The Decentralisation Paradox

The following MBW op/ed comes from Dan Symons (pictured inset), founder of SPLIT / LIP, a Web3 and metaverse business consultancy for rights owners. SPLIT / LIP says that it is designed to offer consultancy to artists, rights owners and rights acquiring businesses to maximise their Web3 & Metaverse opportunities. You can read more about Symons and SPLIT / LIP here.

For music creators and consumers, the journey on the Web3 emblazoned rocket towards the Metaverse is becoming tangible and exciting.

Creators having access to platforms and tools that allow them to monetise directly to fans, and also for consumers to interact so closely with artists that they themselves become contributors, is a very real possibility that opens the door to fantastic commercial opportunities. 

However, there is an elephant in the room. I have been spending some time looking at The Decentralization Paradox.

A decentralized internet still largely under the control of huge, centralized businesses is…. erm…. clearly not a decentralized internet.

Big businesses are elbows out and pushing for their Metaverse patch, and rightly so as they can feel the fresh winds of change blowing through Rights Owner Alley. Things are being disrupted.

For large scale businesses, decentralization is a threat because they can’t buy it, and to embrace it they have to change, and big boats turn slowly. 

It never felt as if Web3 was something the music industry was trailblazing, it was just fine as things were, demonstrating incremental growth off the back of mass adoption of its catalog via tiered streaming services.

For now, it still is fine, smashing it out of the park for the next eight years according to the very hard to believe Goldman Sachs Music in the Air 2022 report, but a new iteration of the internet poses a number of problems, and solving them presents opportunities they can’t afford to ignore. 

Music rights owning companies are no more or less centralized than businesses in other industries, but it’s important that we realise just how centralized they are in comparison to the notion of an entirely decentralized based industry.

They exclusively acquire an artist’s recorded music repertoire for a period of time and commercialise it across a broad range of sectors. They work with lots of different artists in numerous territories, wielding influence over media and retail gatekeepers.

They are hierarchical in departmental structure, until recently sadly not having paid much heed to diversity or gender in senior roles. They are often answerable to a relatively small number of shareholders who want to see growth and market share in order to make big money whilst attracting premium talent and demanding the best deals.

In summary – discover, acquire, contract, exploit and grow. So, they are very centralized indeed because, why wouldn’t they be, given that’s how things have been for many decades. 

Despite the Metaverse being on the agenda at every planning meeting, these are not companies bursting with digital natives at a senior level and they have a lot of educating upwards to do.

But, they are relentlessly forming partnerships, making acquisitions and plundering investment into Web3 applicable tech. They’re not decentralizing, but they are most definitely weaponising. 

A quick refresher. Web3 is a new iteration of the internet, based on the core principle of decentralization and democratisation. Rather than a few big tech firms owning the platforms, allowing them to monetise intrusive levels of our personal data, Web3 empowers a user based ownership, opposed to the traditional gatekeeper ownership.

“Web3 will make Ancillary Rights more valuable to an artist than ever before.”

The Web3 principle is largely based on blockchain technology and crypto currency.  Blockchain is a mathematical system of recording information that acts as an immutable digital ledger of transactions that sits across the entire blockchain network. Each time a new transaction occurs on the chain it is individually encrypted and a record of that change is added to the ledger of every participant. As a result it is controlled by its users and not ‘owned’ by anyone, and therefore underpins the DECENTRALIZED incarnation of the internet, known as Web3.

I appreciate for some of you that is yesterday’s news but nevertheless it’s handy concrete for the foundations of this piece. 

The question is then, does a version of Web3 packed full of centralized companies jostling for market share dilute the whole purpose of a democratic internet, or will it actually improve its chances and add some structure, governance and balance to the potentially idealistic notion that all creators will be able to own and monetise everything directly with fans with no ‘third party intervention’.

Web3 will make Ancillary Rights more valuable to an artist than ever before, in which case they are no longer ancillary, and so should labels be trying to get more of them, even though a centralized Web3 is at odds with itself (see above).

I’ve noticed that after 25 years in the music industry I am now referring to artists as creators, something that before Web3 I would never have done. My inquisitive self needed to know why (beyond it becoming more colloquial) and after pondering I believe it has something to do with labels’ interest in exploiting more than just the recorded music rights of their signings – aka Ancillary Rights.

It’s important to define ancillary rights in order to understand why they are so important to this conversation. It’s a well trodden path to resort to etymology to ram home your point, but in this instance ‘ancillary’ is derived from the Latin word for ‘maidservant’ evolving over the midst of time to mean ‘supporting the primary activities’. Ancillary rights, or multi rights, deals specifically pertain to an agreement in which the artist agrees to pay the company a proportion of income from activities other than recording, in conjunction with a recording agreement. 

I’ve been at both ends of ancillary rights deals over the years both as an artist (creator) and also negotiating on behalf of my record company clients.  Having worn both hats, I can tell you that in these deals the maidservant is most definitely working harder for the label than for the artist. A buffet of passive and active percentages of various parts of potential income streams are conjoined with the recording agreement. Often, but not always, the accounting process for these maidservant aspects are treated differently to the main agreement as it is deemed unfair to set income against an unrecouped balance, and certainly unacceptable to have them married to the same royalty rate as the record deal. It’s obviously more complex than this, and I’m sure lawyers’ eyes are rolling already, but as a broad brushstroke, you get my drift. 

As I said what feels like a million or so words ago, in the advent of a decentralized internet, artists are now called creators for good reason. They can do so much more direct business outside of just their master recordings – merch, verch, art, digital imagery, poetry, film, recipes, children’s books, design, clothing, fragrance, footballs, tennis balls, dog baskets, cat boxes, cheese, coffee, biscuits, jam, beer, pickles and wood carving. You name it, a true creator can find the tools to do all this and Web3 allows the direct to consumer relationship to be easier, unconstrained by any contractual shenanigans under the umbrella of an exclusive recording agreement. What are deemed Ancillary Rights to a label are just All My Other Rights to a creator. 

Web3 and the Metaverse is providing cohesive integration of artist and fan experiences where they can all hang out together and purchase merchandise. Labels can only seriously monetise virtual merchandise – Verch – if they own the rights to do so, and if they don’t own the rights to flog it then all they can hope for is a profit share that will need to be individually negotiated by their business affairs team and the artist’s lawyer or manager. Plus they would need to agree how that money is paid through and apportioned. This raises more questions. 

  • How generous are increasingly powerful managers going to be towards labels who do not own any rights to exploit their artists in this space? 
  • How much operational capacity – both marketing toolkit and legal bandwidth – does any rights owner really have to make this commercially viable? 
  • What happens when an older artist blows up on social media and their original deal pre-dates this new and exciting technology? 
  • Are new signings even factoring in Web3 potency and including merchandising, name and likeness rights into their recorded music agreements? 

Metaverse based digital reality concepts are getting traction, so can existing rights owners keep up? Web3 cuts a clear pathway to fans and the commercial opportunities in the Metaverse are far beyond just those of master recording rights. The dilemma for creators and their managers is, do they try and flourish in a decentralized environment and keep every dime, or assign some of their rights to a centralized structure and allow labels to put out repertoire on their behalf? All whilst acknowledging that labels are very, very good at industrialising artists who have developed the music part of their business so effectively that they warrant significant interest and investment.

Music artists can’t become decentralized creators without centralized businesses 

There’s a problem. Fanbases. Exciting new artists have never been more equipped to empower themselves in a decentralized environment provided they do it by generating a fanbase on centralized social platforms and garnering interest from centralized rights owners by posting content they don’t actually own (because they’ve put it up on platforms they also don’t own.) 

It is extremely difficult to build a fanbase without these platforms and without fans artists have nobody to sell anything to. Also, in order to establish whether a creator has ‘enough heat’ or is a sufficiently ‘moving vehicle’ to warrant a label investment of time, money and resource – and importantly that the commercial outcome for the rights owner justifies such a punt in the first place – the main measure for that likely success is social media potency. Label A&R and marketing is reliant on social media. A new artist that is driving significant interest online will have their socials underpin much of the excitement around new artist discovery. Goldman Sachs’ Music In The Air 2022 diatribe says:

“…. c.60% of emerging platform revenues in the music industry last year came from short-form video and/or social media, which includes TikTok, YouTube Shorts, Instagram Reels and Snapchat Spotlight….

Furthermore, these new platforms are also becoming important avenues to amplify artists and set cultural trends, contributing to increase the efficiency of A&R and marketing spend for the record labels.”

These ‘new platforms’ are, of course, entirely centralized. 

Last week, Mark Zuckerberg announced that Meta will be rolling out more ways for creators to make a living from Instagram and Facebook, primarily by way of a ‘creator marketplace’. This will allow hook ups between brands and creators not dissimilar to how TikTok have implemented their influencer marketing platform.

There’s also a ‘post on both’ Insta <> Facebook Reels affiliate scheme, expansion of their $1 billion creators bonus scheme and a commitment to not take a cut from creators until 2024 – basically the company are pulling out the stops in tempting creative folk to become cross platform participants in Meta’s next commercial chapter.

This includes extending the number of people who can display their NFTs supported by Ethereum and Polygon. More insight on all this cross platform pollination shenanigans came via Instagram boss Adam Mosseri’s recent TEDTalk where he discusses the notion of creators being able to move seamlessly between platforms under the banner of Web3. This is hand to glove with Zuckerberg’s messaging because it’s saying ‘we want you to make money but we still want you to come here and play so we can make money as well’.

Rather than acting as a landlord he is alluding to platforms becoming a series of guest houses where the content is owned by the creator not by them. One assumes this still allows for monetisation on an adapted Web2.0 model, whilst also offering safe haven for new Web3 savvy creators. 

“While Web3 claims to defy the hierarchical control of Web 2.0, it is still far from a place where this can be sufficiently practised.”

Let us imagine Mr Mosseri is right and over the next few years platforms decentralize themselves to the point where they no longer own the creative work that’s put on them, but merely act as a series of shopfronts allowing creative types to make a living bouncing seamlessly between them all. Meta has an agenda here as they straddle both Web2.0 and their burgeoning Web3 ambitions. It makes sense for them to drive as many creators to their platforms as possible whilst proposing cross platform integration that enables them to adhere to the democratic principles driving Meta’s Metaverse business. It doesn’t really make sense for the other platforms to immediately march to this tune.  

While Web3 claims to defy the hierarchical control of Web 2.0, it is still far from a place where this can be sufficiently practised. There are still all too familiar gatekeepers, platforms, working practices and dominant beneficiaries in the industry, undermining Web3 as an egalitarian incarnation of the internet.

The goals of Web3 to offer more autonomy, transparency, ownership and security over their IP has made creators completely re-evaluate how they ply their trade on the internet. As with any new technology, it faces challenges in development, governance, ethics and regulation, and this is being expedited, part hindered and definitely influenced by big companies with a pre-existing commercial agenda. And yet, undeniably the Web3 asteroid is already hurtling towards rights ownership; rather than ignore, divert or obstruct it we must allow it safe passage and ensure that its teething troubles are insignificant in comparison to the benefits of its services.Music Business Worldwide

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