Decentralizing the Music Industry

Remember the excitement of getting your first CD? I do! It was Limp Bizkit’s Chocolate Starfish and the Hot Dog Flavored Water (hey, that’s a title). Back then, opening a CD’s plastic case and leafing through the booklet had the combined thrill of a Christmas morning and an initiation ritual – our cultural interactions used to be more connected to physical objects, for better or worse. Before you say something about age, I’m in my early thirties! But that’s the thing, after I got my first records as a teen, mp3 players were already popular and streaming took over not long after that.

In the space of just two decades, we’ve gone from being record store-dependent, which had been the standard for the previous 70 plus years –the 1990s being a time where CDs, cassettes and the slow Internet coexisted with the often bizarre but ultimately cool music video TV–, to a digital world where you only need an Wi-Fi connection to access entire discographies. Sorry, thinking in terms of DISCographies is still very 20th century. Old habits die hard. Some things are cyclical and make a comeback, like vinyls in the recent past, but they’re definitely not the mass product they once were.

This complex chronicle of music, technology and consumption formats is intimately tied with one of the thematic pillars of this article: royalties. Initially, the music industry was all about the number of physical copies (CDs, cassettes, vinyls, and other media) sold, with artists receiving a percentage of the revenue. This system was heavily skewed in favor of record companies, which often took a substantial cut before performers saw any earnings. The advent of digital downloads in the late 1990s and early 2000s, headed by platforms like Apple's iTunes, began to shift this dynamic. Artists, however, still faced challenges in receiving fair compensation​.

The Pre-Streaming Era

Before Spotify, iTunes and YouTube, record companies had significant control over artists' careers and earnings. Contracts often included clauses that allowed labels to recoup expenses before paying them, so musicians could earn very little despite successful sales. In addition to physical properties, radio play and public performances also generated royalties, but these were typically managed by performing rights organizations (PROs), which collected royalties on behalf of artists while often taking a cut. The distribution of funds, let’s say, could be opaque. 

At the end of the 90s, this problematic reality found itself a new sidekick: digital piracy. Metallica’s iconic battle against Napster brought attention to the phenomenon of the unauthorized distribution of music while also making it clear that the industry was falling behind the new ways of sharing content that the Internet is so well equipped to do. That landscape was prime for change.

The Streaming Era

The introduction of services like Spotify and YouTube brought both opportunities and challenges. On the one hand, they provided musicians with unprecedented global reach, allowing even the most indie artists to grow and distribute their music widely. The same is true for content creators across various media, whether their obsession is music or building and maintaining terrariums – there’s an audience for everything out there and sometimes all you need to reach it is a platform. This democratization of distribution opened doors for many new performers and genres. Spotify even introduced features like "Spotify for Artists," which provides data insights and promotional tools, helping musicians better understand and engage with their listeners.

On the other hand, streaming platforms’ financial models often leave artists with minimal earnings. Spotify pays artists a fraction of a cent per stream, meaning that millions of streams, which sounds like hitting the big numbers, isn’t synonymous with a sustainable income. According to industry reports, the average per-stream payout can range from $0.003 to $0.005, depending on the service, the right holders involved, and the artist's deal with their label​​. Users suffer the other side of this coin: instead of making a lifetime purchase of their favorite album (like with CDs), they pay a monthly subscription that, of course, grants them legal access to almost all the music in existence. But, if you think about it, they might end up spending more and owning less, while musicians receive compensation thinned out through time.

And as the world is full of irony, who do you guess are some of the key players behind Spofify’s business? That’s it, the major labels themselves, which hold ownership stakes and receive a substantial share of streaming revenue through negotiated royalties. Both the artist and the company receive meager amounts, but the label (imagine a giant like Sony) ends up raking in millions from all the creators under its umbrella. To complicate matters, Spotify’s attention and resources go toward podcasting and their properties in that format, which offers better ad revenue opportunities – most of which the platform doesn’t have to split with anyone.

Empowering Musicians

Blockchain technology has the potential to address the many issues affecting the current music industry by providing greater transparency and more equitable terms in royalty distribution. Unlike traditional systems, blockchain records transactions and contracts in a decentralized network where the power to alter data and access information is divided among all the participants, so earnings could be fairly split in an open and trustworthy manner. Smart contracts, which automatically execute terms when conditions are met, can streamline payments, allowing artists to receive their share without unnecessary delays or deductions. What’s more, users can participate in ownership and thus support their favorite musicians more directly.

Audius, Opus, and Ujo Music are pioneering the use of blockchain in the industry. These platforms offer decentralized music streaming and distribution services that give artists more control over their work. For example, artists can upload their music directly to Audius, set their terms, and receive payments instantly via cryptocurrency. This model eliminates the need for intermediaries, reducing costs and increasing artists' earnings.

It’s Complicated, But It Doesn’t Have to Be

The emergence of sophisticated AI and its impact across the world has forced the debate on one of the challenges many industries are facing right now: what will we do with the amazing tools we have at our disposal? The music industry is no different – while streaming has democratized access to music, it has also perpetuated or worsened unjust compensation schemes for artists. Speaking out against this shouldn’t be a brave act. Where does greed end and the creative use of technology begin? I believe there are more than enough tools to create smart solutions that benefit everyone.  

Blockchain, with its potential for transparency and efficiency, offers a promising alternative. By empowering musicians and providing more equitable distribution infrastructure, decentralization could reshape the industry into a more sustainable and artist-centric ecosystem. The financial and regulatory math behind this would surely be highly sensitive and complex, but the ethical foundation is not. Musicians deserve better means to thrive in the digital age, being rewarded for their effort and craft as much as we all enjoy listening to them daily.