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The Tide Has Risen: Five Simple Facts About the “Internet Radio Fairness Act”

October 28, 2012 1 comment

Big Tech and Big Media have joined forces in the “Internet Radio Fairness Coalition” which includes Clear Channel Media and Entertainment, Computer and Communications Industry Association (Google), Consumer Electronics Association (Google), Digital Media Association (Google) and…Pandora.

So you see, the way this works is the group put Tim Westergren out with the long face and the sad eyes to talk about how Pandora was having such a hard time and that artists and fans just had to support Internet radio and his $1 million a month or so in stock sales from his company with (what was then) a $2 billion valuation.  Oh,no sorry–just support Internet radio because Tim used to be in a band.  Once Tim began to realize that just like his days in a band, objects in the rear view mirror were smaller than they appear, guess who jumps out from behind the curtain?

The Great Oz–Google and Clear Channel.

And so much for Pandora’s commitment to independent artists–Did Clear Channel ever make good on their indie radio promise out of the last payola investigation?  And what’s the threat if you disagree with them?  Same one it always is with Big Media–if you get in the way, you won’t get played.

So let’s be clear–it’s not about “Internet Radio”, the Internet or Fairness.  It’s about money, power and lobbying, although I guess you could say it’s an act.  But it’s not just about the rates paid to artists–if that’s all it were about, then there would be no need for the court packing and chilling effects in the bill.  What court packing and chilling effects, you say?  You’d never know that stuff was in the bill if you just listened to Tim Westergren or read the pro-IRFA press releases.

The Tide Has Risen and Pandora is Throwing You Overboard

Here’s five reasons why artists should be very concerned about the “Internet Radio Fairness Act”:

1.  Reverse Payola to Monopolies for “Music Discovery”: The Internet Radio Fairness Coalition is backed by some of the biggest monopolies in the world: Google and Clear Channel–it’s Big Tech and Big Media combined.  Is it reverse payola?  If you make us pay you more money, we won’t play your records?

Remember all the good things Clear Channel was supposed to do after they got slammed for payola in 2007?  What did they actually do?  Clear Channel tried to get artists to waive both their songwriter’s performance royalties and their artist royalty collected by SoundExchange–in other words, the same direct licensing that artists now oppose.

[Following Clear Channel’s recent settlement of a payola investigation with the FCC, Clear Channel (and other broadcasters) agreed to air 4,200 hours of indie music.  The Future of Music Coalition commented at the time:]

Clear Channel is giving indie artists a raw deal by forcing them to give up performance royalties as a condition of getting airplay on its hundreds of stations. Remember, as a condition of its settlement with the FCC over payola allegations, Clear Channel and other broadcasters were required to play 4,200 hours of local and indie music. It’s replacing one form of a payola with another.

Sneaky. Greedy. Egregious. Any number of pejoratives could be used to describe the move, but it is especially troubling because digital performance royalties are becoming an ever more important source of revenue for artists as technological changes drive the way music is delivered….This is a company that is not — and has never been — on the side of artists.

[According to FOMC's former executive director,] “’The fact that Clear Channel would require artists to waive royalties to get consideration for airplay clearly shows they’ve learned little from the payola scandal of the last couple years,’ said Jenny Toomey, executive director of the Future of Music Coalition. ‘Clear Channel is playing the same old tune.’”

2.  Pandora Wants to Legislate Profits on the Backs of Artists:  Now that Pandora has a $2 billion valuation, the simple truth is that Pandora is trying to legislate its profits on the backs of artists and so does Google and Sirius XM–a company that has $1.5 billion in cash on their balance sheet.   This is just about money, it’s not about music.

But for musicians, the salary remains the same.

3.  Look Musicians in the Eye and Explain Trickle Down Innovation:  Musicians gave Pandora and Sirius a discount on royalties in 2009–and helped save their businesses.  Pandora and Sirius have billions dollar valuations today and their executives–including Tim Westergren–are millionaires.  Obviously, Google and Clear Channel also have multibillion dollar valuations.

So now these companies have joined together to tell artists, musicians and vocalists that a rising tide carries all boats and that the benefits from making Big Tech and Big Media richer still will trickle down to creators.

The tide has already risen.  Not only has it not carried all the boats, the Internet Radio Fairness Coalition want to throw creators overboard.

4.  IRFA is Censorship Hiding Behind Fairness:  IRFA allows monopolists like Clear Channel, Google and Sirius to threaten any artist organization with an antitrust law lawsuit if the artists “impede” Big Media’s lust for direct licensing.

Yes–you read that right.  Monopolists threatening an antitrust lawsuit against artists who organize.  Go straight to jail, do not pass go, do not collect your $200.  Using this government mandated gag rule, Clear Channel could have tried to silence that statement about them from the Future of Music Coalition’s Jenny Toomey.  Coalition, get it?  Or the Recording Artist Coalition, or any one of a number of artist advocacy groups.

What Clear Channel and Sirius really want is artist-by-artist direct deals to pick off artists one-by-one.   Google has already demonstrated a desire for the same treatment with the Authors Guild.

Google attorney Daralyn Durie told Judge Denny Chin [the presiding judge in the Google Books case] in federal court in Manhattan that [millions of] authors and photographers would be better off fending for themselves because their circumstances varied widely, especially since the copyright issue for authors involves the display of small snippets of text. (emphasis mine)

Did Tim Westergren tell you about this part?   Does the “Internet Radio Fairness Coalition”?

Nope.  Read the bill, it’s right there under Section 5(a): “Limitation of antitrust exemptions”.

And if there’s no intent to chill artists, then why doesn’t Tim Westergren say so since he so identifies with being in a band?

5.  Payback is a Bear:  IFRA Guts the Copyright Royalty Judges:   Big Tech and Big Media want the Congress to get rid of the Copyright Royalty Judges who set the rates for Internet radio.  That’s right–they want the Congress to fire the current judges and replace them with political appointees.  Read the bill–Section 6 “Proceedings of the Copyright Royalty Judges and judicial review”.

This is simply payback for the current judges having the temerity to refuse to bow to the money.  It’s called “court packing”.  Get rid of judges you don’t like and replace them with judges you can control.

Not only that–notice the other part of that titles: “and judicial review”.  Big Tech even wants to control what previous rulings the new judges can take into account as precedent in later rulings.  That means their judges start with a clean slate and can do whatever they like.  He who doesn’t like history drools over erasing it.

Tim Westergren isn’t talking about this either.

And by the way–don’t let them tell you that somehow the judges are in the pocket of “Hollywood” (whoever that is)–all the current rates were highly negotiated by some of the very people who are complaining of them now.

Remember, Westergren declared “the royalty crisis is over!” in July of 2009.  Barely 3 years later they’re back?

And now they want scorched earth.

The tide has risen and artists need to keep their heads above water.   If Google, Clear Channel and Pandora haven’t made that an antitrust violation.

Google and Clear Channel Send Their Shills Out for IRFA Lobby Fest

October 25, 2012 Comments off

So we were wondering how long this would take, and it took no time at all.  Not only do you have Pandora’s Tim Westergren shilling for Clear Channel, you now have Google shills the Computer and Communications Industry Association (funders of several bizarre “studies”), the Digital Media Association and the Consumer Electronics Association, all coming to the party.

Yes, all these wankers have come together in the “Internet Radio Fairness Coalition” and why?  According to their press release, “Internet Radio Fairness Coalition Launches to Help Accelerate Growth and Innovation in Internet Radio To Benefit Artists, Consumers and the Recording Industry“.

Ah, of course.  Trickle down innovation, led by Mr. Million a Month, Tim Westergren.  Well–after what Pandora’s stock did today (trading was halted), not so much.  Tim probably won’t be clearing $1 million a month if that keeps up, bless his heart.

Let’s be clear about something:  Google hates the music business.  The Computer and Communications Industry Association hates the music business.  The Consumer Electronics Association hates the music business–especially the head of the CEA, Gary Shapiro who really loathes the music business.

And let’s also be clear about something else:  Tim Westergren is not your friend.  Maybe he was once, but he has sold his soul, he has picked his side and he is taking his stand.  And it’s not with you.

Westergren is with The Man 2.0 and on the side of the money.  And they want to take your money.

So heads up artists:  The fight is on.  All these people intend to make sure you are screwed, blued and tattooed if you let them. They are out to eat your lunch.  This is not a dog whistle, it is a battle cry.  They mean to run us over.

If you let them. Who will stand up to them?  And as the man said, if not now, then when?  If not here, then where?  If not us, then who?  Our cause is just and the time is now.

Who will take a stand?

Constitutional Opportunism Continues with IRFA: Copyright Royalty Judges are Properly Appointed

October 21, 2012 Comments off

Post hoc ergo propter hoc fallacy – the fallacy of false causation or correlation without causation – X happened then Y happened; therefore X caused Y.

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Let’s be clear:  IRFA will go a long way to completely screwing up the compulsory music license for webcasting, one of the few systems that is working fairly well to both compensate artists online and help tech startups avoid high transaction costs to launch certain businesses.  Not to mention bringing the U.S. a little bit more in line with the rest of the world in compensating artists.

As one analyst puts it, “Pandora will continue to suffer losses unless it can improve its mobile monetization significantly or lower its royalty rates.”  So why innovate when you can jam the artists?  (See “Pandora’s Value Could Double If the Internet Radio Fairness Act Passes“.)

There is precious little evidence that Big Tech wants artists (or anyone else) to be fairly compensated, and certainly not at the expense of Big Tech insiders.  From ad supported piracy, to attacks on copyright at every turn (frequently funded by Big Tech or their shills), no artist should make the mistake of thinking that the consumer electronics industry or their front groups and bloggers are their friends.

So it should be no surprise that IRFA is just more of the same.

The Judges’ Fallacy

One of the more insidious elements in the Internet Radio Fairness Act is the Pandora court packing plan–getting rid of the Copyright Royalty Judges appointed by the Librarian of Congress who set the rates that Pandora doesn’t like.  Needless to say, these judges are people who Pandora, the NAB, MRI and DiMA don’t like and replacing them with more properly compliant judges who would be political appointees would no doubt be a delicious lobbying opportunity.  Getting rid of judges you don’t like and replacing them with judges you do like is called “court packing.”

This court packing scheme is just about every bad thing you can think of and really is anti-democratic.  If you let them get away with this, who knows where this kind of thing ends up.  Even if it doesn’t end up going anywhere, just this particular court packing scheme is bad enough to shoot down.

Here’s the argument:  The Unholy Alliance of Pandora, Clear Channel, Sirius XM, the National Association of Broadcasters, MRI, Google and DiMA have to destroy the Copyright Royalty Judges in order to save them because the Copyright Royalty Judges are unconstitutional appointments.

This is the false premise in the argument and therefore the conclusion is equally false.  Proponents of this fallacy (such as the sponsors of the IRFA bill) leave out the July 6, 2012 ruling of the United States Court of Appeals for the District of Columbia Circuit in Intercollegiate Broadcasting System Inc v. Copyright Royalty Board which held that while the initial appointment of the judges had its flaws, the D.C. Circuit was able to correct the legislation with a simple fix:

Intercollegiate Broadcasting, Inc. appeals a final determination of the Copyright Royalty Judges (“CRJs” or “Judges”) setting the default royalty rates and terms applicable to internet-based “webcasting” of digitally recorded music. We find we need not address Intercollegiate’s argument that Congress’s grant of power to the CRJs is void because the provision for judicial review gives us legislative or administrative powers that may not be vested in an Article III court. But we agree with Intercollegiate that the position of the CRJs, as currently constituted, violates the Appointments Clause, U.S. Const., art. II, § 2, cl. 2. To remedy the violation, we follow the Supreme Court’s approach in Free Enterprise Fund v. Public Company Accounting Oversight Bd., 130 S. Ct. 3138 (2010), by invalidating and severing the restrictions on the Librarian of Congress’s ability to remove the CRJs. With such removal power in the Librarian’s hands, we are confident that the Judges are “inferior” rather than “principal” officers, and that no constitutional problem remains. Because of the Appointments Clause violation at the time of decision, we vacate and remand the determination challenged here; accordingly we need not reach Intercollegiate’s arguments regarding the merits of the rates and terms set in that determination. (emphasis mine)

So to say that the judges must be destroyed in order to save them is fallacious:  Whatever Constitutional problems existed before July 6, 2012 have been remedied by the D.C. Circuit.  So to start the argument by saying that the judges are an unconstitutional appointment that must be saved is itself patently false.  The DC Circuit fixed the problem in an elegant and much less disruptive fashion.

Whatever your view of the constitutionality of the judges, what the D.C. Circuit did not say, or even come close to saying, was that the only way to fix the problem was to disrupt the entire process and have the judges become political appointees–the solution of Big Tech’s lobbyists in the IRFA.

So you see the argument “Judges are unconstitutional, therefore must be radically altered to be constitutional” is simply false on its face because the first step in the argument is false (“Judges are unconstitutional,” leading to a false conclusion (“therefore must be radically altered to be constitutional”) because a court with proper authority has ruled.  (Like the Supreme Court ruled on the Affordable Care Act.)

Given that the D.C. Circuit ruling came down in July and Rep. Chaffetz introduced his bill in September, the staff work must have been going on well before the bill was introduced.  I can see a scenario where the staff planned on using unconstitutionality of the judges’ appointments as a rational for court packing only to find that argument was removed from them.  Apparently, they decided to leave in the language even though the reason for it evaporated.

Even commentators who support Pandora’s position on legislating profit through rate fixing disagree with changing the appointment of royalty judges.   UCLA tech professor John  Villasenor, for example, is a supporter of legislating higher profits for Pandora, but disagrees about gutting the judges:

[IRFA] isn’t perfect. For example, it contains a provision intended to increase the expertise of the judges appointed to the CRB [not quite right]. But as anyone who actually studies their rulings will quickly conclude, the CRB judges have consistently produced careful, considered, and meticulously explained decisions. The flaw in the system isn’t with the competence of the CRB judges….” (emphasis mine)

Constitutional Opportunism

We are increasingly seeing Big Tech use constitutional arguments to advance their economic agendas from protecting their “free speech” rights in illegal search results to court packing to another IRFA specialty, chilling freedom of association.  Writing in Paid Content, Jeff John Roberts (Is Google A Free Speech Opportunist?) observed:

Rumors are swirling that the federal government is about to sue Google over claims that the company rigs its search results. Google has responded by invoking its right to free speech — but not everyone is buying this.

Tim Wu, a prominent law professor at Columbia, is not convinced that Google is invoking its First Amendment rights in good faith. He suggests that Google and other big companies are cynically invoking constitutional freedoms as part of a corporate deregulation agenda.

We’re living in a golden age of First Amendment opportunism,” said Wu, speaking Friday at a Penn Law School conference titled “The Evolving Internet.” (emphasis mine)

Electronic Frontier Foundation types from Area 420 immediately raised a red herring (so to speak), claiming that the phrase “First Amendment opportunist” evokes Sen. McCarthy’s “Fifth Amendment Communist.”  This is what we would expect from organizations on the Google Shill List who, like Pavlov’s dog, will serve up red herrings right on cue at the sound of the bell.

Professor Wu has it just right, of course.  We saw the First Amendment wrapping coming years ago–in fact, Winning the Web actually laid out this battle plan in writing for all to see.

This constitutional opportunism gets more brazen with each passing day, and IRFA is no exception.  While trotting out Tim Westergren to furrow his Highly Influential Brow while spewing trickle down innovation malarkey to short change musicians, his Big Tech cohort is sharpening their knives to stab the Copyright Royalty Judges–and creators–in the back.

We’ve seen this movie before, it’s just The Man 2.0 doing business as usual.  And if they can use the Constitution to feather their own nest, then what do they care?

Can I Get That In Writing? Freeriding Google threatens to “Censor” French Sites from Search Results Over Payments

October 19, 2012 1 comment

Rouget de Lisle, composer of the Marseillaise, sings it for the first time

Google is threatening to ban (or as the Shill List might say, “censor”) French news sites from Google search results.  Why?  Because newspapers will be able to charge a fee for distribution and reproduction of the news through links in search results or the rebranded “Google News”.  (This may be cased on “making available”, a right that the US captures with the distribution right and the reproduction rights of copyright owners).

According to the Guardian:

Google is threatening to exclude French media sites from its search results if Paris goes ahead with the plan for such sites to receive a commission fee each time they are referenced.

It is the latest in a series of confrontations between the US company and European governments. This year German politicians examined draft legislation for a similar scheme of commission fees for newspapers sites. Editors claim the search engine is benefiting from advertising opportunities that are being lost to their sites.

Last month a group of leading French newspaper publishers called on the government to adopt a law that would force search engines to pay copyright fees for links in their results. For example, if a Google search about the French president, François Hollande, returned a list of articles by the newspapers Le Figaro or Les Echos, Google would have to pay a commission fee for displaying those links.

Charging for links in search results is actually a very simple and potentially effective way to reduce Google’s free riding on other people’s work.  It appears that the French would likely charge a fee based on the presence of the news link in Google search results, regardless of where the link came from.  (This should not be a payment in lieu of prosecuting Google for other bad acts, like supporting piracy by selling advertising to thieves and splitting the profits or promoting the sale of prescription drugs to kids without a prescription.)

Now a charge per search link is an interesting concept.  The French evidently don’t care where the link came from, just that Google has copied it and made it available either to build their traffic and brand value or to actually monetize (which is what “selling advertising” is called in the Googleplex).

Google often says breathlessly after they rip off your content, “Don’t you want to monetize it?”  So it looks like the French are simply saying the same.  We will monetize you, Google.

Aux armes, citoyens, On va vous Monétisez.”

Google surely cannot complain about the scale of payments–they are, after all, organizing the world’s information whether the world likes it or not.  Nobody said they could do it for free.  They got themselves into this situation, certainly no complaining newspaper asked them to do it.

A company like Google that is receiving a million DMCA notices a week for search (presumably from the US alone) might actually save money if they paid for links if the cost per link was lower than the cost of processing the DMCA notice.  And it certainly would be cheaper than the total transaction cost of sending and receiving the massive numbers of notices that Google attracts and has made part of its business model.

The French plan evidently would look at what news links appear in search results and charge for some of them–no question Google is getting a benefit so why not bear some of the burden of producing the information?  There’s a way for the producer to communicate how much of the burden that the producer thinks Google and other of the sainted “intermediaries” should bear–it’s called a “price”.

This new pricing model from France (and possibly Germany) is a good example of innovation in the “post web world” of apps and paywalls that Google doesn’t like, because it’s not crawlable, or not crawlable very easily.  And scraping the content behind paywalls and apps is probably a serious civil penalty if not an outright crime with no “safe harbor” to manipulate.  So instead of paying all that money to the lawyers, maybe Google could paying to the content creators for a change?  Instead of free riding, Google could pay the freight?  How disruptive for the incumbents!

Instead of complaining about disruption, Google should just update its business model, right?

What About the Illegal Stuff?

Of course, what is also interesting about this innovative free rider solution is that for the first time it places a cost on Google’s distribution of illegal sites.  And it’s not a revenue share, by the way.  It appears to be a fixed cost per link.  Kind of like television networks have to pay for programming.  You know.  A market.

Does that mean that Google will also block unlicensed sites serving links to news?  You know they won’t, so that’s a rhetorical question, but because there is a 100% certainty that Google will still serve links to sites with illegal content that they also advertise on, the French need to take the black market into account.  Like charging more for links that were not authorized in the first place.

If It’s Good Enough for Le Figaro, Is it Good Enough for Luc Besson or Mylene Farmer?

“…Google Book Search even though its leaders have not yet publicly defined the details of their practices, already appears to be a poor model for schools, since it seems to lack any kind of classification established according to reasoned principles….Unless a culture organizes [its] information, society is condemned to accept the mere dissemination of information, harmful to intellectual clarity and to a rich and harmonious public life.”

Why stop with links to French newspapers?  Google also indexes plenty of illegal links to French movies and music, too.

If that’s the case–let’s all charge Google for all links to content, Google could block all the links and piracy will significantly decline overnight.  Right?

Something tells me that’s not what they plan to do.  Google plans to just block the legal stuff then continue selling ads on sites that serve the illegal stuff that Google drives traffic to from search.

Threatening the People

It also seems that the French government has–at long last–learned how to deal with Google.

Again from the Guardian:

Aurelie Filippetti, the French culture minister, who is in favour of measures to help the struggling French media, questioned the tone of Google’s letter [announcing Google's intentions]. “You don’t deal with a democratically elected government with threats,” she told Agence France Presse.

In an editorial, Laurent Joffrin, editor of the news weekly Le Nouvel Observateur, accused Google of “straightforward blackmail” of the government and likened the company to a modern-day feudal lord.

Or as we say around MTP, “notice and shakedown.”

Google Executive Chairman Eric Schmidt has said that Google was a member of “the Gang of Four” oligarchy. At least in France, the ten years of turmoil is coming to and end.  Those who do not learn from history are doomed to invent it.  I can’t wait to read the Wikipedia entry on this story.

Betting the Company: The Internet Radio Fairness Act has little to do with the Internet, Radio or Fairness

October 18, 2012 Comments off

An interesting exchange with a reporter about the Internet Radio Fairness Act:  He denied that IRFA created a new set of per se violations of the Sherman Act–the principal U.S. antitrust law–for sound recording owners who collectively engage in “impeding” the efforts of anyone (including Sirius XM and Clear Channel) who seek direct licenses with sound recording owners.

Apparently, no one is writing about this section, so it can’t be there.

You know a good way to find out about IRFA is to read the bill, not read what journalists are saying about the bill.  IRFA is not very long and packs a lot of damage into a few words.

Why might the IRFA drafters (hiding behind Pandora’s Tim Westergren) be interested in chilling the speech of those who dare object to them?  And who might those drafters be?

Congress Giveth What the Judges Take Away

Understanding the Sherman Act reference is where a page of history is worth a volume of logic.  This story from Billboard sums it up:

SiriusXM has filed a lawsuit against SoundExchange and A2IM.  The company  alleges that the two organizations violated Section 1 of the Sherman Act and  acted in concert with other organizations to interfere with the satellite’s  channel efforts to obtain cheaper direct licenses that pay royalty rates of 5% to 7% instead of the 8% statutory rate for master rights owners.

In alleging that SoundExchange and A2IM are engaged in antitrust behavior that is causing the satellite operator  economic harm,  SiriusXM is asking the court to enjoin the two organization’s from  interfering in its direct licensing  efforts, and pay its legal fee and  whatever economic damages the court determines SiriusXM has suffered.

The most significant redress it asks for, in terms of potential impact upon the U.S. music industry, is for SoundExchange to be  dissolved and unwound on an orderly basis, or alternatively appoint an  independent monitor to oversee SoundExchange’s compliance with the antitrust  laws for a period of 10 years.

Last summer, SiriusXM made a  deal with [Music Reports, Inc., or] MRI to try and obtain direct licenses with record labels, but were  rebuffed by all four majors and most independent labels with only 80 signing on.

…SiriusXM alleges that the organization’s launched “a coordinated  attack” of its direct license initiative, orchestrated by SoundExchange. In addition to SoundExchange, the National Academy of Recording Arts and  Sciences, the American Federation of Television and Radio Artists, and the American Federation of Musicians all allegedly reached out to  their  memberships in a communication designed to achieve a collective refusal to Sirius direct licensing program. (emphasis mine)

Now compare Section 5(a)(1)(B) of IRFA:

Section 112(e)(2) of title 17, United States Code, is amended—…(B) by adding at the end the following: “Nothing in this paragraph shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1).”.

So–it looks like the Internet Radio Fairness Act is designed enact into law the plaintiff’s claims in the Sirius XM lawsuit.  I would suggest to you that the real purpose of IRFA is not so much “rate parity” but to chill the future speech of the types of entities that were defendants in the Sirius XM lawsuit.

It’s better PR for Sirius to sue labels and SoundExchange than it would be for Sirius to sue unions (who have an anti-trust exemption anyway).  Why is it still better PR for Sirius to go to the Congress to pass a law that would not only give them a win in their litigation, but hand them the cudgel of threatening potential criminal penalties for any collective having the audacity to hope to represent or advise their members. Next thing you know Sirius will want to pay artists in scrip at the company store.

Seems to me that sounds a lot like–censorship.  Violations of free expression and freedom of association.  Other unconstitutional things.

But to hear the press reporting on Tim Westergren’s defense of IRFA, you would think that it was all about rate parity.  I guess some animals are just more equal than others.

What’s the Issue with Direct Licensing?

Why is it worth it for Sirius XM to get such a black eye for their direct licensing campaign?  The Future of Music Coalition sums it up:

In plain language, SiriusXM and MRI [Music Reports, Inc.] are proposing to have all the money flow through the record label, instead of paying performers their share directly. FMC knows and loves many record label people, but history has demonstrated that these passthroughs are subject to money being diverted to pay for album costs, or lack the same level of transparency that’s available to artists when receiving a check directly from SoundExchange. Having heard many stories about clever accounting practices in which even successful artists never “recoup,” we worry about whether performers will recieve their share of a growing revenue stream.

Then there’s this. Billboard reports:

The question arises if the labels will pay the artist half the royalty, or 50 percent, they receive for each time a song is played, or will some labels choose to pay them their artists the regular royalty rate, which typically ranges between 15 percent and 20 percent.

Yep. There’s also a chance that, under this direct licensing arrangement, performers would see their royalty rates reduced.

So you would think that the major labels and indie labels would be leading the charge to increase direct licensing, right?  Wrong.

It sems pretty clear that the reason that Sirius XM was having trouble with their direct licensing campaign was that it was bad for artists–and SoundExchange and the unions gave their members the other side of the story.  That lawful speech so infuriated Sirius XM that they sued and having stumbled in that lawsuit, they are now trying to get the Congress to make it a violation of the antitrust laws for unions to give their members the other side of the story.

And the way I read IRFA, it could be applied against the Future of Music Coalition posting the quoted language, too.

They just hate it when you organize.

The MRI/Royalty Logic Issue With SoundExchange

When you read the history of these issues, Music Reports is a frequent participant and apparently is actively involved in negotiations of regulations and other issues regarding the administration of the Copyright Act.

I think it is fair to say that Music Reports (or MRI) has in part made a business of working for digital services who rely on compulsory licenses to license songs.  MRI is known for sending thousands of notices to copyright owners (most recently for the Amazon cloud service).  Note that however commercially impracticable this process (known as “carpet bombing NOIs” in some circles), it is lawful.  Although MRI is also known for sending checks for $0.01 to some publishers, they also report signficant payments.  Like Rightsflow and other companies in the administration space, MRI collects significant data about music publishers and sound recording owners.

It is this “back room” operation that MRI operates that may be why they were singled out in the Future of Music post quoted above.

MRI also operates (or operated) a company called Royalty Logic which struggled to become a competitor to SoundExchange until 2007.  When it comes to understanding that connection regarding SoundExchange, it may be helpful to understand what happened to Royalty Logic’s bid to become a SoundExhange competitor.

According to Billboard’s March 8, 2007 story by Susan Butler:

The Copyright Royalty Board (CRB) formally made SoundExchange the sole  “collective” to handle compulsory performance royalties for sound recording  owners and performers. The CRB officially adopted a single-collective system to  collect and distribute royalties paid by webcasters and Internet  simulcasters.

Near the end of its 115-page  decision setting webcasting royalty rates released earlier this week (March 6),  the CRB addressed a request by Royalty Logic. The for-profit company, a  subsidiary of Music Reports, wanted to become a “designated agent” to receive  and distribute royalties under the compulsory license scheme. The Copyright  Royalty Judges not only denied the request, but they made it clear why  SoundExchange is – and should be – the one and only collective….

The judges wrote that there is a “fundamental misperception” by Royalty Logic  and, to a lesser extent, by SoundExchange regarding [a statutory requirement of a two-tiered system of royalty collection and payment]. The entire structure is a “legal fiction,” they wrote, and the judges  are under no obligation to preserve it.

Declining to adopt the two-tiered agent system, the CRB adopted a system for
a single “collective,” i.e., an organization that would both  collect and distribute compulsory royalties under section 114 of the Copyright  Act. Every service using the compulsory license must pay royalties to this  collective for all copyright owners.

“It  represents the most economically and administratively efficient system for  collecting royalties under the blanket license framework created by the  statutory licenses,” the judges wrote.

In  concluding a five-page comparison of SoundExchange to Royalty Logic, the
CRB expressed “serious reservations” about Royalty Logic. The  judges concluded that SoundExchange “will best serve the interests of all  copyright owners and performers” whose works are subject to the statutory  licenses.

Given this history, not only the censorship provisions of IRFA but other provisions of IRFA that require gutting the current system of Copyright Royalty Judges (i.e., essentially the Copyright Royalty Board that ruled against Royalty Logic) may start to make more sense.  And don’t forget the Sirius XM lawsuit against SoundExchange and A2IM asked to have SoundExchange dissolved.  I wonder who thought of that.  And what might replace SoundExchange were it to be dissolved?

Betting the Company: Little to Do with the Internet, Radio or Fairness

So you can see that at the end of the day, IRFA has a lot of other moving parts that I think are really bad for creators, and certainly seem quite burdensome to speech–possibly unconstitutionally burdensome.  When you add to the mix that Clear Channel is also engaged in a program of direct licensing, it should at least become more apparent why the National Association of Broadcasters is reportedly in the mix supporting IRFA (Clear Channel is a member and NAB board member).

So IRFA clearly ain’t just about the rates that Pandora pays.  IRFA seems to me to be as much about going to Congress to settle old scores as it does the Internet, radio or fairness.  And in my view, Tim Westergren is making a big mistake in betting the company to defend the entire package.

If you want to take action, send a letter to Congress courtesy of the American Federation of Musicians.

October 17, 2012 Comments off

Chris Castle:

Hope to see you in Austin!

Originally posted on Four Nights of Music Rights:

Can you believe that we made it to Meeting 4!!

October 30: Music Clearances for Tech Startups and Artist Rights: Do Good Business and Protect Your Work

Guest Speaker:  David Lowery, of Cracker and Camper Van Beethoven and editor of The Trichordist, on artist rights.

Band Basics Mini-Topic: Bank accounts, bookkeeping, taxes, health issues and insurance coverage. Staying Healthy:  SIMS Foundation and HAAM Guest Speaker: Jennifer Stowe, Director of Services, Health Alliance for Austin Musicians

Please register at this link.

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October 17, 2012 Comments off

Chris Castle:

Good work on the actual language of IRFA

Originally posted on The Trichordist:

Here at The Trichordist, we’re taking a look at the Internet Radio “Fairness” Act all week. As a service to readers, we’re firing up the LegalTron 3000 to take a closer look at the bill, analyzing it section by section.

Both the House version, H.R. 6480, introduced by Rep. Jason Chaffetz (R-UT), and the Senate version, S.3609, introduced by Sen. Ron Wyden (D-OR), are identical, so the following applies to both. The bills contain eight sections, though the first merely sets forth the title of the Act and the last specifies the effective date and transitional rules, so we’ll focus only on sections two through seven.

The bill mainly amends the current Copyright Act, so we’ve done our best to show how these amendments look in context. The text of the affected statutes follows; strikethrough text indicates current language that has been removed or altered by the bill…

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An Overlooked Brookings Institute Study on Fighting Piracy at the Corporate Level

October 16, 2012 Comments off

“[The Internet] is a cruel and shallow money trench. A long plastic hallway where thieves and pimps run free and good men die like dogs…”

Attributed to Hunter S. Thompson
__________________________________

Brookings Institute Fellow Noah Shachtman wrote a fascinating paper as part of Brookings Foreign Policy, 21st Century Defense Initiative.  Entitled “Pirates of the ISPs: Tactics for Turning Online Crooks Into International Pariahs“, the paper is an excellent example of how to use corporate responsibility to cement ground rules in the important fight against online crimes.

Cybercrime today seems like a nearly insoluble problem, much like [naval] piracy was centuries ago. There are steps, however, that can be taken to curb cybercrime’s growth—and perhaps begin to marginalize the people behind it. Some of the methods used to sideline piracy provide a useful, if incomplete, template for how to get it done.

The opening paragraph of this Brookings study immediately focuses on the right place–massive online theft is a crime, committed by people and nourished by money provided by other people in the complicit community.

Mr. Shachtman identifies a key theme that will resonate with MTP readers–corporate responsibility requires shutting down the financial support for theft.

Shutting down the markets for stolen treasure cut off the pirates’ financial lifeblood; similar pushes could be made against the companies that support online criminals. Piracy was eventually brought to heel when nations took responsibility for what went on within its borders. Based on this precedent, cybercrime will only begin to be curbed when greater authority—and accountability—is exercised over the networks that form the sea on which these modern pirates sail.

Accountability–now there’s a word you don’t hear much from the Google’s of this world.  Joseph A. Califano, Jr. (former Health and Human Services Secretary under President Carter) appealed to Google’s Eric Schmidt in 2008 to stop advertising illegal drugs that could (were and are) easily bought by children online.  Google ignored–literally–Secretary Califano’s plea to Eric Schmidt in 2008 and ended up buying their way out of an indictment for the very crimes that Califano warned of.  Had Schmidt just listened to Califano and acted on his reasonable request instead of profiting from blood money, he would have saved Google stockholders $500,000,000 in fines and who knows how much in legal fees.

Mr. Shachtman also warns Google and all in the piracy battlespace of simple steps that could be taken to stop massive theft.  What will the cost be to those in this complicit community of ignoring Mr. Mr. Shachtman’s warning?  Surely greater than $500,000,000.

In this new campaign, however, private companies, not governments, will have to play the central role, as Harvard’s Tyler Moore and others have suggested. After all, the Internet is not a network of governments; it is mostly an amalgam of businesses that rely almost exclusively on handshake agreements to carry data from one side of the planet to another.

As Google is finding out the hard way in the drugs case, this is not about turning ISPs or search companies into “copyright cops”–these companies “fight censorship” (even when it’s not there) to protect “Internet freedom” (which often turns out to be an empty vessel identified by lobbyist dollars from time to time).  But if legitimate or in Google’s case, semi-legitimate, companies in the piracy battlespace want the government to leave them alone online, then should they not be willing to accept responsibility for keeping their networks clean?  While Mr. Shachtman focuses on ISPs, certainly a valid and important area of concern, I would suggest that search engines, particularly search engines like Google, be included in this group.

Why Google?  No other search engine conducts such a radical attack on property rights through influence peddling, overly legalistic litigation, academic support, and public opinion manipulation.  (See the Google “shill list“.)  Why?  Because they know exactly what they are doing.

ISPs are well aware of which hosting companies, for example, are the most friendly to criminals; lists of these firms are published constantly. But, currently, ISPs have little motivation to cut these criminal havens off from the rest of the Internet. There is no penalty for allowing illicit traffic to transit over their networks. If anything, there is a strong incentive for maintaining business-as-usual: the hosting company that caters to crooks also has legitimate customers, and both pay for Internet access. So ISPs often turn a blind eye, even though the worst criminal havens are well-known.

That is where government could help. It could introduce new mechanisms to hold hosting companies liable for the damage done by their criminal clientele. It could allow ISPs to be held liable for their criminal hosts. It could encourage and regulate ISPs to share more information on the threats they find.

Of course, the online pirate’s greatest haven is the safe harbor extended to ISPs and search engines in both the Copyright Act and the Communications Decency Act.  It was never the intention of Congress to provide a safe harbor to pirates, yet due to the way intermediaries have avoided responsibility for their logistical support for the pirate battlespace, Congress has accomplished exactly that protection.

The day Man discovered fire the first arsonist was born.  But that’s not a reason not to use fire and it’s also not a reason to let arsonists run free.

DiMA Supports IRFA Goodies: Court Packing, Union Busting, Censorship, Mandatory Databases

October 15, 2012 1 comment

Not surprisingly, the Digital Media Association is supporting the Internet Radio Fairness Act–and my bet is that their support has less to do with radio than the other goodies that are hidden in the bill.

Let’s start with this:

7. Global music rights database.

For purposes of facilitating compensation to artists of musical works and combating copyright infringement, not later than 180 days after the date of enactment of this Act, the Librarian of Congress, in consultation with the Intellectual Property Enforcement Coordinate and the United States Patent and Trademark Office, shall submit to Congress a report that provides a set of recommendations about how the Federal Government can facilitate, and possibly establish, a global music registry that is sustainably financed and consistent with World Intellectual Property Organization obligations. Such registry should, to the extent practicable, include all known or copyrighted musical works, the writers of the work, the owners of the rights, the entity on behalf of those owners who can license such rights on a territory-by-territory basis, and all known sound recording data.

MTP readers will remember when we questioned DiMA member Google’s motives in the WIPO-backed database project for African musicians: Helping African artists manage their rights globally

As we said at the time, there’s a short step from “helping” African artists “manage their rights” (or in translation, give Google their data for free) and “helping” the rest of the world organize its music rights whether the rest of the world liked it or not.

The IRFA section–which has nothing to do with the Internet, Radio or Fairness–sounds a lot like the “rights clearning house” that the Google Review–sorry, the Hargreaves Review–wants to force on our business in the UK.  Are you suprised?

Aside from being duplicative of the GRID project in Europe which is coming along nicely, Google wants to use their massive lobbying power to force the US government to force ASCAP, BMI, SESAC, SoundExchange and citizens generally to hand over valuable data to people who don’t understand it, won’t care for it, and will use it against the songwriters, artists and copyright owners.  This smells like the Rightsflow clusterfrag which is a complete disaster.

Of course, when you realize that the purpose of these Google-backed intitiatives is to create a huge black box and ultimately avoid paying royalties, all will become clear.  In fact, that’s about the only way you can understand the YouTube content management system, for example.

So now we get it, something for everyone.

Rate screwing: Pandora

Court Packing: Pandora, Sirius, National Association of Broadcasters and DiMA

Censorship: All of the above

Database theft: Google and the Captain Ahab of the logic of royalties, determined to screw songwriters one last time.

Just understand who you are dealing with.

Whose Fingerprints are on IRFA? Is Pandora the Stalking Horse for Someone Else?

October 15, 2012 Comments off

It’s a little inside baseball, but think about this: What took Spotify so long to get licenses to launch in the U.S.?  Particularly compared to Pandora who had a big negotiation about rates a few years ago, but did not have to negotiate licenses?

One reason is that Pandora gets the benefit of the compulsory license–meaning that the U.S. government compels artists and other copyright owners to accept a statutory deal passed by Congress.  So the artists can’t negotiate their ability to decline the license the way they can with a direct license that is not compulsory.  There’s no opt out and no opt in.  Artists can be part of the bargaining unit that negotiates rates, but they cannot say no.

“Direct licenses,” i.e., a voluntary license that is negotiated directly with the rights owner (and therefore is not compulsory) apply to interactive services, also called “on demand” services.  These services are like Spotify’s main streaming services (or Apple’s iTunes Music Store for downloads) where you decide what you want to hear and play it one at a time.  These licenses are negotiated with the sound recording copyright owner, so the royalties are paid to the sound recording owner and are accounted for under the artist contract–meaning, earnings are applied against unrecouped balances, unlike SoundExchange where artists get paid directly without regard to recoupment.

Confusing, I know–under the compulsory license Pandora pays SoundExchange and SoundExchange pays artists directly, but under the direct license Clear Channel (for example) pays the label directly and not the artist.  The compulsory license does not allow you to choose which tracks you want to hear, but you can get pretty close with Pandora’s music genome.   (Fair’s fair, the music genome is a great piece of technology.)

This is why it took Spotify a while to get launched in the US.  Spotify’s main service is “on demand” requiring a direct license.  Pandora’s is “noninteractive” or the mouthful “non on demand” so Pandora does not require a direct license.

This is a huge benefit to Pandora, and is reflected in their royalty rates.  In fact, Pandora highlights the benefit in their IPO documents (Form S-1 registered with the Securities and Exchange Commission) at page 16:

There is no guarantee that we will continue to be eligible to operate under these statutory licenses. For example, if a court were to determine that we operate an interactive streaming service or make reproductions of sound recordings outside the statutory license, we would have to negotiate license agreements with sound recording copyright owners individually, a time consuming and expensive undertaking that would jeopardize our ability to stream all music currently in our library and could result in royalty costs that are prohibitively expensive. In addition, if copyright owners object to the functionality or transmission methods of our service, we could lose our eligibility to operate under the statutory licenses.

So it looks like Pandora told its investors that it had no intention of going for direct licenses, which makes total sense.

However–the Internet Radio Fairness Act–the bill that Pandora is lobbying vigorously for and on which Tim Westergren is staking his credibility–has significant sections in it that don’t affect Pandora at all because these sections deal with direct licensing.  Direct licensing that Pandora told its stockholders would be bad for Pandora.

It also seems unlikely that the nasty and unduly aggressive way that Pandora is handling the public messaging on the IRFA is designed to result in favorable terms for direct licenses.

What’s more likely is that there is an unseen hand at work in the background.  This could explain the support of the Clear Channel, the National Association of Broadcasters and monopsonist Sirius Radio. (The Radio and Internet Newsletter (RAIN) reports that the NAB, as well as broadcast titans Salem and Clear Channel, all support the bill.)

Both Sirius and Clear Channel have been engaged in a process of negotiation of direct licensing for their respective services.  But strangely–or maybe not so strangely–they are all letting Tim Westergren be the public face of the IRFA.

Because–it certainly is easier to explain as “the little webcaster that could” pushing its way up the hill of innovation rather than the irony of the monopolists Sirius and Clear Channel trying to sneak a bill through Congress that would allow them to threaten antitrust violations against anyone who opposed them.  Using the very antitrust law that should be used against Sirius and Clear Channel rather than by them.

That’s a much more plausible explanation–as the Church Lady might say, “Could it be….Clear Channel?”

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