A new era of the music industry? Blockchain and value co-creation: the Bitsong case study

2.1 Value co-creation and blockchain

Most research on the linkage between innovation and VCC has emphasized the positive aspects of the roles of buyer and supplier (Chowdhury et al., 2016). Indeed, business models ultimately lead to value generation by effectively facilitating interactions between suppliers and buyers via an innovative platform, such as blockchain (Panayides, 2006). The interaction process between actors is not always harmonious, as is true for all interactions in the context of relationships.

Value creation, a significant issue in economics, business and management studies, has taken on new meanings and consequences over time, developing into co-creation of value at the beginning of the century (Prahalad and Ramaswamy, 2000, 2004; Vargo and Lusch, 2004). The term's beginning may be found in the manuscript of Kambil et al. (1996), who used it to underline the importance of consumers in corporate strategy; nevertheless, Prahalad and Ramaswamy (2000, 2004) were the authors that popularized the concept of VCC.

At the definitional level, VCC still has uncertain boundaries, as few studies explicitly clarify its meaning and contents (Neghina et al., 2015). Overall, VCC theory gives a valuable framework for understanding how to add value to “existing value” (Ramaswamy and Ozcan, 2014) or use existing value to lead growth through interplays between firms and actors. Moreover, it delineates actions related to the participation of actors as active partners in service innovation through various interactive channels.

Several studies have investigated the paradigm of VCC. According to Hilton et al. (2012) value, being a personal evaluative judgement, cannot be co-created; instead, actors realize it as an outcome of service co-creation. Therefore “value is subjectively determined, and it is considered the outcome of the service co-creation process” (Neghina et al., 2017). The fundamental assumption in such service systems is interaction for the co-creation of value (Durugbo and Pawar, 2014) where the co-creation process involves customers as part of the value chain, i.e. as an individual that adds value to a service or product (Prahalad and Ramaswamy, 2004; Vargo et al., 2008).

Yi and Gong (2013) developed and validated a scale to measure customer VCC behaviour in conformity to the two central notions of customer participation and citizenship behaviour. The first notion fits the required behaviour necessary for successful VCC. Customer citizenship is intentional behaviour that is not crucial for VCC, even if helpful to give extraordinary value to the firm.

To further develop the conceptualization of VCC, Neghina et al. (2015) proposed one of the first studies dealing with a conceptual understanding of VCC. They illustrated a framework regarding VCC in six dimensions correlated to more straightforward joint actions (individuating, relating, empowering, ethical, developmental and concerted collective efforts).

These authors also hypothesized nine antecedents of VCC, described as the communication, relating and knowing of customers' behaviour in co-creating value. Co-creation interactions necessitate both analogical and digital communications and unique management strategies. Parallel to the massive volumes of data that have been available to enterprises' external stakeholders and the growing digitalization, the need arose for a change of traditional VCC methods. Co-creation, on the other hand, still presents many challenges, including the complexity related to stakeholder participation, problems in opening up value chains, and trust and intellectual property issues.

In an increasingly digital corporate environment, the challenge of innovation asks for a comprehensive grasp of the function of information technologies such as blockchain and how they influence the design of new business models capable of generating value.

Only recently has the potential of new technological innovations, such as blockchain, been given attention as a source of competitive advantage in the ongoing debate on economic value creation (Erevelles et al., 2022; Mačiulienė and Skaržauskienė, 2021; Zhang et al., 2021).

BT, or Distributed Ledger Technology (DLT), is a database system that preserves every data transaction processed in a network of various nodes or computers (Coyne and McMickle, 2017; Dai and Vasarhelyi, 2017; Kokina et al., 2017; Tapscott and Tapscott, 2017; Pimentel and Boulianne, 2020); it serves to record and share information through a peer-to-peer network.

BT provides a paradigm change away from the Big Data paradigm, which permits businesses and governments to utilize sensitive customer data also for nefarious reasons. It is gaining traction as a solution to Big Data's major issues (Erevelles et al., 2022). Among other things, it establishes:

1. Trust through consensus and cryptographic proof: peers validate transactions, and no single party controls the data;

2. Security through a distributed and encrypted database, making it more difficult to compromise than a centralized database;

3. Privacy using a system of public and private “keys,” where a user's public information is viewable by anyone in a network, but one's private information is protected with cryptography;

4. Transparency using pseudonymous identities, where transactions are viewable by everyone in a network, with real identities provided if needed;

5. Disintermediation, where transactions occur directly between peers, without intermediaries.

In the framework of VCC, the adoption of BT is seen as a powerful tool to alleviate trust issues and intellectual property appropriation concerns (Seulliet, 2016). Ian Grigg is a financial cryptographer that introduced the idea of the value of a digitally signed receipt backed up by financial cryptography between two parties that can be controlled by a shared third entry. By bringing a significant theoretical improvement to the business recording system, this novel methodology minimizes both transaction fraud and the entity of internal recordings (Cai, 2021). However, BT not only has the ability to create trust in decentralized data storage but also has the potential to bring about radical changes in business automation, digital economic models, investment ecosystems and even transform the governance paradigm by incorporating decentralized participatory governance paradigms into multi-stakeholder digital business environments (Zutshi et al., 2021).

Admittedly, BT can be considered an opportunity and a threat like any other innovation. This latter scenario is primarily due to technological threats, such as ransomware assaults on the BT network (Moll and Yigitbasioglu, 2019), although blockchain ensures highly secure transactions (Deloitte, 2016). Other potential problems could come from the anonymity of some cryptocurrencies, which could be used to trade potentially in suspicious criminal transactions or laundered funds, or to fund terrorist acts (Turner and Irwin, 2017).

Even though DLT is a relatively new phenomenon, it constantly combines some well-known technologies in new and creative ways. As new functions are added to technology, the related value proposition shifts. Angelis and Da Silva (2019), exploring the relationship between BTs and their underlying value drivers, identify four distinct blockchain stages of increased maturity, each of which corresponds to a specific type of value driver. Table 1 synthesizes the fundamental logic that determines how specific drivers generate value along the evolutionary stages of the blockchain (Angelis and Da Silva, 2019).

It is worth noting that the range of applications grows as DLT develops and refines. However, a typical assumption is that some business actions stay the same regardless of which technology is used. But this last choice could be wrong as growing technology usually offers new products or services and changes in the sought-after and derived benefits. Value drivers related to the use of BT can also be referred to as the VCC notion, given the above-described capability of this paradigm to provide a helpful framework for figuring out how to add value to “existing value” (Ramaswamy and Ozcan, 2014). In this context, BT has opened up a whole new universe of possibilities regarding social, financial, economic and technical advancements and gives it its multi-level dimension.

The blockchain notion can be linked to network theory; according to Gummesson (2008), “a network is made up of nodes (such as people or organizations) and relationships and interaction between those. Network theory is part of ‘complexity theory’, recognizing that numerous variables interact, that the number of unique situations is unlimited, that change is a natural state of affairs and that processes are iterative rather than linear” (p. 2).

In trying to understand the complexity of the subject, great importance is assigned to the “value in context” notion (Chandler and Vargo, 2011), where “contexts” are groups of distinct actors with specific knowledge, abilities and reciprocal relationships. A value network, or context, is a multidimensional phenomenon that presents a distinctive environment with multiple levels of interactive collaborations (Best et al., 2022). As resources are accessible by various actors, they connect actors one to another (and vice versa), and for this interconnection, they are valuable as “together, the connected actors influence the ‘expansion and contraction’ of a resource […]. As a result, disparate actors access resources that they do not own or unilaterally control, they become connected because of their joint access to a resource” (Chandler and Vargo, 2011, p. 37).

It is important to recognize that each part of the network is always linked to the systemic context. According to Alves et al. (2016): “Depending on the context, resources may or may not hold value to a specific actor; therefore, the context influences the co-creation of value” (p. 1628).

This perspective makes complex system context such as blockchain more understandable by adopting systems-level thinking to explore how actors combine through exchanges within a specific context and investigate how that context frames value creation and exchange (Chandler and Vargo, 2011).

Accordingly, value within our setting – the Bitsong ecosystem as a blockchain network – can be viewed at different levels that coincide with fundamental VCC processes. In this line, Chandler and Vargo (2011) distinguish the three levels at which value is created through exchange and integration of multi-actor resources:

1. At the micro-level, where individual stakeholders (funder, staff, directors) exchange resources to directly benefit other stakeholders, making knowledge exchange a dyad;

2. At the meso-level, as a triad of knowledge flows for service exchange in the network;

3. At the macro-level, the context for service exchange is a complex network in which different stakeholders share knowledge and interact in direct and indirect service exchanges.

These three levels also imply that value created and/or destroyed at one level, such as the micro-level, may impact value created and/or destroyed at the meso- and/or macro-levels (Best et al., 2022). The presence of a meta-layer representing the evolution of each level is helpful in understanding the evolution of each of the three levels over time. For each level, the VCC is unique on that level (Chandler and Vargo, 2011).

2.2 Blockchain in the music industry

Since its introduction in 2009, businesses have explored the use of BT in countless ways. In this line, over the last few years, BT has gained popularity in various industries (Coyne and McMickle, 2017; Dai and Vasarhelyi, 2017; Kokina et al., 2017; Pimentel and Boulianne, 2020). In particular, independent music companies are slowly but surely recovering control over their money and art thanks to BT.

From an economic standpoint, blockchains facilitate the transformation of a centralized platform into a free market for the exchange of values. As a consequence, they attract participants (stakeholders), fuelling the participation required for the platform's existence, at the same time.

Based on the organization and functioning of the music industry in the pre-digital era, the value chain of the record industry had a simple and linear structure, the salient phases of which were the creation of musical pieces, their recording, the production of supports, the physical distribution, sale and, finally, consumption. The traditional marketing of music took place through a distribution network whose control was in the hands of the record companies (Vaccaro and Cohn, 2004).

With the advent of digital technologies and the Internet, the dynamics of the sector have changed and evolved. The most significant effects have occurred in the promotional and distribution phases. Digitization and the consequent lowering of costs and entry barriers, on the one hand, have made it potentially possible for artists to record their songs and reach fans without necessarily going through a record company. On the other hand, they have facilitated the entry of new actors into the sector, such as Internet Service Provider companies, ICT companies and digital intermediaries, such as streaming platforms. The advent of digital technology led to the entry of a new category of players in the supply chain: Aggregators.

Aggregators are intermediaries that allow the distribution of music content on digital platforms, such as Spotify, iTunes, Deezer and other players. In addition to uploading and managing songs on the platforms, Aggregators are also responsible for collecting royalties deriving from the sale of music and then distributing payments to artists and record companies.

Hosoi et al. (2016) argued that the possibility for artists to self-produce quality recordings and self-promote through digital channels is the result of disintermediation that has shifted most of the time value generated by record companies, small and niche artists, and new digital services. Furthermore, the advent of streaming has resulted in a general decline in revenues shared throughout the supply chain (De León and Gupta, 2017).

The music industry is also one of the most complex markets that have faced and are still facing numerous challenges today (Chalmers et al., 2021), as happened with the paradigm shift brought about by streaming and as is currently happening with the complex licensing and copyright systems that pose considerable problems and difficulties for rights holders.

In the cultural sector, the music industry was the first to be affected by digitization. Digital transformation of music products began in the 1990s with the appearance of mp3 and continued with the spread of peer-to-peer networks and streaming, until today, when the affirmation of Pay per Play systems continues unbounded.

According to International Federation of the Phonographic Industry (IFPI) data, the size of the global recorded music market grew by 7.4% in 2020. Due to steady growth in paid subscription streaming revenues, which offset a fall in physical and performance rights revenues, this was the sixth straight year of increased revenues. Streaming was responsible for growth in eight of the top ten markets worldwide. Subscription streaming revenues, in particular, grew across the board. Record firms' continued investment established the groundwork for the dominating digital industry and strengthened its resilience in the face of the unprecedented circumstances of the pandemic in 2020. Despite these developments, many artists complain about a lack of transparency in administrating their licenses, months or years of waiting for royalty payments, and insufficient and unjust pay-out levels. The music industry, despite adversity, is growing steadily all over the world. Sector bureaucratization, information asymmetry between the creative and distribution sectors, growth in the number of intermediaries, unfair distribution of royalties and the spread of piracy (Borja et al., 2015), however, threaten the sustainability of the system, mainly to the detriment of the artist, who receives only a tiny part of what is generated by his work. In this regard, online streaming services certainly do not help since the commissions paid per listen are extremely low. Listeners are not doing too well either, being forced to navigate different platforms (and their subscriptions) to listen to their favourite music.

Today, with the advent of blockchain, the music industry is facing another potentially disruptive innovation: blockchain may undermine and question many aspects such as centralization and intermediation on which it has always relied; firstly, the power of the big record companies and secondly, streaming services and other features on which the structure of the music industry as a whole has been based.

In recent years, DLT protocols have attracted the attention of many artists and musicians who have seen the potential for a new era of innovation for the music industry, able to create conditions for the development of a more sustainable business model capable of solving many of the main problems outlined above, such as the need for adequate levels of remuneration, faster and more efficient payments and, in general, greater transparency in the management and monetization of music rights.

3.1 Methodology

To shed light on how the application of blockchain in the music industry can lead to a VCC process, we adopted a qualitative-based approach (Plakoyiannaki and Budhwar, 2021) constructed on a case study research methodology (Eisenhardt and Graebner, 2007; Ojasalo, 2008; Yin, 2009). This method is suitable to investigate the adoption of innovation in a specific setting. Our case study (Bitsong), being a pioneer and in some way a unique case, allows contextualizing the multi-level implications of blockchain adoption representing a complex and context-bound phenomenon that is not suitable for study in other modalities (Halinen and Törnroos, 2005). Compared to other methods, this method is regarded as appropriate for the study since it provides a more accurate and complete evaluation of the subject matter; the case-oriented methodology makes specific facts understandable (Ragin, 1999).

Regarding the type of approach, we preferred to perform interviews based on open questions, since they present certain advantages over closed questions: (1) the respondent can answer in their own terms; (2) the questions do not suggest certain kinds of answer to the respondent; (3) they are useful to explore new areas or ones in which a researcher has limited knowledge.

As Alles and Gray (2020) point out, it is essential to place BT within the business environment in which it operates. In this regard, case study research enables in-depth and contextual analysis of a real-life phenomenon (Yin, 2009), highlighting the complexity detected in an activity involving various sources of evidence and a large amount of data. Another reason to investigate this specific case in depth is that Bitsong today represents a starting point of an essential cultural change (Ragin, 1999) in the music industry.

A preliminary literature review was conducted at the start of the study. As the data analysis progressed, a second literature review was conducted to compare and relate the findings to earlier studies.

The phenomenon's complexity required a holistic approach. For this reason, the research uses combined data collection tools constructed from various sources: official documents, Internet documents, the Bitsong website, published interviews, scientific papers, direct observations, semi-structured interviews with key informants, and informal follow-ups based on e-mails and short phone interviews. Semi-structured video and face-to-face semi-structured interviews were deemed the principal source-gathering instrument for the study and helpful in offering flexibility in approaching the respondents (De Villiers et al., 2019). It is important to note that observing facial expressions or body language can help the researchers better understand the interviewers. However, in some cases, video interviews can lead to substantial advantages (De Villiers et al., 2022). Due to the Covid pandemic, this solution became preferential owing to the safety linked to reducing contact and travel. Significant open questions were formulated as broad statements, followed by more specific questions to obtain relevant data for the study. At the same time, some questions do not precisely match our research questions with the intent of encouraging interviewees to talk about a topic.

Specifically, 12 interviews focusing on the VCC phenomenon surrounding Bitsong were conducted between September 2021 and April 2022.

On average, 60 min interviews were audio-recorded, transcribed and analysed.

The interview questions help to understand the motivations underpinning the organization's development of the value network; the different forms of value experienced at the personal, organizational and network levels; and how the value was created, provided and captured. The general approach helps understand VCC factors and outcomes at different levels of the blockchain and the interactions among the three levels investigated.

The diverse respondents and the various circumstances allowed a wide range of opinions to be apprehended. After each interview, transcription was an essential point for subsequent discussions. Data were analysed and interpreted using steady comparative analysis to find starting concepts, link this evolving set of ideas to higher-level categories, and then, when required, establish potential linkages between classes (Sarker et al., 2012). The constant comparing process implicitly involves data triangulation across respondents, types of organizations, and respondents' organizational responsibilities, among other things. Secondary documents allowed us to verify this information. This process improved the validity of the data and allowed for better understanding of the phenomenon under investigation (Piekkari et al., 2010).

The key informants (KI) and interviewees were the Founder CTO (KI_1), the Artist Manager (KI_2), the brand Director (KI_3), the project manager (KI_4) and one of the musicians (KI_5) (see Table 2). Moreover, the role of participant observation allows us to produce a reliable portrayal of the case study phenomenon and better check the validity of VCC in the three levels of analysis. For this reason, the investigators twice met KI_1 to participate in a practical explanation of the mechanisms underlined in the Bitsong Blockchain. Each author, under his guide, pretended to be a possessor of the crypto token, the virtual currency and used it to participate in the blockchain. Apart from allowing better understanding of the process, this training made us aware of the potentiality of the technology (Figure 1. Data process).

We used quotations to provide a better sense of meaningfulness to the case description and offer real examples of fundamental concepts and relationships (Eisenhardt and Graebner, 2007).

3.2 The case profile

4.1 Value co-creation factors at the macro-level

The Bitsong network embedded in the various actors represents the case study macro level of analysis. At this level, the context is an innovative ecosystem where multiple simultaneous service-for-service exchanges occur (Beirão et al., 2017). According to Granstrand and Holgersson (2020) “An innovation ecosystem is the evolving set of actors, activities, and artefacts, and the institutions and relations, including complementary and substitute relations, that are important for the innovative performance of an actor or a population of actors.” (p. 3).

Here, a critical value co-creating factor is the governance of the blockchain that comprises rules and common language definitions. According to Beirão et al. (2017), “Value cocreation factors at the macro level are related to resource access, resource sharing, resource recombination, resource monitoring, and governance/institutions generation” (p. 24).

The Bitsong decentralized network is based on a crucial system of governance. In our paper, we refer to governance defined as: “the means of achieving the direction, control, and coordination of stakeholders within the context of a given blockchain project to which they jointly contribute” (Pelt et al., 2021, p. 21). In describing the governance structure of these blockchain projects, the key respondents have identified several variables: the blockchain consensus mechanism, the role of validators and delegators, and the process that allows members to become involved in the network.

The Delegated Proof of Stake (DPoS), a specific variant of the Proof of state consensus, allows users to commit their balances as votes, supporting electing a fixed number of delegates to validate incoming transactions on the blockchain. As such, validators manage operations on behalf of their delegators, guaranteeing security and consensus. Any change to the Bitsong network is subject to governance votes. Examples of decisions that may be put to a governance vote include mainnet upgrades, changes to the voting period, changes to the size of the validators set or allocation of Community Pool funds.

The Bitsong set of validators is responsible for committing new blocks in the blockchain. The validators participate in the consensus protocol by broadcasting votes which contain cryptographic signatures signed by each validator's private key. Validator candidates can bond their BTSG (the currency for music, powering all the features of the Bitsong ecosystems) and have BTSG delegated or staked to them by BTSG token holders.

The delegators choose validators and stake the BTSG to them. The rewards may vary according to various factors, including the amount of BTSG staked to the chosen validator and the commission of the validator charge. Rewards are in cash and can be re-delegated for a compound effect, spent in the Bitsong music ecosystem, or traded for crypto or fiat currency.

At this level, it is evident how resource monitoring can lead to VCC outcomes, generating benefits to the actors and the ecosystem. Another crucial point at this level is the legislative setting that has not yet been regulated in Italy. It is worth noting that VCC involves resource integration with actors (who provide services reciprocally) and through comprehensive experiences in integrated and interconnected service ecosystems. Thus, institutions that govern the ecosystem are vital in facilitating a joined environment for VCC. The lack of regulation on blockchain represents a critical aspect, as interviewee K_1 explained. “I believe that to better continue my activity, if it is necessary, I will transfer to a country where there exists a better legal framework that offers consumer protection and bans hazardous practices related to the blockchain. Here in Italy, our legislative system has not yet sufficiently regulated the blockchain in the music industry, which needs a strong set of rules also aimed to protect each actor of the network.”

4.2 Value co-creation factors at the meso-level

According to scholars, communities are the locus where people share and create new knowledge, common interests such as the development of innovations of a given product or service and goals and values (Troise, 2022). The meso-level of the Bitsong platform, as a virtual community place, is characterized by the flow of information and communication among the music world and some Bitsong actors. At this level, VCC is particularly linked to the organizational aspect of the blockchain. It includes resource access, quality of services, the network's reputation, financial aspects related to each participant, the cost and time saved for participating in the network, and the relationship between the artist and his fans through Fan Tokens. As digital assets representing a loyalty formula with great potential, Fan Tokens are an innovative form of digital membership for fans, giving them access related to the music entities/brand that they had previously never had. This new asset gives its owner both the power to influence the decision of his favourite musician and access to exclusive promotions and other services. In the words of KI_4: “With the NFT and Fan Token, it is possible to create a privileged bond between artists and followers. Accordingly, it is possible to obtain benefits from the revenues of a tour or an album financed with the tokens. Fan Tokens allow voting on songs to be included in the line-up at a concert. Each artist can easily create their Fan Token and associate it with a social profile even outside of Bitsong (Twitter is an excellent first candidate), allowing fans to participate, for example, in a virtual meeting with their favourite artist by linking their BTSG wallet to the social network and using Fan Tokens”.

Fans can use Fan Tokens to get digital collectables, purchase non-fungible tokens (NFTs), and take advantage of gamification features connected to fan benefits or unique experiences. As expressed by a musician (K_ 5): “Fan Tokens allow artists to ‘tokenize’ their music and create a new equilibrium where art, real engagement, and passion win. With my Fan Token, engagement becomes a currency of exchange between me as the musician and my fans who establish a relationship based on trust and shared contribution to the success of musical projects and products”.

At the meso-level, co-experience and co-accountability processes enabled shared values to emerge as an essential predecessor to the Bitsong value propositions. The Bitsong Community Pool is a self-managing fund to support the ongoing development of the Bitsong ecosystem and community.

The findings revealed that the development of a network improved the network's professionalization by allowing for greater administrative efficiency, reduced costs and a considerable number of performance outputs. Shared values connected the network's nodes and qualified for the co-creation of value propositions (Best et al., 2022).

4.3 Value co-creation factors at the micro-level

At the micro-level, VCC factors enable dyadic interactions between individual actors (Cucino et al., 2022) to integrate resources so as to co-create value with other actors through the blockchain: VCC outcomes benefit individual actors (Beirão et al., 2017). Another crucial point is seeking service quality representing a precursor of value delivery at the micro-level. The enabling factors are a series of mechanisms, including bi-lateral communications, set out to resolve problems jointly. Moreover, from in-depth analysis of customer profiles, the Bitsong network could fine-tune innovative processes to better handle the latest trends in the music field.

As the platform's purpose is to develop technology for the collective good, crypto tokens represent the value linked to the platform's success, giving economic benefits to all the ecosystem stakeholders.

Thanks to the VCC process, artists can save money by cutting out intermediaries. The benefit is doubled because the blockchain and tokens provide both transparent monetization and the ability to raise profits through the sale of the token should its value improve. In the word of one of the interviewees (KI_4):

The blockchain world manages to issue unique digital securities, and blockchain bases value on uniqueness, and they acquire value when there is more demand than supply. The advantage it has over normal coins is that it is not reproducible; phasing does not exist. The NFT acronym of “non fungible” token is a unique digital certificate that allows the encamping of content that can be digital, a foot, a video, etc. Being a unique NFT it acquires value.

Musicians can receive equal royalty payments, venues can avoid counterfeit tickets and record labels can easily track music streams and reimburse all artists who contributed to songs or albums.

Moreover, because of blockchain's immutability, it is possible to protect copyright, avoid costly legal services and reduce, if not eradicate, piracy. If a piece of music is on the blockchain, it is as if it were recorded and signed by a notary with the owner's name, date and time. The song will be recognized as belonging to the legitimate owner given that no one can alter the blockchain data.

Artists can upload the metadata of their musical works (audio and video) independently or through music providers and then start earning at once.

Supporters pitch blockchain's DLT as a method to release music quickly, streamline royalty payments, cut out expensive intermediaries and give music composers a single point of origin. “Blockchain can restore a fair and transparent system for making, purchasing, selling, listening to, and managing music. Such characteristics make blockchain fast spreading all over the word also due to the Covid pandemic that has profoundly changed habits regarding music.” (KI_3).