By Jon Matonis
Thursday, May 11, 2017
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 
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 ). 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) . 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.
AT THE INTERSECTION OF FREE BANKING, CRYPTOGRAPHY, AND DIGITAL CURRENCY