The film industry is traditionally slow, manual and opaque with a reliance on error-prone payment processes and a reluctance to digitise. Research shows that 25%-30% of revenues in film and TV go underreported, payments are delayed for years, and sometimes they never reach the owners. To make things worse, the industry suffers from ‘Hollywood accounting’, a term used to describe the creative accounting methods used by middlemen to preserve opaqueness over revenue flows for their own financial benefit. At FilmChain, we’re changing this, by exploring new and innovative ways to bring automation and transparency to film revenue distribution.
Blockchain technology is reshaping media with its promises of efficiency, transparency and automation.
Since 2017, we’ve been exploring the application of blockchain technology in the media industry with its promises of efficiency, transparency and automation. We’ve been lucky to be able to collaborate with top academic institutions including Imperial College London and their Centre for Cryptocurrency Research and Engineering department and University of Toronto’s Creative Destruction Lab.
A blockchain is a database of transactions that are recorded chronologically on a decentralised, peer-to-peer network. Transactions are sealed inside interconnected-blocks which form a chain, creating a record of transaction that is cryptographically secure and immutable. The data stored on the blockchain is accessible to all participants of the network, making it useful for tracking and verifying anything from revenue distribution to rights ownership.
Our top learning has been that the adoption of an emerging technology like blockchain brings many challenges with it. Industry acceptance is held back by misperceptions and a lack of understanding of blockchain; the technology is often confused with cryptocurrencies and it shares the negative press around unsuccessful Initial Coin Offerings (ICOs). On top of this, we’ve seen over the past 5 years many companies half-heartedly adopting blockchain technology to access opportunities for funding without much thought for long-term value. This has created an industry-wide reputation of blockchain companies as hyped but yet to deliver significant value to customers.
We’re prioritising long-term value over short-term gain in our adoption of blockchain.
At FilmChain, we’re doing things differently by exploring a business application for blockchain that provides long-term value to our product. We’re utilising smart contracts to manage exploitation rights, and distribute revenues. Smart contracts are digital, self-executing contracts that can be encoded with conditions of a distribution or sales agreement before being stored on a blockchain. In our case, collected revenues are transferred to the smart contract and automatically distributed in real-time to the relevant stakeholders. Any transactions to and from the contract are recorded on the blockchain and are verifiable by the stakeholders that have contractual rights to verify, adding much-needed transparency to film revenue distribution. Also, on-chain contracts cannot be changed giving film stakeholders the confidence that revenues will be distributed as agreed, eliminating the need for costly third parties to audit the distribution process. Audits have prevailed on many films where some stakeholders suspected that shares of revenues haven’t been properly managed and the auditing processes are not only expensive but also hold up further distribution of funds until the disputes have been settled.
We’ve also been exploring the application of non-fungible tokens (NFT’s) to authenticate and protect stakeholders’ ownership rights. Non-fungible tokens are unique pieces of data that are stored in a smart contract on the blockchain. They can be encoded with the attributes of a stakeholder’s right to claim revenue before being distributed to the stakeholder’s blockchain wallet. This creates an immutable and verifiable record of ownership, protecting the stakeholder’s rights and bringing more transparency to the distribution process. One exciting project that has fully embraced our NFT work is MAD HEIDI, an ambitious independent film that is shooting later this year.
What we learned through our blockchain journey:
- Start on a private blockchain. We were tempted to dive straight into using a permissionless, public blockchain. This was not an option during the research and development phase as we were faced with no flexibility, high transaction costs and too much visibility. We started on a private Ethereum blockchain and are aspiring towards migrating to a public one, giving us the freedom to make mistakes and address clients’ privacy and confidentiality concerns. In an industry where lawyers and confidentiality clauses dictate good standing business, we had to adapt the tech to meet requirements. While playing with permissionless, public blockchain, we found exciting startup companies out there that were laying the foundation of privacy preserving mechanisms on public chains. When methods of encryption will permit stratification of visibility and layers of access to different stakeholders that fulfil the obligations of our clients’ contract, we will explore public blockchains once again. While we are blockchain agnostic, we have found Ethereum a great provider for our needs.
- Prepare for technical challenges. Blockchain is an emerging technology which poses many challenges. Solidity, the language we’ve used for programming our smart contracts, is under-developed with limited documentation and few verified and maintained libraries compared to mainstream languages. For us, the development phase required a lot of patience due to tasks taking longer than what we had predicted. On a positive note, we found the community of blockchain technologists vibrant and ready to help budding projects. There is a great sense of camaraderie and there are a lot of forums, gatherings, virtual or in-person meetups to discuss and solve challenges.
- When speaking with clients, focus on the benefits and not the tech. Navigating the blockchain space can seem intimidating and overwhelming, with high knowledge-barriers to entry. When communicating with clients , we emphasise the benefits of the technology without delving too much into the technical details. This was key in order to gain adoption from global players in the film and TV space. Some clients were eager to learn more about the tech and asked fantastic questions once they understood the value added.
- Embrace the stigma. There is a lot of stigma surrounding blockchain that may put off clients and investors. We’re coming out of the experimental and highly R&D stage of many blockchain pilots. Some projects promised the world and delivered little or nothing at all — others continue putting in the good work and show clear progress. Many pivoted along the way. In this landscape, it’s easy to see why the scepticism is high. We recommend to stay focused on fundamentals and don’t shy away from the hard questions from clients and potential investors. Once the value proposition and the use of blockchain are clear, defending the innovation is much easier.
What’s next for FilmChain
At FilmChain, we believe in blockchain. We see value in building trust with our clients by giving them access to a technology that allows them to verify and audit film revenue streams and revenue shares themselves. It’s a true paradigm shift to say “don’t trust us”, “just go and verify your data, yourselves”.
As we are growing our own catalogue of serviced titles, we want to expand on unique film rights representation through non-fungible tokens and create a robust secondary market for film ownership rights. This will create the much needed liquidity for stakeholders and beneficiaries, a pain point that has often come up in our research.
As the industry is managing growing catalogues amidst increasing calls for transparency, a blockchain infrastructure will become ubiquitous from top media enterprises, studios, broadcasters, networks all the way to the independent sector. Just like analytics became a commodity rather than a USP, so will blockchain infrastructures.