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M&E Journal: Blockchain and the Hollywood Supply Chain

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By Steve Wong and Björn Obermeier, DXC Technology

Hollywood movie studios, record labels, publishers and broadcast networks have traditionally served as the guardians of intellectual property for moving images and sound for the entertainment industry. The entire Hollywood business model is built on a centralized trust where most theatrical, episodic and music properties flow through the control of a few studios. This model enables studios to perform various services, including record keeping, account balancing, licensing of intellectual property rights, piracy protection and others, which provide distribution with the necessary stability, security, accuracy and confidentiality to operate effectively.

The model is complemented by government copyright protection, contractual agreements, trade union agreements and guild agreements that provide oversight to ensure a reliable, moving entertainment ecosystem.

Over the past several years, the pace of technological innovation across the media and entertainment industry has drastically increased. Advances in networking, storage, and computing power have produced an expanding array of new technologies and business models—changes that threaten to disintermediate incumbent players in the entertainment industry. In 1999, Napster changed the music industry forever. It was founded as a pioneering peer-to-peer (P2P) file sharing Internet service that emphasized sharing digital audio files. In 2001, Apple’s iTunes again changed the music industry, driving consumers from buying $15 albums to buying $1 songs. In 2007, Netflix began to move away from its original core business model of renting DVDs by introducing video on demand via the Internet. In 2013, the word “binge-viewing” exploded into mainstream use when Netflix started releasing episodes of its serial programming simultaneously.

New models, based on eliminating the “middle man,” are beginning to disrupt traditional incumbents in other sectors as well. Amazon, eBay, Uber and Airbnb are intermediaries and offer centralized services. But, by merging demands from push and pull markets they put the user in control. A new term, “Uberization,” has even been coined to describe this type of disruption.

The latest in this line of innovations has the potential to strike at one of the core value proposition of the media and entertainment industry itself—the notion of trust. The technology that represents this challenge? Blockchain.
This article focuses on blockchain’s evolution and its impact in media and entertainment.

What is blockchain?

In simple terms, blockchain is the technology that creates a distributed ledger of transactions on a network that is secure, tamper-proof and easily accessible. It is a shared record of transactions of any kind of value that is distributed over a network of users. A blockchain is made up of a series of data blocks, each of which contains a set of transactions. Blocks are electronically chained together and locked with cryptography, and a public record of every transaction is established, which is virtually impossible and economically unfeasible to be altered after its creation. Bitcoin is the most prominent transaction-based blockchain implementation by consumer adoption.

Challenges in the current style of business

The media and entertainment industry is facing a number of challenges to its 100 year-old business model. Online video on demand (VOD) and free content (YouTube) have eroded the old pricing models of physical items such as theatrical screenings, DVDs and Blu-ray discs. Viewers are paying less per stream than they would for a physical product. This follows the Napster and iTunes model of customers buying songs instead of albums. Although the lower cost benefits the consumer, the creators of music, episodic shows and movies suffer. The result will be more artists leaving the industry to pursue more lucrative careers. If the quality of production and original storytelling declines due to the lower prices paid for content, viewers may be encouraged to pirate movies, episodic shows or music due to the audience’s perception of the lack of value in the content.

In addition, movies have different release windows in different territories. Social information on the web creates demand for entertainment in markets in which a movie may not be released. As a result, fans may pirate movies if they are not available in their region.

Pirates have largely shifted from peer-to-peer downloads to illegal streaming-video sites for film and television content. In 2015, out of a total 78.5 billion visits worldwide to film and TV piracy sites visits, 73.7 percent were to streaming sites, according to a 2016 data analysis by U.K. antipiracy firm Muso.

Importantly, a majority of cast and crew have no ability to effectively track their intellectual property rights or get real time reports of how many people have purchased or viewed the content that they were part of making. This poses a challenge if the cast or crew negotiated a percentage of the back-end revenue in lieu of a lower rate.

And finally, it’s a challenge for consumers to prove ownership of digital content across platforms.

Possible solution to M&E challenges

Blockchain technology could resolve many challenges of the M&E industry by allowing media and entertainment companies to operate more efficiently and transparently, resulting in cost savings, piracy reduction and increasing consumer loyalty.

There is significant potential for blockchain technology to streamline business-to-business (B2B) payments, in particular, and solve the increasingly troubling issues in the area of cross-border friction and large payment volumes that are often exclusive to B2B. Another use case is the management and automation of royalty payments in B2B and business-to-consumer (B2C) applications.

But Blockchain goes beyond payment for content. It has the power to overhaul a legacy method of creating and tracking copyright usage and tracking residuals leading to correct and faster payments to guilds, unions, studios and distributors.

In addition, blockchain is a promising technology solution for digital download. It could verify that a consumer purchased the content and verify it for playback on any device. Blockchain-enabled ticketing could allow artists, producers, distributors and venues to track revenue from performances and beyond. Blockchain enables venues and producers to negotiate additional revenue streams derived from the original ticket sale by including revenue-sharing mechanisms into a blockchain for any subsequent transactions that occur after the original ticket sale at the venue.

The current landscape

A number of media and entertainment companies are exploring distributed ledger technology, while others have been actively investing time and/or funds in this area.

Over the past three years, Verizon has submitted various blockchain based patents, focusing on the development of passcode blockchain platforms utilized to maintain a sequence of passcodes corresponding to a particular piece of digital content or set of data.

Disney created an interoperable blockchain solution, Dragonchain, helping to maintain records and processes transactions on both private and public implementations. This hybrid approach is designed for multiple conceivable use cases while providing the variety of features their single implementations would bring.

They have come up with a multi-currency-capable Blockchain allowing to interoperate established cryptocurrencies like Bitcoin with alternate crypto tokens, i.e. “Mickey Mouse.” The open acceptance of multiple cryptocurrencies could be used for loyalty for theme parks and monitor usage to increase business insights while expanding customer engagement.

What you should do

There is still confusion on the technology of blockchain. People tend to confuse Bitcoin with the underlying technology of blockchain, and it is alarming to see that they cannot separate one from the other. To get any serious traction and to unlock blockchain’s full potential in media and entertainment company boardrooms, that separation must happen.

The fundamental technology of blockchain has real potential to transform the media and entertainment sector. Entertainment companies need to look closely at specific areas where blockchain technology can disrupt their organizations and consider how to bring the whole ecosystem of stakeholders, such as guilds, unions, studios, record labels, publishers, distributors and consumers along on the journey. M&E companies should collaborate to explore and develop new uses for blockchain that could deliver expected and needed business value.

For blockchain to succeed as an alternative technology, institutions like the Society of Motion Picture and Television Engineers (SMPTE) need to set industry-wide standards to enable its adoption. Technology partners, like HPE, can help on the journey to create business value for guild members, union members, studios, record labels, publishers, networks, distributors and the consumers who will rely on this emerging system.

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