Episode #94: Recently, a bill was introduced by Republican congressman Jim Sensenbrenner which calls for the creation of a comprehensive database of compositions and recordings. The “Transparency in Music Licensing and Ownership Act” claims to make things easier for coffee shops, bars and restaurants who want to license music to play in their establishments. To many in the music industry, the bill seems like a wolf in sheep’s clothing with the potential cause big problems. On this episode we dig deep into the bill with Future of Music Coalition’s Kevin Erickson and attorney Chris Castle.
We have proposed a panel for SXSW in the Panel Picker with some great speakers I’ll be moderating. “Getting to Beta Without Getting Beat Up” will emphasize the importance of licensing strategy milestones that overlay a music-tech startup’s product development strategy milestones.
A well-executed licensing strategy is every bit as much a part of the supply chain logistics as any other element of product development, if not more important.
A buggy product can usually be fixed. Failure to execute a bespoke licensing strategy can subject the entire company to crippling and endless copyright infringement lawsuits. In fact, if you are unlicensed or insufficiently licensed, one thing is a pretty sure bet: The more successful you are, the more likely it is you’ll be sued–a proposition ripped from the headlines.
That scenario can waste the stockholders’ money, be defocusing in the extreme for management and severely damage relationships with the creative community–the life blood of any music startup.
On the other hand, “over clearing” while less costly than litigation still syphons off resources that for the most part lie fallow.
Our panel are all experienced hands in the licensing and metadata world and are themselves entrepreneurs:
At the time, which was during Pandora’s bad old days of what Billboard called “World War P”, Pandora was suing songwriters to lower royalty rates for their one product–music. According to Pandora, they were not treated fairly because terrestrial radio paid lower rates to songwriters then did they as webcasters. Apple, meet orange. Pandora’s strong move was to buy a relatively inexpensive radio station so it could try to pass itself off as a broadcaster which it clearly wasn’t. Hence, Radio Loophole.
Some speculated at the time that Pandora’s board might have gotten confused that the station was in South San Francisco rather than South Dakota as it is unlikely any of them had ever been to South Dakota (and it’s almost as equally unlikely they’d ever been off the 101 in South San Francisco, for that matter).
But Pandora plopped down $600,000 of the stockholder’s cash (Old Pandora’s preferred form of tender for acquisitions it seems) and then went to get the blessing of the rate court. Kind of a knucklehead move that also unnecessarily stoked the battle fires of World War P.
Here’s a tip–there’s this thing called a “post closing condition”. In the case of Radio Loophole, it would go something like, “I’m only buying your station if I can use it to lower what I pay to songwriters and it’s worthless to me unless I can. So this transaction will not close until I get the rate courts’ approval which I have to accomplish within 12 or 18 months. And here’s 10% of the purchase price for you to keep for having to stand still long enough for me to find out. Deal?” Not that different than a transaction being subject to FTC merger approval.
A post closing covenant (or “post closing condition”) is the precaution you take if it’s your money or you take your duty to your shareholders very seriously. But what happens to inexperienced management with hundreds of millions of someone else’s money burning a hole in their pocket is hard to explain.
Let the Old Pandora’s disastrous acquisition of Radio Loophole and Ticketfly be examples to entrepreneurs of the honeytrap of cash in the bank. And that loophole seeking behavior eventually catches up to you, so why do it in the first place?
With Pandora’s endorsement of the CLASSICS Act that would change the law to require webcasting royalty payments to artists whose recordings were released prior to 1972, I have to say that it feels like there’s a far more enlightened leadership at Pandora just in the last few weeks. Not to look the gift horse in the molars, but it would be really nice if Pandora didn’t wait for the bill to pass and just started paying the statutory rate on a go-forward basis at least.
Either way, three of the gargantuan unintelligible blunders of Old Pandora are being put right–Ticketfly, pre-72 and now the sale of Radio Loophole. Fingers crossed we have more good news to come.
“[Government] interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding.”
James Madison, The Federalist Papers No. 44
There is a bill in Congress backed by the mega lobbying juggernaut called the MIC Coalition that would force songwriters and artists to “register” with the government in order to protect their rights from the biggest corporations in the world. Failing to do so would take away the stick of statutory damages and an award of attorneys fees to songwriters or artists who are victorious in copyright infringement litigation. Statutory damages and attorneys’ fees are the only real protection that the government gives these creators–the smallest of small businesses.
Why? Because the government does virtually nothing to protect the rights of artists. If it weren’t for statutory damages and attorneys’ fees there would be nothing between a creator and the ravages of mega-corporations. Try calling a U.S. Attorney and asking them to prosecute a massive infringer. If it hasn’t happened yet given the rampant piracy we’ve seen over the last 20 years now, it should tell you that it’s never going to happen with rich corporations that run roughshod over artist rights.
Yet songwriters in particular are some of the most highly regulated workers in America. The government forces songwriters to license their work and sets the price they can license at–yet does nothing to enforce the “compulsory licenses” it imposes on songwriters. Not only is the government in their lives at every turn, songwriters are poorly treated by their government. Why? One reason is that songwriters are among the smallest of small businesses and have little political clout.
That explains why the government imposes wage and price controls on songwriters through consent decrees and rate courts, but forgets to raise their wages for 70 years. Can you imagine how that would go down if the government tried doing the same to auto workers or even the minimum wage?
The Rate that Time Forgot
The government first established the “minimum” statutory mechanical royalty in 1909 at 2¢ per copy. When the government enacted the Fair Labor Standards Act in 1938–twenty nine years later–the government-mandated minimum statutory rate for songs was still 2¢ per copy. The hourly minimum wage was set at 25¢.
The government didn’t get around to raising the minimum statutory rate until 1978–sixty nine years after it was established in 1909–when they raised it from 2¢ to 2.75¢. The hourly minimum wage had then been raised from 25¢ to $2.65. Shortly after, the government started indexing the minimum statutory rate from the rate that time forgot–had the government indexed to the rate of inflation from 1909 to 1978, the rate would have been closer to 13¢, a level it has yet to reach over 100 years after it was first set–today the rate is 9.1¢. And the government has frozen the rate at 9.1¢ since 2006–eleven years ago.
That’s a cruel mess.
What happens if a music user wants to avail themselves of the statutory license but simply refuses to pay the paltry royalty rate? Nothing happens. At least not unless the songwriter or their publisher sues for statutory damages and attorneys’ fees. If you’ve followed the class action cases brought by David Lowery and Melissa Ferrick against Spotify, you’ll know that these cases only involve small songwriters. Now there’s two publishers suing Spotify in Nashville–again, small publishers suing for statutory damages and attorneys fees. Publishers who chose to go it alone rather than take a settlement.
If these plaintiffs didn’t have the statutory damages and attorneys’ fees, do you think anyone in the government would care that the government’s compulsory license was being misused?
We’re From Washington and We’re Here to Help
Individual music users like Amazon, Google, Facebook and Spotify have about as much political clout as any of the other notorious monopolists in history from Standard Oil to United Fruit. As members of the MIC Coalition lobbying group, these companies have the political clout of Big Tobacco, Big Pharma or Big Bombs.
These companies are all part of the MIC Coalition (or are members of other lobbying groups that are). The MIC Coalition is all about this new “government list” that’s supposed to protect small business by crushing small business.
Here’s the pitch on the government database from the MIC Coalition:
The lack of an authoritative public database creates problems for venues and small businesses including restaurants, taverns, wineries, and hotels. For example, venues are declining to host live musicians rather than risk potential liability due to lack of up-to-date and actionable licensing information. The lack of a database is also a challenge for local broadcasters and digital music streaming services that rely on accurate copyright information to provide music to millions of consumers.
The assumption behind this legislation is that if the government just forced all the world’s songwriters and artists to register in the government’s list, that music users would actually use that database. If there’s one common theme in the recent lawsuits against digital services it is that the services don’t seem to use the available data–except to file millions of mass statutory licenses using a loophole in the Copyright Act. The users spend big bucks to claim they can’t find the copyright owner of the songs they use in the current Copyright Office records and seek the government’s cover from lawsuits as if they were legitimate users.
If they put the same effort into finding the songwriters that they do into filing millions of mass NOIs, these services might not have so many problems. And instead of removing the loophole, the government now floats this “government list” database idea to create an even more complicated loophole at taxpayer expense.
Reject the 11th Century Solution to a 21st Century Problem
It’s important to realize two key causes for the licensing mess the government has created through over-regulating songwriters, one of which is not entirely the government’s fault.
The Government Should Allow Statutory Licensing by ASCAP and BMI: Because the government imposes a near-compulsory license through consent decrees against songwriters who are members of the two largest performing rights societies (ASCAP and BMI), a perfect opportunity to streamline the compulsory license is simply lost. The government’s courts that supervise songwriters actually prohibit ASCAP and BMI from engaging in compulsory licensing. If these PROs were allowed to issue licenses for all the rights digital services need, that would be a meaningful step forward.
This would make ASCAP and BMI similar to SESAC which can issue both performance rights licenses and mechanical licenses after SESAC’s acquisition of the Harry Fox Agency. SESAC is not subject to a consent decree. The MIC Coalition didn’t like that either and complained to the Department of Justice seeking an investigation into stopping an idea that could work.
Require Music Users to Search the PRO Databases for Song Ownership before Serving Address Unknown Mass NOIs at Taxpayer Expense:There is nothing in the “government list” bill that actually requires music users to search or document that they have searched this new database. Current law requires a search of at least the Copyright Office records (which Amazon, Google, Pandora, Spotify, Microsoft, iHeart and others are supposedly doing already by the millions) and in some circumstances permits a search of the performing rights society databases as well (see 37 CFR Sec. 201.10 h/t Richard Perna).
It is a short leap to require music users to search the publicly available databases of ASCAP and BMI as well as the public records of the Copyright Office before serving millions of address unknown NOIs on the Copyright Office. This will be particularly relevant given the recently announced voluntary cooperative effort between ASCAP and BMI to combine their repertory databases (which could include other PROs). While there is some complaining from MIC Coalition members that ASCAP and BMI won’t indemnify users of their databases for the accuracy of the data, that dog won’t hunt.
That simply isn’t true for parties to the ASCAP and BMI licenses, which after all is why the databases are created in the first place. Since ASCAP and BMI have no idea what use anyone may make of the data and if that use is even authorized by the song or recording owners, how could they possibly be expected to indemnify all users for any use in any country of any song? Those databases are not a search engine. Nobody else does that, especially not search engines, e.g., Google’s disclaimer:
Our Warranties and Disclaimers
We provide our Services using a commercially reasonable level of skill and care and we hope that you will enjoy using them. But there are certain things that we don’t promise about our Services.
OTHER THAN AS EXPRESSLY SET OUT IN THESE TERMS OR ADDITIONAL TERMS, NEITHER GOOGLE NOR ITS SUPPLIERS OR DISTRIBUTORS MAKE ANY SPECIFIC PROMISES ABOUT THE SERVICES. FOR EXAMPLE, WE DON’T MAKE ANY COMMITMENTS ABOUT THE CONTENT WITHIN THE SERVICES, THE SPECIFIC FUNCTIONS OF THE SERVICES, OR THEIR RELIABILITY, AVAILABILITY, OR ABILITY TO MEET YOUR NEEDS. WE PROVIDE THE SERVICES “AS IS”.
SOME JURISDICTIONS PROVIDE FOR CERTAIN WARRANTIES, LIKE THE IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT. TO THE EXTENT PERMITTED BY LAW, WE EXCLUDE ALL WARRANTIES.
If the government wants to tinker with the Rube Goldberg system of music licensing that it has imposed on songwriters, it could start by making these two changes before imposing a 21st Century version of William the Conqueror’s Domesday Book, the Great Survey of England conducted in 1088.
Oh, and if they’re so fired up about forcing people to do things through regulation, why not force music users to license, pay and account in compliance with the law.
Longtime PRO opponent Rep. Sensenbrenner introduced a bill entitled “The Transparency in Music Licensing and Ownership Act“, a piece of work that is Dickensian in its cruelty, bringing a whole new meaning to either “newspeak” or “draconian,” take your pick. It’s rare that the Congress can accomplish the hat trick of an interference with private contracts, an unconstitutional taking and an international trade treaty violation all in one bill. But I guess practice makes perfect. And since the MIC Coalition gave the bill a rousing cheer followed by a heaping serving of astroturf, we should not be surprised. (Read the bill here.)
While this legislation currently applies only to songs and sound recordings, other creators should not feel that they’ve dodged a bullet. I hear that the House Judiciary Committee staff is planning on closing the loop and making all copyright categories subject to the same “register or lose it” approach favored by Lessig, Samuelson and their fellow travelers. If you thought that we are in an era of the triumph of property rights, that must be a different Congress you’re thinking of.
The bill perpetuates the myth of the “global rights database” that no one who understands the complexities believes will ever be created. It sounds logical, right? We have county recorders for real estate, the DMV for cars, why not a database for music?
That is an 11th century idea being welded onto a 21st century problem, the Domesday Book meets a unicorn. The problem isn’t knowing who owns a particular work which evidently is either what they believe or want you to believe.
The problem is that the users don’t want to seek permission or beg forgiveness, either. They want to get away with it. This bill demonstrates that unassailable fact in colors bold as the Google logo.
Think about it–by the time you finish reading this post, 1000 songs will be written and 500 songs will be recorded somewhere out there in the world. Or more. (Not to mention photographs taken, paintings painted, chapters written and so on.)
Do you think that songwriters around the world are thinking, now I know what lets do, let’s rush to go register that new song in the U.S. Copyright Office–in the database, the registration section, the recordation section? Otherwise, I’ll never be able to afford the lawyer to sue Spotify if they don’t pay me. I don’t think they’re thinking that at all and are about to fall into the MIC Association’s trap for the unwary. Why the MIC Coalition? We’ll come back to them.
In a nutshell, the bill requires the extraordinarily heavy burden of requiring all songwriters and recording artists (or their publishers or labels)–all, as in the entire world seeking to sue in the U.S., not just the US writers–to register numerous fields of data in a yet to be created database if they plan on suing for statutory damages:
[I]n an action brought under this title for infringement of the exclusive right to perform publicly, reproduce, or distribute a nondramatic musical work or sound recording, the remedies available to a copyright owner [ANY copyright owner] that has failed to provide or maintain the information [required] shall be limited to…(A) an order requiring the infringer to pay to the copyright owner actual damages for the public performance, reproduction, or distribution of the infringed work; and…(B) injunctive relief to prevent or restrain any infringement alleged in the civil action.
That means if you haven’t undertaken the formality of registering in this new database, then the user has no exposure to statutory damages and will not have to pay the victorious songwriter or artists attorneys’ fees. And this new safe harbor applies apparently even if that songwriter or artist has filed a copyright registration under existing law.
There is nothing in the bill that actually requires the protected class to actually look up anything in this new database, or actually be in compliance with existing statutory licenses (such as the webcasting or simulcasting licenses).
So who is in the new protected class entitled to the Nanny State’s protection from those collusive and pesky songwriters and artists? Let’s look at the victimology of the “ENTITLEMENT” paragraph.
Well, actually, there’s no “ENTITLEMENT” paragraph for the entitled, it’s actually called “APPLICABILITY” (see “newspeak”, WAR IS PEACE, etc.). The connected class includes five different categories of cronies.
First, the defined term “An establishment” gets the new even safer harbor. “Establishment” is a defined term in the Copyright Act (in Sec. 101 for those reading along at home):
An “establishment” is a store, shop, or any similar place of business open to the general public for the primary purpose of selling goods or services in which the majority of the gross square feet of space that is nonresidential is used for that purpose, and in which nondramatic musical works are performed publicly.
Like the members of this organization, the National Retail Federation:
Then another defined term “A food service or drinking establishment”. Kind of like these people:
That is, the National Restaurant Association, the American Hotel and Lodging Association (aka those who put their kids through college thanks to SXSW) and their suppliers, the American Beer, Wine and Spirits Retailers.
Next, “A terrestrial broadcast station licensed as such by the Federal Communications Commission”. I guess that would include the National Association of Broadcasters, iHeart, Salem and Cox (which of course raises the question of whether this entitlement also applies to Cox’s Internet group), kind of like these people:
Don’t forget “An entity operating under one of the statutory licenses described in section 112, 114 [webcasting and simulcasting], or 115 [mechanical licenses].” Note–not that the statutory license applies to the particular song or sound recording in the way it is used that is the subject of the lawsuit, just that the entity is operating some part of its business under one of those licenses regardless of whether the service that is the subject of the lawsuit operates under one of these licenses or not. (Pandora’s on-demand service compared to webcasting, for example, could be out of compliance with its sound recording licenses but claim the safe harbor because it is “operating under” one or more of the statutory webcasting license in the radio service or the statutory mechanical licenses for songs.)
It appears that would include these people:
and don’t forget these people who are DiMA members and need the government’s protection from songwriters and artists:
And then I guess you could throw the Consumer Technology Association and CCIA in there, too.
So I think that’s everyone, right?
Last but not least there’s this group as “belt and suspenders”:
An entity performing publicly, reproducing, or distributing musical works or sound recordings in good faith as demonstrated by evidence such as [i.e., but not limited to] a license agreement in good standing with a performing rights society or other entity authorized to license the use of musical works or sound recordings.
Note: The license need not be for the musical works or sound recordings for which the “entity” is being sued, just any license for any musical works or sound recordings.
There are loopholes in the bill that you could drive a fleet of Street View cars through, so you have to assume that the loopholes will be hacked given who is involved. Don’t let anyone tell you “oh that’s just legislative language, we can fix that.” The whole thing has to be voted down.
Let’s call this bill what it is: Crony capitalism, the triumph of the connected class. The Domesday Book writ large.
It’s some of the biggest companies in the world deciding that they don’t want to hear from songwriters or artists anymore.
Spotify just can’t seem to catch a break in the artist community. A story broke on Vulture evidently based on a Music Business Worldwide post alleging (and I’m paraphrasing) that (1) Spotify commissions artists to cover hits of the day and (2) there’s a lot of sketchy material on Spotify that trades on confusing misspellings, “tributes” and other ways of tricking users into listening to at least 30 seconds of a recording. Which means that Spotify isn’t that different than the rest of the Internet. (Thank you DARPA, the people who gave you the Internet. And Agent Orange. The real one.)
Spotify of course has issued a denial that I find to be Nixonian in its parsing. Let’s not go crazy on this, but here’s the first part, according to Billboard:
“We do not and have never created ‘fake’ artists and put them on Spotify playlists. Categorically untrue, full stop,” a Spotify spokesperson wrote in an email.
Nobody said Spotify “creates” “‘fake artists,'” and the accusation was that the fake artists were on the service AND on some playlists, not just playlists. The allegation is that Spotify commissions recordings.
“We pay royalties — sound and publishing — for all tracks on Spotify, and for everything we playlist. [If Spotify commissioned the fake tracks, they would also “pay royalties”.] We do not own rights, we’re not a label, all our music is licensed from rightsholders and we pay them — we don’t pay ourselves.”
Notice the switch to “rights holders” which would include either publishing or sound recordings. If Spotify commissioned fake artists they would not need to “own rights” and they could easily have “licensed” the fake artists recordings. Cover songs would require an…ahem…NOI for the compulsory license. And the commission payment could go to the artist as a buyout so Spotify would “pay them”. If the object was to increase traffic for their ad supported service, commissioning recordings would both increase traffic AND reduce the prorata share of advertising revenue by making the denominator larger for everyone with a revenue share during that accounting period. I don’t want to go too far down that rabbit hole, but there are some odd loose ends.
Leave the holes in Spotify’s denial to the side. The core problem identified by the Vulture post is the same for Spotify as it is for Google, YouTube, Facebook, all the other Internet companies that require “scale” to succeed, and which are, one way or another, hell bent on being monopolists. The second part of Spotify’s denial in Billboard could apply to this lack of monitoring:
“As we grow there will always be people who try to game the system. We have a team in place to constantly monitor the service to flag any activity that could be seen as fraudulent or misleading to our users.”
Maybe that “team” could have a role in “monitoring the service” for tracks before the recordings get on the service rather than after. Noah built the Ark before the rain.
It must be said that it sounds a bit implausible that Spotify would commission this type of recording to avoid paying artist royalties on the fake tracks. Such an affirmative act would require a commercially tortured logic because the royalty offset on those specific tracks would be so tiny that the cost of the commissioned recordings would have to be very, very low. One guy with Garageband in Mom’s basement kind of low. How much the prorata revenue share would be reduced is hard to know from the outside.
But even if Spotify doesn’t hire studio musicians to perform “fake hits”, it appears that they are allowing a lot of sketchy recordings onto the service. One might ask how those recordings get there in the first place. I would bet that the explanation is pretty much that nobody bothers to check before the recordings are posted (or “ingested” in the vernacular, if you can stand that word).
So while there is a major difference in degree of harm, there isn’t a great deal of difference between what seems to be happening on Spotify with sketchy recordings and the links to illegal materials that the Canadian Supreme Court just blocked on Google Search, promoting the sale of illegal drugs for which Google paid a $500,000,000 fine and narrowly avoided prison, ISIS recruiting for which Google lost a chunk of market cap (at least for a while), human trafficking on Craig’s List and fake news on Facebook. Each of these services operate at scale and they seem to have the same problem: No one is minding the store and there are no or poorly enforced standards and practices that are only enforced after the harm has occurred.
The other trait that all these companies have in common to one degree or another is that they are all at least dominant if not monopolies in their markets.
Remember–on May 12, 2014, Spotify’s director of economics Will Page gave a presentation at the Music Biz Conference in Nashville. As reported by Billboard, Will Page gave the audience a good deal of evidence of Spotify’s domination of the online music market:
Spotify claims to have represented one out of every ten dollars record labels earned in the first quarter….Page’s claim shows the speed at which subscription services are gaining share of the U.S. market. According to IFPI data, all subscription services accounted for 10.2 percent of U.S. recorded music revenue in 2014. If Spotify had a 10-percent share in the first quarter, it’s safe to say the overall subscription share is well above the 10.2 percent registered last year.
Much of Page’s presentation seemed aimed at Spotify skeptics in the audience. While explaining how streaming “is no longer an outlier in the business,” Page noted Spotify has launched in 32 of the 37 countries where streaming is the primary digital source of revenue. Page also pointed out that Spotify is half of the $1.5 billion global subscription streaming market. In the U.S. market, Spotify made up approximately 90 percent of last year’s growth in subscription revenue, according to Page.
These numbers suggest that while Spotify may have a significant share of overall U.S. recorded music revenue, Spotify is clearly dominant if not a monopoly in the global subscription market with its now 100 million plus users and probably is at least dominant if not a monopoly in the U.S. music subscription market.
So how does Apple address these problems? If you consult the iTunes Style Guide, you’ll see that iTunes expressly prohibits the use of search terms or keywords in track title metadata (like “Rock Pop Indie Rock”) or an artist name (like “Aerosmith Draw the Line). Audio files have to match track titles on each album delivered. “All track titles performed by the same artist on an album must be unique, except for different versions of the same track that are differentiated by Parental Advisory tags.“ And most importantly, perhaps, “the name of the original artist must not be displayed in any artist field on the track level or the album level.” Why these rules? One reason might be that Tunecore has encouraged their users for years to use covers as a way of getting noticed in searches on music services (with suitable admonishments to not “trick” fans).
Let’s face it–there’s only one way to keep your service clean. Don’t let the bad stuff on in the first place. You may think that it should be self evident that allowing sketchy recordings, ISIS videos or human trafficking on your service is a bad thing. You may think that it should be self evident that allowing someone to change a letter in an artist’s name to trade on their reputation is a bad thing–not that different from typo squatting. You may think that it is self evident that promoting the sale of illegal drugs is a bad thing. And you may think that anyone who wants to engage in commerce with the legitimate commercial community, much less the artist community, wouldn’t allow these travesties into their business.
But you would be wrong. Probably because you don’t worship at the alter of the great god Scale.
Big thanks to Texas Accountants & Lawyers for the Arts and Norton Rose Fulbright for hosting my presentation on the “address unknown” loophole and what to do about it. As MTS and MTP readers will recall, this is a vital issue for songwriters that is a festering sore that no one has addressed. We appreciate the support from I Respect Music Austin!
All are welcome. One hour of Texas CLE credit pending.
6:15-7:15pm Presentation “Address Unknown: Are You Missing Money from Your Songs”
7:15-8:00pm Mixer with attorneys, artists, managers, and other participants