As a dense system of bespoke transactions, the world of royalties is ripe for disruption by blockchain technology. Smart contracts – the automated triggering of transactions based on predetermined parameters – stand to cut through the noise and simplify the collection and payment process from start to finish.
With the aim of better managing millions of unique agreements between parties, Microsoft and management consultancy giant EY have today launched a blockchain solution for settling and tracking royalty payments.
The platform will initially launch within Microsoft’s community of gaming partners.
Untangling IP and licensing transactions
Aside from gaming, the music, software, and publishing industries are full of complex agreements. Intellectual property and other assets are licensed out; creators are paid royalties depending on the terms of those agreements.
Within this web of agreements and third parties, millions of transactions add up to billions of dollars in royalties due every month. Currently, calculating those royalties tends to be a manual process carried out offline.
Microsoft and EY’s new solution uses JP Morgan’s Quorum blockchain in combination with Azure Cloud services. The result is a solution that, according to a statement from EY, brings “increased trust and transparency between industry players, significantly reduces operational inefficiencies in the rights and royalties management process, and eliminates the need for costly manual reconciliation and partner reviews.”
Embedded within the blockchain is a smart contract system designed to enable accurate and real-time calculation of each party’s royalty position.
Paul Brody, EY’s global innovation leader for blockchain, said that he believes blockchain’s flexibility, visibility, and scalability make it ideal for royalties management. “The scale, complexity, and volume of digital rights and royalties transactions make this a perfect application for blockchain,” he said.
“A blockchain can handle the unique nature of each contract between digital rights owners and licensors in a scalable, efficient manner with an audit trail for the participants. By deploying this on Microsoft Azure, we believe this will be highly scalable across thousands of royalties and content partners.”
Entry of partners will be staggered onto the platform to start with. Microsoft expects the blockchain network to manage thousands of royalty partners and, eventually, process millions of transactions a day.
That would comfortably put it among the largest enterprise blockchain ecosystems.
Microsoft and EY’s blockchain royalties solution will first launch among Microsoft’s gaming partners. The promise is improved visibility during the transaction process, and royalties settled far quicker than the usual month-long waiting times.
Gaming giant Ubisoft is one of the publishers testing the solution in its initial rollout. Loic Amans, senior VP of finance & strategic planning, said, “We are always looking at how to leverage emerging technologies in all facets of our business. The opportunity to collaborate with EY and Microsoft on blockchain use cases in the domain of digital contracts and royalties is truly exciting.”
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Much has been made of blockchain applications that are unnecessary, slow, complex, and unscalable, not to mention of companies incorporating the technology more for reasons of PR than substance. For example, US juice maker Long Island Iced Tea Corporation saw its shares jump by 500 percent after it added ‘blockchain’ to its name late last year.
But this appears to be a genuinely transformative application of the technology that stands to bring new levels of efficiency to what is a complex and highly diverse world.
Grace Lao, general manager of finance operations at Microsoft said, “Deploying this blockchain solution will allow us to efficiently manage high volumes and automate processes, while at the same time improve partner satisfaction and enhance compliance.”
“Smart contract technology is far more flexible and scalable than any prior solution for managing business agreements. We look forward to deploying this solution across our gaming ecosystem and exploring additional blockchain applications for other finance processes at Microsoft.”
Brad Wright, a software engineering manager at Microsoft, outlined the benefits that those involved with royalties can expect to see when using the platform.
“Powered by Microsoft Azure and blockchain technology, this solution helps demonstrate our ability to enhance trust with our gaming partners, and strengthen security, transparency and payment accuracy through the power of blockchain,” he said.
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