“Fair Use Industries” is Google’s spin to cover its predatory practices against creators. The SGA joined Chris Castle in filing an amicus brief supporting Oracle which is suing Google over alleged copyright violation stemming from Google's use of Java APIs. #protectcreatorspic.twitter.com/nm1vVAsWb2
Helienne Lindvall of the Ivors Academy, David Lowery of Cracker and Camper Van Beethoven, Blake Morgan of #irespectmusic and the Songwriters Guild of America joined in a friend of the court brief supporting Oracle in Google’s appeal of its losing argument in a copyright case involving Google’s taking of Oracle’s Java code without a license. Oracle won the case on two different occasions at the Federal Circuit, but Google appealed to the Supreme Court which of course is their right.
I got to co-write the brief as co-counsel with my friend Charles Sanders, long time counsel for SGA. You can read it here.
There will also be numerous Amicus Briefs filed shortly on the side of strong copyright protection for expressive and creative works including computer software. One brief, filed by the Songwriters Guild will state: “There are untold riches in running the Internet of other people’s things.” Only a songwriter could so eloquently capture the essence of this case, and Google’s business practices. We wish we would have thought of that line ourselves, but we didn’t, so we repeat it here (with credit and permission).
One of the accomplishments in our brief was that we were able to bring the words of artists and songwriters like Zoë Keating, Kerry Muzzey and the indefatigable artist advocate and five-time Grammy winner Maria Schneider before the Court. All of them have written eloquently of the reality of being an independent up against the biggest corporations in the world. We were happy to put their voices before the highest court in an important copyright case.
Stay tuned. Google’s reply brief is coming soon and oral argument is scheduled for March 24.
ContentID has a lot of potential and in many respects is similar to the SNOCAP audio fingerprinting application from 2005–very similar. Quite similar. Although if the SNOCAP team got back together using current technology, that tool could be much more broadly applied including to search. Which makes me ask why Google isn’t doing the same with their endless resources.
Here’s an excerpt from the Member’s letter about Content ID:
The House Judiciary Committee announced yesterday that it was opening an antitrust investigation into “tech giants” including Google. Chairman Jerry Nadler said:
[T]here is growing evidence that a handful of gatekeepers have come to capture control over key arteries of online commerce, content, and communications…Given the growing tide of concentration and consolidation across our economy, it is vital that we investigate the current state of competition in digital markets and the health of the antitrust laws.
We’re going to look at five issues Chairman Nadler should consider that relate both to Google and to some others, too. Let’s start with reforming corporate governance and bring eyesight to the willfully blind.
1. One Share, One Vote, Not Ten: Anyone in the music business has had just about enough of government oversight, so I don’t recommend it as a solution in general. But–in the absence of marketplace transparency, the government is about the only place to go to bring reforms to well-heeled corporations. So rather than ask the government to fix specific problems on an ad hoc basis, the government would do well to ask what causes the market to fail as it clearly has with Google.
The first question to ask is where was the board? In Google’s case, the core problem is both easy to find and easy to fix. It lies in the voting structure of the shareholders. Shareholder rights and corporate charters are state law matters and don’t relate to the federal government, but–the federal government does have a say about who gets to sell shares to the public and has an interest in protecting the shareholders of publicly traded corporations. It is this nexus that gives the House Judiciary Committee clear oversight authority over the corporate structure of publicly traded corporations.
While anti-coup d’etat provisions might make sense for private companies whose investors are sophisticated financiers, or newspapers seeking to retain editorial independence, once that company is publicly traded a bald discrepancy that simply mandates voting power to the insiders forever seems like it has to go. And as we have seen with Google, the lack of corporate oversight has resulted in unbelievable arrogance and a complete failure of corporate responsibility. And worse yet, because Google got away with it, lots of other tech companies follow essentially the same model (including Facebook, Spotify and Linkedin).
So how did this happen to Google? The supervoting structure started when Google was a private company as a way for the founders to preserve control and avoid venture capital investors pushing them around. OK, fine, I understand that.
Google (which is really its parent company, Alphabet) trades under two ticker symbols on the NASDAQ: GOOGL Class A and GOOG Class C.
Oops. What happened to Class B? Ay, there’s the rub.
Class B shares are not publicly traded and are held by insiders only. But as you will see, they control every aspect of the company. So why would Google’s insiders want this share structure? There’s actually a simple answer. Class A shares (GOOGL) get one vote per share, Class B shares get 10 votes per share and Class C shares (GOOG) get no votes.
That’s right–Class B shares cannot be purchased and their holders get 10 times the voting power of the Class A holders, often called “supervoting” shares, because their super power is…well…voting.
The Class C shares were created as part of a 1:1 stock split that doubled the number of shares, halted the price per share, but resulted in no change of the voting power of the Class A and C shareholders.
When the dust settled, the Google/Alphabet voting capitalization table looked something like this:
Class A: 298 million shares and 298 million votes, or roughly 40% of the voting power with votes counting 1:1.
Class B: 47 million shares and 470 million votes, or roughly 60% of the voting power with votes counting 10:1.
What this also means is that the holders of Class B shares voting as a bloc will never–and I mean never–be outvoted at a shareholder meeting, their board of directors will never be challenged much less replaced and shareholder meetings are a sham.
Who controls the Class B shares? The people that Commissioner Jackson might call the “corporate royalty“:
Larry Page: 20 million shares (as of 2017)
Sergey Brin: 35,300 Class B shares plus 35,300 Class A shares (as of 2018)
Eric Schmidt: 1.19 million Class B shares, 40,934 Class A shares, and 10,983 Class A Google shares, plus 2.91 million Class B shares through family trusts.
Sundar Pichai: 6,317 Class A shares and no Class B shares.
The House Judiciary Committee has a chance to correct the supervoting system as bad policy and implement a long-term fix across the board for all dual-class companies that want to trade on the public exchanges.
It’s been a rough couple weeks for Silicon Valley in Europe. Hard on the heels of an embarrassing lobbying loss in the European Parliament with the Copyright Directive (aka “Article 13”), the UK Parliament issued a damning report on the failings of social media. The title tells you a lot: Disinformation and Fake News. Headline readers will come away from the news reporting with the impression that the report is about the UK government regulating Facebook due to the manipulation of the platform by Russian trolls using active measures. If you read the report, even just the summary, you will see that it is the work product of an eight-nation committee and it is targeted at all social media platforms and “user generated content” (or “UGC”).
Unlike US-style regulation that these companies simply ignore and pay the paltry fines, it is unlikely that Google, Facebook and others will be able to simply conduct business as usual in the UK or Europe (Brexit or no)–particularly when you see statements like the following from Tom Watson, the Labor Party’s Shadow Culture Secretary:
Labour agrees with the committee’s ultimate conclusion: the era of self-regulation for tech companies must end immediately. We need new independent regulation with a tough powers and sanctions regime to curb the worst excesses of surveillance capitalism and the forces trying to use technology to subvert our democracy.
Few individuals have shown contempt for our Parliamentary democracy in the way Mark Zuckerberg has. If one thing is uniting politicians of all colours during this difficult time for our country, it is our determination to bring him and his company into line.
Considering that the corporate bot farming techniques and the corporate comms version of Marcuse-esque messaging that Google and Facebook used against Article 13 are even more insidious than the Russkie election manipulators who were the focus of the Parliamentary report, it’s all pretty breathtaking.
They’ll Take Us in a Rush
Corporate whack a mole is–or was–the ultimate de facto safe harbor and is at the heart of the value gap. Two truths were obvious from the moment in 2006 when a lawyer from Google’s recently acquired YouTube told a bar association meeting in Los Angeles that they could either make a deal with her for weaponized UGC on YouTube or play whack a mole using the DMCA notice and takedown–that Google and their shills intended to fight every step of the way (see Ellen Seidler’s excellent take down of the take downs).
First, it was obvious that Google executives intended to enrich themselves building a business on the backs of artists and songwriters who couldn’t fight back (what I call the ennui of learned helplessness), and next that Google intended to use those grey market profits and their vast wealth from public markets in a particularly nasty way that would have made Leland Stanford proud. Google would simply crush any opposition from any rights holder or competitor who stood up to them. But most of all that UGC is the ultimate front end for the data profiling back end which is where the real money is made.
This 2006 display of corporate molery had special resonance for me. I spoke at the OECD’s Rome conference on digital stuff early in 2006 where Professor Terry Fisher and Google lawyer-to-be Fred Von Lohmann essentially laid out the strategy of using UGC to overwhelm the system and the abuse of the safe harbors. That strategy was at the heart of their humiliating loss in the Grokster case and should be seen as implementing Grokster by other means (recall that Fred did a first rate job of articulating the losing argument before the 9th Circuit Court of Appeals that carried the day in the 9th Circuit but failed where it mattered in the U.S. Supreme Court).
During a very spiffy dinner that probably cost enough to have provided fresh water to a million in South Sudan, Professor Fisher told the slightly boozed up crowd of bureaucrats how the world was going to work with UGC. I was very likely the only one in the room who knew enough about Fisher and Von Lohmann and about Google’s tactics to really get the message. I whispered to my dinner partner, “They intend to take us in a rush.”
And so they did.
Platforms Are Fit for Purpose but Their Purpose Isn’t Fit
The Parliament’s report on Disinformation and Fake News is a strong rejection of Silicon Valley data miners like Google, Amazon and Facebook. (You could say a latter day Big Four, but the Big Three won’t let there be a fourth in the best traditions of the Big Four.)
Google is a thought leader among the aristocracy of Silicon Valley’s real-time data miners and subsidizes many other pundits who support its business model in a variety of ways. It’s not surprising that Facebook followed the path that Google blazed with YouTube since Google got so rich doing it.
In many ways, Facebook is the ultimate UGC profiteer–and blissfully chose to largely ignore the moral malaise that UGC will inevitably bring with it. Zuckerberg, Paige and Brin ignored these problems because The Boys Who Wouldn’t Grow Up were making too much money–and getting away with it. The fundamental problem is that these companies care more about enriching themselves than they care about who their users are or the content their users generate–as long as users keep generating. It is that greed that underlies the studied lack of control designed into Google and Facebook. It’s not that bad guys exploit a design flaw–it’s that the platforms work exactly as planned.
Nowhere is this more obvious than with the failure of Google and especially Facebook to manage their platforms to prevent bad actors from using the very tools that enriched the Silicon Valley monopolists for very odious disinformation campaigns.
Despite repeated warnings, governments have allowed these nation-state level actors to play their whack a mole game so freely that by the time democracy itself was on the line it has been difficult to regulate the monopolists.
Until now–or so we hope. The UK Parliament’s Select Committee on Digital, Culture, Media and Sport has rendered its final report on “Disinformation and Fake News.” While the report nominally focuses solely on Facebook, lovers of democracy should welcome the broader hope for both its methods as well as its findings.
The International Grand Committee
The Select Committee’s methods are refreshing:
We invited democratically-elected representatives from eight countries to join our Committee in the UK to create an ‘International Grand Committee’, the first of its kind, to promote further cross-border co-operation in tackling the spread of disinformation, and its pernicious ability to distort, to disrupt, and to destabilise. Throughout this inquiry we have benefitted from working with other parliaments. This is continuing, with further sessions planned in 2019. This has highlighted a worldwide appetite for action to address issues similar to those that we have identified in other jurisdictions….
[A]mong the countless innocuous postings of celebrations and holiday snaps, some malicious forces use Facebook to threaten and harass others, to publish revenge porn, to disseminate hate speech and propaganda of all kinds, and to influence elections and democratic processes—much of which Facebook, and other social media companies, are either unable or unwilling to prevent. We need to apply widely-accepted democratic principles to ensure their application in the digital age.
The big tech companies must not be allowed to expand exponentially, without constraint or proper regulatory oversight. But only governments and the law are powerful enough to contain them.
Let’s hope so. In the face of well-financed resistance by some of the biggest corporations and the most devious robber barons in commercial history since the days of the Big Four railroads, our governments and law enforcement have pretty much failed so far. That’s how we got here and that’s how the problem evolved well past private attorney general-type remedies.
The public attorneys general need to mind the value gap. Hopefully the European governments have the spine to stand up and show America how it’s done.
No matter how much people would like to deflect it, the unvarnished per stream rate is an ever diminishing income stream. Given the number of calculations involved for both sound recording and song, it is likely that the total end-to-end cost of rendering the accountings for the streams costs more than the royalty earned on that stream by any one royalty participant. Solving this problem is the difference between a short-term stock-fueled sugar high and a long-term return of shareholder value for all concerned. So now what?
If you’re someone who receives or calculates streaming royalties, you’re already familiar with the problem of the ever-decreasing per-stream rate. The Trichordist’s definitive “Streaming Price Bible” for 2018 confirms this trend yet again, but simple math explains the problem of the revenue share allocation.
Remember that the way streaming royalties are calculated in voluntary agreements (aka “direct deals”) revolves around a simple formula (Formula A):
(Payable Revenue ÷ Total Service Streams) x Your Streams = Per Stream Rate
Which may also be expressed as Formula B:
Payable Revenue x (Your Streams ÷ Total Service Streams) = Your share of revenue
Here’s the trick–it’s in the correlation of the rate of increase over time of the numerator and the denominator. If you focus on any single calculation you won’t see the problem. You have to calculate the rate of change over time. Simply put, if the numerator in either Formula A or Formula B increases at a lower rate than the denominator, then the quotient, or the result of the division, will always decline as long as those conditions are met. That’s why the Streaming Price Bible shows a declining per-stream rate–a contrarian fact among the hoorah from streaming boosters that sticks in the craw.
Services make these accounting calculations monthly for the most part, and they are calculated a bit differently depending on the service. This is why the Streaming Price Bible has different rates for different services, rates that vary depending on the terms of the contract and also the amount of “Payable Revenue” that the service attributes to the particular sound recordings.
The quotient will also vary depending on the copyright owner’s deal. If you add downside protection elements such as contractual per stream or per subscriber minimums, then you can cushion the decline.
This is also true of non-recoupable payments (such as direct payments that are deemed to be recoupable but not returnable, or “breakage”). Nonrecoupable payments are just another form of nominal royalty payable to the copyright owner, and increase the overall payout. And of course, the biggest nonrecoupable payment is stock which sometimes pays off as we saw with Spotify. These payments may or may not be shared with the artist. (See the WIN Fair Digital Deals Pledge.)
So each of the elements of both Formula A and Formula B are a function of other calculations. We’re not going to dive into those other elements too deeply in this post–but we will note that there are some different elements to the formulas depending on the bargaining power of the rights owner, in this case the owner of sound recordings.
So how is it that the per-stream rate declines over time in the Streaming Price Bible?
Putting the Demon in the Denominator
Back to Formula B, you’ll note that the function “Your Streams ÷ Total Service Streams” looks a lot like a market share allocation. In fact, if the relevant market is limited to the service calculating the revenue share allocation, it is a market share allocation of service revenue by another name. When you consider that the customary method of calculating streaming royalties across all services is a similar version of Formula B, it may as well be an allocation of the total market on a market share basis.
Note that this is very different from setting a wholesale price for your goods that implies a retail price. A wholesale price is a function of what you think a consumer would or should pay. When a service agrees to a minimum per stream or per subscriber rate, they are essentially accepting a price term that behaves like a wholesale price.
For most artists and indie labels, the price is set by your market share of the subscription fees or ad rates that the service thinks the market will bearbased on the service’s business goals—not based on your pricing decision.
Why is this important? A cynic might say it’s because Internet companies are in the free lunch crowd–they would give everything away for free since their inflated salaries and sky-high rents are paid by venture capitalists who don’t understand a thing about breaking artists and investing in talent. You know, the kind of people who would give Daniel Ek a million dollar bonus when he hadn’t met his performance targets, stiffed songwriters for years and gotten the company embroiled in multimillion dollar lawsuits. But had met the only performance target that mattered which was to put some cosmetics on that porker and push it out the door into a public stock offering. (SPOT F-1 at p. 133: “In February 2018, our board of directors determined to pay Mr. Ek the full $1,000,000 bonus based on the Company’s 2017 performance though certain performance goals were not achieved…”)
But long-term, it’s important because one way that royalties will rise is if the service can only acquire its only product at a higher price. Or not. The other way that royalties will rise is if services are required to pay a per-stream rate that is higher than the revenue share rate. How that increase is passed to the consumer is up to them. Maybe a move from World Trade Center to Poughkeepsie would help.
The Streaming Price Bible is based on revenue for an indie label that did not have the massive hits we see on Spotify. In this sense, it is the unvarnished reality of streaming without the negotiated downside protection goodies, unrecoupable or nonreturnable payments, and of course shares of stock. While some may say the Bible lacks hits, that’s kind of the point–hits mask a thousand sins. Ask any label accountant.
Will Consumption Eat Your Free Lunch?
Let’s say again: The simple explanation for the longitudinal decline of streaming royalties measured by the Streaming Price Bible is that the rate of change across accounting periods in the “Payable Revenue” must be greater than the rate of change in the total number of streams in order for the per-stream rate to increase–otherwise the per-stream rate will always decrease. Another way to think of it is that revenue has to increase faster than consumption, or consumption will eat your lunch.
What if you left the formula the same and just increased the revenue being allocated? Services will probably resist that move. After all, when artists complain about their per-stream rate, the services often answer that the problem is not with them, it is with the artist’s labels because the services pay hundreds of millions to the labels.
We don’t really have much meaningful control over what goes in the monthly payable revenue number (i.e., the mathematical “dividend” or numerator). What kinds of revenue should be included? Here are a few:
–all advertising revenue from all sources
–bounties or referral fees, including recoupable or non-refundable guarantees
–traffic or tariff charges paid by telcos
–revenue from the sale of data
Services will typically deduct “small off the tops” which would include
–VAT or sales tax
–ad commissions paid to unaffiliated third parties (usually subject to a cap)
Indie labels and independent artists may not have the leverage to negotiate some of these revenue elements such as revenue from the sale of data for starters. Other elements of the revenue calculation for indie labels and artists will also likely not include the downside protections, subscriber target top up fees and the like.
And of course the biggest difference is that indie labels (at least not in the Merlin group who may) typically do not get nonreturnable advances, nonrecoupable payments, or stock.
Is That All There Is?
Why should we care about all this? There is a story that is told of negotiations to settle a lawsuit against a well-known pirate site. One of the venture capitalists backing the pirates told one of the label negotiators that he could make them all richer through an IPO than any settlement they’d ever be able to negotiate.
The label executive asked, lets’ say we did that, but then what happens? You say we should adapt, but you’re still destroying the industry ecosystem so that there’s nothing left to adapt to. The most we could make from an IPO would cover our turnover for a year at best. And we would be dependent on your success, not our artists’ success.
I have often said that if I was able to persuade the entire entertainment industry to devote say 10% of their marketing spend to aardvark.com, then aardvark.com could be as big as YouTube. This, of course, is an aspirational statement that doesn’t take into account how Google would react or how Google games search result, but you get the idea.
Somehow YouTube has managed to convince our marketing folk that they just can’t get along without the views and likes. But is that really true? Will people listen to music somewhere besides YouTube if YouTube wasn’t there?
At Chartbeat, we got a glimpse into that on August 3, 2018, when Facebook went down for 45 minutes and traffic patterns across the web changed in an instant. What did people do? According to our data, they went directly to publishers’ mobile apps and sites (as well as to search engines) to get their information fix. This window into consumer behavior reflects broader changes we see taking hold this year around content discovery, particularly on mobile.
So when YouTube tries to tell us that we can’t get along without them, which is definitely the implication of Google’s most recent charm offensive in the European Parliament, it may not even be a close call. Particularly when you consider the downside from low royalties, unchecked stream ripping and YouTube’s corrosive safe harbor practices.
Fans found music they loved before YouTube and they will after YouTube, just like they did after Tower Records–and Tower Records didn’t spy on them. And that’s what the Chartbeat research showed about news sites after the Facebook outage:
Key data points show that when Facebook went down, referrals to news sites fell, as expected — but other activity more than made up for it.
Direct traffic to publishers’ websites increased 11 percent, while traffic to publishers’ mobile apps soared 22 percent.
Search referral traffic to publishers was also up 8 percent.
Surprisingly, there was a net total traffic increase of 2.3 percent — meaning that the number of pages consumed across the web spiked upward in this timeframe.
What if it turned out that YouTube needed us more than we need YouTube?
I know it’s not very “modern,” but music piracy is still a huge problem. As recently as yesterday I had a digital music service executive tell me that they’d never raise prices because the alternative was zero–meaning stolen.
Very 1999, but also oh so very modern as long as Google and their ilk cling bitterly to their legacy “safe harbors” that act like the compulsory licenses they love so much. Except the safe harbor “license” is largely both royalty free and unlawful. Based on recent data, it appears that streaming is not saving us from piracy after all if 12 years after Google’s acquisition of YouTube piracy still accounts for over one third of music “consumption.” The recent victory over Google in the European Parliament indicates that it may yet be possible to change the behavior of Big Tech in a post-Cambridge Analytica world.
It’s still fair to say that piracy is the single biggest factor in the downward and sideways pressure on music prices ever since artists and record companies ceded control over retail pricing to people who have virtually no commercial incentive to pay a fair price for the music they view as a loss leader. If the Googles of this world were living up to their ethical responsibilities that should be the quid pro quo for the profits they make compared to the harms they socialize, then you wouldn’t see numbers like this chart from Statistica derived from IFPI numbers:
The good news is that there is a solution available–or if not a solution then at least a more pronounced trend–toward making piracy much harder to accomplish. It may be necessary to take some definitive steps toward encouraging companies like Google, Facebook, Twitch, Amazon, Vimeo and Twitter to do more to impede and interdict mass piracy.
Private Contracts: It may be possible to accomplish some of these steps through conditions in private contracts that include sufficient downside for tech companies to do the right thing. That downside probably should include money, but everyone needs to understand that money is never enough because the money forfeitures are never enough.
Antitrust Actions: Just like Standard Oil, the big tech companies are on the path to government break ups as Professor Jonathan Taplin teaches us. What would have been unthinkable a few years ago due to fake grooviness, the revolving door and massive lobbying spending all over the planet, in a post-Cambridge Analytica and Open Media world, governments are far, far more willing to go after companies like Google, Amazon and Facebook.
Racketeer Influenced and Corrupt Organizations Act Civil Prosecutions: “Civil RICO” claims are another way of forcing Google, Facebook, Amazon & Co. to behave. Google is fighting a civil RICO action in California state court. This may be a solution against one or more of Google, Facebook and Amazon.
As we know, streaming royalties typically decline over time due to the fact that the revenues to be divided do not typically increase substantially (and probably because of recoupable and nonrecoupable payments to those with leverage). At any rate, the increase in payable revenues is less than the increase in the number of streams (and recordings).
While it’s always risky to think you have the answer, one part of the answer has to be basic property rights concepts and commercial business reality–if you can’t reduce piracy to a market clearing rate, you’ll never be able to increase revenue and music will always be a loss leader for immensely profitable higher priced goods that artists, songwriters, labels and publishers don’t share be it hardware, advertising or pipes.
I strongly recommend Hernando de Soto’s Mystery of Capital for everyone interested in this problem. The following from the dust jacket could just as easily be said of Google’s Internet:
Every developed nation in the world at one time went through the transformation from predominantly extralegal property arrangements, such as squatting on large estates, to a formal, unified legal property system. In the West we’ve forgotten that creating this system is what allowed people everywhere to leverage property into wealth.
What we have to do is encourage tech companies to stop looking for safe harbors and start using their know-how to encourage the transformation of the extralegal property arrangements they squat on and instead accept a fair rate of return. My bet is that this is far more likely to happen in Europe–within 30 days of each other we’ve seen Europe embrace safe harbor reform in the Copyright Directive while the United States welcomed yet another safe harbor.
If we’re lucky, the European solution in the Copyright Directive may be exported from the Old World to the New. And if Hernando de Soto could bring property rights reform to Peru in the face of entrenched extralegal methods and the FARC using distinctly American approaches to capital, surely America can do the same even with existing laws and Google.
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.
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.