Collapsing The Digital Content Supply Chain And Royalties Settlements Process

CEO Rob Gardos in M & E

Is blockchain the answer?

Abstract: The tectonic shifts occurring in the M&E industry, particularly with video content across digital distribution relationships, are sending shockwaves through the content value chain. Unprecedented M&A activity, coupled with the rapid adoption and proliferation of SVOD services, OTT systems and new business models, is creating demand for more agile and adaptive technologies to understand and capitalize on the opportunities presented by these developments. Not surprisingly, legacy on-premises systems are not up to the job, and even newer, cloud-based solutions must adapt continuously to stay on top of a rapidly changing industry. 2018 is the year of automation and adaptive distribution. Is blockchain the catalyst that drives the industry forward, or a shiny new distraction that will impede innovation?

The M&E industry isn’t exactly at the forefront when it comes to digital content supply chain and royalty settlements. But then, why should it be? Theatrical and physical sales dominated the industry for decades. Investments were made in creating great content such as movies and TV series, and building infrastructure for the consumption of that great content. Everything in the middle could be supported by people, spreadsheets and monolithic, unchanging systems. And all were happy — somewhat.

The world sure looks different in 2018. A new generation of viewers and connected consumers want whatever content they choose, whenever, wherever and on whichever device they prefer. Distribution channels and business models to monetize content have increased exponentially. The fundamental definition of content continues to expand. While no one knows for sure where this all goes, one thing is for certain: the current approach for managing the supply chain and supporting payments and royalties across unified commerce is not adaptable or scalable enough to support the future of this rapidly evolving industry. And while we know how we got here, the real question is what fundamental issues stand in the way of getting where we need to go. How do we create a streamlined, automated digital supply chain where content is consumed, and monies are distributed accurately and automatically with no human involvement? How do we use real outcome data to refine strategies and drive more value from our content investments?

The answer is clear: blockchain. Problem solved!

Ha! Sorry, but I just couldn’t help myself. Based on all the hype around blockchain and the countless initial coin offerings (ICOs) now in the marketplace, it would appear that blockchain is the missing link to solve all interactions on the internet. There are lots of articles that describe blockchain, but I like this succinct sentence from Deloitte’s 2017 report on blockchain and media: “A blockchain is a digital distributed ledger that chronologically records transactions in near real time. Each subsequent transaction that is added to the ledger relies on the respective consensus of network participants, ensuring the quality and integrity of all transactions.”

So, essentially:

• You have a comprehensive list of transactions between parties.
• Transactions are flexible and can encapsulate logic – it’s not just bitcoin. You can define rules, rights, logic, etc., within the context of a transaction.
• It’s all secure and difficult, if not nearly impossible, to taint.
• It’s decentralized with no single authority managing the system.

So why does this help? A secure, distributed ledger of contracts is alluring, as it enables transactions to happen between parties with enforceable rules ranging from who can see what content on a device a certain number of times, to who gets paid what when content gets consumed. Speculated use cases enabled by blockchain include:

• Eliminating the middle man, as smart contracts can enable content creators to directly transact with the end customer.
• Driving efficiency and accuracy across the royalty payment flow.
• Enabling customer to customer (C2C) sales while maintaining the enforcement of rules and rights.

But beyond the distributed approach to blockchain, what does it get us? What challenges is the industry facing that have held back progress on creating streamlined supply chain and financial processes? And does a decentralized approach create a suite of new problems? Who is accountable for issues if there is no central authority to guarantee the experience?

Do you speak my language?

Any type of supply chain needs some notion of a standard “language.” What am I selling? How is it defined? How do I track content as it travels through the fulfillment process? How does content need to be prepared to work on an iPhone versus a Droid? What defines “consuming content,” and how does that ultimately drive the distribution of monies? However it’s accomplished (industry standards, giant adapters, massive reduction in complexity), if we’re not all speaking the same language, I’m not sure how blockchain adds any value. Is the assumption that if all the hard stuff gets worked out we can use blockchain to facilitate a direct transaction? In the case of the content industry, the questions would be: who is building the model to discover content around that? Is that decentralized? What about curation?

And let’s dig deeper into the complexities of the financial transaction between content creators and content aggregators/distributors, i.e., royalties. These models can be extremely complex, with varying factors determining splits, amounts, draw-downs, minimum guarantees, etc. Will all that logic be encapsulated in the “smart contract?” Why hasn’t the industry aligned to smart contracts already? You don’t need a distributed, secure ledger to drive this efficiency. On the contrary, these events typically occur when a small number of players mandate a standard deal structure, and everyone follows suit. Assuming we can define a standard smart contract that enables deal portability, blockchain is well suited to play a role in supporting C2C transactions. That is exciting but not necessarily the killer use case the media and entertainment industry is looking for.

At the heart of all this: does a distributed database with no central authority help? If you further explore the current issues facing the industry, the answer is, not really. The technology to solve many of the challenges noted has existed for decades – well before blockchain was even an idea. These issues have not been resolved due to company and industry culture, regulatory hurdles and other priorities.

Given massive shifts in the industry we are now ready to truly attack these problems. And as we’ve seen time and time again, technology hype often catalyzes and accelerates change. Who really cares if blockchain is needed or not? If it provides the impetus for the industry to resolve its real problems, then that helps everyone. Perhaps the timing is right, and its hype will drive us forward. Let’s just all recognize that these real-world challenges will require commitment and collaboration to resolve.

So perhaps I was right after all. The answer is clear: blockchain!

Rob Gardos began his career as an analyst for UMS Management Group and a senior consultant at Ernst & Young. Gardos also founded and served as CEO of GridApp Systems; as CEO and President of Liiiike Shopping, Inc.; as CTO of Sterling Autobody, Inc.; and as co-founder and Chief Financial Officer of TouchLink Communications. rob. gardos@mediamorph.com @Mediamorph