[Editor Charlie sez: Great analysis of Google’s “United Masters” adventure by Robert Levine.]
Stop me if you’ve heard this one before: Record labels are irrelevant because they’ve been disrupted by a venture-funded technology start-up. The major labels exploit artists, who can now distribute their music directly to consumers online, plus get the data they need to make money playing concerts, selling merch or doing sponsorships. Sound familiar?
An update on the state of the Copyright Office debacle also known as mass filing of “address unknown” notices under Section 115 (you can see the largely unusable posting of these notices at this link on the Copyright Office site). Here’s some charts you won’t see in the trades or even on the Copyright Office site-Royalty Claim’s Address “Unknown” Mass NOI chart that Royalty Claim measured by number of filings January 1-June 30, 2017.
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.
“[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.
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.