In my piece, I explained that music labels are what blockchain-lingo calls a “trusted third party”. The blockchain’s appeal (to the community and investors) largely derives from its potential to replace those trusted third parties with algorithms. Labels fall into that category because rights handling — one of their essential services for artists — is a TTP function. Since their business model is largely based on owning those rights, any technology that enables an alternative approach is potentially a threat to them.

I then looked at the acquisition from Spotify’s perspective. I wrote (emphasize added):

As I’ve written before, the streaming service’s best long-term scenario would be to own the music. The second best option is not having to deal with the labels, albeit not owning the music. This way, the company at least wouldn’t have to pay fortunes to the labels without turning a profit itself.

The second scenario is a world where entrepreneurial artists release and manage their work in DIY fashion. But for this model to become a mainstay among creators, it must develop into a profitable alternative to the label system. …

One important component of such a future: a system that allows artists to earn royalty dollars from their music. This requires rights handling, particularly when music is accessed, not purchased. …

Trying to replace them [the labels] is playing the long game. But we can be confident that many will try to challenge the status-quo. I assume that Spotify just joined them.

David, meanwhile, first explains many (valid!) concerns on the technology & data-side of things. Those details aren’t to be glossed over. They are the reason why we overestimate the change that will occur in the near future. The challenges David describes are real. Yes, I tend to believe that most of them will eventually be solved. But it will certainly take time. And likely more time than many blockchain optimists would hope.

The standard comparison I use to classify blockchain technology is the internet of the early 90’s: Still way to go, with many failures to be expected on the road ahead. But the core idea is simply too promising (in many respects); people will continue to work on it. Think back to the web’s early days. Then, too, we had many skeptics as well as a bunch of optimists. As we have witnessed, the impact turned out (and still is!) profound but it also took time. And not every possible scenario materialized.

However, the key part of David’s argument, the part where I think he’s overlooking an important detail, is here (emphasize mine):

The proponents’ business goal is to become the organisation controlling the newly cleaned-up data, with a monopoly maintained by network effect. The barrier that such efforts founder on, over and over, is that no industry’s players want to create a new central octopus.

One problem nobody seems to mention: incumbents will treat technological change as a threat and resist it as bitterly as they have every other technology. …

And the other problem: the record companies are still way too interested in keeping their actual deals secret. Because, as IBM was actually surprised to find out with their Hyperledger blockchain project, real-life businesses of all sorts don’t want to share data even with all participants in their blockchain, but only with the people each specific deal is actually with. Funnily enough.

The first highlighted point is mostly true but there is an exception: If your business model is being a platform — that is you aim to be the central place where all transactions between users and suppliers happen — you yourself need to become the “central octopus”. It’s the very definition of being a platform/aggregator. And it’s Spotify’s business model.

His points regarding the incumbents opposition to change aren’t wrong. To the contrary. These objections admittedly present an obstacle; but not an insurmountable one. A little thought experiment will explain why.

Let’s find out how a plausible path to a future with a broadly accepted music blockchain would have to look like. As you will see, the industry incumbents — the major labels — likely wouldn’t play a big role in it. And Spotify is particularly well positioned to pull it of (compared to anybody else).¹

A word of warning: I don’t claim that the following is going to happen. But I do regard it as feasible:

1. Create a digital music distribution system that establishes a direct relationship with users
2. Grow it to the point that artists can reliably use your system to reach a sizable audience and establish a working business model
3. Once the platform scaled on the user side, start offering services that present a different solution to managing rights & royalties. Target it at new artists. Don’t try to own the rights. Simply create the infrastructure that gets the job done.
4. Iterate on that system until it works flawlessly and grow it over time
5. Once it has proven to be a workable solution, start to target established artists

A few remarks.

I’m well aware of the delicate balancing act streaming services and labels are performing in their struggle for power. I’ve written about it at length. But the appeal of the approach above is that you might be able to pull it off without creeping on the label’s turf too obviously. You don’t set out to take artists they already signed away from them. It’s basically the Soundcloud approach — yet with an established distribution platform and a business model in place.

A critical component would be to not even try to own the rights. Currently, any large-scale attempt to do so by a streaming platform would certainly result in displeased labels. As any streaming service relies on the access to their catalogues, that’s not an option. But you might get away with trying to build a rights-management infrastructure, especially when targeted at newcomers. It doesn’t necessarily take blockchain technology to build such a system, but it certainly has some useful things built-in.

If you could pull that of, time would work in your favor. At least if your system is profitable. Than, more and more young artists might end up using it. At that point, having a large-scale distribution platform and a business model in place matters. Young artists love Soundcloud. But once they become famous, Soundcloud no longer is a good option because it doesn’t make you money.

Spotify is in a different position though. While the company is still fighting to become profitable (its new deals certainly are an important step in the right direction), it is continuously growing its base of paying users. A few months ago, it has crossed the 50 million subscriber milestone. That’s great because Spotify’s revenue depends on scale. But profitability is also contingent on the cost of content Spotify has to bear. Lowering these costs by being less reliant upon the labels’ catalogues might go a long way in that regard.

That doesn’t take a full-blown attempt to turn into a label. Creating an alternative rights-handling system as infrastructure for artists might do. It’s not a quick fix because it takes time to come to fruition. But it might be feasible, whereas the former isn’t (at least right now). The prerequisite, of course, is having a large user base that makes it attractive for artists to join.

Spotify fulfills that criteria. It isn’t just another obscure blockchain startup. It is the biggest platform of paying music fans. If anybody is in a good position to try and build such a system, it’s Spotify. Particularly if it can do so without offending the labels in the early stages. To that end, their established relations with the labels (including their minority stake in Spotify) and the sizable revenue it creates for them are assets.

This, in brief, is what David’s analysis, in my opinion, undervalues: Spotify “owns” music users. Hence, it is better-suited to experiment with alternative rights-management models than almost anybody else. In the long-run, such a system comes with upside: the potential to grow into an alternative to labels. Yet, the money Spotify makes them, might just convince the labels to resist not quite as bitterly as they do with every other technology.

Making a desired future happen takes time, the resources to survive the meantime and a good strategic position. Twice so in the face of powerful incumbents. Right now, we don’t even know whether Spotify even wants to go in the direction I laid out. Even if they do, success remains uncertain. But pursuing that path would be aligned with the company’s best interest. And as of right now, they are in a pretty solid position to try.

¹ Apple, while not having the same user base, has a way bigger warchest. Yet, Apple Music isn’t central to the company’s business. In theory they could go down that route as well. But I’m not convinced they are focused on doing so.

Thomas Euler: Analyst, writer. At the intersection of tech, media and the digital economy. Founder of www.attentionecono.me. For more info check: www.thomaseuler.de | Munich