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Rohit Amberker
Finance Director , Microsoft
Supernova Award Category:
Blockchain
The Company:
Microsoft (Nasdaq “MSFT” @microsoft) enables digital transformation for the era of an intelligent cloud and an intelligent edge. Its mission is to empower every person and every organization on the planet to achieve more.
The Problem:
As individuals download a gaming title on the Microsoft Xbox platform, Microsoft owes a payment (royalties) to the title owner, in this case they are the gaming publishers, developers, etc. There are some complexities surrounding royalty payments and the IT applications built to manage the execution of these arrangements. Historically, royalty management systems were not high on the priority list of corporate management as the royalties process was simpler and easier to manage. Over the last 50 years, the royalty landscape have gotten increasingly complicated and there are an increase in laws and regulations to govern the creation and management of digital rights (i.e. IP, patents and copyright laws). Most organizations today are forced to overpay in hopes to mitigate the risk of a dispute. And those that do not invest in this area or do not properly understand and track their royalty positions are faced with increase disputes, audits, and ultimately lawsuits. Today, many companies rely on obsolete software with a combination of highly manual tasks to manage calculations, reconciliations, and payout of royalties owed to the copyright owners. We have seen violations of royalty contracts as a result of knowledge-gaps or miss-application of the terms of the royalty arrangements. As a result, this has led to an increase number and frequency of partner audits against their royalty contracts, thereby, incurring substantial amount of audit fees and in some cases legal fines.
The Solution:
The gaming industry is notorious for lengthy royalty contracts that place a significant burdens on stakeholders. Microsoft Xbox faced similar challenges. EY and Microsoft jointly developed an integrated royalties blockchain solution on Azure. The intent of the collaboration is the high level architecture, design and development of a Blockchain solution for managing royalties operations.
Objectives:
- simplify and reduce redundant activities
- shorten the processing lead time for payments
- enhance trust in the Microsoft and game publisher network
- provide insightful analytics to the royalty partners
Blockchain is founded on:
- immutability of data
- trust within the partner eco-system
- complete and near real-time visibility to the relevant parties
- straight forward auditability of the transactions logged on the blockchain.
This enables customized analytics that improve operational performance and sales/marketing efforts for the royalty partner eco-system.
The Results:
After demonstrating the viability of the DiCon solution, we saw potential improvements in the following areas:
- Reduction in royalty contract processing time from approximately 45 days to within minutes.
- Reduction in the comparison of data and quality reviews by 75% from 20 minutes to 5 minutes.
- Greater visibility to financial metrics and near real-time data;
- Provide month-end close accruals from a process that requires judgmental estimates to near real-time daily accruals
- provide near real-time visibility of sales transactions to the participants in the blockchain network and to help the participants to react to market needs faster and more effectively
- Significant reduction in validation and external audits requirements on royalty contracts.
Further, this solution is currently focused on Microsoft transacting outbound payments to its game publishing partners. The analytics yielded provides results-oriented data points for the royalty partners to gain more insight from their marketing and sales campaigns to improve overall creator and customer experiences. This solution has changed the way gaming publishers transact payments overall. The evolution of this solution is to extend this solution to partner of partners, which enables payments to be transacted further up or down the value chain.
Metrics:
Blockchain, is still in its early days, our solution have demonstrated significant operational and business value to the royalty partner network.
Based on our collaboration with two gaming publishers, both seen tremendous value in significant time savings through reduced financial processing time, management of contract executions and validation/reconciliation activities.
The Technology:
This is a new technology that is jointly developed by Microsoft and EY. The underlying blockchain network is built using the Quorum blockchain protocol and hosted on Microsoft’s Azure cloud infrastructure.
Disruptive Factor:
We started this journey in solving a very tangible issue around contract management for royalty obligations. The foundations of the network can be leveraged to solve equally complex business problems that are riddled with complex contractual terms and payment obligations. For instance, DiCon have the power to impact not only the gaming royalties space, it can further expand to IP management in the media and entertainment industry.
Given blockchain continues to be a relatively new technology, we experienced headwinds in overall skepticism regarding its cryptocurrency roots, the scalability and performance of the technology, and ease of use to a non-technically savvy user. As we progress in this journey, we have made significant progress to dispel most of these concerns by the way of creating proof of concepts and collaborating/onboarding trial game publishers to stress test the solution. All efforts and feedback points to the fact that this is a technology that can scale and provide real tangible benefits once fully operational.
In the near term, we plan to keep pace with the changing needs of the gaming royalty space by using the underlying technologies to onboard and impact the next 15-20 large gaming publishers as full participants on the blockchain network. We have only scratched the surface of utilizing blockchain technologies to revolutionize the royalty industry.
Shining Moment:
Partnering with a premier technology company, Microsoft, to build a blockchain network that is capable to have industrial applications. DiCon will be the biggest industrial blockchain in the world. The DiCon solution is capable to transact approximately two million transactions a day, that is larger than Ethereum and Bitcon combined.
