Malcolm Gladwell Confronts Pieism With Amazon’s Vice President of Fulfillment

 

According to Reuters:

In a blog post on the Amazon site authored by the “Amazon Books team” [that is, an anonymous post], the ecommerce giant said e-books were very price sensitive. (amzn.to/1rD27WM)

[Imagine for a moment if Universal Music Group posted anonymous public statements on matters of sensitivity to artists and songwriters signed "Universal Music Team."  Just think a moment about how freaking well that would go over.   But I digress...]

Based on a review of many titles, Amazon argued that ebook priced at $9.99 sold 1.74 times as many copies as one sold at $14.99, generating 16 percent more revenue.

It said keeping prices low saved money for consumers while authors would get higher royalties and 74 percent more readers, with publishers also getting more money.

“The total pie is bigger and there is more to share amongst the parties,” it said.

Amazon claims that pricing an e-book at $14.99 or $19.99 is too expensive and unjustifiable in most cases.

“With an ebook, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market — ebooks cannot be resold as used books.”  [Don't count on that used book point--the digerati are busily trying to make the case for reselling "used" digital copies.]

That’s right, with the exception of printing, Amazon has ticked off all of the cost items that Amazon doesn’t have to bear.  That’s true–eBooks are very profitable for Amazon.

Here’s the other side that has to be born from the publisher’s and author’s end of the deal:  Finding authors, signing authors, advances, editors, marketing and promotion–and then there’s feeding your family and sending your kids to school.  And then there’s independent book sellers who Amazon has turned into showrooms for their books.  How much is all that worth?  Well, the good news is that there’s a really easy way to communicate that information.

It’s called a price.

Prices are how firms communicate their determination of breakeven for a particular good given the cost of all the inputs.

But Amazon, you see, is still selling that Internet snake oil a la the highly discredited Chris Anderson, one of the leading Millerites of the Internet.  You remember Chris Anderson, right?  He wrote one of the cornerstones of Internet claptrap: The Long Tail: Why the Future of Business Is Selling Less of More.

Yes, that’s right.

Less is more.

As long as you aren’t the one paying to produce the good that there’s less of more of.

What this dispute has really uncovered is not some received wisdom from the hive mind, but rather the market power that Amazon has in an environment where firms have done a poor job of educating consumers on the harms of creating a single centralized retailer who not only does not support their local community or local writers, but actually imposes the most corporate and biggest of big boxes on culture.  And it’s not just in the US, by the way, it’s all over the world.

And of course what is truly insulting about this is that authors are the ones who gave Jeff Bezos his start.  This is the real lesson of how Amazon is treating Hachette authors–as we have seen with music and audiovisual, do not give any of these people a break at any time about any thing.  They are going to act in their self interest and will screw you in the end.

The Fed Ex Drug Indictment is Son of Google Drugs: Will Anyone Give a Body Count?

In 2011, Google paid a $500,000,000 fine to the U.S. Government for violating the Controlled Substances Act by promoting and to a degree knowingly facilitating the sale of prescription drugs online without a prescription.  The company agreed to sign a nonprosecution agreement with the U.S. Government following a long grand jury investigation in Rhode Island in which Google produced over 4,000,000 documents.  We don’t know the details, but based on some news reports it seems hard to believe that top Google executives did not appear before the grand jury.

When Eric Schmidt testified at the Senate Antitrust Subcommittee on CSPAN, the issue was so sensitive that he refused to answer questions about the nonprosecution agreement posed by Senator John Cornyn.  (A Google tactic made even more bizarre because the nonprosecution agreement itself is a public document–read it here.)  Schmidt later claimed to have been confused by Senator Cornyn’s quesitons.  Right.  Sure looked to many people like Schmidt took the 5th on CSPAN.  Whether Google is out of the drugs business is something of an open question right now, particularly if you ask Mississippi Attorney General Jim Hood and some other state attorneys general.

Of course connecting suppliers and users is only part of the online market place for dope.  FedEx is now indicted for being the next leg of the delivery network for online pharmacies.  FedEx, of course, denies it in a statement that boils down to the kind of denial of red flag knowledge that we hear every day from Google’s massive piracy operation.  Of course, it’s not like the cops haven’t heard this one before.   Just like Google, the FedEx indictment looks like the product of major sting operations run against FedEx over a long period of time.

The most interesting part of this is that Google was allowed to buy their way out of an indictment, perhaps a testimonial for spending big bucks on a Washington lobby shop run by DC insiders.  Remember, Google was being celebrated at the White House for all the good things they were doing for online drug safety at the very moment the government was negotiating the nonprosecution agreement.  FedEx, however, got indicted.

The government’s story about FedEx is quite simple and in its own way is very similar to Google’s:  It’s about money.  In an excellent piece about the FedEx story in the Daily Beast, Abby Haglage writes:

In 2004, the DEA estimated that FedEx had 200 registered online pharmacies. By 2010, it had more than 600. As early as the mid-2000s, the indictment reveals, employees in multiple states had allegedly expressed concerns to management about the dangers of delivering addictive pills. According to the investigation, deliverymen and women reported being “stopped on the road by Internet pharmacy customers demanding packages of pills” and “[being] threatened if they insisted on delivering a package to the address instead of giving the package to the customer who demanded it.” Others claimed that customers were “doctor shopping” and expressed concern that some of them had “overdosed and died.”

And this is the story about online pharmacies that has yet to be told in both cases.  It is simply impossible to believe that there have not been deaths, possibly many deaths, from this syndicate.  The leadership in these public companies like Google and FedEx are accused of similar acts:  Knowingly instructing their employees to participate in a criminal enterprise for profit.  To my knowledge, no one has investigated any deaths from this enterprise except for Senators Diane Feinstein and Jeff Sessions.

Right about the time Google was being investigated by a federal law enforcement task force, Senator Diane Feinstein introduced Ryan’s Bill in 2008 named in honor of Ryan Haight, co-sponsored with Senator Jeff Sessions.  The bill got the full backing of President George W. Bush who said:

Unfortunately, many young Americans do not understand how dangerous abusing medication can be. And in recent years, the number of Americans who have died from prescription drug overdoses has increased.

One of the factors behind this trend is the growing availability of highly addictive prescription drugs online. The Internet has brought about tremendous benefits for those who cannot easily get to a pharmacy in person. However, it has also created an opportunity for unscrupulous doctors and pharmacists to profit from addiction.

One victim of such a doctor was Ryan Haight. The young man from California was only 18 when he overdosed on pain killers that were illegally prescribed over the Internet. With only a few clicks of the mouse, Ryan was able to get a prescription from a doctor he had never met and have the pills sent to his front door. The doctor who wrote Ryan’s prescription had previously served time in prison for illegally dispensing controlled substances.

The government, of course, has to make it’s case against FedEx.  Based on the facts alleged in the FedEx indictment, it looks like there were a lot of FedEx employees who were in on it and it went quite high up the chain–just like the Google case.  The U.S. Attorney for Rhode Island told the Wall Street Journal:

“Larry Page knew what was going on,” Peter Neronha, the Rhode Island U.S. Attorney who led the probe, said in an interview. “We know it from the investigation. We simply know it from the documents we reviewed, witnesses that we interviewed, that Larry Page knew what was going on.”

The Daily Beast also reports based on the FedEx indictment:

In a move that the DEA and FDA suggest shows both knowledge of the illicit online pharmacy industry and awareness of its potential for boom and bust, FedEx established an “Online Pharmacy Credit Policy.” This required all online pharmacies to provide FedEx with a security deposit, bank letter of credit, and to be subjected to “limited credit terms.”

FedEx (meaning somebody in a position to establish FedEx policies) made sure that FedEx had a good chance of collecting their fees even if the DEA shut down an online pharmacy operation.  I would imagine that FedEx executives involved in that decision making are a fairly narrow bunch of names.

Instead of targeting the companies, FedEx re-structured the delivery plan, according to investigators. A senior vice president of security reportedly launched an initiative that allowed delivery people to leave packages from “problematic shippers” at a station where the consumer could pick them up. But shielding the employees from potentially dangerous encounters didn’t change the nature of the business, the federal agencies say. FedEx was still willingly aiding in the distribution of controlled substances without the need for a prescription from a qualified physician. Over the course of the nine-year probe, FDA and DEA agents claim they repeatedly ordered prescriptions—varying from weight-loss medication to erectile dysfunction pills—using an online questionnaire only.

In other words, FedEx is accused of engaging in exactly the behavior that Ryan’s Bill was designed to stop.  And the government was involved in a sting against FedEx that overlapped with the Rhode Island grand jury’s investigation of FedEx.

The government is looking for $1.6 billion from FedEx–3x what it got from Google for the other part of the racket.  Since both are interdependent on each other, it seems that the government has gotten used to the idea that when corporations go bad, don’t be shy about the money.

And it is, in the end, just about the money.

Speaking of money, the good news for the U.S. Attorney for the Northern District of California is that there’s a good chance that most of whatever fine FedEx ends up paying will stay in her jurisdiction.  That will help law enforcement level the playing field against the next target in this area.   That may help cover the cost of investigating the deaths that have occurred from this unholy alliance among pharmacies, Google and shippers.

In a press release, Philip J. Walsky, Acting Director, FDA’s Office of Criminal Investigations summed it up:

Illegal Internet pharmacies rely on illicit Internet shipping and distribution practices. Without intermediaries, the online pharmacies that sell counterfeit and other illegal drugs are limited in the harm they can do to consumers.  The FDA is hopeful that today’s action will continue to reinforce the message that the public’s health takes priority over a company’s profits.

Google Extends Keiretsu to Spotify Board

A keiretsu (系列, lit. system, series, grouping of enterprises, order of succession) is a set of companies with interlocking business relationships and shareholdings. It is a type of informal business group. The keiretsu maintained dominance over the Japanese economy for the last half of the 20th century.

Wikipedia

When Google’s current Chief Business Officer Omid Kordestani mysteriously took a seat on Spotify’s board of directors, this was just the latest in a series of moves extending Google’s dominant business influence throughout the Internet economy.  Google’s current influence is very reminiscent of the Japanese keiretsu, and similar to what Eric “Uncle Sugar” Schmidt calls the “Gang of Four.

This is, of course, a reminder of the typical interlocking boards and investors in the clubby world of Silicon Valley venture capital and technology companies.  Schmidt was essentially forced to resign from Apple’s board after the U.S. Department of Justice opened an antitrust inquiry into Google and Apple.

Mr. Kordestani’s predecessor as Google’s Chief Business Officer is Nikesh Arora (MTP readers will remember Mr. Arora as the guy who screwed up the numbers on Gangnam Style during a Google investor conference call).  Mr. Arora is now Vice Chairman of SoftBank Corp. and CEO of SoftBank Internet and Media, Inc. which recently acquired a majority interest in Sprint.

Then, of course, there’s Marissa Meyer who is now CEO of Yahoo! but was formerly a long time employee at Google.

Not to forget Tim Armstrong, the former head of Google’s US operations and now CEO of AOL.

So Spotify is just another brick in the wall.

 

YouTube Still Posting Sugar Baby Videos after Google Exec’s Death

As has been widely reported, Alix Tichelman apparently met Google executive Forrest Hayes through a sugar daddy site called SeekingArrangement.com.  Ms. Tichelman is accused of manslaughter and other charges relating to Mr. Hayes death.  According to SF Gate:

During interviews with police, Tichleman boasted of having more than 200 clients, all of whom she said she met through a website, SeekingArrangement.com, according to police.

Some news reports have also connected Tichelman to other Silicon Valley executives but nobody is naming names yet as far as we can tell.

This story is relevant because it shows yet again how YouTube’s “catch me if you can” policies that permit wide dissemination of videos promoting illegal drugs including steroids and Human Grown Hormone as well as what is essentially human trafficking.

You would think that after one of Google’s own executives is killed in a scenario that involved the sugar daddy website seekingarrangement.com that YouTube would remove videos promoting the site or at least block them from being served to kids in the YouTube “safety mode.”

Since YouTube always says they respond to flags on videos from “the community,” I guess Ms. Tichelman’s arraignment on manslaughter charges for killing a Google executive isn’t quite enough of a flag or it’s a flag from the wrong “community”.

Here’s the YouTube search results for the keywords “seeking arrangement sugar baby”:

YouTube Seeking A 1

And then a search for just “seekingarrangement.com” in Safe Mode brought back these search results, including what is essentially an infomercial for the site and a Google Chrome ad served in response to the keyword:

YouTube Seeking A 2

Turns out that SeekingArrangement.com has its own channel that shows up in Safety Mode and looks to be a YouTube partner!

YouTube Seeking A 3

 

In college debt?  seekingarrangement.com has an answer:

Screwed by Obamacare?

YouTube Seeking A 4

When your kids or young siblings are on YouTube, a search for SeekingArrangement.com would get them pointed directly at the site, but also would have this “how to” video for creating a sugar baby profile:

As CNN reported in Yacht Killing Case Shines Light on Sugar Daddy Sites:

Prosecutors say [Tichelman and Hayes] met through a site called Seeking Arrangement, which bills itself as “the leading Sugar Daddy dating site where over 3 million members fuel mutually beneficial relationships on their terms.”

And what are those terms?

“The women who are on the site, or as we call them ‘sugar babies,’ are looking for men who can provide financial assistance for them,” said Angela Jacob Bermudo with Seeking Arrangement.

“Aside from that, they’re also looking for men who can help them in terms of mentorship, whether it’s to find their own independence in the professional world or … with providing life guidance.”

Whether or not you believe this explanation, doesn’t it seem cold blooded for YouTube to have one of their colleagues killed after a connection to this site and yet still post the videos promoting in great detail how young women can use the site?  Young women including kids behind YouTube’s absurdly porous “Safety Mode”?

And sell advertising against the keyword promoting Google products?

@Deadline Hollywood: Google “Forgets” Film Maker Dinesh D’Souza in Search Results–Can Kadoodle Be Far Behind?

I’ve always believed that you don’t have to have had a bad guy point a .50 cal at your tummy from a guard tower on the wrong side of the demarcation line between the old East and West Germanys to understand free expression.  But I also believe that it doesn’t hurt your comprehension, either.

And if you support artist rights and the freedom to express yourself, it’s a hollow message if you don’t support the rights of all artists, even the ones you disagree with.  Maybe especially the ones you disagree with politically.

MTP readers will know that at the heart of Google’s antitrust investigation in Europe is Google’s practice of disappearing  certain links and promoting their own competing links.  It’s easy to point out the evils of this practice when you’re talking about commercial products.  But what Google is doing is suppressing speech about ideas they don’t like (competitors) in favor of ideas they do like (their own products).

But what if you were talking about political ideas instead of commercial ideas?  Because at the end, what Google is accused of doing in Europe (and which they apparently do routinely in the US according to then-Googler Marissa Meyer) is promoting their own Google-approved message over a competitor’s.  That could just as easily be a political candidate backed by Google or a political idea that Google did not back.

This comes up in the case of film makers with unpopular ideas and it also comes up with actual political campaigns.  Google does it with “down linking” or artificially adjusting their algorithm to return altered search results.  The problem is that if you don’t watch carefully for it and if you don’t make a stink about it when it happens, the public will never know Google is disappearing one movie they don’t like, a book that threatens Google or an idea that they support, or disappearing a political campaign or news about a political candidate they oppose.

Dinesh D’Souza’s “America”

You may never have heard of Dinesh D’Souza.  In a nutshell, he is a man of the Right.  He is an immigrant to America from India, an academic and conservative activist.  If you have attended university after 1972 or so, you know that being both a conservative activist and an academic is not exactly a ticket to success for either vocation.  He’s scrappy, but in a very intellectually mellow Indian sense.  Kind of like if Michael Moore was a Buddhist.

You can draw your own conclusions about his politics, that’s not the point of this post.  D’Souza has written many books, but lately he has started producing and narrating movies based on his books.  The films are released by Lionsgate which is “real” distribution and look to be low cost dramatized documentaries with a political twist that is critical of the party in power.  The current film, “America: Imagine the World Without Her (2014)” has been out less than a month and has a US box office gross of $12 million in 1300 screens.  Not bad, but given the limited marketing budget that documentaries get to enjoy, every little bit of publicity is important and the lack of it can tank a film.  (D’Souza’s last movie, 2016: Obama’s America has grossed approximately $33 million at the domestic box office with the same formula, putting it right behind Michael Moore’s Fahrenheit 9/11, the highest grossing political documentary.)

Given what we know about Google’s political aspirations, lobbying influence, cozy relationships with the NSA, building robots for the Marines and other crony capitalist benefits from helping keep the executive branch stay in office, those facts alone would make one suspicious of just how much Google would be willing to help D’Souza succeed with his film that is intellectually critical of not just the Obama administration but also Hillary Clinton.  (Google is also pretty cozy with Secretary Clinton, too, see her Google “Google Fireside Chat” conducted this week by Eric “Uncle Sugar” Schmidt, presumably for the usual fee.)

According to Deadline Hollywood:

Dinesh D’Souza and the team behind the recently released documentary America: Imagine The World Without Her still want to know why Google won’t display the show times for their movie. Earlier this week, lawyers for the conservative author/filmmaker sent a second letter to the tech giant’s chief legal officer David Drummond trying to get the situation resolved, I’ve learned. The July 16 letter from Sheppard, Mullin attorney Kelly Crabb requested “that Google correctly display information for America: Imagine The World Without Her in the same way it displays information for other movies currently in theaters”….You’d think that would be a simple enough request for one of the world’s top search engines. But in this case, you’d be wrong. “I don’t know what the point of a search engine is if people can’t access the information they’re looking for,” a frustrated D’Souza told me today.

Ah, well.  MTP readers understand exactly what is going on, right?  Do we think that David Drummond is going to be helpful to any film maker?  Let’s check the Google Transparency Report:

google takedowns

 

We know what Google thinks of creators, we’re just a bunch of whiny “Hollywood” people who expect Google not to sell ads for pirate sites, human trafficking and counterfeit pharmaceuticals not to mention YouTube videos on how to shoot heroin.  So if David Drummond doesn’t seem to be sufficiently motivated to control the hookers and blow his company profits from (and that indirectly benefit his own bonus and stock options), why in the word would you think that Google would want to help out this particular film maker?  Do you think that Josh Earnest is calling David Drummond to tell him to be sure that the D’Souza movie gets a fair ranking?

This most recent letter to Google comes after the tech company’s previous solution to the problem was to pull down almost all the info about the docu. Before, Google searchers were seeing the poster and title of D’Souza’s previous pic — 2012′s 2016: Obama’s America – when they searched for America. After the filmmakers had their lawyer contact the company last week, there was even less. “Google’s fix …was to remove the times and other details altogether,” notes the 2-page letter, sent Wednesday. “The result is that now a filmgoer interested in America: Imagine The World Without Her must research available links to find information that is readily available for other motion pictures.”

If you support Mr. D’Souza, this will no doubt get you tweaked.  If you don’t, just imagine if this was Michael Moore and a Republican was in the White House–because don’t think for one minute that Google won’t be all over a Republican administration as well if one happens to come along.  They play both sides of the street–why do you think they hired the Republican former Member of Congress Susan Molinari to run their DC lobbying operation?  Is it a conspiracy?  Probably not, but would anyone in any White House lose sleep if a film maker who was critical of their administration had a hard time with a major campaign contributor?

So it may not have been a political conspiracy, but no one will be surprised that I think it was intentional on Google’s part.  And  intent is informed by motive.

Kadoodle

Ever heard of Kadoodle?  Probably not, but it’s a fictional search company created by Professor Robert Epstein of the American Institute for Behavioral Research and Technology.  Professor Epstein conducted a number of tests on the effects on voting behavior of the manipulation of search engine results.

Jeff Bezos’ Washington Post has an informative article on Professor Epstein entitled “Could Google Tilt A Close Election” (you’ll have to read past the ads for “Google Enterprise Search” that are served to the page):

Google’s motto is “Don’t be evil.” But what would it mean for democracy if it was?

That’s the question psychologist Robert Epstein has been asking in a series of experiments testing the impact of a fictitious search engine — he called it “Kadoodle” — that manipulated search rankings, giving an edge to a favored political candidate by pushing up flattering links and pushing down unflattering ones.

Not only could Kadoodle sway the outcome of close elections, he says, it could do so in a way most voters would never notice….“They have a tool far more powerful than an endorsement or a donation to affect the outcome,” Epstein said. “You have a tool for shaping government. . . . It’s a huge effect that’s basically undetectable.”

Epstein’s core finding — that a dominant search engine could alter perceptions of candidates in close elections — has substantial support. Given the wealth of information available about Internet users, a search engine could even tailor results for ­­­certain groups, based on location, age, income level, past searches, Web browsing history or other factors.

The voters least tuned in to other sources of information, such as news reports or campaign advertisements, would be most vulnerable. These are the same people who often end up in the crucial middle of American politics as coveted swing voters.

“Elections are won among low-information voters,” said Eli Pariser, former president of ­MoveOn.org and the author of “The Filter Bubble: What the Internet Is Hiding From You.” “The ability to raise a negative story about a candidate to a voter . . . could be quite powerful.”

In short, Google has a startling capacity to suppress speakers it doesn’t like.  Google will give you a bunch of the dog ate my algorithm excuses about why it’s not their fault, not intentional, etc.  (Right…it might be a whatchamacallit…a crime…if it were.)  The behavior that got them before the European Commission–favoring their own speech over that of others–is in many respects the same behavior that is at issue with Mr. D’Souza’s movie and Professor Epstein’s research.

So you have to ask yourself why would you accept a “trust me” defense from Google any more than you did from Enron?  And some day when Google does it to a film maker whose views you like, remember that it started because you didn’t speak up to defend a film maker whose views you didn’t care for.

We stand for artist rights around here, not just the rights of the artists who we like politically.  And it’s pretty clear that Google thinks of artists as people it can bully and rob blind, then disappear.

UPDATE: Thanks to Mr. D’Souza’s lawyers, Google has corrected the Google algorithm to return proper links for a search for “America movie”.  That little exercise probably cost him in the $10,000 range. Needless to say, not every creator can afford a lawyers letter from a big law firm and not everyone can bring public pressure to bear like Mr. D’Souza.

 

 

Follow the Money: Is Spotify Getting the Bear Hug from Google?

Every direct license has a term, that is, the period of time that the license is active.  Almost every license has an assignment clause–a covenant that allows the license to be transferred to a third party.  The identity of that third party is usually unknown at the time the license deal is closed.

Here’s an example.  You license your music to Company A, a bright eyed startup that is run by people you like.  You grant the license for, say, three years.  There is peace in the valley.  Company A pays you on time, you’re happy with the service.  Company A suddenly gets hot and then sells–or assigns its licenses and other assets (and perhaps its stock) to Company G, a multinational tech company that is dedicated to destroying copyright and makes up the law as it goes along.

When Company A sells to Company G, the lawyers for Company G will have a look at all of Company A’s licenses.  One thing the lawyers will look for is the “consent clause.”  This is an additional provision of the assignment clause that allows the licensor–you in this case–to approve any assignments.

Before you run to look at the assignment clause in your digital distribution agreements, let me save you some time.  If you have a consent right to block the assignment of your license, you would already know who you are and you’d probably be a major label.  If you are not a major label, then I would speculate that you have a 99% probability of NOT having a consent clause.

Why is that?  Because the reason that people get into the digital music service game most of the time is not because they want to be the next Ahmet, Barry, Russell, Herb and Jerry, Chris or Clarence, it’s because they want to sell their company.

Quickly.

And that’s the difference between a digital retailer today and those great record companies.  It’s not that these guys didn’t cash out, because they all did.  They just didn’t do it in a year or few.

One of the lessons I hope we’ve learned this year is that when you make a deal with one of the streaming services, you really have no idea who you’re making your deal with.  So the rest of this post is going to apply that idea.

Daniel Ek, the former CEO of uTorrent (the most popular software for distributing illegal content) and the current CEO of Spotify, recently emphasized to Yahoo News that Spotify had no intention of registering its initial public offering of the company’s common stock in the US.  In a July 16 story, Ek sought to shoot down “rumors” of an IPO.  This “rumor” was based on:

[A] job advertisement, posted on Spotify’s website and on LinkedIn, said the successful candidate – an “External Reporting Specialist” – would be required to “prepare the company for SEC filing standards. Set up all reports necessary to be SEC compliant”….adding to speculation that the Swedish start-up is preparing for a share listing, which one banker said could value the firm at as much as $8 billion.

Then on July 21, the well-known tech journalist Kara Swisher reported in Recode that one of the most senior Google execs has joined the Spotify board of directors.  (Google is famous for keeping their spokespeople anonymous.)

Omid Kordestani [Google's chief business officer] is joining the board of Spotify, according to people with knowledge of the situation.

In addition, sources said, one of the search giant’s former execs, Shishir Mehrotra, will become a special adviser to CEO Daniel Ek and the company’s management.

The move is a fascinating one, especially since sources inside Google said that new YouTube head Susan Wojcicki [who I believe is Sergey Brin's sister in law] has expressed interest in acquiring the popular online music service if it were for sale. It is not currently and there are no such discussions going on between the pair about such a transaction.

Thus, the new appointments appear unrelated. And, to be clear, Google’s top execs often join boards of companies, both with corporate ties to them and not.

When a venture backed company gets to the “pre-IPO” stage or near it, one of the financing moves that is not unusual is for the company to take an investment from a “strategic partner”.  This is particularly beneficial to the startup if the strategic partner also brings some technology or other business opportunity along with it, perhaps in addition to the money.

When someone joins the board of a venture backed startup, i.e., a private company, it is pretty common for that board member to represent a class of stock or to agree to vote their shares with, say, the Series B or something like that.  This is usually documented in something called a voting agreement.

Private company boards of directors are different than public company boards.  On a public company board, the company may find it advantageous to have a well-known business person, a distinguished politician or other public figure.  It’s less common that private company boards operate this way.  Not that it can’t happen, or never happens, but it doesn’t usually happen.

And if you are going to get a Spotify board seat, it seems very unlikely to me that you’d get that seat for free.  What is much more likely to me is that Google made an investment in Spotify, and if Google got a board seat in return for that investment, I would not be surprised if that was a pretty substantial investment that would further buttress the kind of valuation that Spotify wants to get when it does register its shares in an IPO.

Remember, Ms. Swisher’s reporting was that “[Spotify] is not currently [for sale] and there are no such discussions going on between [Google and Spotify] about such a transaction.”

Remember also that Beats has a user base in the 200,000 range and sold for $3 billion (subject to satisfying some closing conditions from what I hear–the price could go down).  Spotify has 40 million users with 10 million subscribers as of May 2014.  So what better way to confirm your valuation than to have an investment from Google that’s in line with the Beats valuation benchmark.  (I understand that the Beats music service was only part of the company, but still….)

If I had to guess, and it’s just a guess, I’d say that a Spotify board seat is worth about 20% of the company.  So if Spotify had an $8 billion valuation pre-Beats….

We will be keeping an eye on Google’s and Spotify’s public filings to see if anything turns up.  It could also be that Google and Spotify are doing some kind of licensing deal that will be meaningful for both companies.  Just because Google and Spotify can truthfully deny there’s an acquisition going on, doesn’t mean that there’s not a whole lot of other action.

But whatever the corporate machinations are, Spotify surely got something in return for allowing Google a vote on their future.  The current news doesn’t provide an answer to that question.

And the other thing that is true is that Google has demonstrated through its cavalier treatment of indie labels that got itself hauled in front of the European Commission–yet again–that Google is the last company you’d want to have making decisions at a company that is already despised by many artists for paying extraordinarily low royalties.  And if Google did make that investment, you have to ask where did the money go?

Google will get the full information flow about all of Spotify’s deals, all of the income, all of the license terms.  This may not seem offensive to Mr. Ek, whose last job involved distributing uTorrent software, the lifeblood of music piracy.  After all, he’s going to cash out again and leave the artists hanging.

But it seems pretty weird to me.

Consent clause.  Write that down.

 

Major Setback for Google in EU Antitrust Settlement and a Big Oops for YouTube

July 23, 2014 1 comment

DEEP THROAT

Look, forget the myths the media’s created about the White House–the truth is, these are not very bright guys, and things got out of hand.

All the Presidents Men

According to a host of press reports, embattled lame duck EU-Commissioner for Competition Joaquín Almunia is giving Google yet another opportunity to revise their settlement proposal before his term runs out in a matter of weeks.  Almunia has been roundly criticized by dozens, if not hundreds, of stake holders from consumers to small and medium sized businesses in Europe for the proposal itself.  Now he’s also getting scorn for the unprecedented number of times he’s allowed Google to amend its hugely unsatisfactory and one-sided “settlement” proposal to keep from getting sued by the European Union for antitrust violations from its dominant position in the search vertical alone.  Google controls about 90% of search in the EU.  90%.

Is this the European tradition of letting tax avoiding American multinationals use their dominant market power to run roughshod over the European Commission?  Not so familiar with that tradition.

The choice before Mr. Almunia is whether to settle with Google or whether to effectively sue Google using what’s called a Statement of Objections that could result in significant fines after a yummy administrative law hearing where there’d be lots and lots of discovery in the public record.  And judging by the measures that Google has taken to block the release of 4,000,000 documents in the Google Drugs grand jury in Rhode Island–a release that would have been entirely reasonable in the lawsuit by their stockholders for converting $500,000,000 of the stockholders’ money, among other things–the idea of a Statement of Objections would no doubt drive Google right around the bend.

MTP readers will not be surprised to learn that Eric “Uncle Sugar” Schmidt has become BFFs with Almunia as part of Google’s charm offensive to get away with it.  But Google has managed to twist this process so far in its favor it’s beginning to look like…how you say in your language…la corrupción.

As the always perceptive Kelly Fiveash writes in The Register (“Mr Almunia, exactly how many chances does Google get to revise its search biz offer?“):

On 30 November 2014, the European Commission will have been probing Google’s search business practices for a whopping four years.

Formal proceedings were opened against the ad giant in late 2010.

The date is significant, given that by then we should also know who will replace antitrust boss Joaquin Almunia in Brussels.

As the Spanish politician’s term as chief competition prober comes to a close, the DG Comp office appears to have somewhat shifted its position on the lengthy case.

The EC has expressed major concerns that Google may have abused its dominant position in web search – where it commands around 90 per cent of the market within the European Union.

However, at the same time, Almunia has been steadfast on his promise to reach a settlement deal with Google that stops far short of sanctions or demanding up to 10 per cent of the company’s annual turnover.

Google has been given three separate chances to revise its concessions on search, in part, because Almunia has stuck so firmly to favouring such an outcome that, he argues, will restore competition more swiftly than forcing the multinational down a so-called Statement of Objections route.

And yet, it now appears that the case could drag on way beyond Almunia’s mandate if the commission decides to chuck out Google’s most recent offer and press for a fourth settlement deal.

My bet is that Google thought they’d be able to run out the clock and settle right before Mr. Almunia’s term expired.  Which reminds me of an old football coach who used to say that if you [expletive]s are going to run out the freaking clock, make sure you [expletive]s keep the freaking points.  Or something like that.  Because right now it does not seem like Google’s got the points and this deal is beginning to reek to high heaven.

If you ever wondered just how arrogant the YouTube negotiators really are, realize that these geniuses decided that it would be a good time to alienate the WIN and Merlin labels–based in…where was that again…oh yes…Europe…right in the middle of what is rapidly becoming Almunia’s mess.  And how did they alienate the indies?  By doing pretty much the EXACT SAME THING that Google was accused of doing in search–abusing their dominant position to benefit themselves.

I frankly think that the indie complaint against Google was the last straw for a lot of people, and it almost assures that Google’s antitrust investigations are going to be far more wide ranging and last much longer than anything the embattled Mr. Almunia has done to date on Google’s search business.

Plus we now know what Google’s strategy will be in defending against the indie label claims.  The next competition commissioner will be watched very closely to make sure that the commissioner is not led astray by the charms of Uncle Sugar.  No, thanks to YouTube, Google is going to have a very, very rough time for the foreseeable future.

In fact, even if Almunia calls an audible and lets Google settle after another bite at the apple, getting that settlement approved in the Commission is probably going to get pretty messy if not fall apart altogether.  And it could all have been so easy if Google just took their medicine like big girls and boys. Was that really so very very difficult to anticipate?  Are these folks just not that bright or are they simply consumed by that special Silicon Valley blend of arrogance and avarice?

Yes, I’d say that thanks to YouTube, the indie labels very likely provided that critical mass to tank Google’s entire EU settlement.

Or as we say in Texas, oops.

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