Blockchain and the Film Industry: Scratching the Surface – First Draft

Music First

This July a major new initiative of the MIT Media Lab and Berklee Institute of Creative Entrepreneurship will begin with a summer lab to explore the intersection of open source technologies, creator rights and music consumption.

The Open Music Initiative is to innovate towards proper compensation for music creators, performers and rights holders, capitalising on open source technologies. The application of simplified, standardised databases concerning music rights and revenue allocation is viewed as a crucial foundation for developing sustainable business models for artists.

Distributed ledger technology is understood to have the potential to underpin new ways of ensuring equitable revenue distribution in an environment beset by complex collection arrangements, and data management regimes.

Transparency over rights ownership and exploitation, and neutrality of data management are key issues in iterating towards developments that may improve the organisation of the music industry.

Whilst blockchain may regularly be simplistically evangelised and dismissed in tech media and wider literature, in much the same manner as Big Data has been, the Open Music Initiative is thoughtfully, strategically considering stepwise progress towards long term goals. Alan Graham of Totem demonstrates this in his post here.

The partnership curated by Berklee ICE is a substantial collection of industry heavyweights, leading institutions and creative individuals. Annenberg Lab and Berkman have also previously contributed to MIT’s Future of Entertainment where Henry Jenkins, Sam Ford & Josh Green presented Spreadable Media. The scope of engagment illustrates the breadth of input this area of research requires and the range of contribution it enables.

The Open Music Initiative’s starting labs embed this trans disciplinary approach and industry-oriented attention to subject components. For instance, inculcating empathetic attention to fan and creator incentives as part of the workflow design, in parallel with technical processes of accessing and formatting minimum viable data.

Film Next?

The staged and collegiate, long term exploration of creative industry business model issues in industry-academy partnership is rare to me, and I am extremely interested to understand the process of the Open Music Initiative.

The potential applications of open technologies to the film industry are myriad and complex. Similar to music, much has been made in trade and tech press of the blockchain as an immediate panacea to many problems afflicting the film value chain.

From my doctoral background in management I am keen to explore the process of how substantive progress can be made, and the involvement of Netflix and The Orchard with the ICE / Media Lab initiative gives me hope that film related concerns are on the agenda.

Two core applications of the blockchain to film industry issues have been well discussed online. A rights management system that could easily identify rights ownership, streamline and standardise the often delayed and opaque collection and reporting systems has been covered for some time by Neuman of Sub Genre, and formerly the Tribeca Film Institute, where the  Impact Working Group previously investigated the application of data for documentary engagement.

Operable knowledge of rights ownership could inform a development of secondary market for digital ownership as outlined by Open Music Initiative member and Digital Currency Group Director Brian Forde of MIT.

The non-profit status of the Open Music Initiative’s leadership is a clear benefit when I consider the complexities of addressing data management and revenue reporting in the film industry. The commercial advantage perceived in data confidentiality is long held, and recently popularised by the position of SVOD services in public statements and deal term negotiations.

Centralised rights management systems already exist, but with commission e.g. the Digital Film Cloud Network. Additionally, grassroots, or producer-led initiatives aimed at data transparency from a revenue understanding perspective appear to have stalled  and perhaps because of the many potential ultimate benefits of data sharing, suffer a lack of specific drive and purpose.

The motivation of my current research into risk management, and the corollary commercial concerns of private film businesses indicate the attractiveness of tools such as Enigma. Decentralized, aggregated and analysable but secure multi-party data computation has the promise for supporting delivery of what the Sundance Institute were advancing, and in which many are deeply interested.

One can easily succumb to fantasising about a distributed ledger accounting for rights management and revenue allocation, the data of which might be kept private, avoid a central third party, but be open to analysis. What the Open Music Initiative demonstrates is that progress towards large long-term change is built on stepwise concrete action, with buy in from the vested interests. The complex legacies of operation across FVC boundaries presents an extremely difficult challenge before even considering integrated majors and internet companies. However, the opportunity to learn from the intervention at Berklee should be taken up.

Current developments in the European film industry serve as strong motivation to do so. The European Investment Bank’s cultural and creative guarantee facility (CCGF) has recently been signed, and is readying for banks and other lenders to be trained in, amongst other areas, film industry finance. Professor of Banking and Finance at University of Rome, Prof. De la Torre’s 2014 book The Economics of the Audiovisual Industry: Financing TV, Film and Web examines the need for a financial platform to underpin the guarantee facilities he explores amongst other financial instruments. The partiality of extant databases, even those expensively provided by commercial operators, is stark. The viability of film finance instruments operated without the historical datasets of established “knowledgeable investors” is questionable, although presumably the only lenders applying to operate the fund will be existing operators. However, the value of underpinning the EIF facility with a shared database would be substantial, not least in ensuring quality of evaluative practice across EU providers.

Aims of the CCGF and EU DSM include protection and advancement of cultural diversity. Yet there are significant challenges to these market characteristics, not least in the increasing dominance of Internet multinationals and their private, massive datasets. How might the EIF best ensure that territorial expertise is not lost, that smaller films can still be made and travel, on terms that protect recoupment possibilities for rights originators? A potential answer lies in taking steps to found systemic data collection and standardisation and possibly enabling analysis of aggregated anonymous data.

This evaluative toolset could, for example, address the “bankability” of sales estimates, which are currently unverifiable outside of specific transacting parties per individual project. Based on the pure existence of past transactions, reputational capital is earned and future engagements undertaken, with evaluative process often incorporating calculations based on proxy data for unconfirmed past events. One hopes and assumes lenders being underwritten by EIF will not be starting from scratch in terms of data-sets, but undoubtedly they, like most market actors, will face challenges pertaining to commercial confidentiality in accessing robust bases for investment decisions. As mentioned previously in this blog, producer-led transparency agendas tend to be overly simplified and over inflated when the impact of past knowledge for managing future performance is proposed. Incumbents with vested interests in established business models understandably protect their data as a competitive advantage. Whilst access to timely reporting and payment for rights holders is necessary and correct, and potentially facilitated by the blockchain, care needs to be taken in planning and promoting new data systems. Stepwise, consensus progress, including major players, is key to long-term change at meaningful scale. This is the logic put forward by music industry innovators such as the Open Music Initiative and excellently articulated by Scott Cohen (The Orchard) and Juliana Meyer (SupaPass) at the Blockchain for Creative Industries event @Sonos on 7.7.16.

There is clear potential for the application of the blockchain for improving film industry efficiency. By binding metadata to content with an agreed minimum viable data standards, an IP registry detailing amongst other things: chain of title and history of transactions could potentially be developed. Programmable transactions (a more accurate description of the activity often labeled Smart Contracts- Prof. Mieklejohn) could enable quick, clear allocation of payment as different distribution and IPA clauses are enacted. Access to a globally decentralized blockchain of rights could help battle piracy, indemnifying services using the system as legitimate providers; create a secondary digital market, and ease the tracking of orphan and derivative works etc. These are all blue-sky possibilities with exceptionally complex and deep-rooted challenges. Yet with the coming instantiation of major market infrastructure initiatives like the Digital Single Market and EIF Guarantee Facility, now is the time to build toward positive development.

Examining the work applying the blockchain in the music industry can provide great insight for film. The report launched at Sonos by Marcus O’Dair and the Blockchain For Creative Industries Research Cluster, and the panel discussions around it are very helpful in this task. From the inspiring work of Imogen Heap to demonstrate how progress can be made, to appreciating the business logics for inertia as helpfully explained by Scott Cohen playing devil’s advocate, issues of reporting clarity, metadata permanence and subjectivity and relativity around the brokenness of business models were pointed out.

As with Internet-led disruption, fears of disintermediation abound. Similar to the film industry, music has also seen an increase in intermediaries, service agents, aggregators etc., but as a general rule risk of unknown repercussions are avoided in favour of defending status quo positions. Fears of a slippery slope to total openness and transparency are also an important issue.

In film the true impacts of the extreme Pareto dynamics of revenue distribution are obfuscated by lack of market data and details of financial arrangements. This has both positive and negative consequences for multiple different parties. The extremity of the split between the few hits and overwhelming majority of misses in terms of consumer revenue is possibly under-appreciated, though the trends are commonly accepted. But missing from the majority of studies and coverage that illustrates the paucity of BO and HE successes, are the deal terms of multiple financial participants whose successful involvement does not depend on ultimate profitability. Rather, by strategic, sometimes multilayered investments in projects that pay off as a result of derived demand at earlier Film Value Chain boundary points, film industry investment can provide attractive returns.

In order to best allocate the film related proportion of the €600m in bank loans to derive from the CCGF, so that the investment drives long term sustainability, all opportunities to improve investment evaluation, including risk management, should be taken. Investigating how application of the blockchain can enhance the understanding of this market activity is important and throws up many challenging questions. Application of distributed ledger technology to e.g. serve collection services like Freeway, execute automatically and clearly with analysable / searchable functionality per client would be an obvious application. Analysis of aggregated backend data from such a system would be of immense value in underpinning investment decisions for the likes of EIF, but how might one promote this without risk or fear of exposing private terms, or undermining confidence in the market?

One might consider making anonymous data provision for independent, neutral analysis by say, the EU Audiovisual Observatory, a condition of receiving any public funding or tax breaks. But what might this then mean for risk finance. Likely such analysis would demonstrate: the viability in low risk, stable return business models in gap, tax credit and sales discounting, illustrate the unbounded variance of project performance, and the necessity for a funding tranche in every project which will almost never see return. What impact might that have on investment interest?

If we consider a kind of front-end corollary to the proposed back-end programmable transaction revenue distribution allocation (with accompanying data), the complexity of applying technologies of transparency is further illuminated. Greenlighting independent films is a fraught, extended, multi-party process. It is also one in which producers often need to excel at “the art of dealmaking”, which is to say engaging in a kind of shuttle diplomacy between financiers, convincing one that another is committed until all the dominoes fall. One can imagine a distributed ledger that sets transactions in train based on when logical conditions precedent are actually met. e.g. talent commitments are signed, tax credit cultural tests are passed, EIS pre-assurance is authenticated. The successful application of such a tool could increase industry efficiency greatly by reducing need for working capital / overhead as closing could be much quicker and reduce opportunity costs by avoiding the tying up of capital. It might also hamper the creation of projects based on wilful endeavour than appeals to rational – which indeed include a great many independent and studio films – see DeVany (2004) on the sure thing fallacy,

This post is of course simply an initial set of thoughts stemming from a first engagement in the area. More to come.