Microsoft turns to blockchain smart contracts for royalty payments

Who knew legacy royalties payments systems were so awful?

Microsoft has teamed up with EY to create a blockchain platform for royalties payments, using the JP Morgan Quorum blockchain and Microsoft Azure. The new system is being tested with Microsoft partner Ubisoft and aims to cut out the inefficiencies of the previous royalty payments system.

Like many of the most promising blockchain applications, it might be the solution to the problem of an exceptionally painful legacy system.

The scope of the problem

A game might include input from hundreds of different creatives working on the music, art, designs, voice acting and everything else. They might be independent, working through an agent, a large company in their own right or anything in between. Royalty payments might need to be paid constantly or at certain thresholds and divided in various different ways.

Typically, it takes up to 45 days, or more, to process a royalty payment. The multiple royalty calculations along the value chain are mostly done manually, says Microsoft, and are typically managed through offline data sources. The inevitable mistakes are just another layer of cost and complexity for the entire process.

This is the system through which millions of transactions adding up to billions of dollars per month in royalties are calculated and paid. It's slow, error-prone, opaque, unable to respond to the needs of the market and enormously expensive, but that's just how it's been done until now.

The solution

The solution is a blockchain network that can enable real-time visibility and calculate each participant's royalty position as well as automatically process payments while creating an audit trail. It can also digitise the "original" intellectual property itself in that way only blockchain can.

The system might be able to cut the turnover time from 45 days to somewhere between 0 and 1 days as well as cut the costs to just a fraction of the current expense. At the same time, it can allow for near real-time visibility of sales transactions among participants in the network, helping participants respond to market needs faster and more effectively.

"The scale, complexity and volume of digital rights and royalties transactions makes this a perfect application for blockchains," said EY Global Innovation Leader Paul Brody. "A blockchain can handle the unique nature of each contract between digital rights owners and licensors can be handled 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."

Ubisoft has volunteered to be one of the first test subjects, perhaps because it's getting closely involved with blockchain in its own way.

There's also the potential for integrating the same solution across other verticals to expand the benefits, bring more value to other partners and improve compliance across the board. Royalties payments might be where the need is greatest, but it's still just one area among many. This system might be able to cut costs and improve efficiency wherever business agreements are in play.

"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," said Grace Lao, general manager of finance operations at Microsoft. "We look forward to deploying this solution across our gaming ecosystem and exploring additional blockchain applications for other finance processes at Microsoft."

When rolled out, this system with its millions of transactions per day and billions of dollars per month is expected to be one of the world's largest enterprise blockchain systems.

Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and NANO.

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