Home > Uncategorized > Smoke on the Water, Part 1: Accounting for The Cloud

Smoke on the Water, Part 1: Accounting for The Cloud

February 20, 2011

By all accounts, 2011 will be the year of “the cloud.”  Again.

We’ll be discussing in the next few weeks the somewhat predictable affects of “the cloud” on the entertainment industry, and particularly the music business.  As usual, too little attention is being paid to the lessons of history and we hope to shine some light on the most important part of the cloud from the musician’s perspective—getting paid for your work.  This short piece will address the headline topics that should be on every negotiators checklist. 

The simplest version of the cloud is a digital locker where users can store files of indeterminate origin.  This is not remarkable in and of itself.  The problem is that unless there is much more scrutiny of what goes into the locker, the user could obtain tracks from illegal services, put them in their Google Music locker (for example, although Google won’t be the only one) and then stream the tracks to their Android phone or desktop.  This model is kind of old news in terms of development, and we have seen several companies develop this technology over the last few years.

And of course this very model is at the center of the major piracy sites.  If a company such as Google, which clearly profits from piracy by selling advertising in search results pointing to, in popups on the way to, or actually on pirate sites, could wave a magic wand and “legalize” this business model, one would have to believe they would jump at the chance.

It is also important to recognize that once the creative community allows Google to “license” the cloud, then they will also be allowing Google to connect to the cloud through their Android mobile phone division—which, after all, is the division of Google where Google has placed their music service.  So you could conclude from that choice that Google sees music as merely an add-on to a cell phone.

1.  Android Phones Promote and Monetize Piracy:  As Glenn Peoples identified in a recent Billboard article “Suspicious Finds: Rogue MP3 Apps Present New Challenges for Legal Music Services”, the Android Market is different than iTunes App Store: “Because the Android Market lacks the more stringent vetting process of iTunes App Store, these [Android] apps [for pirated music] are listed alongside better-known, legal music services like Pandora, MOG and mSpot.”  These pirate apps include “mp3musicbox” which Glenn says is the 74th most popular free app on Android Market, well ahead of USA Today, Kindle and the New York Times, and well ahead of legal music apps.

Not surprisingly, some of these app developers have for-sale “premium” version of their apps with even faster speeds (just like many of the “subscriptions” for the criminal cyber locker services that allow users to pay for faster download speeds–with a Visa or Mastercard).  Glenn identifies MP3 Online Premium, an app for illegal mp3s that sells for $9.99—and Google gets 30%, after the artists are paid.  No wait—the artists aren’t paid.

And then many of these are advertising supported—with ads sold by guess who?

(From a law enforcement perspective, shutting down these apps will be a lot easier than shutting down a rogue website.  Unfortunately, Google’s arrogant refusal to testify at the recent rogue sites hearing in the U.S. Senate Judiciary Committee suggests that Google does not intend to give up its profit from piracy quietly.)

2.  Licensed vs. Unlicensed Uses:  Why is Google’s Android Market relevant to their “cloud” scheme?  Based on its practices with Google Video and YouTube, it is clear that Google has no intention whatsoever of filtering out illegal services–and profiting from piracy until someone takes them down.  This is confirmed by the recent announcement by Google of “changes” to their copyright infringement policies–which are flimsy at best and a con job at worst.  Why is that important?  Because once they  have licenses for any content, they will use those licenses to mask, or as the EFF would say, “obfuscate”, illegal content.

3.  What is behind the cloud?  It seems extremely unlikely that for GIGO reasons alone, a commercial cloud service is going to actually stream the actual track that a user uploads to their locker.  It is far more likely that the user will upload a track to the locker, it will be recognized in some manner (fingerprint or metadata) and then a pristine copy of that track will be linked to the user’s account from another server on the network if it is recognized, a “side server”.  If it is not recognized, then we will have to assume that the track will be copied and stored in the background on the side server for the next user who uploads that track, perhaps even a “best copy” as determined by a machine.  Of course—if it is not already on the side server, then it is likely that the recording is not licensed.  So if the service uses this “side server” infrastructure for both licensed and unlicensed recordings, then they are in the business of reproducing pirated copies.

4.  Edge Server Caching:  Even if these cloud services don’t use side servers, it is common practice to cache copies of certain tracks on Akamai-type edge servers for a variety of reasons, especially to facilitate streaming.  Sound familiar? In order for the cloud to replicate this practice, edge server copies of frequently used material (including from a side server) will likely be hosted on edge servers.  Still more pirate copies.  (See diagram, but remember that the “Acme image” could be an illegal copy.)

5.  Non Display Uses:  The real value of a cloud music service, certainly to a company like Google, is not just the actual music that is being sold, but the database that is being created.  Make no mistake—Google would be fools not to try to capture as much of this usage as possible to resell and to perfect its search algorithm, particularly if negotiators completely miss this issue and allow Google to make non-display uses without penalty or contribution.  If you combine this idea with Google’s already announced policy “change” of displaying “previews” of indeterminate length, you can see that the music industry could easily be handing Google an asset that it will resell back to the music industry several times over.  All the recordings plus all the songs plus ownership data?  That’s the brass ring of database management.  Should they get this for free?

The real tragedy for creators, of course, is that service like a Google Music will come with the usual big advances and terrible accounting that are the hallmark of their company.  Where does the big advance go?  Into the general account of the licensor.  What happens when the ridiculous accounting comes in?  Not much, because the licensor is not required to pass through the initial advance and then has little incentive to get the accounting statement that would allow them to pay creators a share of the advance in earned royalties.  Meaning if you get a $10 million advance and get an accounting statement that reports on 5% of the usage, you only pay out $500,000 of the $10 million and keep the rest.

6.  Accounting for the Cloud:  Once your recordings and songs go behind the cloud, finding out what happened to them will get very cloudy indeed.  If you think that YouTube’s accountings are, to be kind, sub par, just wait until you get the cloud accountings.  Before anyone gets licensed any music for any cloud music service, they need to demonstrate they have the ability to actually account for the licensed usages.  Which they don’t.  Otherwise, the cloud will be the couldn’t.

7.  Hybrid Economies:  Remember Lessig’s slip on the Colbert Report—hybrid economies mean that someone else does all the work and the tech company gets all the money.  This is called YouTube, Flickr, Facebook, Twitter.  Do these companies provide value?  Sure.  Do they provide value to the musicians, filmmakers, artists, and users whose work and personal information are the data that frame the sale of advertising?  Hardly.

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