BLOCKCHAIN: INCREASING TRANSPARENCY IN MEDIA & ADVERTISING Jessica B. Lee, Partner, Advanced Media and Technology jblee@loeb.com July 2018 1
Today s Topics Blockchain basics Smart contracts and permissioned blockchains Blockchain in Media 2
Blockchain What is It? The Short Version: Blockchain is an unchangeable distributed ledger or record of transactions between a network of participants. Networks can be public (e.g. bitcoin) or private. The entries in the ledger are governed by pre-defined rules and validated by the network. Once a transaction is validated through a consensus process, it s instantly committed to all ledgers in the network. Changes in any one record are reflected everywhere. 3
Blockchain What is it? The Long Version A distributed database of verified records shared among different parties on a peer-to-peer network Core elements Access: every party (node) on a blockchain has access to the entire database through a peer-to-peer network Verification logic: algorithms verify groups of records (blocks) and link each to all prior blocks (chain) through an encrypted hash Transparency: the entire blockchain database is updated with each block of records Inherent security: any effort to change a record would alter the hash that links blocks Immutable: once a block is verified and added to the blockchain, it cannot be changed without detection 4
Blockchain What is it? 5
Blockchain What is it? 6
Key Blockchain Features Two main types of blockchain Permissionless (or public) Permissioned Blockchain operation Types of nodes Full nodes store entire blockchain and share data with other full nodes Lightweight nodes do not store entire blockchain; pass data to full nodes Mining nodes perform validation activity in accordance with the consensus model of the blockchain Consensus model method through which mining nodes agree to add a new block to the blockchain database 7
Smart Contracts Origin: Nick Szabo, prominent computer scientist a set of promises, specified in digital form, including protocols within which the parties perform on these promises. (1996) Software that automates execution of business rules and the resulting transactions between different parties Blockchain technology has the potential to make smart contracts much more prevalent Blockchain allows for transparency among participants in an peerto-peer ecosystem à Trust In a trusted ecosystem, parties can more easily agree to the business rules that form the basis of smart contracts 8
Smart Contracts The promise of smart contracts: lower transaction costs Regular contracts: commercial terms à lawyers draft/negotiate à parties commit resources to fulfill, manage and enforce the deal Smart contracts: commercial terms à programmers distill business rules and develop code à contract is self executing Challenges Software can contain bugs or vulnerabilities Smart contracts require triggering conditions that can be objectively verified Contracts often contain terms that are too complex or ambiguous to be reduced to code Smart contracts will work best in a controlled environment where a core level of trust already exists 9
Permissioned Blockchains Definition: a blockchain ecosystem that is open only to a discrete set of participants Enables a consortium of participants to solve a particular business problem or set of inefficiencies Different levels of access and authority can be established Governance and operation of the ecosystem can be customized Consensus model for transaction verification Smart contract verification / deployment Permitted uses of blockchain data Rules to deal with security breach Criteria for onboarding new participants 10
Permissioned Blockchains Main challenge: complex to implement Deep industry knowledge Incentives to drive participation High degree of cooperation among participants IT architecture / information security standards Governance structure and process Code of conduct for ongoing use of the platform How can we establish the rules of the road for permissioned blockchains? Early signs of success: supply chain management 11
Blockchain Applications Cryptocurrencies Supply chain management Walmart and Nestle aiming to use blockchain to track food supply Maersk working to use blockchain to track shipments Financial services Stock exchanges exploring ways to use blockchain in order to streamline trade settlement 12
Blockchain Applications: Media Benefits: A decentralized peer-to-peer network has no single point of failure and no single access point for malicious hackers - it enhances safety and security for data. Because the ledger is fully verifiable, immutable and available to all members of the blockchain, it can provide a both trust and transparency to participants. Blockchain technology can offer greater efficiency, reliable and high-quality data across the supply chain. 13
Media/Advertising: Current Efforts IP rights management / monetization Digital Rights Management Royalty Tracking Micropayments Digital ad fraud: adchain 14
Digital Rights Management Blockchain can allow creators to create a list of those who are allowed to view their content and specify the conditions for that access without using a third-party DRM solution. Blockchain and smart contracts can improve licensing and attribution by creating distributed record of copyright owners identities. Example Binded a blockchain start-up that allows photographers to upload images and register their works with the copyright office, which are then time stamped on the Blockchain. Photographers must monitor their images for infringement, but can refer to the time stamped Blockchain to show proof of ownership. 15
Sony Files a Patent for Blockchain-Based Digital Rights Management Description Sony receives a public-key enrollment request Verification process ensures that the user has the private key to match the public key A user ID is generated via the public key The user ID would dictate the rights of the customer (e.g. whether the user has rights across devices, rights to share, or any duration limitations) 16
Media Licensing: How Would This Work? A content owner looking to sell or license content may rely on smart contracts to dictate where to sell the content, the duration of the license, and any other parameters or other limitations on use. On the backend, the contract is configured with these specifications. It is associated with the content and becomes an offer for the buyer that can be enforced via the platform. 17
Media Buying: The IBM Solution to Fraud IBM is leveraging its Blockchain to solve the transparency and security issues in the media buying landscape. Through a shared ledger, contractual conditions, like recording impression data and how much a publisher will paid can be recorded in a shared system that is immutable and fully auditable. Unilever has reportedly been using this platform to make buys with part of its U.S. ad spend, as well as to validate agreed-upon figures and clear discrepancies. IBM has said the results are promising so far. 18
A Privacy Solution? On private blockchain, participants may allow each other access to their first party data for ad targeting. Each member may be granted a key that allows them to see the subset of data they are allowed to see. All data transactions will be recorded in the ledger, providing additional data security. 19
Legal Challenges Privacy Issues Right to be forgotten? Forget about it Who handles notices if there s a breach? Intellectual Property Issues Who owns the content or data on the blockchain? Traditional contracts may be needed to define each party s respective rights to use, repurpose and distribute the underlying data. If content can t be taken down or deleted what is the remedy for the use or sharing of content or data that infringes third party rights? If a transaction takes place in multiple jurisdictions which laws apply? 20
Legal Challenges Private blockchains = coordination among participants = contracts Smart Contracts not so smart at dealing with real-world events If you build it, they [hackers] will come Who s liable for the bad actors? 21
Key Takeaways Blockchain-based systems create transparency and can therefore enable trust among a group of participants That transparency sets the conditions for easier adoption of smart contracts, which can significantly lower transaction costs Blockchain is the next area of focus for media, but widespread adoption faces some legal challenges. Benefits Keeps costs low Allows for a large quantity of data or content to be shared more efficiently Transparency/Accountability 22
Questions? 23
BLOCKCHAIN: INCREASING TRANSPARENCY IN MEDIA AND ADVERTISING Jessica B. Lee, Partner, Advanced Media and Technology jblee@loeb.com July 2018 24