A Little Context: Texas Leads 50 State Coalition Investigating Google

Google is finally getting some pushback from the nation state.  Texas Attorney General Ken Paxton is leading a broad coalition of state attorneys general into Google’s business practices starting with violations of state antitrust laws.

According to the Washington Post:

The states’ investigation is led by Texas’ Paxton and seven other attorneys general, four Democrats and four Republicans in total. Every state except Alabama and California, the home of Silicon Valley, so far has signed onto the bipartisan effort, as have Puerto Rico and the District of Columbia. A spokeswoman for California’s attorney general did not immediately respond to a request for comment.  [Gee, I wonder why?]

…Another group of 11 state attorneys general — led by New York’s Letitia James — has begun their own probe against Facebook, exploring whether it violates competition laws and mishandles consumers’ personal information.

Google also disclosed in an 8-K filing with the SEC that they’d received a “civil investigative demand” from the Department of Justice:

On August 30, 2019, Alphabet received a civil investigative demand from the DOJ requesting information and documents relating to our prior antitrust investigations in the United States and elsewhere. We expect to receive in the future similar investigative demands from state attorneys general. We continue to cooperate with the DOJ, federal and state regulators in the United States, and other regulators around the world.

Sending a CID is how these things usually start.  A CID is a discovery request that is similar to a demand for production of documents, oral testimony or answers to interrogatories.  How did this whole state AG thing evolve?  A little context.

Mississippi Attorney General Jim Hood tried a similar approach with Google in 2014 and was immediately set upon by Google’s lawyers and the “policy” groups it funds like the Electronic Frontier Foundation, R Street, Engine Advocacy and others.  While General Hood didn’t exactly win that, he didn’t really lose it either.

General Hood invited me to be on a panel he moderated at the 2013 summer conference of the National Association of Attorneys General.  The panel topic was “Intellectual Property Crimes Online: Dangerous Access to Prescription Drugs and Pirated Content”.  General Hood spoke on “Google Guiding Consumers Down Illegal Paths.”  My topic was “Protecting Consumers and Advertisers from Unfair Trade Practices,”  which was essentially a briefing on how Google played a central role in brand-sponsored piracy by duping advertisers on both pirate sites and Google’s own properties like YouTube (starting with duped advertiser #1, President Barack Obama).

I have to say that speaking to 50 AGs at the same time is a rather sobering experience.  As our panel presented the case against Google, it was probably the first time that I realized my standing joke that Google opposed the nation state actually wasn’t a joke.  At all.

After talking with some of the AGs who attended our panel, it became apparent that some of them were learning for the first time of the company’s profits from piracy and selling ads against recruitment videos on YouTube for salafi jihadism.  When Google called out all of the dogs on General Hood a few months later to get an injunction that stopped enforcement of Mississippi’s CID, the company’s antics only confirmed to the AGs that it would take a village to challenge the most powerful media company in commercial history.

That epiphany led to 40 attorneys general filing an amicus brief supporting General Hood in the appeal of the aptly titled case of Google v. Hood that crystalized the issue before the 5th Circuit:

This is a case about the authority of state Attorneys General to exercise one of their fundamental powers: the ability to investigate potential violations of state law. What should be a routine discovery dispute in Mississippi state courts, resolved under established state procedures…has instead evolved into a contrivance for a company doing business in the state of Mississippi to invoke federal jurisdiction by asserting potential affirmative defenses to claims that have never been filed.

The NAAG conference and General Hood’s efforts resonated with me, too.  Not to quote myself, but I think this 2017 post about then Missouri AG Josh Hawley’s consumer protection subpoena of Google captures what just happened:

One of Google’s worst policy nightmares is that state attorneys general will wake up to their obligation under state laws to protect both consumers and advertisers from Google’s overreach.  This would potentially force Google to answer for its actions in 51 jurisdictions–some state laws that are essentially common to all 50 states plus the federal government.  These state laws include consumer protection statutes and unfair competition or state antitrust rules that are not overriden (or “preempted”) by simultaneous federal jurisdiction.

Since General Hood got the Full Google (the only thing missing was the fake petitions and Open Media tools), there have been a few efforts by state AGs like Josh Hawley (now Senator Hawley).  While the current case may seem to come out of the blue, it is really the next step in the evolution of the response of dealing with Google as a white collar crime law enforcement matter.

Spotify Conquers Wall Street Update

Music Business Worldwide reports that the Spotify corporate biography book is now being shopped as a TV series:

Yellow Bird UK, a Banijay Group company, has optioned the screen rights for Sven Carlsson and Jonas Leijonhufvud’s tell-all novel, Spotify Untold (Spotify Inifrån).

The book is currently in development for a limited series which “will examine how a secretive start-up wooed record companies, shook the music industry to its core, and conquered Wall Street,” according to a press release.

Let’s see how the conquered are reacting today:

SPOT 8-28-19

Note that Spotify has once again conquered its 200, 100 and 50 day moving averages to the downside.  Roughly speaking, in the last 12 months of trading the SPOT stock has traded near or below its benchmark closing price on the first day of trading. about 70% of the time.  It has also traded below its private company valuation (the “reference price” in the case of a direct public offering like Spotify) about 30% of those trading days including yesterday.  If that continues, SPOT investors would have been better off staying private–except for the insiders who cashed out, of course.

And it’s still loss making and just got served with an existential copyright infringement lawsuit that may eliminate the Music Modernization Act safe harbor altogether.  Just another day in Stockholm.

All hail the conquering hero.

@musictechsolve: Vote for Creator and Startup Licensing Education at SXSW

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Click Here to Vote on Panel Picker

I have a workshop in the SXSW.edu track titled “TEACHING ARTIST ROYALTIES TO CREATORS AND STARTUPS.”  It follows my philosophy that we need smart artists and smart startups to work together if we all are to succeed.

The workshop has three purposes:

–A building block approach to teaching artists and songwriters about the principal royalty streams that sustain them.  This is targeted financial literacy which is as critical to artists and songwriters as balancing your checkbook.

–A licensing roadmap overlay for entrepreneurship studies.  It’s far too frequent that entrepreneurs spend more time developing their product roadmap and critical path than they do developing their licensing roadmap side by side with the product.  That way when a startup gets to launch there is less likelihood they will go into the terminal holding pattern or worse–launch without licenses.

–the importance of clean and stable metadata to both artists and startups (and mature companies) and how to accomplish this goal starting with the digital audio workstation.

The class description:

Royalty rates, royalty reporting and earnings are some of the least understood–yet most important–parts of a creator’s career or a startups nightmare. Understanding royalties is as important as understanding how to balance your checkbook. Starting with metadata and simple revenue streams, leading to complex calculations and government run compulsory licenses and sometimes impenetrable royalty statements, the workshop gives educators tools and building blocks to teach the subject.

I’d really appreciate your vote for the class in the SXSW Panel Picker here. To vote, you just need to sign in to PanelPicker or create a free SXSW account with your email only.

Spotify Guides Toward “Tipping” Artists on Earnings Call

MTS readers will recall my post on what I called “Ethical Props” (OK, OK, not the best moniker I’ve ever come up with, but you’ll get the idea if you read the “Ethical Pool” post).  The concept is an expansion of the micropayments that TenCent (and lots of other sites in other businesses) permits on its music platform.  The question presented was whether Spotify would adopt a similar structure and how they would treat artists. That’s a serious question, by the way.

It turns out that the issue came up on Spotify’s latest earnings call, and was foreshadowed by Daniel Ek’s interest in Facebook’s Libra currency.  Stuart Dredge at Music Ally reports that the subject did come up:

Spotify IS interested in ways for fans to tip artists

Earlier this month, Spotify’s chief premium business officer Alex Norström hinted that the company was exploring the idea of new ways for artists to make money on its service: “You can add stuff on top like micro-payments, a la carte, prepaid plans for different contexts…”

Ek was asked about direct monetisation such as tipping during the earnings call today. “It’s something that we’re overall interested in. We definitely look at it as part of the scope of the types of marketplace tools that you can expect,” he said. “You should expect us to try a lot of things… it certainly could be very interesting specifically for a lot of artists…”

First…does anyone know what a “chief premium business officer” is?  I’m not familiar with that one, although my best is that they probably office next to the “chief exposure business officer.”

Quick review–Mr. Ek’s buddies at TenCent have made quite a business of “tipping” which explains why Ek is interested:

Simply put, Tencent allows users (all users, subscription or ad-supported service) to make virtual gifts in the form of micropayments directly to artists they love.  (The feature is actually broader than cash and applies to all content creators, but let’s stay with these socially-driven micropayments to artists or songwriters.)

Tencent, of course, makes serious bank on these system-wide micropayments.  As Jim Cramer noted in “Mad Money” last week:
“Tencent Music is a major part of the micropayment ecosystem because they let you give virtual gifts,” Cramer said. “If you want to tip your favorite blogger with a song, you do it through Tencent Music. In the latest quarter we have numbers for, 9.5 million users spent money on virtual gifts, and these purchases accounted for more than 70 percent of Tencent Music’s revenue.”

And that’s real money.  Tencent actually made this into a selling point in their IPO prospectus:  “We are pioneering the way people enjoy online music and music-centric social entertainment services. We have demonstrated that users will pay for personalized, engaging and interactive music experiences. Just as we value our users, we also respect those who create music. This is why we champion copyright protection-because unless content creators are rewarded for their creative work, there won’t be a sustainable music entertainment industry in the long run. Our scale, technology and commitment to copyright protection make us a partner of choice for artists and content owners.”
How Spotify will approach the subject has a lot to do with how they perceive their artist relations problems.  The chances are good that Spotify don’t think they have an artist relations problem.
But they do.  As I often say, if screw ups were Easter eggs, Daniel Ek would be the Easter Bunny, hopping from one to another until he had picked them all up in his basket.  (A nondenominational Easter bunny, of course.)
He could either pass through 100% of the “tip” which would make it “Ethical” as we define it, or he could take a cut like TenCent which wouldn’t.
The dreaded Apple is already in the act to a degree:
[TenCent’s] micropayments reportedly influenced Apple to change its in-app purchase policies, which make a good guideline for putting the “ethical” into an Ethical Prop:
“Apps may enable individual users to give a monetary gift to another individual without using in-app purchase, provided that (a) the gift is a completely optional choice by the giver, and (b) 100% of the funds go to the receiver of the gift. However, a gift that is connected to or associated at any point in time with receiving digital content or services must use in-app purchase.”

(That’s section 3.2.1(vii) in Apple’s App Store Review Guidelines for those reading along at home.)

So watch this space–let’s see what choices they make.

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