UPDATED 13:39 EDT / JUNE 21 2018

EMERGING TECH

Ernst & Young and Microsoft build blockchain to power Xbox royalty payments

The world of royalty remittance and digital rights contracts is fraught with accounting errors, inefficiency and complex contracts. To solve this problem, software giant Microsoft Corp. and assurance advisory company Ernst & Young Global Ltd. have partnered up to develop distributed ledger blockchain technology to streamline royalty payments among game publishers, developers and others.

In an announcement today, Microsoft described the new technology, running on the Quorum blockchain using Microsoft’s Azure cloud computing platform, that would use a ledger that is distributed between parties, cannot be easily tampered with, provides an automated mechanism to verify past transactions and secures the privacy of participants.

The companies call the technology the “Rights and Royalties” blockchain and it will make negotiations and contracts involving royalties between parties smoother as it will provide a system to automatically process royalties as well as generate up-to-date financial information such as payment adjustments.

“The scale, complexity and volume of digital rights and royalties transactions makes this a perfect application for blockchains,” said Paul Brody, global innovation leader for blockchain at EY. “With a blockchain, we can handle the unique nature of each contract between digital rights owners and licensors in a scalable, efficient manner with a verifiable audit trail.”

The Xbox ecosystem is one place where a lot of royalty contacts take place. There are more than 1,573 games available on Microsoft’s current generation console, the Xbox One, alone and more than 2,099 available on the Xbox 360. Xbox Live, Microsoft’s online gaming service, had more than 53 million active members in 2017.

According to Microsoft, before the development of a blockchain solution, royalty payments to Xbox publishers could take up to 45 days to complete. This is because the company used what is described as a “manual method” that relied on spreadsheets.

“After adopting the blockchain solution, even with only one-third efforts, we’re able to run the same royalty operations while providing faster, more reliable service,” said Rohit Amberker, finance director at Microsoft’s Royalties and Content Operations department.

In large part, the problem of royalty calculations led to serious time wasted because payments among game platform owners, publishers and distributors involved complex and cumbersome intermeshing contracts.

“Microsoft and the game publishers in the Xbox business share the problem of reconciling and recalculating royalty payments,” said Amberker. “The offline royalty payment solution that stakeholders have used for years is based on printed documents and spreadsheets. It’s expensive to manage.”

One reason royalty processing took so long is that sales information would generally become available over 45 days after each month ended. This process was slow and cumbersome, but with a blockchain, it is possible to keep a current running total in real time from an automated system connected to each sales outlet from physical to digital.

“Given that the data and related services are already running on Azure, enabling blockchain was simple,” said Jagannathan Venkatesan, principal software Engineering lead on the blockchain project at Microsoft, “just replace paper contracts with digital smart contracts for transaction processing.”

This implantation of the Rights and Royalties blockchain with EY is the latest example of Microsoft’s foray into blockchain technology. In August last year, Microsoft announced the launch of the Coco Framework, an enterprise blockchain service that allows companies to handle more than 1,600 transactions per second.

In 2017, EY built a blockchain platform with Guardtime AS for marine shipping insurance, dubbed the first of its type. And in April, EY launched its own blockchain audit technology designed to provide rapid audit, review and analysis of transactions on a blockchain.

Microsoft is not the first company to tap blockchain technology for royalties. Last year, digital music service Spotify AB announced the acquisition of blockchain startup Mediachain Labs, with the intent to use the company’s open-source attribution engine for music licensing.

Image: Pixabay

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