Dance Like Nobody’s Playing: Another call for user-centric royalties

I used to laugh off Spotify’s never ending stream of public messaging disasters–if screwups were Easter eggs, Daniel Ek would be the Easter Bunny hopping from one to another to make sure he scooped them all into his basket.  But the stark double entendre of Spotify’s latest campaign is the end of funny.  Hopefully it’s one more step on the road to user-centric royalties.

As reported in Hypebot, Spotify’s latest attempt to commoditize the value of music got artists and fans up in arms.

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This message is obviously offensive (but the underlying business practice is no doubt permitted under Spotify’s major label licenses–which raises a whole other question of how much longer does a publicly traded venture-backed money-losing company with a $25 billion market cap deserve to get special royalty free deals).

So Spotify is insulting, what else is new.  Underneath that message is another subtext, though:  Dance like nobody’s paying because nobody’s playing.  Or said another way, the machines are playing.  As Laura Kobylecky noted in a prescient post on MusicTechPolicy, the Spotify “fake artist” controversy has some ominous ancestry.

The tune had been haunting London for weeks past. It was one of countless similar songs published for the benefit of the proles by a sub-section of the Music Department.”

From1984 by George Orwell

In the dystopian world of George Orwell’s 1984, there is a machine called a “versificator.” The versificator makes what might be called “fake” music—songs that are “composed without any human intervention whatever.” In April of 2016, “A New Rembrandt” was revealed (1). The painting, like the songs of a versificator, was made by machines. In August of 2016, Music Business Worldwide (2) accused Spotify of “creating fake artists.” What is a fake artist? Can music be fake?

The world of 1984 is a grim place. Members of the “Party” have access to resources based on their rank. The rest of society are called “Proles.” The term is short for the “proletarian” and refers to the working class. The Proles make up the majority of society, and so the Party provides them with various sources of entertainment to keep them from getting too restless.

The versificator is one of the entertaining distractions made by the Party. A versificator generates songs that are “composed without any human intervention whatever.” The results range from insipid love songs like “Hopeless Fancy,” to the “savage, barking rhythm” of the “Hate Song”—designed to stir rage against political enemies.   The novel’s protagonist describes one of these songs as “dreadful rubbish.”

But the Proles like it fine. The song “Hopeless Fancy,” takes hold among them and “haunts” London for weeks. In this case, the art of the machine seems adequate for consumption.

So if you dance like nobody’s paying, realize that it’s entirely possible that nobody is paying because nobody’s playing, either.  Spotify can use either the free trial or the fake artist to drive down the royalties the company pays out to flesh-and-blood artists, particularly the ones that lack the leverage to get one of the goodie packed deals with minimum guarantees, greater of formulas, per-subscriber minima and non recoupable technology payments or breakage.  And then there’s the stock.

What would fix this is switching to user-centric royalties or what MTS readers will recall as the “ethical pool”.  No freebies, every artist is paid for every stream and fans are not deceived into believing that their monthly subscription goes to the artists they listen to rather than the ones they don’t ever stream.  If people could manage to look beyond this quarter’s results, the future is waiting.

How about “Dance like creators are paid fairly”?  Now there’s a message–it has a nice beat and you can dance to it.

 

New Copyright Office Regulations Regarding Pre-72 Recordings

Title II of the Music Modernization Act (“MMA”), (also known by its own bill title the Classics Protection and Access Act or the “CLASSICS Act) is self-executing legislation that gives certain federal copyright protections to recordings released prior to February 15, 1972.  One of the new protections is the right to recover the customary statutory damages for infringements of those pre-72 recordings available to copyright owners in the normal course.

However, in order to be eligible to recover statutory damages, copyright owners of pre-72 recordings must file Excel spreadsheets of schedules listing their pre-1972 recordings and contact information with the U.S. Copyright Office to be indexed by the Copyright Office into the Office’s public records.  This formality is in lieu of filing the customary copyright registrations.  Statutory damages are only available for infringements occurring more than 90 days after indexing.   The index is available at https://www.copyright.gov/music-modernization/pre1972-soundrecordings/search-soundrecordings.html.

In addition to imposing this formality on copyright owners, the MMA creates a new safe harbor for infringers.  That safe harbor was just coincidentally added at the insistence of Senator Ron Wyden under threat of a Senate hold on the entire bill.  If the infringer is making a noncommercial use of a sound recording that is not being commercially exploited, statutory damages are not available provided that the infringer has made a ‘‘good faith, reasonable search for’’ the infringed work in the indexed schedules before determining that the recording is not being commercially exploited.

The MMA creates an additional and separate safe harbor for entities that were transmitting pre-72 recordings at the time the MMA was enacted.  Rights owners must provide specific notice to such entities before pursuing remedies against them.  In order to provide such notice, that transmitting entity must register their contact information with the Copyright Office within 180 days from enactment (which expired April 9, 2019) (available at https://www.copyright.gov/music-modernization/pre1972-soundrecordings/notices-contact-information.html).

For those reading along at home, the Final Rule is found in 37 C.F.R. §201.35 (available at https://www.copyright.gov/title37/201/37cfr201-35.html) and was published at 84 Fed. Reg. 10679 (March 22, 2019) https://www.govinfo.gov/content/pkg/FR-2019-03-22/pdf/2019-05549.pdf.

@musically: Spotify CEO says Libra currency could help listeners ‘pay artists directly’ — Artist Rights Watch

Earlier this week, Facebook announced a new blockchain-powered currency called Libra, and a digital wallet for it called Calibra. Spotify was among the companies backing the plans by becoming a founder member of the independent Libra Association.

Now Spotify CEO Daniel Ek has been talking about his hopes for Libra, including the suggestion that it could one day facilitate direct payments to musicians from fans.

“I think like cryptocurrencies and blockchain are obviously two of the biggest buzzwords you can have today. And for me, I don’t think technology in itself is that interesting· What I do think is interesting is what we can do with that technology,” said Ek, in an interview for Spotify’s own Culture: Now Streaming podcast.

“What everyone who’s a part of Libra is trying to accomplish is: it’s interesting that we have all these different currencies, all of these different ways of doing things. But the reality is, there’s several billion people around the world that don’t even have access to a bank account,” he continued….(Whatever you think of Libra, the fact that Spotify is, right up to CEO level, even thinking about direct payments from fans to artists is a significant talking point for anyone mulling how the streaming service will evolve in the coming years.)

Read the post on MusicAlly

Because the fight is never done: Support the CASE Act #myskillspaymybills

The arc of justice may be long, but it only bends when you will it.  Support the CASE Act because the fight is never done.

Chris Castle

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Betting on the House: Five Issues that House Judiciary Should Investigate Against Google–End Supervoting Shares for Publicly Traded Companies

The House Judiciary Committee announced yesterday that it was opening an antitrust investigation into “tech giants” including Google.  Chairman Jerry Nadler said:

[T]here is growing evidence that a handful of gatekeepers have come to capture control over key arteries of online commerce, content, and communications…Given the growing tide of concentration and consolidation across our economy, it is vital that we investigate the current state of competition in digital markets and the health of the antitrust laws.

We’re going to look at five issues Chairman Nadler should consider that relate both to Google and to some others, too.  Let’s start with reforming corporate governance and bring eyesight to the willfully blind.

1.   One Share, One Vote, Not Ten:  Anyone in the music business has had just about enough of government oversight, so I don’t recommend it as a solution in general.  But–in the absence of marketplace transparency, the government is about the only place to go to bring reforms to well-heeled corporations.  So rather than ask the government to fix specific problems on an ad hoc basis, the government would do well to ask what causes the market to fail as it clearly has with Google.

The first question to ask is where was the board?  In Google’s case, the core problem is both easy to find and easy to fix.  It lies in the voting structure of the shareholders.  Shareholder rights and corporate charters are state law matters and don’t relate to the federal government, but–the federal government does have a say about who gets to sell shares to the public and has an interest in protecting the shareholders of publicly traded corporations.  It is this nexus that gives the House Judiciary Committee clear oversight authority over the corporate structure of publicly traded corporations.

While anti-coup d’etat provisions might make sense for private companies whose investors are sophisticated financiers, or newspapers seeking to retain editorial independence, once that company is publicly traded a bald discrepancy that simply mandates voting power to the insiders forever seems like it has to go.  And as we have seen with Google, the lack of corporate oversight has resulted in unbelievable arrogance and a complete failure of corporate responsibility.  And worse yet, because Google got away with it, lots of other tech companies follow essentially the same model (including Facebook, Spotify and Linkedin).

It must also be said that stock buybacks approved by a board where insiders who benefit from the buyback have supervoting shares and control the board is a practice that reeks to high heaven.  Buybacks and dual class supervoting shares have been widely criticized including by Securities and Exchange Commission Commissioner Robert Jackson who is also a critic of supervoting shares.

So how did this happen to Google?  The supervoting structure started when Google was a private company as a way for the founders to preserve control and avoid venture capital investors pushing them around.  OK, fine, I understand that.

Google (which is really its parent company, Alphabet) trades under two ticker symbols on the  NASDAQ: GOOGL Class A and GOOG Class C.

Oops.  What happened to Class B?  Ay, there’s the rub.

Class B shares are not publicly traded and are held by insiders only.  But as you will see, they control every aspect of the company.  So why would Google’s insiders want this share structure?  There’s actually a simple answer.  Class A shares (GOOGL) get one vote per share, Class B shares get 10 votes per share and Class C shares (GOOG) get no votes.

That’s right–Class B shares cannot be purchased and their holders get 10 times the voting power of the Class A holders, often called “supervoting” shares, because their super power is…well…voting.

The Class C shares were created as part of a 1:1 stock split that doubled the number of shares, halted the price per share, but resulted in no change of the voting power of the Class A and C shareholders.

When the dust settled, the Google/Alphabet voting capitalization table looked something like this:

Class A: 298 million shares and 298 million votes, or roughly 40% of the voting power with votes counting 1:1.

Class B: 47 million shares and 470 million votes, or roughly 60% of the voting power with votes counting 10:1.

What this also means is that the holders of Class B shares voting as a bloc will never–and I mean never–be outvoted at a shareholder meeting, their board of directors will never be challenged much less replaced and shareholder meetings are a sham.

Who controls the Class B shares?  The people that Commissioner Jackson might call the “corporate royalty“:

Larry Page: 20 million shares (as of 2017)

Sergey Brin: 35,300 Class B shares plus 35,300 Class A shares (as of 2018)

Eric Schmidt: 1.19 million Class B shares, 40,934 Class A shares, and 10,983 Class A Google shares, plus 2.91 million Class B shares through family trusts.

Sundar Pichai: 6,317 Class A shares and no Class B shares.

The House Judiciary Committee has a chance to correct the supervoting system as bad policy and implement a long-term fix across the board for all dual-class companies that want to trade on the public exchanges.

 

 

Is SPOT Starting to Tank?

Stocks go up, stocks go down, can’t pick a top, can’t pick a bottom.  But it’s fun to guess.

Back in December when Spotify’s stock price hit $116 I said I expected it to retrace its price to the $120-$130 range before testing new lows.  OK, I said it would close at $95 in the near future, perhaps as soon as January based on technical indicators such as the “death cross” when 50 and 100 day moving averages cross to the downside.  So I was wrong about the timing, but the recent trading activity and momentum suggests the stock is behaving as expected.

Here’s my current chart:

Spotify 5-23-19

Note that Spotify is getting close to a second death cross at significantly lower levels than the first.  Note also that the 200 day moving average (which we didn’t have yet in December) is also pointed to the downside and is not, frankly, all that far away from the 50 and 100 day averages.

I would also point out that the stock is now trading about $10 below where it was before it listed (the “reference price”), which means, roughly speaking, that Spotify is actually valued lower than it was as a private company.  It’s also valued lower than it was in December and well below where it closed on its first day of trading.  Although not quite as much lower as it was in December.  All this for a company that still requires investment capital to survive as it has since it was founded.  If that keeps up, Spotify may soon enter the unicorn abattoir.

Remember–Spotify is not your typical IPO stock.  In fact, it is not an IPO at all, rather something called a “DPO” or a “direct listing”.  The difference is that a DPO enriches only the initial holders of the company’s stock as Marketwatch explains:

Direct listings differ from traditional initial public offerings, in that the company doesn’t issue new shares or seek to raise money through the process of going public. Rather, the listing makes it possible for existing shareholders to sell their shares to the public. After Spotify’s direct listing, many said the approach could be used by other startups, given the lack of share dilution and required lockup restrictions.

It’s also important to note that Spotify announced a $1 billion stock buyback plan on November 5, 2018 according to Variety:

Aiming to boost its flagging stock price, Spotify announced a plan Monday to repurchase up to $1 billion worth of shares.

So Spotify’s stock has continued to decline despite this price manipulation by the insiders.

We shall see.

Spotify Songwriter Town Halls: Go Ahead, Make My Day

If you’ve heard about the high turnover at Spotify, here’s the latest confirmation:  Someone at Spotify evidently thinks it’s a good idea to have “town halls” for songwriters in Nashville and Los Angeles (but not New York).  “Town halls” imply an open forum where anyone can talk about issues of importance to the community hosting the town hall.  That’s apparently not what these Spotify town halls are to be about.  The intention is to limit them to a single topic–Spotify’s appeal of the songwriter rates at the Copyright Royalty Board.

First, remember that Spotify did this kind of thing once before in 2014.  Remember, in 2014 the company got a lot of groovy from the pillars of the music business who wanted to see Spotify succeed (and make bank on the stock).  In 2014, publicly criticizing Spotify was a new thing and it took some courage for artists to go after the company in the days before Spotify executives gorged themselves on the public’s money at the public market trough.

That 2014 charm offensive foundered, to be kind.  (See Meltdown at the Soho House: Spotify’s Artist Charm Offensive Tour Self-Destructs on Opening Night and Billboard’s coverage, Spotify’s Artist Outreach Mission Backfires.)

Why was it a disaster?  Mostly because try as they might, Spotify couldn’t control a roomful of artists and get them to talk about the topic Spotify chose–especially that one thing that Spotify wanted to talk about, namely how groovy they are.  Artist rights advocate Blake Morgan attended the New York meeting and politely and articulately took the Spotify self-cheering section apart brick by brick.  This wasn’t a cage match with Big Daddies on either side waiving their arms–the artists knew what they wanted to say and they said it.  They didn’t need any help.

This is why I find it hard to believe that Spotify is about to do the exact same thing all over again and expect a different result.  The mistake they made the last time was in trying to control the agenda and treat the meeting like a corporate communications event rather than an open dialog.  That approach is guaranteed to deliver a meltdown–which it did the last time Spotify tried it.  I had to read that news a couple times to make sure it really said what I thought it said as it all seemed counterintuitive.

If the company wants to open a dialog with songwriters and artists, then have that dialog–not a monologue.  Live stream it and record it so that everyone who is not able to attend has the opportunity to hear what’s going on.  There’s been enough closed door negotiating recently and people are tired of it.  Someone’s going to record it anyway, so why not get ahead of it?

But understand this–there is live litigation going on over the CRB rates.  Anything that is said publicly by the litigants could end up being admissible in some case somewhere.  So be careful what you wish for.  There’s a reason why public companies don’t usually engage in “town halls” concerning live litigation.

And also consider this–what if the reason that punches were pulled after Spotify’s US launch was because everyone wanted to sell those shares and cash out.  That’s pretty much happened already.  Now what’s holding them back?

A town hall is not a great look for Spotify.  Particularly when they may get an earful on a host of other issues from the vendors who make their only product–music.

If the smart people really want to dig a hole for themselves, far be it from me to stop them.  By all means–dig.  I’m just a country lawyer from Texas.  I’m sure the rich city fellers know much better than I do.