2 Additional Rules For Success For Blockchain Music Entrepreneurs [George Howard]

My last article put forth two of the four points of failure that I see as stumbling blocks for Blockchain music entrepreneurs. This article presents the second two. As background, the potential advantages of employing Blockchain technology in the music industry are well documented; my recent book, for instance, compiles numerous interviews and think pieces intended to provide line-of-sight related to both the how and why Blockchain technology has the potential to provide value not only to independent artists, but to incumbents as well. The solutions are by no means zero-sum, but, rather, expansive in nature, and include:

• Expanding the total addressable market
• Reducing friction around licensing of works
• Disintermediating those of questionable benefit along the value chain
• Perhaps most importantly, creating measurable and trackable ways in which to shift the burden of promotion from artists to fans in a way that rewards both and increases net promoter score

Satisfyingly, one of the early pieces first presented in this space (and now in the book), the two-part article describing Imogen Heap’s vision for Mycelia has now manifest into a functioning instantiation of a product that is benefited by the utilization of Blockchain tech. It’s called Creative Passport, and you should investigate it quickly.

However, there are still too few examples of these implementations, and thus — as we potentially are seeing some hint of the Crypto Winter turning to Spring — I will here lay out the other two key points of failure that entrepreneurs need to be cautious of.

As a reminder, the first two points of failure are:

1. Ignoring or being unaware of the Fundamental Structure of Music Copyrights

In my previous example I took great pains to explain the complexities related to music copyrights as compared to copyrights for other mediums. In short, a song typically has two copyrights, and often these copyright are not owned or controlled by the same party. Add in the fact that the labels and publishers who have some (or a lot) degree of control over how or if these works can be licensed, and the layers of complexity and approval processes too often make many works non-starters in terms of building a licensable catalog on a Blockchain.

My strong advice, therefore, is to ensure that you find a data set of songs that are “Controlled Compositions.” That is, songs where the writer of the song is also the performer of the song. Better still, this writer/performer is not signed to a label and still controls her own publishing. In this way, the single rights holder is able to license her work absent any approvals/negotiations — often the killer of deals — without seeking any third-party approval to do so.

2. Too often entrepreneurs overestimate the current efficacy of so-called Smart Contracts

To be clear, contrary to the name, Smart Contracts are neither terribly smart at this point nor prima facie contracts. For a contract to be binding certain criteria must be met — meeting of the minds/bargained for exchange; consideration; capacity; and, in many cases, a writing. Smart Contracts in their current state function like binary “if-this-than-that” routines; meaning, if certain criteria are met, this will trigger another action. This is not meant to cast aspersions on Smart Contracts. As they evolve and advance (and they will; c.f. Moore’s Law) functionality to address more nuanced use cases with vectors that go beyond simple “if-this-than-that routines” will emerge. But, they are not there yet, and those who attempt to push the tech to achieve anything more than a relatively simple, binary rule activity are setting themselves up for failure.

With this refresh behind us, I now present the remaining two points of failure that entrepreneurs must confront head on…but, to paraphrase Jim Collins, do so without losing hope.

3. Failing To Understand The Importance/Difficulty Of Network Effect

The word “Blockchain” is a great one. From a pure semiotic standpoint, it catalyzes people’s imagination. This, when combined with blockchain’s popularity-by-proximity to the interest (irrational exuberance?) surrounding crypto currency, has, I believe, led to a misimpression that if you simply slap the word Blockchain on anything that customers will care.

They will not.

I have long said that we will know Blockchain has reached mass adoption when people stop using the word “Blockchain.” To expect a customer to make a purchase or otherwise engage with a product based on its underlying technology is ludicrous; there, of course, must be a compelling value proposition and product-market-fit.

The issue here, if you’ve paid close attention, is that, when rules number one and two are viewed  together, you realize why Blockchain-based music products are not gaining traction.

As Rule Number One states: Companies who attempt to build products based on artists’ works that have enough recognition to attract an audience often can not secure the necessary licenses or are quickly hit with Cease and Desists/lawsuits that force them to pull these works down because these are not controlled compositions.

And, as Rule number Two states: Even if services could secure these licenses (they can’t), due to the fact that there are so many parties who must sign off prior to a work being licensed, a smart contract-based licensing mechanism for these well-known/multi-authored works are unable to be facilitated because the current Smart Contract technology can not accommodate the technical needs.

Therefore, too often, what’s left is a feeble exhortation of, “But ours is on Blockchain” as the selling point, and the market is understandably not compelled.

Are there existing, active, liquid two-sided markets that are already in place and that have overcome issues associated with network effect based on a non-Blockchain based business model in which Blockchain tech could represent efficiencies? Sure. Perhaps this would be a more logical approach given the above.

However, surmounting and then taking advantage of the fly-wheel that a positive network effect dynamic empowers is absolutely essential.

For this to occur we need a sufficiently large two-sided market in which there is a clear value proposition for both those whose works are part of the platform/system and those who are seeking to license music for their b2b products and/or those who are seeking a consumer-facing service that continues to delight them.

Preferably, a “Platform” type approach — one where those who begin as consumers determine that they too should add their works to their system — is constructed. For example, consider the number of people who began as consumers on eBay, Craigslist, Instagram, Twitter, or Kickstarter, but who then determined that they could also become creators. It is this type of Platform-based flywheel that is necessary for any real market share to be taken away from the incumbents from a true Innovator’s Dilemma fashion.

4. Failing To Assume Evil

This is the controversial one. My premise is that too often music startups of all stripes bet their existence on a partnership with a major institution (record label, publisher, PRO, etc.). That is, they feel that if they can make a deal/strategic partnership/etc. with one of these incumbents they will gain the necessary traction/awareness/revenue to establish their business.

I’m certain that there are many, many examples of this being exactly what happens, and that the founders of the startup end up successful in their new partnership. However, I would love some case studies; show me real meaningful wins that didn’t simply result in acquihires and the axiomatic sunsetting of the very product that was acquired.

My skepticism is due from thirty years in the industry, where I have witnessed (often first hand) a fairly predictable MO. The incumbents in the music industry have always attempted to stifle new technologies that they deemed to be a threat to their current way of doing business. This practice goes all the way back to the piano roll, and continued through the cassette, CDs, downloads, and, obviously, streaming. The irony is that every one of these technologies that the incumbents attempted to destroy ended up representing their salvation.

We are witnessing this once again, of course, as streaming services, such as Spotify, which are a direct descendent of the original Napster (the labels didsue Napster into oblivion), are now enriching the labels beyond their wildest dreams.

When you combined this long-held bias of the incumbents in the industry avoiding any new technology that they deem as a threat with Blockchain’s innate disintermediating qualities, it is no wonder that we are not seeing widespread adoption of this technology at the incumbent level.

Of course, we hear of experiments taking place between incumbents and startups in the Blockchain space, and I genuinely hope that we will soon see these experiments emerging as products that are beneficial to the startups, the incumbents, and, most of all, the artists.

Until the time when I am proven wrong, however, I will have to rest on my own personal experience and years in the industry to state that I suspect at least a part of the reason we have not seen any real development from strategic partnerships between Blockchain-based music start ups and incumbents is because the incumbents are sandbagging.

That is, the incumbents may or may not have genuine interest in the technology (history would lead us to conclude that they do not), but that they do feel the need — due to the technology’s pervasiveness in the media, etc. — to at least cast themselves as willing participants.

In this manner, they pick a startup to “partner” with and make a big to-do about it in the media. But then…nothing.

Perhaps there was an actual good faith effort and the project just didn’t work. But, perhaps, it was never the intention of the incumbent to have it succeed. Instead, they wanted the ability to tell their constituents that they had “tried,” but the product had failed, and that due to this (intentional) failure they are now convinced that they are better off not utilizing this technology.

As with much of this piece, I hope I am wrong here. I hope tomorrow brings an actual implementation via a partnership between a startup and one of the incumbents that genuinely improves all of the participants’ business, and, most importantly, creates more profit, value, awareness for the artists.

Conclusion

We’re not only at an inflection point for Blockchain-based music startups, but, in my opinion, for music generally. I will delve into that thesis deeper here shortly. But, rest assured, whether it’s Blockchain or some other tech, if something does not occur to shift the current trajectory of music’s value (heading quickly to zero on the customers’ eyes) and the current consolidation of power around a the increasingly small number of major labels and new gate-keepers (Spotify playlist curators, etc.), the likelihood of any musician making any type of sustainable living from their art is about as likely as that of a poet or mime doing so.

This piece is therefore not to be taken as some sort of swipe at those who are working in the space. I want them to succeed. No, this is meant to be an alarm, and one that rings with hopefully some practical suggestions. If we don’t start seeing successes in the music/Blockchain space soon, investment money for these businesses will dry up. This will be something close to a tragedy.

I and many others are true believers that this technology may actually be the best shot left in terms of helping artists achieve sustainable careers on their own terms. Importantly, I do not believe that this technology necessarily obviates any of the incumbents; as all the other “disruptive” technologies that came before did, it will likely prove to be a boon to them. It could be, in fact, that this technology is the first to help all those in the industry while also expanding the industry into entirely new realms. We just need some success stories. And we need them now. Please post some in the comments. I was not surprised by the paucity of comments I received when I asked for this in my prior post. Optimism springs eternal. Validate me. Please