Christian L. Castle, Attorneys -- Austin, Texas

Austin Music Lawyer

We practice in transactions at the nexus of the traditional music industry, content based technology and public policy.

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Copyright Royalty Board Posts Deadlines and Final Rules for MLC Assessment Proceeding

If you want to participate in the negotiation of the “assessment” for the operating costs of the Mechanical Licensing Collective, the clock is ticking—July 23, 2019 is your deadline to file.

There was no advance commitment or agreement on the budget or business plan for the Mechanical Licensing Collective (MLC) under Title I of the Music Modernization Act. Recall that a major selling point of the MLC was that the services using the compulsory license for streaming mechanicals would pay for the startup and operating costs of the MLC, including the elusive global rights database that has been tried so many times before at great expense.

It now appears that the clock is ticking on a voluntary agreement before the parties have to go before the Copyright Royalty Judges to be told what the budget (or the “assessment”) is to be.  The Copyright Royalty Board has beat the July 8 deadline for noticing the proceeding and has posted the notice and the rules for the hearing.

The “Notice announcing commencement of Initial Administrative Assessment proceeding and requesting Petitions to Participate” can be found here:

The regulations require the participation of the MLC and the Digital Licensee Coordinator (DLC) in the proceeding and permit the participation of copyright owners, digital music providers, and significant nonblanket licensees. 37 CFR 355.2(c)–(d).

The Judges hereby announce commencement of the proceeding, direct the MLC and the DLC to file Petitions to Participate, and request Petitions to Participate from any other eligible participant with a significant interest in the determination of the Initial Administrative Assessment…

Any participant that is an individual may represent herself or himself. All other participants must be represented by counsel….

Petitions to Participate and the filing fee are due on or before July 23, 2019.

The CRJ’s rules relating to the proceeding can be found here and have some relevant language relating to who can participate in the negotiation of the administrative assessment negotiations in addition to the MLC and DLC:

[T]he Judges believe that the views of other participants may be helpful, and perhaps essential, for the Judges to determine whether good cause exists to exercise their discretion to reject a settlement. The Judges, therefore, have modified [the regulations for the settlement negotiations and proceeding] to clarify that participants other than the MLC and DLC may participate in settlement negotiations and may comment on any resulting settlement.

This proceeding is relevant for both copyright owners and digital services not represented by the DLC.  Copyright owners will have to pay to ingest their metadata into the new global rights database when it is built. As I noted in a 2018 Newsmax post, all digital services will have to bear an allocation of the startup and operating costs before they can take advantage of the compulsory license—in addition to an unknown membership fee in the DLC. And then there’s the songwriter royalties, of course..

Both costs are unknown until there’s a voluntary agreement between the MLC and the DLC (all others being excluded from those negotiations) or the CRJs becomes final with all appeals exhausted. 

Arithmetic on the Internet: The Ethical Pool Solution to Streaming Royalty Allocation

by Chris Castle

(Published by Hypebot as Arithmetic Online: The Ethical Pool Solution to the Streaming Royalty Calculation)

“Sick of my money funding crap.”
A Fan’s Tweet

Subscription services are one of the few secular trends in the current economy that is not yet reactive to trade wars or interest rates.  Subscription services are found in many areas of the economy, but music drives some of the big ones like Spotify, Amazon and especially the razor-and-razorblades plays like Apple.  

But per-stream royalties do not come close to making up for the CD and download royalties they cannibalize.   Not only do subscription retail rates need to increase, but it's also time for a major change in the way artist's streaming royalties are calculated from what is essentially a market share approach to one that is more fair. I call my version of this the “Ethical Pool.” I’ll only address subscription revenue here, but a similar approach could be devised for ad-supported or other business models.

Artists’ dismal streaming royalties on music subscription services are largely based on a simple calculation:  A per-stream payment derived from a share of the service’s revenue prorated by number of streams.  Artists get a portion of a service’s monthly revenue (at least the revenue the service discloses) based on a ratio of your plays to all the plays.  Your plays will always be a lot smaller than the total plays.  (This is essentially what Sharky Laguana referred to as the “Big Pool.”)

Sounds simple, but mixed with the near-payola of Spotify’s playlist culture and Pandora’s “steering” deals, it’s really not.  Negotiating leverage allows big stakeholders to tweak the basic calculation with floors, advances (aka breakage), nonrecoupable payments and other twists and turns to avoid a pure revenue share.

It also must be said that stock analysts and venture investors always—always—blame “high” royalties for loss-making in music services.  This misapprehension ignores high overhead such as Spotify’s 10 floors of 4 World Trade Center or high bonus payments such as Daniel Ek’s $1,000,000 bonus paid for failing to accomplish half of his incentive goals stated in the Spotify SEC documents.

Of course all these machinations happen behind the scenes.  Fans are not aware and it's virtually impossible for any label or publisher to tell an artist or songwriter what their per-stream rate is or is going to be.

Fans Don’t Like It

So neither fans nor artists are happy with the current revenue share model.  Many artists will tell you that the playlist culture and revenue share model are actually destructive.  

Dedicated fans often don’t like it  either (after they understand it) because it gives the lie to supporting your favorite artist by streaming their music.  Artists don’t like it because unless you have a massive pop or hip hop hit, all you can aspire to is a royalty rate that starts in the third decimal place from the right if not the fourth.  This is compounded for songwriters.   (See Universal Music Publishing’s Jody Gerson on streaming royalties for songwriters.)

Simply put, if a fan pays their subscription and listens to 20 artists in a month, that fan likely believes that their subscription is shared by those 20 artists and not by 200,000 artists, 99.99% of whom that fan never listened to and probably never will, similar to Sharky’s “Subscriber Pool.”

This is why some artists like Sharky Laguana (and their managers) have begun arguing for replacing the status quo with “user-centric” royalties that more directly correlate fan listening to artist payments.  I have a version of this idea I call the “Ethical Pool.”  

How Did We Get Here?

How in the world did we get to the status quo?  The revenue share concept started in the earliest days of commercial music platforms.  These services didn’t want to pay the customary “penny rate” (as is typical for compilation records, for example), because a fixed penny rate might result in the service owing more than they made--particularly if they wanted to give the music away for free to compete with massive pirate sites.

Paying more than you make doesn’t fit very well with a pitch for a Web 2.0, advertising driven model:  All you can eat of all the world’s music for free or very little, or “Own Nothing, Have Everything,” for example.  It also works poorly if you think that artists should be grateful to make any money at all rather than be pirated.

Revenue share deals for big stakeholders have some bells and whistles that leverage can get you, like per-subscriber minimums, conversion goals, top up fees, limits on free trials, cutbacks on “off the top” revenue reductions, and the percentage of revenue in the pool (50%—60%-ish).  Even so,  the basic royalty calculation in a revenue share model is essentially this equation calculated on a monthly basis:

(Net Revenue * [Your Streams/All Streams])

Or ([Net Revenue/All Streams] * Your Streams)

In other words all the money is shared by all the artists.

Sounds fair, right?

Wrong.  First, all artists may be equal, but on streaming services, some are more equal than others.  Regardless of the downside protection like per-subscriber or per-stream minima, the revenue share model has an inherent bias for the most popular getting the most money out of the “Big Pool.”  (This is true without taking into account the unmatched.)

And of course it must be said that the more of those artists are signed to any one label, the bigger that label’s take is of the Big Pool.  So the bigger the label, the more they like streaming.

Conversely, the smaller the label the lower the take.  This is destructive for small labels or independent artists.  That’s why you see some artists complaining bitterly about a royalty rate that doesn’t have a positive integer until you get three or four decimal places to the right.  Why drive fans away from higher margin CDs, vinyl or permanent downloads to a revenue share disaster on streaming?  

Yet it increasingly seems that we are all stuck with the nonsensical streaming revenue share model.

Do Fans Think It’s Wrong?

There’s nothing particularly nefarious about this—them’s the rules and rev share deals have been in place for many years, mostly because the idea got started when the main business of the recorded music business was selling high margin goods like CDs or even downloads.  Low margin streaming didn’t matter much until the last couple years.

It was only a question of time until that high margin business died due to the industry’s willingness to accept fluctuating micropennies as compensation for the low-to-no margin streaming business.  (I say “no margin business” because the costs of accounting for streaming royalties may well exceed the margin—or even the payable royalty—on a per-stream basis when all transaction costs are considered as Professor Coase might observe.) 

So understand—the revenue share model is essentially a market share distribution.  Which is fine, except that in many cases, and I would argue a growing number of cases, when the fans find about about it, the fans don’t like it.  They pay their monthly subscription fee and they think their money goes to the artists they actually listen to during the month.  Which is not untrue, but it is not paid in the ratio that the fan might believe.  Fans could easily get confused about this and the Spotifys of this world are not rushing to correct that confusion.  

Here’s the other fact about that rev share equation: over time, the quotient is almost certain to produce an ever-declining per-stream royalty.  Why?  


If the month-over-month rate of change in revenue (the numerator) is less than the month-over-month rate of change in the total number of streams or sound recordings streamed on the service (the denominator), the per-stream rate will decline over those months.  This is because there will be more recordings in later months sharing a pot of money that hasn’t increased as rapidly as the number of streams.

As the number of recordings released will always increase over time for a service that licenses the total output of all major and indie labels (and independent artists), it is likely that the total number of recordings streamed will increase at a rate that exceeds the rate of change of the net revenue to be allocated.  If there are more recordings, it is also likely that there will be more streams.

So streaming royalties in the Big Pool model will likely (and some might say necessarily will) decline over time.  That’s demonstrated by declining royalties documented in The Trichordist’s “Streaming Price Bible”among other evidence.

Thus the fan’s dissatisfaction with the use of their money is already rising and is likely to continue to rise further over time.

User-Centric Royalties and the Ethical Pool

How to fix this?  One idea would be to give fans what they want, or at least try harder.  A first step would be to let fans tell the platform that they want their subscription fee to go to the artists that the fan listens to and no one else.  This is sometimes called “user-centric” royalties, but I call this the “Ethical Pool”. 

When the fan signs up for a service, let the fan check a box that says “Ethical Pool.”  That would inform the service that the fan wants their subscription fee to go solely to the artists they listen to.  This is a key point—allowing the fan to make the choice addresses how to comply with contracts that require “Big Pool” accountings or count Ethical Pool plays for allocation of the Big Pool.  

Artists also would be able to opt into this method by checking a corresponding box indicating that they only want their recordings made available to fans electing the Ethical Pool.  The artist gets to make that decision.   Of course, the artist would then have to give up any claim to a share of the “Big Pool."

Existing subscribers could be informed in track metadata that an artist they wanted to listen to had elected the Ethical Pool.  The subscriber could have to switch to the Ethical Pool method in order to listen to the track.  That election could be postponed for a few free listens which is much less of an issue for artists who are making less than a half cent per stream.

The basic revenue share calculation still gets made in the background, but the only streams that are included in the calculation are those that the fan actually listened to.  If the fan doesn’t check the box, then their subscription payment goes into the market share distribution as is the current practice, but their musical selection is limited to “Other than Ethical Pool” artists.

That’s really all there is to it.  The Ethical Pool lives side by side with the current Big Pool market share model.  If an Ethical Pool artist is signed, the label’s royalty payments would be made in the normal course.  The main difference is that when a subscriber checks the box for the Ethical Pool, that subscriber’s monthly fee would not go into the market share calculation and would only be paid to the artists who had also checked the box on their end.

One other thing—the subscription service could also offer a “pay what you feel” element that would allow a fan to pay more than the service subscription price as, for example, an in-app purchase, or—clasping pearls—allow artists to put a Patreon-type link to their tracks that would allow fans to communicate directly with the artist since the artist drove the fan to the service in the first place.  I’ve suggested this idea to senior executives at Apple and Spotify but got no interest in trying.

The Ethical Pool is real truth in advertising to fans and at least a hope of artists reaping the benefit of the fans they drive to a service.  There are potentially some significant legal hurdles in separating the royalty payouts, but there are ways around them.

I think the Ethical Pool is an idea worth trying.

Congress Should Support Startups in the Music Modernization Act

[Published by Newsmax, August 20, 2018]

If you read the current version of the Music Modernization Act, you may find that it’s more about government mandates that entrench incumbents than a streamlined blanket compulsory license that helps startups climb the ladder. In the weeds of MMA, we find startups dealt out of governance by rule makers and forced as a rule taker to ante up payments by their competitors in a game that the bill makes into the only game in town.

Billboard reports that Republican Senators John Cornyn and Ted Cruz of Texas suggested a fix for this flaw—allow private market competition alongside the MMA’s government mandate.

Let’s review why this fix is necessary and how it could balance the roles of rule makers and takers.

It’s necessary because the problem doesn’t come from songwriters. It comes from the real rule makers—Amazon, Apple, Facebook, Google and Spotify. And startups know which side butters their bread.

Public discussion of MMA has focused on the song collective and the compulsory blanket license for songs, but the mandated digital services collective is more troubling given the size of the players involved. MMA calls the services’ collective the “digital licensee coordinator,” or the DLC. Rule taker startups are governed by the rule maker DLC, but have no say in the DLC’s selection.

Like Microsoft’s anonymous amici, startups know their place —especially against Google, Amazon, and Facebook, whose monopoly bear hug on startups includes hosting, advertising and driving traffic.

The MMA authorizes these aggressive incumbents to effectively decide the price to startups for the “modernized” blanket license. Why? Because the MMA requires users of the license to pay for the lion’s share of the “administrative assessment,” the licensees’ collectivized administrative cost payment that the CBO estimates will be over $222 million for eight years.

Senators Cruz and Cornyn object to MMA’s delegation of the government’s authority to one collective for songwriters and one collective for digital services—with an antitrust exemption.

Cruz and Cornyn's point is a valid one. Why should the government only permit one game in town? Rather than have the DLC run by the usual suspect monopolists, why not allow competition?

This is important–if startups can’t afford to buy-in to the license, it does them no good, and their biggest competitors decide the price of that license through the DLC.

Both collectives are to be approved by the Register of Copyrights, but MMA puts the Register in the unenviable position of being constrained to appoint certain types of entities by statutory mandate.

Here’s the mirror image language from the MMA instructing the Register on selecting both the song collective and the DLC:

“[The Register must choose an entity that] is endorsed by and enjoys substantial support from [digital music providers/copyright owners of musical works] that together represent the greatest share of the [licensee/licensor] market for uses of [musical/such] works in covered activities, as measured over the preceding 3 full calendar years;”

In other words, startups, who are most in need of the statutory blanket license, need not apply to be the DLC.

That clause alone justifies the Cornyn/Cruz solution.

“Modernization” should make licensing easier: level the playing field for startups and protect them from famously predatory competitor incumbents, as well as copyright infringement lawsuits from the rule takers.

These are all good reasons for the private market solution. Competition at least gives startups hope for the pursuit of fair treatment.

A wise member of the Texas Congressional delegation once told me Big Tech gets to climb the ladder to the American Dream like everyone else. What they don’t get to do is pull the ladder up behind them after getting to the top.

Expanding competition rather than mandating an exclusive collective could keep that ladder available to everyone.

Chris Castle is the founder of the Austin, Texas-based Christian L. Castle Attorneys in Austin, Texas. Chris has testified on artist rights issues at the UK Parliament, spoken at Congressional seminars and lectures at law schools and business schools in the US and Canada on music-tech issues and artist rights.

A Skeptical Look at the Music Modernization Act

[First published in June 2018 in issue 2:2018 of The Works, the Magazine of the British Academy of Songwriters, Composers and Authors at p. 18]

The three-part “Music Modernization Act” (“MMA”) is winding through the U.S. Congress.  If passed, MMA will be the biggest change in U.S. copyright law in 100 years.  But that doesn’t mean it’s good.

Two of the three parts of MMA apply to sound recordings and a third part applies to songs.  (Just to make it extra confusing, the song part was previously introduced as a stand-alone bill under the same title, but has now been superseded by the three-part bill.)  The sound recording parts are well-known ground and either codify current practices or has been thoroughly litigated.  It is the song part that is controversial.

Crucially, the song part of the MMA applies to all songs ever written or that ever will be written that are exploited in the United States—not only US works.  So the scope is global and applies to your current and future catalog.  Unlike many collecting societies, there is no “opt out.”

MMA passed the lower body of the bicameral U.S. legislature and has been introduced in the Senate (the upper body) as of May 10, 2018.  (This roughly corresponds to a first reading in the House of Lords.)  As a tribute to the lobbyists, it must be said that the bill passed the lower body unanimously on a vote of 415-0.  A cynic might say that’s because none of the Big Tech lobbyists opposed it (yet) and no one had read the bill.  

MMA addresses US-centric issues:  Effecting direct payment to producers of royalties for the limited performance right in sound recordings; closing the loophole that digital services leverage to avoid paying those royalties on recordings made prior to February 15, 1972; and creating a new collective for songs called the “Mechanical Licensing Collective” or “MLC”. 

The MLC part is by far the most detailed and controversial part (some 90 pages of text) and is the subject of this post.  In fairness, I am an MLC skeptic based on operational challenges.  There is also a legitimacy issue--by comparison to the many recent hearings, public comments and consultations on other copyright topics, there has been essentially no public input on MLC.  Thus the songwriter groups who were allowed to participate in the drafting bear an ominous burden of responsibility.

So don’t be surprised if you are hearing of the MMA for the first time in this post. 

While there is a broad industry coalition supporting each of the three parts of the MMA, that support is a mile wide and an inch deep.  There is something in it for everyone at the moment—but if support for all three parts waivers as it may yet do in the Senate, the coalition will likely coalesce around their particular issue and who knows what happens then.

What the MLC Does

There is an extraordinary amount of complexity in the MLC legislation. Space prohibits a comprehensive treatment here.  Realize that the statute is just the start—implementing regulations will be promulgated by the Copyright Office if the bill becomes law.  There will likely be a greater opportunity for the world’s songwriters to comment on those regulations than they have had for the statute itself.  One thing is clear—any meaningful changes to the MLC’s operations will require an act of Congress that is unlikely to happen in the best of circumstances.  So this needs to be right.

The MLC law performs two general functions:  It creates a new “reachback” safe harbor protecting certain infringing uses of songs by tech companies such as Spotify as of January 1, 2018 (that’s right—beforethe MMA becomes effective) and also creates a new compulsory mechanical blanket license for songs used in interactive streaming and limited downloads afterMMA becomes effective.  Realize that the bill was initially introduced on December 21, 2017—eleven days before the proposed reachback period commenced.  A public copy of the bill was not available until after the reachback nominally started.  Big Tech’s support of MMA demonstrates the value of their new reachback safe harbor, beyond even the pre-72 loophole they have exploited.

Reachback Safe Harbor

MMA’s reachback safe harbor is earthshattering.  It eliminates the ability of copyright owners—especially small copyright owners--to sue streaming service infringers like Spotify for statutory damages, attorneys’ fees or injunctions if the service takes the blanket license.  Damages are limited to the paltry streaming mechanical royalty only. The reachback bars claims for infringement lawsuits filedafter January 1, 2018 even if the claim arose beforethat date regardless of the statute of limitations.  The reachback also precedes the enactment of the MMA.  

In America, statutory damages and attorneys’ fees are the “big stick” that every copyright owner had enjoyed for over 100 years. That stick has been a major issue for tech companies, their paid academics and nonprofits in every major Internet piracy copyright case.  The reachback is an historic capitulation that expands safe harbors just when the value gap effort was bearing fruit—bizarrely, the new reachback was announced just weeks before CISAC’s own extensive value gap economic study.  

My bet is Big Tech will use this triumphant surrender as precedent against other copyright categories and in other countries and to fight any value gap legislation.  The reachback has been criticized as unconstitutional by leading copyright lawyers and will almost certainly be challenged. That challenge will no doubt come from a copyright owner who is not an MLC board member, however.

You will note that none of the messaging about the bill addresses the reachback—but it is whyWixen Music Publishing sued Spotifyon December 29, 2017.  As Robert Levine noted in Billboard, “A bill that restricts lawsuits after January 1, 2018 should not have been introduced just before Christmas….”

If MMA becomes law, suits like the Spotify class actions are gone which appears to be the plan.  There arguably is little in the MLC part incentivizing services to report more accurately and they control the MLC’s budget, so it is unlikely that surrender accomplished anything.

Mechanical Licensing Collective

The MLC part of MMA establishes a new bureaucracy for a new blanket mechanical license.  I will discuss a handful of operational issues, but first understand this:  ASCAP and BMI already license the performance right for the same songs, to the same services, for the same performances under antitrust supervision of the government. The MLC will license the corresponding “streaming mechanical” for the same work but gets an antitrust exemption.

You might say, why aren’t the PROs doing a one-stop license for all rights?  The government prohibits at least ASCAP doing so under the 77 year old consent decree.  So the MLC gets an antitrust exemption on streaming mechanicals, but ASCAP (and essentially BMI) operate under government supervision for the same song, transaction and service.

This is even more Kafka-esque because the new head of the government antitrust division has expressly saidthat he wants to review the ASCAP and BMI consent decrees and possibly end them.  The only two concessions that ASCAP and BMI get in MMA are related to these consent decrees—if terminated, they will have gotten nothing.  Shouldn’t we at least find out if the consent decrees end beforebetting the farm on the government mandating a global rights database--that previously failed in the private market? 

Designation of MLC:  The head of the U.S. Copyright Office (called the “Register”) designates the non-profit corporation to be the MLC—but—the Register is limited in that selection to a nonprofit created by copyright owners, that “is endorsed by and enjoys substantial support from musical work copyright owners that together represent the greatest percentage of the licensor market for uses of such works in covered activities,as measured over the preceding 3 full calendar years”; can demonstrate to the Register that is has the ability to do the work.  Because the Copyright Office knows state of the art technology, right?  You see where this is going.

MLC Business Plan and Budget:  None announced for a millennial change in the law. Remember—MMA passed unanimously in the House and no one brought this up.

Funding of MLC Operating Costs: Paid by participating services through an assessment by the Copyright Royalty Judges (“CRJs”).  Unclear what qualifications the CRJs have to evaluate technology startups, or what happens if a digital service goes bankrupt (currently iHeart Media is in bankruptcy) and cannot pay its assessment (but probably will be made up from the black box).  

Digital Licensee Coordinator:  Little discussed is the effect on startups of the MLC assessment structure and control of the services side of the MLC by the biggest corporations in commercial history (Amazon, Apple, Google/YouTube) and the dominant streaming service Spotify.  What if startups cannot afford their assessment?  Are they denied the blanket?

Rate Standard/Ice in Winter:  A new government rate standard will supposedly result in higher royalties for songwriters (misleadingly called “willing buyer/willing seller”--there’s been no free market in 100 years).  Services can request that the CRJs give a reduction in royalty rates based on the CRJs’ assessment of the operating costs for the MLC.

Overbudget:  Board can pay overbudget with black box money with no liability for board absent gross negligence.  Amounts deducted may be replenished in future assessments, but may not be.  No protection if not replenished.

Black Box:  Unclaimed royalties are held for three years and then allocated based on market share (subject to permitted deductions).  This is a major bone of contention.

Governance:  14 voting member board of directors, 10 publishers and 4 “professional songwriters.” Other inferior boards, e.g., for dispute resolution, have more songwriters.  The European Songwriter & Composers Alliance has criticized the structureas out of step with industry practice of at least equal representation of songwriters.

Nonvoting Board Members:  Lobbyists for the publishers, songwriters and digital services appear to have nonvoting board memberships.  Note that this means that the digital services representative (the “digital licensee coordinator”) will likely have a right to information and to attend board meetings.  This may have an effect on attorney-client information, litigation or royalty setting strategy.  There is no prohibition on fees paid to lobbyists.

Global Rights Database:  A new “GRD” to be created by MLC, probably subcontracted. Candidates: Harry Fox Agency, BMI, SOCAN, CMRRA/SX Works.

Claiming/Registration: Unclear how song metadata get into the new GRD, but apparently through an undefined claiming process that suggests some form of registration or other formality, at least with the MLC if not with the Copyright Office.  Even if MLC doesn’t charge, there will still be a transaction cost on copyright owners.

Unfunded Mandates:  Apparently all songwriters bear their cost of registering their works with the MLC, with no compensation to songwriters for complying with this mandate.  Royalties for valid compulsory licenses already in effect (such as the millions of notices sent by MRI, the Harry Fox Agency, MediaNet and others) are to be sent to the MLC after the “license availability date”.  Unregistered songwriter royalties presumably are black boxed.

Voluntary Licenses:  Services and copyright owners may enter voluntary licenses outside of the MLC (voluntary license payments likely won’t get black boxed).  These voluntary licenses presumably include catalog licenses as well as modified compulsory licenses (such as the typical HFA license) whenever made.  Voluntary licenses suggest that the MLC will only administer songs that are subject to the blanket.  However, since there is no opt out, services could refuse to renew a catalog license and then take that catalog under the blanket without paying a minimum guarantee.  Eliminating statutory damages, attorneys’ fees and minimum guarantees would be the trifecta for services.

Accountings:  Payment obligations of digital services are clearly spelled out more or less consistent with current practice, but payment obligations of MLC to copyright owners are unclear, other than black box.

Audits:  Only the MLC may audit the services that pay its bills.  Copyright owners may audit the MLC only.  However, audits must be conducted by certified public accountants and those auditors are obligated to look for overpayments—which probably violates their duty of loyalty.  As Warner Music Group’s Ron Wilcox testified to the CRJs, “Because royalty audits require extensive technical and industry-specific expertise, in WMG’s experience a CPA certification is not generally a requirement for conducting such audits. To my knowledge, some of the most experienced and knowledgeable royalty auditors in the music industry are not CPAs.” Requiring CPAs definitely raises the cost of audit on copyright owners, and demand of overpayment reimbursement definitely adds a touch of in terrorem.

In summary, the blanket license solves some market problems, but the MLC may create more.  The MLC law has been resoundingly criticized as unconstitutional by the top copyright litigators (particularly the reachback safe harbor) and as unfair by many songwriter groups.  At a minimum it’s a major capitulation.

However, I would count on it becoming law.   

Meet the New Boss:  Tech Giants Rely on Loopholes to Avoid Paying Statutory Royalties with Mass Filings of NOIs at the Copyright Office[1]

[This article first appeared in the American Bar Association Entertainment & Sports Lawyer, Spring 2017]

There is a fundamental rule of music licensing—if you don’t have a license from the copyright owner, don’t use the music.  But in the new new thing of “permissionless innovation,”[3] the “disruptors” want to use the music anyway.  Nowhere is this battle more apparent than the newest new new thing—mass filing of “address unknown” compulsory license notices for songs.

You’re probably familiar with U.S. compulsory mechanical licenses[4] for songs mandated by Section 115[5] of the Copyright Act.[6]  We think of the compulsory (or “statutory”) license[7] as requiring music users to pay mechanical royalties after serving a “notice of intention” (or “NOI”)[8] on the song copyright owner and complying with other statutory requirements[9]—but it may come as a surprise that some of the biggest contemporary online music users serve millions of NOIs for interactive streaming to both avoid paying statutory royalties and wrap themselves in the liability insulation of the statutory license.[10]  And because these users claim they cannot find the address of the song owner, millions of NOIs are served on the Copyright Office and not the song owner.

According to the independent source Rightscorp, [11] a company that has been tracking and indexing all those NOIs as published by the Copyright Office,[12]  over 25 million “address unknown” NOIs have been served on the Copyright Office between April 2016 and January 18, 2017, or an average rate of approximately three million per month. 

NOI Table

Top Three Services Filing NOIs April, 2016—January 2017[13] and Number of NOIs Per Service

Amazon Digital Services LLC: 19,421,902

Google, Inc.: 4,625,521

Pandora Media, Inc: 1,193,346

But according to a recent story on the subject in Billboard[14]:   

"’At this point [June 2016], 500,000 new [songs] are coming online every month [much lower than the reported numerical average to date], and maybe about 400,000 of them are by indie songwriters [which may include covers], many of whom who don’t understand publishing,’ Bill Colitre, vp/general counsel for Music Reports, a key facilitator in helping services to pay publishers, tells Billboard. ‘For the long tail, music publishing data from indie artists often doesn’t exist’ when their music is distributed to digital services.”

Conversely, neither digital retailers, i.e., music users, nor aggregators appear to be able (or perhaps willing) to collect publishing information for new releases or long tail for unknown reasons.[15]  Of course, as we will see below, Google has collected publishing information for a decade through its Content ID product, and Music Reports itself sells its Songdex product[16] that contains a significant amount of song data and is widely relied upon by its music user principals.

Whether their motivation is avoiding liability, avoiding royalties, or both, this means that Amazon, Google, Pandora and others[17] pay no statutory royalties on any of the song copyrights in their millions[18] of “address unknown” NOIs until the song copyright owner becomes “identifiable” in the “public records” of the U.S. Copyright Office, a process that arguably defeats Congress’s entire purpose of the NOI in the first place.

This problem will not be solved by maintaining an ownership database in the cloud that would allow users to exploit songs or family pictures until the work is registered.[19]  An ownership database does not solve the problem of users who have no penalty for failing to use the database or for willful blindness.[20]

As I think the reader will see, by capitalizing on a perceived loophole in the U.S. Copyright Act, the users may well have gotten themselves absolutely nowhere, the government may have participated in yet another unconstitutional taking,[21] and songwriters, as usual, are left out in the cold to spend precious resources correcting the mistakes of giant multinational corporations.

That’s A Nice Song You Got There—Shame If No One Could Find It

Songwriters have three common reactions to the scale of the “address unknown” NOIs.  First, they assume the songs subject to these NOIs must be in the “long tail”.   This does not appear to be true, as there clearly are some high value new releases.    Yet the industry has handled this “problem” for decades without resorting to mass NOIs.[22] 

Songwriters ask how services fail to identify owners when songwriters and their publishers take care to register their songs in the databases readily made available by ASCAP, BMI, GMR and SESAC. [23]   Songwriters are surprised to learn that music users need only search the public records of the Copyright Office and not even the databases of the user’s own agent. 

But the biggest shock is usually from the sheer number of filings and the realization that these services are getting a free ride from exploiting a loophole. 

And because these services do not render accounting statements as I will argue the law clearly requires[24], there is essentially no way for a song copyright owner to know what they are owed in the case of mistake or prospective payment. 

Alternatively, if music users unilaterally decide to pay royalties retroactively, it will be even more important that proper statutory accounting statements be rendered for each song.  Since users elected the “address unknown” process to serve NOIs on the Copyright Office, it only makes sense that these monthly and annual accounting statements also are served on the Copyright Office.

It is worth noting that the U.S. compulsory license does not accord songwriters an audit right, another loophole in the law that has never been corrected.[25]  If these loopholes are combined at scale, then Amazon, Google and Pandora—companies with a combined market capitalization of nearly $1,000,000,000---can exploit millions of songs, pay no royalties, have at least some protection from infringement claims and cannot be audited.

Now that’s a hack.  Meet the new boss, worse than the old boss.

Unlike the typical “pending and unmatched” or “black box” distribution, the compulsory license accounting requirements should substantially reduce unmatched exploitations.  Since it appears that no statements have been rendered under “address unknown” NOIs for 2016 as of this writing, I will argue that song owners are entitled to send a termination notice to the music service for failure to account regardless of whether the copyright owner is identifiable in the Copyright Office’s public records.  I will also argue that if that failure is not lawfully remedied, those purported licenses terminate “automatically”.[26]

How did this mess occur?  It all starts with a shard of a statute that arguably was never intended for compulsory licensing.

The Statutory Origins of Mass NOIs

As of April 19, 2016, the U.S. Copyright Office began posting on its website[27] copies of millions of “address unknown” NOIs served on the Copyright Office by Google, Amazon, Pandora, iHeart and other services.   These very large music users are taking advantage of two little known and previously little used sections of Section 115 of the 1976 Copyright Act that both define how an NOI is to be sent and also limit when statutory mechanical royalties are payable.  Both code sections were enacted decades before the interactive “streaming mechanical” was conceived.

Section 115 (b)(1)[28] (and related regulations[29]) covers how NOIs may be sent to the song copyright owner and is the origin of the “address unknown” NOI:

Any person who wishes to obtain a compulsory license under this section shall, before or within thirty days after making, and before distributing any phonorecords of the work, serve notice of intention to do so on the copyright owner. If the registration or other public records of the Copyright Office do not identify the copyright owner and include an address at which notice can be served, it shall be sufficient to file the notice of intention in the Copyright Office. The notice shall comply, in form, content, and manner of service, with requirements that the Register of Copyrights shall prescribe by regulation.

Section 115 (c)(1)[30] provides when royalties are payable (or not) under an “address unknown” NOI:

To be entitled to receive royalties under a compulsory license, the copyright owner must be identified in the registration or other public records of the Copyright Office. The owner is entitled to royalties for phonorecords made and distributed after being so identified, but is not entitled to recover for any phonorecords previously made and distributed.

The Copyright Act curiously omits any guidance regarding actual knowledge of the music user or its agent regardless of what is in the notoriously incomplete Copyright Office records.  For example if the user or agent maintained a voluminous database of song information, can that data simply be ignored? 

The Act also does not address knowledge that could reasonably be available to the music user, such as information readily available at no cost in the PRO Databases.  It is important to note that music users are simultaneously accounting under blanket licenses to the U.S. performing rights organizations for the performing rights of the same uses of the same songs by the same service.  So the PRO Databases are readily available to users.

The Source of the Problem

Users may argue that regardless of what they knew or should have known, if a song copyright owner is not “identifiable” in the “public records” of the Copyright Office,[31] the music user can serve NOIs on the Copyright Office.[32]  Once service is effective on properly served “address unknown” NOIs,[33] the music user then is entitled to claim all of the protections from liability for copyright infringement and against audits as a statutory licensee--with the added benefit of avoiding any mechanical royalties. 

How will the music user know which NOIs to serve on the Copyright Office?  Until music users publicly release that information, we have no way of knowing with certainty.[34]

However, given the patterns in filing that have developed (see NOI table above), one might get the impression that some music users are not checking if the song owner is identifiable anywhere.  Instead, it appears at least possible that the users may be simply sending NOIs for all songs they use. 

This is troubling because song owners provide multiple ways for licensees to reach them including online databases maintained by the various performing rights organizations such as ASCAP,[35] BMI,[36] Global Music Rights[37] and SESAC[38] that cover over one million songs.[39]  But Section (c)(1) requires that users search the database that is the least relevant, the least up to date, the most anachronistic and most difficult to use:  The public records of the Copyright Office, which includes the “Public Catalog.”[40]

The Public Catalog has recently taken on a heightened level of importance.  One music user responds to address change requests by simply telling the song owner that the music user “now” receives their data from the Copyright Office Public Catalog.  This user implies song owner registration is required by Section 115 of the Copyright Act.  They also tell the song copyright owner to update their registration with the U.S. Library of Congress—not the Copyright Office. 

The clear implication is that all song copyrights must be registered which is simply untrue, however advisable registration may be.  As the Copyright Office clearly states, “No publication or registration or other action in the Copyright Office is required to secure copyright.”[41]  Registration is not required in order to enjoy copyright protection or the rights of a copyright owner generally other than some litigation-related benefits.  As the Copyright Office statement implies, this is old news. [42] 

Also note that Congress could easily have required registration in Section 115(c)(1), but did not.  Congress contemplated all public records, whether existing in 1978, currently existing[43] or coming into existence in the future.  Given that the Copyright Office is subject to Freedom of Information Act requests, “public records” may be very broad indeed.

Since no copyright registration is required, it is not surprising that the copyright owner’s entitlement to receive all benefits of Section 115 is not conditioned on registration[44] including the right to send a termination notice.[45]

Another issue is less obvious—the “data” from the Copyright Office Public Catalog expressly excludes pre-1978 works and is thus inherently unsuitable for purposes of “address unknown” NOIs. 

Pre-1978 Public Records

The landing page[46] of the Public Catalog clearly states[47] that pre-1978 records are only available on paper from the Copyright Office. 

But note--Section 115 and the accompanying regulations make no such distinction regarding pre-78 works.  So if the only effort the music user is making is to search the post-1978 catalog, any purported entitlement to an address unknown NOI for a pre-78 song may well fail.

Setting aside the international treaty implications[48] and the potential lack of pre-78 works in the Public Catalog, it is unlikely if not impossible for a pre-78 song owner to be found in the digitized Copyright Office records.  There is no method[49] for copyright owners to “update” or even initially record their contact information unless they either record a document listing all their registered works by title and registration number, or they file a supplementary registration to amend an already completed registration—which is costly.

Which means the song owner must have already registered the works concerned, which is not required in order to enjoy the rights of a copyright owner.   

Line of Least Resistance Leads Them On[50]

But why would music users point song owners at the Library of Congress?  Perhaps because the Library of Congress sells an electronic database of the post-1978 Copyright Office registration and recordation records.  If you can find the link[51] to purchase these databases on the Library of Congress website you are a better researcher than I (or the reference desk at the Library of Congress which couldn’t find it either).

The Library sells two databases that I found: The “Retrospective: 1978-2014” for $50,225 and the “2015 Subscription” for $28,700.  These LOC Databases may be the reference data upon which the “address unknown” mass NOI filings are based.  These LOC Databases might explain why at least one music user is pointing song copyright owners to the Library of Congress to update their contact information.

Music users (or perhaps their agents) who can afford to purchase these LOC Databases probably could also afford to hire a copyright research service to examine the pre-78 card catalog.[52]  But as of this writing, it appears that at least some pre-78 songs may be missed.

While we do not know with certainty how the services or their agents conduct research, we can extrapolate how a list might be compiled. 

How Are Song Titles Determined for Mass NOIs?

The process could be as simple as users asking their agent what information is in their agent’s databases, i.e., information of which agent or principal would have actual knowledge.  If that is the method used by all music users, then the number of unknown titles should be relatively constant across services and it appears not to be as reflected in the NOI table above.

It may be the case that a user ingests the sound recording metadata and utilizes the sound recording title as the song title.

This might explain why “Fragile” performed by Sting becomes “Fragile (Live)” in Google’s mass NOI filing.  If the music user then looks for a song title of “Fragile (Live)” in the public records of the Copyright Office, that title is unlikely ever to be found because the song was registered as “Fragile.”

Given the obscurity-in-plain-sight surrounding mass NOI filings, it is safe to say that unless the song copyright owner is extraordinarily alert and has the computing power to decompress very large NOI files posted on the Copyright Office website, she may never know that her song is being commercially exploited royalty-free. 

That’s right—users get all of the benefits[53] and none of the burdens, thanks largely to a haystack of the users own creation.

Building a Haystack of Needles

Sifting through millions of NOIs for your songs is a labor of Hercules for the independent songwriter and even for an indie publisher.  Amazon, Google, Pandora and iHeart, among others—but notably, not Apple so far--have built a haystack of needles worthy of the Augean stables.  Rightscorp is developing[54] a searchable and indexed database that will allow songwriters to search the mass NOI filings, as may others, but neither the Library of Congress nor the Copyright Office provide any simple way for songwriters to conduct that search as of this writing. 

Crucially, it is important that any searchable database come from an independent source as the process is fraught with obvious moral hazard.  Neither the services filing the mass NOIs nor their agents should be providing search functions to songwriters as this really would be like asking the fox to file an after action report for the fox’s attack on the chicken coop.

Rendering Statements of Account

It seems improbable that users filed tens of millions of NOIs free of errors.  Even a 1% error rate is 250,000 improper NOIs.  What is clearer is that no monthly or annual statements of account[55] have been rendered to date and for that reason alone any purported license based on an “address unknown” NOI may be subject to statutory termination.[56]  Even if no royalty is payable or only payable prospectively from an unknown time, the statutory obligation to render statements crucially still applies to music users.  How will the songwriter ever know what royalties are payable otherwise?  This is likely why Congress did not distinguish accounting obligations for “address unknown” NOIs from “known known” NOIs.

Since these statutory users chose to serve NOIs on the Copyright Office, those users have nowhere else to send the required statements but to the same place they sent their NOIs—the Copyright Office.  This would be entirely reasonable and consistent with the longstanding requirements that statements be sent to the same address as the NOI.

It is also important to note that the “identification” requirement only applies to NOIs and not to the song copyright owner’s right to terminate the statutory license for failure to account.  Note that the termination right is not for failing to render statements to the copyright owner who the music user has decided they cannot identify, but rather for failing to render statements[57] to the Copyright Office that the music user has decided they can identify.  This is not a question of having rendered the required statements (and certifications) to the wrong person; in this case, the statements have not been rendered at all.

I would argue that music users ought to serve the lawfully required accounting statements on the Copyright Office because the music user chose to avail themselves of the benefits of Section (c)(1).  Allowing the music user to avoid complying with the lawful accounting requirements in addition to avoiding payment does not have a statutory basis and arguably seems clearly outside the intention of Congress.

Indeed, if the Library of Congress fails to require these accountings for millions of NOIs, valuable property rights of potentially hundreds of thousands, if not millions, of the world’s songwriters may be foreclosed.

Eyesight to the Willfully Blind

Note that Section 115 does not address what happens if the music user (or its agent) in fact knows the identity of the song copyright owner at the time of serving the “address unknown” NOI. 

Actual knowledge is particularly relevant in the case of companies like Google.  Google purchased the mechanical rights licensing company Rightsflow for the very reason that Rightsflow’s database provided valuable rights ownership information for Google to use in its business.[58]  Google has also operated its Content ID platform on YouTube[59] for many years through which Google collected vast amounts of song ownership information directly from and at great transaction cost to rights owners.  It is difficult to understand how Google in particular does not have actual knowledge of the contact information of millions of song copyright owners to whom it sends statements and payments for other services under other licenses. 

Actual knowledge is also relevant in the case of Music Reports, Inc., that apparently is the agent[60] that many of these statutory license users evidently engaged to administer the mass NOI filings.  Music Reports not only has developed and marketed its “Songdex” product based on the millions of song owners it can identify, but also has applied for a patent[61] for its mechanical royalty licensing business process.  Music user principals of MRI would seem to have access to a vast database of highly reliable song ownership knowledge from a highly credible agent.

Yet it seems implausible and inconsistent with other statutory provisions of the Copyright Act[62] that Congress intended to protect music users who have actual knowledge of the identity of a song owner.[63] 

But how will a songwriter even know if their song is implicated?

Which Songs Are Affected?

As noted above, “long tail” deep catalog and new releases seem likely to be affected by “address unknown” NOIs, albeit for different reasons.  Deep catalog may be affected because no one registered the song titles or the works were registered before 1978 and the music user did not research the ownership in the paper Copyright Office public records. 

New releases may be implicated because the Copyright Office itself has yet to process the registration—and I will discuss the Library of Congress’s limitation on “cataloged registrations” below.  Presumably, a filed but yet to be conformed copyright registration would also not be “cataloged”.    The Copyright Office acknowledges on its copyright registration portal that the processing time for e-filings is six to ten months, and for paper filings ten to 15 months.[64]  This loophole would thus destroy the songwriter’s peak earning power on new releases.

How Mass NOIs Could Be Misidentified

The LOC Database suggests some reasons for potential mismatches:

The only information file available which contains such copyright information as author, title, copyright claimant name, and registration number. Represents cataloged registrations and relevant documents entered into the U.S. Copyright Office database since 1978.[65]

It appears that not all registrations are cataloged and not all documents are entered into the LOC Database. Relying solely on the LOC Databases might result in gaps for “address unknown” NOIs. 

Because the LOC Database by definition excludes pre-78 works, these excluded works could be another source of error.  The plain language of the Copyright Act includes those pre-78 songs for purposes of an “address unknown” service.  How pre-78 copyrights are treated in the mass NOI filings is unclear, but it is worth noting that “Surfer Girl” by the Beach Boys is included in one of Google’s filings[66], which is clearly a pre-78 song. 

Who is responsible for cross-checking accuracy?  Probably no one.  The Copyright Office expressly disclaims any responsibility for incorrect NOIs and warns everyone involved that incorrect notices may only be challenged in a court,[67]  in this case by whichever songwriter or publisher who is willing to litigate with the biggest corporations in the world.

That actually leaves it to Congress to take a leadership role in reviewing their library, their statute or any misapplication of these rules.

The Copyright Office Address Unknown Posting

The Copyright Offices posts[68]  “address unknown” NOIs on a rolling basis.  In order for songwriters to know if their songs are in these NOIs they have to wait for the Copyright Office to post the files, decompress them, sort them, and try to find their own songs by searching the resulting massive Excel file—assuming the songwriter has the skill and computing power available. As of this writing there are approximately 150 NOI filings, but each filing can contain tens of thousands of songs titles for which the music user claims the protections of the statutory license. 

This process is not realistic and seems inconsistent with the intentions of Congress.

What is to Be Done?

There are a few ways that mass NOIs can be dealt with.   As we review each potential course of action, the same themes will recur:  Someone in the government needs to take responsibility for verifying these NOIs are filed as required by law, and the “address unknown” NOI process as currently practiced places an unfair burden on songwriters.

            1.  Recordation Filing:  The Copyright Office will likely accept a simultaneous electronic and paper recordation of a certification of a song copyright owner with a list of song titles.  The electronic filing should provide immediate notice to music users.  This approach is costly, however, and may be ill suited to individual song copyright owners or independent publishers.

            2.  Dramatico Musical Works:  It appears that the Copyright Office is accepting filings for dramatico-musical works which are not subject to compulsory licenses.[69]  (Dramatico-musical works include musicals, for example.) Owners of dramatico-musical works may wish to take ameliorative action to stop the infringing use of their copyrights.

            3.  Pre-78 Songs:  It appears that at least some music users may be ignoring the paper records of the Copyright Office and filing NOIs for song copyrights that may well be identifiable in the pre-78 public records.

            4.  Improper Filing:  However cumbersome, songwriters have a reasonable expectation that the Copyright Office should be able to confirm if the NOIs comply with the statutory requirements.  Noncompliant NOIs should be barred.

            5.  Failure to File and Certify Statements of Account:  Regardless of whether royalties are due, music users are arguably required to file monthly and annual statements of account.  This is particularly reasonable given the scale of the mass NOI filings, the likelihood of error and the statutory requirements.  To my knowledge, no statements of account have been filed as of this writing.    This would indicate that all NOIs are subject to termination.

            6.  Direct Licenses:  Based on a sample of songs that I consider likely to be subject to a direct license with a major publisher, it seems possible that “address unknown” NOIs may be getting filed on songs that are directly licensed.  Publishers with direct licenses may wish to confirm if they are receiving payments for any directly licensed songs or if users are not paying based on the “address unknown” NOI.

            7.  Revenue Share Calculations:  If songwriters or publishers receive a pro-rata revenue share based on the total number of songs performed during an accounting period, it would be well to determine if non-royalty bearing songs subject to an “address unknown” NOI are being included in the ratio.

Of course, the easiest fix is for the music user to not exploit music without a license from the song owner.  That approach has worked well in the past, so perhaps it could work for these music users, too.

[1] Copyright 2017, Christian L. Castle.

[2] Founder, Christian L. Castle, Attorneys, Austin, Texas (

[3] From Keep the Internet Open by Vinton G. Cerf, Google’s Chief Internet Evangelist, New York Times (May 24, 2012) available at

[4] The statutory mechanical license was established in the United States by the 1909 revision to the Copyright Act, in part to obviate the holding in White-Smith Music Publishing Company v. Apollo Company, 209 U.S. 1 (1908).  The Supreme Court held in White-Smith that piano roles were not reproductions protected by the then-current Copyright Act, but also invited the Congress to amend the Copyright Act if the Court’s holding was not welcome: “It may be true that the use of these perforated rolls, in the absence of statutory protection, enables the manufacturers thereof to enjoy the use of musical compositions for which they pay no value. But such considerations properly address themselves to the legislative, and not to the judicial, branch of the government. As the act of Congress now stands we believe it does not include these records as copies or publications of the copyrighted music involved in these cases.”  See also Stern v. Rosey, 17 App. DC 562 (D.C. Cir 1901) (holding the “peculiar use” of musical compositions in early wax cylinder phonographs not protected).

[5] 17 U.S.C. § 115.

[6] The Copyright Act of 1976, Pub. L. No. 94-553, 90 Stat. 2541 (Oct. 19, 1976).

[7] A statutory license or “compulsory license” is “a codified licensing scheme whereby copyright owners are required to license their works to a specified class of users at a government-fixed price and under government-set terms and conditions.” Satellite Home Viewer Extension Act: Hearing Before the S. Committee on the Judiciary,108th Cong. (2004) (statement of David O. Carson, General Counsel, U.S. Copyright Office) (May 12, 2004). “[C]ompulsory licensing . . . break[s] from the traditional copyright regime of individual contracts enforced in individual lawsuits.” See Cablevision Sys. Dev. Co. v. Motion Picture Ass’n of Am., Inc., 836 F.2d 599, 608 (D.C. Cir. 1988) (describing limited license for cable operators under 17 U.S.C. § 111). A compulsory license “is a limited exception to the copyright holder’s exclusive right . . . As such, it must be construed narrowly. . . .” Fame Publishing Co. v. Alabama Custom Tape, Inc., 507 F.2d 667, 670 (5th Cir. 1975) (referring to compulsory licenses such as the compulsory mechanical license in the Copyright Act of 1909).   Compulsory licenses are generally adopted by Congress only reluctantly, in the face of a marketplace failure. For example, Congress adopted the Section 111 cable compulsory license “to address a market imperfection” due to “transaction costs accompanying the usual scheme of private negotiation. . . .” Cablevision at 602. “Congress’ broad purpose was thus to approximate ideal market conditions more closely . . . the compulsory license would allow the retransmission of signals for which cable systems would not negotiate because of high transaction costs.” Id. at 603.

[8] 17 U.S.C. § 115(b).

[9] 17 U.S.C. § 115(a).

[10] The Copyright Office Copyright and the Music Marketplace report (hereafter “Licensing Study”) notes that many song copyright owners view the entire compulsory licensing system as unfair.  Licensing Study at 108, available at (“Many stakeholders are of the view that the section 115 license is unfair to copyright owners. As one submission summed it up: ‘The notifications, statements of account, license terms, lack of compliance, lack of audit provisions, lack of accountability, lack of transparency, ‘one size fits all’ royalty rates and inability to effectively enforce the terms of the license demonstrate a complete breakdown in the statutory licensing system from start to finish.’”)

[11] Mass NOI Update:  Christopher Sabec and Rightscorp Tackle the Songwriters’ Copyright Office Problem, Music Tech Solutions (January 26, 2017) available at (hereafter, “Sabec Interview”) and

[12] Copyright Office Mass NOI filing page

[13] Source: Rightscorp, Inc.

[14] Christman, Say You Want a Revolution? U.S. Copyright Office Modernizes Key Part of Digital Licensing, Billboard (June 24, 2016) available at (hereafter, “Christman”).

[15] According to panelists at 2016 SXSW, many retailers refuse to collect publishing information, and aggregators do not collect it or collect it sporadically.  Castle, Is It Possible for Songwriter Metadata to Be Delivered to Retailers?, MusicTech.Solutions (March 16, 2016) available at

[16] According to Music Reports, its Songdex product contains “detailed relational data on tens of millions of songs, recordings and their owners, covering virtually all of the commercially significant music in existence”.  Available at

[17] According to Christopher Sabec, CEO of Rightscorp, as of January 27, 2017 his company has determined that the top three mass NOI filers are Amazon Digital Services LLC (19,421,902 NOIs), Google, Inc. (4,625,521) and Pandora Media, Inc. (1,193,346).  There is an unknown overlap among these filings and they are not unique.

[18] There is an as yet unknown degree of overlap between the services filing, so the total number does not necessarily mean that there are 25 million different songs involved, but rather 25 million notices served on the Copyright Office.

[19] See, e.g., Samuelson et al, Copyright Principles Project: Directions for Reform, 25 Berkeley Technology Law Journal 1 (2010) at 10.

[20] David Lowery, Getting Copyrights Right, Politico (May 13, 2013) available at

[21] See Professor Richard A. Epstein, Takings (1985); Songwriters of North America, Michelle Lewis, Thomas Kelly and Pamela Sheyne v. the Department of Justice, Loretta Lynch and Renata Hesse (U.S.D.C. Dist. Col. 1:16-cv-01830) at 22 (“Plaintiffs’ constitutional claim is based on theories that the 100% Mandate violates plaintiffs’ rights of procedural and substantive due process, and takes their property without compensation.”).

[22] The Copyright Act of 1909, Pub. L. 60-349, 35 Stat. 1075 (March 4, 1909), revised to January 1, 1973, § 1(e).

[23] By comparison, the European Union has developed a series of sector-specific guidelines for reasonably diligent searches for orphan works Memorandum of Understanding for Diligent Search Guidelines for Orphan Works as part of the European Digital Libraries Initiative available at (hereafter “EU Search Criteria”).

[24] See 17 U.S.C. § 115(c)(5) and 37 C.F.R. §§ 210.16 and 210.17.

[25] See Licensing Study supra note 10.

[26] 17 U.S.C. §115(c)(6).

[27] Copyright Office Mass NOI filing page

[28] 17 U.S.C. §115(b)(1) (emphasis added).

[29] 37 C.F.R. § 201.18(f)(3).

[30] 17 U.S.C. § 115(c)(1) (emphasis added).

[31] It is worth noting that the current Section 115(c)(1) appears to have been a compromise for abandoning the old “notice of use” requirement in Section 1(e) of the 1909 revision of the Copyright Act.  The “notice of use” was an obligation on the song copyright owner to file a notice in the Copyright Office when the song has had a “first use”.  (“[I]t shall be the duty of the copyright owner, if he uses the musical composition him­self for the manufacture of parts of instruments serving to reproduce mechanically the musical work, or licenses others to do so, to file notice thereof in the copyright office, and failure to file such notice shall be a complete defense to any suit, action, or proceeding for any infringement of such copy­right. “)  As noted in the House Report for the 1976 revision of the Copyright Act, “[t]his requirement has resulted in a technical loss of rights in some cases, and serves little or no purpose where the registration and assignment records of the Copyright Office already show the facts of ownership.  Section 115(c)(1) therefore drops any formal ‘notice of use’ requirements and merely provides that ‘[the copyright owner must be identified in the records of the Copyright Office] in order to be entitled to receive royalties under a compulsory license’….”  Notes of the Committee on the Judiciary, House Report No. 94-1476, Royalty Payable Under Compulsory License.   A topic for another day might be the extent to which this trade off of the 1909 “notice of use” for a 1976 “identification” requirement as a precondition for enjoying the rights of a copyright owner violates the Berne Convention’s prohibition on formalities.

[32] 17 U.S.C. §115(b)(1).

[33] 37 C.F.R. § 201.18(g) (“Notices shall be deemed filed as of the date the [Copyright] Office receives both the Notice and the fee, if applicable.”)

[34] But see Christman, “If a direct deal hasn’t been cut with the publisher but the streaming service, or its agent -- often companies like Music Reports Inc., the Harry Fox Agency’s Slingshot operation, and Musicnet -- know all the rights owners of a song, it has to file a notice of intent with those rights owners. If it doesn’t know all the rights owners, the service can search the Copyright Office's database to see if that song and its owners are registered and, if so, can retrieve addresses and issue a notice of intent. If it can’t find the song or the owners, then the service has to file a notice of intent for the compulsory license for that song with the U.S. Copyright Office.”

[35] ASCAP’s ACE Repertory search is available at

[36] BMI’s BMI Repertoire search is available at

[37] Global Music Rights search is available from the GMR homepage

[38] SESAC’s Repertory search is available at

[39] Herein the “PRO Databases”.

[40] U.S. Copyright Office, Circular 23, at 1 available at “Together, the copyright card catalog and the online files of the Copyright Office provide an index to copyright registrations in the United States from 1870 to the present. The copyright card catalog contains approximately 45 million cards covering the period 1870 through 1977. Registrations for all works dating from January 1, 1978, to the present are searchable in the online catalog, available at”

[41] U.S. Copyright Office, Circular 1, at 3.

[42] Berne Accession available at

[43] In addition to the registration and recordation records, the Copyright Office maintains the “CO-10 Address File” with the addresses of “[c]opyright claimants whose address has been requested by a member of the public.” 63 F.R. 51609 (Sept. 28, 1998).

[44] 17 U.S.C. § 115(c)(5).

[45] 17 U.S.C. § 115(c)(6).


[47] See id. “Works registered prior to 1978 may be found only in the Copyright Public Records Reading Room.

[48] See, e.g., Denniston, International Copyright Protection: How Does It Work? available at  (“The central feature of the Berne Convention is that it prohibits member countries from imposing “formalities” on copyright protection, in the sense that the enjoyment and exercise of copyright cannot be subject to any formality except in the country of origin. For over a hundred years, the United States resisted joining the Berne Union, in part because of the desire to maintain the formalities U.S. law required. In order to be eligible to join the Berne Union, Congress had to amend the Copyright Act to dispose of the many formalities the Act required. Therefore, while the United States Copyright Act can impose a requirement that the owner of a United States work must register the copyright with the Copyright Office before filing an infringement suit in federal court, it cannot impose that same obligation on foreign nationals.”)

[49] Changing Your Address with the Copyright Office, available at

[50] Isn’t That So written by Jesse Winchester.

[51] “Copyright Cataloging: Monographs, Documents, and Serials (database)” available at (hereafter “LOC Database”).

[52] Wall Street Journal Editorial Board, A Copyright Coup in Washington (Nov. 2, 2016) available at

[53] Licensing Study 108-110.

[54] See Sabec Interview (“[Rightscorp intends] to create a technological solution to this technological problem. We have already created a searchable database and can assist rights holders in determining the extent of their exposure.”)

[55] See 37 C.F.R. § § 210.16 and 210.17.

[56] 17 U.S.C. § 115(c)(6).

[57] See 37 C.F.R. § § 210.16 and 210.17.

[58] Smith, Google Acquires Music Royalty Manager RightsFlow (Wall Street Journal, Dec. 9, 2011).

[59] See How Content ID Works available at

[60] We leave aside the degree to which the agent’s knowledge can be imputed to the principals, but the issue seems ripe, fertile and of particular importance given the scale of the mass NOIs.  See, e.g., Restatement (Third) of Agency, Section 5.03 (“For purposes of determining a principal’s legal relations with a third party, notice of a fact that an agent knows or has reason to know is imputed to the principal if knowledge of the fact is material to the agent's duties to the principal….”)

[61] U.S. Patent Application No. 20160180481, “Methods And Systems For Identifying Musical Compositions In A Sound Recording And Licensing The Same” (June 23, 2016) available at

[62] See, e.g., 17 U.S.C. § 512(c)(1)(A)(i) and (ii) ([a service provider entitled to the safe harbor] does not have actual knowledge that the material or an activity using the material on the system or network is infringing; (ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent)

[63] See, e.g., EU Search Criteria.


[65] Copyright Cataloging: Monographs, Documents, and Serials (database), description

[66] See

[67] 37 C.F.R. § 201.18(g) states (emphasis added): “[T]he Copyright Office does not review Notices for legal sufficiency or interpret the content of any Notice filed with the Copyright Office under this section. Furthermore, the Copyright Office does not screen Notices for errors or discrepancies and it does not generally correspond with a prospective licensee about the sufficiency of a Notice. If any issue (other than an issue related to fees) arises as to whether a Notice filed in the Copyright Office is sufficient as a matter of law under this section, that issue shall be determined not by the Copyright Office, but shall be subject to a determination of legal sufficiency by a court of competent jurisdiction. Prospective licensees are therefore cautioned to review and scrutinize Notices to assure their legal sufficiency before filing them in the Copyright Office.”

[68] Copyright Office Mass NOI filing page

[69] 17 U.S.C. § 115 (“In the case of nondramatic musical works, the exclusive rights provided by clauses (1) and (3) of section 106, to make and to distribute phonorecords of such works, are subject to compulsory licensing under the conditions specified by this section” emphasis added.)


Google and Amazon Leverage Copyright Loophole to Use Songs Without Paying Songwriters

From the Huffington Post, October 16, 2016

Two vastly wealthy multinational media companies are exploiting a copyright law loophole to sell the world’s music without paying royalties to the world’s songwriters. Why? Because Google and Amazon—purveyors of Big Data—claim they “can’t” find contact information for song owners in a Google search. So these two companies are exploiting songs without paying royalties by filing millions of notices with the Copyright Office at a huge cost in filing fees that only megacorporations can afford.

That’s right—Google and Amazon are falling over themselves to use their market power to stiff songwriters yet again. And as I will show, it is not just obscure songs that are affected. New releases, including one example from Sting, are also targets suggesting significant revenue loss to songwriters.

Songwriters are the most regulated workers in America. The government sets wage and price controls on most uses of songs and practically everything else about a songwriter’s business—except fulfilling government’s basic role of keeping them safe from piracy and multinational monopolists gaming the system. Congress needs to stop this latest scam.

The U.S. Compulsory License

The latest loophole that Google and Amazon are hacking is uniquely American—the compulsory license for songs. No other country has one. Most songwriters would prefer that the U.S. repeal this legacy anachronism from 1909 that keeps the government’s boot on their throats. 

In order to get the government’s license, services only need notify the songwriter (or their publisher) that the service intends to use the song under the compulsory license. Of course, sending this notice of their intention to use the song (called an “NOI”) requires knowing who to send it to, and that is the “hack” that Google and Amazon are exploiting now. Others services surely will follow their market leadership if Congress fails to act.

The hack uses market power to manipulate a loophole in how those NOIs are sent. Common sense tells you that to send a notice, you must know who to send it to, even for a song. But does common sense also tell you that if you don’t know, the law should allow you to exploit the songs without compensation? Particularly if you’re the biggest purveyor of data in human history?

The legacy compulsory license allows services to exploit songs if they decide they can’t find the songwriter—and not pay royalties until the songwriter finds them. 

That’s right—Google and Amazon trade on a loophole that allows them to serve NOIs on the U.S. Copyright Office if the song owner cannot be found in the public records of the Copyright Office regardless of what other information is readily available to these services, including their own. And once Google or Amazon serve that “address unknown” NOI, they don’t have to pay royalties and they cannot be sued for copyright infringement—so the millions in filing fees they will spend at the Copyright Office is a kind of insurance premium. This excerpt from the Copyright Act states the rule:

Why Can’t Google Search?

The “address unknown” NOI starts from this premise: Google is supposed to search for the song owner’s contact to send NOIs. 

That’s right—Google is supposed to search. Think about that. This 1976 rule was never intended to apply to a music user with Google’s search monopoly. Yet, if Google “can’t” find the song owner after a search, then Google can serve an “address unknown” NOI to the Copyright Office and then exploit the song for free until the songwriter can be “identified” in the Copyright Office records—which may be never

That registration by songwriters—while prudent—is costly and entirely voluntary. Forcing songwriters to register essentially turns the system into a version of YouTube’s “opt out” debacle, and probably violates international copyright treaties.

But the idea that Google can’t find someone is a remarkable thought. Gmail alone has over one billion users. Google knows everything about everyone and makes billions of dollars from reselling and manipulating that information. Not to mention the fact that Google bought the music licensing service Rightsflow—itself an NOI mill. Not to mention ten years of information Google has scraped from Content ID on YouTube or sheet music on Google Books. 

Amazon also has a phenomenal amount of information about music ownership. As one of the biggest CD and DVD retailers, Amazon certainly has a head start in song research.

However—it appears that Google and Amazon are not using their own data for NOIs. Instead, they apparently are buying databases from the Library of Congress that tell them whether a song is registered for copyright or otherwise recorded in the digitized Copyright Office files (which songwriters are not obligated to do in order to get the benefits of the compulsory license). Those Library of Congress databases at best only cover copyrights after 1978 for technical reasons, so tens of thousands of jazz, blues and classical compositions created before 1978 are not included, as well as songs from outside the US before or after 1978.

Why buy this data when these giant corporations already have so much information at their fingertips? Because the point for the services is not to find out who actually owns the songs, the point is to find out if the Copyright Office has a record of who owns the songs based on the Library of Congress data.  

That is the hack.

Kafka-esque Moral Hazard

In other words—the government allows Google to claim they can’t find the songwriter even if Google’s own data would reveal their identity just because the song owner isn’t included in the Library of Congress database at the time Google searches. And there’s the “gotcha”. 

Kafka’s next book is in there somewhere.

Offering all the world’s music all at once presents a licensing problem that no system will be able to solve due to the sheer numerosity and disaggregation of the creative process. How many songs will be written by the time you finish reading this post and how would you find out who wrote them? 

So it should not be surprising that the market has offered a few ways to solve for this problem: Direct licenses (bypassing the NOI altogether) and NOI clearance companies that specialize in maintaining song owner information to send out mass mailings of NOIs (sometimes called “carpet bombing NOIs”).

These are two significant methods available to Google and Amazon and my guess is that these monoliths employ both methods for their interactive streaming services (the kind of service that competes with Apple and Spotify).

What’s the Alternative?

If Google and Amazon cannot find the song owner under their direct licenses or through an NOI company, how can they find the song owner? The easy answer is don’t use the song. But that approach is counter to offering all the world’s music at scale by creating supply that is not responsive to demand. 

Deciding which songs are right for “address unknown” NOIs requires some Silicon Valley style hocus pocus. Remember—it’s not that Google can’t find the song owner. The loophole requires that they can’t find the copyright owner in the pubic records of the Copyright Office, even if Google has actual knowledge of their whereabouts.

Then you have to believe that Google knows where to get the information for which direct licenses they want, they know how to carpet bomb NOIs, they have a decade of information in Content ID, but when it comes to some songs, Google has to turn to the Library of Congress? And Google’s only choice is to serve “address unknown” NOIs on the Copyright Office? 

Once served, the Copyright Office posts these mass filings on their website in large Excel files so that songwriters can sift through the haystack to find their needles. This hit and miss and self-serving process is fraught with moral hazard and should not be the law in 2016. 

This is what the filing looks like—but realize that “1 NOI” means “1 NOI With An Excel file with over 40,000 songs on it”.

Sting Songs Give Some Examples

A spot check of a couple of Google’s filings reveals that Google is not getting it right. Let’s use three Sting songs for an example.

Sting’s recent release “50,000” (coincidentally a tribute to David Bowie and Prince) is on Google’s “address unknown” NOI list. That song is probably subject to a direct license, but the song copyright registration may not yet have been processed. There’s almost always a delay in processing copyright registrations, so new releases will rarely appear in the Library of Congress database day and date with the song’s release. Google will not be paying royalties on Sting’s song, but will be exploiting it.

That’s right—a song that is a tribute to an artist rights advocate like Prince is itself being ripped off.

Google has also filed an “address unknown” NOI for a song entitled “Fragile (Live)”. My bet is that “Fragile (Live)” is “Fragile”, the well known hit song and anthem of the environmental movement. 

This likely means that someone at Google seems to think—or wants to think—that “Fragile (Live)” is a different song than “Fragile”, probably because there is a sound recording registered for “Fragile (Live)” in the sound recording metadata but no song registered by that name in the Library of Congress database. And why would there be if it is the same song? We humans have a way to catch this kind of mistake.

It’s called listening.

This pattern repeats with “Brand New Day (Cornelius Mix)”, also included on Google’s “address unknown” NOI. Again, a version of the sound recording, not the song. The song remains the same.

It is highly likely that the songs “Fragile” and “Brand New Day” were registered with the Copyright Office long ago. That’s probably why the “Live” and remixed versions of the sound recordings show up in Google’s NOI filing for the songs and the original versions do not.

In this case, not only are these songs likely covered under a direct license with Sting’s publisher, but even if they are not, the song owner’s information is identified in the public records of the Copyright Office. The loophole does not apply, but Google takes it anyway and the cost of checking up on a multinational media company falls on the songwriter.

And given that it’s Google, the songwriter will probably have to sue them to a final non-appealable judgment in order to fix the mistake that should never have been allowed to happen in the first place.

The government’s compulsory license has become distorted by rent-seeking behavior by multinational media corporations. It should be stopped or substantially modified. If Google is allowed to use this loophole to profit at the expense of songwriters from its considerable influence peddling and litigiousness, that will be crony capitalism writ large.

The Obama Administration Is Lame Ducking An Unworkable Burden on Songwriters: 4 Reasons Why It’s Bad Law

(From the Huffington Post, July 12, 2016)

Starting in 2014, the Obama Administration conducted a prolonged and expensive process of soliciting public suggestions to update the archaic antitrust consent decrees that regulate songwriters represented by the ASCAP and BMI performing rights organizations.  Most of these suggestions came from songwriters themselves, but a handful came from digital music services.

Spoiler alert: The ones from digital services and—apparently—front groups for digital services—were the ones that mattered.  Especially front groups funded by former clients of Obama Administration officials who were pretty clearly violating a revolving door ban in Executive Branch ethics rules while working on amending the ancient consent decrees. A unilateral amendment that has transmogrified into legislation by any other name.

It has recently come to light as reported out of closed door meetings with at least one conflicted official at the Department of Justice that the Obama Administration has decided to ignore all of the ideas presented by songwriters, publishers and performing rights organizations and focus on the one thing that is almost guaranteed to destroy the PRO system in the U.S. 

The Obama White House intends to adopt the punitive policy of “100% licensing” to the great benefit of Google once again. That would be Google, the former client of the conflicted Justice Department official.

What Does “100% Licensing” Have in Common with a DeLorean?

Simply put, 100% licensing derives from the English common law—even older than the consent decrees. It refers to the ability of a co-owner of an undivided interest in real property to grant a nonexclusive license to allow a third party to use the whole parcel without the consent of her other co-owners. A co-owner relying on this rule also assumes the obligation of accounting to her other co-owners and may not license at a rate that constitutes economic waste of the property. So yes—the Obama Administration wants to lead songwriters back to the future.

The Obama Administration seeks to apply this theory to song copyrights through the consent decrees. After all the hopeful aspirations that the legacy consent decrees were going to be fixed by the Obama Administration based on the public comments solicited by the Justice Department, it now appears that at this late stage of the Administration’s term, the can will just get kicked down the road even further.

Still confused about 100% licensing? If you’re confused, it’s partly because the concept applied to songwriters subject to the consent decrees is inapt and illogical. Take these examples:

Example 1: Two ASCAP and BMI Co-Writers: If I am an ASCAP songwriter and you are a BMI songwriter and we co-write a song, we have to decided on our shares. Let’s say we decide to share the song 50/50. That means 50% of the song that you write is subject to the BMI blanket license because you have an agreement with BMI that BMI represents your share of all songs you write. My 50% is likewise represented by ASCAP for the same reasons. We may have a simple song split agreement between us, typically a one-page form where we acknowledge each other’s shares and that we will each administer our respective shares. We have to agree on any licenses, such as synchronization licenses, and our PROs collect all the performances.

Under the current regime, because ASCAP and BMI are the only two PROs that are subject to the consent decrees out of the handful of PROs that exist in the U.S., the government determines all aspects of how songwriters can license their songs. The government controls songwriters through the consent decrees that are the longest in U.S. history (in place since 1941) and also through the rate courts, an expensive and cumbersome process of a single federal judge deciding what the ASCAP rates should be and a second federal judge deciding what the BMI rates should be.

Services have for decades obtained licenses from both ASCAP and BMI and usually one or more of the competitors to ASCAP and BMI (who are themselves very much competitors) such as SESAC and more recently a new PRO called Global Music Rights.

Under 100% licensing, a digital music service can go to either ASCAP or BMI to license 100% of our song, even though we agreed between us that our shares would be licensed through our respective PRO blanket licenses. If the digital service went to ASCAP first, then ASCAP would have to license the BMI share and vice versa.

Doesn’t seem legal? But wait, there’s more.

Example 2: One ASCAP, One BMI and One GMR Songwriter Same example, except add a third writer who is represented by GMR. Global Music Rights is not subject to the ASCAP or BMI consent decrees.

In this case, because the GMR writer made the creative choice to write with you and me, she is now subject to either the ASCAP or the BMI consent decree, just as if she had signed to ASCAP or BMI. But she can’t tell which one, because the digital service can decide which one she will be forced to license through—even though she never signed to ASCAP or BMI, and may have made that decision because she did not want to be subject to the government’s regulation of songwriters through the already unpopular—and about to get a whole new level of unpopular—government regulation of songwriters.

If this seems complex, it’s really exponentially more complex in practice for the billions and billions of streams every month, not to mention a “regulatory surprise” that imposes a cost not included in the judge-made rates set under the consent decrees.

And that’s right—the Obama Administration is about to rule that the consent decrees now extend to all songwriters who write with an ASCAP or BMI co-writer regardless of what their private contract says with their PRO or with their co-writers. This all is for the benefit of digital services, especially Google. That would be Google who is locked in a fight with GMR over YouTube. 

And that’s also right—the most valuable company in the world that is being sued by countries for violating antitrust law needs to be protected from the anticompetitive urges of songwriters. At least according to Google’s former lawyer now driving the attack on songwriters in the Obama Justice Department.

Legislation by Any Other Name

If the consent decrees are starting to look like legislation, you’re not the only one who thinks so. Initial reaction from Congress is negative, such as this from Congressman Doug Collins:

“The Department of Justice’s position is arrogance at its worst. The decision fails to address the vitally important issue of terminating or reforming outdated consent decrees, and instead broadly expands its interpretation of existing consent decrees. Under this expanded interpretation, the PROs must adopt “100 percent licensing” even if the PRO does not represent all joint owners of a musical work. This is a departure from common practice in the music industry and one that could have drastic consequences. The decision won’t fix anything, but it will create new problems for the music industry. I fear these problems could undermine creative collaborations, harm songwriters, and tip music industry contracts and negotiations on their head.”

The Obama Administration’s relatively new position appears to have been based on extraordinarily bad advice—advice that is so bad it looks punitive. This in part because in order to get to the punchline, the Administration has to ignore the implications to international trade, replace a voluntary licensing doctrine with a government mandate, ignore written agreements between generations of songwriters, and impose untold transaction costs on songwriters without requiring an increase in royalty rates to permit cost recovery.

The Four Preconditions

It is true that the ancient common law rule rule has been applied to copyright in the U.S. from time to time, but it is actually quite rare because of four preconditions.

Limitation to U.S. Law

First, to the extent the rule obtains at all, it is a U.S. creature. Applying this rule to copyrights originating in countries other than the U.S. when the rule is not recognized in those other nations raises the real possibility that the proposed application by the Department of Justice is unlawful. In fact, it may actually be a treaty violation that could cause the United States to be hailed into a WTO arbitration. (See Fairness in Music Licensing Act where that exact thing happened, the U.S. lost, and U.S. taxpayers are subsidizing foreign songwriters.)

Limited to Voluntary Licensing

The ancient 100% licensing rule also involves voluntary licensing by the co-owner. To my knowledge, it has never been applied to a government mandated license in copyright, real property or otherwise. 

Interferes with Private Contracts

The rights of the co-owner typically will originate with some agreement or purchase agreement that grants to the co-owner the right to the use of the whole of the property even though they only own a partial interest. In order to be effective, the co-owner license must not violate an agreement to the contrary between or among the co-owners.

At a minimum, songwriters often avail themselves of “song split agreements” to document their percentage ownership. Since song split agreements typically provide for each writer to administer their respective shares of copyright, it is likely that there are hundreds of thousands, if not millions, of song split agreements covering songs available under ASCAP and BMI blanket licenses.

Not only are there likely to be written agreements covering these songs, the fact that each songwriter has registered their works with their respective PROs of which they are writer members is pretty easily interpreted as an “implied in fact” contract from the mere uncontested registration of song shares with multiple PROs. As the U.S. Supreme Court noted in Baltimore & Ohio R. Co. v. United States, 261 U.S. 592 (1923):

[A]n agreement “implied in fact” founded upon a meeting of minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding.

What could be clearer than the uncontested act of PRO registration?

Negotiation for All Costs of the License

Perhaps most importantly and most relevantly for this post, the co-owner’s license is presumed to be negotiated at a rate that will take into account the cost of the license to the granting co-owner. This is another place that the Obama Administration’s proposed rule disintegrates or even becomes punitive.

Under the DOJ’s proposed 100% licensing rule, the applicable rate payable to PROs under the consent decrees is a rate for the use of the music licensed. No rate court took into account the “surprise” cost of administering songs in a 100% licensing world now being created by the DOJ from whole cloth.

Cost Recovery

Since the cost of administering these licenses was never included in the rate, any fee charged for 100% licensing by PROs would simply offset the costs for the convenience of the licensee music user and not be a rate for the benefit of songwriters, it seems proper that any music user seeking to trade on this theory should pay the freight.

In other words, ASCAP and BMI songwriters should be able to charge a fee for the convenience of 100% licensing that should be outside of the consent decrees and rate courts altogether. If not, the new transaction cost of administering 100% licensing when deducted from the already minuscule rate court license fees may well cause the music user to be in a better position than she would be in if the PRO had fully performed under the consent decree’s terms.

This is particularly true regarding the rates that were mandated by the two rate court judges without an opportunity for songwriters to be heard regarding these additional “surprise”regulatory costs now contemplated by the Administration.

If the Obama Administration wants to lame duck their way out of amending (or terminating) these ancient consent decrees, they could at least do songwriters the courtesy of requiring their revolving door appointees to tell songwriters to their faces at a public hearing before the Senate Judiciary Committee. 

Instead, the Administration encouraged songwriters to wrack their brains on ways to improve the ancient rules, then pulled the rug out in favor of what Rep. Collins called “arrogance at its worst.”

YouTube Has a Messaging Problem

From Hypebot, May 25, 2016 (reprint from MusicTech.Solutions) by Chris Castle

Like any large organization, Google has competing bureaucracies and therefore its wholly-owned subsidiary YouTube does as well.  (Google is now the largest media company in the world.)  YouTube’s organizational independence is additionally blurred because it is the #2 producer of revenue inside Google relative to search and advertising sales.

There seems to be a three-legged stool of competing interests in dealing with YouTube which we can describe with generalized labels–the “engineers”, the “policy people” (essentially Fred Von Lohmann) who are mostly lobbyists and lawyers, and the “business people” starting with Robert Kyncl at least at the moment.  It’s unclear who has the upper hand in this triumvirate, but it’s pretty clear that the business people do not control their destiny.

That leaves jump ball for control of YouTube’s deals between the engineers and the policy people who seem to compete with coming up with the solution that is the worst for anyone with a passing acquaintance with private property rights in general, and artist rights in particular.  I say artist rights because it’s not just copyright that is the problem with YouTube–it’s also right of publicity, control over derivative works, translations, moral rights, misappropriation, and other consent rights one would expect any artist would have.  Plus copyright.  Artists certainly do get some of these rights pretty much for the asking from the big bad record companies in the form of marketing restrictions, for example.  Hence, “artist rights.”

YouTube’s ineffective negotiating power with Big Google is particularly confusing because YouTube is both a search engine and an advertising publisher.  (Let’s call the larger Google “Big Google”.)

We sometimes forget that YouTube is the largest video search engine in the world.  Once the European Commission gets through fining Google for predatory business practices with Google search, and finishes up the Commission’s separate prosecution of Google for predatory business practices with Android, the Commission may then have the appetite to bring a case against Google for some of the same predatory practices as applied to YouTube.  I’m going to guess that Google’s dominance of video search is likely equal to or in excess of its dominant position in organic search and mobile meaning the EC’s scrutiny will be quite enhanced and (by that time) educated in Big Google’s ways.

Why it is that YouTube has such little clout internally is anyone’s guess.  My bet is that if YouTube didn’t have to check with a host of bureaucrats at Big Google, it would be much, much easier to do business with YouTube.

What’s obvious is that the engineers and policy people do not understand a fundamental point about dealing with the creative community.  They are every bit as much of ambassadors to the creative community–the entire creative community, not just the YouTubers who essentially are entirely dependent on YouTube for their success–as are the creative people or marketing folk at YouTube.

To state the obvious, unlike the YouTube lottery winners, professional artists who are not dependent on YouTube are not dependent on YouTube.  If pushed, there very well may come a day that they move on.  En masse.

That may happen sooner than you might think, despite YouTube’s monopoly on video search.  YouTube is currently taking a beating from artists and songwriters.  Note that the beating is administered to YouTube–not to the engineers and the policy people at Big Google.  Or not yet, anyway.  Most professional creators don’t know these bureaucrats exist.  Those bureaucrats at Big Google are largely faceless (with the exception of Fred Von Lohmann) and take no heat when YouTube gets roasted alive by key opinion makers in the music business (such as Irving Azoff).

To see where this goes, we need only look to Pandora’s experiences with this kind of response to the Internet Radio Fairness Act of 2012.  Pandora is still digging out of that hole some four years later.

Four years later.

I seriously doubt that the day to day business people at Pandora wanted to go through this misstep, and the stockholders definitely did not.  IRFA sprang from the intellectual loins of Pandora’s “policy people” by all accounts, and the business people apparently didn’t really have much to say about it.

So how could we repair the problems with YouTube?  I think that it’s going to be a heavy lift, but it would start with Big Google telling their engineers and policy types to back off.    Then we’d at least have an idea of whether YouTube can ever be a good partner.  I suspect we could have at least much better relations with an independent YouTube.

Google may be willing to bet that they can outspend and out lobby the creative community.  I don’t know as I’d take that bet.  While the government has had their boot on the throat of creators in the form of compulsory licenses, consent decrees, and the very unpopular DMCA safe harbors, they can’t make creators happy about it.

YouTube should try to shake off the control of their internal masters at Google.  Then at least we’d know who we are dealing with.

Where's The Money? YouTube Revenues Explained

Hypebot Guest Post by Chris Castle on Music Tech Solutions

I had the good fortune to participate in a SXSW panel about the mechanics of YouTube revenues.  If I say so myself, it was a wonderful panel with some deep expertise (“Stop Complaining and Start Monetizing“).  There was a real interest in the audience about the mechanics of the rights involved and the revenues paid.

If you have that same interest and you weren’t able to go to SXSW, here’s a basic chart of revenue splits that may help you:


Source: Billboard

YTP, YTPC= “YouTube Partner“, “YouTube Partner Channel”
SR= Sound Recording
WW= “Wild West” meaning no particular rule.

Notice that the basic categories are song, sound recording and video which track the main three copyright categories of musical work, sound recording and audiovisual work.

The percentages refer to shares of “Net Ad Revenue” often defined as:

“Net Ad Revenues” means all gross revenues recognized by YouTube attributable to any sponsorship of or advertising displayed on, incorporated in, streamed from and/or otherwise presented in or in conjunction with any User Video displayed on a Covered Service including, without limitation, banner advertisements, synchronized banner advertisements, co-ads, in-stream advertising, pre-roll advertising, post-roll advertising, video player branding, and companion ads, less ten percent (10%) of such gross revenues for operating costs, including bandwidth and third-party (affiliated or unaffiliated) advertising fees. Net Ad Revenues excludes any e-commerce referral fees received by YouTube from “buy buttons” or “buy links” on the Covered Services that facilitate recorded music “upsells” when a Publisher separately receives payment from a third party in connection with such an upsell (e.g., royalties for a CD or sheet music sale); provided, however, for the avoidance of doubt, that such exclusion does not extend to (a) advertising of the type described in the first sentence of this Section for recorded music products, the revenues from which shall be included in Net Ad Revenues; and (b) all other types of e-commerce referral fees and revenues, which shall be included in Net Ad Revenues.

One key component of your YouTube earnings is the “CPM” paid by advertisers to Google.  Even if you have the right to audit YouTube (which few do), it is highly unlikely that you will ever be able to determine what the CPM is that Google uses to pay you on YouTube.  Multichannel networks (“MCNs”) like Machinima have reportedly tied creators to CPMs that were well below market, particularly considering that the highest CPMs on YouTube are often associated with exactly the kind of talent most frequently signed to an MCN.

“Official” or “Premium” Videos

When a label uploads an “official” music video on YouTube or Vevo, the video has higher production values than UGC and is usually supported by a sustained marketing effort outside of YouTube that drives traffic to the site.  If the premium video appears on Vevo, then 100% of the royalty is paid to the label, which in turn has licenses from the publishers for the song.  If the video is on YouTube proper, then the label’s share is reduced by the publisher royalty, often around 15% of net ad revenue.

Claiming and YouTube’s Content Management System (“CMS”)

Because of a combination of YouTube’s monopoly position in the market, Google’s controversial reliance on the notice and takedown provisions of the Copyright Act and its sheer litigation muscle, YouTube will let anyone upload anything also known as “user generated content” or “UGC”.  If you have access to YouTube’s “Content Management System” or “CMS” you have the chance to block UGC through YouTube’s “Content ID” fingerprinting tool.

Compared to the massive volume of videos uploaded to YouTube, a very, very small percentage of copyright owners have direct access to Content ID.  According to YouTube:

YouTube only grants Content ID to copyright owners who meet specific criteria. To be approved, they must own exclusive rights to a substantial body of original material that is frequently uploaded by the YouTube user community.

Participating in Content ID allows you to help YouTube create a vast and valuable library of reference versions ofyour works.  (YouTube does not compensate you for participating in Content ID.)  Rightsholders usually participate in Content ID for two reasons which are not mutually exclusive:  Blocking or “monetizing”.  Monetizing means that you give YouTube permission to sell advertising against your works.  Naturally, YouTube hopes you will choose to monetize because over 90% of Google’s revenue comes from selling advertising online.

YouTube creates a reference version of your work in the form of a “fingerprint” (a psychoacoustic technique that has long been in use by the U.S. Navy among others to distinguish sound patterns–see Jonesy in The Hunt for Red October). A fingerprint is a mathematical rendering of the waveform of an audio file that essentially reduces a sound recording to a kind of hash that makes comparing fingerprints quicker and more accurate.

YouTube maps the reference fingerprint to other identifiers such as the International Standard Recording Code for sound recordings, song title, artist name and copyright owners for all of the above including song splits in many cases.  When a work is in the Content ID system, YouTube will compare an uploaded video to the Content ID database reference fingerprint and most of the time will follow the rules established by the copyright owner to block or monetize (often called “match policies“).  If the match is done before the UGC video is uploaded, then it won’t go live, and if the match is done after it is live, then the users will see one of YouTube’s controversial messages saying the file is blocked due to a claim by copyright owner X.

What this boils down to is that if you don’t have a label or publisher, you will need to go to a claiming service like Adshare, The Collective or Onramp in order to get access to CMS and Content ID in order to monetize your works outside of a YouTube Partner Channel (which is done through an Adsense account associated with your YouTube Partner account).  If you have a label, publisher or claiming service, then all of these entities should have access to CMS and Content ID and will be able to claim your songs, sound recordings or videos and monetize them if you wish.

Deciding if Monetization is Right For You

If you’re familiar with term recording artist agreements or publishing agreements (or what is normally called a “record deal” or “publishing deal”), you’ll probably remember negotiating “marketing restrictions” involving the use of your recording or song in advertising.  Those clauses usually restrict the use of your works in political ads, certain kinds of products (firearms, tobacco for example), or more artist-specific restrictions.  There are also restrictions on the kinds of movies or television programs (even videogames) in which your works can be used.

If you allow your work to be used in UGC and you elect to monetize, you can just forget all that on YouTube.  “UGC” includes just about anything you can imagine short of explicit pornography, but would include, for example, sex tourist home movies, jihadi recruiting videos (although “songs” are unlikely to appear there), hate speech and the like.  All of those are on YouTube and frequently are not behind any kind of age restriction wall.

The ads that get served as preroll for these videos are themselves often unsavory.  For example, Google serves ads for “dating” sites that are in categories frequently identified as thinly disguised human trafficking operations.  There are ways to block these particular uses if you have access to CMS but due to YouTube’s “catch me if you can” business practices, you may have to spend the time to track down each use which otherwise can stay on YouTube for months or years.

Winning the Lottery

We often hear about “YouTube stars” with elite channels (1 million plus subscribers) who are very well compensated.  The source of this high level of compensation is rarely limited to advertising revenue.  Most of the time, their ad revenue is salted with a high number of payments for what are essentially sponsorships, endorsements or product placements, often called “brand integrations“.

In the music and movie businesses, the term “star” is usually reserved for a relatively small group of performers who have demonstrated ability over time to reach a large audience, often a global audience.  YouTube “stars” may have large YouTube communities and may be able to introduce products to fans on YouTube, but whether that will hold up on YouTube over time or translate to other platforms remains to be seen in most cases.

It is also important to realize that advertising is a highly regulated business, particularly when it comes to false or deceptive advertising that is regulated by the Federal Trade Commission.  Machinima has just entered a 20 year consent decree with the FTC to settle claims that it misled consumers by passing off paid endorsers as independent reviewers.  Given that Machinima and other MCNs are supposed to protect their talent from such missteps suggests that YouTube stars may well have more to watch out for on YouTube than do recording artists or songwriters on record labels or music publishers.

Online Advertising in Decline

Whether it is ubiquitous ad blocking software, “do not track” settings on browsers, or distrust of advertisers, online advertising is in decline.  Like a ship that is sinking very slowly, it is sometimes difficult to tell if you’re really lower in the water, or if that was just a wave.  And remember, over 90% of Google’s revenues come from online advertising, moonshots notwithstanding.

If the online advertising ship really does sink, all the driverless cars, military robots and Google Glass will not save Google or YouTube.  That’s something to keep in mind when you agree to participate in the YouTube monetization game.

Spotify's Compliance Record Striking a Chord

From Texas Lawyer (January 28, 2016)

Two recent copyright infringement class action lawsuits against Spotify show the $8 billion music streaming service's Achilles heel—Spotify's largely secret failure to license songs.

According to Billboard, Spotify failed to license or pay royalties for between 10 to 25 percent of Spotify's 30 million song music offering and claims to be accruing a "reserve fund" of $17 million to $25 million for unpaid royalties. Spotify has so far refused to disclose how many songs are unlicensed or how much it owes for which songs.

Given the scale, it is very likely that Texas songwriters could be included in either potential class, particularly independent songwriters who have registered their U.S. song copyright.

How Did Spotify Get Here?

Two different songwriters brought the class actions separately: David Lowery ($150 million) and Melissa Ferrick ($200 million).

Recall that sound recordings contain two separate copyrights: the song and the recording. Different parties can own each work. These class actions concern the song copyright.

Spotify defends itself by complaining that U.S. song licensing is uniquely complex. Outside the U.S., songs come in a single blanket license (e.g., the UK's PRS for Music). In the U.S., the bundle of rights is divided between the blanket public performance rights licensed by performing rights organizations like ASCAP and BMI under government orders, and compulsory mechanical rights under a statutory license. The government controls the price for both rights. Spotify allegedly failed to comply with the compulsory license laws despite warnings—resulting in the alleged copyright infringement forming the basis of the class actions.

This complexity is created by government regulation. ASCAP and BMI are prohibited from licensing the mechanical rights (for the exact same performances, songs and users). The federal government has long controlled licensing and prices for songs, so Spotify knew this when they entered the U.S. market. For example, the federal government set the price for the compulsory song license at $.02 in 1909 where it stayed for 67 years; the ASCAP consent decree started 75 years ago.

While the government actively regulates songwriting, it largely avoids enforcing compliance with its licenses, essentially leaving enforcement to songwriters and music publishers.

What Did Spotify Fail to Do?

The class actions accuse Spotify of failing to comply with the two main requirements of statutory requirements for compulsory mechanical licenses. The user must: notify each copyright owner of the proposed use in advance; and account and pay government royalties for uses of the song.

The class actions allege that while Spotify may have licensed some of the songs it offers, it has not licensed potentially millions of songs. The cases allege that Spotify admitted these failures in various public statements.

It is reasonable to ask if a person who fails to comply with burdens of the compulsory license ought to continue to enjoy its benefits. The Copyright Act has no "use it or lose it" mechanism that would suspend or extinguish an abuser's right to the compulsory license—once again, enforcement is left to songwriters and publishers.

The advance notice requirement states that the user must either send the notice to the copyright owner or send it to the Copyright Office if the owner cannot be found in the records of the Copyright Office. Press reports suggest that Lowery could have been found with a "ten second" online search of Copyright Office records.

Spotify claims that it cannot locate the rights owners, but apparently does not acknowledge the unknown owner option. The class actions suggest that Spotify's failure to send notices for millions of songs suggests something more than a mere oversight.

Were Filing Fees A Factor?

One possible explanation for Spotify's predicament is a reluctance to pay the filing fee to register the notice with the Copyright Office who also publishes a list of all unknown owner notices on the Copyright Office website. Notice filing is a kind of insurance against copyright infringement claims until the owner comes forward, if ever. That filing fee works out to about $25 per song—which looks cheap compared to statutory damages.

It appears that even $25 per song does not trump the "optical" risk assessment—the likelihood of getting caught balanced by a bet that songwriters would never have the means to sue.

A similar problem arose in 2004 regarding unclaimed royalties at record companies and publishers. The New York Attorney General investigated the rightsowners and found that they needed to do a better job of paying royalties. That started with the rightsowners publishing a list of all the artists for whom they were holding royalties.

Plaintiff Lowery evidently knows the history—before filing his action, Lowery asked the current New York Attorney General to conduct a similar investigation into Spotify's undisclosed and unpaid royalties, but evidently got no reply after several months.

Press reports suggest that one solution might be to follow those 2004 guidelines starting with requiring Spotify to publish a public list of unlicensed song titles (from Spotify's sound recording metadata). Lowery's class action effectively asks the court to order this disclosure.

Spotify may well be doing it better than other services but it appears they all have the same problem—they apparently decided it was better to seek forgiveness than ask permission. Or comply with the law.

Spotify Discovers the Marginal Value of Infringement in the Wrong Tail

[From The Huffington Post, January 18, 2016]

Spotify's music offering may have appeared to be the long tail, but now it looks like the wrong tail. After two class-action lawsuits for unlicensed songs and copyright infringement were filed against the company by songwriters in as many weeks, Spotify is doing back flips to blame the victim for its admitted failures to lawfully obtain mechanical licenses. But at the end of the day, the decision is governance not guidance, and Spotify's governance is solely in the hands of its corporate directors and officers. Those directors and officers must answer to shareholders for weighing the marginal value of millions of unlicensed songs over the infringement liability (not to mention an even worse press). 

Free Lunch or Free Will?

According to press reports, 10 percent to 25 percent of the songs on Spotify "are not properly licensed and/or not distributing royalty payments." Spotify also claims to have licensed approximately 30 million recordings (of 30 million songs, give or take for covers).

Based on these assumptions, that means there could be three million to 12 million songs that "are not properly licensed and/or not distributing royalty payments." This is not a few songs that fell through the cracks like new releases, a 1/16th of a song for a sample, the odd songwriter who cannot be found or who is non-responsive.

Millions of unlicensed songs doesn't look like an understandable accident, it looks more like an unacceptable policy. And that would be a policy that is exactly what the compulsory mechanical license was designed to prevent.

At the end of the day, the policy, i.e., the choice, to go forward without licenses, rests solely with Spotify. The well-financed company could have complied with the compulsory license -- enacted by the U.S. Congress for this exact situation -- but the songwriter class actions will likely seek to prove that Spotify chose not to do so. Whoever Spotify hired to undertake the mechanical process of mechanical licensing, millions of unlicensed songs strongly suggests that someone at Spotify decided to go forward without complying with the law. It appears that the thinking was that the upside value of having "all the world's music" was greater than the downside risk of getting caught. The marginal value of another few million songs was greater than actually complying with the law and paying songwriters.

This decision is what is called "business risk." Incredible as it may seem, this decision -- this willful decision -- to accept the business risk of using millions of unlicensed songs was apparently driven by a belief that in order to have an effective consumer offering, Spotify had to have tens of millions of tracks available to consumers. 

It's Not About a Database

You'll hear a lot of hand wringing (from many quarters including Spotify) about the lack of a central database that is constantly updated with complete rights information just so digital services can look up who to license from and who to pay. This database has never existed, but you know what does exist? The U.S. Copyright Office online searchable database of copyright registrations.

In David Lowery's case, the songs he complains of in his class action all were registered with the Copyright Office.  He published a list of them -- with registration numbers -- on his blog on October 20, 2015.  He also complained to the New York Attorney General about the problem in November with no response. 

Evidently, Spotify did not bother to look up Lowery's copyrights at the Copyright Office registration system as required by the compulsory license rules. That's behavior that is consistent with having millions of unlicensed songs. If the industry were to go to the trouble and expense of building this unicorn database, it would not have solved Spotify's problem with David Lowery because evidently nobody bothered to do the song research.

And this is the most elegant explanation of why Spotify is in the situation they are in -- they don't want to look because they don't want to pay the cost of complying with the law that provides them the great benefit of a compulsory license and they don't want to pay songwriter royalties. If Spotify really wants to pay songwriters, wouldn't they have done at least as much as the Copyright Office does with unknown writers -- publish a list online with all the information that they have (like artist name and song title).

Enter the Long Tail

This policy of using millions of unlicensed songs may well have been informed by the "long tail" theory and thought experiment posited by one Chris Anderson (in case you forgot him). You can read all about it in Anderson's counterintuitive utopian book The Long Tail: Why the Future of Business is Selling Less of Morewhich was based on a 2004 article in Wired.

I'd be very interested to know exactly where this consumer research is that shows the marginal value of an additional 12 million songs is so meaningful to a music service that it trumps the infringement exposure. I frankly have never seen it -- aside from Spotify's reliance on Anderson's version of the long tail.

Anderson goes down the wrong rabbit hole by relying on anecdotal observations of "Ben" an anonymized (or perhaps fictional) character (at pp. 3-5). "Ben" is a teenager from an affluent family in Silicon Valley who gets most of his music from "friends" and "Bit Torrent" (recall that Spotify's CEO was a developer of uTorrent, a key piece of the piracy picture acquired by Bit Torrent in 2006). So Anderson starts by analyzing a legal market with comparisons to the black market. That obviously wasn't going anywhere logical. Neither is any market of what the New York Times called "pixel-size niches".

Anderson's long-tail thought experiment has been criticized by a number of people such as Harvard Business School Professor Anita Elberse in the Harvard Business Review and most famously in the music business by Will Page, the former economist for PRS, the UK performing rights organization.

Any record company production manager could have chimed in -- and perhaps would have if it wasn't so obvious that it did not really bear much discussion. The corresponding transaction costs of a variety of functions including rendering royalty statements for minuscule unit sales were not worth keeping the title in the catalog. You know, kind of like sending a royalty statement for three streams. Preparing the statement may well cost more than the royalty even if the statement is itself digitally delivered. Not to mention taking the phone call from the angry songwriter who got a statement for $0.19.

Record companies are no strangers to the long tail -- that's often called classical and instrumental jazz. It is worth noting that record companies have for decades deleted titles that didn't sell enough to justify keeping the title in the company catalog. This is consistent with Professor Elberse's research demonstrating that "the tail increasingly consists of titles that rarely sell and that are produced by smaller-scale players." Professor Elberse assumed that there were no infringement costs associated with those "titles that rarely sell" thus exponentially increasing the cost of the tail, or as this particular tail is known in some circles, the wrong tail.

Is the Long Tail the Wrong Tail for Spotify?

Then-PRS economist Will Page reached a similar conclusion after analyzing PRS royalty payments in 2008. Those who have had about enough sanctimony from Spotify about how it is God's gift to fighting piracy will find this nugget of interest when wondering how much the marginal value of the last 12 million tracks that don't sell really is worth if they are all unlicensed:

Will Page, the former economist for PRS, found in his 2008 study that famously debunked Chris Anderson's absurd "long tail" theory, the "long tail" is pretty meaningless for music services:


[PRS] found that only 20% of tracks in our sample were 'active', that is to say they sold at least one copy, and hence, 80% of the tracks sold nothing at all. Moreover, approximately 80% of sales revenue came from around 3% of the active tracks. Factor in the dormant tail and you're looking at a 80/0.38% rule for all the inventory on the digital shelf.


Mr. Page joined Spotify in 2012, which was after Spotify's U.S. launch in 2011. If Spotify's policies led to its problems with songwriters, that is certainly not Mr. Page's fault, but Spotify could have just asked him about the cost/benefit analysis before continuing to take the business risk of failing to get compulsory licenses on what apparently is a gargantuan scale.

Was the marginal value of the long tail worth it for Spotify when compared to statutory damages? Commentators often mock statutory damages, especially for willful infringement, as being over the top. In the case of the compulsory mechanical license, you can look at this another way.

Congress did backflips to make the compulsory license easy to get. If a well funded company like Spotify (last valuation reportedly $8.4 billion) chooses to ignore Congress's efforts, then perhaps Congress wants to make sure that the marginal value of ignoring the compulsory license is always less than the statutory damages for choosing to do so.

Transparency Starts Upstream for Streaming Royalties

From the Huffington Post, October 5, 2015

We've seen stories recently about various successes for artists in negotiations with major labels about "transparency" in the payment of the artist's share of streaming royalties received by record companies. This is great news of course, but the new buzz word "transparency" should be understood in context. There is nothing the digital services would like more than to deflect the ire of artists and songwriters who are enraged about minuscule royalties away from the services and onto record companies or music publishers. 

Creators need to be alert that they are not being duped into a false deflection because even in the best case, record companies can only pay on the royalties they receive from services.

The False Deflection

Mistrust between artists and labels is nothing new. That's why artists typically have the right to conduct a royalty compliance examination of their royalty statements from labels, often called an "audit" (but should be distinguished from "audited financial statements" as in the GAAP world which has nothing to do with royalty statements).

But remember how the money flows for artists in the case of ad supported streaming services: 

Advertiser → Ad Network → Service → Label/Aggregator → Artist

And for songwriters: 

Advertiser → Ad Network → Service → Publisher/PRO → Songwriter

The payment by the service to the label is covered by contract and the payment for the songwriter is covered either by contract or the compulsory license.

Artists who are signed to a label only get paid when their recordings are played on digital services when their label pays them a share of what the label gets--the typical arrangement. These artists have no direct audit rights against the digital service. The artist relies on their label to make sure that the label--and consequently the artist--is getting a straight count from the service.

Remember--most streaming royalties are a share of the service's advertising revenue. If you can't confirm that all the advertising revenue is paid through properly, that would be worse than a record company refusing to let artists see CD manufacturing records. It would be like the label telling the artist they can't confirm all the sales from WalMart while boosting WalMart as a a major retail channel.

The Blanche Dubois Method

Too often the label is either not able to get the service to agree to an audit clause in the label's agreement with the service, or the service makes it so difficult to audit--particularly an "upstream" audit that attempts to verify advertiser revenues--that no one can be sure if the advertising revenues are accurate. Advertising revenue that so many of the digital services depend on, especially the "free" services.

A digital service once told me that they refused to agree to audit clauses because they determined that being audited wasn't a good use of their resources. Very insulting.

Independent artists may have direct deals with digital services, but they often don't have an audit right against the service, or they distribute to digital services through an aggregator who may not have an audit right themselves. Artists rarely have an audit right against their aggregator, so the whole thing is what I call the Blanche Dubois method--relying on the kindness of strangers.

Songwriters are even worse off. If the digital services use the compulsory license under the Copyright Act, the government prevents songwriters, or even their publishers, from auditing the service. This is a huge gift to the digital services, and opens the door to shenanigans. Starting with a failure to properly license songs in the first place.

The Darkest of Black Boxes

The lack of accountability at digital services produces a large pot of unallocated money, often called the "black box". This "black box" means that money has been accrued by the service because they did not know who to pay (supposedly). Recent estimates from industry experts I've spoken to suggest that the total estimate--by the services--of the unallocated advertising revenue sitting at digital services is about $100,000,000. 

A similar version of this issue came up many years ago when the New York Attorney General pursued record companies about unpaid royalties for artists whom the record company was unable to locate. This resulted in a settlement under which record companies took a number of measures as reported by the New York Times

Under the agreement, Warner Music Group, Bertelsmann Music Group, Sony Music Entertainment and EMI Group must list the names of artists and writers who are owed royalties on their Web sites; place advertisements in leading music-industry trade publications explaining procedures for applying for unclaimed royalties; work with music-industry groups and unions to find artists who are owed royalties; and share artist contact information with one another. 

Do digital services do the same with their own "black box"? No.'s a secret.

Given that the services are highly incented to fudge these numbers, I would not be surprised at all if a theoretical unicorn auditor who could get a good look at the actual earnings for all songs across all services would find that the estimate was off by at least two or three times $100,000,000. (The iTunes download service is not included in this estimate and is unlikely to have significant unallocated monies because Apple typically only let copyright owners post recordings on their system.)

One reason to believe that the black box is much higher is recent press suggesting that there is a startling amount of fraud in the online advertising networks. This fraud may well extend to Google's Doubleclick network. Doubleclick is one ad network that powers both Spotify and Pandora

If Advertisers are Suspicious, Should Artists Be Also?

One very significant example is that major brands and the mega-ad agencies like WPP are taking a hard look at whether online advertising even makes sense given the high degree of click fraud and scamming by ad networks. According to a recent article in the Financial Times, WPP CEO Sir Martin Sorrell "warned Google that unless it improves its efforts to weed out 'fake views' of online adverts, marketers will shift their focus back towards traditional media such as press and television." Sir Martin was reacting to a study that alleged that Google "has been charging marketers for YouTube ad views even when the video platform's fraud-detection systems identify that a 'viewer' is a robot rather than a human being" and Sir Martin stated the obvious conclusion that "[c]lients are becoming wary and suspicious."

Does anyone seriously think that massive defrauding of advertisers is somehow not present at all in the ad networks used by the digital services offering ad-supported services? And if advertisers are defrauded, is there some magic unicorn elixir that protects artists, songwriters, record companies and music publishers from being ripped off at the top of the revenue waterfall?

Transparency should start at the top of the waterfall--if artists can't trust the money their labels or aggregators collect from digital services, how much good does it do to get a really transparent report of really crooked revenue reported by the service to the label or aggregator?

The tension between artists and record companies as well as songwriters and music publishers over money is long standing and will probably never go away. That's fine, that's why we have audit rights.

But the relatively vast amounts of advertising revenue--large, unauditable oceans of advertising revenue plagued by fraud--that flow through digital services must be where real transparency gets real. And artists need to demand of their partners and managers that this issue is thoroughly vetted in negotiations.

It is also one of the few places where the interests of artists, songwriters, record companies and music publishers--and even digital services--are entirely aligned. This is where we should all be putting our shoulder down and digging in. We can fight with each other anytime. 

Given the degree of fraud that WPP complains of, it's no wonder these services make upstream advertising revenue so difficult to confirm. Harvard Business School Professor Ben Edelman called it back in 2009 with his prescient "Toward a Bill of Rights for Online Advertisers". The planks of Edelman's bill of rights applies as much to artists and songwriters as it does to advertisers:

An advertiser's right to know where its ads are shown. It is nonsense to pay for ad space without knowing where an ad will appear; sites vary too much in user quality and context. Even for "blind buys," advertisers need enough information to determine whether a given site qualifies to show an ad. Anything less undermines accountability--inviting fraudulent sites that devour advertisers' budgets. And with all manner of fraud--from spyware pop-ups to invisible banners to adult sites slipping into networks that claim to be brand-friendly--advertisers need to be wary.

An advertiser's right to meaningful, itemized billing. Clear records protect advertisers from accounting games. Otherwise, ad networks can claim "We already credited you for those clicks," knowing that advertisers cannot prove otherwise. But some ad networks provide invoices that are opaque at best.

Sound familiar? Think artists and songwriters deserve the same rights to know if they are being paid properly?

Artists are constantly being told by streaming music boosters how great it is and how we should all hitch our wagons to free music supported by advertising. Even Billboard and The Official Charts in the UK take streaming into account--that results in something of a self-fulfilling prophecy but does nothing to create even the level of assurance that creators routinely get from their record companies or music publishers.

If streaming is really providing such significant advertising revenue as we are told by the streaming boosters, we have to be honest and acknowledge that we have no idea whether it's calculated properly. Fighting with all the record companies or publishers in the world won't make that any better.

Meet the new boss--worse than the old boss.

Artist Rights are Human Rights

                                                   by Chris Castle

The human rights of artists is a different concept from intellectual property rights, such as copyright. Intellectual property rights are created by national laws, and the human rights of artists are recognized as the fundamental rights of all persons by all of the central human rights documents to which hundreds of countries have agreed.

These rights resonate in a number of international and national documents, but a good international agreement to consider first is the International Covenant on Economic, Social and Cultural Rights that was ratified by the United Nations General Assembly on December 16, 1966. It is important to remember that human rights are fundamental, inalienable and universal entitlements belonging to individuals, individual artists in our case. As a legal matter, human rights can be distinguished from intellectual property rights as intellectual property rights are arguably subordinate to human rights and actually implement at the national level the human rights recognized as transcending international and national intellectual property laws.

The Covenant recognizes everyone’s right—as a human right–to the protection and the benefits from the protection of the moral and material interests derived from any scientific, literary or artistic production of which he or she is the author. This human right itself derives from the inherent dignity and worth of all persons. The Covenant recognizes these rights of artists (in article 15, paragraph 1 (c):“The right of everyone to benefit from the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he or she is the author.”

These human rights are transcendent and timeless expressions of fundamental entitlements of humanity that safeguards the personal link between authors and their creations as well as their basic material interests. These rights are personal to the authors and artists concerned and are arguably of broader scope than the rights that can be enforced under particular national intellectual property regimes.

The human rights of authors are recognized in a multitude of international agreements, including article 27, paragraph 2, of the Universal Declaration of Human Rights: (“Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author”); article 13, paragraph 2, of the American Declaration of the Rights and Duties of Man of 1948 (“Every person has the right…to the protection of his moral and material interests as regards his inventions or any literary, scientific or artistic works of which he is the author”); ; article 14, paragraph 1 (c), of the Additional Protocol to the American Convention on Human Rights in the Area of Economic, Social and Cultural Rights of 1988 (the Protocol of San Salvador) (“The States Parties to this Protocol recognize the right of everyone…[t]o benefit from the protection of moral and material interests deriving from any scientific, literary or artistic production of which he is the author”); and article 1 of Protocol No. 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms of 1952 (the European Convention on Human Rights) (“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law”).

These precedents clearly enunciate the goals of the international community. The Covenant is closely linked with the right to own property (recognized in article 17 of the Universal Declaration of Human Rights) and workers’ rights to adequate remuneration. The “material interests” protected by the Covenant are protected under the right to an adequate standard of living.

These moral rights include the right of authors to be recognized as creators of their works and to object to any modification of their works that would be “prejudicial to their honor and reputation.” The protected interests of artists include the right to just remuneration for their labor as well as the moral right to the “intrinsically personal and durable link” between creators and their creations that survives even after the passing of the work into the public domain. This rule will no doubt come as a shock to those wishing to sell consumer electronics devices to the “remix culture” bent on perpetuating regurgitative “art.”

And what bothers me the most about the massive, worldwide infringement of artist human rights is not just that major multinational corporations like Google are knee-deep in perpetuating this exploitation economy. It is that the governments of the world have—until last year—done very little or nothing to stop it. And in that regard, these governments have failed to protect the human rights of artists.

If there seems to be a coordinated effort in many countries to oppose the rights of creators, that’s because there is—a complex effort very well described in the book Winning the Web, written by the former head of the Open Rights Group and sponsored by the Open Society Institute ( (The Open Rights Group (or “ORG”) is essentially the UK version of the Electronic Frontier Foundation and is a voice in the opposition to artist rights protection under the UK Digital Economy Act.)

But these coordinated attacks on artists’ rights also extend to some unlikely places—such as the United Nations Human Rights Council. This is not surprising because there has been a sustained effort to define away an artist’s ability to protect these transcendent rights (“it’s not really theft”)–the success of the anti-copyright crowd in destroying artists is in part dependent on getting over this issue. If the ORG, EFF and Google can define away an artist’s right to protect their rights through ridicule (such as Lessig’s obliging piece “The Starving Artist Canard“) , or by making them small as Lessig said on a Pirate Party UK video, “we” should not “break the Internet” to protect a “tiny industry” such as the hated “Hollywood”, then it will be easier for Google to roll over artists. Then it is easier to define an artist’s human rights out of existence altogether. And doesn’t that just sound like a human rights violation? Their reach is deep–I find it very strange that the Special Rapporteur for the UN Human Rights Commission fails to address the human rights of artists even once. The Special Rapporteur’s conclusions would impose grave burdens on artists, yet bends over backwards to protect the rights of corporate intermediaries online–and specifically mentions Google.

Of course it is not enough that the States of the General Assembly merely recognize these rights of artists in a number of international agreements—the States also have undertaken the affirmative obligation to protect these rights of authors. Those protections include adequate legislation and regulations, as well as making effective administrative, judicial or other appropriate remedies available to authors within each jurisdiction. Access to such remedies must be affordable, or as I have said in the past—violations of moral rights cannot be remedied only if the rich seek to enforce their rights.

Anyone who takes seriously the international human rights of artists will find “Big Tech’s” dismissive use of “moral panic” to be deeply offensive to professional creators. It is Orwellian to describe as a “moral panic” an allegation of immorality being associated with massive illegal downloading that deprives creators of their ability to pursue work which they freely chose and remuneration for that work enabling them to achieve an adequate standard of living.

Google’s Patry has, in fact, travelled the world speaking to NGOs and universities trying to make his case that using the language of morality to describe massive online theft is somehow insidious and that it should stop immediately. Or, as his employer Google might say, “Don’t be moral.” This “don’t be moral” admonition obscures much more than mere lusting for commercial gain on the part of Google and the Pirate Bay. The protection of artist rights—many of the rights of the professional creative class—are entitled to protection as human rights.

The human rights of artists have nothing to do with intellectual property laws that apply to corporations, or “Big Music”, or the even bigger “Big Tech”, it has nothing to do with superstars. A national artist in the smallest country has equal protection with the global superstar under the U.N. human rights treaties.

This is a complex topic that is well worth studying further.

What's Innovation and What's Piracy?

From the San Francisco Chronicle, April 28, 2008

Innovation is a two-way street. Wrapping yourself in the flag of "innovation" does not excuse you from respecting economic rights or legal accountability online any more than it does offline. Most public companies are beginning to agree with Serge Sasseville of Canadian communications giant Quebecor that public companies answer not only to CEOs, shareholders and creditors, but as "a good corporate citizen, (we) cannot remain insensitive to the piracy problems affecting the survival of content producers and rights holders."

Contrast Sasseville's admonition with RealNetworks CEO Rob Glaser, quoted in an Associated Press story on RealDVD: "If you want to steal, we remind you what the rules are, and we discourage you from doing it, but we're not your nanny." The differences are obvious.

Innovation that allows a win-win business model to flourish ultimately benefits consumers in the long run because it attracts investment in both distribution models and also the media that consumers want. While the media business got off to a slow start online 10 years ago, consumers now have a variety of ways to enjoy video content when they want it, where they want it and how they want it - legally and safely.

One real-world example of win-win innovation is, a video streaming site backed by the NewsCorp and NBC Universal. Hulu is a huge success and is loved by fans who can watch full episodes of hundreds of shows like "30 Rock" and "The Simpsons." Fans can also get thousands of movies through cable and satellite video-on-demand services as well as instant rental, download or ad-supported streaming through sites such as Apple's iTunes, Amazon and Netflix - all licensed, all safe and all based on win-win innovation. 

I hope that this lawsuit doesn't obscure the refreshing cooperation happening between creators and technologists, because artists are energized by opportunities that flexible and immediate distribution methods give them. Innovation can and should be a sustainable extension of artistic creativity that will bring plenty of opportunity for creators and great content for fans.

While the case is heard in court in San Francisco, I hope the court balances concerns about the misappropriation of the labor value of creators and false innovation in fashioning justice. Good policy encourages the optimistic goal of cooperative innovation that respects economic rights and labor value and facilitates sustainable win-win businesses.

Antitrust Lawfare Breaks Out: Google, Spotify Vs. Apple--Using Your Music

From Hypebot

As reported in The Verge, that ever-reliable source for Spotify press releases, the Federal Trade Commission is apparently continuing its investigation of Google….no wait…Apple.  Sorry, that’s the European Commission that’s investigating Google.  We’ll come back to that.

And what is the FTC investigating this time and at whose request? Spotify’s misleading and muddled advertising campaign trying to get Spotify users on iOS devices to drop their subscriptions through the Apple App Store and resubscribe directly through Spotify?  So Spotify could use its dominant position in the global music subscription market to avoid paying App Store commission?

No, not that.

Maybe this, as reported by the highly credible tech journalist Kara Swisher in the widely-read Re/Code:

Omid Kordestani, who has just temporarily replaced Nikesh Arora as chief business officer of Google, is joining the board of Spotify, according to people with knowledge of the situation.

In addition, sources said, one of the search giant’s former execs, Shishir Mehrotra, will become a special adviser to CEO Daniel Ek and the company’s management.

The move is a fascinating one, especially since sources inside Google said that new YouTube head Susan Wojcicki has expressed interest in acquiring the popular online music service if it were for sale. It is not currently and there are no such discussions going on between the pair about such a transaction.

Two dominant players in the relevant market share a board member?

No, not that.  Something else.

No, the FTC is apparently continuing to look into Apple’s long-standing 30% commission for “digital consumables” sold through the App Store.  And The Verge confirms what I suspected at the outset–they are doing it at the behest of Spotify.  I would suggest that when the FOIAs begin, it will become apparent that the FTC is also investigating at the behest of Google.

The Verge tells us:

Sources with direct knowledge of the matter tell The Verge that the FTC has already issued subpoenas to music streaming services as it gathers more information to determine whether Apple’s App Store rules are anticompetitive.

You know–if the FTC is asking for documents from other streaming services–another explanation is that the FTC is looking into anticompetitive activities by the streaming services.  But let’s leave that for another post.  Just remember that anything you write to these litigious dweebs may show up in a government file someday.

The timing is curious–it’s not like Apple just started charging 30% commission for maintaining the App Store, the network that supports it, credit card fulfillment, antifraud, etc.  Apple’s been charging that fee from the inception of the App Store.  Because Apple’s charges are sales based (often charged on Apps that are free to the public), Apple only makes money when the developer makes money.  Apple could have chosen to follow a Tunecore-type model where all the distribution risk is pushed onto artists (or developers in Apple’s case) in the form of a flat fee, but Apple didn’t do that.  Like a music publisher or record company, they only make money if there are sales and they eat their other costs if there are none (called “distribution risk”).

If Apple had started charging a commission–or what the Spotify press release…sorry, Verge’s reporting…calls a “tax”–when it launched the Apple Music product in competition with Spotify, that would be one thing.  Or if Apple had started charging commission to just Spotify users, that would have been yet another thing.  But Apple didn’t do any of that.  The Spotifys of this world come and go (see Myspace) but Apple marches on.

But the Google angle here cannot be overlooked.  As The Verge’s repost of the Spotify press release tells us…sorry, the Verge’s reporting tells us about the Apple “tax” as profit-haters at The Verge call it:

Apple’s App Store rules force companies that sell digital goods to use its in-app purchase API, commonly referred to as iAP, for any and all purchases in iOS apps. This stipulation has become a key point of interest in the FTC’s investigation, according to sources.Google, for instance, requires that apps selling digital goods use its in-app purchase system, but does offer exceptions in certain situations — like for digital content that can be used outside of the app — while Apple offers no such leniency.

Ah yes, those good guys at Google.  You don’t suppose that Google might want to highlight this competitive advantage against Apple in fora like the FTC and the European Commission do you?  And let’s not forget the influence that Google has over the FTC–that declined to investigate Google for the same kind of antitrust violations that the European Commission is vigorously pursuing.


Recall the breathless CYA that ensued when the Wall Street Journal reported on Google’s political influence at the FTC that resulted in a decision not to prosecute Google.  Faster than you can say “Jamie Gorelick”, Google’s lobbyists swung into action.  If you were a sleaze bag bunch of crony capitalists that had captured every agency in Washington, what you’d need right about then was to push a button at the FTC and have them issue a useful public statement.  And that’s exactly what Google did according to Buzzfeed’s reporting:

On the evening of March 23, Johanna Shelton, a senior lobbyist at Google, emailed an official at the Federal Trade Commission with a pointed request: release a public statement that would help the search giant deal with a negative story. Two days later, the agency did just that.

Shelton’s email was sent in the wake of [Brody Mullins’ reporting].  In response to the revelation, the FTC issued only terse statements calling the release of the document unfortunate.

But Shelton, in an email to Heather Hippsley, the FTC’s chief of staff, urged the FTC to say more, arguing that the agency’s own reputation was at stake.

Yeah, right.  That’s a typically Googley move–it’s not that we care, oh, no.  It’s for your own good. And what exactly is for your own good?  Releasing the statement they want released or complying before Google calls the White House and ends your career at the FTC?

Google was “deeply troubled” and “puzzled” by the agency’s silence on the matter, Shelton said in the email, which emerged in response to a public records request and was obtained by BuzzFeed News. She said the inadvertently released document was being used by Google’s rivals to “sow confusion and undermine the FTC’s conclusions, especially in Europe.”

That would be the European Commission antitrust investigation which Google had been slow walking for four years and that had just blown up in their faces.  (And is now going full bore against them.)  This is important because the Wall Street Journal revealed that the professional staff at the FTC had been sharing information with their counterparts in Europe–you know, the ones that are now prosecuting Google.  Get out your hazmat suit, because here comes the lawfare courtesy of Google PR team:

“We [i.e., Google] believe it is critical for the FTC to defend its reputation, showing that it followed a thorough process and fully took into account the Bureau of Competition staff memo, among other internal agency opinions including the Bureau of Economics,” Shelton said in the email. “A public statement standing by the FTC’s ability to make a final decision after assessing differing internal views would go far in the international space to restore the reputation of the FTC, especially on due process.”

Two days after the email was sent, and after the Wall Street Journal published another article about Google’s relationship with Washington, the FTC released a statement that provided the context Shelton had sought.

The email also included this paragraph:

We recall that in February 2013, when the process and result [of the FTC’s investigation into Google] were similarly called into question by our competitors [and anyone else capable of sequential thought] every Commissioner, including then-Commissioner Ramirez, wrote a clarifying letter to the editor of Politico standing by the staff and their work in this matter.  We believe this unfortunate FOIA incident is similarly worthy of a public statement of the FTC standing by its decision.

Do you really think that Google (a Spotify board member according to Kara Swisher) couldn’t send a little email to the FTC telling them they needed to investigate Apple?  Do you think that Apple doesn’t know this already?

Here’s another possible explanation–as David Lowery reported in The Trichordist, Spotify recently hired Jonathan Prince, a Washington lobbyist and revolving doorman with deep ties to the Obama and Clinton Administrations.  Before the revolving door hit him, Prince was an advisor to Hillary Clinton at the State Department.

Prince’s long-time lobbying firm lists a number of clients such as the old familiar and ubiquitous Computer and Communications Industry Association, the governments of Mexico, the Congo, Nicaragua, Ecuador, Columbia and Nigeria, and not to forget the Rockefeller Foundation.

So whether Google or Prince got the FTC investigation started, they are both perfectly capable of turning Spotify into the crony capitalist it evidently yearns to be.  Yes, little Daniel Ek wants to hang out in the tall weeds with the big dogs.

But here’s the difference–what gives Spotify (and YouTube for that matter) their market clout is your music.  Your music is now being leveraged in a scorched earth corporate lawfare campaign against your interests. And as Taylor Swift has shown, Spotify needs hits and hits don’t need Spotify.  So why let them leverage your music for a corporate lawfare campaign?

Not only is it a trumped up accusation against a long-standing Apple business practice that only became a problem when Apple started competing head to head with Spotify, I would argue that it’s a campaign that is at least in part manipulated by Google to make itself look good to regulatory authorities so that it can continue to steal our music and line its pockets.

350 million takedown notices can’t be wrong.

Is the Odd Antitrust Investigation Into Apple Music A Failure to Innovate?

From The Huffington Post, June 12, 2015

You've probably heard that Apple and the major labels are being "investigated" over Apple Music by the Department of Justice, the European Commission as well as State attorneys general for New York and Connecticut. 

Understand that the way most of these investigations get started is that someone complained to the antitrust authorities. Who would complain loudly enough to get the attention of so many law enforcement agencies? Most likely Spotify and its board member Google in this case. 

Yes, that's right. Another Valley-style example of interlocking boards of companies that are supposed to be competitors. Because that would be the same Google that owns YouTube, often described as Spotify's biggest competitor--at least before Apple Music. (Well-respected tech reporter Kara Swisher reported in Re/code that Omid Kordestani, chief business officer of Google, joined the Spotify board, and a former YouTube product head Shishir Mehrotra left Google to become a special adviser to CEO Daniel Ek and the company's management.)

So why might Spotify and Google complain to antitrust authorities? For one reason, Google and Spotify are probably stronger together than at least Spofiy is on its own. Google knows its way around the antitrust regimes quite well as it is to one degree or another under investigation by all of them. Google might find portraying itself as a victim could help their various cases, particularly before the European Commission's competition commission. Some might describe this tactic as corporate "lawfare", the use of the law to make war upon your competitors who you don't want to just meet in the channel like a normal person.

So unless these investigations are a hunting party gunning for Google competitors, I think that's a very encouraging sign for a number of reasons, none of which being the ones that Google and Spotify have in mind.

1.  Investigate Everyone: Since governments are supposed to do justice, then let's investigate everyone.  Spotify recently announced that "Spotify is half of the $1.5 billion global subscription streaming market" which sounds like a dominant market position that should cause antitrust regulators look twice. So by their own admission, Spotify is at least dominant in that market, so what have they been up to in doing things like using their market dominance to bully Taylor Swift? 

Of course we all know how Google treats artists based on any one of a number of unnecessary debacles for YouTube, such as YouTube's bullying of Zoë Keating. Google clearly uses its market power against independent artists and record labels alike. If there's going to be an investigation of the streaming business, then let's investigate everybody.

It's a little odd that antitrust regulators are taking cues from Spotify and Google, two dominant firms in the relevant market who clearly are apprehensive about the mere fact that Apple is entering the market with what may be a better mousetrap. You would think that Google and Spotify would welcome new competitors entering the market rather than clinging to the buggy whip.

2.  The Freemium Buggywhip: What's really got Google and Spotify scared may be what happens if the market tells them that the "freemium" model hasn't worked? What if the market says we don't want advertising? Because make no mistake, this is just as much about YouTube as it is about Spotify. What if the market says we're tired of our music being used for one long commercial and however much money you pay us it's just not worth it? 

A free market deal that rejects the ad supported model that Google's ad networks provide to Spotify and of course to YouTube? You would think that Silicon Valley free marketeers would celebrate such innovation and competition. As the music business has been told many times, that's the problem of the buggy whip maker holding on to a past whose time has come.

3.  What Taylor Swift Proved: What is driving this is a bona fide use case: Taylor Swift.  Taylor proved once and for all that Spotify needs hits and hits don't need Spotify. Often over looked in the reporting on Taylor's withdrawal from Spotify is she also pretty much withdrew from YouTube except for current singles that were predominantly available on Vevo which pays more than YouTube. And none of the fans complained-they even applauded her. So how were consumers "harmed" again?

Google and Spotify would like artists to believe that artists are dependent on YouTube and Spotify for hits. If you measure hits by streams that produce negligible income and actually cannibalize sales, then you have a different view of a "hit" than anyone does who has P/L responsibility. 

This is not to say that there is no music discovery value to YouTube and Spotify, but it is becoming apparent that their true value to breaking artists may be far less than the conventional wisdom and that their value to hit records is not only out of balance, it may actually be counterproductive.

When the world wakes up to this, more hit records may look like Taylor Swift-that is, not so involved with YouTube and not on Spotify at all. Did anyone ever say that record clubs made hits? YouTube and Spotify are a lot more like record clubs with an algorithm than tastemakers like NPR Music or Zane Lowe.

3. Ignoring Taylor Swift: I don't think it's a coincidence that Universal started a major restructuring of their company after the Taylor Swift use case and that the direction of that restructuring was away from free. 

Since Universal were in the middle of a renegotiation of their deal with Spotify during the Taylor Swift release, it should come as no surprise that the wisdom of staying in the free model came under additional scrutiny since it was failing so badly. And failing completely independently of Apple Music.

And this is the takeaway: You would have to be very short sighted to just ignore the Taylor Swift experience and blindly cling to the "freemium" buggy whip. Free might have been a good idea a few years ago, but it hadn't delivered on its promise. It was time to move on. 

4.  How Much to Bribe the Richest Company in the World? Set aside how utterly daft it is to think that Apple was so afraid of a broken model at Google and Spotify that they'd have to get protection in order to even launch a music service they already paid $3 billion to acquire and clearly were going to launch unless hell freezes over. Also set aside how insulting it is that a company with Apple's integrity with artists would need to be bribed in order to compete against Google and Spotify.

How much would it take to bribe Apple? Think about that for a minute or two and the absurdity of the idea will come to you.

5.  When Were the Beats Deals Concluded? Remember, Beats was a going concern well before Apple acquired the company. It's highly likely that all the deals for Beats were done before Spotify hit its self-inflicted downward spiral in the press over Taylor Swift. So it's not clear what these law enforcement agencies will be investigating.

So the key takeaways: There are good market place reasons to question whether to continue with free at all, demonstrated by Taylor Swift. On a more profound level, those reasons may support questioning the validity of Web 2.0 advertising driven business models altogether. Anything that doesn't sell advertising is anathema to Google the Spotify board member, because that might get people to question the very business model that contributes over 90% of Google's revenue. And you don't want to be a buggy whip maker who can't innovate, right?

Connecticut State Attorney General George Jepsen has already said "that his office was satisfied that Universal [Music Group] did not have anti-competitive agreements to withhold music titles from free services" according to NPR.

But if there is to be an investigation, let's investigate everyone including who fed these complaints to law enforcement resulting in a negative announcement the very day that Apple Music launched. 

The timing is a little too odd.

The 'Zero Effect': Do New Consumption Charts Penalize Compilation Records and Artists Who Window?

(Posted on The Huffington Post, March 31, 2015)

The number of plays from some music streaming services are now being included with sales results to rank releases in various music industry "charts" -- the standard reference point for success in the commercial music business. What are these new "consumption charts" actually measuring? Do the consumption charts overstate records available on streaming services relative to those that are not?

The Zero Effect

We can't tell exactly how consumption chart makers weight streams versus sales in the chart ranking until that weighting formula is made available publicly. However, it's pretty clear that if you are not on streaming services at all -- meaning you have zero streams -- you will be penalized in the chart compared to records that are on streaming services even if you outsell them. This is what I call the "zero effect." 

Compilation records like Ministry of Sound's iconic titles, movie soundtracks or the NOW records typically are comprised of pre-existing tracks that are licensed for the compilation. Those licenses exclude streaming rights. Many if not most of the pre-existing licensed tracks are already available on streaming services, so any increased streaming activity due to the compilation accrues to the benefit of the owner of the pre-existing recording and not the compilation producer. So your compilation record gets no credit for these streams, either in royalties or in the consumption charts.

Neither will you get credit for streams if you voluntarily withhold your record from streaming services in a practice called "windowing" (meaning you treat streaming as an exploitation "window" that comes after higher revenue opportunities have flattened out). For newly released records, windowed titles may not be on the streaming service at all.

Yet as we will see, comparing records with sales only and zero streaming to records with both sales and streaming can show some sizable differences in chart position. Those differences usually are to the downside even if the zero effect records outsell the competition.

This would seem to create a chart bias toward records that appear on streaming services "day and date" with their commercial sales release.

So how much can the new "consumption charts" be relied upon as an industry-wide measure of success?

Taylor Swift, NOW and the Zero Effect

In order to test for an answer to that question, I picked the consumption chart for the first chart week of Taylor Swift's October 27 release of her 1989 juggernaut to try to measure how the consumption chart reacted. The choice was admittedly cherrypicking, but with a purpose: Taylor's sales were historically significant and her reported streaming should have been somewhat muted given Spotify's well-publicized decision to reject Taylor's record on the artist's terms. This would potentially yield good benchmarks for testing the consumption chart at the margins, as well as the more bread and butter titles below the top 10. (You can look at a spreadsheet for the consumption chart data.)

Based on data for the week ending November 2, 2014, Taylor Swift's first week sales were so strong it probably doesn't matter that her streams were somewhat lower. At No. 1, she outsold the No. 2 NOW 52 title by 10:1, and NOW 52 outsold the No. 3 Sam Hunt album by 10:8-but Sam Hunt had 4 million streams that punched up the chart position.  NOW 52 had zero streams because it is a compilation record.

No Stream Credit for Compilations and Soundtracks

Remember -- compilation records and soundtracks do not get credit for streams because they usually have no streaming rights. This is true even if the music services allow playlists -- or possibly create playlists themselves -- using the compilation or soundtrack brand in the metadata with the track listing of the underlying tracks. These playlists work because the individual tracks are already available on the service. (This is the kind of free riding that was the heart of  Ministry of Sound's recently settled lawsuit against Spotify.)

The "zero effect" is much greater further down the chart, however. In the same week of November 2, Frozen: The Songs, a compilation record, got credit for zero streams and 10,723 albums sales for a chart position of 49. Blake Shelton sales were lower than Frozen's at 8,735 albums but Blake got credit for 930,928 audio streams for a chart position of 44. The same week Iggy Azalea sold 4,947 albums but got credit for 5,060,617 streams for a chart position of 25. In other words, Frozen will never have any streams and got a much lower chart position than Iggy in spite of selling over twice as many albums that week.

If you compared titles based on album sales alone, the Guardians of the Galaxy zero effect soundtrack would have entered the chart at No. 25, not No. 40, Sam Smith would have been No. 15 instead of No. 6, Bob Seger would have been No. 23 instead of No. 34. Another zero effect compilation is Now Disney 3 that would have been No. 40 instead of No. 59, and U2's Songs of Innocence would have been No. 64 instead of No. 94.

Seasonal records such as Christmas albums are also penalized. The Nov 2 chart showed that based on album sales alone, Home Free's Full of Cheer would have entered the chart that week at No. 66 instead of No. 104. While the title had 26 streams, that was a sufficient penalty to cost the record 38 chart positions.

Which is More Important, Sales or Streams?

Conclusions? Charts are relative beasts to begin with, and the consumption chart won't keep a phenom like Taylor Swift from dominating the top position even if she had zero streams. Measuring streams probably isn't enough to have much of an effect on the top 10 or the top 5. But for records that are compilations, soundtracks, seasonal or other specialty titles that either aren't allowed a streaming audience based on contract, are windowed, or haven't found that audience yet for another reason, the consumption chart penalizes high sellers that are not credited with streams by streaming services.

If chart position matters to your record, then this should be of concern to you. Sales versus streaming is a controversial topic, but some would say that the more streaming, the lower the sales. Without getting into cause and effect on that issue, it certainly can be said that the lower the streams, the lower the chart position -- unless you are a phenom at the top of the chart. And how often does that happen?

Show Me the Money

From a profitability perspective, artists whose records sell but don't stream may well be thankful. If that trend continues, then it would also stand to reason to question the benefit of chart position as a selling tool. (Particularly if the consumption chart does not distinguish between very low value ad supported streams and relatively higher value subscription streams.)

But then we hear about services like YouTube routinely deleting billions of fake plays in its video playlists during December. If this same phenomenon is repeated in streaming services used to measure chart position.... not to imply that anyone in the music business would ever try to rig the charts. Perish the thought.

So what is it all about? Sales or streams?

Given the rate at which at least the major labels are rejecting "free" streaming, it looks like the marketplace is answering that question in favor of sales.

If enough records are simply not available on free streaming services for whatever reason, how relevant will the consumption chart actually be?

Free Email and the Attorney Client Privilege

by Chris Castle

[from Texas Lawyer 22 (October 13, 2014), recommended by State Bar of California as an ethics resource to lawyers]

         A lawyer’s duty to maintain the confidentiality of privileged communications is axiomatic. Given Google’s scanning and data mining capabilities, can lawyers using Gmail comply with that duty without their clients’ informed consent?

         Texas Disciplinary Rule of Professional Conduct 1.05 prohibits lawyers from “[using] privileged information of a client for the advantage of the lawyer or of a third person, unless the client consents after consultation.”

         An example of an “advantage” would be commercial tips gained from acting on the substantive content of a privileged email. But “advantage” arguably includes the selling and reselling of the privileged information itself as advertising inventory or for data mining. That “advantage” arguably benefits both the lawyer (free or near free email) and the email provider.

         If a lawyer chooses Gmail or Google Apps for Business, does the lawyer have a duty to obtain the client’s consent given Gmail’s functionality?

         Gmail and Google Apps for Business offer lawyers a deal—barter data from emails (and possibly file attachments) for cheap or free email service. In return, Google “asks” the lawyer to consent to (1) in-context advertising being served to free Gmail, (2) data mining to “profile” both the sender and recipients, and (3) combining the profiled data with other user data collected by Google from its other products such as YouTube or Google+. Even a large law firm purchasing Google’s software suite may have no advertising, but lack the bargaining leverage to negotiate a “no data mining” condition.

         Gmail uses several patented analytical tools, chiefly the “Content OneBox” located in the “delivery stream” of Gmail. Content OneBox provides Google with data analytics by scanning email in transit and after it is stored by Google. This is like asking an overnight delivery driver to hand over their mailbag for data mining before delivering your mail. (Chris Hoofnagle of the Berkeley Center for Law & Technology posted a detailed discussion of “bMail and Google’s ‘Content One Box’” at the Berkeley Blog.)

         In addition to scanning the text, senders and recipients, Google’s patents for its Gmail applications claim very broad functionality to scan file attachments. (The main patent is available on Google’s site. A good discussion of these patents is in Jeff Gould’s article, “The Natural History of Gmail Data Mining”, available on Medium.)

         However scary that is, it is unclear if Google has implemented its scanning capacity beyond viruses and child pornography in attachments. It is also unclear what Google does with the information harvested from scanning attachments determined to be benign—such as a client’s privileged documents. (Theoretically, Google’s patent claims could even be read to permit scanning other documents in the file attachment folder on the lawyer’s network.)

         Even if we accept that there is no breach of a lawyer’s duty because Google’s scanning and harvesting is done by machines, the data mining and profiling is not so easily resolved. Can lawyers give advance consent to data mining and profiling of client Gmail and attachments, perhaps even before being engaged? Or should lawyers properly obtain express client consent?

         If a lawyer or client marks the subject line of Gmail as “PRIVILEGED,” is that sufficient notice to Google that the lawyer or client asserts their privacy interests so Google should not harvest? 

         There’s little direct ethical guidance to these questions about Gmail. However, recent rulings are informative in Dunbar v. Google from the U.S. District Court for the Eastern District of Texas, a recent putative class action against Google by lawyers from Texarkana (Wyly-Rommel PLLC and others). The case was heard before U.S. District Judge Lucy Koh as In Re Google Gmail Litigation for the U.S. District Court for the Northern District of California. As of this writing, it is effectively settled.

         Because Google Gmail Litigation arose under various state and federal privacy and wiretap statutes and did not expressly address privileged communications, the case is not directly on point. However, Judge Koh’s analysis of general privacy and consent issues involving Gmail data mining under Google’s integrated privacy policy is instructive.

         As Hoofnagle observes, Google asserted in the case that news reporting on Google’s Gmail data mining was so pervasive that the world was essentially on notice of Google’s practices.

         Judge Koh rejected Google’s position in her Sept. 26, 2013 order on Google’s motion to dismiss stating “[i]mportantly, Plaintiffs who are not Gmail or Google Apps users are not subject to any of Google’s express agreements.”

         It follows from this common sense assertion that a lawyer using Gmail to communicate with a nonuser client subjects confidential communications to Google’s data mining and profiling without the client’s informed consent.

         Judge Koh also found that Google’s polices were so misleading that even Gmail users did not properly consent to Google’s data mining. So for lawyers, Google’s data mining is a potential problem and a significant one.

         Google seems to be taking Judge Koh’s rulings seriously. As Alistair Barr reported in the Wall Street Journal blog, “Google Stops Scanning Student Gmail Accounts for Ads,” Google stopped serving advertising to student accounts using Google Apps for Education. Google has said nothing of its data mining, however, so that practice presumably continues, even for students.

         What, then, is the lawyer’s duty? Consider a thought experiment. Imagine a lawyer had an opportunity to get free services for allowing the lawyer’s paper client files to be scanned by a direct marketing company. Should the lawyer get the client’s consent? One would think that if common sense did not require it, Rule 1.05 surely would.

         It seems that the ethical issues surrounding obtaining a client’s consent to Gmail data harvesting may well be more trouble than Gmail is worth. It should not be that hard to compete with free.


Reprinted with permission from the October 13, 2014 edition of Texas Lawyer. © 2014 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.  Cite as Castle, Free Email and Attorney Client Privilege, Texas Lawyer 22 (October 13, 2014).  Thank you to Lindsay N. Nelson, Esq. for research on this article.

Artists Confront Spotify At Soho House Meeting (Hypebot Guest Post)

Spotify is conducting a artist relations charm offensive in New York, Nashville and Los Angeles. (This is a time to be thankful I live in a flyover state–they won’t be coming to Austin!)

The idea was there would be a meeting at the toney Soho House in New York, a membership only location that costs more to join than most artists make in a year or two. Of course, Spotify no doubt has a corporate membership for impressing…business people. Right. Business people.

What Spotify wasn’t expecting was a bunch of feisty artists who were not on the payroll who came expecting actual answers and not shillery.

Here are three of the many issues that Spotify were confronted with:

1. “The Per-Stream Royalty Will Never Increase“: There was a big dustup over royalty rates that boils down to why should artists take it in the shorts while Spotify executives get rich. The answer? If you just give it some time you’ll make more money. Not because the royalty rate will go up–no, no.

Spotify’s Mark Williamson told the small invited group that the way that artists will make more money from Spotify is to grow their audience. You know, make it up on volume. Why? Because Wiliamson confirmed what we all believe: the per stream royalty will never change.


2. Daniel Ek Just Helped Create Bit Torrent: It is not widely known, but Spotify’s CEO Daniel Ek was an early employee of Bit Torrent and helped to make Bit Torrent and its uTorrent software a raging success. Spotify’s representatives seemed prepared for this question and pointed out that uTorrent and Bit Torrent are not pirate sites they are data transfer platforms that happen to be used for piracy. A lot. Mr. Ek evidently left Bit Torrent’s employ early on to found Spotify, a legal service.

So why would they say that Ek left Bit Torrent to found a legal service if…Bit Torrent…was…legal….hmmm.

This is kind of like Alfred Nobel inventing dynamite and then funding the Nobel Peace Prize…Just wait, people will eventually be so taken with the pursuit of the Peace Prize, they stop using the dynamite we sell them.

3. Our Product is Spotify not Music: The Spotify representatives seemed to be unclear about what the are selling. They seemed to be thinking that they were selling Spotify. This is kind of like Interscope thinking they were selling Interscope and not the music of artists signed to Interscope.

4. Why Doesn’t Spotify Go After Brand Sponsored Piracy and Google’s Profit from Piracy? Oh, right. Google’s on their board. Sorry, sorry.

The general takeaway is that Spotify has handed out money and/or stock to a bunch of artists and their managers who are now being tasked with selling the company to quiet down the artist community. Probably because the company needs to quiet down investors.

What was plain was that Spotify was not prepared for the withering fire from the audience of actual artists who actually make a living from music. The best counter Spotify can come up with is that artists should just wait wait wait and in the long run streaming will save the music industry. You know…wait for Spotify’s next round if financing, wait for the initial public offering and follow on offering (like Pandora), and then wait for Daniel Ek to finish cashing out (like Tim Westergren)…then, then streaming will have saved the artists, songwriters and producers. And the Hale Bopp Comet will return.

Big trouble in Little China baby.


Copyright 2006 - 2019 Christian L. Castle