s beta test has certainly gotten a lot of attention. But Drake is actually only offering 10 percent of the publishing of the song, not the actual master, which means artists are still hesitant to go all in on the platform.

Reviews so far indicate that it’s an interesting idea, but one that, in its current incarnation, is not likely to make a lot of money for either artists or musical investors.

But it’s still early days, and those same experts noted that with more interest, more scale and a larger and more diverse stable of songs, Vezt might be on to something — particularly in a world where ownership rights to songs are often fragmented.

“If I’m the drummer who owns 5 percent of the song and I want to put that up for $10,000, [now] I can do that,” Stewart said. “As a drummer [who] owns 5 percent of one song, I’m not going to get a label deal or a publishing deal.”

But, with the help of Vezt and the blockchain, Stewart noted, that drummer can at least be sure he’s being paid.