Too Big to Fix Part 1: YouTube’s Thimblerig, or What’s Inside Your Black Box Today Mr. Schmidt?

In a classic example of the abuse of monopoly power, Google once again has demonstrated its “catch me if you can” corporate mantra with its highly subsidized YouTube video search platform.  This time it is with the accounting system for songwriters whose songs are used in YouTube videos.

Recall that the music industry has been accused time and again of “corrupt accounting” with the implication being–the unverified implication, mind you–that somehow Google and other tech companies will render “transparent” accounting to songwriters and artists and show everyone else how it’s done.

As anyone knows who has dealt with the YouTube content management system (or “CMS”) it is a colossal mess and is a hacker’s paradise.  One problem is that it is virtually unauditable for any indie publisher granting synchronization rights to YouTube, not to mention film and television composers or sync licensees (because YouTube fails to provide sufficient information to identify cue sheets).

However offensive it is that YouTube refuses to give indie publishers (and songwriters) the right to conduct a royalty compliance examination (or “audit”), lack of audit rights is not the most fundamental problem with YouTube’s accounting systems.

The problem that goes to the heart of the system is the “claiming” process.  This is such a mess that it has already spawned several new businesses that do nothing but clean up false claims and monitor YouTube’s CMS to try to catch mistakes.  The going rate for this service is 25% of receipts.  We don’t yet know whether any of that fee is kicked back to YouTube.

Companies like this are, of course, evidence of the typical Google shakedown.  Google will rely on “notice and takedown” to use your songs or videos as they please.  They will tell you that they only “monetize” a video once it has been claimed.  When you hear that phrase, you probably assume two things:  First, that they don’t use the video at all, and second that the “claiming”  was done by the correct rightsholder.

Neither assumption is necessarily true.

YouTube will continue to make videos available unless you successfully manage to get their attention long enough to get them to respond to a takedown notice or to participate in their ContentID filtering system, which essentially means that you have to give them a license on their terms.  This part of the shakedown is fairly well known.

As far as claiming goes for songs, anyone can claim the song.  This part is less well known.

That’s right.  Anyone can claim the song through CMS.  So take an example where a video of your song has been licensed to YouTube and your song was incorrectly claimed.  Until you catch the mistake–which you can pretty much only do through CMS (which almost always requires that you license to YouTube)–YouTube pays your money to the incorrect registrant.  If you later correct the mistake, YouTube will not make a retroactive adjustment, and you must recover your money from the incorrect registrant.

If there is a dispute about the song claimants, such as claimants exceeding 100% ownership, YouTube holds the money until the dispute is resolved among the songwriters.  YouTube will do nothing to facilitate that resolution.

In fact, YouTube does nothing to make certain that the songwriter or publisher making the claims actually has the rights.  And even if you get the ownership sorted out on YouTube’s books, the next minute someone can enter and make a new incorrect claim of ownership, so the whole thing starts all over again.

This is why these cottage industries have sprung up to monitor YouTube–no one can afford to monitor YouTube 24/7.  But did you catch the double screwing?  First, YouTube expects to be monitored 24/7 for takedown notices.  Then if they shake you down for a license, they expect a second tier of monitoring for you to make sure that they haven’t allowed anyone to improperly claim your song.

You get the idea.  From a rights holder perspective, YouTube is a product with a lethal design defect–a design defect that only benefits YouTube.  And even at the pathetic royalty rates YouTube pays, the rumor is that the amount of money being frozen or paid improperly is in the hundreds of millions.

Of course, since songwriters and indie publishers are not allowed to audit–even if they license–the only people who can audit properly would be big publishers–which is OK with YouTube because if the heat gets too great from complaints by a big publisher, they just call the affiliated record company and threaten all kinds of hurt.  Then the publisher either backs off or the threat is that anyone who complains might be fired.

This is also known as abuse of market dominance and is at the heart of the current FTC antitrust investigation of Google.

Mr. Schmidt’s Exploding Gas Tank

Antitrust issues aside, there is a very easy fix for this problem.  It requires YouTube taking responsibility for fixing their design defect.  The typical Google response to this kind of action is that the system is too big to fix, so let’s not even try.  This is kind of like saying that yes, I know I made cars with exploding gas tanks, but I made so many of them that it would cost me more to fix them than I made off selling the cars.  So why bother?

We spent an extraordinary amount of time working on this fix at SNOCAP, and it came down to a very simple realization–the kind you wish you could have started with because it was so simple it made you feel dumb for not catching it first.

Make sure the song information is correct and when it is, make it very hard to change.

Easy, right?  It actually is pretty easy, and it’s also scalable.

We developed a policy called the First Registrant Rule.  What this meant was that whoever first registered the work in our database was the First Registrant.  We got reps up the wazoo that whatever was put in the database really was owned by the registrant, but we went further.  We checked in a publicly available resource to confirm what we were being told actually showed up somewhere else.

YouTube could easily do this, particularly with songs they are licensing.  Humans are involved in the licensing process which involves a paper contract.  So for songs, YouTube could look up the song in ASCAP, BMI or SESAC.  If the song appears there with exactly the same rightsholders listed as are claiming the song with YouTube, chances are good that the information is correct enough.

If the information is different, then the song can’t be exploited until the discrepency is cleared up.

In other words, you don’t get paid if you can’t prove who you are and that you are telling the truth based on these criteria.

These are simple moves.  Someone looks up the song in the PRO database.  If yes, the song is in.  If no, then a canned email goes to the potential registrant telling them they need to clean it up if they want in.

That’s it.  That’s 10 extra minutes max.

The other twist on the First Registrant Rule was that SNOCAP paid the first registrant until such time as a disputing rights holder came in with a court order or a settlement agreement reflecting the change of registration information.  Then SNOCAP would pay the new registrants going forward.

I understand not wanting to pay money retroactively, but I only understand it when the paying party has done their diligence to be sure that they are paying the right person.  I know that there are some places that hold the money and don’t pay anyone.  I decided not to do that with SNOCAP because I feared a situation like the one YouTube is in now.  I did not want the trolls hired by God knows who to come in and disrupt payments to proper parties by making false claims that no one had the time to sue on.

I also did not want to have any liability for holding the money in “escrow” (a frequently misused term).

And another reason I did not want to hold the money is because I did not want to be subject to the State law unclaimed property statutes.  As applied to YouTube, “escrow” and “escheatment” are  topics for another day.

Not Too Big to Fix

So the truth of the matter is that this is actually a very easy problem to fix–if YouTube wanted to fix it which they clearly do not.  It’s not like no one has ever complained about this before.

In case anyone wants to make use of it, I am including below the SNOCAP dispute resolution policy and First Registrant Rule.  YouTube could implement this in the next hour and solve this black box problem.

In “Too Big to Fix Part 2” we will address the film and TV composer problem.

SNOCAP Dispute Resolution Policy and First Registrant Rule

All terms used herein shall have the meanings set forth in the Agreement to which this Exhibit B is attached, and by signing the Agreement, Company (i.e., the licensor of Company’s content) shall be deemed to have agreed with all terms and conditions of this Dispute Resolution Policy and First Registrant Rule, and further agrees to be bound by its terms.

Before SNOCAP permits Company to register content in the Database, Company must go through the application and screening process.  As part of this process, SNOCAP will determine if any of the content Company wishes to Register has been previously Registered by another SNOCAP Content Provider, or is otherwise potentially questionable.

Disputes or inconsistencies may arise when content is Registered in the SNOCAP Database.  This can be the result of mistakes or fraud, or, for example, because two or more content owners have an ongoing dispute regarding their ownership of content at the time that content is Registered by one or both of the content owners.  These disputes may involve claims to copyright ownership, or, for example, in the case of split-territory agreements between content owners, may involve disputes between parties over which countries they have the right to exploit content in.

SNOCAP does not arbitrate or resolve disputes or conflicts involving content owners or Registrants.  SNOCAP relies on the representations and warranties of the first person to Register content in the Database that the claims made by that party with respect to Registered content are true, correct and accurate.  Those claims include representations and warranties that the Registrant has the right to exploit the Registered content, to Register the content with SNOCAP, to set the Use Terms for that content, to make representations and warranties with respect to that content, to collect money for exploitations of that content, to assume the responsibility to pay royalty participants out of monies collected for exploitations, such as artists, songwriters and music publishers, and to indemnify SNOCAP and SNOCAP Enabled Retailers with respect to losses arising from claims made that are inconsistent with those representations and warranties.

This SNOCAP policy is referred to as the “First Registrant Rule.”  If Company Registers Company’s content in the Database, Company may find that another SNOCAP Content Provider has already Registered the same content in their name, and that prior Registration may result in a conflict between the rights Company believes Company controls and the prior Registration.  Alternatively, a SNOCAP Content Provider Registering their content after Company has Registered Company’s content may find that there is a conflict between Company’s Registration and the rights they think they control.

In either of these instances, or in any other instance where there is a conflict between or among Registrants, it is the responsibility of the Registrants to resolve these disputes among themselves, and SNOCAP will not take any role in resolving those disputes, except as expressly set forth herein.  Any settlement among the Registrants must include a provision that any disputed payments of monies previously paid by SNOCAP is resolved such that SNOCAP shall not be required to make any retroactive payment and any change in control or change in payee shall be prospective only.  SNOCAP’s sole responsibility in those disputes is to notify the later Registrant of the prior Registration, to note in the Database that the particular Registered content is in dispute, provide the name and contact information for the First Registrant to the later Registrant, and to follow the joint written instructions of both the First Registrant and the later Registrant after they have resolved the dispute.  If Company’s Content is disputed, either due to a prior Registration or a later Registration of Content, it is up to Company and the prior or later Registrant(s) to resolve the dispute among yourselves.  SNOCAP will not be a party to such a dispute among Registrants.  Such disputes may be resolved by the manner elected by the Registrants in dispute, which could include, for example, negotiation, arbitration, or litigation.

When a dispute is resolved, the Registrants in dispute shall submit to SNOCAP a joint written instruction, court order or arbitration order instructing SNOCAP which Registrant(s) have prevailed in the dispute, which Registrants shall prospectively have control over the information in the Database and to whom all prospective payments shall be made, along with any other salient information.  This instruction may be a jointly signed letter that is jointly submitted to SNOCAP by the Registrants in dispute, a fully executed settlement agreement, a court order, or any other writing acceptable to SNOCAP.

Until such time, if ever, as a dispute is resolved, SNOCAP shall continue to account and pay monies to the First Registrant that are collected by SNOCAP from exploitations of the disputed content, and shall maintain the Registration of the First Registrant in the Database.  If the dispute is resolved in a manner that requires the payment of monies to the later Registrant, SNOCAP’s sole obligation shall be to account and pay monies to the later Registrant following SNOCAP’s receipt of the joint written instruction described above from all parties to the dispute, including the First Registrant, commencing with monies earned in the accounting period during which SNOCAP receives the joint written instruction.  That is, SNOCAP shall not “escrow” or otherwise hold any monies earned by the First Registrant during the period of the dispute, and SNOCAP shall not be obligated to make any retroactive payment in connection with the resolution of the dispute.

If the parties to the dispute determine that the First Registrant is required to pay monies to the later Registrant for exploitations of the content at issue prior to the resolution of the particular dispute, those monies must be paid by the First Registrant without the involvement of SNOCAP.  Accordingly, SNOCAP will have no involvement regarding past monies paid to a Registrant.  SNOCAP’s sole responsibility shall be to follow prospectively the joint written instructions provided to SNOCAP by the parties to the dispute in resolution of the dispute.

In the event of a dispute or claim made by a person, firm, corporation or other entity that is not a Registrant, SNOCAP shall take appropriate action in its sole judgment to respond to such dispute or claim.

SNOCAP does not act as a fiduciary to Registrants or owe Registrants any fiduciary duties.  Company knowingly and voluntarily waives any and all claims that Company may have that SNOCAP has breached any fiduciary duty, or comparable relationship of trust, that Company may allege SNOCAP owes Company.

By signing this Agreement and by using the Database and the SNOCAP Services, Company agrees to the foregoing policies and the First Registrant Rule, and further agrees to comply with this policy and with the First Registrant Rule.