Spotify acquires blockchain startup Mediachain Labs to solve music royalties issue

Blockchain startup's employees expected to build a 'shared data layer' to solve music payment problems

Spotify, the popular streaming music service, has bought a blockchain startup, dubbed Mediachain Labs, in a bid to solve a long-standing issue with ensuring that the right contributors are paid for music streamed via its service.

The Swedish company has run into several issues over royalties in recent years. These include the amount paid, and the ability to know who to pay because of the large number of rightsholders and content creators.

In 2015, the company was subject to a $150m class action lawsuit over unpaid royalties, and last year the company settled a long-running licensing dispute with the National Music Publishers Association (NMPA) in the US over unpaid royalties. Spotify agreed to pay more than $20m to music publishers as a result of the settlement, as well as a $5m penalty.

Mediachain aims to help solve this issue by bringing together information that exists in proprietary databases, spreadsheets, email inboxes and long-form contracts that all are currently maintained by separate organisations.

Its founder, Jesse Walden, said in a Medium blog post last year, that the problem was that there is no central database to keep track of information about music.

"Specifically, there are two types of information about a piece of music that are critically important: who made it and who owns the rights to it. Right now, this information is fiendishly difficult to track down, to the great detriment of artists, music services and consumers alike," he wrote.

The company has spent the past three years developing an "open decentralised data infrastructure", as well as building applications to help with attribution for creators, and a prototype for its own cryptocurrency.

However, it isn't the existing technologies that Spotify is interested in - these will be turned over to the open-source developer community. Rather, it wants the people behind the company to build something new.

In a blog post, the acquired company hinted at what this could be: "A shared data-layer is key to solving attribution, empowering creators and rights owners, and enabling a more efficient and sustainable model for creativity online," it stated.

"The opportunity to join an organisation that shared this vision comes at a time when the relatively nascent blockchain community has few bridges to mainstream consumers, creators or the platforms they use to interact."

Mediachain's employees, who are based in Brooklyn, will move into Spotify's New York office as part of the deal. Financial terms of the transaction were not disclosed.