Companies are using new applications to rethink their business models and — in some cases — disrupting their industries.

Though blockchain technology began as an innovative digital-currency1 tool in the financial sector, all kinds of companies are now experimenting with its core capability as a decentralized and secure ledger to manage digital assets more directly and to rethink how they compete in the marketplace.2 In a recent study, two of us found that more than 1,100 startups were attempting to develop blockchain-based business models in a range of settings, including health care, telecommunications, energy, retail, aviation, real estate, and supply-chain management.3 So far, there has been no significant impact on the respective markets in terms of revenue and market share, but managers’ and investors’ expectations for future returns are high, as indicated by the flow of money into blockchain startups.

In particular, several new business models are emerging in the media and entertainment industries, where monetizing value has been — and continues to be — a significant challenge. Newspapers and magazines, for instance, still struggle to monetize value in the face of plentiful free content and limited mechanisms for protecting intellectual property. Advertising revenue, long an important income source for publications, has shifted to social media and search platforms, and media companies must figure out how to compensate.4 In the music world, to cite another example, digital content distribution via streaming is beneficial to major record labels and top-tier artists. But it isn’t commercially viable for smaller labels or average musicians, who receive only a tiny fraction of the revenue generated from their music.5

Some experts think blockchain may increase the share of revenue captured by content creators and producers by introducing new mechanisms for monetization.6 However, the current hype about blockchain, the diversity of use cases being proposed, and their potential disruptive effects make it difficult for companies to judge what might be possible for them and what’s merely a pipe dream. That’s true across industries, but media and entertainment companies are wrestling with this challenge in a way that many businesses can identify with and learn from in an age of digital transformation, so we’ll focus on them in this article.

We studied blockchain-enabled business models in 20 startups involved in producing and distributing various types of content — ventures in music, TV and video, publishing, social media, video games, and digital art. In that research and analysis, we identified several applications and business models that are changing how companies manage digital assets and capture revenue. Disruptive business models could have devastating impacts on existing players and should be seen as major threats. However, we found that other models could help incumbent companies become more competitive. So companies can position themselves, we classified the new blockchain-enabled business models as either disruptive or sustaining.7 (See “About the Research.”)

Promising New Applications

At its core, blockchain is a vehicle for organizing and storing data shared among members of a network. Using sophisticated cryptography, verification, and incentive mechanisms, blockchain networks allow participants to agree on what constitutes valid and acceptable transactions; the idea is that no central authority controls the data or ensures consistency. (See
“What Problems Will You Solve With Blockchain?”
) In our research, we identified several blockchain applications that media and entertainment startups are using. Here, we’ll focus on applications that were most frequently used by those startups and can also be used in other industries.

Smart property. Many companies are starting to use “smart property” to track and enforce rights for creators of digital content, including music, video, books or articles, or even art. This application relies on blockchain as a secure database. Consider Monegraph, which provides an ownership registration service for digital art using the Bitcoin blockchain, the foundation of the most popular decentralized digital currency. By storing IP information on digital artwork, Monegraph’s platform enables artists to define their licensing terms and facilitate transactions with publishers or digital-art buyers. Once their ownership of an asset is recorded in the blockchain, it can be easily accessed and verified by anyone — and cannot be refuted or falsified. This solidified ownership record makes smart property potentially useful in other industries, too, such as real estate and collectibles, where companies need to verify ownership history, simplify asset transfers to new owners, and reduce intermediation costs.

Micropayments. Another popular application, cryptocurrency, facilitates micropayments to content providers. Companies use it for enabling customers to buy and play single songs or videos, for instance, or to purchase permission to read a news article. A blockchain-based startup called Yours operates a digital platform on which authors and other content creators publish their work and charge fees in the form of Bitcoin Cash (a spinoff of Bitcoin). Since transaction costs in Bitcoin Cash are extremely low and no banks or credit card companies are needed to complete a sale, authors can charge as little as a few cents per article and publish and monetize their content themselves. As you can imagine, this capability also holds promise in other contexts — for example, allowing customers to pay for items in vending machines or providing simple financial services in countries with underdeveloped banking infrastructures.

Smart contracts. A third type of application, the smart contract, is used to enforce license terms and dispense payments in financial transactions. For instance, it could allow certain digital content to be published and downloaded at a defined time and price — and could then split the payout among content creators. So, when a consumer downloads, say, a song, the smart contract would automatically kick in, charging the buyer and distributing the revenue in pre-negotiated proportions to the specified stakeholders. Ujo Music, a music software services company, used a smart contract application in 2017 in what it claims was the very first launch of an artist’s album on a blockchain.8 Under the contract terms, consumers could buy individual songs from the album online using Ether, a digital currency; as soon as the transaction was recorded, the content owners received their money.

Smart contracts could have a significant impact beyond the media and entertainment industries. In the energy sector, for example, they are being created to manage billing and revenue allocation when consumers charge the batteries of electric cars. The contracts will calculate the amount due, generate invoices, collect the payments using cryptocurrency, and transfer the revenue to the charging station owners.9 Smart contracts can also be used to simplify settlements between parties in all sorts of areas, including e-commerce and supply chains.

Although the three applications discussed so far may be the most common and versatile, several others address challenges specific to the media and entertainment industries. One is blockchain time-stamping, which allows photographers and other creators of digital artwork to register proof of copyright quickly and inexpensively so that they can protect their creations from unauthorized use on the internet. Time-stamping is a simplified version of smart property. It doesn’t track ownership changes, but it does confirm that the creator owned the asset at a specific point in time. Another application that we refer to as “blockchain content ledger” records digital content information like asset metadata and social media transactions. It is a direct extension of smart property. Indeed, once a blockchain is used to store ownership information, it can also be used to hold additional information about the content. For music, this might include the songwriters, performing artists, publisher, and label. In the case of social media, it might include user posts and related activities such as “upvoting,” “downvoting,” and comments. Because the data is decentralized (not controlled by any single party) and irreversible (once entered and accepted, items can’t be changed unilaterally), it’s both highly secure and accessible to different parties.

Blockchain-Enabled Business Models

By leveraging the blockchain applications we’ve described, companies are starting to build innovative business models that not only offer new monetization strategies for their digital assets but also streamline critical business activities such as relationships with business partners and distribution of revenue across the value chain. These developments could create completely new ecosystems for content creation and consumption. Among the startups we studied, we saw five business model innovations. The first two have disruption potential; the rest are helping existing players compete more effectively or explore market gaps. (See “Two Classes of Business Model Innovation.”)

Monetizing content for both creators and curators. The first new business model involves creating a social network in which users can earn financial rewards (in the form of micropayments or payments of digital currency) by posting their own content or curating and promoting others’ posts. Rather than allowing the platform owners to reap all the monetary benefits, as happens today with established players like Facebook and LinkedIn, this model compensates independent content creators (bloggers, experts, hobbyists) and consumers (social network users who enjoy sharing their opinions) for their contributions. For example, Steemit, a blockchain-based social network, rewards content creators with digital currency (called “Steem”) based on the popularity of their posts. Although it was initially geared toward users interested in the topic of cryptocurrency, the content focus has expanded to include technology, science, news, art, food, photography, and travel. As a post is upvoted and becomes popular, the author’s reward increases, and early promoters can earn a slice of that. The platform also generates reputation scores for users. According to the Steemit website, this system helps foster the creation and curation of quality content.10

Steemit isn’t alone in rewarding users financially. Yours, the startup we described earlier, also pays content creators and allows them to set their own rates for how much they will receive when someone reads or views a post. Authors and artists can even charge users for the right to comment. Compensating users on both sides represents an entirely new concept for monetizing social network activity. Whereas Facebook’s and LinkedIn’s business models rely on targeted advertising based on insights drawn from a user’s platform activity history, blockchain-based social media platforms aim to monetize the relationships between authors and their followers, thus stimulating the creation of new content. Letting users monetize their own content is a key element in attracting users to the social networks. However, there are different mechanisms for monetization available to platform owners as well. Yours uses a commission model and charges fees for transactions that occur on its platform. For now, Steemit is using an approach that’s closely linked to the value of its own cryptocurrency, although its revenue model is still evolving.

Building a one-stop content shop. The second new business model simplifies the value chain by decreasing or eliminating the need for intermediaries between users who create content and those who consume it. The model does away with many of the traditional steps and layers, such as content aggregation and distribution, thereby reducing the amount of time it takes to bring new content to consumers and realize revenue. It relies heavily on cryptocurrency and blockchain-based applications like smart contracts and smart property to facilitate and process direct transactions between creators and consumers.

One company that uses this model is SingularDTV, a blockchain film and television studio and distribution portal. SingularDTV caters to video and film producers by giving artists more control over their work, allowing them to launch, distribute, and monetize content without the usual intervention from studios or production houses and without being tied to exclusivity agreements with distribution channels. At the same time, it uses smart contracts to enable consumers to browse, access, and pay for content instantaneously with digital currency.

In a similar vein, startups Creativechain and Musicoin offer their own marketplaces for digital content, where creators and consumers can interact without intermediaries. Creativechain targets artists, including musicians, designers, and writers, using a blockchain designed to support content registration, distribution, and monetization. Artists can choose from different licensing methods, ranging from free distribution to paid limited editions. This flexibility lets them select the method that is best suited to distributing their work. Under this scenario, there is no need for third-party distributors to bring the content to consumers and collect revenue; the platform handles that directly. Musicoin, meanwhile, focuses exclusively on the music industry and encourages independent artists to register and publish their work on its own blockchain-based platform. It uses a standard pay-per-play smart contract to reward musicians based on preset fees each time a song gets played. In addition, consumers are encouraged to reward their favorite artists with tips. Besides distributors, other players typically involved in music rights management (including what are known as “performing rights organizations,” which essentially collect royalties for music performance on behalf of rights owners) are not needed on this platform since it connects music consumers directly to artists or labels and automatically customizes revenue distribution.

The startups adopting this business model are capturing revenue in different ways. Since content is being sold and payment transactions are handled in the platform, one straightforward monetization strategy is to charge commission fees. Other options companies are considering are licensing platforms for use by third parties and creating and selling original content. In addition, some startups are following an open-source model: The platform is published as free software, and the startup works to drive its further development while earning money by providing services like consulting, training, or onboarding. As with the previous business model (monetizing content for both creators and curators), one-stop content shops are still experimenting with different revenue model options until the most effective ones consolidate.

Among the blockchain-focused business models we looked at, monetizing content and building a one-stop content shop were the most disruptive. In both instances, companies are starting small by serving a low-end market niche (for example, indie music labels and their audiences) with a value proposition aligned with users’ goals (helping both artists and consumers capture more financial value and making their transactions less cumbersome). Because the underlying blockchain technology is not sufficiently mature to handle billions of users and millions of content titles, startups are not yet able to challenge established mass-market players like Facebook, Amazon Prime, and Netflix. But that’s partly what makes the new models serious threats: Industry leaders might not recognize them as threats in time to protect themselves. As the technology matures and the blockchain-enabled startups begin serving broader segments of customers — with a wider range of content, for instance, or ad-free social media environments — look out.

The other business models we identified are not disruptive innovations. They’re geared more toward solving industry-specific problems, and they either make existing players more competitive or simply address specific market gaps. They include the following:

Protecting intellectual property. This business model leverages blockchain smart property and time-stamping applications to help artists affordably protect, share, and manage the rights of their digital works. A startup called Binded, for example, allows photographers to register unique images in a blockchain as evidence of copyright ownership. Artists receive a copyright certificate that can be used to prevent unauthorized use of the images on the web. Monegraph offers a service for artists to upload their digital work and sell different levels of usage rights to publishers and advertisers. In addition to using blockchain to store ownership and licensing information on individual works, it also provides a public and independent record of licensing transactions between content owners and distributors. The model attempts to fill a market gap: giving independent artists such as photographers an affordable mechanism for copyright protection. In this business model, startups typically don’t charge artists for registering their works in the blockchain. Instead, they often take a share of the profits their service enables. Monegraph, for example, charges a processing fee on the sales that artists generate on its platform.

Digitizing the music value chain. The primary goal of this business model is to optimize the process of distributing music revenue across the various parties in the value chain so that companies can become more agile and reduce their costs. (It usually relies on what’s known as a “permissioned blockchain.”11) Optimizing revenue distribution is notoriously difficult, given the large number of stakeholders involved in music creation, the complex relationships between them, and the absence of a shared copyright database. So, music revenue often takes months or even years to find its way to the rightful owners. Unlike the previous models, which mostly address narrow market segments, this one covers a broader universe of customers. For example, Dot Blockchain Media, one of several startups using this model, works with artists, record labels, aggregators, distributors, and performing rights organizations to create a standardized blockchain-driven database for music rights that can be used industrywide. Many parties stand to benefit. For example, distributors, aggregators, and performing rights organizations could use the database to optimize their own processes and reduce internal costs, and rights owners could receive payments faster. The database will be maintained in an open-source fashion by all of the stakeholders. Dot Blockchain Media’s own role is driving the creation of the ecosystem, defining the technology elements and the file and metadata formats, and supporting participants on the usage and evolution of the platform. This will enable it to drive its own revenues from services based on the platform.

Playing and trading. This business model allows assets registered in a blockchain to be sold or traded in other environments. One company that is experimenting with this approach is EverdreamSoft, a Swiss game developer. It offers a game in which people buy cards that they use to play. What distinguishes it from other games where players buy assets is that the cards are registered in a public blockchain and can be sold or traded outside the game, through digital currency. A similar approach could be adopted by other gaming companies, with the benefits of making the game assets more valuable and potentially increasing the revenue generated by in-game asset purchases. This might also expand interest in the games themselves, creating a network effect that can lead to increases in game-related revenue streams such as subscriptions or licenses.

Consequences for Industry Players

In thinking about how blockchain affects media and entertainment companies, we see both threats and opportunities for industry players. For content creators, blockchain offers significant opportunities. It can provide more control over their work, more flexible license models, a greater share of the content revenue, and faster monetization. These are clear potential benefits, even if they may take time to materialize.

For aggregators, including record labels, publishing companies, performing rights organizations, and others, a reduced role for intermediaries and more efficient distribution of revenue across the chain might make them less relevant and therefore pose a potential threat. But incorporating blockchain-driven technology into existing offerings could help aggregators concentrate on activities where they can add real value (such as discovering and fostering new talent, financing complex projects like movies and TV shows, and providing promotion and marketing muscle). Moreover, as an enabler of sustaining innovation, blockchain could prod aggregators to redefine or reinforce their place in the value chain. In many cases, the role of the aggregator can’t be completely automated and replaced by blockchain smart contracts. Managing contracts, relationships with labels, legacy catalogs, and even the collection of royalty payments for musical events (concerts, radio, and TV) may still require lots of personal involvement. However, aggregators should be able to leverage permissioned blockchains to handle some processes more efficiently and fill gaps between the digital and analog worlds.

For distributors, there is no escaping the fact that the threat of disruption is real. Ironically, online distributors such as Spotify and Amazon, which have reaped huge profits from the digitization of content, may face some of the biggest risks.12 As content consumers are able to connect directly with content creators, distributors may play much smaller roles.13 Even if this change takes many years to materialize, the threat can’t be ignored.14 Like aggregators, distributors need to figure out what they provide that’s distinctive beyond being an access and payment channel. To prepare for the future, they need to experiment with blockchain-enabled business models so that they can position themselves in a new digital content market built on this technology.

References

1. Bitcoin implements what’s known as cryptocurrency, a medium of digital exchange that uses cryptography (advanced mathematical techniques to encode digital information) to secure financial transactions, control the creation of additional units, and verify the transfer of assets. An overview of basic cryptography concepts used in cryptocurrencies can be found in A. Narayanan, J. Bonneau, E. Felten, A. Miller, and S. Goldfeder, “Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction” (Princeton, New Jersey: Princeton University Press, 2016).

2. D. Tapscott and A. Tapscott, “Blockchain Could Help Artists Profit More From Their Creative Works,” Harvard Business Review, March 22, 2017.

3. M. Friedlmaier, A. Tumasjan, and I.M. Welpe, “Disrupting Industries With Blockchain: The Industry, Venture Capital Funding, and Regional Distribution of Blockchain Ventures” (paper presented at the 51st Annual Hawaii International Conference on System Sciences, Waikoloa, Hawaii, Jan. 3-6, 2018): 3517-3526.

4. PwC, “Newspapers and Magazines,” in “Global Entertainment and Media Outlook 2016-2020,” 2016.

5. IFPI, “An Explosion in Global Music Consumption Supported by Multiple Platforms,” accessed Aug. 3, 2018; S. Dredge, “How Much Do Musicians Really Make From Spotify, iTunes, and YouTube?” Guardian, April 3, 2015; and D. Sanchez, “What Streaming Music Services Pay (Updated for 2017),” Digital Music News, July 24, 2017.

6. M. O’Dair and Z. Beaven, “The Networked Record Industry: How Blockchain Technology Could Transform the Record Industry,” Strategic Change 26, no. 5 (September 2017): 471-480.

7. We used Harvard Business School professor Clayton M. Christensen’s disruptive innovation theory as a reference for assessing how various business models would affect an industry. See C. Christensen, “The Innovator’s Dilemma,” (Cambridge, Massachusetts: Harvard Business School Press, 2016). On the one hand, disruptive innovations successfully challenge established industry players by starting with a fresh business model that is initially overlooked by the incumbents. Sustaining innovations, on the other hand, bring established players competitive advantage by enhancing their existing models. So assessing new business models as either disruptive or sustaining helps companies figure out how to react to the innovations.

8. D. Oberhaus, “This DJ Has Released the First Full-Length Album Using the Ethereum Blockchain,” Motherboard, July 7, 2017.

9. This service, called Share&Charge, was introduced by the German company Motionwerk.

10.Steemit FAQ,” accessed Aug. 3, 2018.

11. Permissioned blockchains allow only trusted participants, who are identified according to specific criteria. Because they can use simpler consensus mechanisms, permissioned blockchains can scale better than permissionless blockchains. With permissionless blockchains anyone can join the network, and complex consensus mechanisms must be built to maintain the integrity of the ledger. See J. Mattila, “The Blockchain Phenomenon — The Disruptive Potential of Distributed Consensus Architectures,” ETLA Working Papers 38, Research Institute of the Finnish Economy, 2016.

12. It’s interesting to note that Spotify has acquired a blockchain startup and Amazon has begun to offer its own general-purpose blockchain solutions. See S. Perez, “Spotify Acquires Blockchain Startup Mediachain to Solve Music’s Attribution Problem,” TechCrunch, April 26, 2017; and N. Fearn, “Amazon Debuts Blockchain Network Solution,” Internet of Business, April 23, 2018.

13. A. Tumasjan and T. Beutel, “Blockchain-Based Decentralized Business Models in the Sharing Economy: A Technology Adoption Perspective,” in “Business Transformation Through Blockchain: Volume II,” ed. H. Treiblmaier and R. Beck (Cham, Switzerland: Palgrave Macmillan, forthcoming).

14. S. Underwood, “Blockchain Beyond Bitcoin,” Communications of the ACM 59, no. 11 (2016): 15-17.