DECENTRALIZING CREATIVITY: A TENABLE CASE FOR BLOCKCHAIN ADOPTION IN THE ENTERTAINMENT INDUSTRY.

• Author: Idokogi, David

Abstract 275 I. Introduction 275 II Current Royalty Landscape 277 A. Music Copyrights and Royalties 277 B. Film and Television Residuals 281 C. Video and E-Gaming NIL 284 III. Blockchain Technology and Smart Contracts 289 IV. Blockchain Technology and the Entertainment Industry 292 A. Blockchain and Music 292 B. Blockchain and Film 295 C. Blockchain and Gaming 297 Conclusion 298 ABSTRACT

Significant advancements in technology have changed entertainment and the way in which people consume it. Music distribution went from tangible products like vinyl, to digital files that you can stream anywhere. Major Hollywood studios are no longer the only silver screen producers with video-on-demand streaming services like Netflix creating the new normal. And video games have developed into a form of competitive sport. One thing that remains constant, however, is that at the foundation of entertainment lies the need to protect entertainers' rights. With these advancements comes new legal issues or old ones in new forms - commonly being copyright infringement and the use of one's likeness. Issues pertaining to music streaming have required the attention of Congress as it passed the Music Modernization Act in 2018 that would require a collective to monitor music rights and licenses. The legal debate as to whether student-athletes should be paid for the use of their name, image, and likeness has resurfaced after California passed its Fair Pay to Play Act in 2019. With several lawsuits making headlines and many often settling for millions of dollars, one cannot help but question what can be done to alleviate copyright licensing issues. Since entertainment going digital, it is appropriate to hypothesize how blockchain could be used in the entertainment industry. Blockchain, itself being a decentralized technological approach to doing all sorts of business, has garnered the attention of leaders in various industries. One blockchain developer, Ethereum, also incorporates smart contracts which could streamline transactions that would increase efficiencies and possibly lower operational costs. This article examines whether blockchain technology can appropriately address the recurring legal issues in the music, film & television, and gaming industries, and hypothesizes a way to democratize and decentralize the respective industries based on several existing models.

1. INTRODUCTION

   Copyrights, patents, and trademarks drive innovation and societal evolutions. Through these legal protections, governing bodies safeguard authors' and inventors' intellectual property (IP) by ensuring the exclusive right to their writings and discoveries in hopes to promote the progress of science and art. (2) But akin to the famous

   saying: "good artists copy, great artists steal," intellectual property can be subject to misappropriation and infringement. (3) The advancement of technology and the advent of the internet has buttressed the entertainment industry and its consumption. For example, in the first half of 2019, the U.S. music industry generated $5.39bn in revenue with approximately $2.86bn derived from streaming subscription services like Spotify and Apple Music. (4) Video on demand (VOD) services have completely overtaken cable television, with Netflix leading the charge, adding more than eight million global subscribers over one quarter in 2019. (5) E-gaming has begun to gain serious popularity as players unite worldwide to play online. A recent Fortnite World Cup championship generated e-gamer Kyle "Bugha" Giersdorf $3 million as first-place winner in the $30 million tournament. (6) Innovation and the internet age ushers new forms of misappropriation that could harm artists. Despite the huge earnings in their respective industries, media services often face daunting copyright or trademark infringement lawsuits from artists and celebrities for failing to obtain proper licenses, pay owed royalties or residuals, and disputes over the use of one's name, image or likeness. (7)

   This new age of digitized media allows for worldwide dissemination that demands innovative solutions to the challenges surrounding IP protection and licensing. The introduction of blockchain technology raises the question as to whether the platform could provide a viable solution to assist in the licensing and royalty system in entertainment. A blockchain ledger allows a party to perform and track processes related to a project that, in theory, could

   enable IP owners to easily manage creative works. Blockchain's use of smart contracts allows for seamless transactions and decentralized authentication for nearly autonomous payment verification. (8) These automatic transactions could be streamline payments to IP rightsholders.

   This paper addresses recent legal issues surrounding royalty compensation within the entertainment industry and explores a landscape with the adoption of blockchain. Part Ilwill discuss the current IP landscape, highlighting some of the headline-grabbing infringement controversies of recent years. Part III will decipher blockchain technology, smart contracts, and their origin in the crypto environment. It will also discuss the proposed use cases for smart contracts and related blockchain technology. Part IV will analyze the framework for an implementation of blockchain into the copyright licensing processes within the music, film, and gaming industries to determine if this technology could add value to the respective industry. Lastly, Part V will conclude the various findings to ultimately find that blockchain and smart contracts can help overhaul certain tasks but will not solve every issue affecting licensing and royally administration.

2. CURRENT ROYALTY LANDSCAPE

   1. Music COPYRIGHTS AND ROYALTIES

      U.S. Copyright law gives creatives a "bundle of rights" for their artistic works for which they own a copyright. (9) Under 17 U.S.C [section] 106, an artist has the right to publicly perform, digitally perform (for sound recordings), display, reproduce, distribute, or make derivatives of the copyrighted work. (10) Persons other than the copyright owner, must use a license in order to exercise these rights." The music industry divides a song into three components: the written composition (lyrics), the sound recording or "master," and the beat or instrumental; all of which get separate copyright protection and

      require their own licenses. (12) Ownership of the three components is usually split amongst multiple songwriters or performers and, thus, a licensee will likely need to seek permission from several people before they can exercise any one of the bundle of rights.' (3) An overwhelming majority of mainstream artists assign the rights to their lyrics or masters to large record or publishing companies (music labels) in exchange for music distribution services, cash advances, and a promise of artist development. (14)

      Over the centuries, music distribution evolved from physical products (like sheet music, vinyl and compact disks) to digitized products (like MP3 files and now streaming). (15) Under the U.S. Copyright Act, anyone is allowed to "stream" music provided they obtain a license directly from the copyright owner or a compulsory license by following statutory procedures. (16) The licensee must pay the copyright owner a "mechanical" royalty at a rate set by contract or, if using a compulsory license, by the Copyright Royalty Board. (17) Take, for example, Spotify - a digital-service provider (DSP) with a streaming platform that offers catalogs from popular musicians, like Drake, and charges a monthly fee to users for unlimited access to their favorite Drake albums. (18) In order to lawfully provide his catalog, Spotify must obtain licenses from the rightsholders which, in this case, could be Drake, his music label, and anyone else who contributed to the lyrics or beat. (19)

      After obtaining a license, Spotify would owe Drake a royalty every time a user streams a copyrighted work. (20) The administration of licenses and royalties is usually done by a third party like The Harry Fox Agency (HFA) or Music Reports, Inc. (MRI). (21) HFA or MRI would collect the mechanical royalties from Spotify, and then pay that money to each rightsholder. (22) But even with the current process, however, Spotify and other DSPs still run the risk of infringing the rights of singers and songwriters. In fact, several musicians have brought numerous lawsuits against Spotify, in particular. (23) For example, in 2016, the National Music Publishers Association (NMPA), a publisher rights advocacy group, received a $30 million settlement resulting from a dispute over the service's use of songs owned by its member-songwriters. (24) The next year, Spotify paid $43.4 million to songwriters and publishers for unpaid mechanical royalties after David Lowery of Camper van Beethoven and singer-songwriter Melissa Ferrick filed class action suits for infringement. (25)

      The largest suit came at the end of 2017, when Spotify paid $ 1.6 billion to publishers who represented artists like Tom Petty and Missy Elliot. (26) While the plaintiffs alleged that Spotify "brazenly disregards United States Copyright law [by committing] willful, ongoing copyright infringement," the parties settled before any evidence revealed willful infringement. (27) A Spotify spokesperson commented on the matter saying, "the data necessary to confirm the appropriate rights holders is often missing, wrong, or incomplete. When rights holders are not immediately clear, we set aside the royalties we owe until we are able to confirm their identities." (28) Given this statement, one cannot immediately paint Spotify as a villain here. It is plausible

      that the company simply worked with the best information it was given. Consider a scenario where a DSP pays for a music label's entire catalog. This catalog could have numerous songs with similar titles (such as "Intro"), all produced by different songwriters whose contact...