eMusic CEO talks blockchain, transparency and MP3's survival

eMusic made its name with a subscription-based music downloads service focused on independent labels, before adding major labels in 2010 – a controversial move at the time.

Eight years on, the company is planning an even-bigger shift: launching a new music-distribution and royalty-management system that will use blockchain technology.

This month, eMusic is launching a public pre-sale for the eMusic Utility (EMU) token which will be used on this new platform, with the company hoping to raise $70m from selling the tokens, and claiming that the new system will improve payments to artists and bring greater transparency to digital royalties.

eMusic will also start letting artists sell shares in their future royalties at the earliest stage of their release: a cross between traditional crowdfunding and the services being offered by companies like Royalty Exchange and Sound Royalties.

In 2018, there’s a lot of scepticism around blockchain startups and initial coin offerings (ICOs) or token sales, fuelled by some high-profile examples that either didn’t deliver on their promises, or were outright scams from the start.

Judging by its token-sale white paper, eMusic is aware of these issues. “The eMusic tokens being sold as part of the Token Sale are a functional part of the blockchain-driven music distribution platform described herein,” it stresses.

“The eMusic tokens are neither designed nor expected by us to increase in value over time. eMusic tokens are not intended by eMusic to be an ‘investment opportunity’ of any kind and should not be perceived as one by purchaser. They are not intended to be treated as a ‘security’ in any jurisdiction and, by purchasing tokens, you acknowledge this position.”

With its prominence having faded in the transition from downloads to streaming, can blockchain technology revive eMusic’s relevance in 2018? Music Ally spoke to CEO Tamir Koch about its plans, and how he sees the wider industry.

“For years and years, I have claimed that the [music] industry is completely broken,” is Koch’s opening gambit. “There is not a fair distribution of the funds.”

Enter blockchain. While there is no shortage of startups promising that this technology will fix a broken industry, eMusic is the highest-profile established DSP to test the model. Koch’s rhetoric echoes that of the startups though.

“There is obviously the decentralisation and the immediacy of payment – as opposed to the [collection] societies paying years after the user consumed the song,” he says.

“This will create full transparency. It is disruptive for the music industry because it is decentralised, so no one controls it. It is fully transparent and it can show the artist exactly how the pie is being carved up.”

This kind of full transparency comes with its hurdles to surmount. Artists wanting to sign up for eMusic’s new platform will have to be comfortable with its proposed system of ‘smart contracts’, including supplying all the requisite metadata around their recordings – royalty splits included – before uploading their tracks to the system.

As with other blockchain distribution platforms, the process will be considerably smoother for artists who aren’t already signed to a label or publisher.

One intriguing aspect to eMusic’s plans is the inclusion of other DSPs: this isn’t just something that the company wants to work just with eMusic’s service.

“We are working on collaborations with a lot of digital service providers,” says Koch, albeit without revealing any names. The obvious question is this: why would any of the leading streaming services want to get involved with the project?

Koch argues that they are already testing the waters by signing direct licensing deals with artists. He believes that blockchain technology (and, obviously in this line of argument, eMusic’s platform) could be the logical next step for them if they are bold enough to take it.

“No matter what happens to eMusic, this [direct deals] is the future of the industry. Spotify is doing it. Apple is doing it. The difference here is that we are doing it over blockchain,” says Koch.

“It is fully transparent and we are open to everyone. Apple does it for Apple. Spotify does it for Spotify. That is the difference between us and them […] We are open. We are transparent. And we are using blockchain to prove our transparency. And these guys are just there to serve themselves.”

Persuading these companies (or perhaps some of their smaller, but still significant) competitors to join eMusic’s blockchain bandwagon will be crucial if it’s to be more than a niche development, let alone being the revolution that Koch envisages.

He is also enthusiastic about the other smart-contract aspect to eMusic’s new platform: the crowdfunding side, for which selling shares in future royalties will be one part.

“Those who need funding to create their new pieces of art will be able to raise and sell royalties within their creations from the get-go to their fans or other people who want to go into business with them,” is how Koch puts it. “So we will create this crowdfunded and regulated platform that will allow artists to do that.”

It will not, however, be exclusively related to acquiring a percentage stake in royalty streams, and could also cover upfront investment in projects like album and tours, working on a similar level to Kickstarter, Patreon or Pledge.

The token pre-sale is the immediate task, with Koch suggesting that 25% of the money raised will be used to work on future features, while 50% is earmarked for marketing.

“Half of it will go to standard user marketing and half of it will go to content licensing,” he says. “We want to get them [artists] on the blockchain and give them distribution that would enable them to be on multiple DSPs. eMusic is great, but it is not the only DSP out there. We are a prominent but niche player and we want to make sure that the artists have distribution to all of those DSPs. That’s what the money’s for.”

But what if no other DSPs embrace these plans? Isn’t eMusic’s foray into the blockchain going to be condemned to being a niche offering?

“Even Apple, Spotify and Amazon combined don’t account for 20% of the people out there listening in the world. We are working on something that we cannot disclose just now [to do with] distribution that will allow us to go into over 100 different DSPs” counters Koch.

“Our promise to the artist is that it is not only on eMusic… You want to make sure you get to the masses. And to get to the masses, we need a lot of people. We have in place the distribution to put it into over 100 DSPs.”

eMusic’s blockchain revamp comes at an interesting time, with music downloads having fallen to just 20.5% of global recorded-music revenues in 2017 according to industry body the IFPI. Rumours that Apple is about to retire its iTunes downloads store reappear every few months, albeit without any sign yet that they are true.

Still, the sense of downloads as a transitional format between CDs and streaming is widespread, even if – see the recent indie-led resurgence (albeit from a tiny base) in cassette-album sales – few music formats ever truly ‘die’ any more. Where does that leave eMusic’s core business, which remains focused on downloads rather than streams?

“First off, it is obvious that streaming is growing; we can’t argue [with] the numbers. But there are huge numbers [of consumers] who still believe in downloads,” says Koch.

“Those people are collectors. The problem with the streaming model that the user is not aware of is that they have to sign on for $10 a month for life. The minute you stop paying the $10, you lose everything. There are hundreds of millions of people who will always want to have ownership. They will want to own their collection. They’re proud of it.”

If and when Apple does kill off the iTunes store, eMusic might pick up some customers, but whether that leads to significant, long-term growth is another matter. Koch’s argument here is that blockchain technology could also help eMusic.

“The other thing we are excited about with blockchain is that it will enable us to introduce new models that don’t exist in today’s world – because they are all fully transparent,” he suggests, before sketching out a possible new iteration for the service.

“What we want to do is a rent-to-own [model],” he says. “That is an idea that my marketing team brought up that I love. Say you don’t want to pay $5 for the download [version of the album] and want to listen to the album for a month? But if you listen to it for two or three months consecutively and have paid a dollar [each month to listen to it] and you reach that minimum amount [of $5], then it’s yours [and you don’t have to pay to listen to it again]. So rent-to-own is one thing.”

This idea – sometimes called ‘stream-to-own’ – has been floated before. Startup Voltra was talking about it in April 2017, although it recently announce plans to wind down its service. Blockchain-based cooperative Resonate is trying the idea in 2018: it’s even hashtagged the concept as #stream2own.

Koch has other ideas too. “Another thing that could come from blockchain is the ability to introduce common listening,” he says. “Right now all I can do is share what I’m listening to – but you and I cannot listen at the same time. That is another model that can come in through blockchain. Where I see the future for eMusic is to be able to introduce newer models.”

That’s for the future. In the shorter term, eMusic will be focusing on its token sale, its blockchain platform, and its efforts to persuade other DSPs to sign up for its vision of a smart contracts-driven transparent music industry. Koch has a final warning to ‘pureplay’ streaming services outside the big-tech giants (Apple, Amazon, Google) which he hopes will make them receptive to the idea.

“One of the reasons we are doing this blockchain [project] is because pureplayers in the music industry are suffering. Spotify’s loss is not staying the same – it’s growing. The more users they have, the bigger their losses,” says Koch, who cites iHeartRadio (which has filed for bankruptcy) and Pandora (whose losses are outlined in its quarterly financials) as other examples.

“A pureplay DSP cannot live in today’s society – but with the blockchain, they can,” he claims. “We are not there to eliminate them; we are actually there to encourage them. We are there to verify that the pie is split between the DSP and the rightsholder and cut out all of those intermediaries.”

He concludes with a flourish of bravado. “The goal is to make a sustainable business. In today’s market, you cannot be a pureplayer and have a sustainable business. That is what we want to correct. The blockchain will often benefit the DSPs; it is about a win-win for both the DSPs and the artist. We want to change the music industry; and that is what we are leading.”

It’s a bold roll of the dice for eMusic. If the pre-sale comes good and it hits its $70m target, the company could roar in to the next phase of its evolution. If it doesn’t, eMusic could find itself adrift on a digital ice-cap of its own making: the last pureplay defender of a melting format.