Archive for March, 2012

What Principles Apply to Agents? Who Audits the Auditors?

March 30, 2012 2 comments

“Quis custodiet ipsos custodes?”
Decimus Junius Juvenalis, Satires, Satire VI, lines 347–8.

According to Digital Music News, “Google has just tapped the Harry Fox Agency (HFA) to handle certain music-related licensing and administration services for Google Play.”

Depending on what this means, it raises some interesting questions.  As agents for its publisher principals, HFA has been trusted with vast amounts of metadata that many believe more than arguably belong to its tens of thousands of music publishers large and small.  Not only has HFA been trusted with that information, at no time I can think of has that information been of greater value to publishers and songwriters.  Those would be the principals for which HFA is the agent (the “A” in “HFA”).

Agents have lots of duties of loyalty, fiduciary duties, many duties, particularly when they hold themselves out has being the true servant of their principal.  That was all fine as long as HFA was on the same side of the transaction as their principals.

It now appears both due to the company’s rather cloudy role in the RightsFlow transaction and this current story in Digital Music News that HFA’s role is shifting to representing the licensee rather than the licensor at least in some instances.  Or perhaps both the licensee and the licensor.  We call this an “ethical wall” in the law.  In fairness, we should assume that the vast majority of HFA’s business is still in representing licensors and I would also assume that licensors have a far, far better chance of being paid accurately by HFA than by anybody else.  At least to the extent that HFA is provided by the licensee with accurate information in the first place.

My view is that the main value to publishers of using a collective like HFA (or ASCAP, BMI, SESAC, or SoundExchange) is to offload the burden of licensing under the compulsory license available in the US (under 17 U.S.C. 115 for songs or 114(g) for sound recordings for those reading along).  But licensors can do that work themselves if need be, burdensome though it may be.

However, in my view the unique value of using a collective is the ability to audit licensees (like Google) on behalf of a number of publishers, perhaps thousands of publishers and tens of thousands of songs.  This is the ability to audit as a group (or more broadly put, to act collectively to enforce their common rights at a market clearing price).  To conduct an “audit” which is really a royalty examination (not a “financial audit” strictly speaking), there logically must be enough money at stake for a single rights holder to conduct the audit.

I would suggest that the importance of the HFA standard license is that it modified the compulsory license (which does not lay out a procedure for a traditional audit in the regulations as currently drafted, i.e., 37 CFR Sec. 201.19) and gave certain benefits to the licensee not available under the compulsory license (quarterly instead of monthly accounting, for example).  This was arguably in return for the licensee agreeing to certain burdens such as agreeing to be subject to an HFA audit.  Having been on the receiving end of HFA audits in the past, I can tell you that their record company audits were something to behold and really set the standard for the industry to the great benefit of songwriters.

As we have seen with the push for direct licensing in some quarters and the union-busting activities of Google, The Man 2.0 does not like artists and songwriters to organize and the tech oligarchs are incented to stop this pesky organizing and auditing in every way they can.

So if HFA is going to start working for Google, then who will audit HFA’s royalty statements on behalf of their publishers?  And if Google owns Rightsflow, then does that not obviously create several different moral hazards, especially for songwriters and digital retailers who compete with Google Music/Play/Whatever?

Will Google agree to be audited by somone standing in HFA’s shoes, or will HFA discourage its principals from requiring an audit right against Google when HFA is rendering statements?  Or alternatively, will HFA purport to conduct an “independent” audit of itself and would anyone trust it any more than they would an accounting from Google Play’s Rightsflow, certified or otherwise?

Harvard Crimson supports 3 strikes for students: Berkman dealt aces and 8s by campus paper

March 29, 2012 Comments off

[Editor Charlie sez: This post first ran in December 2010]

You gotta know when to hold ‘em and know when to fold ‘em.  The poker capital of Cambridge, Mass. a/k/a The Berkman Center got something of a bad hand in the form of an unsigned editorial from the staff of the Harvard Crimson, the student newspaper at Harvard University, “A Sensible Compromise: The MPAA’s recent approach to illegal downloading is refreshing”.  (Yes, that’s really the title, and no, it’s not a spoof.)

The editorial supports a graduated response plan to call out students who misuse the Harvard network for illegal downloading.  Why?  As The Crimson puts it, because “the unauthorized downloading of copyrighted music, movies, and television programs is wrong.”

Wow.  “Wrong”.  That sounds positively moral.

A bit of context–the 2008 legislation for federal aid to universities–the “higher education bill”–makes a connection between taxpayer dollars for universities and an obligation on the part of those universities to keep their students from using university networks and bandwidth to steal everything that’s not nailed down.  Lessig, a Harvard ethics professor, has said “”What does it say about our democracy when ordinary behavior is deemed criminal?””  I guess it says that “ordinary behavior” is wrong when it is ordinary to break the law.  I won’t even get into the very, very long list of “ordinary behavior” that reeks so badly that even the most relative of moral relativists would have to call foul.  (For an example of relativism, see “Poker money and the ethics prof“.

Apparently, many universities (“thousands” by the looks of the article in The Crimson) are a bit slow on the uptake in developing and implementing these plans.  Although no university has had any interruption in federal largesse, the 112th Congress is shaping up to be a contender for the least porcine Session in many a year.  It’s not like the universities don’t know.  Someone will have to be first.

Long-time MTP readers may remember our 2007 post “Fred von Lohman’s Thimblerig, or Fun with Fallacies on the Short Con” which discussed the ideas in the higher education bill in some detail.  The backdrop for the post was an early example of the “don’t be moral” line of reasoning emanating from the intellectual loins of that starfighter of the EFF who recently was waived in for a soft landing by his ideological fellows at Google.  (See also “Did EFF Lawyer Cross the Line in Limewire Case?”)

So you see, the laudible position taken by The Crimson staff has a history.  The MPAA’s approach isn’t the only thing that’s refreshing:

“Our support for the MPAA’s actions is based on our belief that the unauthorized downloading of music, movies, and television programs, although easy, is questionable at the most basic level. In our postindustrial economy, the protection of intellectual property rights is important for several reasons. First, these rights must be safeguarded in order to provide an incentive for innovation. Without any guarantee of legitimacy, entrepreneurs will have no motivation to create new intellectual property, as it could be stolen at any time. Second, at a broader level, intellectual property rights are important because each person has a fundamental right to enjoy the fruits of his or her mental labor. Intellectual entrepreneurship requires a broad societal commitment to the rule of law and the importance of private enterprise.

This approach strikes the right balance between targeting individuals—who, in the end, are ultimately responsible for their online behavior—and universities, who provide the network resources that can be used to facilitate copyright violations.”

Personal responsibility for “ordinary behavior”, eh?  Lessig could take a lesson from The Crimson.

Class is in session.

Android is the Joe Camel of Privacy: Android Daddy Tells Congress to Live Long and Prosper

March 29, 2012 Comments off

When Eric Schmidt testified before the U.S. Senate Antitrust Subcommittee, he was sworn in and had his swearing in picture taken.  This is as much a rite of passage for Fortune 100 CEOs as is refusing to answer questions under oath on the advice of counsel.  Schmidt did both that day.  In fairness, he only flat out refused to answer questions about Google’s $500,000,000 forfeiture for aiding and abetting the importation of controlled substances and advertising illegal drugs indiscriminately–i.e., to children.  Later, Schmidt had another rite of passage once safely outside of the range of television cameras–in questions for the record, he told Senator Cornyn that he was “confused” by the questions.  Questions his lobbyists and lawyers must–must–have prepped him for answering.

But notice the curious hand gesture with which Schmidt greeted the subcommittee at his otherwise solemn oathtaking.  Is that not the “Vulcan salute”?  Is this guy so smug he thought this would be a funny joke to have in his scrapbook?

Consider these guys pictured below–the tobacco company CEOs about to tell the Congress that cigarettes are not addictive.  Another group with a lot to hide who also jeopardize the health of millions of people.  No Vulcan salutes there.  They know exactly what they are up against.  Of course, none of them ever said their companies would refuse to follow the law, either.

But then again, in order to represent the tobacco monopoly before Congress it took eight guys.  Google just had to send one.

A picture says a thousand gmail accounts….

March 28, 2012 Comments off

Hell is a place where the music is by YouTube; speech is by Google Voice, your car drives itself and royalties are paid by Rightsflow.

Book Review: Cooking Up A Storm, Recipes Lost and Found from the Times-Picayune

March 27, 2012 Comments off

My first trip to New Orleans was a long time ago when I was a little boy and our ship was steered through what was then a far more robust but probably equally treacherous Mississippi delta by one of the great romanticized figures of my childhood, a Mississippi River pilot.  We were making our first landfall after departing Southampton, and after over a month at sea I was being treated to yet another adventure that I had only read about: piloting the vast Mississippi River Delta to dock at New Orleans.

The pilot arrived onboard like a surgeon being made ready for his work.  We’d had pilots on the ship before, but they were not welcomed with quite the same degree of reverence and deference.  Even though the crew did not know this particular pilot nor he them, all knew that he was a man with a special gift and unique knowledge without which our ship would founder.

What made this an extra special adventure was that it was the evening of the day before Ash Wednesday and you could hear the sounds of the Mardi Gras over the moonlit delta like a welcome dirge from inebriated jazz ghosts.  One of the mates lowered a bucket over the side and filled up a mason jar with Mississippi River water that would be neatly labeled and go in my little trunk next to other bottles of water I had collected from the many seas.  I didn’t really know why at the time, but I had this sense that I was doing something that was very special and I was in a place that was one of those jazz nurseries from which formed the protogenius of music, culture and the food to sustain it.

There is no silence quite as disturbing as New Orleans gone quiet.  This was the memory of Katrina that will stick with me forever.  If I had to describe it, it was that feeling that in addition to the horror of the storm, the body of the city had been snatched by voodoo and the quiet hung in the air like a curse.

But less than a year after the storm, we were sitting in St. Louis Cathedral and asked for help for the New Orleans artists who were going to be devastated yet again if the deranged orphan works legislation became law.  I had been helping a group of largely visual artists trying to stop the bill, including trying to get the Small Business Administration to help those opposed to the bill by holding a roundtable for the largely independent artists who were about to be rolled by Google.  I was looking for help wherever I could find it.

Later that afternoon, I walked into my office and the first call after I arrived was from an incredibly helpful lawyer at the SBA asking if I thought it would be alright if they held a roundtable in New York.  I said I thought that would be fine.  Then she asked if I thought it would be a good idea if the SBA held a second roundtable in New Orleans.

I never again doubted that there was a strong and unearthly power protecting that place.

The music came back, the people are coming back and while I wouldn’t say life is exactly normal, I think that the people have found the courage to sing.  God knows they found the courage to cook.

We have been reading Cooking Up A Storm, Recipes Lost and Found from the Times-Picayune by Marcelle Bienvenu and Judy Walker, a collection of recipes from New Orleanians who managed to remember traditional family and local recipes and donated them to those who lost theirs.  Recipes are one of the many family heirlooms that were lost, but they tend not to be the kind of thing that people think about preserving or notice until they are gone.  Cooking Up A Storm not only is a magical book for cooks, but it also tells the story of how families rebuilt their lives and helped their neighbors to rebuild theirs.

Marcelle Bienvenu tells her readers of her mother’s admonition, “Don’t eat boiled crawfish in front of people you don’t know.”

Fortunately, she gave us the recipe even so.

Available from Octavia Books, 513 Octavia Street (corner of Laurel) 504-899-READ (7323).

Take the time–you never know.

March 26, 2012 Comments off

You just never know when the smallest moment will have the biggest impact on a child’s life.

Thanks, Tom.  Good to see you back, but then you never left.

Canard du Jour: Reselling the remix

March 25, 2012 Comments off

Of all the canards foisted on the professional creative community by the professional free riders, none has had such a sustained life as the “non-commercial use” dodge.  I would suggest that the longevity of the fallacy is at the very core of Web 2.0 right alongside another reality: there is no free lunch.  If you do not pay for a product, that’s because you are the product.

How are these two frauds connected?  Fortunately, Lessig crystallizes the scam with yet another elaborate rationalization, his speciality.  Lessig tells us about the “hybrid economy” in his book “Remix”.  And what might the “hybrid economy” be?

“Where commercial entities leverage value from sharing economies.”

Think about that:  Where commercial entities leverage value from sharing economies–or more precisely, where commercial entities extract commercial rents (a/k/a “profits”) that are not shared from works that are “shared” without charge by the creator.  In other words, the commercial entity is given a supply of goods to sell and resell at no charge by users who do not quite understand that they are the product.

Nowhere is this rather demonic paradigm more clearly revealed than in Lessig’s disastrous appearance on The Colbert Reportin Lessig’s unquenchable craving for attention, he found himself caught in a trap and tried to laugh his way out of appearing to be yet another exploitation monger from Silicon Valley.  I don’t know if Colbert intentionally set the trap, but either way we got to watch Lessig in a kind of verbal Chinese finger puzzle of Colbert’s making, but composed almost entirely of Lessig’s own hubris (at 1:12):

Colbert: “The hybrid economy is that everybody does the work, and Flickr makes the money!”

Lessig: “Don’t tell anybody!”

This actually is not funny, unless you think it’s funny that you are the product.  Then you should have a belly laugh.

On the one hand The Man 2.0 wants to say that the “sharing economy” is a noncommercial use of any copyrights that happen to find their way into the “sharing economy” (a/k/a Limewire, Isohunt, Creative Commons or YouTube).  On the other hand, The Man 2.0 wants to extract commercial rents from those user created works–or if you prefer the machine-analog vocabulary, user “generated” works.  Those user works may be family photographs or direct rip offs of other people’s stuff, but the principle is the same.  The user gets nothing, an underlying copyright creator gets nothing, and the “commercial entity” gets all the commercial value it can extract.

Lessig cites Flickr as an example of his “hybrid economy.”   So doesn’t this mean that people who give their copyrights away as part of Lessig’s ‘hybrid economy’–through “sharing licenses”– can have their works exploited to profit commercial entities without compensation?  Is that what is really going on here? After all, when Flickr was sold to Yahoo! for millions in 2005 how much of that money was shared with the people who ‘shared’ their content with Flickr?

It’s natural that Lessig would want to focus on Flickr as a distraction from YouTube, the real behemoth in the “hybrid economy”.  Ever try searching for “Casablanca full movie” on YouTube?  Guess what you get?  Casablanca the full movie, sliced into 10 parts.  In fact, try that search as “[your favorite movie title] full movie” and see what you get.  It’s probably up there and it’s probably sliced into 10 convenient little parts for you to do what you want with.  (Which may explain why YouTube is increasing the maximum length of its clips, given that it’s such a hassle to download all those parts.)

So is that a noncommercial use?  Perhaps if you look at the pages where these clips from Casablanca appear on YouTube you won’t find ads being served.  Does that mean that YouTube doesn’t benefit from having people searching and viewing these and thousands of other clips on the site?

If they didn’t benefit, don’t you think they would take down these clips without ads?  A more likely explanation of why these clips are still up there is not any explanation about “hybrid economies” or anything else–it’s that there is an incremental benefit in traffic that accrues solely to YouTube even if particular pages have no advertising.  At least that’s what the emails from the YouTube founders say unambiguously (produced by YouTube in the Viacom litigation).

Another part of the “hybrid economy” dodge is Creative Commons itself.  The way I read the history, Creative Commons [Corporation] wasn’t founded by a bunch of songwriters getting together saying what we really need is a better way to give away our rights.  It was founded by Lessig following the Supreme Court’s rejection of his ideas about limiting copyright for everyone else.

Let’s be clear: Google benefits from extracting commercial rents from noncommercial uses to an extent we cannot really imagine, and Google is one of Lessig’s biggest financial backers from what we can find.  Google gave Creative Commons $1.5 million and persons related to Google gave hundreds of thousands more.  It should be clear that Google does these things because it profits them to do so.

Which is fine–but don’t try to wrap it up in this “hybrid economy” or “noncommercial use” dodge.  They want you to focus on the “noncommercial” or “sharing economy” and they don’t want you to look behind the curtain at the “commercial entity” eating your lunch.  Actually eating several lunches.  If the Megavideo indictment demonstrates nothing else, it demonstrates how the “hybrid economy” actually works.

Because lunch is not free and these “remixes” are for resale.


“Canard du Jour” means “duck of the day”

See also “Creative Commons: Because it sure seems to cost a lot of money to give things away for free

From MTPM: The Big Picture: Establishing Market Rules Online with the .music gTLD

March 23, 2012 Comments off

This piece appeared in the February 2011 issue of MusicTechPolicyMonthly (subscribe at In coming days, MTP will have further discussion of the recent ICANN actions so watch this space.

When it comes to dealing with big problems in an economic market like the music business, using the word “solving” is something of a misnomer.  There is a certain comfort in thinking that we can “solve” problems, meaning that we can assess a problem,
think of a solution, implement it and make the problem stop in a repeatable way.  That’s what solutions are, after all.  E=mc².  The frustum of a cone.  The fundamental theorem of calculus. With all these solutions, you apply the formula and you get an answer that is correct and repeatable.

Solving the piracy problem for creators large and small created by Internet users large and small is different.  Achieving a solution to this problem requires getting comfortable with the idea that this solution is not a formula capable of solution like arithmetic.  “Solving” this problem requires embracing and accepting approximation over certainty. Kind of like choosing a life of hotel
rooms, long distance relationships and questionable food over being an Ivy League MBA.

We’re going to publish a series of articles in MTPM about  these “solutions,” or “the big picture.”  The reason this series is entitled “The Big Picture” is because that is what we will focus on – the big picture, getting the high level market forces pointed in the right
direction to foster true innovation and prosperity, not parasitic opportunism.  The first installment of The Big Picture focused on the positive effects for consumers and artists in establishing the “box of legality” around basic property rights.

Producing Information for Fans

MTP has often tried to focus attention on the large positive effects on the market of cooperative actions online and offline that don’t
require private civil litigation against masses of users in order to enforce property rights.  One important–and relatively cheap–way of accomplishing the Big Picture goals is to produce information for fans that will help them make a choice between doing something that supports an artist they like or something that hurts that artist.  That was the purpose behind Austin’s Artist Authorized movement, for example.

This is not a new idea: Think of the various “seals of approval” used successfully with a variety of brands.  A “seal of approval” produces a piece of information that is designed to let consumers know that the product bearing the “seal of approval” had to comply with certain standards in order to get the seal.  The dotMUSIC concept actually incorporates both property rights and the concept of the seal of approval to produce relatively inexpensive information for fans.

This installment of The Big Picture extends some of the ideas in the “dotMusic” top level domain interview with Constantine Roussos and some of the pitfalls in implementing a market solution–particularly when you have a relatively unaccountable organization like ICANN sets the rules about who gets the “seal of approval” rather than the artist.

Is ICANN trying to stop positive market information?

The dotMusic top level domain is another example of using property rules to let market forces help bring order to the market and make it harder for bad guys to “get away with it”.  If there were a truly reliable property system that allowed consumers to know that when they went to a webpage, any site using that domain was authorized by Radiohead.  Or Rilo Kiley or Quiet Company.  Artists big and small would have a piece of information they could use to let fans have the choice of where they wanted to go for the band’s music.

And of course, it would then make it immediately more obvious who was not authorized. Note – this system is not designed to discourage licensing to third parties.  A dotMusic TLD gets at a different problem of defining property rights outside of the licensed retailer environment.  So guess who is not going to be too excited about that idea.

Industry Response to ICANN

A coalition of 15 international music industry organizations have concerns about a .music top level domain, some of which are
borne out of concerns with allowing ICANN–a group that does not appear to be particularly accountable to artists–to decide who in the “community” gets to control an artist’s dotMusic TLD–i.e., take the decision away from the artist and give it to the “community”, whoever that is. These organizations include A2IM, the Songwriters Guild of America, Nashville Songwriters Association International, AIM, IMPALA, and the major national and international trade organizations.

And if recent experience is any guide, putting a group like ICANN in charge of any issue that could help artists, you can almost guarantee that ICANN will oppose empowering artists.

The principle reasons these groups are concerned about a dotMusic TLD have to do with ICANN’s decisionmaking and accountable
governance.  Plus given that ICANN has recently tried to change the rules in a way that makes it harder for artist’s to control their own dotMusic domain is not a good sign.  Meaning that it is entirely possible that ICANN could adopt a dotMusic gTLD and then fix the rules so that these domains could be taken over by say the Pirate Party as representing the “community”.

Here are a few issues discussed in a Washington Post article (that also is a good backgrounder):

1.  ICANN’s Lack of Transparency in Applications

You would think that if you were going to start something like dotMusic that was designed to protect artists, you would want to be sure that if you allowed an applicant to gain control over the gTLD, the real Arcade Fire would be the only ones who could get the domain.  This would required some definitive application to–it appears–ICANN, and all of that application material should be made public so that anyone attempting to squat on the domain could be challenged.  Better yet-don’t let squatters apply.  Instead, ICANN has used what appears to us to be a relatively unilateral power to cut back substantially on the amount of information that must be disclosed-based on some power that ICANN has from some unappealable place.  So ICANN’s methods seem to further the current existential threat to creators rather than helping to bring order to the market.

2.  ICANN’s new community rules facilitate pirate capture

It should be obvious the same people who steal from us now will try to steal from us using the dotMusic domain–perhaps particularly so.  Witness the Pirate Party darlings The Pirate Bay and their capture of IFPI related domains.  ICANN should be going out of its way to be sure that this kind of thing does not happen in a system designed to produce trust in the network and help artists.  It seems that ICANN want to force hijacked artists to prove that a pirate takeover of the artist’s dotMusic domain would have a “material detriment” to the Internet.  In a world where Anonymous is viewed by many as having a positive effect on society, how would a dot Music domain captured as part of the next “Operation Payback” ever be seen as a “material detriment” on the Internet?  And do you want to spend the time to prove that to ICANN which seems pre-disposed to finding no such “material detriment”?

Is ICANN Missing the Point?

The main difference between dot Music and a typical commericalization of a domain name is that dot Music has at least two specific goals that must be satisfied to communicate important information to the market place in an attempt to solve a market problem.  Most importantly, it communicates authenticity of origin and honesty of transactions.  Like Austin’s Artist Authorized
movement that pre-dates it, dot Music tells fans that the artist involved approves of what goes on in the artist’s name on this particular website.

Second, it tells the fan that any commerce done by the fan on that website is money that gets to the artist.  No advertising should be
sold on the site, no commerce should be done on the site, that is not authorized by the artist.

ICANN needs to concern itself with these rules first, and make protecting artists from pirates hijacking artist dotMusic domains a top priority.  And if that is not its top priority, then ICANN needs to make itself much, much clearer.

Book Review: “Free Ride: How Digital Parasites Are Destroying the Culture Business and How the Culture Business Can Fight Back” by Robert Levine

March 22, 2012 Comments off

There is something comforting about hearing the Speaker of the House of Commons crying “Order, order” and having the MPs actually heed that instruction.  It’s particularly comforting in light of the tragic wilding that has been occurring in the ancient city of London, the font of British civility and civilization.  But the rioting in London is really the stuff of the Internet made flesh, a virtual tableau come to life.  So this is as good a time as any to mention Robert Levine’s book, Free Ride, currently the subject of the Two Minutes Hate on the Internet.  Yet the book is, as Bill Keller, former executive editor of the New York Times, put it recently, “a wonderfully clear-eyed account of this colossal struggle over the future of our cultural lives.”

Let the Wilding Rumpus Start

Levine has written a book that is a must read for all policy makers and indeed all professional creators.  Free Ride is an excellent survey of the current state of play online but also examines the cultural underpinnings of the principle excuses (and in some cases, affirmative defenses) developed by the execuprofs like Lessig and the Berkman Center.  Not surprisingly, the wilding rumpus has begun online which is what happens when you poke the sacred cows.

(“Execuprofs” are those who are ostensibly employed by academic institutions, but whose work is primarily directed at benefiting the corporations who contribute money to their schools or causes.  If these academics were actually executives at the corporations who benefit from their work, they would not be able to proselytize as credibly.  As long as they keep the corporate contributions hidden in plain sight–or hidden–they can continue in this netherworld pretty successfully.  But they are neither executives (no P/L responsiblity) nor professors (conflicts).)

Review of Policy Based Academic Studies

Levine’s book takes a very even-handed look at topics that are generally spun so hard by execuprofs from big institutions like Stanford and Harvard that it’s often hard for policy makers to know what reality is.  Even the U.S. Government Accountability Office has been taken in by some shadowy “experts” who the GAO refuses to name in support of its conclusion that the U.S. government must take into account the positive effects of crime in considering intellectual property policies.  Levine reviews some of the studies the GAO refers to in the GAO’s “study of studies” as well as some of the studies the GAO should have reviewed but failed to include (possibly at the direction of their shadowy “experts”), which should be illuminating to policy makers around the world.   For example, Levine considers the study by Felix Oberholzer-Gee which concluded that policy makers need not worry about online theft because musicians would work for “free beer” and “admiration” (if you know what I mean) as well as the extensive work of economist Stan Liebowitz which, among other things, mounted a very effective criticism of the “free beer” campaign.  (The GAO included the “free beer” study, but not the Liebowitz work–probably on the advice of the secret “experts”.)

For this reason alone Free Ride is an important book for policy makers to keep close by.

Worldwide Blanket Licensing

Levine takes a look at Jim Griffin’s various unworkable ideas about blanket licensing that MTP readers will recall we have discussed in numerous fora and have criticized.  (See my lecture at Osgoode Hall in Toronto, for example and our article in the ABA journal.)  Unfortunately, Levine doesn’t take into account the use of the global database idea as a “bright and shiny object” to further delay the enforcement of property rights online and create full employment for consultants for what will inevitably prove to be a sideshow.  But this is a small criticism of the book and should not be taken as a detraction from an otherwise highly effective and well researched presentation.

The Hands of the Google

One of the truly significant themes in the book is how Levine has laid out in one place all the different ways that Google influences public policy around the world.  This is done through his discussion of the execuprofs, groups like the EFF and Google’s massive contributions to Creative Commons, as well as a history of the YouTube case.  I mean the Viacom case against Google–sorry.  (Saying “the YouTube case” alone is like saying “my brother is in the Army, maybe you know him.”)

For busy policy makers who are trying to get their arms around the Google debacle through the sea of hundreds of Google lobbyists that must cost Google hundreds of millions worldwide, as well as Google’s high levels of government influence (especially in the UK), Levine provides a handy scorecard to keep track of the players.  This is not a black helicopter exercise–Levine has put in the Herculean effort to follow the money from Google to its many front groups.

The book’s review in the Financial Times is generally positive, but has this to say about Levine’s Google analysis (full disclosure, FT is my favorite business website and I tend to overquote them):

“On Google, Levine is correct that this most powerful of digital businesses will  need careful regulation in future. Yet if the company’s “war on copyright” is as  cunning as the author claims, it remains mysterious why it has, as yet, been so  unsuccessful. True, this week Britain’s government did approve some relatively  minor tweaks  to copyright laws. But, on both sides of the Atlantic, sensible attempts to  stop copyright term extension, which often runs long after an artist has died,  have largely failed – usually in the face of fierce lobbying from the very same  media companies Levine paints as victims.”

I actually disagree with the FT’s conclusion.  If Google had just made illegal scans of millions of books without the hundreds of lobbyists and the proverbial legion of lawyers, Google executives would probably be in the federal penitentiary.  So since they are not–yet–in that sense, Google’s campaign has been highly successful.

More importantly, the last sentence may belie the FT reviewer’s sympathies for the arguments of Lessig and many other execuprofs:  Copyright terms that extend “long after an artist has died” is the key point that Google and its followers, including its followers in the press, are most interested in because they wish to cut off the benefits of copyright to the hated “heirs”.  (See also Lessig, “The Starving Artist Canard“.)

The author advances an argument based on duration of the copyright term that will sound familiar to readers of Free Ride.  Lessig wants artists to accept a 14 year copyright term and give up the current life plus 70 as the copyright term (allowing an artist’s heirs to capture the benefit of either a discovery of the deceased artist after their death, or the benefit of being provided for like the journalist’s heirs are from his own estate).  While the reviewer apparently deigns to allow an artist the right to benefit from their creation during their life, when they die, that’s it.  A 100% estate tax.

The FT, of course, makes a silly argument.  But it’s silly for two reasons.  First, artists who want to enforce their rights will be very unlikely to accept a legislated cut from life plus 70 to 14 no matter how much Lessig wants to disenfranchise their heirs.  Even if Lessig manages to pull off the U.S. constitutional convention which would allow him to literally rewrite the copyright clause and finally seek his revenge on the U.S. Supreme Court that denied him in his humiliating defeat in Eldred, it is unlikely that the rest of the world would follow.  (See the eponymous Con-Con-Con effort at Harvard–where else–later this year where there is to be a gathering of grifters of all stripes–or in the case of the Poker Prof, suits.)

Second, the reality is that we currently have a 5 minute copyright.  That’s how long it takes for most works to be digitized and placed on p2p, Bit Torrent networks or cyberlockers for which Google delivers search results and on which Google sells advertising.  Google is bitterly fighting any government effort to cut off this ad revenue by enforcing intellectual property rights through the Protect IP Act (or its predecessor COICA, that Levine discusses in Free Ride).  And as long as this is true, any success from Lessig’s Con-Con-Con job would only serve to drive a further nail in the coffin that I would argue his bizarre faux-philosphy built.

Why Regulation Won’t “Break the Internet”

Given the problems of the 5 minute copyright, Levine’s most important conclusion is the following excellent advice to policy makers who actually want to bring balance to the online environment that preserves consumer choice, protects intellectual property rights and defends the human rights of artists:

“We can do better.

No one believes that piracy could be stopped by a law like [the Combating Online Infringements and Counterfeits Act, a precursor to the Protect IP Act] or an agreement between media companies and Internet service providers [such as the Copyright Alert System]….But regulations like these, whether private or public, would allow a working market to emerge.  Creators would sell, consumers would buy, and both would benefit….Artists would have the option of working with big companies or making their own way in an online economy that allowed them to do business, not just take donations.

In a functioning market, online media would get better, not just cheaper.  And this, in turn, would fuel the growth of more technology companies.  This wouldn’t break the Internet; it would help it live up to its potential.”

Hear, hear.

Buy the book here:

In the US, Book People and Amazon

Brussels and United Kingdom 

And read Levine’s Free Ride blog.

Andrew Orlowski’s review

The Resonance of Moral Design or Looking for Small Change in a House of Cards

Interview with Keith Bernstein of Innovator Crunch Digital

March 22, 2012 Comments off

Keith Bernstein of Royalty Review Council is in the Glenn Peoples news scoop in Billboard about Keith’s Crunch Digital company and PDX service.  Here’s Keith Bernstein’s interview with Chris from the February 2011 issue of our sister publication MTP Monthly (you can sign up for the MTP Monthly newsletter here–it’s free).

This issue’s featured interview is with Keith Bernstein of Royalty Review Council and Crunch Digital. Keith is a royalty auditor who specializes in auditing digital service providers, webcasters, and mobile carriers.  Keith is interviewed by MTP’s Chris Castle.

MTP: Tell us a little bit about your background, and why you started Royalty Review Council and your subsidiary Crunch Digital.

Keith Bernstein: I go back to being in the major record labels about almost twenty years ago now in the “trenches” of royalties.  While at the record labels I was the one that was receiving the audits from third parties, and I watched their processes.  I knew that if I ever was to leave a major record label, I wanted to perform audits because I believed that the auditors out there weren’t
doing them right.

I made my move when digital was first coming in around 2000, really at the dawn of the digital era I knew there was going to be a need, as compared to the physical world, to bring specialized skills to conduct audits of digital services unlike the skill sets of the physical goods world. So when we started Royalty Review Council in 2000, the primary plan was to be in a position by 2003 or 2004, to be available to various clients to perform digital audits.

Our Crunch Digital service provides clients with a set of tools that allows them to more proactively monitor their digital sales to look for contract compliance. They can analyze prices and price changes, review the accuracy of incoming digital sales reports, and minimize their future audit costs.

MTP: What size of a client would typically use the Crunch Digital technology?

Keith Bernstein: Major studios, major record labels, major publishers, good size video gamers, eBook publishers.  Folks that deal with lots of sales files coming from lots of places need the ability to consolidate those files, and make interpretations of what’s really deep in the data. You don’t want to wait for three or five years to go by and then perhaps engage us to perform an audit.  We can do that, but we believe from our experience that you need to be more proactive and literally be reviewing your data for every  statement.

While we serve the larger customers of that type, the service certainly can be provided to smaller companies and we can just scale it down so they too could gain from the insights.

MTP: Why do you feel that you need to go after your data frequently?

Keith Bernstein: It’s a lot of data. With some major labels, major publishers and studios, there are so many products, price changes, promotions, and different restrictions on the data that it’s a lot to track. It can be terabytes and petabytes of data. As the main source of revenue moves to digital we will be in the zettabyte and yottabyte world where it’s just piles and piles and piles and piles of data coming in. You are going to need tools to be able to process all of that incoming data, and analyze it as it comes in.  For example, if you sell a title at $7 or $8 wholesale price and a DSP has the title miscoded at $5, that three or four dollar price difference is $300,000 or $400,000 on each 100,000 units that you might not catch unless you scrutinize your data. So why wait
four or five years down the road for an audit, and then try to negotiate to get your money that you should have been paid years ago.

MTP: It sounds like this isn’t something that an independent artist or label really needs to undertake.

Keith Bernstein: No, An audit might be cost prohibitive for maybe a smaller record label or an independent artist.  If they were using the tools such as a Crunch Digital, they are literally performing a “desktop audit” every week or month, and staying on top of the accuracy of the files being sent to them in lieu of doing an audit.  As they look at their data in real time, they may also determine that an audit is necessary and cost-effective if there is something material to correct.

MTP: Audits typically are not conducted under generally accepted accounting principles or any other standards of accounting. It is something that really concerns itself specifically with terms of a particular contract, right?

Keith Bernstein: That’s correct because when you conduct this audit you’re certainly not rendering a financial opinion as to the solvency of a company when you go in there, which is what a general CPA or accountant is going to do. We are going in there and confirming if all the sales were reported through for physical or digital, and did they pay them through at the contracted rates?

MTP: You are also examining the business rules that are coded into the digital service providers accounting system?

Keith Bernstein: Either coded or as interpreted. For example, in the performance of a webcasting audit, sound recording performances are paid on performance, in whole or in part and you pay on every performance. When we were conducting an audit we noticed that for some reason the number of stream counts weren’t lining up in total to what our client was paid, and when we asked a number of questions about it and began to look deeper into it, we found that this service was excluding all stream counts of under thirty seconds. When we inquired as to why they would do that, they said it was industry practice that anything under
thirty seconds is promotional and is not payable. Of course we questioned them a lot about this, and at the end of the day they were completely wrong. It is a business rule they set up because they felt they could, but it completely was against what the regulations provided for counting sound recording performances.

MTP: For webcaster audits, are you looking at what the Federal regulations require?   

Keith Bernstein: That’s correct, it’s not as if you can look at the webcaster’s statements for total stream counts, or even if they give you the activity, that you would have the knowledge that streams of 30 seconds or under are being excluded unless you

MTP: So just because you audit somebody doesn’t necessarily mean that they are evil people, or that they’re staying up late night with whiskey and cigars trying to figure out how to take advantage of people. It’s just that mistakes are made and sometimes no one knows about it.

Keith Bernstein: It’s inadvertent. It’s contract interpretation. Its manual errors, but you could also run across folks who are devious.

MTP: A lot of independent artists and independent labels go through a content aggregator and do not have a direct relationship with the digital service providers. How would the artist or label be able to audit the DSP if they are signed to an aggregator?

Keith Bernstein: They probably don’t have the right to audit the DSP.   I would presume that the onus would be on the  aggregator to examine DSPs to confirm their compliance, so that they can assure the labels that they represent all money is being collected and distributed. I have seen where independent record labels do have direct audit rights of the aggregator though.

MTP: If you have an independent artist who doesn’t make very much money will they ever be in a position where it makes much sense for them to audit anybody?

Keith Bernstein:  I would hate to say that it never makes sense because sometimes the reason you are not earning as much as you would like to earn because you are being underreported due to an error or otherwise. I would hate to see independent artists not be able to audit.  I think in the market place there needs to be thought given to perhaps where a bunch of independent artists could engage a firm such as ours, let’s say 50 of them, and then as a group not have to go the legal route, without having to be certified as a class, we simply say to an aggregator, we have got these 50 artists, they all have licenses with you, and to be efficient we want to do one audit of your books and records at one time for all 50 artists. Let them all be beneficiaries. I think something like that has to happen. Otherwise it seems unfair that the independent artist has obstacles to them conducting an exam.

MTP: How far back can you usually go in time on an audit, and what is the typical error or problem you see at the DSP?

Keith Bernstein In general whether it is digital or physical, we go back two to three years, and depending upon who you are and your leverage, you could see four to five years.  As I mentioned when we talked about Crunch Digital, we have folks going back
five or six years on digital audits, and with the volume of data it is quite a task to deal with that many years of data–let alone presume that the digital service kept the details going that far back. So we are big advocates of this Crunch Digital to proactively review your data as it is coming in. Then shorten the timeline of your audits, perhaps every 2-3 years do a digital audit because I think it would be much more efficient.

MTP: If you think back on the timeline of the evolution of the digital music business, the earliest aggregators started showing up around 2003. So what that would say to me is that if you’re an artist who has been with an aggregator for that period of time, then there are certain years that you will never be able to touch because they will probably have contracted you out of being able to audit back that far.

Keith Bernstein:  Well let’s just say that you could audit back that far. There is nothing to say that the service has the data even going back that far so then it becomes problematic.

MTP: That is an interesting point. What do you see when you are out there auditing? Are people maintaining these records?

Keith Bernstein:  Not really. They are not necessarily keeping the minutia detail. In their mind when they summarized data and totaled it up, what you see on a royalty statement is supposed to reflect the history. Some services didn’t keep the backup to it all [so cannot recreate the statements based on usage].

MTP: That is interesting. So sometimes when you go back to audit they just don’t have the backup data for you to audit.

Keith Bernstein: That is correct, especially if you are going to go back three or four years. I don’t think that the services ever thought there was a need, or they had other reasons, but our experience is when you start to go back more than four years the odds go down with every year you want to go back that they are going to have complete data.

MTP: So the answer is, audit early and audit often.

Keith Bernstein:  Correct.  I think that you could do two back to back two-year audits, covering a four-year period, and get much better results in terms of any findings or settlement than you would if you did one four year audit.

MTP: That would make sense because the data is going to be fresher.

Keith Bernstein: That is probably going to be more cost effective. It’s more economical to do two back-to-back two-year audits than one four-year audit because as data gets older and data formats change. It makes our work that much harder.

MTP also has a podcast with Keith Bernstein available on iTunes and Stitcher Radio.


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