Another example of the free market improving inefficient industries.
Historically, music royalties have been handled by huge rights management firms. In the U.S., almost every musician is covered by either ASCAP (the American Society for Composers, Authors, and Publishers) or BMI. Artists pay fees to these companies, who then monitor airwaves and make sure that musicians are getting paid when their songs appear on the radio. Additionally, music publishing companies grant licenses for cover versions, commercial use, and public performances of artists’ music. This system is cumbersome, because it requires businesses to pay costly licensing fees with these companies even if they are not playing licensed music, and even then some artists never see the royalties checks they are owed.Today, however, digital tools are emerging that have the potential to topple this model. A company called UjoMusic has developed a system by which people who wish to license a song can do so directly through the artist. The way it works is that the user selects the kind of license he wants to purchase, at which point a Smart Contract will be generated specifying the terms of the agreement. This is a convenient way for people using music for commercial purposes to prove that they are actually authorized to do so. The contract is signed (virtually, of course) and the consumer pays for the license by transferring a digital currency called Ether directly to the artist. The transaction not only generates the license automatically, but also sends the user a copy of the MP3 file for easy use.
The history of technology is the history of disintermediation. When technology is primitive, it’s difficult for producers to easily find consumers who want their products, and transaction costs are high. This creates the need for middle men. But as technology and communications improve, it becomes easier for consumers and producers to interact with each other directly, and the need for middle men goes away. One early example of this was the printing press. Since producing books by hand was costly and time consuming, most people didn’t have access to them, and whatever knowledge they had came from experts and the wealthy. Today, the internet allows any of direct access to all the world’s knowledge, and the guardians of books no longer exist. We’re seeing similar advances, albeit on a smaller scale, all over the place, as Uber breaks up the taxi monopolies, and Airbnb lessens our dependence on big hotel chains.
The music industry has always been a particularly frustrating industry, as evidenced by the numerous bitter rock songs complaining about record labels stealing all the profits while musicians do all the work. Since the advent of digital music, record companies have been screaming that piracy will destroy the industry. I think they’ve got it wrong. Technology is making record companies irrelevant, but the music industry itself is as vibrant as ever, and is only likely to get more so as technology continues to improve. While some artists, like Metallica, have complained about the digital revolution as well, others, like Radiohead, have seen it as an opportunity to thrive. As ever, executives who fear for their own jobs will try to save their own careers by resisting change, but the artists themselves should welcome the ability to connect directly with listeners. They may soon be set free from the constraints they’ve always loathed.