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.

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.