Transform the music industry with blockchain based funding
Sonar+D is an event covering technology and it runs along with the Sonar Festival. As a part of the innovation selected teams our challenge was to “Transform the Music Industry with Blockchain-based funding”. We fired up our machines and started building on top of ERC721 ethereum token protocol (with ERC721 it’s quick and simple to build proof of concepts, for production I still advise against it and to look into the safer and more predictable BTC technology).
IMPORTANT DISCLAIMER: this is a “mind exercise + working prototype code”, there is no token for sale, no artist signed up, most importantly no revenues distributed. We know distributing revenues back to investors is typical of a security and therefore we need to setup the proper legal framework before anything else.
The revenues for the music industry have been delicining for years from their golden age of the 2000s, new digital distribution means didn’t really help (in fact some of them, like downloads, are already fading out) actually, only streaming was able to turn the tides and stop the decline. The streaming channel though has thinned margins so the current state of the art is: there are more people involved in the industry but less money.
In 2017 the cryptospace was in a turmoil to follow ICOs, digital tokens which basically are sold to finance projects. The tokens will be usable once the project is complete. To put things in perspective: music streaming revenues in 2017 were USD 6.6B and ICOs volume was USD 6.7B. Our team had the mission to allow artists to tap into these liquidity pot while at the same time providing something different than the “usual” crowdfunding platform.
The first activities we followed were basically a deep dive into the problems and frictions of the current funding process of an artist. Basically there is a layer handling the revenues between the artist and the public, some parts of such layer are clear, some others really aren’t. We learned that royalties collection is a very complex problem and still nowadays it’s managed mostly off-line. Sales and distribution are also articulate problems, in general an artist will receive its share of revenues after all these other parties are paid, moreover the payout will be proportional to the volume, in fact the artist basically is sharing parts of his/her royalties. The main observation is that only affirmed artist do have some ground for negotiation, insterad upcoming and new artists have to accept pretty much any deal. The negotiation is important not only for royalties distribution but also because the contracts shall contain guidelines which may or may not match the artist’s inspiration and creativity.
The focal point is to share the revenues of the artist with the fanbase. Fans become “investors” while artists put on sale stakes of their next album or project revenues. Utopia Music was preparing for this concept since a long time and collected all sort of material we may want to better understand how this could work.
The new investors must be informed on the project in terms of all the steps the artist will undertake to deliver his art: contracts with recording studios, contracts with other artists, distribution agreements and so on. In our masterplan we envisioned a platform where service providers would take part by submitting quotes to offer services for the campaign. In this way fan/investors can see that there are real business entities committing to realise the artist’s project. During the hackaton the service management part was not there because.. you know, it was 3 days and we started coding from zero! We therefore focused on the crowd-investing part. To inform the fan/investors we integrated with a prototype service, Ulytics, which has all the history of play data of an artist’s previous tracks, social media data and a complete list of other infographic tools that can help an investor study the artist he is funding.
Architecture
- Ethereum Ropsten test net as our blockchain (test ether, test tokens, remember, nothing real!)
- infura.io as node manager, you could download the whole test blockchain and set up your node but there was no time and for the time being it added little value
- Smart contract heavily based on CryptoKitties to have the ERC721 tokens and Node.js micro services each calling a specific function of the contract (it was really interesting to create this part, I may write about it more in detail later)
- Python Django backend handling the communication between the blockchain and the front-end, this is probably the most interesting part to work on in order to have the whole thing scale. Drumming at the keyboards the epic Denis Moskaletes
- RX.js based front-end, built on the craziest framework by Alex Milanov himself, the jazz, the jam, the developer
- Bootstrap 4 based UX which was analysed and designed by Ana the UX synth rainmaker Basualdo
So why the ERC721 tokens? Every single project will have different funding requests and royalties sharing, so each of the token represents a basis point of royalties for a given project. When the campaign for the project is created, the maximum amount of shares/basis points for sale is set (the artist can say I am willing to sell 10% of my royalties to rise 150K I need for the creation and distribution). Then the tokens are purchased by the investors, each token is bounded to a specific campaign, thus we need the ERC721 specifications to have different and unique tokens. When the revenue stream comes inbound, the profits are split by the contract according to the shares, so that only shares of a specific campaign get the revenues generated by that campaign.
Where are the ERC20 tokens? There is no ICO, as mentioned before, the legal framework must be finalised before start selling this. If there is going ever to be an ICO with the classic ERC20 it would be to create a token to be used inside the platform: to create a campaign, to submit a share purchase and so on.
Resources:
- IFPI music revenues 2018 report
- https://ech0es.com (thanks Denis for the machines and dns)
- Utopia Music
Special Thanks
- Adriana for being a force of nature, always on top of things
- all the Utopia Music team which helped us out in all possible ways: understand this new market, provide us with data, help us stay organised and give us the opportunity to build, Alex, Daniel, Roman, Kamal , Vera, Yann!
- Sonar+d and Sonar Innovation Challenge for addressing the big questions for music
