Andrew Batey and Morgan Hayduk started out as MBA college friends, but are now the co-CEOs and co-founders of Beatdapp, a blockchain-based platform for records labels to track streaming plays.
When the idea behind Beatdapp was conceived, the two were at a football game in Los Angeles with a group of friends and contacts from the entertainment industry. The year was 2016. The team was the LA Rams. Batey was Managing Partner at a tech company in the music industry, and already a cryptocurrency enthusiast and buyer. Hayduk was working in the entertainment space as a lobbyist for greater copyright protections for musicians.
At the game, a representative from one of the largest record companies approached the duo with a unique problem: labels have no way to track the amount of royalties they are owed by streaming services in real-time.
At present, streaming services usually self-report play counts to labels, disclose the amount they earned from advertising revenue and subscription fees, and labels invoice streaming services for a percentage of the earnings reported by streaming services based on play count.
Concerns about usage, measurement, and immutability within this system were worrying record labels; they needed a secure way in which to audit their partner streaming services. Blockchain, which is decentralized, peer-to-peer, and cannot be changed easily, seemed purpose-built to solve this issue.
“We knew we had a problem that wasn’t widely publicly discussed yet. Everybody in music was, externally at least, focused on who owns what part of a song, but not necessarily thinking about the big picture – is the amount of money even accurate?” says Batey.
They co-founded Beatdapp in January 2018 in Vancouver, along with Pouria Assadipour, who spearheaded the product development while the startup was in stealth mode for 15 months, and is now the CTO of the company.
“No one had ever built the tech before – a blockchain capable of processing a million streams per second. Most blockchains do a couple of hundred transactions, maybe 40,000 – 50,000 transactions per second,” says Batey.
He adds that Assadipour was “banging his head against the wall for a year” in his attempts to build the technology. Nevertheless, the team persevered.
Only after they were able to deliver the throughput required and prove their concept did the Beatdapp team reach out to the labels and start signing them, and build the business’s revenue pipeline.
Once the startup emerged from stealth mode, it quickly attracted media attention, particularly after graduating from the 500 Startups seed accelerator program. Last year, the company also participated in two other accelerators – Creative Destruction Lab and Project Music – and raised US$3.2 million last October.
“It was kind of a perfect storm of circumstances that led to that, and then just a lot of hard work,” says Batey.
A multi-billion-dollar problem
Batey and Hayduk approached several labels to find out if the problem was widespread. All labels confirmed that it was a huge issue for them.
“It was kept under wraps because without a solution, the last thing you want to do is tell everyone that the boat’s on fire,” Batey explains.
According to Batey, music labels usually conduct audits every three years, and in the 50 audits that they heard about or saw the results of, not a single case had an accurate play count track.
“The best-case scenario was 8% under-reported, in the worst case it was 31%, with the average being 15% under-reported,” he says.
According to a report by the Recording Industry Association of America (RIAA), in 2019, total revenue from recorded music in the U.S. grew 13% year-on-year, from $9.8 billion to $11.1 billion. Moreover, total revenues from streaming music grew 19.9% to $8.8 billion in 2019, accounting for 79.5% of all recorded music revenues.
This is the fourth year in a row of double-digit growth, most of it through paid subscription services, which reached more than 60 million subscriptions in the U.S. in 2019. The same year, the streaming market alone was larger than the entire U.S. recorded music market in 2017.
The picture of multi-billion dollar losses in revenue for record labels from streaming services thus painted, the gravity of the problem became obvious, and the Beatdapp team dived deeper into how blockchain could solve it.
They dedicated a year to prototyping, testing, and stress testing their system, which can now handle 1 million transactions per second – around twice the previous industry standard, according to Batey.
Scalability is critically important for Beatdapp because even with this kind of capacity, the sheer volume of music being streamed globally is mind-boggling, and only continues to grow.
As an example, in 2019, the growing number of on-demand streams reached 1.15 trillion streams in the U.S alone. Even with Beatdapp’s ability to process 1 million transactions every second, tracking this volume would take Beatdapp a full 13 days.