Artists who rely on royalties in the creative arts field suffer from problems such as delayed payment, mismanagement of royalties, and lack of clear transparency. The demand for a more open, efficient, and accountable royalty distribution system has never been acknowledged. As blockchain technology improves, the promise to bring transformative change is becoming a reality, empowering artists in ways that one could not think of.
The system of royalty distribution is also intricate, opaque, and inefficient. Artists must suffer endlessly, waiting months or sometimes even years, before receiving the last amount because of all the intermediaries, such as publishers, record labels, and collection agencies. Royalties vary among regions, platforms and formats, making revenue difficult, and artists earn less than they deserve.
Moreover, there will always be room for disputing claims and payment delays since there is no central and standardised way of defining the rightful ownership of creative products. Blockchain-based technology is ready to transform music and broader creative economies by solving these pain points head-on in this context.
Incorporating blockchain technology can improve the royalty distribution environment in several ways that benefit both artists and consumers.
One of the most important areas for the application of blockchain in royalty distribution is smart contracts. A smart contract can be described as a self-executing contract because the terms of the agreement are directly written into lines of code. A smart contract, therefore, means that once some specific conditions are met. For example, when one's song is sold or streamed, the contract automatically triggers the payment of the royalties to the artist or others who have an interest in the royalty paid from the song.
The intermediary abolition makes it possible to save administrative costs and processing time. It helps artists receive the payments instantly and transparently. For example, when a song is streamed on a digital site, smart contracts will automatically share the correct royalties with the artist, songwriter, or other particular participants of the technological process without interference. That instant and accurate distribution of royalties enables empowerment among the artists, who then know they will get fair payment timely for their work. In addition to faster payments, smart contracts offer greater clarity since the terms of the royalty agreement are encoded on the blockchain and visible to all parties. All confusion and mistrust regarding how royalties are to be calculated and distributed are ruled out by this feature.
Determining ownership of a certain piece of music in the entertainment industry is one of the hardest challenges, especially in cases involving old recordings or works from multiple contributors. A decentralised database such as blockchain can answer this problem by creating a transparent and accessible depository of rights in music. Such a database would hold information on who owns the rights to a piece of music, specifically songwriters, performers, and publishers.
The decentralised nature of blockchain also guards against fraud and record alteration. Since no one person controls the database, no one can ever manipulate it. Moreover, because every transaction is recorded on a blockchain, there is always a verifiable history of ownership that simplifies the process of determining procedures to pay out royalties.
This system would significantly reduce the various disputes over ownership and ensure that the rights holders are compensated correctly. This highly sophisticated process of making ownership identification more transparent would better protect artists' rights to intellectual property because they may get adequate compensation.
Blockchain works like an unerasable notebook, meaning once a specific transaction has been entered into the record, it cannot be erased or changed. This feature is fundamental to making the royalty distribution transparent and accountable. Each time a song is played, purchased, or streamed, that transaction is entered into the blockchain account to create a permanent, verifiable record. This transparency benefits the artists, consumers, platforms, and distributors. It proves easy for artists to work with them as it becomes easier to audit the usage of their music and ensure that they get royalties due to them. It reduces the instances of legal rows with the platforms and distributors as there will be an indisputable record of transactions.
Artificial Intelligence and Big Data
AI and big data may significantly optimise the real-time royalty distribution process using huge usage data. More to the point, the algorithms created by AI can now easily identify "hidden" patterns within streaming behaviour, radio airplay, and live performances, marking thereby an important step towards more precise tracking of music consumption. It would become easier and even faster to hand down royalties for performance rights organisations (PROs).
In addition, AI may provide earnings reports for artists. Such reports would be very elaborate, containing information regarding revenue earned by the platforms, by region, and by type of usage. This would enable artists to be better informed about their income streams and, therefore, help them make decisions in that profession based on real data.
The transparency challenge
Transparency is probably the greatest challenge in the current royalty system of distribution. A lack of transparency on revenue streams, licensing deals and payment structures leaves the artist at the mercy of underpayment or delayed payment. In fact, in some cases, artists have claimed that they have waited for years before receiving royalties on the international market or live performance.
In either case, the use of digital platforms exacerbates opacity. Today, many of the greatest sources of royalty income are digital providers like Spotify, Apple Music and YouTube, although most artists do not know how the calculations are made to allocate their share of the revenues. Payment structures often depend on complex algorithms considering stream count, subscription revenue and advertising income. Artists need to learn more about how these devices have determined their share.
Efficiency in royalty distribution
Delayed royalty payments are highly disadvantageous for artists' income in the rapidly changing digital world. The ageing payment method for artists, where they sometimes get paid after a couple of months or once a year, needs to be updated. Faster pay is increasingly required today with real-time data and digital payment systems.
The most formidable challenge to royalty distribution is the time it takes to check data on various platforms. Every genre of streaming service, radio station, or live show will generate enough data for tracking and checking with subsequent issues to correct parties with rights ownership. Such processes tend to be extremely slow and, sometimes, marred with error.
In the traditional revenue-sharing system, many intermediaries take a portion of the money before it reaches the artist. By the time the artist gets their payment, many of the earnings have already been taken by admin fees, publisher royalties, and record label advances. This not only lowers the amount the artist finally receives but also causes delays in getting paid.
Digital payment platforms may modernise the system of transmitting royalties. Real-time payments result if artists are paid and compensated shortly after through payment platforms integrating streaming services and all other revenue sources. PayPal, Venmo and even blockchain-based currencies can make faster payments directly to artists, avoiding most intermediaries involved in the current payment system and helping create smooth cash flow.
Some startups are experimenting with such solutions in some cases. This innovation promises to fundamentally change the music industry as more control will be given to artists' hands.
Empowering artists through fair compensation
In this respect, the twin challenges of transparency and efficiency can empower artists in important ways. Indeed, the first step would be to ensure that artists receive remuneration commensurate with the value of their work, so they do not have to constantly worry about the prospects of financial instability as they pursue their creative endeavours. This is crucial in an industry where, in many ways, artists fight for survival as their work gains immense consumption amongst millions of people around the world.
Transparency would better serve the artists in making better decisions and gaining more control over their careers. But first and foremost, it means better accounting in the form of calculation and distribution of their royalties. Better visibility into how their royalties will be calculated and distributed into accounts would give artists the right to hold record labels, publishers and streaming platforms accountable for more reasonable contracts and terms.
Finally, more efficient distribution of royalty payments would minimise the cost implications of delays normally associated with long payment periods. Instant or almost instant payments would ensure the actual time benefits the artists expect to receive, enabling much better planning of their financial base.
The democratisation of the delivery of music has brought up all the inefficiencies and inequities that can be found in the current royalty system. Thus, embracing transparency and efficiency can make the case for an altogether fairer and far more sustainable ecosystem for artists. Putting new technologies like blockchain and AI to life would require massive investment and coordination with industry stakeholders. However, the rewards for artists and the industry outweigh the potential downsides in such a rapidly evolving music landscape. Empowering the artists with clear and effective royalty distribution will be necessary, so the parties concerned will have to take joint priority.
By valuing fairness, efficiency and transparency, the system shall guarantee that the artists are paid adequately for their work as the most important contributors to the music industry. Consequently, creativity and innovation will be incentivised for generations to come.
Miket Kanakia is the Director of Novex Communications.