Can Streaming Price Segmentation Avoid the Malthusian Trap?

When you see artists and songwriters getting starved out of the music business while at the same time fighting over scraps from streaming, that’s unusual. When you see more and more labels caring almost as much about acquiring ever more catalogs rather than helping artists in developing long-term careers, that’s unusual. Why is this becoming the norm? Could it be we are in a “Malthusian trap”?

Remember “nice price” CDs? The budget bin? Top line, mid price, budget price points? That’s called “price differentiation” or “price segmentation.” It’s common in pretty much any consumer good. The idea is that people will pay more for stuff they really want and less money for the nice to haves–the 10 second MBA, buy low sell high. Pretty much any consumer good except–of course–streaming music. One big difference between streaming and physical records is that with streaming, the retailer controls both the wholesale price and the retail price. Want to bet that Wal Mart would just love that model? That should explain why so many artists and especially songwriters are gasping for air. And it should explain why so many are suffering from the streaming pandemic.

Price segmentation in streaming music could be an effective way to avoid the economic concept of the “Malthusian trap.” Simply put, the Malthusian trap occurs when demand for resources outpaces the supply of available resources. This is most likely to happen when buyers with cash exploit sellers who want that cash by using price fixing and market allocation. Like the big pool method of manipulating wholesale prices.

Adopting a more sophisticated approach required by segmentation could allow the music business to move away from the “big pool” program of price controls that has been adopted by every streaming service for both songs and sound recordings.  Notice that blowing up the big pool has nothing to do with a compulsory license.

Remember that the “big pool” method allocates a “pie” which is roughly 50ish% of a defined revenue pool calculated each month for the sound recording and about 14ish% of a slightly different revenue pool for the song. Those two “pies” are then divided up based on market share or said another way, popularity. I say “defined revenue” because it is a negotiated number, not all revenue. Want to bet that defined revenue is less than actual revenue? Sure as there’s gambling at Rick’s. So there’s nothing inherent in the pie, and if you wanted to bet that share price and market valuation is not included in that defined revenue, you’d be a winner.

That “big pool” formula is calculated every month (call that Time X or “Tx”) which is essentially:

(Defined Revenue x [Your Total Streams ÷ All Streams]) = Your Revenue @Tx

and then

Your Revenue ÷ Your Streams = Wholesale Price Per Stream

There are a few bells and whistles to this calculation, but it’s easy to see why this method of price fixing is attractive to the streaming services–it’s just that it’s killing the artists and songwriters stuck in the Malthusian trap. It’s also easy to see that unless Your Total Streams are increasing at a greater rate of increase than the increase in All Streams at T1, T2, T3 and so on, or if the Defined Revenue is not increasing at a greater rate than All Streams, then whoever gets the cash called “Your Revenue” is getting screwed blued and tattooed. Why?

Because they cannot control the wholesale price. That sets into motion the big pool downward spiral and that’ downward spiral can also be called the Malthusian Trap in honor of the 18th Century economist Thomas Malthus who you’ve probably have never heard of.

The Malthusian Trap and Faux Democratization of the Denominator

The “Malthusian Trap” occurs in streaming when wholesale prices determined by the “big pool” method of price caps is overtaken by the services’ open invitation for the supposed “democratization of the denominator.” That surge in tracks uploaded to music streaming services is sometimes estimated at 120,000 per day. (I doubt that it’s exactly that number but let’s go with it on the assumption that whatever the correct number is, it’s a lot compared to what a single artist or even a single label would put into commerce.). You are not uploading 120,000 tracks per day. I doubt that the biggest labels are uploading 120,000 tracks per day and they are definitely not uploading 43,800,000 tracks per year. Granted, those tracks are not all streaming, maybe 25% never get played at all.

But that still means that the only number in the big pool formula that is increasing essentially exponentially is the denominator. And when you consider that streaming revenues are growing less than 10% or so annually, the result of the big pool formula is steadily declining. High school algebra, right?

This faux “democratization” uses artists as human shields to put control of wholesale pricing squarely in the hands of streaming services due to wholesale price caps on both the sound recording and song payouts.

When the growth of a service’s sound recording offering outpaces available revenues, the “big pool” method effectively transfers control over wholesale prices from rights holders to services and causes diminishing returns for both labels and publishers. Regardless of the terms of any one artist’s record deal or the convoluted compulsory mechanical royalty for songwriters, these diminishing returns will hit artists, producers and songwriters because returns are diminished to the labels and publishers, particularly on a per-artist basis.  Particular deals may make the decline even more or less pronounced, but the race to the bottom is baked into the model. High school algebra.

By introducing a more dynamic and differentiated pricing segmentation model, rights holders could regain control over their own wholesale prices, streaming services might better align revenue payouts with actual usage and consumer preferences. We could all potentially avoid the scenario where a fixed revenue pool gets stretched too thin across an ever-expanding catalog.

It must also be said that because performance on Spotify is closely tied–so to speak–to other commerce such as talent buyers for live shows that constantly check how a new artist has performed on Spotify before giving them a show date, a relatively simple economic decision becomes complex. A demonetized artist may be economically indifferent to continuing to support Spotify by driving fans to the platform, but removing themselves from Spotify may hurt them in booking live shows. So the big pool needs to get blown up for yet another valid, if not actionable, reason.

Blowing Up the Compulsory?

On the songwriter side, there is a sense that what we really need to do is blow up the compulsory license particularly given the reaming songwriters are taking from Spotify’s exploitation of the “bundle” loophole that has foolishly been in the Copyright Royalty Board’s regulations for many, many years.  But even so, I suggest that the path dependence of 100-plus years of reliance by a wide variety of music users on the U.S. compulsory mechanical license is unlikely to get “blown up” and abandoned by lawmakers.  But what may get “blown up” is the hated “big pool” royalty payable under that compulsory.  It may turn out that it’s the big pool that is the culprit, not the compulsory license. (And by the way–be careful what you wish for with all this “blowing up” of the compulsory. You may really not want who comes next.)

Why are we still suffering under this ancient regime? Unfortunately, when the handful of people who forced through Title I of the Music Modernization Act got done with it in 2018, they made bad choices.  For example, they had a golden opportunity to do something simple like shorten the rate period from five years to a realistic duration that more closely matches the term of direct license agreements.  It’s simply bizarre to use a five year term during a contemporary era marked by relatively high inflation when rates during the 1988-2004 period were adjusted every two years. 

They also had a chance to choose between perpetuating the DMV-style model of licensing administration in favor of creating an Apple Store-style model and they went for “more DMV please” like carp on bait.  And here we are, more screwed than ever.  Gee thanks, thought leaders!

Understanding the Malthusian Trap in Streaming

In the current “big pool” model, royalties are divided among artists based on the proportion of streams their music receives relative to the total number of streams on the platform. Songwriters are paid in a similar version of the “big pool.”  This system leads to diminishing payouts as the catalog expands and the user base grows, since:

  1. The total revenue pool remains relatively static due to slowing streaming growth and frozen subscription prices, while the denominator (the total number of streams) grows larger;

2. The more content added to the platform, the less valuable each individual stream becomes (regardless of particular artist deals); and

3. Artists or songwriters with fewer streams get demonetized by Spotify or are paid but fall outside the mainstream struggle to receive meaningful payouts.

The “Malthusian trap,” in this context means there is an imbalanced relationship between increasing content and relatively static revenue pools. That imbalance results in declining payouts over time for artists and songwriters. This especially true for those creators whose total streams (the numerator in the ratio) are relatively constant or declining due to falling off in fan engagement for whatever reason (including bands that break up or artists who pass away).

In other words, the big pool’s fixed cap on aggregated streaming prices creates its own scarcity despite the infinite shelf space of a streaming service. (See Chris Anderson’s rather tarnished “long tail” theory that still reigns supreme at streaming services which demonstrates once again there is no free lunch.)

“Malthusian” refers to the sometimes controversial ideas of Thomas Robert Malthus (1766–1834) the British economist, scholar, and demographer, best known for his theories on population growth and its relationship to resources, particularly food. His most influential work is “An Essay on the Principle of Population” (1798), where he argued that populations tend to grow exponentially, while food production grows at a much slower, linear rate.

This mismatch, according to Malthus, would eventually lead to overpopulation and resource scarcity, resulting in widespread poverty, famine, and social instability.  Malthus called this the “surplus population” or what the AI accelerationists call “useless eaters.” Surplus population leads to famine just like streaming leads to Discovery Mode and demonetization.  Mr. Malthus has a fairly gloomy view of the world, so no Spotify stock options for him.  He wouldn’t have his pompoms out as a streaming cheerleader our Thomas, but his ideas are very relevant to the streaming analysis.

Key Concepts of Malthusian Theory:  Also see Malthus critic Charles Dickens (“may I have some more”), England’s response to the Irish potato famine and Gangs of New York.

Exponential Population Growth: Malthus believed that if left unchecked, populations grow exponentially (doubling every 25 years), which would outpace the resources needed to sustain them.  Comparatively, the total number of tracks on Spotify has doubled approximately every four years. (This is like Sergei’s Corollary to Moore’s Law–royalties decline 50% with every two year increase in computing power.)

Limited Food Supply: Malthus argued that food production could only grow at an arithmetic (linear) rate because of the finite land, labor, and capital available to produce it. Over time, the availability of food per capita would diminish just like the per-stream rate on streaming platforms–that’s why Spotify continues to deny a per-stream rate even exists (ludicrous propaganda).  That is, populations tend to increase geometrically (2, 4, 8, 16 …), whereas food reserves grow arithmetically (2, 3, 4, 5 …). I’d say this is like a vast number of under performing recordings lead to competition for the artificially capped revenue under “big pool” and the relatively frozen subscription prices. This helps to explain Daniel Ek’s–very Malthusian–comment that artists need to work harder to keep up which was straight out of Oliver Twist.

The Malthusian Trap: The theory suggests that any improvements in living standards (through better agriculture, technology, or economic progress) would eventually lead to population growth, which would, in turn, bring the standard of living back down to subsistence levels. Essentially, population pressure would cause periodic famines, diseases, or wars–you know, demonetization–that would control population size and maintain balance with available resources. The trap helps to explain why we need to blow up the big pool model and its fixed wholesale prices.

Preventive and Positive Checks: Malthus identified two types of checks on population growth:

Preventive checks: These are voluntary actions people can take to limit population growth, such as delayed marriage and celibacy.  In the streaming analogy, this would occur if Spotify were to limit the number of royalty bearing tracks (like demonetizing under 1,000 streams).

Positive checks: These occur when the population exceeds the capacity for sustenance, leading to famine, disease, and mortality, which ultimately reduce the population.  In the streaming analogy, this occurs when artists or songwriters quit the music business or abandon streaming platforms.  Given the close ties between traction on Spotify and validation for talent buyers, for example, it is unlikely that a working artist could abandon the platform entirely no matter how much it costs them to stay on Spotify–although there are limits.

Can Price Segmentation Address the Malthusian Trap in Streaming?

Price segmentation allows streaming platforms to differentiate pricing based on different user segments, content types, or usage behaviors, which can provide several key benefits to avoid the Malthusian trap. We’ll see if the thought leaders have some other suggestions–that I cynically (I admit) think are most likely to be continuing to put bandaids on the status quo.

The Delay’s The Thing: Anthropic Leapfrogs Its Own November Valuation Despite Litigation from Authors and Songwriters in the Heart of Darkness

If you’ve read Joseph Conrad’s Heart of Darkness, you’ll be familiar with the Congo Free State, a private colony of Belgian King Leopold II that is today largely the Democratic Republic of the Congo. When I say “private” I mean literally privately owned by his Leopoldness. Why would old King Leo be so interested in owning a private colony in Africa? Why for the money, of course. Leo had to move some pieces around the board and get other countries to allow him to get away with essentially “buying” the place, if “buying” is the right description.

So Leo held an international conference in Berlin to discuss the idea and get international buy-in, kind of like the World Economic Forum with worse food and no skiing. Rather than acknowledging his very for-profit intention to ravage the Congo for ivory (aka slaughtering elephants) and rubber (the grisly extraction of which was accomplished by uncompensated slave labor) with brutal treatment of all concerned, Leo convinced the assembled nations that his intentions were humanitarian and philanthropic. You know, don’t be evil. Just lie.

Of course, however much King Leopold may have foreshadowed our sociopathic overlords from Silicon Valley, it must be said that Leo’s real envy won’t so much be the money as what he could have done with AI himself had he only known. Oh well, he just had to make do with Kurtz.

Which bring us to AI in general and Anthropic in particular. Anthropic’s corporate slogan is equally humanitarian and philanthropic: “Anthropic is an AI research company that focuses on the safety and alignment of AI systems with human values.” Oh yes, all very jolly.

All very innocent and high minded, until you get punched in the face (to coin a phrase). It turns out–quelle horreur–that Anthropic stands accused of massive copyright infringement rather than lauded for its humanitarianism. Even more shocking? The company’s valuation is going through the stratosphere! These innocents surely must be falsely accused! The VC’s are voting with their bucks, so they wouldn’t put their shareholders’ money or limiteds money on the line for a–RACKETEER INFLUENCED CORRUPT ORGANIZATION?!?

Bartz v Anthropic ComplaintDownload

Not only have authors brought this class action against Anthropic which is both Google’s stalking horse and cats paw to mix a metaphor, but the songwriters and music publishers have sued them as well. Led by Concord and Universal, the publishers have sued for largely the same reasons as the authors but for their quite distinct copyrights.

Concord and Universal v Anthropic ComplaintDownload

So let’s understand the game that’s being played here–as the Artist Rights Institute submitted in a comment to the UK Intellectual Property Office in the IPO’s current consultation on AI and copyright, the delay is the thing. And thanks to Anthropic, we can now put a valuation on the delay since the $4,000,000,000 the company raised in November 2024: $3,500,000,000. This one company is valued at $61.5 billion, roughly half of the entire creative industries in the UK and roughly equal to the entire U.S. music industry. No wonder delay is their business model.

However antithetical, copyright and AI must be discussed together for a very specific reason:  Artificial intelligence platforms operated by Google, Microsoft/OpenAI, Meta and the like have scraped and ingested works of authorship from baby pictures to Sir Paul McCartney as fast and as secretly as possible.  And the AI platforms know that the longer they can delay accountability, the more of the world’s culture they will have devoured—or as they might say, the more data they will have ingested.  And Not to mention the billions in venture capital they will have raised, just like Anthropic. For the good of humanity, of course, just like old King Leo.

As the Hon. Alison Hume, MP recently told Parliament, this theft is massive and has already happened, another example of why any “opt out” scheme (as had been suggested by the UK government) has failed before it starts:

This week, I discovered that the subtitles from one of my episodes of New Tricks have been scraped and are being used to create learning materials for artificial intelligence.  Along with thousands of other films and television shows, my original work is being used by generative AI to write scripts which one day may replace versions produced by mere humans like me.

This is theft, and it’s happening on an industrial scale.  As the law stands, artificial intelligence companies don’t have to be transparent about what they are stealing.[1]

Any delay[2] in prosecuting AI platforms simply increases their de facto “text and data mining” safe harbor while they scrape ever more of world culture.  As Ms. Hume states, this massive “training” has transferred value to these data-hungry mechanical beasts to a degree that confounds human understanding of its industrial scale infringement.  This theft dwarfs even the Internet piracy that drove broadband penetration, Internet advertising and search platforms in the 1999-2010 period.  It must be said that for Big Tech, commerce and copyright are once again inherently linked for even greater profit.

As the Right Honourable Baroness Kidron said in her successful opposition to the UK Government’s AI legislation in the House of Lords:

The Government are doing this not because the current law does not protect intellectual property rights, nor because they do not understand the devastation it will cause, but because they are hooked on the delusion that the UK’s best interests and economic future align with those of Silicon Valley.[3]  

Baroness Kidron identifies a question of central importance that mankind is forced to consider by the sheer political brute force of the AI lobbying steamroller:  What if AI is another bubble like the Dot Com bubble?  AI is, to a large extent, a black box utterly lacking in transparency much less recordkeeping or performance metrics.  As Baroness Kidron suggests, governments and the people who elect them are making a very big bet that AI is not pursuing an ephemeral bubble like the last time.

Indeed, the AI hype has the earmarks of a bubble, just as the Dot Com bubble did.  Baroness Kidron also reminds us of these fallacious economic arguments surrounding AI:

The Prime Minister cited an IMF report that claimed that, if fully realised, the gains from AI could be worth up to an average of £47 billion to the UK each year over a decade. He did not say that the very same report suggested that unemployment would increase by 5.5% over the same period. This is a big number—a lot of jobs and a very significant cost to the taxpayer. Nor does that £47 billion account for the transfer of funds from one sector to another. The creative industries contribute £126 billion per year to the economy. I do not understand the excitement about £47 billion when you are giving up £126 billion.[4]  

As Hon. Chris Kane, MP said in Parliament,  the Government runs the risk of enabling a wealth transfer that itself is not producing new value but would make old King Leo feel right at home: 

Copyright protections are not a barrier to AI innovation and competition, but they are a safeguard for the work of an industry worth £125 billion per year, employing over two million people.  We can enable a world where much of this value  is transferred to a handful of big tech firms or we can enable a win-win situation for the creative industries and AI developers, one where they work together based on licensed relationships with remuneration and transparency at its heart.

[1] Paul Revoir, AI companies are committing ‘theft’ on an ‘industrial scale’, claims Labour MP – who has written for TV series including New Tricks, Daily Mail (Feb. 12, 2025) available at https://www.dailymail.co.uk/news/article-14391519/AI-companies-committing-theft-industrial-scale-claims-Labour-MP-wrote-TV-shows-including-New-Tricks.html

[2] See, e.g., Kerry Muzzey, [YouTube Delay Tactics with DMCA Notices], Twitter (Feb. 13, 2020) available at https://twitter.com/kerrymuzzey/status/1228128311181578240  (Film composer with Content ID account notes “I have a takedown pending against a heavily-monetized YouTube channel w/a music asset that’s been fine & in use for 7 yrs & 6 days. Suddenly today, in making this takedown, YT decides “there’s a problem w/my metadata on this piece.” There’s no problem w/my metadata tho. This is the exact same delay tactic they threw in my way every single time I applied takedowns against broadcast networks w/monetized YT channels….And I attached a copy of my copyright registration as proof that it’s just fine.”); Zoë Keating, [Content ID secret rules], Twitter (Feb. 6. 2020) available at https://twitter.com/zoecello/status/1225497449269284864  (Independent artist with Content ID account states “[YouTube’s Content ID] doesn’t find every video, or maybe it does but then it has selective, secret rules about what it ultimately claims for me.”).

[3] The Rt. Hon. Baroness Kidron, Speech regarding Data (Use and Access) Bill [HL] Amendment 44A, House of Lords (Jan. 28, 2025) available at https://hansard.parliament.uk/Lords%E2%80%8F/2025-01-28/debates/9BEB4E59-CAB1-4AD3-BF66-FE32173F971D/Data(UseAndAccess)Bill(HL)#contribution-9A4614F3-3860-4E8E-BA1E-53E932589CBF 

[4] Id. 

Blowing up the Compulsory in Washington DC

There is loose talk these days about something called “blowing up the compulsory” license for songs in the US under Section 115 of the Copyright Act. This is odd. It is particularly odd given that a lot of the same people now trying to find a parade to get in front of were the very people who championed–barely five years ago–the bizarre and counterintuitive Title I of the Music Modernization Act (aka the Harry Fox Preservation Act). Title I was the part of the MMA legislation that created the Mechanical Licensing Collective and invited Big Tech even further into our house. (Don’t forget there were other important parts of what became the MMA that were actually well thought out and helpful.)

The geniuses who came up with Title I are also the same people who refused to include artist pay for radio play in the package of bills that became the sainted MMA back in 2018. So at the very least before anyone takes seriously any plan to “blow up the compulsory”, the proponents who want buy-in on that change in policy can get right with history and atone by declaring their support–vocal support–for artist pay for radio play. This would be supporting the American Music Fairness Act recently introduced in this Congress by our allies Senator Blackburn and Rep. Issa and their colleagues.

It is important to realize that “blowing up the compulsory” cannot be a shoot-from-the-hip reaction to Spotify taking advantage of the gaping bundling loophole left wide open in the highly negotiated streaming mechanical settlement under Phonorecords IV. There are too many factors in that big a shock to the system. Songwriters around the world should not get caught up in throwing toys out of the pram along with 100 years of licensing practice just because they made a bad deal. This is particularly true given that the smart people handed over the industry’s bargaining leverage against Big Tech as part of the MMA debacle in return for what? Allowing Spotify’s public stock offering to go forward on schedule? Another genius move by the smart people. I wonder what they got out of that deal? I mean this stock offering, you know, the one that made Daniel Ek a billionaire:

A good thing we didn’t let another MTV build their business on our backs.

It is also important to recognize the obvious–the compulsory is not really a compulsory, it’s a compulsory in the absence of a negotiated direct agreement such as the one that Universal recently made with Spotify. Copyright owners have always been free to make direct deals with music users. The compulsory is not just a license, it is also a compulsory rate that casts a long commercial shadow over even the big industry negotiations and certainly over rates in the rest of the world.

And for reasons of historical accident those rates are not determined in Nashville, or New York, or Los Angeles, or even Austin, but rather in Washington, DC in front of the Copyright Royalty Board–an agency that itself is on pretty shakey Constitutional grounds after a Supreme Court decision in the 2020 Term. So if we’re going to “blow up the compulsory”, maybe a good place to start is not having lobbyists make these decisions.

Even if the former opponents of artist pay for radio play come to their senses and support fundamental fairness for artists, that’s just a good start. We have to acknowledge that “blowing up the compulsory” is not going to be well received by the streaming services for starters. (Not to mention the labels.) Those would be the same streaming services that the smart people invited into our house by means of underwriting the costs of the Mechanical Licensing Collective.

I don’t know how others feel about it, but I for one am not inclined to go to the mattresses to assuage the multimillion dollar whiplash that the services must feel. We should understand that Big Tech are being asked to abandon their intensely successful lobbying campaign that led songwriters and publishers right down the garden path with the MMA. Not to mention the millions they have spent creating the MLC so the MLC could pass through some of those monies to HFA.

Before Congress goes along with blowing up Title I of the MMA, they’re probably going to want an explanation of why this isn’t just another fine mess in a long string of fine messes. That will probably involve a study by the Copyright Office like the one the Office was asked by a songwriter to conduct as part of the MLC’s five year review (but declined to undertake at that time). Fortunately that five year review is still dragging on over a year after it started so this would be a perfect time to launch that study. Perhaps Congress will instruct them to do so? At this rate, it will be time for a new five year review before the first one gets completed, so as usual, time is not a factor.

Even if the services and Congress would go along with “blowing up the compulsory” what does that mean for the MLC and the sainted musical works database? Remember, the lack of a database was the excuse that services relied on for years for their sloppy licensing practices. The database was the fig leaf they needed to avoid iterative infringement lawsuits for their failure–or the failure of the services outside licensing consultants.

It also must be said that the services were invited by the same smart people to spend millions on setting up the MLC. In fairness they have a right to get the benefit of the bargain they were invited to make by the same people who now want to blow it up. Or get their money back. Plus they have to like the leverage they were handed to go to Congress and complain, and complain quite believably with great credibility.

And perhaps most important of all is what happens to the $1.2 BILLION in publicly traded securities that the MLC announced on their 2023 tax return that they are (or at least were) holding in their name? Does that get blown up, too?

What Must Be Done in CRB 5?

We are rapidly approaching the next rate-setting proceeding before the three-judge panel at the Copyright Royalty Board for the royalty payable to copyright owners (and ultimately to songwriters) for exploitations of songs. These proceedings set rates for the next five year period and are numbered to tell them apart. The last proceeding, for example, was styled “Phonorecords IV” or sometimes “CRB 4” for those who struggle with long words. (Using the “CRB” acronym instead of “Phonorecords” is actually misleading because the CRB sets a number of rates.)

The proceedings will likely be divided in two: One proceeding for songs exploited in physical records like vinyl, CDs and permanent downloads and one proceeding for streaming mechanicals. These hearings are simultaneous and not sequential, so each hearing will be conducted side by side.

One reason for these simultaneous hearings is that the participants in each of the proceedings differ–the physical/download participants are songwriters and publishers on one side and the record companies on the other. The streaming participants are (often) the same songwriters and publishers on one side, but the streaming services are on the other.

The participants are incented to reach a voluntary settlement that they then present to the Copyright Royalty Judges for approval. The settlement negotiations are largely conducted in secret and no one on the songwriter side except a couple of participants knows anything about the terms of the settlement until it is presented to the Judges and the Judges make it public.

At this point, the Judges are required to entertain comments from the public as to whether the public supports the settlement (as required under a federal law applicable to all of the administrative state agencies from the Environmental Protection Agency to the Social Security Administration to the Copyright Royalty Board).

No matter how much some of the publishers would like to spin it, it is this public comment step where it all began to fall apart during the last proceeding styled “Phonorecords IV”, particularly over the “frozen mechanicals” issue. Signally, this disintegration of the initial physical/downloads “settlement” attracted a prairie fire of public comments that rejected the authority of the NMPA and NSAI to speak on behalf of all songwriters and publishers and also rejected the side deal that these groups had negotiated with the labels. The Judges listened, and the Judges rejected that settlement–I believe for the first time in the history of the rate setting proceedings.

The same was not true of the streaming mechanicals piece, however. I never did read a well-reasoned explanation for why participants lacked authority to speak on behalf of all songwriters, i.e., beyond their own members, in the frozen mechanicals proceeding, but that authority could not be questioned in the streaming proceeding. It should have been apparent to anyone paying attention that any consensus behind the time-encrusted “Big Pool” royalty calculation method for streaming mechanicals was rapidly crumbling apart. The Judges’ “39 Steps” royalty calculation is as mysterious as a Hitchcock movie and many did not trust it. And more importantly for our discussion today–still do not trust it at all.

As we approach Phonorecords V, there are some fundamental questions that all involved need to be asking themselves. The first is whether we want to go back to the same tired process of secret meetings with the big reveal resulting in public hostilities in the comments–against what is ostensibly our side. This before we even get to the negotiation with the other side.

The powers that be had the chance over the last few years to bring in some different viewpoints. Had they done so, they would have both diffused the inevitable collision, but could also have gotten the benefit of those viewpoints when there was still time to build alliances. There’s an idea–an integrative negotiation with a collaborative outcome.

Another fundamental question is whether we can reach a fairly quick deal with the labels on the physical/download side so that all concerned can turn their attention to bringing the streaming rates into some semblance of reality. Because the songwriters did such a persuasive job of raising the frozen mechanicals rates from 9.1¢ to 12¢ plus a COLA, that minimum statutory rate has now increased to 12.7¢. Given current inflation projections, it’s likely that the statutory rate will increase to about 13¢ and change by the end of 2026.

If a settlement could be reached quickly, it would not surprise me if someone came up with the idea of simply taking the then-extant minimum rate (for 2027) as the new base rate for the first year of Phonorecords V (2028) plus extending the annual COLA to protect songwriters in the out-years of PR V. Wherever the actual penny rates end up, if the songwriters and labels could reach an agreement quickly, it would save a bunch of effort and allow everyone to turn their attention to the streaming rates.

I wonder if it’s even possible to reach a negotiated settlement with the streaming services on the streaming mechanical. The entire concept of the “Big Pool” royalty rate is failing for streaming on both the sound recording and the song side of the deals. It was, frankly, a silly idea to begin with–and that takes us back to the beginning of streaming when deals were poorly negotiated with little to no accountability because physical still paid the bills. The general idea was that “superfans” would rule according to Thomas Hesse in Billboard who was around at the time: “If you get to superfans, who listen to music all the time, you get to all the money — not just from those people, but you get all the money from everybody.”  The reality is that you can replace “superfans” with “superstars” or more simply, “market share”, and you would have a much better understanding of the “Big Pool” concept. The Big Pool is actually just a hyper efficient marketshare distribution of a pool of money.

What Spotify has demonstrated with their short sighted move on bundling is simply all the reasons why they are disliked and untrustworthy. They said the quiet part out loud–we have no idea what we are doing in this business but we–and not songwriters or musicians–are getting stupid rich at it. It is unlikely that anyone is going to welcome more of the same in Phonorecords V.

What is becoming apparent to an increasing number of songwriters is that there is one metric that matters to Spotify’s CEO–stock market valuation. That is what has made him a billionaire. That is what has made plenty of people at Spotify into millionaires. That is also the one metric that songwriters and artists have never participated in. Our negotiators have had their eye on the wrong ball.

I say if we’re going to spend millions on the government’s rate proceedings anyway, let’s get something for it for a change, shall we?

UK Government’s AI Legislation is Defeated in the House of Lords

The new-ish UK government led by Labour Prime Minister Sir Keir Starmer faced a defeat in the House of Lords regarding their AI bill. The defeat was specifically about measures to protect copyrighted material from being used to train AI models without permission or compensation. Members of the House of Lords (known as “Peers”) voted 145 to 126 in favor of amendments to the UK Government’s Data (Use and Access) Bill, proposed by film director Beeban Tania Kidron, the Baroness Kidron (a “cross bench peer”) which aim to safeguard the intellectual property of creatives. Lady Kidron said:

There is a role in our economy for AI… and there is an opportunity for growth in the combination of AI and creative industries, but this forced marriage on slave terms is not it.

So there’s that. We need a film director in the Senate, don’t you think? Yes, let’s have one of those, please.

Bill Dies With Amendments

The amendments proposed by Baroness Kidron received cross-party support (what would be called “bi-partisan” in the US, but the UK has more than two political parties represented in Parliament). The amendments include provisions to ensure, among other things, that AI companies comply with UK copyright law, disclose the names and owners of web crawlers doing their dastardly deeds in the dark of the recesses of the Internet, and allow copyright owners to know when and how their work is used. It might even protect users of Microsoft or Google products from having their drafts crawled and scraped for AI training.

This defeat highlights the growing concerns within Parliament about the unregulated use of copyrighted material by major tech firms. Starmer’s Data (Use and Access) Bill was proposed by the UK government to excuse the use of copyrighted material by AI models. However, thanks in part to Lady Kidron it faced significant opposition in the House of Lords, leading to its defeat.

Here’s a summary of why it failed:

  1. Cross-Party Support for Amendments: The amendments proposed by Baroness Kidron received strong support from both Labour and Conservative peers. They argued that the bill needed stronger measures to protect the intellectual property of creatives.
  2. Transparency and Redress: The amendments aimed to improve transparency by requiring AI companies to disclose the names and owners of web crawlers and allowing copyright owners to know when and how their work is used.
  3. Government’s Preferred Option: The government suggested an “opt-out” system for text and data mining, which would allow AI developers to scrape copyrighted content unless rights holders actively opted out. This approach was heavily criticized as it would lead to widespread unauthorized use of intellectual property, or as we might say in Texas, that’s bullshit for starters.
  4. Economic Impact: Supporters of the amendments argued that the bill, in its original form, would transfer wealth from individual creatives and small businesses to big tech companies, undermining the sustainability of the UK’s creative industries. Because just like Google’s products, it was a thinly disguised wealth transfer.

The defeat highlights the growing concerns within Parliament about the unregulated use of copyrighted material by major tech firms and the need for stronger protections for creatives. several prominent artists voiced their opposition to the UK government’s AI bill. Sir Elton John and Sir Paul McCartney were among the most prominent critics. They argued that the government’s proposed changes would allow AI companies to use copyrighted material without proper compensation, which could threaten the livelihoods of artists, especially emerging ones.

Elton John expressed concerns that the bill would enable big tech companies to “ride roughshod over traditional copyright laws,” potentially diluting and threatening young artists’ earnings. As a fellow former member of Long John Baldry’s back up band, I say well done, Reg. Paul McCartney echoed these sentiments, emphasizing that the new laws would allow AI to rip off creators and hinder younger artists who might not have the means to protect their work–and frankly, the older artists don’t either when going up against Google and Microsoft, with backing by Softbank and freaking countries.

Their opposition highlights the broader concerns within the creative community like Ivors Academy and ECSA about the potential impact of AI on artists’ rights and earnings.

Role of the House of Lords

The House of Lords is one of the two houses of the UK Parliament, the other being the House of Commons. It plays a crucial role in the legislative process and functions as a revising chamber. Here are some key aspects of the House of Lords:

Functions of the House of Lords

  1. Scrutiny and Revision of Legislation:
    • The House of Lords reviews and scrutinizes bills passed by the House of Commons.
    • It can suggest amendments and revisions to bills, although it cannot ultimately block legislation.
  2. Debate and Deliberation:
    • The Lords engage in detailed debates on a wide range of issues, contributing their expertise and experience.
    • These debates can influence public opinion and policy-making.
  3. Committees:
    • The House of Lords has several committees that investigate specific issues, scrutinize government policies, and produce detailed reports.
    • Committees play a vital role in examining the impact of proposed legislation and holding the government to account.
  4. Checks and Balances:
    • The House of Lords acts as a check on the power of the House of Commons and the executive branch of the government.
    • It ensures that legislation is thoroughly examined and that diverse perspectives are considered.

Composition of the House of Lords

  • Life Peers: Appointed by the King on the advice of the Prime Minister, these members serve for life but do not pass on their titles.
  • Bishops: A number of senior bishops from the Church of England have seats in the House of Lords.
  • Hereditary Peers: A limited number of hereditary peers remain, but most hereditary peerages no longer carry the right to sit in the House of Lords.
  • Law Lords: Senior judges who used to sit in the House of Lords as the highest court of appeal, a function now transferred to the Supreme Court of the United Kingdom.

Limitations

While the House of Lords can delay legislation and suggest amendments, it does not have the power to prevent the House of Commons from passing laws. Its role is more about providing expertise, revising, and advising rather than blocking legislation.

Now What?

Following the defeat in the House of Lords, the government’s Data (Use and Access) Bill will need to be reconsidered by the UK government. They will have to decide whether to accept the amendments proposed by the Lords or to push back and attempt to pass the bill in its original form.

It’s not entirely unusual for Labour peers to vote against a Labour government, especially on issues where they have strong differing opinions or concerns. The House of Lords operates with a degree of independence of the House of Commons, where I would say it would be highly unusual for the government to lose a vote on something as visible at the AI issue.

The AI bill would no doubt be a “triple whip vote”, a strict instruction issued by a political party to its members usually in the House of Commons (in this case the Labour Party), requiring them to attend a vote and vote according to the party’s official stance to support the Government. It’s the most serious form of voting instruction, indicating that the vote is crucial and that party discipline must be strictly enforced. Despite the sadomasochistic overtones of a “triple whip” familiar as caning to British public school boys, peers in the Lords often vote based on their own judgment and expertise rather than strict party lines. This can lead to situations where Labour peers might oppose government proposals if they believe it is in the best interest of the public or aligns with their principles. Imagine that!

So, while it’s not the norm, it’s also not entirely unexpected for Labour peers to vote against a Labour government when significant issues are at stake like, oh say the destruction of the British creative industries.

Crucially, the government is currently consulting on the issue of text and data mining through the Intellectual Property Office. The IPO is accepting public comments on the AI proposals with a deadline of February 25, 2025. This feedback will likely influence their next steps. Did I say that the IPO is accepting public comments, even from Americans? Hint, hint. Read all about the IPO consultation here.

Big Tech’s Misapprehensions About the AI Appropriation Invasion: Artist Rights are Not “Regulation”

It was a rough morning. I ran across both reports from Davos where they are busy blowing AI bubbles yet again and also read about a leading Silicon Valley apologist discussing the current crop of AI litigation. That was nauseating. But once the bile settled down, I had a realization: This is all straight out of the Woodrow Wilson rule-by-technocrats playbook.

Wilson believed that experts and intellectuals, rather than the voting public, should guide the creation and implementation of public policy. The very model of a modern technocrat. The present day technocrats and their enablers in the legal profession are heirs to Wilsonian rule by experts. They view copyright and other human rights of artists as regulation impeding innovation. Innovation is the godhead to which all mankind must–emphasis on must–aspire, whether mankind likes it or not.

Not human rights–artist rights are human rights, so that proposition cannot be allowed. The technocrats want to normalize “innovation” as the superior value that need not be humanized or even explained. Artist rights must yield and even be shattered in the advance of “innovation”. The risible Lessig is already talking about “the right to train” for AI, a human rights exception you can drive a tank through as is his want in the coin-operated policy laundry. In Wilsonian tradition, we are asked to believe that public policy must be the handmaiden to appropriation by technology even if by doing so the experts destroy culture.

We went through this before with Internet piracy. There are many familiar faces in the legal profession showing up on AI cases who were just getting warmed up on the piracy cases of the 1999-2015 period that did their best to grind artist rights into bits. AI is far beyond the massive theft and wealth transfer that put a generation of acolyte children through prep school and higher education. AI takes extracting profit from cultural appropriation to a whole new level–it’s like shoplifting compared to carpet bombing.

“I got the shotgun, you got the brief case…”

And since the AI lawyers are fascinated by Nazi metaphors, let me give you one myself: Internet piracy is to Guernica what AI is to Warsaw. The Luftwaffe was essentially on a training run when they bombed Guernica during the Spanish Civil War. Guernica was a warm up act; the main event was carpet bombing a culture out of existence in Warsaw and after. It was all about the Luftwaffe testing and refining their aerial bombing tactics that opened the door to hell and allowed Satan to walk the Earth swishing his tail as he does to this day. But in the words of Stefan Starzyński, the Mayor of Warsaw who broadcast through the German attack, “We are fighting for our freedom, for our honor, and for our future. We will not surrender.”

This is what these crusader technocrats do not seem to understand no matter how they enrich themselves from the wealth transfer of cultural appropriation. AI litigation and policy confrontation is not about the money–there is no license fee big enough and nobody trusts Silicon Valley to give a straight count in any event.

Artists, songwriters, authors and other creators have nowhere to go. The battle of human rights against the AI appropriation invasion may well be humanity’s last stand.

Must See Iron Mountain Webinar on Survivability of Digital Media

“God gave Noah the rainbow sign, no more water, the fire next time.”
James Baldwin

As we keep hearing how high end home studios burned in the Palisades fire, preservation becomes increasingly vital knowledge.

Key Webinar Topics:

• The alarming trend of failure of archived hard drives from the 1990s

• Evolution of music production and storage technologies

• Challenges in accessing and preserving digital music assets

• Best practices for digital archiving and metadata management

• The future of music asset preservation, and how AI will play a role

@RepRichHudson: Another reason why the best online security is to be offline

It comes full circle–Chief Justice Roberts raises some of the same issues as I raised in 2020 at MusicBiz

The Chief asks the most relevant foundational question in the first five minutes–and it was straight downhill for TikTok after that. See transcript at p. 8.

TikTok v Garland Transcript Oral Argument 24-656_1an2Download

And see the class materials from the MusicBiz Association Conference panel I moderated in 2020

musicbiz-tiktok-materials-v-2-2Download

@FTC: AI (and other) Companies: Quietly Changing Your Terms of Service Could Be Unfair or Deceptive

An important position paper from the Federal Trade Commission about AI (emphasis mine where indicated):

You may have heard that “data is the new oil”—in other words, data is the critical raw material that drives innovation in tech and business, and like oil, it must be collected at a massive scale and then refined in order to be useful. And there is perhaps no data refinery as large-capacity and as data-hungry as AI.

Companies developing AI products, as we have noted, possess a continuous appetite for more and newer data, and they may find that the readiest source of crude data are their own userbases. But many of these companies also have privacy and data security policies in place to protect users’ information. These companies now face a potential conflict of interest: they have powerful business incentives to turn the abundant flow of user data into more fuel for their AI products, but they also have existing commitments to protect their users’ privacy….

It may be unfair or deceptive for a company to adopt more permissive data practices—for example, to start sharing consumers’ data with third parties or using that data for AI training—and to only inform consumers of this change through a surreptitious, retroactive amendment to its terms of service or privacy policy. (emphasis in original)…

The FTC will continue to bring actions against companies that engage in unfair or deceptive practices—including those that try to switch up the “rules of the game” on consumers by surreptitiously re-writing their privacy policies or terms of service to allow themselves free rein to use consumer data for product development. Ultimately, there’s nothing intelligent about obtaining artificial consent.

Read the post on FTC