Smart Contracts as a Solution for Automated Royalty Distribution: Implications for Copyright Management in Digital Media

Abstract

Although the digital media ecosystem has changed creation and sharing of content, existing copyright management systems suffer from inefficiencies, such as slow payment of royalties, a lack of transparency about how much an artist is owed, high administrative costs and difficulties in tracking cross-border use. One of the most promising methods for addressing these shortcomings is the use of smart contracts, which are self-executing applications that work off a public distributed ledger called a blockchain to automatically pay royalties at the time of use, based on preconfigured conditions that are based on a predetermined number of streams, downloads or views. Current study explores the technological architecture, relevant legal issues and practical implications for automated payment of royalties to content creators through the use of smart contracts in the context of music services, audiovisual works and digital publishing. The smart contracts allow peer-to-peer transactions without a third party, based on elements of the blockchain, like the principles of decentralized consensus and immutability (integrity). The legal issues related to smart contracts using code as a contract include whether smart contracts will be legally enforceable across different jurisdictions, whether a smart contract's code can be considered enforceable with moral rights, and concentration on complying with different data privacy laws, e.g., the General Data Protection Regulation (GDPR) in countries where blockchain is essentially immutable. While smart contracts can address a number of the core pain points associated with these areas (i.e., transparency gaps, fragmented ownership data, transactional friction), they must overcome various challenges to achieve broad acceptance. These challenges include scalability; the reliability of oracles for off-chain data; interoperability across disparate blockchains; regulatory uncertainty related to anti-money laundering/know-your-customer regulations, and taxation; and a lack of statutory recognition of smart contracts, standardized metadata for ownership rights, on/off-chain hybrid models, and international harmonization via treaties.