Music Business Worldwide reports in a fairly detailed article that Apple is launching a music publishing division–crucially based in both London and the US run by Elena Segal (recently of my old alma mater, Mitchell Silberberg). This doesn’t necessarily mean that Apple will be competing with publishers to acquire catalogs or for songwriter talent just yet, but that is something worth thinking about.
Personally, I don’t see a catalog buy in Apple’s future. They don’t need the money or the headache–Apple is in the Benjamin business not the Lincoln business. If Apple moves into publishing my bet is that it will be strategic and not tactical.
But I could see a world in which Apple leveraged their creative staff and audio recording toolshed to attract developing writers. Even a $1 million investment in a stable of developing songwriters could go a long way.
Here’s five reasons why Apple has a strategic advantage over almost everyone in getting into the creative side of the business:
1. History: Largely due to Steve Jobs’ genius, Apple has always attracted musicians and artists to the company’s products. When I attended the “Hell Has Frozen Over” launch of iTunes for Windows, even a blind man could see how much the artists who Facetimed with Steve on stage really enjoyed the guy. Remember that iTunes for Windows launched with a whole bunch of exclusive tracks from top artists–all of whom were happy to participate. How much happier would they be to actually include Apple in their creative careers?
2. Trust: Apple has never been sued by songwriters or artists. They give a straight count for iTunes. Not to say they shouldn’t be audited, trust but verify, etc., but on balance most people trust their Apple statement not to be shady. That is definitely not true for Spotify, or…ahem…others. Plus, Apple doesn’t hand out stock to lower royalties for everyone.
3. Fairness: As an old Apple lawyer once said to me, we decide what’s fair and then we jam it down your throat. Which sounds harsh, but remember that Apple Music’s long-time honcho Eddie Cue made a huge change in Apple Music’s launch strategy because Taylor Swift tweeted that she thought the free period was too long. One tweet and that was that.
Contrast this exchange with billionaire Daniel Ek’s tone deaf mansplaining to the same Taylor Swift over windowing.
4. Longevity: In a time of ups and mostly downs in the music industry, Apple isn’t going anywhere. There’s no fear that key executives are going to pump and dump their Apple stock on a get-rich-quick scheme that benefits everyone except the creators. So the long term interests are aligned.
5. Playlists: You don’t get the impression that Apple is going to use the 21st century algorithmic equivalent of Top 40 to create a version of George Orwell’s versificator that bears about as much resemblance to a Ponzi scheme as it does to a listening experience. Apple smartly engaged Zane Lowe & Co to keep the human element in a kind of global Radio One. Artists don’t like to feel that they are simply part of the background music–who can get excited about being on the “Sleep” playlist? It’s like asking artists if they’d like to sign to Muzak.
I personally find the idea of Apple in the creative side of publishing very attractive because it allows Apple to distinguish itself on values that many creators find compelling: Transparency, integrity and trustworthiness.
Frankly, we could all do well to promote those values in our business instead of passing laws that try to make the indelible sleaze disappear.
It is very likely that we will hear about a move to make significant amendments to the Copyright Act at some point before the beginning of campaign season in 2018. There are a significant number of copyright-related bills that have been introduced in the House of Representatives in the current session, so brace yourself for an “omnibus” copyright bill that would try to cobble them all together Frankenstein-style.
A Frankenstein omnibus bill would be a very bad idea in my view and will inevitably lead to horse trading of fake issues against a false deadline. Omnibus bills are a bad idea for songwriters and artists, particularly independent songwriters and artists, because omnibus bills tend to bring together Corporate America in attack formation.
When you consider that Google and Facebook are part of Corporate America (not to mention Apple), the odds of the independent songwriter and artist, but really any songwriter and artist, just holding onto the few crumbs they currently have crash and burn. The odds of actually righting wrongs or–God forbid–getting rid of the legacy consent decrees that protect Big Business vanish into the limit.
Of course, what certain elements of Big Tech would really like to do is push all licensing of music into one organization that they could then control through consent decrees or other government regulation and supervision by exercise of the massive lobbying and litigation muscle of the MIC Coalition and DIMA. While I realize that may actually sound anti-competitive, it is typical of monopolists to use the antitrust law to destroy competition (as Professor Taplin has taught us). That’s certainly what has happened with the PRO consent decrees–reduced competition and lower royalties. Not to mention such a licensing organization would collapse under its own complexity. This is probably why the Copyright Office envisioned a “Music Rights Organization” that would combine the PROs and mechanical rights licensing but provided the relief valve of an new opt-out right so that songwriters could escape the madness. (“Under the Office’s proposal, except to the extent they chose to opt out of the blanket statutory system, publishers and songwriters would license their public performance and mechanical rights through MROs.” Copyright Office Music Licensing Study at p. 9)
If you want some ideas about the kinds of property rights that Big Tech wants the government to take away from songwriters and artists, just read Spotify’s most recent filing in the songwriter litigation in Nashville where their lawyer tries to define away mechanical royalties (unsurprisingly, the lawyer is a long-time protege of Lessig). Why? Because they are being brought to a trial by their peers on statutory damages for copyright infringement and the potential for having to pay the songwriters’ lawyers due to a statutory right to recover attorneys fees. (Statutory damages for copyright infringement has long been an attack point of Big Tech and we get a preview of where they want it to go in Pamela Samuelson’s “Copyright Principles Project”–essentially abolished.)
One way or another, the Big Tech cartel (which includes all the companies in the MIC Coalition and MIC Coalition member the Digital Media Association which itself has members like Spotify and, curiously, Apple) is very likely going to go after statutory damages and try to create yet another “safe harbor” for themselves with no burdens–a “friction free” way to infringe pretty much at will because the actual damages for streaming royalties will be pennies.
If the cartel succeeds in eliminating statutory damages and attorneys fees awards, this will truly make copyright infringement litigation toothless and entirely eliminate the one tool that independent songwriters and artists have to protect their rights. It will neuter massive copyright infringement as alleged in all of the Spotify class actions, not to mention cases like Limewire.
Oh, you say–did you just switch from song copyrights to sound recording copyrights by referencing Limewire? Yes, I did–because that’s exactly what I predict the DIMA and MIC Coalition have in mind. Why do I say this? Because that’s what these companies are backing in the radioactive Transparency in Music Licensing and Ownership bill (HR 3350). And if you blow up all the current separate bills into one omnibus copyright “reform” bill, the pieces may reconstitute in forms you didn’t expect.
But realize that in almost all the many copyright bills currently before the House of Representatives, the other side is trying to bootstrap unjust harm into a negotiation chip to shakedown creators. And it’s not just pending legislation–the shakedown is especially observable with the millions of notices of intention to rely on statutory mechanical licenses for songs filed with the Copyright Office. That’s a nice song you got there, it would be a shame if something happened to it.
Big Tech’s basic negotiation method is to rely on a loophole, bootstrap the loophole to build up the pressure on people who can’t fight back, then run the shakedown to get concessions that should never be made. This is what Google has done with the DMCA and is the same shakedown tactic on mass NOIs taken by Google, Amazon, Pandora, Spotify, and others–but curiously not Apple. Somehow Apple has made it work with the most successful digital music platform in history.
Let’s go down the issue list:
Pandora and Sirius stopped paying artists for digital royalties on pre-72 recordings—because of loophole based on federal copyright protection for sound recordings
Start paying artist royalties on classic recordings made before 1972
Terrestrial radio created a loophole so they don’t have to pay performance royalties to artists on sound recordings; stop artists from opting out
Start paying artist royalties for broadcast radio (with protection for noncommercial and small broadcasters)
Fair Pay Fair Play Act, PROMOTE Act
Big tech suddenly started using a loophole to file millions of “address unknown” NOIs with Copyright Office after indie songwriters filed class actions
Require Big Tech to use existing databases to look up copyright owners or don’t use the songs or recordings.
No “central database” that has all songs (but no requirement to actually look up anything), requires double registration
If songwriters and artists don’t register, then no statutory damages
Transparency in Music Licensing and Ownership Act
Blown up into parts:
–Avoid raising mechanical royalty rate or paying artist royalties on terrestrial at all
–How to use the lack of the mythical “central database” as a bright and shiny object to avoid paying royalties and shirk liability for not doing copyright research, an absurd position for companies that owe much of their wealth to their unprecedented ability to profile people around the world and “organize the world’s information”
–Avoid paying statutory damages
–How to avoid paying royalties that should have paid anyway (pre-72, terrestrial, mass NOI) through distorted interpretations of the law or even safer harbors
–Avoid an obligation to actually look up anything (new databases)
–Use any work they want if all they have to pay is actual damages and no attorneys fees
–Keep songwriters and artists from opting out
–Create biggest black box possible
It should be apparent which way Big Tech is trying to push the creative community. It is important for creators to understand that any legislative concession that the MIC Coalition or DIMA win against songwriters or artists they will then turn around and try to extract in the next shakedown–authors, photographers, film makers, all the copyright categories.
It is in everyone’s interest to support a healthy creative community that will continue to engage fans and do enough commerce to create value for the tech monopolies. But–it is crucial to understand that it doesn’t work the other way around.
The purpose of the creative community is not to create value for tech monopolies. It is to support compelling artists and help them engage with fans, and sometimes it is art for art’s sake alone. If those artists throw off some commercial gain that the tech monopolies can turn to profit themselves, fine. But creating profit for these monopolists is not the goal of artists.
Instead of creating fake problems to try to extract concessions that further undermine creators like offering ice in winter, the tech monopolies like Google, Spotify, Amazon and Pandora should identify real problems and work with us toward real solutions–and not a loophole-driven shakedown.
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.
The Music Managers Forum UK have criticized the “secrecy” arounds Spotify’s deals with major labels. According to Complete Music Update:
The UK’s Music Managers Forum yesterday welcomed the news that Spotify had reached a new deal with Universal Music. However, the trade body criticised the continued secrecy that surrounds the deals made between the major record companies and the streaming services. This secrecy means that artists signed to or distributed by those labels are not allowed to know the specifics of how their music is being monetised.
The same criticism could equally be made of non-statutory, statutory, or direct agreements by digital aggregators like CD Baby, Tunecore, LyricFind, Pledge Music, the Orchard and Loudr, each of which offer varying degrees of transparency of their own books, much less the deals they’ve made with digital services on behalf of the artists, songwriters, labels and music publishers appointing them as agents for relicense of music. (Loudr, for example, has recently started participating in the most obscure licensing process of all, the mass NOI registrations with the Copyright Office. Read more about that on another series of MTS posts or my recent article in an American Bar Association journal. At least with mass NOIs, songwriters know what their royalty is–zero.)
It is probably fair to say that there is no disclosure of the actual terms of the direct licenses between these aggregators and the services concerned. It may also be possible that no one has ever asked the aggregators for the terms of their deals.
That’s a real head scratcher because arguably those aggregators have an even greater obligation to disclose these terms given they cater to many artists, songwriters, music publishers and labels who are unlikely to have the means–even if they have the right–to conduct a royalty examination of any of these companies. However big a problem anyone has with major labels, every major label artist and major publisher songwriter takes their “audit” rights for granted.
It would be very simple for aggregators to disclose the terms of their deals or to at least summarize them so that artists or songwriters who are considering who to sign with could compare payouts. It’s fine to tell people what their royalty split, flat fee, or distribution fee might be, but the assumption is that the revenue stream being shared is identical from one aggregator to another.
Also remember that it is common for music services to pay “nonrecoupable” payments to labels–just like it was for record clubs. This comes in the form of “breakage” or “technology payments” or other ways to keep the money from being called a royalty. We know this very likely happens with major labels although the amounts are not disclosed–hence the MMF UK’s beef. We have no way of knowing if it happens with digital aggregators or even what the basic terms of the deals are, which makes it difficult to conduct a desktop audit (the precursor to a full-blown field audit), much less an exhaustive royalty examination.
So let’s not limit the transparency concern to just the major labels. The digital aggregators could easily lead the way forward by posting the terms of their deals with digital services. Unless of course the problem lies as much with the digital services as it does with the labels.
When you drill down on exactly what goes into tracking and accounting for songs and recordings on streaming services one thing becomes apparent: No matter how much you automate, those systems are expensive and the royalties are minuscule. This is in large part because of the revenue share method of royalty payments that creates a vastly more complex accounting world than a simple per-use penny rate would require. It’s time to make that change to simplify the reporting.
It’s easy to figure out how much an artist made. But if you want to figure out how much each collaborator is owed from each stream… now you’re looking at millions of rows in hundreds of royalty reports from dozens of sources — every month.
Payments are paid in fractions of cents.
Did I say fractions? I meant 20 decimal places.
Did I say cents? I meant 30 different currencies.
Did I say 30 different currencies? I meant a 350-row exchange rate lookup table. “Customer currency: Swedish Krona, royalty currency: Ukrainian Hryvnia” is a thing (and so on, and so on).
Did I say a 350-row exchange rate lookup table? I meant a different table every month — from every streaming provider.
This gives you a look under the hood of the number of transactions that are inherent in a royalty system that pays every time an end user listens to a track. It also informs why artists and especially songwriters are royally cheesed about the sharp decrease in the size of their royalty payments.
The hidden transaction costs of the configuration shift from album bundles to singles with the coming of iTunes was challenging but was at least manageable. The shift from singles to individual streams is cost multiplier of significant proportion above the shift from albums to digital singles. I would submit that not only is the cost not manageable, but when distributors promote themselves based on their ability to handle twenty decimal places to the right, it probably never will be.
When a firm’s costs exceed revenue, the firm must either take on debt, sell equity or shut down the insolvent business or business unit–or delay paying royalties, more about that later. Royalty accounting is, of course, a core business function of distributors, but it is also a core function of the parties receiving those royalties out to twenty decimal places to the right–record companies and music publishers. There are even more accounting costs incurred by the labels and publishers in calculating the artist or writer shares and their own share of revenue, which will cause the decimal places to increase–to the right.
What this means is that in order to stay in business, be able to meet contractual obligations and pay their artists or writers, royalty systems must be able to handle a new level of complexity they were never before required to process. Sound expensive?
Add to this complexity that many digital music services use the compulsory mechanical license that requires monthly statements and a true-up annual accounting signed by a CPA and no audit right–instead of quarterly or semi-annual accounting with an audit right. Even if a publisher is accounted to monthly and pays writers quarterly or semi-annually, the publisher still bears the cost of processing the monthly accounting. The frequency of ingesting these monthly payments may compound the transaction costs at the publisher and songwriter level.
One technique employed in the Pandora on-demand song license (paragraph 6(a)) is to defer both payment of mechanicals and royalty statements until the revenue payable is $50. While this may seem reasonable on its face, it’s not–for largely the same reasons that the Copyright Office rejected this approach (37 CFR Sec. 210.16(g)(6)). Pandora’s license is clearly a variation on the law, which limits the deferral to $5 (not Pandora’s $50) and requires that Pandora pay any deferred royalties on the Annual Statement of Account.
That means that the service cannot write itself an indefinite interest free loan with the songwriters money and not tell the songwriter it is doing so. And, of course, you can’t audit statements you don’t receive.
Holding these sums is one way to finance the cost of running these accounting systems that deliver ever-smaller fractions of a penny paid to songwriters and artists. That should sound familiar–new money used to pay old obligations. Does the name Madoff come to mind?
It’s also important to note that in a revenue share world where money is allocated based on a core calculation of uses of your catalog divided by all songs used on the service in a month, that fraction will produce an ever smaller share of revenue if the rate of change in your catalog titles is less than the rate of change in the number of all songs on the service. (This will likely be true even if the service revenue increases, because your share of it will decline on a relative basis.)
So what is twenty decimal places today, could be even more decimal places in a year or two.
Where the industry went wrong was in the beginning when services got us to buy into the idea that getting something was better than piracy and that we owed the services a chance to find an audience. When the revenue shared was low and higher margin goods were the focus, that was one thing.
The current state of plays is another thing altogether and revenue share deals for per listen payments require a level of complexity we can’t continue to support.