Blockchain’s ‘Transformative’ Impact Potential

Each technological advance has a disruptive impact on its predecessors. That is a given. Think about how TV affected radio listenership, how cable television changed viewing habits, how VCRs and DVRs eroded appointment viewing, and the list goes on.

Smart media companies are continually evaluating the opportunities and threats on the horizon. Moreover, savvy media companies are monitoring and even testing blockchain technology.

If you aren’t familiar with blockchain, Shelly Palmer, CEO of The Palmer Group, recently published a great tutorial about the technology. He points out that blockchain, which was originally developed as a distributed ledger for managing the cryptocurrency bitcoin, can be defined as “a continuously growing list (digital file) of encrypted transactions called ‘blocks’ that are distributed (copied) to a peer-to-peer (P2P) network of computers.”

Financial Management Implications

Blockchain’s ability to help organizations cut costs and improve asset management is already generating a lot of interest. An article in Industry Week observes: “The implications of blockchain technology are far reaching, with the potential to change many aspects of business across a variety of sectors.” The article goes on to describe the technology’s benefits as a tool for “cost savings, greater data transparency and shorter lead times.”

CFO magazine likes the distributed ledger technology inherent in blockchain, saying it offers the ability to improve the day-to-day functions of a corporate treasury team.

Blockchain’s Disruptive Potential

A recent guest commentary in Forbes magazine provides a glimpse into the ways blockchain could disrupt traditional business models. Prepared by Sunny Dhillon, a partner at the Signia Venture Partners venture capital firm, the article describes how several recording artists are already using the technology to exercise greater control over matters such as “content access, distribution and compensation; managing assets and digital rights; and financing, among others.”

Dhilion’s piece goes on to describe how blockchain is being used to monetize video gaming applications as well as its potential for managing online sales of tangible goods. He also cites Spotify’s acquisition of the digital rights management startup Mediachain as an example of how “the big players have sat up and noticed.”

Secure Business Applications

Spotify’s use of Mediachain for managing media assets is one of the reasons KPMG audit partner Padraic Kelly recommends TV station groups and other media companies explore the potential applications for distributed database management within their own organizations.

“In a distributed blockchain ledger, transactions are validated across many computers,” he explains in an article published in MFM’s The Financial Manager (TFM) magazine. “The intent is that records could not be altered unilaterally without altering all subsequent blocks, which would be readily apparent to participants in the peer network.”

Because every transaction is accessible, and all nodes in the network need to agree unanimously about the key transaction attributes, it becomes extremely difficult to corrupt information at any individual point of entry onto the chain. This also means that everyone in the chain “would have access to a shared single source of truth.”

Media Industry Opportunities

Kelly believes industries like media, banking and health care can greatly benefit by deploying blockchain because they typically rely on intermediaries to help manage the integrity of their value chains. “With blockchain, all transaction records are stored in a shared ledger and all participants have access to all records, which can streamline accounting, reconciliation, settlement and reporting activities for counterparties.”

Blockchain’s media management potential has already been generating considerable attention. In a white paper issued last week, the Interactive Advertising Bureau outlined blockchain’s benefits for buying and selling digital or advanced TV ad inventory, fraud prevention, white-listing authorized sellers of inventory, campaign reconciliation and validating advertising assets, among others. And earlier this week, Comcast announced it was evaluating the technology’s role in allowing customers to grant and revoke access to IoT devices in safe, secure manner.

Managing And Verifying Micropayments

The media industry’s experimentation with blockchain already includes tracking distribution of licensed music as well as the use of digital currencies to execute micro-payments for settlement of license fees. Consistent with the findings in the Forbes article, KPMG’s Kelly points out that “a streamlining of the licensing process would make it possible for artists to claim a higher percentage of the total revenue generated by their creativity while at the same time providing safeguards against fraud.”

Blockchain could also help to streamline certain aspects of media and financial audits. “To verify transactions, auditors may one day directly access evidence from the blockchain rather than from invoices, disbursements, reconciliations and confirmations.”

Smart Contract Applications

Media businesses might also benefit from “smart contracts” which are available in some blockchains. KPMG’s Kelly describes smart contracts as “self-executing digital contracts that can set prices or other variables depending on demand, point in time or other factors.” For example, a musical artist could price newly released songs at a premium price and then dynamically scale down the price as demand slackens or the content ages.

Challenges To Consider

Of course, as Kelly reminds readers of his article, blockchain isn’t a panacea for eliminating all fraud and unauthorized transactions. He points to several instances where “thefts exploiting programming flaws in early ventures centered on the technology.”

To protect against theft, Kelly encourages companies using blockchain to “apply a risk assessment lens to management of private keys and to utilize consensus mechanisms and network access permissions.”

Another current challenge is the time required to complete a transaction. At present, cryptocurrency transactions can take longer to process than those for credit cards. However, Kelly anticipates that the larger digital transformation will overcome these challenges as companies continue to modernize their technologies.

You can read the full text of Padraic Kelly’s article, which appears in the January-February 2018 issue of TFM, on the MFM website, where it will remain available for several more weeks. Given the growing interest in blockchain’s potential, it’s also likely to come up for discussion when the industry’s senior financial leaders gather for next month’s MFM CFO Summit. It’s already on the agenda for Media Finance Focus 2018, which will be held in the Washington area (Arlington, Va.) May 21-23. 

Whether bitcoin ever becomes a major disruptive force to traditional currencies, the growing number of news articles concerning blockchain point to the importance of staying ahead of its adoption curve. That is the best way to ensure the technology’s potential as a tool for better financial management and business modeling far outweighs its role as an impediment to future growth.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at [email protected] and via the association’s LinkedIn, Twitter or Facebook sites.