Friday, March 16, 2018

Rights & Blockchain (Part 1)



There is nothing subject to greater hype than cryptocurrencies at the moment. Anyone seems to be able to make up their own funny money and see the value skyrocket.

Underlying this ability is a technology which is not new, but is very interesting, with a wide range of potential legitimate applications well beyond the ability to enable crooks to separate idiots from their money.

Blockchain works by using a distributed ledger, or copy, of all transactions held within its chain. So, if there are 10 Dits (I just made that up), then everyone will have a file telling them that there are 10 Dits.

If someone then buys something with 2 Dits, then this will be registered and there will be a record of the total plus this transaction (eg 10: 8-2). If someone then uses one of the 2 Dits they have been paid to buy something else, this will be added to the ledger (10: 8-2: 2-1). You get the rough idea.

Now cryptocurrencies bring in the ludicrous notion of ‘mining’. They do this by randomly rewarding one of the ledger holders for calculating transactions. (This has resulted in people behaviour such as hacking networks to use them as miners and setting up massively unproductive and hugely wasteful data centres to mine for ‘money’ that is not real.

By now you have probably realised that I am not a fan of cryptocurrencies: it will end very badly for those at the bottom of these Ponzi schemes.

But I am very bullish on the underlying technologies, albeit with many provisos.

I am especially keen to see it applied to the industry I am involved in, namely rights management.

Rights management is a catch all for a wide range of things, from how you make money from innovations and patents, to how you pay for using photos on your website or brochure.

Every business uses rights every day.

When you read this article you are deploying a massive number of rights, from those in the screen of your computer, tablet or phone to the processor parsing this data, to the browser that makes these words readable.

When you build a website for your business you are using platforms and code (which is often shareware or open source), words and pictures, all of which may be free, but you are using someone’s rights (those rights holders may be seeking to cover the costs of their rights through advertising or upselling if what you are using is currently free).

But most rights, from the components of pharma drugs to the OEM manufacture of a laptop carry paid for rights, and this is where blockchain become useful.
Rights are created, granted and used as part of a complex ecosystem (or chain), which suggests that blockchain is well worth exploring as a means to better manage this complicated, ongoing set of relationships.

So, let’s look at how blockchain might be used in the context of managing and paying for rights.

First of all, it’s worth pointing out that there is a built in dichotomy in rights.

Right sellers want to ‘slice and dice’ rights into the smallest offerings available, whereas right buyers want to buy as many rights as possible (as cheaply as possible).

This is the reason why sports coverage is often spread across several channels - as well as splitting rights by territory, language, availability window and type of rights, you can also offer packages of rights.

There are other complications, such as dependencies. One work may be the result of many rights: for example, a music track has a writer, performers, but also publishers and distributors. Add the track to a movie and you begin to see the complexities that arise.

Compared to this, using blockchain to buy and sell coffee, or even shares, is very simplistic, so the traditional model forms an initial building block, but is far from fit for purpose for rights management.

So, if blockchain is to be relevant to rights industries, the core challenge is to build a blockchain model that encompasses this complexity and builds upon current simplistic blockchain models. This is what we have been working on at Rights Tracker.

There are a number of specific issues to deal with: for example, transactions in the media world are often not absolute. The seepage in deals is tremendous due to the complexity, whereas blockchain by definition is absolute.

There is another issue. Value generation. Cryptocurrency models like Bitcoin have a theoretic absolute issuance (not the same as value) built into them. This has several potential weaknesses, including making the cryptocurrency either valueless or badly inflating its value if the mining period comes to an end (a bit like the death of an artist).
Indeed, the blockchain model currently adopted for cryptocurrencies is pretty shitty if you apply any kind of economic logic. Rights deals are highly fluid and are often derivated from other rights, eg a presenter may be paid an annual salary: how do you therefore allocate her contribution to a single TV show and pay accordingly ?

There are also fundamental technical issues with the current blockchain models. Currently a single ledger entry for Bitcoin stands at around 180GB and is increasing daily by several hundred MB. Pretty soon the ledger will be too big for most domestic computer hard drives and the cost of storing billions of copies of the same ledger is hugely wasteful of resources, although nothing compared to the wastage in mining Bitcoin and its ilk.

Therefore, it would make more sense to have a hub and spoke model with a centralised, but trusted registry. For example, distributing the licence rather than the data makes a lot more sense in processing and network terms.

Then there is the question of adoption. To build any market you need buyers and sellers and, as we pointed out above, the two really have conflicting objectives in the rights models they adopt. There are, by now, hundreds of cryptocurrencies based on nothing more than thin air and such a fragmented model would do nothing for the rights industry. For blockchain to be relevant to the rights industry the model, models and ecosystems need to be interoperable. Everyone will accept a dollar, few, even now, will accept a bitcoin.

Most current proposed rights blockchain models are simply about gathering revenue, so are ridiculously simplistic and would actually offer little value to artists - there are already collection societies to do this, albeit highly inefficiently.

There need to be three conceptual mechanisms in place: rules, policing and payment.

Building and setting rules based on an agreed model comes first. A viable model able to accommodate complex rights models with multiple rights dimensions within a rights chain would need to be established and agreed. This throws up unexpected challenges such as ‘what is a territory?’. This is the problem that we gave been working on at Rights Tracker for over a decade and we now have a tried and tested model in use by organisations as diverse as the British Library and Glaxo SmithKlein. We are currently making this accessible via an API accessible to any organisation, platform of system from a photo library to a marketing department.

Policing is not a problem we address. But in automating and using cloud based platforms, it is far easier to be accountable. You never know how often a TV station in Africa is showing your programme, but you can get detailed viewing stats from Amazon on who is watching your show on Prime, or from Spotify on who is listening to your track.

As delivery becomes more and more automated, it becomes easier to police. Of course, tracking how many people who were at a gig where a band played your song that you should receive payments for is a more complex problem, but we’re already seeing a network of startups and innovative companies who are likely to become part of this policing infrastructure and result in better data gathering and therefore more accurate payment distribution.

Payment is something that is, in our view, sorted. If a transaction has a value, you then need to calculate that value, terms and currency (and perhaps distribute any taxes or residual payments) and then trigger the release of the relevant payment.

If the model above was fully adopted and deployed across the creative industries (and even in manufacturing), blockchain could open up a hugely valuable new market for rights and break current monopolies such as Apple and Amazon. Any work might be available for anyone else to use - a sampled riff could be included in the blockchain of a derivative song, for example. You could use any image off the web and the photographer would receive a micropayment. The possibilities and opportunities are endless.

But there remain a number of important issues to address, including:

·       How would you validate who owns the original right; ie how would you create and maintain a register of rights ? We’ve been doing some very interesting work around this area with clients such as the British Library recently.
·       Would you use an uncertified model with the weaknesses described above, or create a hybrid model with some centralised certification authorities ?
·       How could you get everyone to buy into and to adopt such an ecosystem when it will clearly be in the interest of some parties not to do so ?
·       How would blockchain help a musician get more money from YouTube, for example (and why does YouTube pay so much less for rights than Spotify) ?

This is the first of two articles by Iolo Jones, Chairman of Rights Tracker and CEO of TV Everywhere on the subject of using blockchain for rights management. The second will look more specifically at how to tackle the technical challenges.