If only the Government Accountability Office got on board–but GAO wants to promote the positive effects of crime.
Twenty More Questions for Artists: Record producer agreements, Part 13: Contingencies and Fan Funding
Please note: This is an installment in a multi-part post. Each post has information relevant to prior posts, so until we get to the “Final” there will be more information to come. See also More Questions for Artists: Record Producer Agreements, Part 1, Part 2, Part 3, Part 4, Part 5. Part 6 , Part 7, Part 8 , Part 9, Part 10, Part 11 and Part 12. Watch this space for further installments, or subscribe to the RSS feed. A post with all the current parts in one post is available here, and see also “Artist Management Agreements” on the Semaphore Music blog.
18. Contingency Funds It is not uncommon to build a “pad” into your budget for unforeseen costs or if you need a little extra money to make the record better. This is not a way to hide money or to inflate costs, or it shouldn’t be. Even if your producer is working on a recording fund basis it is a good idea to have a contingency built into the recording budget to give you some flexibility. The typical contingency is 10% of the budget, but could be higher or lower depending on circumstances.
19. “Fan Funded” Projects: Producer Budgets If you decide to use fan-funding for your record and you also plan to use a producer, remember you are on your own as with any “DIY” effort. You will not have the structure of the record company to protect you on enforcing terms so it would probably be a very, very good idea to have at least a signed deal memo with your producer that grants you the rights in the recording—see the discussion of the joint authorship problem in this article.
Also remember that if you go overbudget with fan funding, there’s no record company to advance you more money. So what that means as a practical matter is that you are operating under the “advance plus budget scenario” for recording cost purposes discussed in this article, except that you have more reason than ever to hold back a portion of the producer’s advance until satisfactory completion of the recordings. This is because you have raised a specific amount of money from your fans to record your tracks and you will have to put up your own money or raise more money if you go over budget. If the producer causes you to go over budget on a fan funded record, you will want to be particularly careful about having a contingency to invade if necessary before you go after the producer’s delivery payment—which in theory you will only be able to invade if the producer actually caused the overbudget through no fault of yours. These are always awkward conversations to have, so take advantage of your contingency.
Before you ever ask your fans for a contribution, you should have been through your budget thoroughly so you eliminate the more predictable of these potential surprises. It’s one thing to fight with your record company about money—they sell your records. It’s another thing to fight about money with the precious few people who show you enough respect to buy your records.
20. “Fan Funded” Projects: Recoupment We spent a fair amount of time on recoupment issues in this article. With “fan funded” projects, there is no recoupment, at least not for the fan funded part of the costs. Those will not be the only costs, however, Another thing to remember is that if you produce a record on a fan funded basis and it is successful, you may find that a label wants to “buy it”, meaning pay you for the record in what will become a term recording artist agreement. And we know that the only money that record companies pay to artists are advances recoupable from payable royalties, right? Meaning royalties that are payable after recoupment of the advances under some determined formula. So if you have a fan funded record for $15,000 and you pay your producer $3,000, but because of your touring and other hard work you are able to have a major label “pick up” that record for $500,000, what happens? If the label advances you $500,000 can you put all of money in your pocket? Great payday, right?
But what about your producer agreement? For example–if your producer agreement for your fan funded record doesn’t take into account at least the potential for an advance at some point in the future, then are you going to owe the producer a royalty on those records it takes to recoup that $500,000? Probably. And where are you going to get that money from? Hopefully your producer agreement will tell you how to do that.
[This post first appeared on MTP in 2009. AFTRA is part of the coalition of labor unions and guilds (including the AFL-CIO) supporting rogue sites legislation in the US Congress]
There are two principle unions in the music industry, the American Federation of Musicians (“AFM“) and the American Federation of Radio & Television Artists (“AFTRA“). AFTRA is a member of the AFL-CIO, which is the largest federation of unions in the United States with over 10 million members. AFTRA is an important voice for artists on Capitol Hill and helps artists to exercise their fundamental Constitutional right of association (Brotherhood of Railroad Trainmen v. Virginia, 377 U.S. 1 (1964)).
AFTRA and the AFM bargain with record companies to negotiate session rates, residuals and benefits for their members, set standard booking agency and one-nighter agreements for live performances and a host of other contracts designed to protect artists and maximize their economic rights.
AFTRA is an important member of the MusicFirst coalition supporting a performance royalty for recording artists on terrestrial radio.
In response to questions about the benefit of union membership for professional artists, MTP’s Chris Castle interviewed Randy Himes, who is the National Director of Sound Recordings for AFTRA and Director of the AFTRA Nashville local. AFTRA is one of the leading labor unions for recording artists and vocalists (as well as many other fields). Randy’s a busy guy, so we are lucky that he was able to take time to answer some questions.
MTP: Randy, tell us a little about how you came to be at AFTRA and what your job entails?
Hi Chris – it’s great to see you again and thank you for this opportunity to get the word out on AFTRA.
Well, I’ll try to give you the abbreviated version. I’m now in my 31st year with AFTRA and this is where I have worked my entire professional career. During college, I helped run an Exxon station for a guy who treated me like a member of his family, named Tommy Stump. Tommy had ties to Johnny Cash and people in the Nashville Music Industry. Marty Stuart was a regular customer. Tommy helped many Nashville musicians, performers and professionals by waiving car repair charges while they were on tough times. He always told them, “don’t worry about the bill, someday you will make it and we’ll settle up then.” To give you an idea of how loved he was by the community, cars lined up to buy his gas even though his prices were a nickel higher than anyone around him. People loved him.
This was 1978, and at that time, I held a degree in Mass Comm, with a business major/music minor and I thought I wanted to be a recording engineer. Tommy called in some favors with Nashville pros and asked them to simply help me get a foot in the door. One of those people was Charlie Monk, former AFTRA Nashville President and who then worked at ASCAP. One day, Charlie came through and gave me a slip of paper and said “you need to give this guy a call.” I went on an interview for a “field rep” position with AFTRA Nashville Director/attorney David Maddox (who continues today in private practice). Before going on the job interview, I had to look back in my Mass Comm notes to see exactly what “AFTRA” stood for.
From that field rep position, I moved to National Representative, which in that day was a sort of AFTRA Special Forces – they sent us to places all over the U.S. that needed help. I was trained and worked with three AFTRA National Reps that had 103 years of collective experience between them. You had to be able to do every task, from negotiating radio & TV station contracts, organizing performers or a jurisdiction, straightening out the Local’s financial books, replacing staff (hiring and firing) and anything that was required. Out of necessity, I even re-wired the New Orleans office for telephone service.
I became the Executive Director of the Nashville Local in 1986 and became AFTRA’s National Director of Sound Recordings in 2005, while continuing in my role as the Director in Nashville. I’m the only person in AFTRA that has such a hybrid local/national position and thank God, my boss has been understanding and didn’t require a move to L.A. Living in Nashville keeps me centered and there are opportunities and doors that open in Nashville that subsequently assist AFTRA’s efforts in LA and other parts of the country.
My position deals with all things sound recordings. My job is to make sure AFTRA is a full service organization for royalty artists and performers who work on sound recordings. We address all contractual, legislative, and judicial issues that affect our members and any other issue that would put more money in their pockets or make life easier for them. AFTRA is the only union or organization authorized to bargain with the major labels for a contract that covers employment in that area.
MTP: What’s the difference between AFTRA and the American Federation of Musicans?
The difference between AFTRA and the AFM……..if you play an instrument, you are represented by the AFM (musicians). If you sing or speak, you are represented by AFTRA. AFTRA represents performers who work in the “vocal side” of performance, such as singers (this includes royalty artists that sing), actors, voice-over announcers, and those that work in AFTRA’s jurisdiction and don’t play an instrument. So the musicians on a recording are AFM and the royalty artist(s) (who sing) and session/studio singers are AFTRA.
There is a little twist to this if someone plays and sings at the same time and this usually occurs during the production of a television show. An AFTRA friend of mine and I affectionately created a category for this type of performer we call “hummer/strummers.” A performer that plays and sings can elect to be paid under the Union (AFTRA or AFM) with the higher scale compensation for that job, or through the Union of their choice. This performer is not paid under both Union contracts.
For example: Let’s say that Alan Jackson is performing on a television show with two singers and five band members. Alan plays guitar while he sings and he elects to be paid under AFTRA. The two singers can only be paid through AFTRA since they don’t play an instrument. Two of the five band members sing and play and they elect to be paid under AFTRA, with the final three musicians paid through the AFM (since they don’t sing). Final count: Alan, two singers, two band members paid through AFTRA…..three band members paid through AFM.
There are musicians that want to be paid through AFTRA regardless of which Union has the higher scale compensation for that job because they need to keep their AFTRA earnings high enough to continue to qualify for AFTRA health and retirement benefits. There are also musicians who occasionally sing and play on tv shows who want to be paid under the Musicians contract even though AFTRA rates may be higher, since they don’t do enough tv shows to warrant joining AFTRA.
The determination as to how artists/bands/singers are paid on tv show is determined by an AFTRA television rep working in conjunction with the show producer prior to performance. Artists and managers should take note and be sure their singers and band members are paid correctly and in a manner that is most beneficial to that performer.
MTP: How many members does AFTRA have and what fields are they in?
Currently, AFTRA has about 70,000 members. Out of this number, there are approximately 14,000 royalty artists and session singers who perform on sound recordings, commercials and TV shows.
AFTRA’s strength is in the diversity of our members who are employed as royalty artists, session singers, actors, broadcasters, announcers, dancers, and extras……..if you work in front of a camera or microphone and that performance is recorded or broadcast, AFTRA has a contract that will address that employment. Basically, AFTRA members entertain and inform America and the world.
MTP: What is the relationship of AFTRA to the AFL-CIO and organized labor?
For decades, AFTRA was affiliated with the AFL-CIO through the organization called the “4A’s”, which stands for the Associated Actors and Artistes of America. In addition to AFTRA, the other unions in the 4A’s are SAG, [Actors'] Equity, AGMA, and AGVA.
In February, 2008, AFTRA received a direct charter from the AFL-CIO, which was a monumental action. AFTRA now sits at the AFL-CIO as an equal partner to other unions in terms of participation, support and action. This is the difference between having to ask for the keys to the car (affiliation) as opposed to owning the car and having the keys in your pocket (direct charter).
AFTRA members now have a greater voice in decisions affecting performers and unions in our country, particularly since we are such a unique union within the AFL-CIO.
MTP: If I were sitting down with a young recording artist in an indie band, what should I tell them about the benefits of AFTRA membership?
Tell that Artist that AFTRA is fighting to put money in their pocket. AFTRA is fighting for their rights at the bargaining table with the record labels and on Capitol Hill (and what we do at the table and on Capitol Hill will affect that indie artist) .…that AFTRA is the artist’s voice in local, national and international affairs. Pound for pound, dollar for dollar, there is no other union or organization that does so much for royalty artists, during their career and after they retire.
An AFTRA contract protects and follows the recording throughout its life and collects money if that recording is used in used in a movie, television show or in television and radio commercials. AFTRA collects millions of dollars in monies that would otherwise not be paid to the artist or performers on recordings.
And by the way, AFTRA just created a contract for the indie artist that now enables indie artists to receive all the health and retirement benefits exactly like those benefits offered to artists signed to a major label contract. Just think, work as an indie artist and receive phenomenal health insurance benefits and have a pension when you retire!
Most young indie artists are totally focused on playing music and usually don’t think about the business side of their career until it is too late. To be pro-AFTRA is to be pro-artist. If making music is more than a hobby, indie artists should join with other professional AFTRA artists to protect their work and make changes that put money in their pockets. They should join AFTRA.
MTP: What does an AFTRA membership cost?
If the artist works on either coast (LA or NY), the initiation fee is currently $1,300. Nashville has a reduced initiation fee of $758 because Tennessee is a right-to-work State. You only pay one initiation fee in your life, unless you resign or terminate your membership. AFTRA also offers payment plans for the initiation fee.
After the initiation fee, base dues are $63.90 every six months and 1.486% of your AFTRA covered earnings. As a general rule, “AFTRA covered earnings” are those earnings on which a health and retirement contribution was made.
For example, an artist earning $50K per year in AFTRA covered earnings would pay $806.90 in total dues for that year.
MTP: AFTRA has a suite of group insurance and retirement plans, can you tell me a little bit about those?
The AFTRA Health and Retirement Funds benefits are some of the premier benefits offered in the entertainment industry. You couldn’t create such a benefits plan in today’s world…….major medical, hospitalization, preventive dental, $30K/$48 accidental death life insurance, loss of voice, drug and alcohol rehab benefits and a defined pension plan………and all without pre-existing conditions, with a majority of the benefits funded by the many employers who hire AFTRA performers!
Most people don’t understand how the AFTRA Funds are structured. It is important to note that the AFTRA Funds are completely separate from AFTRA, the union. Employers make contributions to the performers (not the union’s) health and retirement account at the AFTRA Funds. I mention this because many times, performers and managers confuse these employer contributions with AFTRA initiation fees or premium payments. As much as I would like for AFTRA to take credit for these benefits, it is the AFTRA H&R Funds that collects the contributions and administers the benefits to performers, not AFTRA, the union.
Performers work under AFTRA contracts and those good AFTRA employers make a contribution to the performer’s health and retirement account on those earnings. For example, if you worked on a UMG session and earned $300, UMG would pay 11.5% of that $300, or $34.50 to your AFTRA H&R account. When you have earned $10K in gross AFTRA earnings, you are eligible for individual benefits coverage, and at $30K, you become qualified for family coverage. Performers then pay premiums to be covered for benefits. The current premium for individual coverage is $330 per quarter and the premium for family coverage is $633 per quarter.
You won’t see royalty artists having fund raising concerts for another artist’s medical expenses because roster (royalty) artists at major labels have guaranteed access to health benefits through the AFTRA Sound Code.
In my tenure at AFTRA, the AFTRA Funds have saved many lives and kept many performers from bankruptcy with their medical bills. The Funds have treated artists and their family (including the artist’s children) for most everything, including drug and alcohol rehabilitation, organ transplants, AIDS and cancer. Artists and performers should be dedicated to working under AFTRA contracts for not only the contractual protections and monies, but to also support this premier health and retirement benefit plan for them and for their performing peers in the music industry.
Chairman Herb Kohl and Senator Mike Lee wrote an interesting letter to the Federal Trade Commission that called on the FTC to continue its investigation of Google with vigor after examining the issues at a hearing of the Antitrust Subcommittee (The Power of Google: Serving Consumers or Threatening Competition? Before the Subcomm.on Antitrust, Competition Policy and Consumer Rights of S. Comm. on the Judiciary, 112th Cong., 1st Sess. (September 21, 2011).)
Senators Kohl and Lee commended to the FTC as evidence of the need for a deep investigation into Google this exchange before their subcommittee regarding statements made by a senior Google executive in the video above (which you can watch in context):
“As discussed at our Subcommittee hearing, Marissa Mayer, Google’s Vice President of Local, Maps, and Location Services, admitted in a 2007 speech that Google did in fact preference its own websites. She acknowledged that, in the past, Google ranked links ‘based on popularity … but when we roll[ed] out Google Finance, we did put the Google link first. It seems only fair, right? We do all the work for the search page and all these other things, so we do put it first … That has actually been our policy, since then … So for Google Maps again, it’s the first link, so on and so forth. And after that it’s ranked usually by popularity.’ In response to written follow-up questions asking whether her statement was an accurate statement of Google policy, Eric Schmidt stated that ‘it is my understanding that she was referring to the placement of links within a one box … and her description was accurate.’
While the basis for Mr. Schmidt’s “understanding” is not clear, even if her statement was in fact limited to the “one box” result, this is a clear admission of preferencing Google results. As consumer surveys show that 88 percent of consumers click on one of the first three links, these statements appear significant when analyzing Google’s potentially anti-competitive practices.”
The Vanity of False Distinctions
While the parsing recantation may well be evidence of what Robert F. Kennedy referred to as “the vanity of false distinctions” (a frequent experience when dealing with Google), it came as no surprise to many in the music industry. After hearing that statement, even the biggest Google fans in the music video professional community felt more justified in the belief that Google rigged the order of YouTube videos in Google search–indeed for many, it provided an articulation of a phenomenon they had seen many, many times–that Google search on top music videos only seemed to bring up neatly arranged YouTube videos on the first page of search results.
The same artist names and song titles in other search engines bring different results in Google search–and apparently organic rankings, not “cooked” rankings. So this phenomenon of the uniformity of YouTube search results is limited to Google search and its YouTube subsidiary, heavily subsidized with Google’s monopoly rents from advertising. (“Google CEO: YouTube Still Isn’t Profitable”, Wall Street Journal , Sept. 9, 2010.)
As The Wall Street Journal’s Peter Kafka put it four years after Google’s 2006 acquisition of YouTube, “[D]oes anyone want to guess when, if ever, Google will tell us that YouTube is actually profitable?” Or said another way, when, if ever, Google will stop subsidizing YouTube with profits from its dominance in search?
Those with competing businesses in the online music video marketplace resigned themselves to being “disappeared” by Google to favor its own businesses, which is only compounded by Google’s Android phone. So no one is surprised by Mayer’s confession.
Schmidt Changes His Testimony About Google’s Dominance
The Senators also noted this discrepancy:
“Google is dominant in general Internet searches, with a 65 to 70 percent market share in computer-based Internet search, and a market share of at least 95 percent for Internet searches done on mobile devices. Indeed, in response to Senator Kohl’s question at our Subcommittee hearing to Google’s Executive Chairman Eric Schmidt as to whether Google is a monopolist in online search, he responded, ‘I would agree, Senator, that we’re in that area…’ The precise question Mr. Schmidt was asked was “do [you] recognize that … your market share constitutes monopoly … dominant firm, monopoly firm? Do you recognize you’re in that area?” Schmidt replied that he “would agree.” However, in response to written questions for the record following the hearing, Mr. Schmidt revised this answer, stating: “[i]nferring that Google is in any way ‘dominant’ in search would be incorrect” (September 2011 Senate Antitrust Subcommittee Google Hearing) (response to post hearing question for the record from Sen. Richard Blumenthal to Eric Schmidt, Executive Chairman, Google, p. 2).” (emphasis mine)
Aside from recanting his sworn testimony, his “revised” answer doesn’t pass the laugh test, particularly for YouTube videos appearing in Google search.
Clapping on One and Three
It is an important Sherman Act question if Google used its profits from its dominance in search to subsidize its dominance over online video through YouTube. Google should honestly answer that question. Maybe they did, but whether you believe that or not depends on when you thought Schmidt was telling the truth–in his testimony before the subcommittee or in his “revision”.
Google should honestly answer why it paid a billion dollar premium for YouTube—was Google’s plan to use YouTube to achieve market dominance over video search? Not to mention Google’s willingness to subsidize YouTube’s losses for five years—a loss that must be spectacular in its energy and bandwidth use alone (“Keyword: Evil” details the backroom deal for a gigantic Google data center in Senator Wyden’s home state where Google got special terms–if you catch my drift–for power on Oregon’s Columbia River). Dallas Mavericks’ owner Mark Cuban recently called the YouTube acquisition “crazy”—was the deal illegal because it was crazy or crazy because it was illegal? Chairman Schmidt should know the answer, he personally championed the YouTube acquisition and billion dollar premium to his board of directors.
Google should honestly answer if it required exclusive agreements with the companies it allows to be linked to its search results for YouTube as the price of admission for those links in order to create or extend Google’s monopoly over search? Do these agreements result in undisclosed paid search results?
And Google should honestly answer whether Google’s ownership of both the YouTube service and the means to find YouTube resulted in “hard wired” rigging of search results in a biased way.
As Senators Kohl and Lee pointed out to the Federal Trade Commission, Vice President Mayer’s public statement of Google’s policy of putting links to Google Finance and Google Maps first in search results raises significant antitrust issues–but no one in the music industry will be surprised to observe the consistent dominance of YouTube links in Google search. To extend Senator Lee’s questioning, “cooking” YouTube search results could also raise legitimate concerns under the Federal Trade Commission Act as well as the Sherman Act.
As could YouTube’s recent acquisition of music data service Rightsflow, which could be yet another effort to extend YouTube’s monopoly over videos paid for with Google’s monopoly rents.
Chairman Kohl and his colleagues clearly get it. But they can only do so much by themselves.
New Music Weekend: Our top 23 for 2011: New Music Weekend: Our Top 23 for 2011: Emily Zuzik, Phantogram, I Break Horses, Slowtrain, Kurt Vile & the Violators, Laze & Royal, Alex Clare, Pure X, Harvey Smith Salute, Le Corps Mince de Francoise, Kate Todd, Phantom, Kids in Glass Houses, Sarah Jarosz, Memory Tapes, Niki and the Dove, Brasstronaut, These Kids Wear Crowns, Julianna Barwick, Mother Falcon, My Name is John Michael, Esben and the Witch, Family of the Year
Top 23 for 2011 from Semaphore Music. Why top 23? 10 is too restrictive, and when asked to list top 20, no one did, so top 23. Supposedly across all genres but clearly isn’t.
Emily Zuzik (Brooklyn) “You Want to Go Out Tonight” @emilyzuzik
Phantogram (Saratoga Springs) “Running from the Cops” @phantogram
I Break Horses (Stockholm) “Load Your Eyes”
Slowtrain (Austin) “Not the Only One”
Kurt Vile & The Violators (Philadelphia) “Baby’s Arms”
Laze & Royal (LA) “Thrashed” @lazeandroyal
Alex Clare (London) “Treading Water” @alexanderclare
Pure X (Austin) “Heavy Air” @pure_x
Harvey Smith Salute (London) @theclientele (Music coming but there’s a compilation video that looks rad)
Le Corps Mince de Françoise (Helsinki) “Cool and Bored” @lcmdf
Kate Todd (Toronto) “Drive” @katetodd
Phantom (Montreal) “We Float” @thisisphantom
Kids in Glass Houses (Cardiff) “Matters at All”
Sarah Jarosz (Austin) “Annabelle Lee” @sarahjarosz
Memory Tapes (NJ) “Yes I Know” @memorytapes (cool video)
Niki and the Dove (Stockholm) “Under the Bridges” @nikiandthedove
Brasstronaut (Vancouver) “Slow Knots” @brasstronaut
These Kids Wear Crowns (Chilliwack BC) “Break it Up” @tkwc
Julianna Barwick (Brooklyn) “Flown” (@juliannabarwick)
Mother Falcon (Austin) (@motherfalconmus)
Esben and the Witch (Brighton)
[This post appeared earlier in 2011--but given the rogue sites debate that demonstrates just how much money is being made from online theft, understanding who influenced this GAO "report" that found that "stealing is good" is even more necessary.]
Some of you may remember the report by the Government Accountability Office that studied the problem of online theft of artists’ work and discovered that no one was able to prove anything and that everyone failed to take into account the positive effects on the economy of theft–in other words, stealing is good.
The report, specifically the April 2010 Government Accountability Office publication “Intellectual Property: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods” (GAO-10-423) was required under by the PRO-IP Act (P.L. 110-403), specifically Section 501(a) of the Act directed the undertaking of a “a study to help determine how the Federal Government could better protect the intellectual property of manufacturers by quantification of the impacts of imported and domestic counterfeit goods on—(1) the manufacturing industry in the United States; and (2) the overall economy of the United States.”
In my view, the report fails utterly to respond to the requirements of the statute–instead, the GAO spent the public’s money “observing”. What the GAO failed to observe and report is that at least in the view of the AFL-CIO, there are thousands of American jobs being lost due to the negative effects of piracy. This is also very clear to the Obama Administration and has been clearly enunciated by Vice President Biden, Attorney General Holder, Director Morton, IPEC Espinel and many others in law
If there was any doubt as the to view of at least the Congressional judiciary committees on this subject, try viewing the hearings in the Senate and House on “Parasites”–which sums it up rather well. Remember that for later–the judiciary committees.
The GAO report contains many references to the “positive effects” of counterfeiting and piracy of intellectual property rights of Americans.
Specifically, the Report states “some experts and literature point out that certain stakeholders may experience some positive effects from counterfeits and piracy, though there is little information available on potential positive effects.”
Even though there is “little information available on potential positive effects”–a bizarre position–the Government Accountability Office then goes on to offer readers a table reference to the “positive effects” of criminal activity.
I’m not the only one who finds it astounding that our government would offer “observations” regarding the “positive effects” of crime. I have discussed this report with friends in federal law enforcement, and all are incredulous that anyone who was ostensibly on their side would spend public money developing a government document that celebrates the “positive effects of crime”. I’ve discussed the GAO report with friends in government and they had a similar reaction. All wanted an answer to the same question. Who are these shadowy “experts” the report refers to because none of them were interviewed and they didn’t know anyone who was interviewed. And they really are experts. Anecdotal, I know, but interesting.
The Report offers no original study and is replete with references to “experts” who are not identified. It relies on controversial studies without considering opposing views,experts such as Oberholzer-Gee and Strumpf who produced a music study that contains this statement:
“A…decline in industry profitability might not hurt artistic production [or] artist motivations. The remuneration of artistic talent differs from other types of labor….[Artists]might continue being creative even when the monetary incentives to do so become weaker [because] many of them enjoy fame, admiration, social status, and free beer in bars – suggesting a reduction in monetary incentives might possibly have a reduced impact on the quantity and quality of artistic production.”
So don’t worry about piracy because artists will work for free beer. Tell them that at the AFL-CIO. The labor movement has never heard that kind of thing before, oh no.
In the case of the Oberholzer-Gee and Strumpf study, the Report does not consider or even reference the significant criticisms of the study, its methodology and conclusions. For example, Professor Stan Liebowitz has offered substantial criticisms of this study (see The Oberholzer-Gee/Strumpf File-Sharing Instrument Fails the Laugh Test, available at http://ssrn.com/abstract=1598037), yet a reference to this relevant academic work is nowhere to be found and it appears that the conclusions of the controversial “free beer” study are accepted without critical evaluation.
Having been unable to find any relevant law enforcement personnel or academics who were interviewed for the GAO report, I then spoke to the organizations that typically would have been consulted. Again, I can find no one–no one–in the music, movie, artist or songwriter groups who were asked for their side of the “positive effects of crime” story. In fact, I am unaware of any stakeholder in the music or motion picture industries who have been contacted by the GAO in connection with the Report. Yet the Report is replete with references to “interviews” with “experts” including “industry associations”. Anecdotal, I know, but interesting nonetheless.
Given who was not included, the list of experts that the GAO discloses appears suspect at best and at worst to have been very carefully elected by the GAO to produce particular results. The GAO Report has met with harsh criticism (see Thomas Sydnor, Punk’d: GAO Celebrates the “Positive Economic Effects” of Counterfeiting and Other Criminal Racketeering available at http://www.pff.org/issues-pubs/pops/2010/pop17.10-Punk%27d_GAO.pdf). On the other side, the Report has been trumpeted by the Consumer Electronics Association, the Computer and Communications Industry Association, Pubic Knowledge and others as demonstrating that there is no quantifiable harm done to the music or movie industries by piracy (see David Israelite, The New Enemy available at tp://www.billboard.biz/bbbiz/search/article_display.jsp?vnu_content_id=1004099016).
The Government Accountability Office is not really subject to the Freedom of Information Act–they agree to disclose certain aspects of their work as though they were. Turn that over in your mind a couple times–the Government Accountability Office is not subject to the Freedom of Information Act…
I sent the GAO an inquiry under the non-FOIA FOIA and received an answer that was fairly forthcoming on certain points. However, I have yet to receive an answer to this simple question:
“2. A list by name and any affiliation of each “expert” you refer to in the report.”
And if they won’t answer that question, they definitely won’t answer these questions:
“3. Copies of notes and correspondence between anyone at the GAO and such experts;
4. A written description of the methodology used in selecting such experts and the names of all persons who participated in such selection;
6. The names of each person who produced any written work product that was included in the Report or commissioned in connection with the Report regardless if it was used.”
The response to Question 2 (who are the experts?) was very cagey in my view:
“Please refer to Appendix I (page 31) of the report for a list of the experts that we interviewed to obtain their views on efforts to quantify the economic impacts of counterfeiting and piracy and methodological approaches, the range of impacts of counterfeits and piracy, and insights on counterfeiting activities and markets. Appendix I, also includes a description of the methodology we used for selecting the experts.”
Or, as they say in Washington, nothing to see here, move along. Which would be true except that it’s not.
I sent a follow up letter to the GAO about their response regarding Appendix I and specifically this section:
“We developed a common list of structured interview questions that we asked of each of the experts. [Which list of questions and responses GAO refuses to disclose.] We pretested our questions with two of our initial respondents [who GAO will not identify] and refined our questions based on their input [that GAO will not disclose]. The structured interviews included questions on definitions of counterfeit and pirated goods; effects of counterfeiting and piracy [such as the positive effects of crime, perhaps?]; and their views on methodologies and studies that quantify the effects of counterfeiting and piracy, as well as assumptions used . Individuals or organizations that we met with for these structured interviews are listed below:
Business Software Alliance (BSA)
Peggy Chaudhry, Villanova University International
Joe Karaganis, Social Science Research Council
Keith Maskus, University of Colorado
Felix Olberholzer-Gee, Harvard University [the free beer guy]
Stephen Siwek, Economists Inc.
John Spink, Michigan State University
Thorsten Staake, ETH Zurich, Department of Management, Technology, and Economics
Office of the U.S. Trade Representative”
If you read many bureaucratic reports, you become alert to what information follows a long list–in other words, what information is hiding in plain sight that you might miss because your mind is slightly numbed from a long list. And here it is:
“We also met with representatives from other industry associations and other organizations outside of the structured interview process in order to gain more in-depth information and additional perspectives on both of our objectives.”
Now this phrase could literally mean anyone–”representatives from…other organizations” could mean anyone walking the planet. So when the GAO in a formal response simply points to the Appendix and says you will find your experts there–among the “representatives from…other organizations” that response seems non-responsive in the context of a FOIA request. I pointed this out to the GAO and told them I thought their answer was non-responsive.
The reply I got was equally interesting:
“This letter responds to your April 10, 2011, follow-up request pertaining to my March 1,2011 (PRI-ll-043), response letter to you. Specifically, you are asserting that my response to question 2 of your December 30,2010, request was non-responsive. Upon receipt of your follow-up request, I consulted with our International Affairs and Trade team that issued GAO-1O-423 entitled INTELLECTUAL PROPERTY: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods. They advised me that on page 30 of the report at Appendix I, we provided the criteria for selecting experts and on page 31, we list our 12 experts, of which 8 were the names of individuals and 4 were the names of organizations and federal agencies.
Consistent with GAO’s practice, we did not provide the names of the officials who were speaking as representatives from the 4 organizations in our report. In addition, the Prioritizing Resources and Organization for Intellectual Property Act of 2008 (PRO-IP Act) mandated that GAO conduct this work GAO addressed this report to the Chairman and Ranking Member, U.S. Senate, Committee on the Judiciary, and the Chairman and Ranking Member, House of Representatives, Committee on the Judiciary. GAO’s policies and procedures related to the public availability of GAO records require that we must first obtain authorization from the congressional committees that requested GAO to do the work before we review records for release. See 4 C.F.R. § 81.6(a). We consulted with the congressional committees of jurisdiction regarding your December 30,2010, request and received limited authorization to address the questions raised in your letter about the experts referred to in the report. The committees did not authorize release of any additional identifying information about experts we interviewed, other than what we have already noted in the report. Therefore, we decline to release the names and/or any affiliation of the experts referred to in the report pursuant to 4 C.F.R. § 81.6(a).”
Now read this sentence again: “We consulted with the congressional committees of jurisdiction regarding your December 30,2010, request and received limited authorization to address the questions raised in your letter about the experts referred to in the report. The committees did not authorize release of any additional identifying information about experts we interviewed, other than what we have already noted in the report.”
What that sentence says is that GAO got authority to disclose in response to my first request, but did not go back and address the substance of my second request with the same committees. Meaning they did not want to go back and point out to the committees (which have likely had some staff changes since December 30, 2010) that there was an issue with responsiveness and for a very specific reason.
I think it is a fair question to ask for further disclosure on what is clearly a government report that reaches the bizarre conclusion that the positive effects of crime must be considered in policymaking–conclusions that are inconsistent with the fundamental principles of the United States–indeed, inconsistent with the fundamental principles of societies since Man crawled out of the palaeozoic ooze.
Who are these people? Why were they chosen? Why was no one from the creative community consulted? The GAO’s assertion that the committees authorized their response is particularly bizarre after the hearings the judiciary committees of both bodies just held on parasites at which such theories were resoundingly rejected in no uncertain terms. And how do you think they phrased their request?
The public’s money appears to have been spent on a results-oriented report relying at least in part on secret “experts” and elite professors who think musicians work for “free beer” and “admiration” (and any major dude–even a college professor–can tell you what “admiration” means).
See also: Tom Sydnor’s Comment on this article
“Have you seen the bigger piggies
In their starched white shirts
You will find the bigger piggies
Stirring up the dirt
Always have clean shirts to
play around in.
In their sties with all their backing
They don’t care what goes on around
In their eyes there’s something lacking
What they need’s a damn good whacking.
Everywhere there’s lots of piggies
Living piggy lives…
Clutching forks and knives to eat their bacon.”
An important Billboard article announces that SiriusXM is trying to get labels to do direct deals outside of SoundExchange http://www.billboard.biz/bbbiz/industry/legal-and-management/siriusxm-attempting-to-license-directly-1005312752.story
We will have more on this to come but realize that there’s an evil game afoot here–actually several.
First, the rate that Sirius has to pay for their radio service is about to go up as part of a government rate setting. If they can show that there are market deals in place by decieving labels into thinking they can make more money by avoiding SoundExchange’s expense charges–which are closely monitored by the way through the SoundExchange independent board including artist representatives–then Sirius can take those deals into the government rate setting agency to get everyone’s rates lowered.
Second, carefully note this part of the article: “As part of its move to direct licensing, SiriusXM will pay the full royalty rate directly to the labels, as opposed to the way SoundExchange makes payments, splitting royalties evenly between the artist, which it pays directly, and the label. So labels that directly license their masters to Sirius would then be responsible for paying the artist royalty. MRI would provide a full accounting on a per song basis to labels.”
Let’s put that “paying the artist royalty” concept into focus: In the world of royalty accounting, the term “payment” rarely occurs. It is more common to speak of “credits” and “debits” as most artist accounts are unrecouped most of the time. So instead of allowing the artist to make SoundExchange monies on a direct payment (like the writer’s share of performance money from the societies like ASCAP and BMI)–that is, on a non-recoupment basis–SiriusXM is hoping to tease the labels into a severe artist relations problem now that Sirius is making a pile of cash.
Not only is SiriusXM seeking to screw the artists, they would also be screwing the background singers and musicians who get 5% of these monies. (The AFM/AFTRA trust funds are separate from the unions and pay through their monies to the background singers and musicians.)
Now ask yourself what kind of person would dream up this scheme?
I have two words for this one:
See also “Will Artists Lose Royalties from Satellite Radio?”