How Blockchain Technology
Can Improve the Music Industry
By: James G. Gatto, Sidney S. Fohrman and Alexandra L. Bear
Blockchain is a revolutionary technology that has great potential to solve many of the fundamental challenges
facing the music industry today. In fact, this technology is uniquely suited to address issues across the
various industry sectors, including rights management, licensing, copyright ownership, royalty tracking and
reporting and the primary and secondary ticketing markets for live events. Likely, however, its adoption will
be incremental and more evolutionary than revolutionary-- impacting the music industry in a segmented
fashion, as opposed to a global transformation.
While still somewhat early in its adoption, now is the time for the music industry to focus on blockchain,
how it may disrupt the music industry and how participants can leverage that disruption. As many formerly
dominant companies have learned the hard way, when it comes to disruptive technology you have two
choices - be the disruptor or be disrupted!
• provides an overview of blockchain technology (including crypto assets and smart contracts);
• identifies some of the problems in the music industry and how blockchain can solve these problems;
• provides examples of companies already offering these technologies; and
• concludes with an overview of legal considerations when applying blockchain technology to the music
What is blockchain technology?
At its core, a blockchain is a distributed ledger for recording transaction data and value transfers. A ledger
is merely a list of transactions. Traditional paper-based ledgers include consecutive pages where each
line records a transaction and when the page is full, the process repeats on the next page. With many
blockchains, each block is like a page. Transactions are verified via a consensus mechanism and transaction
data is written into a data block, in a serial, time-stamped manner. When the block is filled, a new block is
created. Unlike traditional ledgers, when a block is filled, the system creates a hash value, which is a unique
and random number that is generated by the chain’s algorithm and identifies the contents of the previous
This hash value is then written as the first entry in the new block. This process “chains” blocks together,
hence the term “blockchain.” The first entry of each new block must correspond to the last entry in the
previous block. Thus, if someone attempts to change an entry in a prior block, the hash value would no longer
match what was written to the following block and that altered block would be deemed invalid. In part, this is
how blockchain creates immutable records.
Many types of blockchains exist, including public and private blockchains. With public blockchains, the
ledger is copied to and stored on multiple nodes (or computers) across a network – resulting in a distributed
system where the data is stored in many locations and, subject to privacy controls, is transparent to all
network participants. The system is decentralized because the system itself enforces rules that prevent a
single entity from controlling the verification and storage of transaction data. This avoids the “data silos”
problem that exists today. With public blockchains, anyone can run a node or view the transaction data. With
private blockchains, only users with permission can view the transaction data. This can help address privacy
What are smart contracts?
Smart contracts are an important and powerful tool enabled by blockchain technology. A smart contract is
not necessarily a legal contract. It is self-executing computer code that includes the operational terms of
an agreement, between two or more parties, where the operational terms are written into and executed by
the lines of code. The code can be stored across a distributed, decentralized blockchain network. Smart
contracts can automatically receive data from various sources (e.g., IoT sensors) and programmatically
implement a series of “if-then” rules with little or no human interaction. The way smart contracts work is that
“if” certain conditions (programmed into the smart contract code) exist, “then” the smart contract causes
certain action(s) to occur. Smart contracts can be used to automate various processes, but in a very flexible
and adaptable way. Smart contracts increase efficiency and reduce costs by removing middlemen who add
little value and by automating tasks that are typically performed manually. As detailed below, smart contracts
can be used in the music industry to automate royalty payments, to manage ownership rights, to enforce
copyrights and to license musical works and sound recordings, among other things. For more information on
smart contracts, see the Chamber of Digital Commerce’s white paper on the topic.
What are crypto currencies and tokens?
A cryptocurrency is a digital currency that uses cryptography for security and for which transactions are
typically recorded to a blockchain or other distributed ledger technology. Crypto tokens can be a digital
currency and can be programmed to include additional functionality, such as ownership of title, interests,
voting rights, distribution rights, and other functionality. Recordation of ownership of currencies and tokens
occurs via a blockchain. Typically this is implemented using public key/private key encryption. The “keys”
are long strings of numbers and letters linked through the mathematical encryption algorithm that was used
to create them. The public key (comparable to a bank account number) serves as the address which is
disclosed to others and to which others may send currencies and tokens. The private key (comparable
to an ATM PIN) is meant to be a guarded secret, and only used to authorize transfers or transmissions
associated with the currencies or tokens. Crypto currencies and tokens can be bought and sold (or traded)
via exchanges and can be transferred in a peer-to peer manner. Transfers can occur via a software “wallet,”
which is associated with a user or device, has a unique alphanumeric identifier and can transfer and receive
crypto currencies and tokens. One use for crypto currencies is to facilitate a payment mechanism on a
blockchain network. Tokens can have many uses. For example, a token can be used to represent title to or
an interest in some object and transfer of the token can effect transfer of title to or the interest in that object
Blockchain technology can leverage various types of crypto assets. Two such crypto assets relevant to
music are crypto currencies (a digital currency to enable payment) and crypto tokens which can represent
ownership of a digital item (e.g., a copy of a musical composition, a digital ticket, an interest in a musical
composition or royalties) among other assets.
What are some of the key advantages of blockchain technology?
Some of the many advantages of blockchain technology are that it is:
• Immutable – hashing the block contents and “chaining” the blocks, by writing the hash to the next block,
renders the recorded data immutable
• Distributed – storing copies of the ledger on multiple nodes, under control of multiple entities, avoids
data silos and single points of failure
• Decentralized – validating the transactions via a trusted consensus mechanism avoids the need to rely
on and trust any single (central) authority
• Transparent – subject to privacy controls, the data on a blockchain can be visible to all parties, which
for example, can create greater end-to-end transparency in supply chains
• Secure – using cryptography, including digital signatures via public key infrastructure (PKI) encryption,
provides state of the art security
• Automated – using smart contracts to automatically enforce business rules enables a greater level of
• Cost-effective – eliminating unnecessary middlemen who add little if any value, reducing or eliminating
manual processes and reducing fraud can all reduce operational costs and increase efficiency
Auditable – storing the verified transaction data in a serial, time-stamped, immutable manner facilitates
auditing and regulatory reporting
How can blockchain technology be used to enable rights management and support the Music
The endless divisibility of a copyright in a composition, the lack of a centralized database that records
ownership of those rights, and the advent of user-generated content and streaming has made it increasingly
difficult for parties that control, distribute, and wish to exploit rights associated with musical works to license
such rights and to ensure the accuracy and payments of royalties. The use of disparate standards to identify
ownership and the control of musical works across jurisdictions further complicates these issues. After being
unanimously approved by both chambers of Congress, the Music Modernization Act (“MMA”) currently is
before the President for signature. The MMA, a bill 10-years in the making, among other things, seeks to
address the many problems that are prevalent as a result of having a decentralized database of copyright
information. In fact, one of the MMA’s primary purposes is the creation of a publicly-accessible database of
song copyright information to permit the efficient licensing, payment and reporting of mechanical royalties.
Certainly blockchain technology can support the MMA’s efforts to create and maintain this centralized
database, simplify standards, establish chain of title, and track and manage the exploitation of musical works
and payment of royalties.
Rights Identification and Maintenance. Blockchain technology and the use of smart contracts have
an array of applications in the context of rights management. They can capture the complete copyright
ownership history associated with a given song, establish and maintain chain of title and seamlessly
transfer rights. While the technologies may not solve the “input” issue of collecting all of the information and
placing it into one database, they simplify the process of adding, confirming, maintaining and updating
ownership information in one centralized location, in one standard format. Smart contracts can be used
to instantly transfer ownership or administrative rights in music. Once ownership information is added to
the blockchain and confirmed, any unauthorized modifications or duplicative information will be rejected.
Any modifications or rights transfers that are confirmed by administrators of rights on the blockchain are
instant and public, which creates a clear and complete copyright picture for any licensee that wishes to
Copyright Protection. United States law affords exclusive rights to creators and authors who fix their
original works of authorship in a tangible medium of expression. The exclusive rights allow the copyright
owner to reproduce, distribute and, in relation to music, perform the works. Copyright infringement
through piracy has plagued the music industry since the digitization of music. Peer-to-peer file-sharing
services like Napster and LimeWire allowed users to share and play audio files without paying royalties
to the copyright holders. While evidence suggests that streaming services have cannibalized such
illegal activity, the problem persists. The use of tokens, the immutability of a blockchain and the use of
smart contracts provide mechanisms to record copyright ownership, authenticate ownership to police
unauthorized licensing, distribute and exploit musical works and sound recordings. Some companies
have already created a distributed ledger technology that polices and enforces their copyright owners’
rights. For example, COPYTRACK, allows users to upload their original images to the platform, perform
global searches to detect infringing uses and enforce copyright ownership when it detects infringing uses.
The same policing technique can be applied to music.
Monetizing Rights Associated with Musical Works. One complete, uniform and centralized database
tied to an immutable ledger also simplifies licensing and can allow for royalty disbursements to be
made directly to rightsholders. Recording rights holders’ interests on the blockchain also increases
transparency and provides a simplified means for licensees to contact all rights holders. Music providers
who seek to license songs can manage licenses directly via the blockchain by executing a smart contract.
Smart contracts can also be used to trigger automatic royalty payments to each rightsholder when a
song is licensed or play. Notably, the MMA’s centralized database and licensing purview applies only to
mechanical licenses. A centralized database tied to an immutable ledger, coupled with the use of smart
contracts, would complete the centralization of the music licensing scheme – including, without limitation,
for synchronization licenses in audio-visual content.
The practical applications are infinite and some platforms and artists have relied on this technology to deliver
music directly to fans on a pay-per-play basis and to incentivize listeners to share music in exchange for
a fraction of a royalty payment or incentives. Björk recently partnered with Blockpool for the release of her
album, Utopia, and gave buyers digital coins in addition to the album. Purchasers have the opportunity to
collect more coins by interacting with the artist on social media and then to redeem the coins for merchandise.
What role can blockchain technology play in addressing concert ticketing issues?
Companies like Ticketmaster and Ticketfly have invested enormous sums and have implemented
technological measures to prevent computer bots from purchasing tickets and sales from unverified sellers
on secondary markets. While bots and similar methodologies have been undermined to an extent, ticket
scalping, counterfeit tickets and the secondary ticket market as a whole continues at an significant cost
to the industry. The combined use of blockchain and token technology and smart contracts can address
this issue and numerous other issues that arise with ticketing events including, scalping, bot purchases,
unauthorized ticket sales on secondary markets and counterfeiting.
Each ticket to an event could be represented by a single, non-fungible token. The concert-goer that holds
the token, can attend the show. By creating and storing these tokens via blockchain technology, they can
be managed in a decentralized, distributed database. That database can identify the initial purchaser and
manage the resale and venue admission process. If a token is programmed for resale, a smart contract can
be used to add “programmable logic” to the ticket, which could limit the price of resale or require that some
or all of the “premium” is transferred to the artist. Due to cryptography, the token representing a ticket can be
transferred freely, but cannot be replicated. This solves the counterfeit ticket problem.
Some blockchain technology companies have emerged in the ticketing space including: (1) Crypto.Tickets,
which offers a decentralized platform for selling and purchasing tickets and allows the event holder to limit
the resale price of tickets; (2) Lava, a peer-to-peer platform that allows individuals to sell Ethereum-based
tickets held in their smart-phone wallets to other individuals for face value prices; (3) Blockets, which uses
smart contracts to manage the ticket process and provide users with more control over the secondary market
and payout process; (4) Aventus, which allows promotors, venues and agents to define rules surrounding
How can blockchain technology be used to allow artists to share and sell music?
Reports are released regularly that music revenues are up year after year, but only a fraction of those amounts
are received by artists.
Blockchain technology has the potential to disrupt the way music is distributed by
enabling artists to offer their music and other media directly to fans thereby creating more personal and
robust artist-fan relationships.
Citigroup released a report in August 2018 that said the music industry generated $43 billion in revenue in the United States
alone, but only 12% of that revenue went to artists. Citigroup attributed the rise in revenue to the concert business and the rise of
subscription music services.
Cryptocurrencies or tokens can be used to purchase or evidence the purchase and download of a song.
In 2015, the Grammy award-winning singer and songwriter Imogen Heap made her song “Tiny Human”
available for direct download for $0.60 (or the equivalent amount of Ether cryptocurrency) per download,
using the Ethereum blockchain-based Ujo Music platform. After the song was purchased, a smart contract
that split revenues between Heap and other rights holders was executed. Smart contracts can also help
minimize fees payable to labels, publishers, distributors and administrators that artists owe in connection
with the administration and distribution of their music catalogs.
In addition to Ujo Music, another streaming platform known as Musicoin allows artists to publish their music
on the platform in exchange for compensation on a per play basis. Users can listen to music for free and
ad-free, but Musicoin encourages users to tip their favorite artists. Underlying the Musicoin system is shareism.
It is the belief that the content creator should be
rewarded the most for creating and sharing his or her
What are some legal issues to consider with the use of blockchain technology in the music industry?
As noted above, the music industry is fraught with various rights management and copyright issues. While
blockchain technology can provide impactful solutions, careful consideration should be employed before its
implementation; especially their legal implications.
• Smart Contracts – Structuring smart contracts in a way to ensure enforceability will be important. The
term itself is a misnomer as they are not necessarily contracts. Rather, they are the code that implements
the operational/business logic of a contract. Often, there will be a separate legal agreement between
the parties. This is similar to online services such as auto bill pay, where a user enters into a terms of
service and the code actually implements the transaction. Other issues governing the smart contract
(e.g., governing law, warranties, dispute resolution, etc.) may be addressed in a standard contract.
The administration of smart contracts can be more complex and sophisticated. They typically include
territory-based rights management and collection terms, royalty splits, data sharing and additional rights
that may not be easily captured by a string of code. Smart contracts can be self-enforcing in that they
can implement in code certain actions to happen upon the default by a party. Often smart contracts
are dependent on one or more data sources (often referred to as oracles). The parties may wish to
contractually deal with scenarios where the data is bad or the smart contract code does not actually
execute what the parties intended. International law, rights management and jurisdictional issues also
may come into play. Many other issues will arise with smart contracts. A number of projects are underway
to develop smart contract templates to address these and other issues.
• Obtaining Proper Licenses – Companies that wish to use or exploit musical works that they do not
control must obtain a specific license for the specific use of both compositions and sounds recordings
from all rightsholders. It is often difficult to determine what license is needed (e.g., public performance,
synchronization, master use, etc.) and where to go to obtain the license (e.g., performance rights
organization, label, publisher, artist, etc.). The lack of a centralized database that employs one standard
to identify ownership of musical works further complicates this issue.
• Jurisdictional Issue – Failing to obtain a proper license to use, reproduce, synchronize, publicly
perform or exploit a musical work may lead to a copyright infringement claim. Knowing where to go
to obtain the license often is more difficult that acquiring the license. Licenses to use musical works
and sound recordings are administered on a jurisdictional basis and often times, the type of rights a
licensee obtains from one administrator in one jurisdiction differ from the type of rights obtained from the
same type of administrator in another jurisdiction. For instance in the United States, public performance
rights in a musical work are administered by performance rights organizations. In the United Kingdom,
collection societies can grant mechanical and performance rights.
• Securities Laws – Token sales or initial coin offerings (“ICOs”) have become a common means of
raising capital and recording ownership in a new venture. This has led to greater scrutiny from the U.S.
Securities and Exchange Commission (“SEC”) in evaluating whether an ICO is a securities offering.
Other token issues can also implicate securities laws. If the offering is a securities offering, it must be
registered with the SEC or be subject to an exemption. The determination of whether an ICO or other
token issuance is an investment contract, and thus subject to SEC regulation, primarily relies on the
Howey Test. An offering will be considered an investment contract if: (1) there is an investment of money,
(2) the investor has an expectation of profits, (3) the investment is in a common enterprise (e.g., investors
are combining their money to invest or develop one common project), and (4) the success and profits
of the enterprise come from actions largely outside of the investor’s control. If one wishes to launch an
ICO or issues tokens, a securities lawyer who understands blockchain should be consulted for these
and other issues.
• Data Privacy – Depending on how the blockchain is structured, the identity of the parties to a transaction
are not always disclosed. Anonymity and pseudonymity are hallmarks of the technology, which can act
as data privacy buffers. However, the immutability of the blockchain poses separate data privacy and
personal information concerns. The General Data Protection Regulation (“GDPR”) requires companies
that process the personal data of European Union data subjects to offer certain rights to those data
subjects. One right under the GDPR is the right to be forgotten. Another right, is the right to modify or
update your information. Once information is recorded in the ledger, it is hard to remove the information,
which poses problems for data controllers who must comply with privacy laws, like the GDPR. For
this reason, some companies use private or permissioned blockchains, where users maintain control
over their data. In other cases, a hybrid approach is used, employing two or more different types of
blockchains that can communicate directly or through a bridge.
• Patents – As with any new technology or new application of existing technology, patents will play a
role. There has been a surge in patent filings for blockchain-related technology. For an overview on
patentable aspects of blockchain technology please see our recent papers on Patent Strategies for
Cryptocurrencies and Blockchain Technology and Drafting Effective Blockchain Patents.
Some musicians and music platforms have embraced the recent ICO trend and launched their own offerings. At the end of 2017,
electronic artist, Gramatik, created the “GRMTK” token and raised just under $2.5 million by offering 25 percent (25%) of the tokens
on the public market. Anyone holding a GRMTK token has the right to share in royalties generated from Gramatik’s music. As of
today, this offering has not been challenged by the SEC, but it is likely that this would be considered a securities offering.
For further details on blockchain and digital currency, please contact:
James G. Gatto
Team Leader, Blockchain
Sidney S. Fohrman
Team Leader, Music Industry
Lead Associate, Blockchain
Sheppard Mullin’s Blockchain Technology and Digital Currency team helps clients develop innovative and comprehensive
legal strategies to take advantage of what may be the most disruptive and transformative technology since the Internet.
We focus on advising clients on how to meet their business objectives, without incurring unnecessary legal risk. Our
team includes attorneys with diverse legal backgrounds who collectively understand the vast array of legal issues with
and ramifications of blockchain technology and digital currencies. More Information