Medium
Thursday, May 11, 2017
https://medium.com/@jonmatonis/bittunes-is-the-future-for-creators-1b210241aadc
We now have Blockchain concepts surfacing for almost everything so of course music was always going to be an attractive and obvious area to target. There are many players in this space now and it has become very fashionable.
But
there is one Company who’s founder has been actively exploring what the
future of music might look like for over 10 years, and since 2006 that
vision always hinged on the need for a global digital currency to
underpin a new model for music distribution. This vision was first
articulated several years before Bitcoin was invented. I’m talking about
Simon Edhouse the Managing Director of Bittunes.
Unlike
most other startups in this field, Bittunes is not basing their
business case solely on a technology like Blockchain, or by creating a
new alt-coin or token, (to their credit they rejected lucrative offers
to do so). Strategies like that are easy to duplicate so tend to occur
in clusters, as can easily be seen by the plethora of ICO’s and
Blockchain focussed startups around.
What
separates Bittunes from other startups that utilise blockchains in some
way, and why they are particularly interesting to me as an economist,
is that their core vision is based on a simple yet quite audacious
economic model, and the more I look at that model, the more it makes
sense.
The
Bittunes model expressly tries to do one thing. It attempts to define
the simplest mechanism for music to be traded as directly as possible
between Artist and fan, while at the same time re-configuring the reward
structures that have been the basis of the music industry for over a
hundred years.
Startups come and go, but good economic models tend to transcend changing fashions.
Historically
it has been the providers of physical and then digital music recordings
that have made money in the music business, and as a rule these have
been the intermediaries in music’s supply chain, Record Labels, Rights
organisations, Apple etc. It has never been the receivers of music that
made money. That just wouldn’t make sense, would it? Read on..
In
music’s value chain there have always been ‘rent seekers’, manoeuvring
to increase their share of the pie. Occasionally, disintermediation
occurs as layers are removed, creating new value, but more often than
not other layers are inserted as new entrants nudge their way in with
new services.
The
accepted view is that these entrants provide new value so of course
become part of the music industry ecosystem. However, there are now so
many heads in the trough, and the largest have been around for so long
that, collectively, their right to harvest more than 75% of music’s
overall pie has remained largely unchallenged.
The
big names in music, Justin Bieber, Rihanna, One Direction etc reap the
lion’s share of what remains, and the massive long tail of aspiring
Artists are left with the crumbs. Non main-stream artists do it for
love, not money, and music’s consumers devour heavily subsidised (free,
ad supported) streaming playlists thereby maintaining this status quo.
Artists produce, consumers consume, corporations get rich
So,
how can this cycle be broken, without business processes to drive any
commercial activity? So that consumers get much more variety and a
multitude of currently invisible artists get a more equitable deal.
The
power and appropriateness of the Bittunes model to help solve music’s
entrenched problems, is that firstly, it correctly identifies which
party can provide sufficient value to Artists to turn this inequitable
system on it’s head, and then, secondly, it meticulously deals with the
contingencies related to delivering that value via it’s business logic.
That
party in music’s value chain is of course the music fans themselves,
because music fans are not only the purchasers of music, (be it by
subscription to a streaming music service or downloads), they are also
the highly interconnected network that Artists need. They hold the keys
to some of the most valued processes on the internet, and drive the
value of companies like Google, Facebook etc, and in the Bittunes model,
they are the new recipients in, plausibly, music’s final
disintermediation.
The
novel aspect of the Bittunes model is that they have worked out a
sensible way to allow fans to earn money in partnership with the artists
they follow. Further, the process has been designed to distribute
revenue with as little cognitive cost for users as possible. In other
words, it’s not just the economic model that is simple and neat, the
logic around it has been carefully designed with a view to making it
nearly friction-less for all parties.
The
crux of the model is based on revenue sharing with meaningful clusters
of users. To explain exactly how that ‘meaningfulness’ is defined, and
how selection is determined, would be to give away too much, but let’s
just say there is an abundance of options available to both supply and
demand to self sort into appropriate groups, to generate remarkable
value to both.
Why was this inventive step not already completely obvious to all of us?
To
explain that, might require a bit of historic analysis. There is a
pervasive narrative with regard to music that is continually reinforced
in the media that the only music worth mentioning is that which is owned
and controlled by the music industry. For example:
“Today, three major Record labels own well over half of the Western World’s Music” ~ The Economist [1]
It’s
not hard to see how this situation has developed. The Recording
Industry as we know it grew out of the combination of sheet music
publishing of the music played at live music events, followed by the
technological breakthroughs of the 1880’s and 90’s that produced actual
recording devices, (cylinders of tin, wax, celluloid leading to the12
inch record in 1903 [2]). Gradually big business saw the opportunity for
large profits by the mass production of vinyl records, and the rest as
they say is history.
So,
throughout most of the late 20th Century, were it not for this
industry, popular music simply could not be easily heard or obtained. So
in a very real sense we have all perhaps been conditioned to see the
music industry and the music we listen to as inseparable, but does this
still even make sense?
It
should come as no surprise that with the advent of the Web and
internet, that some profound macro changes have been occurring that have
direct relevance to the empowerment of ordinary people in this new
global marketplace.
A better understanding of the rights of the ‘Primary Publisher’ and how Bittunes also sidesteps the copyright industry
One
of the tenets of the Bittunes team’s philosophy as they have
endeavoured to explain this model has been to stress the significance of
the role of the Artist as ‘Primary Publisher’. In the context of how
Bittunes operates, this alone has very significant implications for the
size of the total addressable market for the company’s services.
Legally, when an Artist writes a song, two rights are created; the right to the recording
(a.k.a. the master) and the right to the underlying song itself (a.k.a.
the publishing) [3]. Until an Artist signs away these rights to a
Publishing House or Record Company, they are the publisher.
Music
distributed by Bittunes is in fact ‘self published’ by Artists on the
platform using an inherent provision within the legal deed of Creative
Commons and applying that to the ‘Attribution-NonCommercial-NoDerivs CC
BY-NC-ND’ License whereby any of its conditions can be waived if
permission is gained from the copyright holder. In effect, this simple
caveat allows this license to be used for commercial purposes.
So,
what does this boil down to? It means that, whereas companies like
Spotify can only operate in a strictly defined set of territories,
Bittunes is free to sell music anywhere in the world, effectively
opening up a global market of billions of music consumers in territories
like China, India, Russia and Africa that services linked to the main
stream music industry are not able to access.
It
is interesting to note that Spotify’s recent purchase of
Music/blockchain startup ‘mediachain,’ after a bit of analysis, seems to
be less about innovation and more about the enormous difficulty Spotify
has had in keeping track of the myriad complex rights agreements that
apply to the music they stream. If anything it provides more evidence
that a new simpler approach to music publication is overdue.
As Simon pointed out in his recent article ‘What is the ideal Music Stack?’
most music blockchain startups are focusing on integrating with the
existing music industry in some way. The Bittunes thesis and strategy is
a purist approach that projects a future ideal reality and sets a
course toward that goal.
Needless to say, most entrepreneurs avoid challenges like this
The
mission that Simon and his team have embarked on is a David and Goliath
type quest, with one implied aim; to render the music industry as we
know it, irrelevant. To be able to deliver on a promise like this is
incredibly difficult, and requires skills, knowledge and intuition in a
number of areas.
However,
in this instance we have an entrepreneur who has significant domain
knowledge as an award winning songwriter and film music composer
himself, with a Master’s degree in science and technology
commercialisation and an obsession with disruptive innovation theory. He
has plenty of his own skin in the game, investing around $150k into the
business, and after several years of operation Bittunes now has users
in more than 90 Countries.
What
chance does it have of succeeding? In its favour, the technical and
market conditions have probably never been better, and certainly it is
widely understood that there is a pressing need to improve the fortunes
of Artists around the world.
However,
as is now also widely accepted, good entrepreneurs see realities that
other’s do not, and great entrepreneurs have the courage to pursue
opportunities that average entrepreneurs would never contemplate. My
money is on them succeeding.
Incidentally,
they are raising funds at the moment at a relatively low valuation, and
not as an ICO, but for real equity. A savvy hedge against the
prevailing orthodoxy with regard to the future of music IMO.
Disclosure: I am on the Bittunes board of directors and a shareholder in the company.
[1] ’The music industry and the digital revolution’ https://www.youtube.com/watch?v=aqz3DaisBz8
[2] ‘A brief history of the music industry’ http://www.musicthinktank.com/mtt-open/a-brief-historyof-
the-music-industry.html
[3] ‘Licensing for Cover Songs’ https://loudr.fm/faq
[2] ‘A brief history of the music industry’ http://www.musicthinktank.com/mtt-open/a-brief-historyof-
the-music-industry.html
[3] ‘Licensing for Cover Songs’ https://loudr.fm/faq
