david lowery – Techdirt (original) (raw)

The Music Licensing Swamp: Spotify Settles Over Failure To Obtain Mechanical Licenses

from the how-could-they-not-have-done-this? dept

A year and a half ago we wrote about a lawsuit, filed by musician/songwriter/Techdirt-hater (with a few perhaps surprising exceptions) David Lowery against Spotify, for failing to pay mechanical licenses. As we noted at the time, the more interesting thing to us beyond the lawsuit itself was how it demonstrated what an amazing clusterfuck music licensing is. That’s because copyright law has not done a very good job keeping up with the times as technology changes (understatement alert).

Basically, each time a new technology undermines the way licensing worked in the past, Congress ends up duct-taping on some new kind of licensing regime. There are a bunch currently, nearly all of which can be traced back to different technological innovations from the past century and a half. And, then, the internet came along. And it wasn’t entirely clear how the licensing regimes of things like radio, television, player pianos, and satellite radio fit into the internet. And, some seem to think the answer is: they ALL apply. At the very least, I don’t envy the “licensing” team at the various music tech companies.

In our initial post, we noted that the issue seemed so complex that after talking to half-a-dozen copyright lawyers, no two could agree on what was actually happening with the lawsuit, or even if it was a legitimate case. The underlying issue had to do with mechanical licensing (a type of licensing which, as it’s name suggests, goes all the way back to the early days of “mechanical” reproduction of compositions), and we were wondering how it could possibly be that a company as big as Spotify, whose entire story rested on the idea that it had properly negotiated licenses, had somehow failed to properly secure mechanical licenses. And, yet, a few months later, we noted that the Harry Fox Agency, an organization that many companies, including Spotify, Apple and others, use to handle these kinds of licenses, appeared to be scrambling to send out notices of intent (NOIs), which was something that should have happened way earlier.

After Lowery’s lawsuit got combined with another similar lawsuit, it’s now been announced that Spotify has settled the combined lawsuit and created a $43.4 million fund to pay for the mechanical licenses it failed to obtain properly in the first place. Now, there are still some who argue that mechanical licenses shouldn’t even be necessary for a streaming service, but it doesn’t appear that anyone has the desire to fight that one out in court, and it’s understandable why. Doing so would almost certainly lead to any service making that argument getting slammed by musicians for trying to avoid paying songwriters.

Either way, Spotify has paid its way out of this and I remain baffled by the fact that it hadn’t just done the right thing in the first place — though I’m still curious if the real culprit here is the Harry Fox Agency, and if Spotify and HFA have had a long conversation or two about how this all came down. The real lesson in all of this, though, is that music licensing continues to be a complete murky, swampy mess, almost designed to make it that much harder for licensed music services to exist. While Congress dithers with silly ideas about “moving” the Copyright Office, if it wasn’t to actually reform copyright laws, it should start by fixing and modernizing the crazy and overly complex licensing regimes.

Filed Under: copyright, david lowery, licenses, mechanical licenses, music
Companies: harry fox agency, hfa, spotify

Music Licensing Shop Harry Fox Agency Appears To Be Scrambling To Fix Its Failure To Properly License Songs

from the well,-look-at-that... dept

A couple of months ago, I wrote a long post trying to dig into the details of David Lowery’s class action lawsuit against Spotify. In the end, while there was some question over whether or not streaming music services really need to get compulsory mechanical licenses for producing reproductions of songs, it seemed like the fact that such licenses are compulsory and can be obtained easily via having the Harry Fox Agency issue a “Notice of Intention” under Section 115, it seemed crazy to think that the various music services had not done that. In fact, we noted that the only way the lawsuits made any sense was if the various music services and HFA ignored this and didn’t send out such NOIs. At the time, I noted that this would be a surprise, and it could mean the services were in deep trouble.

Or perhaps not a surprise… and, yes, some folks may be in deep trouble. Beyond Lowery’s lawsuit, a few other similar lawsuits have been filed. Earlier this month, Tim Geigner wrote about a very similar lawsuit filed by Yesh Music against Tidal. Of course, what didn’t get as much attention is that Yesh filed very similar lawsuits against a bunch of other music services as well, including Google Music, Slacker, Line Corporation (which runs Mix Radio) and Guerva (which I think is a misspelling of the music site Guvera). Yesh also sued Deezer a few months ago.

One of the key questions that came up following the reporting on all of these cases is the Harry Fox Agency’s role in all of this. HFA, an organization that was set up by the publishers themselves is supposed to be responsible for managing compulsory licensing for the vast majority (though not all) of popular songwriters (remember, HFA is about compositions/publishing, not sound recordings). But it’s beginning to look seriously like HFA just fell asleep on the job and didn’t bother to do the one key thing it was supposed to do for all these music services: file Section 115 NOIs.

Both David Lowery and another songwriter, Ari Herstand, have recently posted examples of HFA suddenly sending them NOIs that appear to be rushed and are showing up way after they’re supposed to. I rarely agree with Lowery about anything, but it’s seriously looking like HFA totally fucked up here. Big time. Here’s the notice Lowery received:

As Lowery notes, this NOI was sent on February 16th, 2016, but was signed by a Spotify exec who left the company in 2015, for a song that showed up on Spotify in 2011 and using an HFA address that didn’t exist until 2012. Basically… it looks like HFA is rushing around trying to send out NOIs that it failed to do properly, and doing a pretty half-assed job about it. And that seems especially stupid when it comes to issuing those NOIs to the guy who is already suing over those missing NOIs.

Herstand just received a similarly late NOI from HFA for his music appearing on Apple Music. As he notes, his notice says the music should appear on Apple Music as of March 10th of 2016, but it’s actually been there since Apple Music launched last summer. He also notes this is the first NOI he’s ever received from HFA, while he has received plenty of NOIs from the much smaller HFA competitor Music Reports “on a regular basis.”

So, given all that, it sure looks like HFA didn’t do the one thing that it was supposed to be doing all along, and that’s… going to be bad news for someone. The big question is who? All of the lawsuits have been against the various music services, but without being privy to the contracts between HFA and the music services themselves, I’d be shocked if they didn’t include some sort of indemnity clauses, basically saying that if music isn’t licensed because of HFA’s own failures to do its job that any liability falls back on HFA.

And, if that’s the case, HFA could be on the hook for a ton of copyright infringement. If it’s true that it’s basically been ignoring the fairly simple NOI process for a lot of artists, then that’s going to be a major scandal — but one that seems a lot harder to pin on the music services themselves. They went to HFA and hired the company to handle mechanical licenses. There may be more going on behind the scenes here, but at a first pass, based on what appears to be happening, HFA may be in some seriously deep trouble.

Filed Under: ari herstand, copyright, david lowery, licensing, mechanical licenses, music, noi, notice of intent, section 115
Companies: apple, harry fox agency, hfa, spotify

Desperation Shows As Critics Argue That Nominated Librarian Of Congress Is 'Pro Obscenity'

from the that's-the-best-you've-got? dept

Last week, we wrote about the exciting decision by President Obama to nominate Dr. Carla Hayden to be the next Librarian of Congress. As we noted at the time, she seemed immensely qualified for the position, having successfully run and modernized the Enoch Pratt Free Library in Baltimore. She also clearly recognized the importance of open access and access to culture. Given the job, there’s really no honest reason that people can find to criticize the choice. She seems almost perfectly qualified for the position.

But, of course, there are some critics, and boy, are they reaching deep in the depths of inanity to attack this choice. A key issue, of course, is that the Copyright Office is part of the Library of Congress, so Hayden would run the Copyright Office as well. In our original post, we already noted the rather snide statement put out by the RIAA, which basically says “Hayden’s fine for the library, but she better keep her filthy hands off of the Copyright Office”:

?We are gratified that President Obama has chosen a qualified and capable nominee to be the next Librarian of Congress. We look forward to working with Dr. Hayden.

?It is worth noting that the Library of Congress and the U.S. Copyright Office have been mutually respectful of each other?s areas of expertise. We would hope that the new Librarian would continue to demonstrate that respect for the Copyright Office?s expertise in copyright policy and recommendations to Congress.?

This is bullshit, of course. Basically, the Copyright Office has been ignored by the Librarian of Congress, because the last Librarian basically ignored his job, focusing on hobnobbing with rich people in fancy locations, asking them for money. The MPAA’s statement wasn’t quite as bad, but did laughably claim that they hope she’ll honor “the role of copyright as a driver of knowledge and creativity” which is not a particularly accurate statement:

?We congratulate Dr. Carla Hayden on her nomination. The Librarian of Congress plays a pivotal role for the copyright industries and the nation as a whole as the custodian of our intellectual and cultural heritage. We look forward to learning more during the confirmation process about Dr. Hayden?s vision for leading the Library and honoring the role of copyright as a driver of knowledge and creativity, as well as an engine of our nation?s economic growth and positive trade balance.?

The sketchy lobbying group, the Copyright Alliance did something similar to the RIAA, saying “keep your hands off the Copyright Office.”

?We in the Copyright Community hope that Dr. Hayden will demonstrate a deep respect for the value of copyright; appreciate and support the value of authorship to our culture and the laws that protect that authorship; cultivate a direct relationship with the Register of the Copyright Office, Maria Pallante, and continue the deference that the Librarian of Congress has historically demonstrated to the Register of Copyrights.?

But from there, the complaints really stretch the bounds of reality. First up, there’s old friend of the blog, perpetually angrily confused musician David Lowery, who breathlessly announced his horror at the fact that the “former director of [a] P2P Piracy Alliance” had endorsed Hayden. Of course, what Lowery leaves out entirely, is the fact that the individual in question, Adam Eisgrau, works for the American Library Association, the exceptionally well respected organization that represents library interests, and of which Dr. Hayden was once President. So it should hardly be a surprise that the ALA supports Hayden’s nomination.

But, in Lowery’s telling, this is all really about piracy, because well over a decade ago, Eisgrau happened to run the group P2P United, which represented a bunch of P2P applications in lobbying Congress to teach them about the technology and the fact that it had plenty of non-infringing uses. The group once helped raise money to pay off the $2,000 fine that the RIAA forced upon a 12-year-old honor student who downloaded some music. And, as Eisgrau noted at the time, contrary to Lowery’s claim that his group was about supporting piracy, the group had always spoken out against piracy, but warned about the harm of throwing out the baby (P2P technology) with the bathwater of infringement by some users.

But, really, Lowery’s statement is not the craziest one we’ve seen. That award goes to a press release I received yesterday from a group called The National Center on Sexual Exploitation (NCOSE) trumpeting that “Obama nominee to Library of Congress led a pro-obscenity group!” Oh really? Of course, it turns out that the “pro-obscenity group” is also the famous and well respected… American Library Association. NCOSE insists they’re “pro-obscenity” and “pro-porn” because the ALA has long fought against mandatory internet filters in libraries.

President Obama has announced his intention to nominate Dr. Carla Hayden, former president of the American Library Association, to the post of Librarian of Congress. The National Center on Sexual Exploitation (NCOSE) believes that the pro-pornography agenda of the ALA raises concerns about Dr. Hayden?s nomination.

“The American Library Association (ALA) has been on a campaign to prevent the use of pornography-blocking Internet filtering systems on public library computers since the 1990s,” said Patrick Trueman, president and CEO of the National Center on Sexual Exploitation. “The ALA even filed suit in 2001 against the Children?s Internet Protection Act (CIPA), written by U.S. Sen. John McCain (R-AZ). The act was designed to protect children from pornography by requiring the use of Internet filters on computers at public libraries receiving federal funds. The U.S. Supreme Court upheld this statute as constitutional. Yet, the ALA during Dr. Hayden?s tenure as president opposed this common sense measure and distorted the Supreme Court?s decision regarding it, as it continues to do to this day.”

That, of course, is a massive misstatement of history. The ALA opposed mandatory filters not because it’s “pro-obscenity” but because those filters don’t work (both in that they block a lot more than porn, including important educational resources, and in that lots of porn still gets through) and because libraries believe in the importance of freedom to access information. That doesn’t mean that it’s okay for children to surf porn, but that there are better ways to deal with that than mandatory filters on all computers (even ones exclusively used by adults).

To understand the actual positions of the ALA regarding CIPA, why not read the group’s actual statements, such as the explanation of why mandatory filters may not be the best solution by former ALA President Nancy Kranich:

Librarians are dedicated and committed to providing an enriching and safe online experience for children and adults alike. We care deeply about children and all of our library users. We have taken numerous steps to help communities develop policies and programs that ensure that their library users have a positive online experience. Based on our extensive experience working with children and their parents everyday throughout the country, we know what works. More than 95 percent of public libraries have Internet-access policies that were created with community input. These policies set forth the community?s rights and responsibilities for conducting productive, safe Internet use. The vast majority of library patrons use the Internet responsibly, as outlined by their communities? policies….

… Just as every parent is a little different, every local community has its own set of priorities based on its geography, demographics and size – to name just a few of the factors.

This presents a major problem with the Children?s Internet Protection Act. This legislation imposes a one-size-fits-all mechanical solution on libraries that are as diverse as our families and takes away local and parental control, ceding it to unaccountable filtering companies. Blocking technologies come between librarians and their mission – to connect people with a broad range of information to meet their needs.

And another statement by former ALA President John Berry:

The filtering mandate imposed by Congress is unworkable in the context of a public institution because it restricts access to constitutionally protected speech on the users served by libraries. No filtering or blocking technology exists that blocks access only to speech that is obscene, child pornography or harmful to minors. And no filtering technology protects children from all objectionable materials. many of you will have seen the March issue of Consumer Reports evaluating several filtering software products; the best of the products failed to block one objectionable site in five.

We?re concerned that filters give parents a false sense of security that their children are protected when they are not. Not all problems brought on by transformative technological innovation, like the Internet, have technological solutions, at least in the short term. We believe that education is more effective than filters?kids need to make good decisions about what they read and view, no matter where they are. To be sure, this is a collaborative effort between parents, teachers, librarians and many others.

The Children?s Internet Protection Act is a misnomer. The legislation does not strictly limit access for minors, but for adults and all Internet users in a library.

If this is the best that people can come up with, hopefully it means that Hayden’s nomination will sail through. But, boy, people are reaching deep to argue that the American Library Association is either “pro-piracy” or “pro-pornography” by misrepresenting events from over a decade ago, and magically tying them to Dr. Hayden.

Filed Under: carla hayden, copyright, copyright office, david lowery, internet filters, librarians, library of congress, patrick trueman
Companies: ncose

Understanding David Lowery's Lawsuit Against Spotify: The Insanity Of Music Licensing

from the dig-deep dept

We generally don’t talk much about musician David Lowery around here any more. We covered a few stories about him a few years ago, and he seemed to take it ridiculously personally, and continues to attack me with false and misleading claims. Every so often someone sends me a link to a blog post he’s written and it’s almost always laughably wrong (for example, in one recent story he falsely claimed that “Google” is on Spotify’s board — because a former Google exec who is no longer at the company also happens to be on Spotify’s board). So, take the following with that caveat in mind. I tried to be objective in the analysis, but some will likely suggest that’s impossible given his years-long attacks on me.

Lowery, if you don’t know, is a decently successful musician who has ranted against any new service or business model for musicians. When he was first getting attention over this it was about iTunes, but lately it’s been things like Spotify, Pandora and YouTube. He appears to pine for the “old days” when there was less competition and a clearer career path for musicians like himself. So his concern is always that these companies are somehow “cheating” him and his friends out of money. Mostly this has been idle, if frequently misleading, whining. But right before the new year, it turned into an actual lawsuit against Spotify that he’s hoping to turn into a class action. You can read the whole complaint here (or embedded below), though I warn you: to understand it, you need to go pretty deep into the arcane nature of music licensing.

Here’s the thing about copyright law: historically, as new technologies come along, copyright has a lot of trouble dealing with them. And, typically, the pattern is that the industry freaks out and tries to stop the new technology, but eventually someone duct tapes on a new bit of copyright law to cover it. Unfortunately, this means that there are all these weird peripheral sections of copyright law that are supposed to apply to specific circumstances, which then get made obsolete by later technological situations, and it leads to lots of confusion and anger… and lawsuits.

Stick with me through the next few paragraphs. It’s going to seem ridiculously impossible to ever do anything that involves licensing music after you get through all of this, in part because it’s been made so cumbersome thanks to all this duct tape.

So, everyone knows that music is covered by copyright. And, if you follow these things moderately closely, you may also know that the copyright on a recorded song involves two different copyrights: there’s the copyright in the sound recording (for the musicians who recorded the song, but usually held by the record label) and a copyright in the composition which is held by the songwriter. But things get much more complex even beyond that. And that’s because there are different exclusive rights under copyright law, such as rights for reproduction, distribution and public performance.

On top of that, there are different types of licenses for these different parts and different rules for how such licenses can be obtained and who can obtain them in which situations. The rules and licensing are different for terrestrial radio than they are for satellite radio than they are for “non-interactive” streaming radio (e.g., Pandora) than they are for “interactive” streaming services (e.g. Spotify). Pandora, for example, gets to make use of compulsory licenses relying on a rate set by a group of old judges known as the Copyright Royalty Board (you may have heard that they just raised the rates, but not nearly as high as some were asking for).

With Spotify, on the other hand, most of the licenses actually had to be negotiated. But because of all the different aspects, there was a lot to negotiate. There are deals to be made with the copyright holders for the sound recordings (mostly the labels, some of whom took equity stakes in Spotify to make those deals happen) along with licenses from the “Performance Rights Organizations” (PROs) like ASCAP and BMI for “performing” the works. Then there are mechanical licenses which are for reproducing or distributing the composition, and cover a variety of things — and are generally available in a compulsory fashion (i.e., if you want them, as long as you pay, you can get them). They’re called “mechanical” licenses from back in the day when reproducing a work actually was a big “mechanical” process. When someone wants to cover a song, they can get a compulsory mechanical license for that (which is why artists cannot stop anyone from covering their songs — much to Prince’s dismay). You also need a mechanical license to reproduce and distribute a “phonorecord” of a musical work.

Most mechanical licenses are managed and sold via an organization called The Harry Fox Agency (HFA), who works on behalf of music publishers (companies who tend to hold the copyrights on the musical compositions, rather than the actual recordings) that teamed up to create the agency a long, long time ago. There is also a complex bit of copyright law, known as Section 115, which gives the specifics on compulsory licensing of mechanical licenses in certain circumstances, if certain rules are followed. But here’s the crazy thing: it’s 2016 now, streaming services have been around for years, and still no one’s entirely sure if Section 115 compulsories actually apply to them. It’s never actually been tested and many services (including Spotify) assume they do, but a potentially big question is whether or not they really do. Isn’t that kind of insane?

There are actually even more things that go into copyright licensing for music and I simplified some elements of this, but hopefully this gives you an idea of how absolutely insane all of it is. But… it’s necessary to understand all of that to figure out what’s going on with Lowery’s lawsuit. Almost all of the press coverage doesn’t delve into any of this, and just says that he’s claiming Spotify isn’t paying for some of the music that’s available on the service. But it’s not a case where Spotify is just putting songs on its service willy-nilly. Spotify absolutely is licensing the sound recordings from the copyright holders, and then the performance licenses from the PROs. And it’s getting mechanicals via HFA and/or via Section 115.

However — and here’s the big issue — while Spotify gets the recordings directly from the copyright holder, and thus knows who to pay the royalties to, those songs often do not include the necessary metadata to connect the publishing/songwriting side of things to the recordings. So while the company knows who to pay for some parts of what it needs to pay, for others it has no idea. Under the law, the money for such royalties needs to be kept in escrow to pay at some later time when the details are sorted out — which is something that Spotify claims to do. The company recently announced that it’s building a giant database to connect the publishing/songwriting info with the database it already has on the sound recordings, in order to distribute the $17 million or so it’s been holding in escrow. This seems like a move in the right direction, but to some songwriters, they argue that it’s “proof” that Spotify didn’t properly license songs. That’s possible, but unlikely. Spotify is holding the money in escrow because it that’s the requirement when you do not have the necessary info to pay the compulsory licenses.

Lowery is arguing that Spotify is simply failing to obtain the necessary mechanical licenses for many of the compositions in its database, including a bunch of his songs. There is, separately, an “unfair business practices” claim that we’ll also discuss in a minute. Over the past week or so since the news of this lawsuit came out, I’ve spoken to half a dozen different copyright lawyers to try to understand the details, and they’re all at least slightly perplexed by the lawsuit, with some noting that details need to come out later to further explain the argument.

A few copyright lawyers I spoke to were flat out confused as to why Spotify would even need a mechanical license in the first place, seeing as it’s streaming music, rather than “reproducing” and “distributing” it such that Spotify users end up with a full copy to keep. There are two possible responses to this that I (and some other lawyers I spoke to) can come up with, though Lowery’s lawsuit does not clarify which of these he’s arguing (or if it’s something else entirely). One is that Lowery considers merely streaming music to be “distribution” and “reproduction” of a “phonorecord.” Indeed, this appears to be the argument that Audiam, a company that has been deeply involved in this issue, makes on its website: every stream requires a mechanical license royalty.

One copyright lawyer I discussed this with called such an argument “meritless” but I actually wonder how the courts would shake out on it. It would get down pretty deep into the weeds of the technology behind streaming, and what counts as a “reproduction” and “distribution” of a work, and whether or not the ephemeral copies that are created in the streaming process require mechanical licenses even though they disappear as soon as they’re played. You may recall that one of the key copyright cases a few years ago, regularly referred to as the “Cablevision” case but technically Cartoon Network v. CSC Holdings, found that such ephemeral copies are not copies for the purpose of copyright law. But that’s technically only law in the 2nd Circuit, not the 9th Circuit where Lowery’s case was filed.

The Supreme Court refused to hear the appeal in the Cablevision case. If Lowery’s case does focus on such ephemeral streams, it could reopen that dangerous can of worms, and raise serious questions about copyright for cloud computing (remember, a study showed that the ruling in the Cablevision case was a key driver in jumpstarting the cloud computing industry).

Still, there may be a plausible argument that Spotify is “distributing” a song when it streams it, but again that’s not exactly settled law. Either way, Spotify appears to be acting as if that is the case anyway in trying to secure mechanical licenses, so perhaps this won’t be a huge deal in the case.

The other, perhaps more plausible, explanation is that the issue is really only in cases where Spotify allows users to actually download a song for offline play (a feature for Spotify Premium users). In those cases, it’s much more compelling that Spotify would need a mechanical license, because the copies are not so ephemeral. But, it would also explain why the numbers for the mechanical royalties are so much lower (the fact that set off so much focus on all of this), because the mechanicals wouldn’t apply in most streaming situations.

In either case, Lowery might run into a second stumbling block: Spotify can (and likely will) argue that it complied with the rules required in Section 115(b) for a “notice of intention” in order to get the compulsory mechanical license. Basically, Spotify would argue that it did what is necessary to get a compulsory mechanical license when it was unsure of who held the publishing/songwriting rights on a song. If it actually did do this, Lowery’s case may be dead in the water — though I’m guessing Lowery’s lawyers will argue that it failed in some aspect of properly using Section 115 — or, as mentioned above, that Section 115 doesn’t actually apply to streaming services. If Spotify did not actually follow Section 115’s rules, then Lowery’s case suddenly is a lot stronger. Similarly, if a court suddenly determines that Section 115 doesn’t apply… well, then a lot of streaming services are in serious trouble. Update: As noted by a commenter, the Copyright Office publishes the list of Section 115 Notices of Intent that it gets — and it does not appear that Spotify is on it. So that suggests that Spotify may not have followed the rules of Section 115, which may mean the company is in deep trouble.

Separately, Lowery argues that Spotify’s actions are “egregious and willful” — the latter of which is necessary to seek a maximum statutory damage amount of $150,000 per work infringed. Again, assuming that Spotify did in fact do as it has claimed, and followed the rules for Section 115 compulsory licenses, it’s going to be much more difficult to convince anyone that the actions were “willful.” Similarly, if you read this article by a copyright lawyer who appears to agree with Lowery (though it was written before Lowery’s lawsuit), you see that as soon as Spotify was aware of how to pay the money, it did so. That’s going to make the whole “egregious and willful” claim an uphill battle. But, we shall see…

Finally, there’s the “unfair business practices” claim. Here’s the crux of that one:

On information and belief, Plaintiff alleges that Spotify: (a) depresses the value of the royalties owed to Plaintiff and the Class Members? for use of their Works through an arbitrary and non-negotiated payment structure; and (b) captures and holds funds which are otherwise distributable and earns interest thereon, thereby profiting off its own unlawful conduct. These business practices are unlawful and unfair pursuant to California Business & Professions Code § 17200

This again seemed like a non-starter to a few copyright lawyers I spoke to. First, it seems like it’s just another copyright claim, hidden as a state unfair business practices claim — meaning it might get tossed out. Copyright law is (nowadays) entirely a federal issue, and attempts to bring in state laws are generally tossed out as federal copyright law “preempts” such claims. Furthermore, since copyright law allows holding such royalties in escrow, it seems difficult to argue that this is somehow illegal under California law. And I have no idea what is even meant by “depresses the value of royalties owed.”

In the end, there’s a lot that’s not entirely clear about the lawsuit, and it’s left many people scratching their heads. It is possible under a unique set of circumstances (some of which would involve fairly egregious behavior on the part of Spotify) that Lowery may have a case here. Similarly, if a court decides that Section 115 doesn’t actually apply to streaming services, that would give Lowery a major win. But there are many, many arguments for why the lawsuit has little chance (Update: see the update above about why Spotify may not have complied with Section 115, which, if true, makes Lowery’s case stronger). The one issue that concerns me most, however, is whether or not he will actually start arguing that ephemeral copies represent a “reproduction” and/or “distribution” under copyright law. Either way… stay tuned.

Filed Under: copyright, david lowery, licensing, mechanicals, music streaming, section 115, songwriting
Companies: harry fox agency, hfa, spotify

First Amendment Concerns About Internet Radio Bill Not Just Overblown But Completely Backwards

from the let's-do-this-slowly dept

I’ve been tossing around a longish blog post about some of the controversy concerning the Internet Radio Fairness Act (IRFA) over the past month or so, but haven’t had a chance to put it all down in a blog post. I did, however, wish to pick up on a small thread that got a brief spark of attention from some people who don’t seem to understand legal stuff in the slightest. It started with musician David Lowery (you may remember him from past nonsensical rampages) claiming that Section 5 of the bill muzzled free speech and thus violated the First Amendment. This isn’t just wrong. It’s completely backwards. But the language and history here is a bit complex, so let’s dig in a bit.

First off, you have to understand that the amounts that satellite and internet radio pay for a “performance right” for broadcasting songs is not (generally) an individually negotiated rate, but rather is set by the Copyright Royalty Board, using a variety of questionable standards. As we’ve noted in the past, the CRB is notoriously bad at setting reasonable rates — and part of that is because part of its very charter is to block disruptive innovation if it has an impact on “generally prevailing industry practices.” Thus, it tends to set rates super high. This is exceptionally bad for innovation, competition and for artists in the long run, though I’ll get to that in another post. One thing that it more or less ensures is that these industries will be dominated by a very small number of super large players, because no one else will be able to afford the rates — and this effectively locks in the top guys. That’s what’s happened, as you have Sirius dominating satellite radio and Pandora dominating internet radio. But the rates are so crazy that it’s difficult to impossible for these companies to ever be profitable.

We’ll get back to that in a moment. But, now, go ahead and read the full text of the bill if you’d like. For this discussion, jump over to Section 5, entitled “Promotion of a Competitive Marketplace.” The section is relatively short.

SEC. 5. PROMOTION OF A COMPETITIVE MARKETPLACE.

(a) Limitation of Antitrust Exemptions-

(1) EPHEMERAL RECORDINGS- Section 112(e)(2) of title 17, United States Code, is amended–

(A) by inserting ‘, on a nonexclusive basis,’ after ‘common agents’; and

(B) by adding at the end the following: ‘Nothing in this paragraph shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1).’.

(2) DIGITAL SOUND RECORDING PERFORMANCES- Section 114(e) of title 17, United States Code, is amended by adding at the end the following:

> ‘(3) Nothing in this subsection shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1). > > ‘(4) In order to obtain the benefits of paragraph (1), a common agent or collective representing copyright owners of sound recordings must make available at no charge through publicly accessible computer access through the Internet the most current available list of sound recording copyright owners represented by the organization and the most current list of sound recordings licensed by the organization.’.

The important thing to understand here is that there’s currently an antitrust exemption for SoundExchange, the organization that collects money from internet and satellite radio offerings (and sometimes has difficulty finding artists to pay them). SoundExchange basically needs an antitrust exemption because it is, by definition, a monopoly. What the bill is doing is something simple which is actually beneficial for artists. It’s saying that SoundExchange can’t use that antitrust exemption to try to stop artists from having the option, if they want to go do direct deals with internet or satellite radio providers. The second part is similar, but not referencing an antitrust exemption. It’s just saying that any group that is representing multiple artists can’t seek to block other artists from choosing to do a direct deal.

Sirius XM, in particular, has been trying to negotiate direct deals that route around SoundExchange. Now, why would artists ever want to negotiate directly with a Sirius or Pandora when they’ve already got the Copyright Royalty Board forcing ridiculous high rates on those providers? It’s not as if those sites will choose to pay more directly. However, what they can do is offer better service than SoundExchange. That is: they can pay faster, they can provide more data and details, better access to users, etc. And that’s what both companies are attempting to do. Also, for artists who actually act as their own label, they can actually make more money because they’re cutting out a lot of middlemen who take their cut (it’s convoluted, but click that link to see the details).

So, short version: it’s certainly not for everyone, but some artists might find it beneficial to go direct. If they choose not to, they can still have SoundExchange collect and distribute their money and that’s fine as well.

Now, jump to March of this year… when Sirius sued SoundExchange and A2IM (the RIAA of indie labels) claiming antitrust violations. Sirius argues in its lawsuit that SoundExchange and A2IM conspired and colluded to effectively forbid artists from going direct. Because proving direct collusion is difficult, Sirius’ lawsuit is filled with circumstantial evidence, which doesn’t prove an antitrust violation, but infers that there might be fire behind the smoke. The goal, there, is to get to discovery to try to suss out some smoking guns of collusion. So, the lawsuit includes various bits of circumstantial evidence, including a number of artists and indie labels that Sirius reached out to who flat out told them that A2IM prevents direct licenses, or that they’d have to first ask A2IM for permission. As part of the circumstantial evidence, Sirius also points to this blog post from A2IM that argues against doing direct licenses.

That lawsuit is still crawling along, so it’s unclear if it’s going anywhere. Honestly, proving collusion is crazy difficult, and I doubt Sirius will succeed, but some of that circumstantial evidence is eye-opening.

And that leads us to Section 5 of IRFA. As you can read above, what it makes clear is that the existing antitrust exemption cannot be used to “prohibit, interfere with, or impede direct licensing” and similarly that any group acting for some artists could violate antitrust laws by blocking the free will of other artists to negotiate their own deals. In other words, the bill makes it clear that if A2IM or SoundExchange really are colluding to impede artists from choosing to do direct deals, that could be seen as an antitrust violation. This, then, is about protecting artists and indie labels from large organizations like SoundExchange or A2IM, should they try to block those artists and labels from voluntarily doing direct deals.

So you would think that self-declared, if often confused, “defender of artists rights,” David Lowery, would like that. But he doesn’t for reasons that suggest a serious misreading of the bill or misunderstanding of this background. He points to the language, and then at the text of the Sirius lawsuit, apparently not understanding the nature of circumstantial evidence, and argues that “This is the type of explanatory speech — not conduct — that Sirius XM thinks is illegal and IRFA definitely would outlaw.” The only problem with this statement is, well, everything. It’s wrong. Nothing in the bill would outlaw that kind of speech. At all. Nor does Sirius’ lawsuit claim that such explanatory speech is illegal. Instead, it is arguing that that blog post, along with a host of other circumstantial evidence, is enough to suggest there’s a fire somewhere providing all that smoke. Under IRFA, such blog posts would still be perfectly legal, so long as A2IM didn’t also use those blog posts to collude and directly hinder copyright holders from doing direct deals.

All that Section 5 of the bill is saying is that the A2IMs and SoundExchanges of the world can’t try to hide behind antitrust exemptions to argue that such coercion to block artists from doing direct deals is free from antitrust scrutiny. And, outside of the exemption, they also cannot restrict artists from doing direct deals.

And yet, Lowery (and some of his followers) have taken up the banner claiming that this is a First Amendment violation and that it censors free speech. What he seems to be missing is that the only speech it blocks is speech that is used to collude or to block artists from voluntarily making a deal. Under Lowery’s interpretation of the bill, collusion by large companies to force independent artists and labels to do business their way only is legal… because it’s free speech to collude..

That’s kinda nutty. His argument is, basically: legalize collusion!

A few weeks ago, Lowery gleefully confronted supporters of the bill with this argument at the Future of Music Coalition Conference, which led bill sponsor, Senator Ron Wyden, to hit back and claim that, as one of the strongest defenders of the First Amendment, he’d never support a bill that took away free speech rights. He promised Lowery that he’d review the specific language of the bill, and if there were any interpretations that impacted free speech rights, he’d fix them.

And he followed through with that, asking the Congressional Research Service to look into the matter, which it did. In a note published last week, they make it quite clear that it is extremely unlikely that there would be a First Amendment issue raised by the bill:

… it seems unlikely that, in practice, Section 5 would impinge upon First Amendment rights for a few reasons.

They then go on to detail those reasons — which can be summed up as, Congress has the right under its authority to regulate interstate commerce, to create antitrust law that blocks collusion (as it applies to interstate commerce). Basically, since antitrust law is Constitutional, so is Section 5:

The antitrust laws are generally considered to comport with the First Amendment, because though the Sherman Act may restrain speech on occasion, the restraint is incidental to Congress’s legitimate goal of maintaining a free market. In the case of Section 5, Congress would arguably be creating a similar prohibition, particularly since the bill specifically references the antitrust laws. As noted above, Section 5 would generally prohibit copyright owners acting jointly from taking any action to interfere with direct licensing negotiations. This provision appears to be intended to further the government’s interest in preserving the rights of individual copyright owners to negotiate directly with potential licensees without interference from entities like member-based royalty collection organizations. It could be argued that this is similar to Congress’s intent to preserve a free market by enacting the antitrust laws. Under Section 5 an individual copyright owner would have the option, as she always has, of negotiating royalty rates individually or collectively, but with an added protection from interference on the part of groups of copyright owners that might seek to prevent her from exercising her individual rights. If the provision is read to prohibit activity and speech similar to, and not broader than those prohibited by the Sherman Act, Section 5 likely would not violate the First Amendment for similar reasons that the antitrust laws do not violate the First Amendment. The restrictions on speech may be interpreted to be incidental to a valid exercise of Congressional authority to regulate interstate commerce.

In other words, exactly what we were saying: unless you’re arguing that collusion is legal because it’s free speech, the argument that Section 5 violates free speech is quite unlikely.

Because the CRS is quite thorough, it also does work through some scenarios under which the bill might possibly have Free Speech implications. But the only thing it can come up with is that a court would have to somehow interpret Section 5 to restrict speech beyond what’s in antitrust laws (i.e., beyond activity designed to restrain trade). Considering how vocal bill supporters have been about this clause not being intended to go beyond the law, it would be somewhat incredible for a court to have that interpretation.

Of course, to make things even more amusing, Lowery himself posted about this CRS destruction of his key argument… and declared victory. Why? Because the CRS report, in its typically even-handed manner, discusses Lowery’s scenario, of a blog post potentially violating Section 5, and notes that “though this hypothetical presents a broad interpretation of the language of Section 5, it is not an implausible one.” Lowery cuts off the text at that point and declares victory… conveniently leaving out the detailed explanation of why this isn’t a First Amendment violation (as explained above).

The confusion, it appears, stems from yet another misreading by Lowery of the CRS report. He interprets the “not implausible” claim to refer to his overall argument that the bill restricts free speech rights. But that is not what it is saying. It is saying that he is right that if a blog post somehow interfered with someone else doing a direct licensing deal — i.e., restricted interstate trade under existing laws — then it could violate the Act… but as such would not likely violate the First Amendment. So, the conditions here are that the blog posts themselves would have to actually impede trade, which the CRS report itself notes would require a very broad interpretation of the bill, one that is quite unlikely.

In the end, this appears to be much ado about nothing. The original complaint was a misread, which the CRS report clearly corrects, and Lowery doubles down by then misunderstanding the report itself. Still, from this vantage point, it’s been rather amusing to watch a somewhat confused David Lowery thinking that he’s “protecting artists,” while he’s been arguing against a provision in the bill that is actually 100% designed to protect artists against collusion to block them from doing their own deals — deals which (especially for truly independent artists) could be more lucrative. It would be almost comical, if it weren’t that a bunch of artists who haven’t understood all this have been parroting Lowery’s claims, believing that they’re arguing for their own self-interest, when the reality is that they’re literally arguing that organizations like SoundExchange and A2IM should be able to collude and block their ability to negotiate favorable deals.

Filed Under: antitrust, collusion, david lowery, first amendment, free speech, internet radio fairness act, irfa, ron wyden
Companies: a2im, sirius xm, soundexchange

Free Culture Is The Response To The Ethical Failings Of The Old Entertainment Industry

from the if-we're-going-to-talk-ethics... dept

I already posted the responses of a bunch of musicians and music industry folks to the whole David Lowery/Emily White kerfuffle, but there were two more responses that were so good and so thorough I wanted to cover them separately. The first is from Zac Shaw, a musician and indie label owner who argues that if there’s any ethical argument at all, it’s the one in favor of free culture.

Asking today’s music consumers to kindly start paying for recorded music again because it’s the ethical thing to do isn’t only unviable — it’s not the ethical thing to do anymore. Free Culture is an ethic, and I think I can speak for my generation when I say we believe it to be the high ground over the way the music industry used to be run.

Shaw talks about his own experiences as a musician, getting signed to a label, having a deal that was impossible to recoup, and then the realization that while they had a fanbase, it just wasn’t big enough to keep the band going. Unlike Lowery, Shaw isn’t upset about this. He notes that this is the reality of the market. But he looks around at what’s available today and he sees all sorts of opportunity. As he notes the people who are complaining loudest all seem to be the folks who were some of the very, very, very few musicians who succeeded under the old system. They tend to ignore all those who failed, because they liked it when they had gatekeepers keeping out the competition and keeping prices artificially high. But that was all based on lies and questionable behavior by record labels to keep out most musicians:

I’m going to level with you. You and many other Free Culture detractors are people from social circles with musicians that did well in the past but whose revenue dropped dramatically along with industry profits. I think the driver behind this blithely unrealistic “let’s go back to the way things were in the 90s” movement is pretty straightforward — you tasted profits from a business model that is no longer sustainable. You want your industry back.

We don’t.

Consider for a moment how were the profits of the “old” music industry won: By subjecting listeners and musicians — and indeed, our very culture — to a laundry list of horrendous commercial exploitation. Price fixing, payola, unpaid royalties, market monopolies, ticket surcharges, obscenely exploitative record contracts, manufactured popularity, censorship, perpetual copyright and destruction of fair use and the public domain… the list goes on and on. In short, the old way of doing things sucked and we don’t care if a few of that era’s successful artists no longer get mailbox money for music they recorded decades ago. We certainly don’t care if the record industry, which enabled these injustices, dies a slow, public death.

Shaw points out that, if anything, this new generation actually has much greater respect for musicians. What they don’t have time for are those labels that did all of those things to keep music away from the public and to keep musicians from getting paid in the past:

Today’s musicians are held in higher esteem by listeners than ever before, and it’s the industry that has lost their respect (and money), due to a history of unethical behavior.

And, in fact, the new tools of today are changing the balance of power, and enabling the artists who couldn’t even get in the door before to now reach out directly to fans and to build support without having to hand everything over to the gatekeeper:

Free Culture opponents often suggest technology somehow caused our generation’s desire for compensating musicians to evaporate. But it was clearly the corruption and ineptitude of the industry itself that is to blame for this negative attitude toward paying for music. Digital music technology provided the opportunity musicians and listeners have been waiting decades for — to balance the industry’s unchecked power, and maybe eke out a more sustainable living in the process.

Fans formerly had no apparatus to directly compensate artists. Now that they have tools like Kickstarter and Bandcamp, we’re seeing millions of dollars pouring directly into musician’s pockets.

As Shaw points out, Lowery and his friends want the next generation to “fix” the industry — but the only way they can think to do so is to try to go back in time and re-establish that old system. But they miss the fact that this generation is actually fixing the industry by providing the wonderful new tools and services to help musicians: helping them create, promote, distribute, connect and monetize. It’s just that it’s “different” than the old way:

That’s the thing about asking our generation to fix the record industry. We’re already doing it. We’re connecting artists directly to fans and bringing back patronage, a far less exploitative model that is emerging as the foundation of the new music career. We’re using crowdfunding to finance our work. We’re using digital tools to democratize distribution and licensing, with fairer publishing deals. Instead of basing our entire career on one album dropping or flopping huge, we’re ditching the LP in favor of a steady stream of singles, what fans really want. Apps are the new album. Production is going more lo-fi but is becoming more diverse and original in the process. These are the viable solutions I was talking about earlier. It’s all actually quite liberating because none of it involves being exploited by the music industry, and if it does, it’s certainly far less than in the past.

And yes, we’re selling T-shirts. I wouldn’t have to sell ‘em if I had a dollar for every time I heard, “your music is free, so what, you’re going to make a living selling T-shirts?” But the profit margin is good and they’re moving off the merch table like CDs used to. You have to realize that when the physical media that holds the music is no longer a profitable product, there are myriad replacements which tie the music to a physical product that can be profitably sold. The critical thing to realize here: the devaluation of the music recording increases the value of merch for the artist. Our fans are gonna spend $10 at our merch table anyway — should we sell them a T-shirt they will wear everywhere for a 150% markup, or should we sell them a CD they’ll burn and shelve for the statutory rate of 9.1 cents per song?

There’s a lot more in Shaw’s piece, and all of it is worth reading. Of all the responses to Lowery, Shaw’s seems like the most comprehensive one I’ve seen and makes the point eloquently — and shows how Lowery’s distorted view of the world misses the bigger picture. Lowery is defending the 1%. The small group of musicians who were allowed through the gatekeeper system in the past, against what’s actually best for the vast majority of musicians and fans. The new technologies and services that Lowery and his friends blame are actually enabling a great new world for all sorts of musicians who would have had no place in the world beforehand. Lowery’s friends can insult those artists, and insinuate that a failure to go through the old system shows they’re “untalented,” but any real attempt to look around at the content being produced today would show you that’s crazy. There’s so much wonderful content being produced — and much of it by artists who are embracing all of the amazing things that the internet allows.

The second post is by Dave Allen — whom we’ve written about before. Allen, of course, was a member of one of the seminal post-punk bands, Gang of Four, and has been very involved in both the music and tech worlds for years. He’s always fun to talk to, because he always makes me see the world differently than I did at the start of the conversation. So I knew I’d be interested in his take on the whole kerfuffle, and he does not disappoint. At all. Go read the whole thing, entitled: The Internet could care less about your mediocre band. In it, he makes a ton of good points, but it all comes back to two things: (1) the old system was horrible and corrupt and most artists never made much money at all and (2) the new system has tons and tons of opportunity, but not if you aren’t very good or if you sit around complaining about people not buying music, rather than figuring out how to embrace all the amazing new opportunities. I know this post is already really long, but here are just a few snippets of Allen’s writeup (though, again, read the whole damn thing):

I take issue with it in its entirety because Lowery is attempting to solve the wrong problem. He is attempting in the present to solve a problem of the past – lack of music sales; ergo, damage to musicians income levels or lack thereof since the advent of the Internet. (Oddly he doesn’t mention that the music industry is most likely the only industry to ever, ever, sue its own customers. An inconvenient truth.) He even lays out in fine detail how much Emily would owe if she’d paid for all of her music (most of which came from the labels as “promos”. Once again Lowery doesn’t mention how music writers and radio DJ’s sold those promos to record stores..just saying.) He then asks her to cough up the dough for starving musicians.

He also rather insensitively points out, while undermining his argument, that “the average income of a musician that files taxes is something like 35k a year w/o benefits.” That’s almost $10k more than the current US median wage. There are around 8 million unemployed people here in the USA, many without a place to call home, who would gladly take that income. I find him so condescending that I want to break something right now.

I also find it disgusting that Lowery conjoins the deaths by suicide of Vic Chesnutt and Mark Linkous to this topic. He knows very well that those two brave artists, much braver than he, suffered through circumstances that were extremely personal and difficult to control. Had they been musicians or not, had nothing to do with the incredibly unfortunate outcome of their lives. It only goes to show how shallow and specious his entire argument is if he has to pivot it on their deaths.

He goes on to point out the flawed premise with not just Lowery’s rant, but the very basis of Lowery’s blog:

In what may, or may not, have been a misstep, Lowery posted his rant to The Trichordist blog whose tag line, Artists For An Ethical Internet, says it all. In using that tag line they show in brilliant light how much they misunderstand what the Internet is. And by doing so they undermine the very validity of their presence on the Internet. They can yell at the Internet into infinity and it will never blink.

The Internet can not be ethical. Only users of the Internet can be said to be ethical, moral, or philosophical; they may be terrorists, kidnappers, racists, deviants; they could also be atheists, religious zealots or spiritualists; they might be gay, straight, bi, married, divorced; employed, destitute…the list goes on. Whoever they may be they are users. The Internet is its own thing. The Internet doesn’t give a damn about musicians or your mediocre band.

And finally there’s this – Lowery writes about “immoral and unethical business models.” And includes this – “..they are “legitimate” companies like Google.” What’s with the quotes around “legitimate” does Lowery think Google is not legitimate? No, he thinks Google is the problem (read Devil..) because Google in his mind owns the “Unethical Internet” because of its advertising prowess. And I quote – “Google is also selling ads in this neighborhood and sharing the revenue with everyone except the people who make the stuff being looted.” Looted! Unbelievable.

He then rambles on about the “cost” of free music downloading – the $1000 laptop, the costly iPhone or Tablet, as if people only use these products to download music! He also falls into the same trap that U2′s manager, the ISP bully Paul McGuinness, falls into – blame the ISP’s for allowing access to the Internet, where as we know, people only go to steal music.. McGuinness is so well informed about the Internet that in the Billboard article I linked to he talks about the Googles! And he also said this about Apple and Google – “They didn’t invent the MP3, they just made the best one.” Erm.., what?

Clearly this a fool’s errand. At least we know who the fools are. They are what the economist Paul Krugman calls “Very Serious People,” for only they know how to fix things.

While my response to Lowery’s original post was that there wasn’t anything new about it, since the same arguments have been debunked repeatedly in the past, the acceptance by many that Lowery actually knew what he was talking about has made it worthwhile to respond. Lowery’s piece has inspired lots of interesting commentary on the difference between looking backwards and moving towards future opportunity — and that is worth discussing. And I’m glad people like Dave Allen and Zac Shaw decided to do so.

Filed Under: dave allen, david lowery, emily white, ethics, gang of four, zac shaw

Myth Dispensing: The Whole 'Spotify Barely Pays Artists' Story Is Bunk

from the can-we-stop-spreading-the-myth? dept

One of the key talking points that we’ve heard from the “haters” of the new music business models is the claim that Spotify pays next-to-nothing to artists. This is really based on a few stories, taken totally out of context, concerning a few artists who received relatively small checks from Spotify. David Lowery actually used this as a key point in his screed against young music fans and their supposedly “unethical” behavior: to him, even if you are listening to a legal, licensed service like Spotify, you’re “unethical” because he’s heard rumors that Spotify doesn’t pay enough.

However, the more you look, the more you realize that Spotify actually pays out quite a lot. A few months ago, someone at one of the music collection societies told me about an analysis they had done concerning the amount of money paid per listen — comparing Spotify to radio, iTunes and lots of other things. When you knock it down to a per listen basis, it turns out that Spotify pays a hell of a lot more than any of those other sources. It’s just that it’s incremental so it looks smaller. With iTunes, people pay per download, not per listen, so you basically upfront a certain amount of money and then no more money is ever paid for listening to those songs. With radio, there is (effectively) a per listen rate (outside the US if we’re talking performances), but it’s aggregated because it’s effectively spread among all the listeners. So, Spotify makes it incremental, and it seems small. but when measured on a per listen basis, the amount is significantly higher (as in an order of magnitude) than other things. The other bit of confusion about this is that Spotify is still new, and it’s growing. But start from a small base, and it’s easy to be confused by small numbers.

However, the info is starting to get out. Evolver.fm has some interesting details, starting with a leaked report showing that the payouts from Spotify to labels (including indies) have been increasing massively. They also have an interview with Merlin’s CEO (Merlin represents a bunch of indie labels, giving it a lot of clout in negotiations). And Merlin says the claims of Spotify not paying out are bogus:

Spotify’s payouts to Merlin’s 10,000-plus indie labels rose 250 percent from the year ending March 2011 to the year ending March 2012. More importantly, the revenue per user (RPU) “has grown significantly alongside the overall revenue growth and is currently the highest it has been since the launch of the service,” said Caldas. “We see consistent, ongoing growth on revenue per user, revenue per stream, and the total revenue the service brings.”

So what’s the real issue? Well, as Merlin’s CEO says, Spotify pays labels, not artists. And labels aren’t always great about paying artists. That’s not Spotify’s fault. It’s what you get when you sign up for a major label that demands your copyrights (you know, the kind of system that David Lowery insists is better). There’s also the issue with the growth of the service. Again, Merlin’s CEO points out that Spotify has been growing a lot (helped along by its adoption in the US), but payments do take some time, first from Spotify to labels and then from labels to artists (if the labels ever do pay). So what artists are seeing is payments from quite some time ago, not what’s actually happening today.

Meanwhile, Hypebot has a great interview with D.A. Wallach, who is both half of the very successful band Chester French (who we’ve written about for their amazing ability to connect with fans and their cool ideas like encouraging fans to share their music), and also the “artist in residence” at Spotify — where he helps present the artist’s viewpoint, and act as a liaison with other artists. In the interview, he points out that about 70% of Spotify’s revenue is being paid out to copyright holders at this point:

Anyone who doesn’t think we’re paying a fair cut hasn’t seen the numbers we pay out. By far the vast majority of the money we’re making goes back to the owners of the music – about 70%. When compared to iTunes, the average listener spends 60dollarsayearintothecreativecommunity,whereasSpotifyPremiumusersspend60 dollars a year into the creative community, whereas Spotify Premium users spend 60dollarsayearintothecreativecommunity,whereasSpotifyPremiumusersspend120 per year. As “the pie gets bigger” so to speak, so do the royalty payments. The growth of the platform is proportional to the royalty pay out and since inception we’ve already doubled the effective per play rate.

Of course, once again, the money is going to the labels, and it’s the label’s job to disperse it to the artists. But to use those small payments as evidence against the “new” system is wrong, since it’s still the “old” labels hanging onto the money.

There are, still, some legitimate concerns about how Spotify splits up its proceeds between major labels and indies, since the majors have an equity stake. So there is a reasonable concern about fairness. But the claim that Spotify just doesn’t pay very much to artists is simply unfounded.

Filed Under: chester french, d.a. wallach, david lowery, itunes
Companies: merlin, spotify

Some Facts & Insights Into The Whole Discussion Of 'Ethics' And Music Business Models

from the well-needed dept

I know we’ve written a few times now about David Lowery’s now infamous shaming of an intern because she apparently doesn’t give him enough of her money, but that story keeps getting attention. Thankfully, a lot of that attention comes in the form of people from all over the music business popping up to explain (1) how Lowery’s factual claims are false , (2) his ethical claims are silly and (3) it’s time to get with the future, rather than pine for a mythical past that never existed. Here’s a collection of some of the more interesting such posts.

First up, we have Jeff Price from Tunecore — the company that helps thousands of artists release and sell music. Jeff has more data on how artists make money than probably anyone else alive. And he says that nearly all of Lowery’s factual claims are wrong, or at best, misleading. Here’s a snippet, but the whole thing is worth reading:

Well here’s some truth about the old industry that David somehow misses.

Previously, artists were not rolling in money. Most were not allowed into the system by the gatekeepers. Of those that were allowed on the major labels, over 98% of them failed. Yes, 98% .

Of the 2% that succeeded, less than a half percent of those ever got paid a band royalty from the sale of recorded music.

How in the world is an artist making at least something, no matter how small, worse than 99% of the world’s unsigned artists making nothing and of the 1% signed, less than a half a percent of them ever making a single band royalty ever?

Finally, as much as I hate to say it, being an artist does not entitle the artist to get money. They have to earn it. And not everyone can.

This is a point that Lowery and his friends always ignore: because they don’t count all the bands that failed under the old system. Those artists don’t matter to them. The fact that those guys can make some money today where they made $0 before means nothing to them. The only artists who count are the artists who used to make lots of money, but don’t make much money any more. Another example of Lowery being wrong that Price responds to is the claim that recorded music revenue to artists has been going down. Price has data:

This is empirically false. Revenue to labels has collapsed. Revenue to artists has gone up with more artists making more money now than at any time in history, off of the sale of pre-recorded music.

Taken a step further, a 17.98listpriceCDearnedaband17.98 list price CD earned a band 17.98listpriceCDearnedaband1.40 as a band royalty that they only got if they were recouped (over 99% of bands never recouped).

If an artist sells just two songs for 0.99oniTunesviaTuneCore,theygross0.99 on iTunes via TuneCore, they gross 0.99oniTunesviaTuneCore,theygross1.40.

If they sell an album for 9.99oniTunesviaTuneCore,theygross9.99 on iTunes via TuneCore, they gross 9.99oniTunesviaTuneCore,theygross7.00.

This is an INCREASE of over 700% in revenue to artists for recorded music sales.

Yeah, but you have to actually work at it now. Go read Jeff’s entire writeup. It’s pretty damning for Lowery.

Next up, we’ve got famed musician/producer Steve Albini’s response, in which he notes that Lowery’s facts are wrong and he’s pining for a past that doesn’t exist and ignoring all sorts of new opportunities:

In addition to vastly overstating the generosity of record labels toward artists in the old paradigm, Lowery openly sneers at the booming avenues for income that define the new music industry, merchandising and live performance.

As is true every time an industry changes, the people who used to have it easy claim the new way is not just hard for them but fundamentally wrong. The reluctance to adapt is a kind of embarrassing nostalgia that glosses over the many sins of the old ways, and it argues for a kind of pity fuck from the market.

It’s doomed thinking. When it became obvious that the studio recording industry was not going to remain an analog domain, we built Electrical Audio to be as self-sufficient as possible so we could continue to use those methods we thought had important advantages despite changes in the greater industry. We didn’t whine at the moon and expect the rest of the industry to indulge us. We also bought a Pro Tools rig to accommodate the sessions that weren’t going to be done in the analog domain regardless.

Adapt to conditions or quit. Bitching is for bitches.

Next up, we’ve got successful “internet-era” musician Jonathan Coulton, who Lowery and his friends are claiming wrote a post supporting them. But that’s only if you read the beginning, where Coulton claims that he agrees with Lowery. If you actually read the whole thing, Coulton’s point is much more clear. He agrees that artists should get compensated, but scolding your customers is no way to do it. In fact, he talks about how exciting the future is going to be where more and more stuff is available for download for free, and how that will shake up lots of industries, beyond just music — and just how exciting that is:

This is my bias: the decline of scarcity seems inevitable to me. I have no doubt that this fight over mp3s is just the first of many fights we’re going to have about this stuff. Our laws and ethics already fail to match up with our behaviors, and for my money, those are the things we should be trying to fix. The change is already happening to us, and it’s a change that WE ARE CHOOSING. It’s too late to stop it, because we actually kind of like a lot of the things that we’re getting out of it.

My one quibble with Coulton is that he seems to accept it as fact that artists make less money these days. His own experience and number from folks like Jeff Price above show that’s simply not true. It may be true that the small circle of folks, like Lowery, who had some success in the past under the old system, and who then fail to adapt, may make less money, but that’s the nature of a competitive marketplace.

Former record label guy Ethan Kaplan, whose insights we’ve discussed before, also weighed in with a more philosophical take, which is worth reading too. He makes two key points. As a guy who ran technology for Warner Music, he certainly has first hand knowledge about the role of innovation in the music business, and according to him, innovation was seen as a problem, because it broke the gatekeeper basis on which the old labels were built:

Innovation was antithetical to value for content, as it diminished the use of accessibility to increase relative worth.

Get that? He’s pointing out that the labels’ entire model was built on them being the gatekeeper — limiting accessibility, in order to artificially suppress supply to keep prices high. The problem with innovation is that it inevitably moves towards greater efficiency. And that means pulling down artificial barriers. In the end, that’s what Lowery is really complaining about, even if he doesn’t realize it. He and his friends who once had some success as musicians face a more difficult world not because of unethical kids or because of technology… but because the way they used to make money was based on an artificial barrier that limited supply and competition, and allowed them to artificially inflate prices. It was good for them, but sucked for everyone who was kept out of the market. Why do you think this same crew is now arguing for a “new elitism” and directly insulting artists who succeed through more open means? It’s because they want to go back to a limited supply. That’s not happening.

And that brings up Ethan’s second key point. There is no right to make money:

It is not a musician’s god given right to make money from their art. No one ever said this would continue as is.

This is a hard lesson. It doesn’t mean that copyright isn’t important. It doesn’t mean that artists can’t make money. It just means that it’s not a given, nor is it the responsibility of others to make this possible.

No one has ever had a “right” to make money from what they create. They have a right to try to do so. And many people have figured out how to do so under the current system. Those complaining don’t seem to understand that you don’t just get to sit back and have people give you money. You have to work at it, every day. That’s the lesson Amanda Palmer provided everyone with her massively successful fundraising. She didn’t raise that money based on any “ethical” arguments or anything having to do with copyright at all. In fact, she’s explained how infringement has always helped her. She’s able to do that because she works hard every single day to not just create great music, but to connect with her fans at a very deep level. She doesn’t scold her fans — she celebrates them. And because of that, she can make a ton of money and her fans love her for it.

Finally, we’ve got musician Travis Morrison, who was in a decently successful band (Dismemberment Plan) for a while and now works for the Huffington Post. He points out that this argument that there’s some sort of ethical issue with the “kids these days” ignores the fact that past generations got music for free too, and for him, it was a huge boost to both his fandom and his desire to become a musician:

Music is so important to people. It is majorly important to young people. And to me? Literally somewhere below water and air but above food. And I just went for it. I bought a lot of music; I got a lot of free music from whatever sources were at hand; I just had to have it by any means necessary. If you duped a copy of a Dismemberment Plan record in college or something, it’s cool. I guess I’d like to have the money, but you know what, I hope you just listened to it with even 1/10 of the consciousness I gave to the music I listened to as a kid–copied, stolen, or bought. And you know, maybe take some of the sermonizing from my peer group with a grain of salt. I think some of them did some of the things I did. Or… maybe a lot of them.

He’s basically reinforcing the original point that Emily made and which kicked this whole thing off. Access to music and compensation of artists are two separate issues. The fact is that people know that the technology today enables access to pretty much every piece of music around. And it’s a shame that we try to suppress that. The issue of compensation is somewhat separate from that — and plenty of smart musicians are figuring it out. But arguing that access automatically means you need to compensate musicians at a high level (remember, Spotify’s no good according to this bunch) or it’s “unethical” just doesn’t make sense, and has never made sense.

This debate has been interesting, but I’m glad to see that tons of people who live directly in that world have been coming out to correct the many inaccuracies in Lowery’s post, which a few too many people took as gospel without understanding the details.

Filed Under: david lowery, emily white, ethan kaplan, ethics, jeff price, jonathan coulton, steve albini, travis morrison
Companies: tunecore

A Business Model Failure Is Not A Moral Issue

from the sorry dept

We already wrote about David Lowery’s rant against a young girl for not paying enough for her music, noting that his whole focus seemed to be on pining for some mythical past that never existed, rather than dealing with market realities. Some folks have suggested that we “ignored” the moral arguments he was making, which Lowery’s supporters insist are “resonating” with people. Even the NY Times and the LA Times both have discussed it, among many others. The NY Times’ Ben Sisario gets it right, noting that “history has shown that heavy-handed moral arguments about music — or any other form of online entertainment, for that matter — are seldom effective.” The LA Times’ August Brown, however, seems to skip over all the factual errors, misleading statements and just outright laughers to suggest that the post is worthwhile (playing to the hometown Hollywood crowd, it seems).

Lots of others have weighted in as well, including musicians like Erin McKeown, who notes that “artists must generate their own solutions”, and another Emily White (who happens to have founded some record labels), and says that the other White’s post was dead on and she’s ashamed that the music industry is so far behind giving consumers what they want.

Then there’s long-term music industry guy, Wesley Verhoeve who makes a number of good points in his writeup, including the key one on the moral question, which was why we didn’t bother to dig into it originally:

This is not about morals. This is about smarts. It’s not about being right or wrong. It’s not about rebelling. It’s about a giant shift in consumer behavior and how we as an industry deal with that.

The moral claim is a silly one. It’s a distraction that sounds good but is meaningless. The issue here has nothing to do with morals. And that’s especially true if you read the details of Emily’s original post on NPR, in which she notes that she doesn’t do “file sharing” per se, but gets her music from a variety of sources, including friends and platforms like Spotify. Lowery’s real argument isn’t about “piracy”, it’s about a failed business model — because he’s even pushing this ethical guilt trip on legal offerings like Spotify, because (according to him) they don’t pay enough.

When you look at the details, you realize that Lowery isn’t making a true moral claim. He’s claiming that any business model, whether its legitimate or not, that allows musicians to not make enough money is, inherently, immoral. But that’s ridiculous. If that’s the case, then the old record label model is even more immoral, in that it paid next to nothing to tons of artists and then got to keep their entire copyright. Lowery’s math is laughable. He talks about advances, but leaves out that those “advances” are then used to pay for everything, leaving almost nothing for the actual artists.

This is about failed business models, not morals. If you have a bad business model, you fail. End of story. If you have good content, an ability to connect with fans, and a good business model, you’ll absolutely succeed today. We see it over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over again. And those were just the stories I could remember off the top of my head. There are tons more.

Point being: there are a ton of people who have realized that they’re much better off under the new system. There are some people, like Lowery, who feel they’re worse off. At that point, you have to realize it’s not a moral issue, it’s a business model or a market issue. If it were purely a moral issue, there wouldn’t be so many stories about successes in the new world, because that would be impossible. All of those artists would be suffering. But the fact that so many are finding success shows that it’s really about the choices being made by the artists themselves. Do they embrace what the consumers want — which was all that Emily was really pointing out in her piece — or do they scold them and demand that they support them in the old way?

It’s got nothing to do with morals, because there isn’t a moral question here. There are tons of business models that work today and work amazingly well. I am sure — because he’s brought it up before — that Lowery or his friends will point to some Bureau of Labor stats claims about the number of full-time musicians declining. That is, at best, misleading. Remember, in the same period, the major record labels themselves have become even more focused on putting all of their effort behind one or two superstars. It’s that old system that has resulted in a focus on a very very small number of professional musicians. If you look at independent artists they’re growing rapidly.

And, if you know anything about the pace of innovation, you know that it takes those who are focused on the old system quite some time to catch up. So it’s no surprise that plenty of musicians of Lowery’s era simply refuse to really embrace what’s available (and, no, pointing out that you have songs on iTunes is not the answer — though I find it amusing that Lowery scolds White for not using iTunes when he, himself, once claimed that iTunes adds no value and is nothing but a parasitic “host”).

About six years ago, we wrote about why there is no moral question to answer, because if the economics says that everyone can be better off — i.e., musicians can earn more money and consumers can get what they want — then there is no moral quandary or conflict. But, of course, there are some people who are “worse off”: Lowery and his friends. But the question is whether that is due to the choices of the people he scolds — the fans — or through his own failure to put in place a business model that works.

Companies fail all the time. Lowery uses the emotional stories of two musicians who took their own lives to add additional weight to his moral argument. But, up here in Silicon Valley, you can’t throw a stone without hitting a failed entrepreneur. And sometimes they, too, take their lives. It’s very sad. Having your business fail on you is no fun at all. I know, I’ve been there. But it’s not a moral issue. No one had a moral requirement to give me money when the startup I worked on in the 90s flopped. It was gut-wrenching, and massively depressing. But I had to move on and do something different — something that had a market that was willing to pay. I figured that out. That’s the same thing that many musicians are going through today. They are facing tough challenges, not unlike entrepreneurs. Many fail, some succeed. We recognize that as capitalism. But, for whatever reason, many of those failing today seem to want to turn it into a moral issue.

It may pull heart strings, but it won’t solve the business model issue.

Filed Under: august brown, ben sisario, david lowery, emily white, gatekeepers, moral arguments, wesley verhoeve

David Lowery Wants A Pony

from the the-rest-of-us-live-in-reality dept

I’m kind of amazed at how many people have been sending over, tweeting or submitting David Lowery’s “Letter to Emily White at NPR All Songs Considered.” Everyone seems to think there’s something worth commenting on there, but I can’t find it, frankly. Lowery, as we’ve discussed before, has some nonsensical ideas about the strawman he thinks is “the new music business model” which is somehow worse than “the old music business model.” He’s both right and wrong. It’s “worse” for some people and better for others, but there’s one thing that’s not debatable: it’s not going away.

His letter to Emily is both right and wrong. He exaggerates what Emily actually said, and paints her as some massive pirate, despite the fact that she doesn’t use file sharing networks and the gist of her blog post at NPR was basically that she and her generation just don’t see the point of “owning” music any more since it’s so widely available. Access, not ownership, as they say. But to Lowery, that appears to be a huge sin, because the way a few musicians made money in the past was to sell music, and thus, forever must it be the same.

Toss in some righteous indignation that some tech companies have figured out ways to provide useful services that people want to buy, a confusion over correlation and causation… and suddenly Lowery claims to have made a “moral” argument that we should all go back to paying for music in a world where many people don’t see how that makes sense.

Yes, and I’d like a pony too.

Look, I spend an inordinate amount of time looking at new business models for content, because I think it’s important to support culture. But my focus is on what’s working in today’s market, not pining for the way things used to be. As Bob Lefsetz eloquently said in response to Lowery:

While we’re at it, why don’t we save the printers’ jobs too. And bring back Smith-Corona. That company had employees…

I believe artists should be paid. But that does not mean they should be paid the same way they used to be

There are amazing new business models that work. What doesn’t work is sitting around and pining for the old days or lecturing people on a “morality” that they clearly don’t agree with (and its even worse when you try to make them guilty for using services they find useful). That’s just not a workable strategy. Again, to Lefsetz:

To be fighting file-sharing is akin to protesting dot matrix printers. File-trading is on its way out. Because it takes too much time to do it. And you don’t fight piracy with laws, but economic solutions. It doesn’t pay to steal if you can listen instantly on Spotify and its ilk.

And please stop bitching about the low payouts… That’s like saying Apple should liquidate and give the proceeds back to its stockholders, which is what Michael Dell so famously said in the nineties. Spotify is a trojan horse. You get hooked, and then you pay for higher quality on your mobile. Facebook stock gets hammered because of its inadequate mobile strategy and you’re not smart enough to see the connection to music??? You can’t get Spotify and its brethren on your handset without paying. And you will. Because you like the convenience of having all your music at your fingertips all the time.

The complaints of low Spotify payouts are a mirage. Go talk to Jeff Price, a guy who knows this stuff better than just about anyone, and let him explain just how the streaming world is developing. There’s a huge and growing opportunity here, and people who look at the snapshot view rather than the trends are missing the big picture. The innovator’s dilemma teaches us that the old guard always mocks the new players for being too small or not paying enough. But they miss the trendlines for the snapshot. And when the trendlines converge, they get run over.

David Lowery can ask for a pony all he wants, but it doesn’t change the reality. Let’s focus on the reality of the models that are working and the opportunities to enable more great new things. Lefsetz points out that we should focus on making great music and the other things will start to sort themselves out. Price points out that if we focus on enabling more useful services (the kind that Lowery dumps on) there’s a ton of money to be made (more than ever before). There’s a world of opportunity there, but David Lowery wants a pony and wants to make a moral example out of a young music lover who just wants to listen to music.

David Lowery wants his pony, sees a tide to hold back, and plenty of windmills to tilt at, but the rest of us prefer to live in the real world.

Filed Under: bob lefsetz, david lowery, emily white, file sharing
Companies: spotify