Can bitcoin save music?

The internet revolution has made it harder for musicians to make a living from their work.But it's not all bad news for the industry, says Simon Wilson.

Why are recording artists worried?

First, it wasbesieged by piratical file-sharing sites,then revolutionised by YouTube. iTunesand the sale of downloads by the trackcut album sales to shreds. And now it ishaving to come to terms with the growthof Spotify and other streaming sites,the business model famously derided byThom Yorke of Radiohead as "the lastdesperate fart of a dying corpse".

How does streaming work?

Alternatively, they have the"freemium" option of paying nothing but having to listen toadvertisements to get access; about three-quarters of usersprefer this option. What's striking about the model is that oncecustomers can be inveigled to upgrade, the vast majority whotry it will then stick with the paid-for option. Of the originalsubscribers to Spotify's first premium offering in 2010, some70% were still subscribers four years later.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

What numbers are we talking?

Meanwhile, Apple has set a targetof 100 million subscribersto Apple Music. If it canconvert 3% of its 800 millionregistered iTunes accounts topaid-for streaming customers,it will overtake Spotify as themarket leader.

Spotify's goalis to top 40 million. If boththose companies hit thosetargets, they'll be turning overmore than $16bn in revenues about the same size ($15bn)as today's global recordingindustry. For now, though, forall the fast growth, not evenSpotify is making any money:it lost $200m last year.

How much do the artists get paid?

Often,artists and writers don't own the rightsdirectly; they have assigned them tolabels, or to companies that hold rightsand manage royalties for large groups ofcopyright holders, adding a further layerof complexity and middlemen.

Often, itis unclear who should be paid: accordingto the Berklee report, up to half themoney owed to artists/writers neverreaches them, lost in a "dense thicket ofmicropayments and black boxes' whererelationships among rights, royalties,processes, and participants, in the eyesof many, are deliberately obscured or, atbest, have become hopelessly complex and outdated".

What does that mean in cash terms?

Still, there's an argument that he ought tobe grateful even for such slim pickings, reckons Stephen Witt inthe FT. His label is merely exploiting the rights that he and hisbandmates have assigned to it.

And those millions of streamsmean that Portishead who have released only three albums in21 years are able to retain and expand the fanbase that allowsthem to make (presumably) good money from live concerts.Nevertheless, making just five-thousandths of a penny each timeyour song is played must be galling.

What's the solution?

In thecase of the music business,the idea would be to use itto create a database of musicrights ownership who should be paid what for each usageof each song and then buildaround it a cryptocurrencysystem that would makeautomatic, instant royaltypayments. It is very earlydays but some, at least, areoptimistic (see below).

There is hope for musicians

Speak forYourself

Ellipse

Now she is working with computerscientists on a new blockchain model that she calls Mycelia,and will shortly release her next single via this route on anexperimental basis. "For the first time I think the future isalmost blindingly bright for our industry," says Heap. "But we musicians have to sort this out, because no one else is goingto do it for us".