Smart contracts and media: The democratization of media ownership

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  Quantumrun Foresight
• November 1, 2022

Insight summary

Blockchains provide the underlying infrastructure for new approaches to automate royalty payments for digital intellectual property. A smart contract, for example, can automatically pay an artist when their song is streamed or track how many people share their content online. The long-term implications of this trend may include smart royalties schemes for artists and startups focusing on smart contract services.

Smart contracts and media context

Smart contracts, sometimes known as self-executing contracts, are computerized agreements executed in the blockchain when certain conditions are met. Because these contracts are encoded into the blockchain system, they are tamper-free, and people in the network can verify the authenticity of these transactions. Additionally, because there’s no third party, users don’t have to worry whether information has been changed for personal gain.

One of the emerging use cases for smart contracts is automating royalty payments. Royalties are periodic payments that a licensee (or franchisee) makes to a licensor (or franchisor) for the right to use an asset, which can be either intangible (like patents, copyrights, and trademarks) or tangible (such as natural resources). The rate is usually set as a percentage of revenue generated from using the asset. Because royalty payments are based on complicated calculations of asset usage, percentage revenues, and per-item transactions, agreements often bunch together a large number of transactions for monthly, quarterly, or yearly payout. 

Blockchain smart contracts to settle payments make even the most minor transactions possible in real time. For example, if somebody buys a product for USD $0.10 and the creator gets 1 percent of that as royalty, the smart contract can automatically transfer the payment quickly and easily.

Disruptive impact

Though many creators intend for their online content to have usage limitations, much of it is publicly available in practice. The tracking and verification mechanism provided by smart royalties could change the nature of accessing and sharing information, including the value that information holds. An example of this possibility is musician Justin Blau. 

In February 2021, Blau sold non-fungible tokens (NFTs) of his album Ultraviolet in an auction and raised USD $11.7 million. This success demonstrated how smart royalties might revolutionize the music business. Blau earned far more than any record company would have given him by eliminating the record labels and selling music ownership directly to fans.

Encouraged by his success, Blau set up the startup Royal which gives other musicians a platform to sell NFTs of their music. The seed stage was able to raise USD $16 million. Blau plans to reverse the typical record industry model by giving the artist 80 percent of the profit. In addition, he thinks it’s time to give artists the freedom to shape their brand and decide how to build a business out of it.

Implications of smart contracts in the media industry

Wider implications of smart contracts being applied in the media sector may include: 

• The rise of do-it-yourself artists who conduct their marketing and tour scheduling, using smart royalties to automate ticket and merchandise payments.
• Fans feeling more included and engaged in supporting their favorite artists, leading to long-term loyalty.
• Record labels being forced to adjust their business practices as more artists choose to sell NFTs instead of signing with studios.
• Non-fungible tokens becoming more mainstream as people begin collecting various digital assets like artwork and music.
• More startups focusing on providing smart contract services.
• Creators adopting smart contract-based micropayments for individual content pieces, significantly altering the revenue models in media.
• Independent media platforms gaining traction due to the ease of monetizing content through smart contracts, shifting power from traditional media conglomerates.
• Governments updating intellectual property laws to encompass digital assets and smart contract transactions, impacting legal frameworks worldwide.

Questions to consider

• What other sectors can smart contracts have a considerable influence on?
• How else might smart royalties alter the creator economy?