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

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

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

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

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

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

Quickly.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But it seems pretty weird to me.

Consent clause.  Write that down.

 

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

July 23, 2014 1 comment

DEEP THROAT

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

All the Presidents Men

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Or as we say in Texas, oops.

A Stain on the People’s House: The Fraud of DiMA, CCIA and NAB’s Secret Meeting in the People’s House

July 22, 2014 2 comments

Yesterday, the lobbyists for Pandora, Sirius and Clear Channel held a “staff briefing” in the Rayburn House Office Building entitled “Governing ASCAP and BMI”.  What they left out of that title was any reference to songwriters–of course if the title was “Governing ASCAP and BMI Songwriters” that would have had a certain antebellum tone.  Not what Pandora was going for.

So understand what this is:  An invitation only meeting held in the public offices of the U.S. House of Representatives conducted by lobbyists to advance their agenda.  These kinds of meetings happen frequently on Capitol Hill in the people’s buildings and can only be held if a Member of Congress authorizes the use of the meeting room.  What that means is that somebody’s lobbyist calls and asks for the space, and then lobbying teams work on inviting the “right people” to the presentation.  And if you think that the presentation is fair and balanced, think again.

I’ve been to a number of these meetings and have even been a panelist on one that was held by a non-profit think tank.  There is always an opportunity for questions from the floor, and I have never seen a moderator refuse to let anyone ask a question.

But then they’re not all promoted exclusively by lobbyists, much less three lobbyists like the one held by Pandora yesterday.  Were there campaign contributions involved?  Who knows.

This a description from the flyer for the panel (courtesy of David Lowery):

Screen Shot 2014-07-21 at 5.51.41 PM

There were no professional artists on the panel, and the panel was hardly “diverse”.  These people knew that there were no professional artists–in fact, it’s a little odd to mention artists as the issue because the consent decree involves songwriters.  The kind of language mistake you would make if you couldn’t tell the difference between an artist and a songwriter.  You know, like if you were a Washington lobbyist for the tech or broadcast industries.  You can also be sure that lobbyists and consultants poured over this language and that it was not just dashed off in a hurry.  So assuming that the promoters of this panel were not stumblebums who didn’t understand the issues, this sure seems like an intentional misstatement or maybe even what we call a “lie”.

David Lowery took them up on their invitation and attended the meeting–the only professional songwriter in the room (or artist for that matter).  He was not invited to participate in the meeting, he just attended a “public” meeting in the People’s House.  I put “public” in quotes because it was one of those meetings that’s “public” if you know it is happening.

You should read David’s account of how he was treated at this “public” meeting that advertised itself as seeking “diverse” points of view from “artists”, but the headline I want you to focus on in this post is this:  Once Greg Barnes of DiMA was informed that David Lowery was in the room, Mr. Barnes established a new rule for the People’s House–only staffers were allowed to ask questions.  As Lowery notes in his post, Mr. Barnes called on a law student and others who may have been staffers, and I also understand that he called on a PRO representative after David left.  But while David was there, Mr. Barnes evidently decided that the best way to deal with an artist was to define them out of the conversation.

According to Communications Daily:

The shirts [see David's post to understand the shirt part] were from his band, which “has nothing left to lose except the shirts on our backs,” he said in an interview. The bags were addressed to the Computer and Communications Industry Association (CCIA), NAB and the Digital Media Association (DiMA), all of which support consent decrees and had representatives on the panel, Lowery said. The example of consent decrees should be in “every textbook about why government meddling in the affairs of private business is wrong,” he said. “All of this is completely upside down.”

Lowery’s “outburst was completely inappropriate and caught many congressional staffers by surprise,” said Gregory Barnes, DiMA general counsel, who moderated the panel. [Because they didn't realize just how frustrated songwriters are with the consent decrees?]  “Theatrical performances are best left to actors and tantrums are best left to kids,” he said. Barnes was “totally out of order,” said Lowery, who felt some members of the audience didn’t want Barnes to allow him to ask a question of the panel. “If they want to run me out of Congress, I don’t really care.”

This quote from Mr. Barnes is unfortunately reminiscent of the condescending attitude of The Man 2.0.  Mr. Barnes does not seem to understand that he was dealing with a supplier–a songwriter.  In the case of DiMA member Pandora, this is the supplier of his member’s only product–music.  He would be well advised to be nicer to suppliers.  Last time I looked, Pandora has completely squandered much of the goodwill they’d spent years building up with the creator community.  (See the Billboard’s August 10, 2013 cover story “World War P: The Battle Against Pandora” for details.)  There is, perhaps, a simpler explanation for why there weren’t more songwriters and artists in the room–they didn’t know any.

But that Mr. Barnes was permitted to engage in this censorship in a public meeting in a public building of the U.S. taxpayer’s is simply shocking to me.  I can only assume that the Member of Congress who authorized the use of the room was unaware that this censorship was taking place or they would have moved to stop it before it started.  Leave aside the fact that David has testified before the Judiciary Committee, Mr. Barnes should not be allowed to censor any member of the public who wishes to speak in the People’s House.  If he wanted to control the information flow, he should have had a private meeting don’t you think?  But then a private meeting would not have the aura of “transparency” so craved amongst the Silicon Valley crowd.

On the off chance that the Member who authorized the use of the room was in on the censorship, we need to see a clear statement from the Member as to what the ground rules were for the use of the room.  Because if it was part of the plan that songwriters were to be prohibited from speaking at a “staff briefing” held in the House Judiciary Committee meeting rooms, a “staff briefing” that itself was about songwriter liberty, there is something really, really wrong.

Mr. Barnes shameful conduct of this “staff briefing” is a stain on the People’s House and Members should want it expunged.

 

 

Updated to include Communications Daily quote and detail.

Why I gave the National Association of Broadcasters, DiMA and CCIA the Shirt off my Back during Congressional Panel

Chris Castle:

Hey Greg Barnes–time to buy a dog, man!

Originally posted on The Trichordist:

Screen Shot 2014-07-21 at 5.51.41 PM

Screen Shot 2014-07-20 at 3.23.11 PM

Diverse group of Washington DC lobbyists.

The major webcasters and broadcasters decided to convene a nearly secret last minute congressional panel to urge Congress and the DOJ to keep in place the 73 year old “temporary” consent decree that forces songwriters to let companies like Clear Channel, YouTube, Sirius, Pandora, Amazon and Spotify use our songs without any negotiation whatsoever.  The consent decree also empowers a single appointed-for-life federal judge to arbitrarily decide what a “reasonable” rate  is for songwriters.   In effect we have been forced by federal courts to provide  subsidy to corporations that have a combined market cap of more than a trillion dollars.

As I demonstrated in this an earlier post  as a songwriter I received less than $17 dollars from Pandora for over a million spins of my song Low. 

http://thetrichordist.com/2013/06/24/my-song-got-played-on-pandora-1-million-times-and-all-i-got-was-16-89-less-than-what-i-make-from-a-single-t-shirt-sale/

How is this a “Reasonable” rate?

The panel was hosted by Greg Barnes of…

View original 845 more words

Help Project 72 Close the Pandora Loophole and #respectallmusic

July 17, 2014 7 comments

Pandora and Sirius have decided to stop paying performance royalties to artists, producers and background performers who recorded before 1972–in other words, the creators (and their heirs) of the greatest music that influenced us all.  Billie Holiday, Duke Ellington, Louis Armstrong, Miles Davis, Aretha Franklin, Willie Nelson, Buddy Holly, Jack Teagarden, Johnny Winter and everyone in 20 Feet from Stardom. Just to name a few.  The Pandora loophole hurts American artists the worst (because Pandora’s pals at the NAB keep US artists from being paid overseas).

The Pandora loophole is due to a gotcha in the US copyright law–the Pandora loophole–that supposedly does not extend the SoundExchange royalty to recordings made before 1972 because the U.S. did not adopt federal copyright protection for sound recordings until 1972.  The only problem with Pandora’s position is that there are lots of Members of Congress still in office who passed the 1995 and 1998 laws that created the SoundExchange royalty–and there is no Member of Congress who thought that they were creating a loophole so that Pandora and Sirius could stiff these legacy artists and their heirs.

This means that if you record a cover of Voodoo Child today, you will get paid by Pandora as a performer but Jimi Hendrix will not.

I know what you’re thinking–who in their right mind would want to stiff old guys and dead cats?

There’s a one-word answer to that question.

The good news is that there’s something you can do about it.  If you respect all music, call your U.S. Senator and Member of Congress and ask them to support the RESPECT Act (bill number HR 4772)  sponsored by Reps. George Holding and John Conyers.  With your help, we can all close the Pandora loophole and play fair with the people who taught us how to swing and showed us how to rock.

Please take a minute to look up your Member of Congress in House of Representatives.  There are 435 Members of Congress, and you have one of them.  If you don’t know already who that is, go to this link and look in the upper right hand corner of the webpage under “Find Your Representative”.

So you get one Representative and your state gets two Senators (regardless of population).  The website for the U.S. Senate is www.senate.gov.  There is a list of them at this link.  Locate yours, and it’s the same drill.

Two phone calls and two emails.

Ask them to stand with you and #respectallmusic.

In the words of Sam & Dave, “And I Thank You.”

 

Google-Backed Creative Commons Wants Taxpayers To Subsidize Their Hustle

Carrie Nation, Photo by Philipp Kester (1873-1958)

Somehow, I’ve always associated Creative Commons Corporation with the temperance movement campaigner Carry Nation.  I think it’s because both Creative Commons, especially the founder, and the 20th Century booze campaigner have similar goals.  Creative Commons furthers the purposes of the Google Nation and Carry Nation furthered the goals of the Prohibition Nation.

Both lobbied the government to impose their respective views on society through the force of law and most importantly get the taxpayer to pay for doing so.  Creative Commons, though is much more a 21st century campaigning phenomenon and takes millions from a cast of characters that include the Silicon Valley elites, like eBay founder Pierre Omidyar and direct contributions from Google, not to mention the Hewlett-Packard heirs. And whoever is behind the Mozilla Foundation (also rumored to be largely Google.)  Professor Jane Ginsburg of the Columbia Law School has an excellent piece on Creative Commons licenses (Public Licenses: The Gift that Keeps on Giving) that I recommend, and ASCAP’s Joan McGivern has a great piece on the subject which is also a cautionary read before jumping into the legal complexity of the Creative Commons system.  We also have a post from 2006 that warned of special issues arising from co-ownership of copyrights if one author decides to use a Creative Commons deed.

This pattern of giant contributions in the campaign against “Hollywood” is old news.  Now Facebook is joining in and gets out their checkbook as well, directly and indirectly.  This is well documented in the Google Shill List and Roger Parloff’s groundbreaking Fortune article documenting under the table payments by these multinational corporations to the Electronic Frontier Foundation in Google and Facebook’s New Tactic in the Tech Wars.

Back to the Commons

Once again, the Creative Commons Corporation’s yearning toward Big Government dominance was on display at the July 16, 2014 hearing before the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet in the form of the testimony of Professor Michael W. Carroll, Director, Program on Information Justice and Intellectual Property, American University Washington College of Law.  Of course given the degree of direct and indirect government subsidies that law schools receive from taxpayers to keep paying law professors salaries…I mean keep turning out law students into a disappointing job market for young lawyers, one questions why the taxpayer has to subsidize these institutions.  (Particularly since law schools will tell you that the jobless are always some one else’s students.)

But it should not be surprising that Professor Carroll came to the IP Subcommittee looking for taxpayer pork and this time it was the $105 recordation fee the Copyright Office charges those who file notices in the Copyright Office’s recordation section.  One example of recordation is when you transfer your copyrights to someone else.  In this way, the Copyright Office is like a County Recorder for real estate.

The law also requires that when an author or applicable heirs exercise their termination rights they have to notify the world of the transfer–a transfer to their benefit–by filing a transfer notice with the Copyright Office and paying $105. Seems normal, right?  The alternative to the author paying this recordation fee is that the taxpayer should pay for it out of the appropriation for the Copyright Office’s operating budget.

Once the transfer is given effect, the author now has the ability to exploit the transferred work.  Creative Commons has identified a theoretical class of authors who will go through the colossal headache of getting the work transferred (which has spilled over to litigation occasionally) but then hand over the work to Creative Commons or essentially place the work into the public domain.  Only a law professor could believe that this theoretical class of transferees is big enough that the issue of who pays the recordation fee is important enough to take up the time of the IP Subcommittee and distract the Members from other pressing business of the Republic.

Yes, Professor Carroll’s most recent search for pork involves the Copyright Office having the audacity to charge $105 for recordations of notices by users of the Creative Commons Corporation’s “deeds” or “licenses” or whatever they are calling them this week to signify that the creator wants to put their work into the “sharing economy” (essentially the public domain).

Sharing is Caring for Multinationals

The “sharing economy” is the antebellum underpinning of much of the Web 2.0 monetary system–artists create a work for free and then let companies like Google sell advertising against it and grow their valuations.  This is what Lessig calls the “hybrid economy” (Lessig is the founder of Creative Commons after his stunning loss before the U.S. Supreme Court in the Eldred case.  Well…stunning to him.)

Of all the canards foisted on the professional creative community by the professional free riders, none has had such a sustained life as the “sharing economy” 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 redistributed to the creators of works being “shared”.  In other words, the commercial entity is given a supply of goods to sell and resell at no charge by creators, i.e., by use of uncompensated labor, often children.  (The use of child labor raises its own issues.)

Nowhere is this rather demonic paradigm more clearly revealed than in Lessig’s disastrous appearance on The Colbert ReportLessig 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 (a/k/a Limewire, Isohunt, or YouTube).  (You may prefer the machine-analog vocabulary that simultaneously draws attention away from free will and also commoditizes creativity, “user generated content”.)

Those user works may be original works, cover songs, 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 absent a deal to the contrary, 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 his Creative Commons “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 those millions did the executives share with the people who ‘shared’ their content with Flickr?

Given the millions his causes have received from Google, it’s natural that Lessig would want to focus on Flickr as a distraction from Google’s 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.

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?

These are rhetorical questions.  Here’s the fact–anything that weakens copyright or makes it more difficult to enforce (such as overwhelming the system with a sudden and sustained influx of infringers like YouTube) benefits Google, Facebook or anyone else adopting their shakedown business model.

Creative Commons is a key part of obfuscating the rights and fouling up the system even further.  For example, if you were to record a version of the song “Yesterday” written by Lennon and McCartney and put the recording out under a Creative Commons Corporation license, there is nothing in the license that grants any rights to the underlying composition–it is essentially a “buyer beware” quitclaim at best.  But it creates the impression in the user of the license that they can make that recording available online under a Creative Commons Corporation license.

Follow the Money

It is difficult to determine exactly how Creative Commons Corporation is funded except at the high level from its IRS Form 990 that typically excludes specific donors.  Good news, though.  A copy of the Schedule B from the Corporation’s 2008 tax return found its way onto the Internet:

Creative Commons 2008 Schedule B

Then recall that the mother in law of a Google founder was the President of the Corporation and is still the vice chair.  Recall also that Lessig was caught by the press raising Creative Commons contributions through a series of dodgy corporate structures that led back to the founders of an off shore gambling operation who paid hundreds of millions in fines for violating US law and was a key advertiser on Megavideo according to the Megavideo indictment.  (See “Poker Money and the Ethics Professor“.)

So keep these numbers in mind when you read Professor Carroll’s testimony, particularly the $1.5 million from Google, which has a direct commercial interest in perpetuating the antebellum “hybrid economy.”

Creative Commons and the Termination Right

Exercising the termination right is overly cumbersome and confusing to many authors and their heirs.  Creative Commons created and hosts an Internet based tool still in its beta version that provides those with a potential termination right a means of assessing whether and when they may exercise their termination rights. See http://labs.creativecommons.org/demos/termination/

Creative Commons did this to aid authors or heirs seeking to reclaim their copyrights for the purpose of sharing their works through a CC license.

In that regard, one obstacle is financial. Even after an author or heir has run the administrative gantlet, termination is not effective until they pay the Copyright Office recordation fee of a minimum of $105 for one transaction and one title. See Copyright Office, Calculating Fees for Recording Documents and Notices of Termination in the Copyright Office at http://www.copyright.gov/fls/sl4d.pdf.

While modest for economically valuable copyrights like those in a character such as Superman, this recordation fee is potentially cost prohibitive for scholars,  journalists, or others who have created and published many copyrighted works that they would like to share with the public through a Creative Commons license.

Creative Commons USA recommends that the Subcommittee consider a measure that would waive the recordation fee in cases in which the terminating party seeks to reclaim copyright for the purposes of making the work of authorship freely available over the Internet under the terms of an open license.

As noted above, the “termination right” is the right of some authors to reclaim their works in the U.S., which is a good thing that I have always supported.  (This is the “time bomb in record company vaults” idea which is a topic for another day.)  The general idea is that in order for the termination to be effective, the author must successfully reclaim the rights and then file a notice in the recordation section of the Copyright Office that notifies the world the ownership has changed (in the U.S. only, by the way.)

The Copyright Office charges a fee for this recordation as a means of cost recovery of the appropriated cost of providing this service to the public.  Given that the current fee represents about 1.5 hours of Copyright Office time, it is pretty clearly an average charge as some recordations will take more time.

Creative Commons–sitting on its millions–has the brass to come to the U.S. Congress and ask for some pork.  This is something that clearly benefits big corporations that want the safety from liability they get from certainty that a work is subject to the “free” license from Creative Commons. So why don’t these giant multinationals write a check?

If you believe as I do that Creative Commons Corporation is just a stalking horse for Google and what Eric Schmidt calls the Gang of Four, you will likely have no sympathy for the taxpayer further subsidizing the tax exempt Creative Commons Corporation or its goals.  You might even ask why it is that Creative Commons itself does not subsidize these recordation fees itself given the millions it gets from Google.

Of course, writing a check requires knowing who to write the check to, etc., and Creative Commons has gone the extra mile to avoid actually knowing who is using their system.  I wonder why?

Even so, this seems like exactly the kind of thing Creative Commons should be doing with their money.  It makes more sense than pounding the table in front of the Congress trying to create the impression that they represent authors and are entitled to pork it up with the best of them.  You don’t suppose that’s why they get funded, do you?

Because it sure seems to cost a lot of money to give things away for free.

 

Garth Brooks Says I’ll Take The 80, They Can Have the 20

July 13, 2014 4 comments

When Garth Brooks was at his peak the last time around, I remember a story about him that stuck.  Garth visited the sales teams at some of the biggest retailers along with his label sales executives to discuss the set up for one of his albums.  After they’d all visited for a bit, Garth asked the label execs to leave the room and he stayed with the retailer’s sales teams.  “Now tell me what you wouldn’t tell me if they were in the room,” he said (or so the story goes).

That, you see, is a business-savvy artist.  This isn’t for everyone, but if artists are interested in their business, this is exactly the kind of thing you should do.

So it’s not surprising that Garth Brooks has held his records back from digital distribution all this time.  Apple wanted to commoditize his albums by forcing him to sell on a per track basis, Pandora pays a pittance and Google just steals from all of us.  Who would do that who could not?  Those who are quick to accuse him of being a Luddite should stop and think–maybe he just didn’t want to take the same hillbilly deal that everyone else got.

And in 2014, it’s gotten even worse.  You have streaming services like Spotify that are further commoditizing music and YouTube using their dominant market power to screw indie labels.  So it should be no surprise that Garth is only going to make his new record available on garthbrooks.com, and I infer from the news that Garth is going to make some, perhaps most, of his back catalog available digitally for the first time on garthbrooks.com.  Apparently Garth is going to price the digital catalog at a low retail price.

Not surprisingly, some of the usual suspects are up in arms about this really smart decision as short sighted, not embracing digital, etc.  The future is streaming, yadda yadda.  I’d suggest that the critics are actually missing the future in an extraordinarily short sighted way.

Like Louis CK, Garth is able to take advantage of a cream skimming marketing strategy and passes the benefit on to the fans.  And naturally, the “mistake” he’s accused of making is that he didn’t cut the digital services in on the release.  But this misses the real future for artists like Garth who are already well-known with a loyal fan base.  (See my article from 2000, Why Free Agency Matters: The Coming Changes in Artist Relations.)

Garth Brooks does not need iTunes, Spotify or any of the other retailers to reach his fans.  He’s going to be on a 3 year tour with all the attendant publicity.  He’s going to be promoting his record and tour like there’s no tomorrow.  This will drive fans to one place and one place only–garthbrooks.com.  That’s exactly what he should be doing.  Why should he drive traffic to anybody else?

In the 80/20 world of digital music retail, Garth is telling these services that he’ll take the 80 and they can have the 20.  Here’s why:  Just like Louis CK’s Beacon Theater video, the important number here is the marginal revenue to the artist.  If Garth’s fans were to buy the album on iTunes, for say $10, there’d be about $7.00 wholesale price that the artist would actually take home (assuming no label).  What Garth takes home from garthbrooks.com sales would be pretty close to that iTunes sale if the fan bought the record on garthbrooks.com at a $7.00 retail price (at least if you amortize the overhead costs across all the commerce being done on the artist site).  All Garth is doing is cutting out the middleman.

You know–the gatekeepers.

And since Garth is telling the press that the price will be low, he clearly intends to pass the saving on to the fans–and he can still make good money because after he pays the songwriters, fulfillment, and some allocation for overhead, what’s left is all his.  He doesn’t have to share it with middlemen.  Plus he doesn’t have to compete for shelf space on his own website.

There’s an increasing number of in-demand artists who believe that holding their records off of the streaming services actually increases their sales, at least in the initial post-release window.  And of course no one is more disturbed about this window effect than the streaming services.  They want you to believe that they are the future–and resistance is futile.  Streaming services want you to believe that they are a critical part of your release strategy so that they can take advantage of all your marketing efforts on your album and touring set up at a low cost to themselves.  Actually–the sum of all the marketing done by all the artists on their service.

Here’s the fact–the retailer may control the price, but the artists set the terms, particularly artists like Garth.  Garth’s customer is the fan–not some digital retailer that is uncooperative, entitled, and may be sold to the highest bidder tomorrow.  Garth will treat those fans very, very well, just like he always has.  I would not think that any artist wants to subject their fans to the customer service experience at YouTube if they could avoid it.

If streaming services want to commoditize music, the services are going to be treated as a commodity, too, just like “special markets” departments or the old record clubs.  They’ll get the record eventually, just not when it’s fresh.  If you sell music like it was a stale bagel, then don’t be surprised if artists send it right back at you.

At the right moment, Garth will no doubt open up his online presence to digital retailers and streaming services.  But they should understand that for artists like Garth, people like them who bought the long tail ridiculousness are just not top of the list for business partners.  So have fun chasing that 20% folks.

 

 

The Declining Utility of the ASCAP and BMI Consent Decrees: Music Licensing Study

The U.S. Copyright Office is conducting a “Music Licensing Study” as part of the government’s overall review of the U.S. copyright law with an eye to potentially overhauling the entire copyright system.  (See “The Next Great Copyright Act” by Maria Pallante, the head of the U.S. Copyright Office and the nominal go-to person for the U.S. Congress on copyright issues.)  The Copyright Office has received written public comments on questions posed in its Notice of Inquiry and is also holding public Roundtables in Nashville, Los Angeles and New York  (in that order).

I filed comments with the Copyright Office and this post is the last of a three part post focusing on each of the three points I made in my comments (see Songwriter Liberty and Audit Rights Under Section 115 and “Successful” Licensing Models and the Opt Out.)  This post discusses the out of date ASCAP and BMI consent decrees currently being reviewed by the U.S. Department of Justice.

The Declining Utility of the ASCAP and BMI Consent Decrees

Songwriters also have the government’s boot on their necks in the form of the ASCAP and BMI consent decrees regarding the public performance right for songs. Established decades ago, the consent decrees have been running longer than Phantom of the Opera but, I would suggest, to very poor notices especially recently.

Again, it is hard for songwriters to understand why the government permits companies like Google largely to escape antitrust regulation, but decides that the American people must be protected from those songwriters. (Companies like Google seem to escape scrutiny even when Google uses the dominant market position that the government allows them to enjoy to cram down take-it-or-leave-it terms on songwriters and indie labels.) (See, e.g., Dredge, “YouTube Subscription Music Licensing Strikes Wrong Notes With Indie Labels”, The Guardian (May 22, 2014) available at http://www.theguardian.com/technology/2014/may/22/indie-labels-youtube-subscription-music)

The consent decrees undermine songwriters in three important ways: confusion surrounding withdrawal and direct licensing; use of consent decrees as a club for well-heeled licensees against songwriters in an inefficient manner that prevents the formation of alternative dispute resolution mechanisms; and creates inefficiencies in licensing that are burdensome to both licensees and songwriters.

After the last Pandora rate court decision (In re Petition of Pandora Media Inc., 12-cv-08035, U.S. District Court, Southern District of New York (Manhattan)) it appears that the consent decree requires that publishers withdraw from ASCAP altogether in order to enjoy their rights, although the court did not address what happens to the ASCAP songwriter whose publisher is forced to withdraw but who likes their PRO and wants to keep their PRO.

There is also no assurance that even if a publisher withdrew from ASCAP to pursue agreements in the free market that the government would not pursue claims against the publisher for doing something wrong. Given the disproportionate lobbying and public relations expenditures of songwriters and the “Gang of Four” cartel,  (Kafka, “Eric Schmidt’s Gang of Four Cartel Doesn’t Have Room for Microsoft”, All Things D (May 31, 2011) discussion by Google Chairman Eric Schmidt of Amazon, Apple, Facebook and Google as dominating consumer technology, available at http://allthingsd.com/20110531/eric-schmidts-gang-of-four-doesnt-have-room-for-microsoft/) one could easily imagine that Amazon, Apple, Facebook and Google would have a strong interest in keeping songwriters weak. It would be expected that Google would side with Pandora, for example, if for no other reason than because Pandora uses Google’s Doubleclick affiliate for its advertising sales. Pandora acknowledges that its agreement with Doubleclick exerts considerable influence on their business.  (“We rely upon an agreement with DoubleClick, which is owned by Google, for delivering and monitoring our ads. Failure to renew the agreement on favorable terms, or termination of the agreement, could adversely affect our business.” 2014 Annual Report of Pandora Media, Inc. (Form 10k) at p. 24, available at http://investor.pandora.com/phoenix.zhtml?c=227956&p=proxy)

The consent decree also inhibits the market from developing robust alternative dispute resolution mechanisms that will reduce transaction costs for all concerned. My office has conducted an ad hoc review of recent rate court decisions and my preliminary view is that there certainly seem to be a lot of the same names on the playbill. I respectfully suggest that it might be a good use of Copyright Office resources to conduct a formal study of the consent decree process with an eye toward determining if it is beneficial to all concerned or whether it actually produces an expensive slugfest only affordable to the rich and unduly costly to songwriters and publishers.

Such a study could identify the parties, the lawyers, the rates before and after and the decision and an estimate of the transaction costs involved including legal fees. There is a view in the songwriter community among those I speak to who are familiar with the process that the rate court process is so expensive that songwriters are actually worse off by far for engaging in it—a fact not lost on those who view negotiation as a road bump along the way to litigation. However—and this is where Franz Kafka comes in—songwriters did not ask for it, cannot escape it, and are forced to participate.

It would be helpful if the Copyright Office could produce a review that would either demonstrate that these perceptions are cynical and unwarranted, or that they are exactly on point and that the consent decree process has become yet another club that well-heeled corporate opponents can use against creators in a rush by public companies to commoditize art.   As Radiohead’s Thom Yorke told The Guardian:

“[Big Tech] have to keep commodifying things to keep the share price up, but in doing so they have made all content, including music and newspapers, worthless, in order to make their billions. And this is what we want? I still think it will be undermined in some way. It doesn’t make sense to me. Anyway, All Watched Over by Machines of Loving Grace. The commodification of human relationships through social networks. Amazing!”

In fairness to the digital retailer, the current consent decree process prohibits songwriters from allowing ASCAP or BMI to license both the performance and mechanical rights for interactive streaming. This is an undue and another rather Kafka-esque burden on the digital service. The service must acquire licenses and produce statements for the identical uses from two different sources. What is the principled reason why ASCAP and BMI cannot license the bundle of rights that the service needs to operate with one statement for all the uses involved?

Consent decrees may have made sense in 1941, but I would respectfully suggest that those who toil in the vineyard have lost the page as to the contemporary justification.

We should also be aware that publishers, particularly major publishers, can take advantage of the economy of scale and grant these rights themselves—if it weren’t for the uncertainty that the consent decrees induce in the market.

At the end of the day, not only do songwriters and publishers have to bear the rather staggering legal costs of the rate court process, but they also have to pay administration fees to third parties on licenses that some could easily administer themselves if they were allowed to do so.

It is difficult to imagine an argument for maintaining the rate court procedure that does not also ignore the progress in the market since 1941. I respectfully suggest that rate courts are an idea whose time has passed, and it is high time to do all we can to convince the relevant government authorities to terminate them and return to the free market.

If it works for Google, it can surely work for songwriters.

A Useful Database from @musically

Another example of a private industry solution to information on the digital music market.  MusicAlly demonstrates their directory of online music services.

Almunia Stops Monopolist YouTube’s Bullying of Indie Labels: YouTube were against it before they were for it

In a teachable moment for indies who took the YouTube hillbilly deal, news reports tells us that YouTube got a warning from embattled EU-Commissioner for Competition Joaquín Almunia.  Mr. Almunia is already the subject of harsh criticism by a huge number of consumer groups, business groups and Members of the European Parliament over his controversial antitrust settlement with Google and needs YouTube problems like a cold bidet in winter.

According to the Financial Times, YouTube got the message–sort of:

YouTube has postponed a controversial plan to block certain record labels from its video platform, following an outcry from the creative community and growing scrutiny from European regulators.

Two weeks ago, the Google-owned company warned that “in a matter of days” it would start taking down videos from a number of record labels that had refused to sign its new licensing terms.

But the uproar that followed the revelations has prompted YouTube to make a last-minute U-turn. The world’s largest video streaming [monopoly] is allowing more time to negotiate a solution with labels [and will let them eat cake], although it still intends to block them if they cannot reach agreement, according to people familiar with the matter….”They’re back-flipping and backtracking,” said a member of the independent label community.

Trebles all round, right?  Not necessarily.  Like most bullies, YouTube’s negotiator will pull the choir girl routine while matron is in the room, but expect the hair pulling to start again as soon as she leaves.

The point is that Mr. Almunia needs to retain jurisdiction over YouTube and take a close look at all the indie deals, not just the ones that are from members of the WIN alliance’s complaint.  A bully isn’t a bully just when they get caught, they are bullies all the time.

Not only should the European Commission’s antitrust regulators monitor what YouTube does, the U.S. Department of Justice should, too, and follow up on the A2IM complaint.  What A2IM has demonstrated to the U.S. is that YouTube can’t be trusted to follow the law.

And what about songwriters?  Remember, there are two copyrights in every sound recording–the recording and the recording of the song.  This would be an excellent time for the DOJ to investigate not just how YouTube treats indie labels, but also how YouTube treats indie songwriters.

Let’s put it this way:  If the Department of Justice is going to keep songwriters under the government’s thumb for decades with the ASCAP and BMI consent decrees, what possible excuse could they have for not doing the same to YouTube for both indie labels and indie songwriters?

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