Amid 'idiotic blockchain phase,' EY and Microsoft tout smart contracts

In an effort to demonstrate there are actual uses for blockchain technology, global professional services biz EY and Microsoft have teamed up to offer companies a way to manage rights and royalties.

Though the system is designed to serve any industry that deals with intellectual property licensing and royalty payments, the gaming industry – which involves authors, composers, photographers, video makers, developers and production houses – will serve as the test subject.

Ubisoft - a Microsoft game publishing partner - intends to test the system, which relies on the Quorum blockchain protocol, Microsoft's Azure cloud infrastructure and supporting technologies. The hope is that the payment tech will make contracts and royalties easier to manage.

"The opportunity to collaborate with EY and Microsoft on blockchain use cases in the domain of digital contracts and royalties is truly exciting," said Loic Amans, SVP of finance and strategic planning at Ubisoft, in canned remarks.

EY and Microsoft say their blockchain beast will "enable increased trust and transparency between industry players, significantly reduce operational inefficiencies in the rights and royalties management process, and eliminate the need for costly manual reconciliation and partner reviews."

It will, we're told, offer almost real-time insight into sales transactions, info that tends to be useful for marketing analytics. And the smart contract architecture is designed to simplify how those owed royalties get paid.

Paul Brody, EY global innovation leader for blockchain, contends blockchain tech is ideally suited to this particular situation.

"The scale, complexity and volume of digital rights and royalties transactions makes this a perfect application for blockchains," he said in a statement. "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."

A centralized database can handle such things too, which is why some people have argued that almost no one needs a blockchain.

The D word

To understand why, it helps to use the word "database" in place of "blockchain."

There are permissionless distributed databases like the Bitcoin blockchain where anyone can participate; there are permissioned distributed databases like Quorum, Corda and Hyperledger where a limited number of known parties participate; and there are traditional centralized databases, the sort that most of us are already familiar with.

Given that blockchains have a reputation for not scaling as well as traditional databases, it's not obvious why EY and Microsoft decided they couldn't just fire up an Azure SQL Database and be done with it.

In an academic paper published last year, ETH Zurich researchers Karl Wüst and Arthur Gervais say, "In general, using an open or permissioned Blockchain only makes sense when multiple mutually mistrusting entities want to interact and change the state of a system, and are not willing to agree on an online trusted third party."

In a phone interview with The Register, Brody described that very scenario. "If we ever want the system to appeal to a non-Microsoft company, those firms have to be confident that there's no systems administrator who can look at everything. What we have right now could be done by a centralized app. But that's not the endgame."

One system to bind them all

Initially, Ubisoft is participating but eventually, he said, the hope is that the system will include Microsoft, its thousands of game publishing partners and all the contractors those partners work with – voice-over artists, composers and the like.

Microsoft, he said, has tens of thousands of contracts with publishing partners which are mostly, but not entirely, the same.

"Traditional ERP systems are terrible at handling huge quantities of diverse contracts," he said.

With smart contract tied to this system, he said, the hope is that small payments that might have taken 180 days to distribute through existing mechanisms could happen immediately, with enough visibility into the calculations to satisfy payees that they're getting the appropriate amount.

There's an upside for Microsoft here too. "Internally, within Microsoft, they expect reduction in litigation related to game payments," he said.

Brody concedes that blockchain is not the answer for everything.

He said, "We're in the middle of this idiotic phase where everyone is saying, 'Can I use a blockchain for that?'"

EY, he said, has a five question test for clients to evaluate whether a blockchain would be helpful. It takes at least three affirmative answers to get the blockchain treatment. The Microsoft royalty system, he said, had four.

"It's one of the best fits we've ever seen," he said. ®