Blockchain threatens to disrupt content supply chains

There is a huge gap between hype and reality over application of blockchain in the media, but no shortage of money piling in to start-ups calling for a radical overhaul of prevailing business models. They argue blockchain can liberate the long tail of content by streamlining critical trading activities, such as relationships with business partners and distribution of revenue across the value chain.

Even for large content creators blockchain offers opportunities, with the potential to gain more control over distribution through flexible license models, as well as a greater share of revenue by cutting out the middle layer, which could also lead to faster monetization.

The corollary is that blockchain threatens distributors, even possibly the largest such as Spotify and Amazon who have reaped the greatest revenues and profits from digitization of content so far.

In practice blockchain is unlikely to be causing these big players to lose sleep, but it will be prompting them to take it seriously and work out how to turn the technology to their advantage. They have plenty of time to do that for blockchain has the Achilles heel of scalability, or lack of it, which will not be resolved overnight despite a lot of investment being poured in. Scalability is a major factor in our estimation of blockchain overhyping, arising as a weakness from its very strength, the distributed and secure ledger system. For that reason blockchain has yet to make a significant impact in any of the media areas it is being applied.

Yet analysis of the scalability issue indicates that challenge will be overcome, probably through a variety of techniques each suited to different use cases or services and there is no doubt that it will liberate new business models.

A recent study by the Massachusetts Institute of Technology’s Sloan School of Management identified various business models being promoted among the 80 or so blockchain start-ups targeting media and entertainment, under two categories. One is sustaining models that help existing players compete more effectively or explore market gaps, and the other is disruptive models that could usher in radically new businesses.

The sustaining models could overcome constraints afflicting all three of the major departments of digital media: online publications, video and music. Newspapers and magazines have been struggling to replicate original print revenues online because comparable content is available free by the bucketload and they have limited scope for protecting their intellectual property. Much of their historical advertising revenue has shifted to social media and search platforms, which has also been an issue in video, although to a lesser extent.

In video for major content producers OTT has proved both a challenge and opportunity, with piracy a major threat once again, which has been picked up by some of the blockchain start-ups.

Enabling efficient micropayments is unlikely to dent the piracy threat for high value content such as premium sports or blockbuster movies. Again on the music front digital content distribution via streaming has worked for the major labels and top-tier artists once iTunes got going and established a viable model followed by Spotify and others. But smaller labels and relatively unknown musicians have yet to reap significant rewards, receiving just a tiny fraction of the revenue generated from their music via YouTube or other sites.

For this category, as for long tail video content producers, blockchain-enabled business models offer promise of salvation by connecting them directly with consumers securely at such low cost that new ways of generating revenue can arise. For example users might share advertising revenue with producers being paid for consuming content. This may be pie in the sky now amid the current hype peddling such a diversity of use cases whose potentially disruptive effects make it difficult for content providers to distinguish between what might work for them and what is just a pipe dream.

But at least there are examples of start-ups offering services or platforms promoting the business models identified by MIT. Under the category of sustaining existing content providers, at least three models can be identified. The first is protection of intellectual property, which exploits blockchain smart property and time-stamping applications that help creators protect, share, and manage their digital rights cost effectively. One start-up in this area called Binded allows photographers to register unique images in a blockchain as evidence of copyright ownership, while Monegraph allows uploading of work to set different levels of usage rights to publishers and advertisers.

The second sustaining model is digitization of the value chain using a feature sometimes called the permissioned blockchain to optimize the process of distributing revenue across all relevant parties.  The associated database would be maintained in an open-source fashion by all stakeholders. One start-up, Dot Blockchain Media, is promoting this model by defining the file and metadata formats, supporting participants on the usage and evolution of the platform. Its blockchain technology is not using crypto-currency but purely distributing the information needed to apportion revenues.

Then the third sustaining model is called playing and trading, allowing assets registered in a blockchain to be sold or traded in other environments. This could include video content under gaming for example and so has potential also for creating new sources of revenue.

Under the heading of disruptive models two candidates can be identified, one being a direct challenge to Facebook or LinkedIn by creating an open social network connecting creators and consumers directly, the main point being that revenues can be accrued by users whose actions ultimately generate advertising value rather than the platforms themselves.

This is interesting because it belongs to the surreal world of cryptocurrencies where it appears there is no ultimate source or foundation of value. The best-known start-up in this sector is the blockchain-based social network called Steemit, which rewards content creators with its own digital currency called “Steem” based on the popularity of their posts or uploads, which can include video.  As content is rewarded by popularity the whole venture sinks or floats on the basis of attracting content creators and users.

The big problem with the model is that although not technically a Ponzi or Pyramid Scheme because no-one makes money for bringing in new users, it is dependent on speculation over the value of the cryptocurrency. Surprisingly for some its value has been rising against the primary cryptocurrency bitcoin, against which it is calibrated, and ultimately against the dollar, so users have had the opportunity to cash in. But the platform carries no advertising at present and so it is hard to see where the ultimate value will come from and at best we can say the jury is out over this model.

The second supposedly disruptive model is more promising at this stage, especially for video producers, being to create an efficient one stop content shop. The idea is to simplify the value chain by decreasing or eliminating the need for intermediaries between creators and consumers of content. It does away with many traditional steps in the chain, such as content aggregation and distribution. It relies on cryptocurrency and blockchain-based applications like smart contracts to facilitate and process direct transactions between creators and consumers.

Smart contracts enforce license terms and dispense payments accordingly. They could allow content to be published and downloaded at a defined time and price, with micropayments from advertisers or consumers then split among the creators. One company promoting this model is blockchain film and TV studio SingularDTV, which gives artists using its facilities more control over their distribution and monetization without being tied exclusively to specific distribution channels. Smart contracts allow consumers to browse, access, and pay for content instantaneously with digital currency. Of course this only works for people who are happy having any parts of their assets in potentially worthless digital currencies.

Another start-up in this area called Xfinite has just launched a platform for movies, TV shows, sports, games and other entertainment, attempting to bring some of the more disruptive ideas of blockchain to market for larger content producers. The idea is to establish an efficient blockchain based distribution and reconciliation systems that is also effective at providing real time information about consumption and activity to aid monetization. A key selling point for consumers would be a one stop shop for content lubricated by micropayments rather than subscriptions. The model is being promoted to content creators as a way of reducing incentives for piracy and illegal file sharing, while moving away from blanket adverts that are ignored or blocked by target consumers.

The company says its proof protocols will make it possible to track usage and view rates accurately, deliver real-time engagement data, and reward users for watching and participating. It envisages micropayments being paid by advertisers to users who actively engage, even if these are in cryptocurrency.

As we have said the success of all these initiatives depends not just on acceptance of new business models but also on solutions to the blockbuster scaling challenge. Current blockchains would collapse if they faced even a tiny fraction of the workloads that would be associated say with executing smart contracts against the activity of a major content site such as Spotify. That is why it is no threat to the established order at present.

The scaling challenge arises out of Blockchains’ distributed model and associated consensus protocol, which means that every node must store the entire ledger to participate and also must execute every transaction. This completely blocks horizontal scaling through adding more nodes, because that would just add further duplication and no new resources. The apparent only alternative of vertical scaling by increasing the power of each node is also flawed because it would arbitrarily increase costs, especially for a larger network, and would create incentives to cut the number of nodes down, which could compromise the resiliency and security of blockchain. It would also reduce scope for using low cost commodity hardware to solve the scaling problem.

There are various solutions on the table, especially under the category of layer 2 networks operating on top of the underlying “layer 1” blockchain infrastructure. These comprise new protocols and algorithms on top of the baseline blockchain, which could be say Bitcoin or Ethereum.

This is a big research area but the main idea is to create a layer that can scale arbitrarily while being able to tap into the base blockchain, or multiple blockchains, to anchor security. The research challenge is to balance the needs of security, performance and scale, preserving the underlying decentralization of blockchain.

What is clear is that blockchain has come in from the cold to join the technology mainstream and is no longer confined to the financial underworld of cryptocurrencies.