Hurdles to overcome to make these applications highly scalable
It’s clear that DLT and NFTs offer huge potential for the media industry
– particularly as the technology matures and organisations collaborate
on new possibilities. We expect to see many more of these applications
coming to life and scaling in the next three to five years.
To capitalise on these opportunities, industries are working to overcome
hurdles that prevent mass rollout and adoption of applications,
including:
-
Industry standards: Membership organisations like the
Digital Data Exchange (DDEX) strive to establish standards around how
they communicate information about works, tracks and products –
including ownership and sales information – so each party receiving
the metadata can understand it. The same concept applies here. Common
industry standards would be needed for DLT(s) to manage contracts,
rights and royalties at a global, industry-wide scale.
-
Governance requirements: In the use case for trusted
registration of IP rights and royalties, if the DLT platform were
decentralised and permissionless, anyone could write to the ledger and
there would be no means to change data if somebody entered incorrect
information. This needs to be considered in future models, where a
suitable governance model or authoritative third party would still
need to be involved.
-
Transaction volumes: Many applications are held back
by the volume of transactions that current blockchain technologies and
protocols can handle. For instance, Visa can process up to 24,000
transactions a second, whereas Bitcoin can only process seven and
Ethereum 20. To put that in perspective, Spotify's most-streamed song
of 2021 - Olivia Rodrigo's driver's license - racked up 1.1 billion
streams, whereas Ethereum can only track 600 million streams per year.
For now, unless transactions are aggregated, this restricts DLT's
content distribution applications to low-volume content consumption
platforms.
-
Energy and sustainability: The energy requirements to
run today's DLT networks are unsustainable. For example, Bitcoin
consumes more energy than Norway each year. Ethereum is leading the
charge by switching to a new 'Proof-of-Stake' protocol that could
improve energy efficiency by up to 99.9%5.
-
Companies’ and creators’ trust in DLT technology and platforms: The DLT domain can feel technical. Without third-party advisory
services, the barriers to entry for creators and companies are high.
As the market is changing so quickly, it’s hard to know whether to use
one of the existing DLT platforms or build your own. Furthermore, the
volatility of NFT and cryptocurrency markets generates fear,
uncertainty and doubt.
-
Friction for consumers: The world of DLT and NFTs has
its own language. To delve deeper, consumers must understand terms
like 'wallets', 'tokens' and 'gas fees'... User experiences will need
to become less daunting if the platforms are to gain widespread appeal
beyond an enthusiastic pool of early adopters.
Disruption and disintermediation – where are we headed?
We’re in the age of the tech platform monopoly. Spotify, YouTube,
Netflix, Audible, social media platforms, digital content and streaming
have galvanised a creative revolution. However, they’ve also introduced
ever more intermediaries and positioned creators further from their
audiences and points of pay.
Creators are losing patience, and resentment toward the power imbalance
is growing. For example, music artists in the UK recently raised
complaints about their low revenue shares with the Competition and
Markets Authority (CMA), arguing that streaming “benefitted music
companies and streaming services at the expense of the creators who
sustain the industry.”6 Another
example is electronic artist Four Tet, who recently won a royalties
dispute with his former record label. He now earns 50% of royalties –
far above the previous rate of 13.5%. And the label has agreed to
back-pay around $70,000 in historical royalties going back to 2001.
We’re also seeing a huge increase in creators moving their fan bases off
social networks and platforms to their own websites, applications and
monetisation tools. Many are flocking to membership platforms like
OnlyFans or Patreon, which have experienced exponential growth over the
past three years. For example, the number of creators on Patreon with at
least one patron has shot up to 220,000 – that’s 480% higher than in
2017. And the number of active patrons has increased by 50% over the
last year to over 6 million7.
As the content creator economy matures and DLT opens up more D2C
channels, more and more creators are jumping feet first into emerging
use cases, like NFTs, to take back the power.
Taken to an extreme, if large-scale decentralised platforms are
established, many of today's aggregators, platform providers, and
collection societies could become obsolete. This is the vision for Web 3
- a new decentralised version of the internet, where users retain
control over their data and content, and they can sell or trade their
data without losing ownership, risking privacy, or relying on
intermediaries. As with many of the use cases described, the new
marketplace will be supported by the digitisation of assets via
tokenisation. For creators, this represents a D2C marketplace with
unlimited potential.
What does this mean for today’s intermediaries?
Only time will tell if this vision for the future will become a reality.
But it’s clear that market dynamics are changing. Each actor in the
media value chain should investigate how D2C and DLT use cases will
impact them, and explore opportunities to strengthen their market
position.
Emerging DLT applications like NFTs are meeting creator needs for fair
compensation. However, intermediaries today provide more than just a
marketplace. For example, Spotify isn’t just a way to stream music. It
also offers smart search and recommendations, and community and sharing
features. These capabilities and the network effects of platforms will
continue to make existing market leaders resilient to disruption.
Content brokers, aggregators, and collection societies should refrain
from living in fear, waiting for an extinction day that may never
arrive. Instead, they can identify opportunities to incorporate DLT into
their business strategies. For example, aggregators can use the
technology, combined with user experience and personalisation services
to position themselves as fairer partners to creators.
Once more use cases are proven, we may see others rush to implement and
scale effective solutions, like the one implemented by the European
Union.
What do we recommend?
1. Cut through the noise
Organisations need to stay close to the market and understand what the emerging strategies mean
for the industry and their business model. Cutting through the sea of
vanity projects and headline-catching coverage, it’s vital to know the
core principles and value drivers to determine which developments will
be persistent and which are just fleeting distractions.
2. Define your vision and DLT strategy
Organisations
need to understand how DLT will affect their businesses, and form a
strategy to address it. Will you look to seize early-mover advantage
from DLT, or wait and see what happens? Will you partner, invest or
acquire the capability? How will DLT sit alongside traditional models?
Organisations should brainstorm ‘what if’ scenarios and create a
vision for how this technology could either threaten or fit into their
future commercial offering.
3. Prioritise use cases, learn and scale
Sometimes companies are quick to adopt new technologies to show they’re in touch
with the future – but the projects themselves don’t necessarily
deliver much value. To avoid this pitfall, each organisation must
identify and prioritise use cases to explore. We recommend embracing a
start-up mindset, starting small, working swiftly to build proof of
concepts, and focusing on use cases that let you test applications in
the real world. By failing fast and seizing the opportunity to learn,
early movers will accumulate deep knowledge of the people, processes,
system, and data facets required to be successful.
We’ve come to the end of our final article in our rights and royalties
series. So, what have we learned?
In the first two articles, we discussed
how the forces reshaping the media industry are turning rights and
royalties capabilities into a competitive differentiator,
and
the evolution of content creation.
These explore the key ingredients required for success in today’s
market. And in this article, we’ve looked ahead to see what you’ll need
to thrive in tomorrow’s market, where growth will likely come from
harnessing technology to create entirely new business models.
We’re experts in both of these domains and we’re hugely passionate about
these topics. If you’d like to talk about these developments, what they
mean for your business and how we can help, please get in touch.