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Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case Author: Ahmed Gomaa, Satya Prattipati Pub. Date: 2022 Product: SAGE Business Cases DOI: https://dx.doi.org/10.4135/9781529753899 Disciplines: Business & Management, Information & Knowledge Management, Operations Management, Business IT, Technology Management, Supply Chain Management Access Date: January 4, 2023 Publishing Company: NeilsonJournals Publishing City: London Online ISBN: 9781529753899 © 2022 NeilsonJournals Publishing All Rights Reserved.

Abstract This case promotes discussions about the application of blockchain technologies and cryptocur- rency in an innovative supply chain ecosystem. The case provides learning materials to help students consider the implications of using cryptocurrencies and blockchain technologies. First, it introduces JALA, a new media-streaming platform. It explains the JALA platform, and the val- ue proposition of a new innovative supply chain based on the JALA platform. Second, it explains the advantages and disadvantages of the different types of crypto tokens. Third, it explains the values derived from the use of block chain technologies in the new supply chain. After analyzing the case, the students are required to make recommendations on a) whether to create and use JALA tokens (a crypto currency), to raise capital and/or to operate the JALA business, and b) whether to adopt block chain technologies to operate the new supply chain using JALA platform. Case Keywords: disintermediation, cryptocurrencies, smart contracts, blockchain, business models. 1. JALA Case Introduction Four friends, J onathan, A ndre, L ogan, and L a ureano, developed a digital rights management platform, called JALA, to stream digital content. It all started when Jonathan’s friend, Hanah, created a documentary movie, that he feels a few thousands or more viewers would be interested in watching. Hanah wanted to monetize the documentary by posting it on Youtube, but later on, she realized that unless millions of people view her documentary, Youtube would not fairly compensate her for work she put in the production of the content. She then explored established cable TV channels, but the barriers of entry were high as her content will be bundled with other content and be included in different channels. She was looking for ways to distribute her documentary to the viewers direct- ly and being compensated for it. Hanah’s challenge inspired Jonathan and his friends. They developed the JALA platform to address this issue. JALA first developed a content player software that it attaches to the raw content. The software includes pay- ment-processing capabilities to render the content on different terms and modalities, with safeguards to pro- tect digital rights. SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 2 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

1. 2. 3. 4. 5. 6. 7. In specific, JALA platform allows content owners and distributors (if any) to sell and disseminate the video content on a stream-by-stream basis, instead of as a bundle within channels. Each stream content player wraps each content. The stream content player accepts payment for rendering the content on different terms, and at different modalities (hi-resolution, medium resolution, and low resolution). The stream content player, the payment system and the file are inseparable. Three are acting as one file. Figure 1 shows a JALA file ar- chitecture, which includes the stream content player, the payment gateway and the content itself in a secure JALA file format. Figure 1: JALA file architecture The main sequence of steps within the JALA platform are as follows Encode the original content received from the content owner to JALA format. Embed the content player and payment gateway on top for the created JALA file. Send the final JALA file to the content owner. Collect the payment when a viewer requests the JALA file. Play the content based on the terms and conditions. Distribute the payments automatically, according to the terms and conditions (content creator, JALA platform, advertisers, etc.). Track activities for analytics purposes by the JALA platform (views, times, locations, etc.). JALA addresses the problem of bundled subscriptions to video channels. Many subscribers do not want to continue paying subscription fees for shows they do not watch. The customers want to pay only for the shows they watch. While many cable/streaming platforms offer “pay per view” shows, only established producers can use those services. It is a challenge for independent producers (content creators) to provide their con- tent through the cable and other streaming platforms like Netflix, Hulu, etc. Any individual can use the JALA SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 3 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

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platform, to disseminate and sell their content, without losing their digital rights. In addition, the JALA platform captures all the usage metrics accurately for further analysis. It is important to note that the content owner may place the content embedded JALA file anywhere online, and once identified using standard search en- gines, the viewers will be able to pay for the content. It will be tough to bypass the security constraints around the JALA files, thus securing the digital rights of the content creators. The JALA platform should be useful to independent artists who would struggle to find outlets to compensate them fairly for their content. Youtube advertising model is suitable for videos viewed by hundreds of thousands of viewers to have any potential for business viability. Besides, the JALA platform should also be useful when streaming events in non-established outlets and territories. For instance, an NFL game to be streamed in a non-US market would be expensive to set it up as a pay per view event via traditional channels in comparison to its potential revenue. While the four founders tested the JALA concept technically, they are yet to develop a business model to monetize JALA. They are considering whether to create a cryptocurrency named JALA coins. They may use their new currency to a) fund their business as an initial coin offering (ICO), and b) as the payment to use the JALA platform. 2. The Value Proposition in the Supply Chain Resulting From the Proposed Business Model Disintermediation is the removal of intermediaries within a supply chain. Figure 2 shows the potential disinter- mediation that may take place with JALA. The first part of the figure shows the traditional supply chain for the media. It starts with the content creation, and then different companies aggregate the content into bundles before the content distribution takes place. JALA may eliminate the content aggregators and disseminators. SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 4 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

Figure 2: Supply chain disintermediation Figure 3 shows that the relation can be direct between the viewer and the content creator with the help of JALA platform by converting the content into JALA format and making the file accept payment as an indepen- dent object while ensuring the content owner’s digital rights. If the viewers or the content creators would like to gain insights about the interactions with the object, they can do this via the JALA platform for analytics. The JALA platform might reward the viewers if they opted to share their interaction information with other interest- ed parties. The JALA owners are considering the option of using blockchain. SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 5 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

1. 2. 3. Figure 3: JALA platform infrastructure To remove the intermediaries, a detailed look at the value proposition in the new business model needs to take place. Traditionally, the business model has the content owner licensing its content to several distribu- tors. The distributors package the content to distribute on satellite or cable to different channels and sell those channels or pay per view—for the popular event—to the content viewers. The barriers to entry for content owners, as well as distributors and channels, are high as the cost to running a channel that is capable of creating its programming and Electronic Programming Guide (EPG) and program it to potential customers is not very trivial. Companies combine content to sell channel subscriptions and op- timize their profitability. For instance, one may find the same show presented on several different channels, where each channel is trying to maximize its audience numbers. Currently, from the content owners’ per- spective, they are interested in one aspect: monetizing content consumptions. The major content owners are faced with the challenge of content streamed online, without any compensation on shady platforms. The small content creators need aggregators and distribution partners to be able to monetize their content. From the content viewer’s perspective; they are forced to subscribe to channel bundles and deal with the distribution channels where they only need to watch a subset of streams that is relevant to them. Accordingly, there are three main problems in the existing business models, namely: Monetizing media for major content owners . The barrier of entry for the long tail on the content owner and distribution side. Payment for only relevant content on the content viewer side. SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 6 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

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3. Creating a Value Proposition by Changing the Supply Chain Information Flow For JALA to address the three main problems in the existing business model, it needs to address the relation- ship between the content owners, online dissemination channels and the content viewers. The typical business model has a linear relationship within the supply chain, with information silos, creating a more expensive model to reconcile information between the parties ( Figure 4(a) ). JALA model promotes a circular supply chain relation where the content viewed is the object controlling the information and making all parties get their information from one source, thus lowering the expenses by removing the reconciliation cost. ( Figure 4 (b) ) SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 7 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

Figure 4: Two supply chain relations This circular supply chain model that makes the transacted object the centroid of the transaction, and is the source of truth to all parties touching it, promotes one truth that leads to proper monetization without recon- ciliation, lowers the barriers to entry and allows for more flexibility to the content viewer. The content, which is the original content embedded in JALA, is the holder of the single truth, revealing if some party created it, aggregated it with other content, distributed it or viewed it. All involved parties will trust the content if all parties are working together to confirm that the transactions are valid and all parties have enough guarantees that enough safeguards exist within the system. Accordingly, the viewers must be motivated in the new model to participate in the transaction. Figuring out a way to add the viewers in the supply chain and to confirm to other involved parties that they viewed the content will en- sure that all parties are involved. SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 8 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

In the product first phase, JALA will create a platform. In specific, to address the monetization problem for content owners and distributors, proper tracking and access control policies need to be in place. Content Owners: The first step is for the content owners to convert their content into a JALA format that requires the attached JALA player and payment gateway to render correctly. Web Distributors/Promoters: Since the content is self-contained with a player and a payment gateway, content owners can make their con- tent available to web distributors or web marketers of their choice. In other words, it will be easy to add any party interested in distributing the content. The small distribution channels may address the inherent concern of content owners to fairly compensate them for streaming their content if they use JALA content. JALA en- sures content owners that it accounts for all content delivered regardless of the distribution channel whether done independently or via website promoters or a third party distributor. Content Viewers: As content viewers tune in online streaming portals or TV channels, the consumer will install the JALA player plugin, which includes a payment gateway. The content viewers will collect rewards (monetary or in JALA coins, depending on the consultant recommendation) as they consume content as a reward for using the system. If there is content that is not free, the viewer can pay for the content with their credit card or JALA coins. The access control policy expresses and executes digital content rights, including the length of time of watching the content or sharing it. JALA may implement the access control policy as a smart contract if the consultant recommends a blockchain utility token, or a typical digital rights management implementation. Both are part of the JALA file header and embedded with the JALA player. JALA will generate its profit from providing the technology for content owners to disseminate individual streams to content consumers. It will collect a royalty in JALA coins or fiat money, depending on the consultant recommendation, for every transaction that is for content conversion to JALA format as well as for content tracking and monetization. JALA believes it will be adopted by content viewers, content owners, and content distributors because it opens new revenue streams to all constituents by providing a supply chain ecosystem that allows for a fairer profit distribution model without the need of depending on content bundling, or adver- tising revenues. SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 9 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

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Following the first phase of the product development, the second phase is ranking content based on the end consumer level of interaction with the content to determine the appropriate amount of JALA coin or fiat money required for the content. For instance, a Cricket match streamed in Southeast Asia will be more expensive than streaming the same content live in the United States. 4. Blockchain and Exploring the Advantages and Disadvantages of the Differ- ent Token Types Please see Appendix A, for a description of blockchain technologies, ICOs, and the cryptocurrencies. There are several tokens available, utility tokens , security tokens , asset-backed tokens , and currency tokens . A currency token is similar to Bitcoin, Ethereum, Litecoin, Zcash, Dash and more. Those are digital curren- cies designed to store and exchange values. An asset-backed token is a token that has a real-world representation. Real estate owners tokenize their assets with asset-backed tokens and trade them on the blockchain, as well as gold, diamonds, and deriva- tives to name a few. A security token is a token that is subject to the Securities and Exchange Commission (SEC) regulations. A security token should reflect an investment of money, in a joint enterprise with an expectation of profits from the efforts from the entrepreneurial or managerial efforts of others. A utility token purpose is not an investment; for instance, a company can sell a utility token for allowing ac- cess to services they are developing. Utility token creators usually refer to these sales as Token Generation Events (TGE). JALA is not creating a currency, nor does it have to consider the rights to stream the content within an Asset- Backed Model solution. It is considering one of two options to raise capital for realizing their vision: a security token or a utility token. In the utility token case, potential customers will need to use the created token to be able to consume the streaming content and support different functionalities like subleasing or sharing the streams according to dif- ferent business models to generate revenue. The second option is a security token where investors invest in the company itself using the security token, and after raising the necessary capital, the company shares its SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 10 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

revenue with the investors. The investors do not need to participate in the company operations, and the token they hold is a representation of their interest in the company. It is important to note that if JALA is successful, it does not matter if the token is originally a utility token or a security token, the token price will increase as demand increases, and the token owners will be able to gen- erate profit. The fundamental difference is the original goal for each token, where the Utility Token enables the customers to use the service, while the Security Token is a representation of the investors’ interest in the company. The following section explains each option in further details. Security Token: Security tokens register with the Securities Exchange Commission (SEC), issue company shares, and dis- tribute profit. In a typical Initial Public Offering (IPO), if a company would like to go public and to enlist itself on New York Stock Exchange (NYSE), it needs to reach $200 million in global market capitalization. If the company cannot reach that level, it will seek smaller exchanges, such as the Toronto stock exchange or Lon- don stock exchange. If this is still beyond the company reach, it will find funds from a venture capitalist, angel investor networks, or family and friends. JALA could consider issuing a security token to fund their business, which is another option. The process to create a security token will take will take on average of seven months. Going the SEC route would cost around $450,000 investment. This route may open the door to $50 million of funding. The imple- mentation cost is assuming that JALA founders understand the technologies behind content streaming. As of May 2018, companies can segment their offering by region, expanding their raised capital potential to $250 million (50 states × $5 million) if needed. Appendix A provides more information about the fundraising poten- tials. Utility Token: For JALA to have a utility token, it will have to introduce a reasonable business model that is compelling and inviting to be better than the current industry business models. In addition, the new business model needs to use the JALA coin to function. JALA will promote the tokens for the potential platform users. When the de- mand on the platform increases, the token price will increase, mainly that the initial amount of token supplies is limited as depicted in the token creation smart contract. The token proceeds from the Initial Coin Offering (ICO) would help to build the platform, and the owners do not have to give up a portion of their company shares. JALA has several options if it is going to the Utility Token route. To avoid strict SEC regulations, it SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 11 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

could solicit a large number of ICO investors from countries outside of the United States. After getting the product off the ground, and having a working system, it could then allow United States citizens to participate and purchase the utility tokens to use the system. This path will remove concerns about hearing back in the future from the SEC that JALA is in violation and the SEC considers JALA a security token. The other option is to take the risk of having the utility token sold within the United States. 5. Understand the Reason to Use the Blockchain Technology in the New Sup- ply Chain Ecosystem JALA is a supply chain ecosystem; anyone can join, including viewers, content creators, content distributors, wholesalers, and retailers as long as the participating party is a part of the ecosystem. If the business model is capable of reflecting the relationship between the transacting parties where the content state is a centroid of each transaction, and there is a mechanism for all parties to check the content state, this will allow all transacting parties to share the same single truth. The problem that still exists, if all relations are reshaped to have a single truth remain with the JALA file, is that all parties will have to trust the entity controlling the object sending the information. All entities will have to trust the JALA platform. As JALA is a startup company, other entities may not trust them. To overcome this trust deficiency, a blockchain solution will solve this trust defi- ciency. The blockchain technology will ensure that 1) all parties store all the information, and 2) a consensus mechanism that allows promoting trust between parties exists. Blockchain participants have a copy of the entire blockchain, where all constituents will have a copy of the approved transactions after a consensus between the blockchain participants takes place to validate each transaction. If JALA decides to use Utility Tokens, it will be able to have all transactions that took place on the content posted to the blockchain. No transaction can be posted to the chain unless a consensus mechanism has tak- en place that the transaction is accurate and correct. Since JALA is considering selling the analytics behind the content consumption, special attention is needed to consider the type of blockchain, whether public or a permission-based blockchain, where certain functions on the smart contract may be accessed by a subset of the system users, in this case, the system subscribers to the analytics function. The principal value added of the blockchain, in this case, is to have a consensus SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 12 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

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1. 2. 1. 2. 3. mechanism between all parties involved in the transaction, as well as access to the information. Consultant explanations and recommendations: As JALA’s consultant, you will need to determine which path to take. Should you recommend the implemen- tation of JALA without the usage of a JALA coin at all, if so, what will be the drawbacks of not using a JALA coin in the case, if any? Should JALA use crypto as a payment currency at all, just a payment model, or fully embrace blockchain and use its token as a utility token. Further, should JALA use Blockchain to raise fund- ing? If yes, should it be a utility token or a security token? Case Tasks: Develop the knowledge to make a decision. Explain the advantages and disadvantages of the different types of a crypto coins. Explain who (content creators, JALA, viewers) benefits from the adoption of JALA coin? With the gained knowledge, make a recommendation on: (As depicted in Figure 5 ) Should JALA create a JALA coin or not? Should JALA use the credit card, payment processes to operate the JALA business or a cryptocur- rency or both? If JALA decides to develop a JALA coin, should they use them as a security token and finance the business alone, or use it as a utility token and finance and operate the JALA business? SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 13 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

Figure 5: Decisions schematic the consultant needs to make https://dx.doi.org/10.4135/9781529753899 SAGE © 2019 NeilsonJournals Publishing SAGE Business Cases Page 14 of 14 Use of Cryptos to Create Innovative Supply Chain Ecosystem: An Entrepreneurship Case

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