Jonathan Chester: How Blockchain Startups Are Disrupting The $15 Billion Music Industry

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[Editor Charlie sez: Can we have that in dollars, please? Ujo Music has plans to take over PRO general licensing as well as streaming mechanicals.  Never heard of Ujo?  You will.  Ujo is a “spoke” of MLC vendor ConsenSys (kind of like being a portfolio company of MLC partner ConsenSys).  The plan is to pay everyone in the Ethereum cryptocurrency promoted by Consensys founder, Joe Lubin. See how they did that?  Puts the $50 handshake into the Ether.]

When it comes to the $15 billion recorded music industry, the artists rarely come out with a big payoff.  The recorded music industry began in the late 1800s with the invention of Thomas Edison’s phonograph and benefited greatly from the rise of radio broadcasting in the 1920s. However, back in those days, for the artist, it meant that in order for their music to be heard, they would have to make deals with a series of intermediaries, such as record labels, publishers, and distributors. Almost 100 years later, musicians still must go through this archaic system of intermediaries developed before the advent of the internet, where the artists lose up to 86% of the proceedsfrom their music.

This is where blockchain comes in. Much like our experience in international payroll processing, the music industry can benefit from the existence of blockchain technology.

Read the post on Forbes.

[Here’s an “About” from UjoMusic, an artist tipjar service where the payments seem to all be in the Ethereum cryptocurrency promoted by ConsenSys:

ujomusic

And some insight from Bitcoin Magazine–move over Billboard:

Bitcoin Magazine listed PeerTracks and Bittunes, as well as Ujo, as blockchain startups intent on enabling performing artists and others to have a freer hand in safeguarding and commercializing their assets, while speeding up payments to all who have rights to proceeds.That same story included comments from founding Ujo team member, Phil Barry, a legacy industry veteran who played an instrumental role in advancing Ujo Music to prototype, but then exited that team early this year.

Thank goodness the smart people have this covered for the “legacy industry.”  Because it’s never quite hard enough, is it?  But the Lord never made a burden too heavy to carry, did he now?]

MLC Pick ConsenSys Looking to Asteroid Mining, Fixing Employee Stock Mess, Will It Vanish Into the Ether?

“There’s a sucker born every minute.”
P.T. Barnum

According to MusicRow:

Technology company ConsenSys and mechanical licensing administrator Harry Fox Agency (HFA) received unanimous approval from the MLC Board to become the primary vendors responsible for managing the matching of digital uses to musical works, distributing mechanical royalties, and onboarding songwriters, composers, lyricists, and music publishers and their catalogs to the database.

Thompson said, “Knowing that we would be operating with tight deadlines proscribed under the new law, we began a rigorous review process of potential vendors to build our infrastructure well before we were tapped by the Copyright Office to be the official mechanical licensing collective. In fact, since last November when the Request for Proposals process began, the MLC has invested thousands of hours investigating the options to create the core technology and public interface that will comply with the less than seventeen-month implementation timeline and specific directives of the Music Modernization Act.”

Yes indeed, and this is what they came up with, which seems like a pretty risky bet, even for a betting man.

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From Forbes

In other great news for songwriters, it turns out that ConsenSys, the cryptocurrency “blockchain venture production studio” (whatever the fuck that means) anointed as an MLC vendor, is into asteroid mining.  No, seriously, the company paid money (or scrip or ether or something) for a company called “Planetary Resources” and they are just ebullient about the whole thing:

Blockchain venture production studio ConsenSys, Inc. has acquired the pioneering space company Planetary Resources, Inc. through an asset-purchase transaction….Ethereum Co-founder and ConsenSys Founder Joe Lubin said, “I admire Planetary Resources for its world class talent, its record of innovation, and for inspiring people across our planet in support of its bold vision for the future. Bringing deep space capabilities into the ConsenSys ecosystem reflects our belief in the potential for Ethereum to help humanity craft new societal rule systems through automated trust and guaranteed execution. [How about the pending and unmatched?  Hmm?  Isn’t that what MLC hired them for?]  And it reflects our belief in democratizing and decentralizing space endeavors to unite our species and unlock untapped human potential. We look forward to sharing our plans and how to join us on this journey in the months ahead.”

So if you understood a word he said, you won’t need this explanation from the ConsenSys Wikipedia page:

On October 31st, 2018, ConsenSys acquired Planetary Resources, an asteroid mining company.

Right.  Asteroid mining and deep space capability.  Using ether for power.  Doesn’t that just read like a bad Hollywood science fiction movie where the deep spacers rebel against their corporate overlords or something?

But if you want to stay on this side of the looking glass, here’s a 12/5/18 post from Forbes entitled “Cryptopia In Crisis: Joe Lubin’s Ethereum Experiment Is A Mess. How Long Will He Prop It Up?

A year ago, Joe Lubin seemed like one of the most prescient people on the planet. Cryptocurrencies like ether were in the midst of a hockey-stick ascent, and Lubin, a cofounder of the Ethereum blockchain and one of its most articulate pitchmen, was scheduled to speak at events from Davos to SXSW. At his firm’s “Ethereal Summits,” it was standing room only, with crowds hanging onto his every utterance, no matter how bizarre…. [If you think there’s a “but” coming, there is.]

Back in late 2014, a few months after ether launched via crowdsale at 30 cents per token, Lubin created ConsenSys, a holding company he grandiosely describes as a global “organism” to build the applications and infrastructure for a decentralized world. In actuality, it is the first crypto conglomerate, comprising a network of for-profit companies supporting bitcoin’s biggest blockchain rival, Ethereum. More than 50 businesses were quickly spawned out of its Brooklyn headquarters, ranging from a poker site [again with the poker–Nesson and Lessig will be so pleased.  What about you know who?] and a supply-chain company to a prediction market, a healthcare-records firm and a cybersecurity consultancy.

But there were no fundraising rounds or debt offerings. In Lubin’s version of the decentralized future, he is the architect, CEO and central banker, funding all of ConsenSys’ “spokes” from his personal cryptocurrency stash.

Lubin has yet to veer significantly from this master plan, despite serious cracks in its foundation. …The crypto landscape is littered with the carcasses of ill-fated Ethereum-based ICOs [“Initial Coin Offerings” yes, that’s right], and now the SEC and other regulators are targeting some of them for enforcement action. In November, the SEC settled actions against two Ethereum-based startups, Airfox and Paragon, which had effectively sold $27 million in unregistered securities when they issued their ICOs in 2017. Both tokens are now basically worthless…But almost all blockchain technologies remain glacially slow. Ethereum can process only about 20 transactions per second. By contrast, Visa can handle 24,000.  [So trillions of streams should be no problem, right?  Why go to Visa when you can get the ether?]

Yet Lubin’s organism keeps growing. ConsenSys has 1,200 employees [now 900 according to Wikipedia], and some 200 job openings are posted on consensys.net. Though ConsenSys declined to comment, Forbes estimates that almost all of its businesses are in the red, some with little hope of profitability. Lubin’s global organism appears to be burning cash at a rate of more than $100 million a year.  [So cash infusions from MLC are just the ticket.]

When worried staffers have questioned Lubin about ConsenSys’ sustainability, Lubin has always had a pat reply: “Joe would say, ‘This is definitely not something you need to worry about. We can go on at this pace for a very, very long time,’ ” recalls Carolyn Reckhow, a former director of global operations who left ConsenSys in May.

And it goes on.  And on.  And on.  This might be the kind of thing you read before you give them money.  Like Noah built the ark before the rain.

According to CoinDesk (yes, that’s right, CoinDesk), Mr. Lubin began rethinking his business model last December:

Beginning last month [December 2018], layoffs have swept across nearly every corner of the distributed, 1,200-person [ConsenSys]. Lubin announced that “ConsenSys 2.0” would seek efficiencies – and a broader reliance on outside partners and investors. “Spinning out” these ventures has gone from an aspiration to a mandate.

“We have been interacting much more with external investors, mostly VCs, over the last nine or 12 months,” Lubin told CoinDesk during an interview in early December. “We’re gonna be ramping that up significantly.”

But even if ether prices recover and ethereum-based tokens come back into vogue across the broader marketplace, former employees and prospective investors tell CoinDesk they worry the road ahead for these projects may be rocky.

Simply put, because of the unusual way ConsenSys structured its investments, it will be hard persuading outsiders to put money into them.

Sounds kind of like they found a mark at MLCI?

CoinDesk tells us that ConsenSys seems to get consensus from employees the hard way:  Promise them stock but don’t give it to them.  Kind of like some people approach black box.

Out of seven current or former ConsenSys employees interviewed by CoinDesk, four said they felt misled about the company’s employee share options. Although most employees are verbally and contractually promised they will soon have an opportunity to obtain ConsenSys shares, few receive it or are able to use it, said the sources, all of whom spoke on the condition of anonymity.

Now, after a year of discontent, ConsenSys is imminently expected to announce an official policy regarding employee share options, according to one of the sources. ConsenSys declined to comment for this article. We will update if we hear back.

“People would bring it up in town halls and Joe would say, ‘We’re working on it,’” one source said about Lubin’s repeated verbal assurances. “I didn’t know how important equity was or that I should fight for it. I definitely felt taken advantage of in that sense.”

With regard to shares for ConsenSys proper, which slightly over 100 early employees have allegedly received but few have tried to sell, another source who did receive equity added:

“If there’s no public offering and there’s no buyback program from the company, then that equity is not valuable.”  [Spotify calls this a DPO.]

But then there’s the Istanbul Hard Fork on the horizon according to Brave New Coin:

The next hard fork, Istanbul, will contain several EIPs and is due for mainnet activation at block 9,069,000. Istanbul is currently live on the Ropsten, Kovan, Rinkeby, and Gorli testnets. Collectively, the EIPS are designed to increase chain scalability and decrease transaction and smart contract costs.

The approved EIPs include; adding the Blake2 hash function to the ETH virtual machine (EIP 152), reduced alt_bn128 precompile gas costs (EIP 1108), adding a ChainID opcode (EIP 1344), repricing for trie-size-dependent opcodes (EIP 1884), a transaction data gas cost reduction (EIP 2028), and rebalanced net-metered SSTORE gas cost with consideration of SLOAD gas cost change (EIP 2200). ProgPoW is now likely to be included in Istanbul part two, sometime later next year.

Right.  No idea what they just said?  But regardless we wouldn’t touch it with an Istanbul Hard Fork.

Does any of this say “long term” to you?  What if these guys aren’t around for the five year review by the Copyright Office?  Are the bankruptcy experts taking a good look at what ConsenSys will or will not own in the way of data necessary to operate MLC if they go under?

Not to worry, songwriters.  Your future is in their hands right next to their deep space capabilities.  Whether you like it or not.  And “deep space capabilities” will come in handy for the black box distributions.

Why do we think they are laughing their butts off  over at the DLC?

Fee, fi, fo, fum, I smell fee simple from a brother in law…

@davidclowery: National Security Arrest Puts Scrutiny on MLC Vendor ConsenSys and Contract Award Process

A friend that has long been involved in the technology startup world refers to any and all cryptocurrencies as “LaunderCoin.”  The point being that some significant portion of cryptocurrency activity is simply money laundering.   So it was no surprise when I saw the headline above come across my newsfeed.  Yawn.

A few paragraphs in though I nearly spit out my coffee.  This isn’t any old cryptocurrency expert this is the Ethereum Foundation’s “research scientist” Virgil Griffith.   Griffith is a well-known internet radical. The NY Times called once called him a “cult hacker.”  “Internet zealot” might be a better description.

From the press release accompanying the complaint:

“As alleged, Virgil Griffith provided highly technical information to North Korea, knowing that this information could be used to help North Korea launder money and evade sanctions.  In allegedly doing so, Griffith jeopardized the sanctions that both Congress and the president have enacted to place maximum pressure on North Korea’s dangerous regime.”

Assistant Attorney General John Demers said:  “Despite receiving warnings not to go, Griffith allegedly traveled to one of the United States’ foremost adversaries, North Korea, where he taught his audience how to use blockchain technology to evade sanctions.  By this complaint, we begin the process of seeking justice for such conduct.

 

So what does this have to do with the new Music Licensing Collective?  Well one of the two digital vendors announced by the MLC is ConsenSys.  ConsenSys is headed by Joseph Lublin who is the co-founder of Ethereum and COO of Ethereum Foundation.

Read the post on The Trichordist

@digitalmusicnws: Mechanical Licensing Collective Hands a Juicy Contract to HFA — Critics Call the Deal Crooked

[Editor Charlie sez:  This week in MMA drama….just in time for turkey.]

The newly-minted — and funded — Mechanical Licensing Collective has just awarded a plum contract to the Harry Fox Agency, owned by private equity firm the Blackstone Group.  Critics are quickly pointing to a ‘no-bid contract’ based on political horse-trading, with HFA assailed for serious licensing problems in the past.

Read the post on Digital Music News

For context, the DMN reference to “crooked” may refer to an apparent “snag” to passage of the Music Modernization Act reported on July 23, 2018 by Shirley Halperin at Variety (our emphasis):

[O]n July 17, private equity firm Blackstone, which purchased performance rights organization SESAC in January 2017, submitted a proposal that MMA proponents say would “doom” the legislation by “upsetting the fundamental structure of the bill to benefit its private company at the expense of the entire music industry.”

At the heart of the issue for Blackstone is the nearly 100-year-old Harry Fox Agency (HFA), the rights management and collection entity which was bought by SESAC in 2015 for a reported $20 million. The HFA has acted as a hub for administrating and distributing mechanical license fees on behalf of music publishers. The MMA in establishing its proposed Mechanical Licensing Collective (MLC), to be overseen by a Board of publishers which includes four self-published songwriters, allows the HFA to compete as a vendor in an open market but it could also devalue SESAC’s investment.

Says attorney Dina LaPolt, a key figure in drafting and shepherding the MMA through the halls of Congress: “We worked very hard to get songwriters on the governing board of the Music Licensing Collective so they can be involved in the oversight of properly matching the mechanical royalty income. We cannot have a competing entity.  We are in this problem because of HFA’s inability to effectively license. HFA should just shut their doors, fire everyone, and sell off all their furniture.”

Variety also reported a few weeks later that the “roadblock” was quickly resolved apparently by eliminating the complained of competition.

@davidclowery: MLC Selects as “Digital Services Provider” the Company that Sent Fraudulent License Notices to Songwriters

The picture above shows dozens of backdated “NOIs” for compulsory mechanical licenses sent to me by HFA in 2016.  By purporting to be valid NOIs for licenses when they were not, HFA committed mail fraud. 

Music Row is reporting the music licensing collective board of directors has selected HFA as a digital service provider:

Technology company ConsenSys and mechanical licensing administrator Harry Fox Agency(HFA) received unanimous approval from the MLC Board to become the primary vendors responsible for managing the matching of digital uses to musical works, distributing mechanical royalties, and onboarding songwriters, composers, lyricists, and music publishers and their catalogs to the database.

The problem is that HFA was the 3rd party licensing contractor hired by Spotify and other streaming services to obtain licenses from songwriters and publishers.  HFA did not properly do their job leaving streaming services exposed to massive copyright infringement lawsuits (from people like me).  They created the problem that led to the creation of the Music Licensing Collective so now they are rewarded with the contract to run the matching of musical works and paying artists?!?!

Read the post on The Trichordist

MIC Coalition Filing Reveal: The Zombie Transparency in Music Licensing and Ownership Act

ARW readers will remember the horrific Transparency in Music Licensing and Ownership Act from the last Congress.  (See “The Transparency in Music Licensing and Ownership Act: The Domesday Book Meets A Unicorn“.)  Well, guess what–it’s not really dead!

MIC Coaltion Members 2019
MIC Coalition Members

The MIC Coalition cartel filed a comment with the Copyright Office that makes one thing clear–this rule making is going to be a scorched earth donnybrook of epic proportions.  The big reveal in the MIC Coaltion’s filing is based on this passage in the legislative history for the Music Modernization Act:

Testimony provided by Jim Griffin at the June 10, 2014 Committee hearing highlighted the need for more robust metadata to accompany the payment and distribution of music royalties. With millions of songs now available to subscribers worldwide, technology also has a role to play through digital fingerprinting of a sound recording. However, there is no reliable, public database to link sound recordings with their underlying musical works. Unmatched works routinely occur as a result of different spellings of artist names and song titles….Music metadata has more often been seen as a competitive advantage for the party that controls the database, rather than as a resource for building an industry on.

The entire concept of maintaining a static look up database of not only all songs in the history of recorded music, but also all sound recordings in the history of recorded music that can be queried in real time is really not that different than the Domesday Book–when William the Conquerer made a big list of all property, people and chickens in England in the “Great Survey” in 1086.  Like the Domesday Book, the “musical works database” will be full of mistakes due to the dynamic nature of the things it is purporting to count.

But the reveal is the heaping praise on the horrific Transparency in Music Licensing and Ownership Act which was designed to destroy the PRO system (just like the MIC Coalition):

In response to the Copyright Office recommendations, Representative Jim Sensenbrenner introduced the Transparency in Music Licensing and Ownership Act, H.R. 3350, in July of 2017, which was cosponsored by several members of the House Judiciary Committee. The bill would provide for a database, housed at and overseen by the U.S. Copyright Office, to aid businesses and establishments that publicly perform musical works and sound recordings in identifying and compensating the holders of rights in those works. 

Fasten your seatbelts, it’s going to be a bumpy night.

@musictechpolicy Podcast: Eight Mile Style Sues Spotify Under Music Modernization Act — Music Technology Policy

Chris Castle discussion of Eight Mile Style lawsuit against Spotify under Music Modernization Act (driving with dogs series, a One Take Wonder Production)

Eight Mile Style v. Spotify Complaint