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. Shhh...it'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 (www.soros.org). (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 Hulu.com, 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.

Never.

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.

Google Books: Fair Use for the 1%

(from Music Intelligentsia)

Google dealt creators a serious blow in the last few weeks. In a bizarre ruling sought by Google on fair use in the Google Books case, a New York federal district court essentially decided that after years and years of litigation, authors could not sue Google as a class. According to Business Week:

Google attorney DaralynDurie told Judge Denny Chin in federal court in Manhattan that authors and photographers would be better off fending for themselves because their circumstances varied widely, especially since the copyright issue for authors involves the display of small snippets of text.

Yes, Google told Judge Denny Chin that after eight years of litigation during which the countries of Canada, France and Germany filed opposition briefs to protect their authors (and even the U.S. Department of Justice had the temerity to tepidly challenge Administration buddies Google), it was only fair to authors that they should not be able to sue Google as a class.

Judge Chin then ruled that scanning millions of books without permission was a “fair use” because in the years since the start of the litigation Google had scanned so many books and had relationships with libraries. The message being if you’re going to infringe, do it a lot, and if you can find some crackpot librarians to go along with you, even better. (Canadian author and Writers Union of Canada president John Degen sensibly suggests that Judge Chin actually committed the classic “post hoc” logical fallacy in his decision.)

Academic response to the Google Books project has been mixed at best, notwithstanding Judge Chin’s glittering generalities. Berkeley Professor Geoffrey Nunberg’s article, “Google’s Book Search: A Disaster for Scholars” illustrates a couple of problems of the monopoly of one that Judge Chin seemed to want to overlook:

Google’s book search is clearly on track to becoming the world’s largest digital library. No less important, it is also almost certain to be the last one. Google’s [8] year head start and its relationships with libraries and publishers give it an effective monopoly: No competitor will be able to come after it on the same scale.

Nor is technology going to lower the cost of entry. Scanning will always be an expensive, labor-intensive project. Of course, 50 or 100 years from now control of the collection may pass from Google to somebody else—Elsevier, Unesco, Wal-Mart. But it’s safe to assume that the digitized books that scholars will be working with then will be the very same ones that are sitting on Google’s servers today, augmented by the millions of titles published in the interim.

Judge Chin may be impressed with the virtues of one monopolist having a monopoly on “the world’s largest digital library” as a justification for his fair use ruling, but what about Google’s horrendous record on user privacy, complicity in the spy agency scandals, and sharp treatment of artists of all stripes suggests that they come to the fair use defense with clean hands?

So if the authors say no, why does Google send in their thuggish lawyers to force authors to submit? The authors of the books at issue clearly do not trust them—I suppose it is theoretically possible to have devised a more rancid method of alienating every living writer on the planet and the heirs of the dead—all at the same time—but I can’t think of what it would be. Who can forget the “Heidelberg Appeal” when 1,300 German authors like a contemporary Luther nailed their protest against Google Books to the doors of German President Horst Köhler, Chancellor Angela Merkel and the heads of Germany’s 16 federal states.

Self Serving Mistakes in the Metadata?

Professor Nunberg has noted one of the serious failures of Google Books that directly calls into question the very failing that Judge Chin trumpets as virtue: The metadata stinks.

Start with publication dates. To take Google’s word for it, 1899 was a literary annus mirabilis, which saw the publication of Raymond Chandler’s Killer in the Rain, The Portable Dorothy Parker, André Malraux’s La Condition Humaine, Stephen King’s Christine, The Complete Shorter Fiction of Virginia Woolf, Raymond Williams’s Culture and Society 1780-1950, and Robert Shelton’s biography of Bob Dylan, to name just a few. And while there may be particular reasons why 1899 comes up so often, such misdatings are spread out across the centuries. A book on Peter F. Drucker is dated 1905, four years before the management consultant was even born; a book of Virginia Woolf’s letters is dated 1900, when she would have been 8 years old. Tom Wolfe’s Bonfire of the Vanities is dated 1888, and an edition of Henry James’s What Maisie Knew is dated 1848.

Remember that there have been some serious discussions of Google taking on the role of database to copyright agencies around the world (perhaps even our own). Now think about Professor Nunberg’s criticism of copyright dates, which he found to be rampant in the “library”. And notice that Google’s mistakes always seemed to make in-copyright works older—much older—and therefore more likely to be in the public domain…which helps who, exactly?

Before you think that this has nothing to do with songwriters or the music business, or nothing to do with film makers and the movie business, think again. Aside from the fact that sheet music and screenplays are included in the “library”, Google has demonstrated a willingness do the same to all creators—for starters, there’s not that much difference between Google Books and YouTube. If you think I’m overstating it, consider this sarcastic quotation (or perhaps telling slip) by one of Google’s lead outside litigators speaking at this year’s SXSW: “It’s really important that we protect the rights of really good looking people in this society.” (Attorney Andrew Bridges of Fenwick & West.) Clearly, the only rights that interest Google are their own.

But Google’s mass misappropriation of the authors’ rights of publicity and the clear implied endorsement of the Google Books mass digitization turns on one thing—Google had the money to create the pile of works—a number of other companies had investigated but abandoned the idea in part because it seemed improper. Google also devoted its massive wealth to litigate authors into the ground because it is that important to them to defeat the rights of creators in general in their quest to commoditize the world’s information–be it your Google+ pictures or Jack Kerouac. (And with librarians leading the charge as weird as that may sound. If you doubt me, engage your librarian or your child’s librarian on the subject of copyright and see how long it is before you feel the need to call for an exorcist.)

Jack Kerouac and the T-Shirt Economy

Judge Chin’s ruling comes down to one “principle”, a message that will ring loud and clear across Silicon Valley (reinforcing what they already believe): Might makes right. And when it comes to fair use for the 1%, nothing says Internet freedom like getting away with it.

Except this time, Standard Oil 2.0 really gets away with it. While every generation of creators expects to fight The Man, Silicon Valley presents The Man 2.0. The Man 2.0 takes Standard Oil’s worst tricks to new lows and performs them at scale.

As antitrust scholar Jim Delong noted presciently in his article Google the Destroyer:

In most circumstances, the commoditizer’s goal is restrained by knowledge that enough money must be left in the system to support the creation of the complements….

Google is in a different position. Its major complements already exist, and it need not worry in the short term about continuing the flow. For content, we have decades of music and movies that can be digitized and then distributed, with advertising attached. A wealth of other works await digitizing – books, maps, visual arts, and so on. If these run out, Google and other Internet companies have hit on the concept of user-generated content and social networks, in which the users are sold to each other, with yet more advertising attached.

So, on the whole, Google can continue to do well even if it leaves providers of its complements gasping like fish on a beach.

If Jack Kerouac wrote in the Google Books world, would he give away the books and get a Levis sponsorship? Where is this generation’s literary hero, a Lawrence Ferlinghetti 2.0? If he’s like most small publishers, he’s gasping like a fish on the beach.

What Hath Google Wrought: Shut Up And Sing

Might makes right also rings loud and clear in the recent GoldieBlox “shut up and sing” litigation against the Beastie Boys. If you don’t know the GoldieBlox story, the company is a toy company founded by a Stanford grad who spoke at TED and whose crowd funded company specializes in toys that empower young women through encouraging them to think of careers in science and engineering.

Yes, groovier than thou. (A tone that saturates the Google Books ruling.)

Parody? What Parody?

GoldieBlox produced a clever commercial for their toys that showed young women using the toy–“GoldieBlox” (itself a play on the Robert Southey children’s story, “Goldilocks” and a registered trademark of Goldieblox, Inc.). Apparently as an afterthought according to the timeline in the commercial production company’s blog , the commercial producer added a re-record of the Beastie Boys’ song “Girls”:

“And we would add key details in Post: Beau’s inspired re-writing of an old, misogynistic Beastie Boys tune, “Girls” would add narrative drive [i.e., contributed to an idea that was already present without using the Beastie Boys] as we assembled the piece, and our resident geniuses at Pico Sound would augment the action with chain-reactive sound design…[wait--didn't the lawyers say it was a targeted parody of Beastie Boys all along? Shouldn't the video's story line have added to the parody?] “ (emphasis mine)

Did they get a license? Did they even try? No, no. GoldieBlox’s blatantly commercial use was protected by fair use, you see—just like Google Books. Even though the creative direction of the GoldieBlox viral video—which is the subject of their strategically filed lawsuit—apparently had nothing to do with the Beastie Boys according to the commercial producers, so is unlikely to have been the parody’s target. The “parody” was added after the fact to make the video more effective with a commercial hook. (GoldieBlox subsequently removed the Beastie’s song and re-released the same video with different music, which buttresses the idea that the video was not the parody as claimed by the GoldieBlox lawyers in the first place.)

But more importantly, GoldieBlox used the name “Beastie Boys” in the title of their viral YouTube video—a use that both misappropriated the band’s right of publicity and also created an implied endorsement of the video. This blatant attempt to free ride on the band’s good name is, to me, where the analysis should start. (Such free riding was not present in the fair use cases selectively cited as precedent by supporters of GoldieBlox.)

A Logical Step from the Illogical Google Books Ruling

So what do you have in GoldieBlox that Google Books foreshadowed? You have a Silicon Valley company deciding that they can just take a song by one of the most successful bands in recent history and do with it as they like in a commercial to sell a product, all the while associating the band’s name with their commercial and their product. Then the company has their massive San Francisco law firm (the 1,100 lawyer Orrick) sue the band to scare them off by filing what is, some think, a fatally flawed lawsuit.

What kind of people do this? Easy answer—the kind of people who don’t respect creators because creators are comparatively weak litigants. People who want to deny creators the ability to collectively protect themselves. Because this is the message of the Google Books case and Google’s influence in the Valley is not to be underestimated.

That is also the message that GoldieBlox sends to anyone who wants to hear it including their customers. The message was most concisely stated about the Beastie Boys by Mary Elizabeth Williams writing in Salon, who could easily have been addressing any author whose work was taken by Google for their books library:

The Beastie Boys spent a better part of their formidable career making it very clear to even the most casual observer that they were not, in fact, a pack of infantile misogynists. But even if they had been, that wouldn’t give anybody – even a company with a positive, girl-powery message – the right to steal from them. “Girls” is the Beastie Boys’ song, and they shouldn’t be expected to hand it over to anybody in some bizarre legal stab at public shaming. That’s not the inventive, original thinking that GoldieBlox appears to espouse. Instead of hiding behind the thoroughly lame excuse that “The song was sexist, ergo we can take it to sell our toys,” GoldieBlox could instead put on its big girls pants and make something awesome now with its creative talent. The company could instead prove that when challenged, it’s crafty. And that’s just my type.

[Ms. Williams had a particularly brilliant coda after GoldieBlox’s nonapology apology to the Beastie Boys:] The whole fiasco is a particularly huge disappointment for those of us who were briefly excited at the thought of a company that would take on the very real and rampant problems of sexism in both toy marketing and in the tech world our sons and daughters will someday be going out into….You know how many of us had been rooting for that? Maybe it doesn’t matter to GoldieBlox, which thanks to all the attention currently has one of the top-selling toys on Amazon. But you don’t create positive change in the world by cavalierly stepping all over the hard work of others.

Most gallingly of all, after lawyering up all over the band just two days ago, GoldieBlox ends its letter with a “Let’s be friends” message. What, no self-absolving smiley thrown in for good measure? If I were the Beastie Boys, I’d tell you to go ahead and hold your breath on that one, GoldieBlox. And I’d say that if you really want to “inspire the next generation” and “be good role models,” you would own up to your mistakes and apologize for them.

But if you’re in the 1%, you don’t want to apologize for anything until you find out first whether you can get away with it.

Choruss Hits A Sour Note, by Rick Carnes and Chris Castle

(This article first appeared in the December 30, 2008 edition of Content Agenda)

In early December (2009, Wired reported that some music labels were talking to universities about building a flat fee for file-sharing into tuition, allowing students to continue downloading music “without fear of legal reprisal”. The fees would be collected by a non-profit organization, Choruss, which would then distribute revenues back to participating record labels.

      The proposed Choruss music service appears to be an idea whose time has passed. While creators work hard to support cooperative business models that respect copyright and economic rights online, Choruss essentially waves a wand of legality over bandwidth-hogging file “sharing” programs without any of the accountability required of legitimate services like iTunes and Hulu.

     Creators are unable to control the distribution of their recordings through file “sharing” on university networks, and Choruss offers nothing to change that affront. Legitimate services such as iTunes have been wildly successful operating within the laws and recognizing the economic rights of artists while offering a great consumer opportunity. If Choruss “legalized” illegal file “sharing”, why would any user ever go to iTunes again? What would happen to the considerable investment already made in legitimate music and video services online, not to mention the network infrastructure that delivers content to consumers?

      The promoters of Choruss would have universities hide a music “tax” in student tuition bills paid by all students—whether they download illegally or not. (This charge would presumably be paid by scholarships, student loans and parents alike.) Choruss promoters rely on granting universities and students a “covenant not to sue” by some rights holders--a nuanced, untested, flimsy, and complex legal strategy that does little to shift the risk of prosecution for copyright infringement away from users. Choruss would have students believe their legal theories magically allow users to continue downloading without fear of consequences—and the nuances of the legal theory will be lost until the student ends up in the courtroom wondering what happened. 

      Why is the theory doomed to fail? Because there will be thousands of copyright owners who do not participate in Choruss. It seems highly unlikely that Choruss will be able to sign up all copyright owners in the universe, or even most. And note—the word “indemnify” does not appear in Choruss’s pitch materials. If the Choruss legal theory is such a great idea, why doesn’t Choruss indemnify the universities and students from any claims? What are the students paying for exactly?

       The gravest concern to creators, however, is that Choruss would have virtually no accountability to the songwriters, artists, musicians and vocalists who fuel the Choruss business model. The program offers no solution to accounting to creators for file “sharing” uses—campuses would merely “estimate” usage. Choruss stands in stark contrast to ASCAP, BMI, SESAC and SoundExchange, all of which spend considerable effort in tracking actual usage of the works they are permitted to license to be good fiduciaries to their members.     

     What will the long-term effects be on the music business? Under the Choruss model, “estimates” of p2p traffic will suffice for “success”—which means that major label records will be rewarded because p2p is a reactive technology, meaning that users typically go to an illegal service to look for a specific track, not to find out about new music. “Estimates” will inevitably reward artists who are getting or have gotten a big marketing push from major labels—not indie or niche artists.

     Choruss seems to plan on extending this plan to ISPs if it is “successful” on college campuses. It is hard to see why any ISP would want to be the collection agent for Choruss when the legitimate music services could easily be wrapped into a broadband or other ISP offering. 

     While legitimate services offer all of the accounting resources and control necessary to run a successful business, Choruss is lost searching for spare change under the cushions in a house of cards.

The Hubris Behind Google's Demotion of Rap Genius (Billboard Guest Post)

Google's attack on Rap Genius proves the company can demote websites when it suits the search giant.

Rap Genius recently came in from the cold after topping musician/lecturer David Lowery's "Undesirable Lyric Website List" in October.  To its credit, the site has so far chosen to negotiate lyric licenses with publishers and rejected litigating a tortured "fair use" defense for copyright infringement.

Rap Genius topped any Google results for practically any lyric search string, so the site was very well-known to music fans. That enviable ranking doesn’t seem dissimilar from search results for Isohunt, the Pirate Bay or Kickass Torrents.

Then last month there were reports that Google had “disappeared” Rap Genius by tweaking its search algorithms -- an existential threat to gutsy startups that many have complained of in the past.

So what was the cardinal sin justifying Google in disappearing Rap Genius? Operating without licenses? No, certainly not that. Openly challenging the music industry? No, not that either.

It would appear Rap Genius did the one thing Google doesn’t permit -- it spoke openly about beating Google at its own game. Rap Genius evidently tricked Google’s search algorithm into ranking it higher than the site should have been absent the manipulation. And for this cheeky violation of Google’s rules -- not a law -- the search giant demonstrated two points in one flex of its dominant muscle.

First, Google does exactly what it has denied doing for years -- bury companies that it doesn’t like. Google is currently denying disappearing challengers before the European Commission (EC) competition commissioner in a heated antitrust investigation.

Also, for years Google has promised creators that it will “demote” the worst unlicensed sites in search results -- sites that are usually ad-supported. Despite Google receiving tens of millions of costly take-down notifications every month, who can tell the difference between the before and after?

EC VP/competition commissioner Joaquin Almunia is investigating Google’s monopoly business practices in Europe. The case has everything to do with companies whose survival depends on “search neutrality” -- fair rankings in Google’s dominant search results. These competitors to Google’s growing number of product lines complain that they often experience the inverse of Rap Genius’ fate -- legitimate companies get a worse ranking than they deserve.

The point is that Google established the rules and Rap Genius apparently hacked them. The punishment? Not a lawsuit from Google’s legion of lawyers, but rather the self-help disappearing remedy -- because that’s how Google rolls.

The principle at work here is simply that Rap Genius offended Google and -- dare I say it -- Google “censored” the site in return. (Rap Genius has since apologized for gaming Google’s search engine in the first place, and this month its links started reappearing in lyric search results.)

This is exactly the behavior that Almunia must weigh in deciding whether to give Google not a first or second chance at an antitrust settlement, but an unprecedented third chance to avoid a government antitrust lawsuit.

Google has claimed for years that it doesn’t profit from piracy, despite driving traffic to pirate sites with Google advertising publisher account numbers. The company acknowledges terminating 46,000 such accounts for piracy violations of its publisher agreements -- 46,000 accounts from which Google presumably received about 40% of the ad revenue prior to termination -- revenue that apparently also was disappeared. And these are just the accounts we know about.

This is why the creative community asks Google to demote pirate sites in search results -- to do to unlicensed pirate sites what Google just did to Rap Genius, which has begun negotiating licenses. Google’s response? No measurable change for several years.

For all its bluster, Rap Genius has demonstrated to Almunia that Google disappears legitimate companies it doesn’t like, and has shown creators that Google is perfectly capable of demoting any site. And Google has shown once again that nothing says Internet freedom like getting away with it.