[The White Queen] “Why, sometimes I’ve believed as many as six impossible things before breakfast.”

Alice in Wonderland, by Lewis Carroll

Google has released a self-study (How Google Fights Piracy).  While hope springs eternal, the self-study falls quite short of both truth and reality.  Let’s see why.

The Context

Even if you discount the moral hazard involved with funding a study of yourself, the Google survey of Google’s involvement with piracy is a breathtaking document.  I would suggest that the self-study rests on a number of core principles for Google’s business:

1.  Nothing to See Here, Move Along:  First and foremost is Google’s deep and abiding desire to deflect criticism in the press, avoid civil lawsuits and settle criminal investigations.  It has both succeeded and failed at all three.  The fact that a company tries to avoid these things is not special; the degree to which Google tries to manage them is quite special.

The self-study is itself an exercise in all three and supports the most important public perception that Google draws on daily to succeed in its consumer facing business: Sympathetic trust.  To paraphrase an old California pol, you know all the bad they’ve done, but you like them anyway.

This magical thinking only lasts for so long.  Whether its Eric Schmidt’s New York soundproof man-cave from which no scream can emerge, doing a favor for journalist Tom Brokaw by providing a private jet for a Silicon Valley speaking engagement with jet fuel subsidized by the American taxpayer, siphoning piles of data to the National Security Agency under circumstances the average citizen will probably never learn the details of, or paying a $500,000,000 fine for violating the Controlled Substances Act for indiscriminately promoting the sale of prescription drugs (e.g., to addicts and kids), the press and the public is starting to wake up to the game.

And not just the game, but the magnitude of the game.  As a senior chief once said, sorry pal, the BS filter is full.

2.  Google Profits from Piracy and Other Bad Behavior:  If the self-study discloses anything new, it documents that Google profits from piracy.  The self-study also calls the public’s attention to piracy, a topic that Google has spent millions trying to politicize through non-profits like the Electronic Frontier Foundation, academic institutions at universities like Stanford and Harvard, and other public facing groups.

But getting you to focus and talk about Google’s role in piracy deflects attention away from Google’s role in profiting from other illegal behaviors such as human trafficking, continued involvement in advertising for drug sales, and promoting racist and anti-Semitic hate speech as well as jihadi war porn.  There are many others, but take those three as examples.

The Internet, after all, is a reflection of society.  We should not be surprised that bad guys are rampant.  Or more precisely, a reflection of society if the chances of getting caught were very, very low.  Or more precisely still, a reflection of society if the chances of getting caught were very, very low and Omnicom sold advertising to support the criminal economy and Google was the paymaster.

See point #1.

3.  Getting Away With It:  The most important message of Google’s self-study is that they are doing bad things on a grand scale and they are getting away with it.  And they intend to keep getting away with it.

4.  YouTube Is Your Friend:  What Google desperately wants you to believe is that artists need YouTube.  This is a myth—and it should sound familiar.  Terrestrial radio has argued for years that they should not pay artist royalties for public performance because radio airplay promoted artists—so artists should just be happy to get the promotion.

In fact, the value chain flows the other way around—music promotes radio and music promotes YouTube.  YouTube is actually a free rider who skims the value of decades of marketing, promotion and touring, and if they pay at all, they pay a pittance.  This is why the self-study references value created in other channels and attempts to draw a causal relationship between plays on YouTube and an artist’s other revenue streams (such as record sales, touring and sponsorship).

The Author

When analyzing something as sensitive as the moral hazard present in a self-study, it is important to understand who the speaker is and what their biases might be.  (For example, I’d never purport to write a critical study of our business–even though I think I could do it objectively, I’m so obviously biased there’s not much point in going through the exercise.)  Since Google did not include an “about the author” section in the self-study, we will have a little bit of relevant background here.

Google apparently chose Fred von Lohmann to write the self-study.  Von Lohmann comes to Google after a long career of attacking copyright as a private lawyer and as a key member of the litigation team of Google shill lister the Electronic Frontier Foundation—who can forget his stellar presentation of the losing argument in the Grokster case before the 9^th Circuit Court of Appeals?  When you realize that the litigation costs of the appeal for his client were paid by the Electronic Frontier Foundation and that the EFF is funded in large part by Google, things should start to clear up.  (Not to mention that Professor Lessig, no small beneficiary of Google’s largesse in support for his projects, stated at the iCommons Summit in 2007 that he had voted to fund the appeal in his capacity as an EFF board member–the next year Creative Commons picked up a cool $1.5 million from Google.)

And who can forget the run-in with the law that some think should have gotten von Lohmann hauled before a State Bar ethics hearing due to his conduct in the Limewire case.  As CNET reported in one of the only press stories about the incident:

In addressing an issue of whether statements made by a former LimeWire executive should be considered by the court, Wood called out Fred von Lohmann, the much-quoted senior staff attorney at the Electronic Frontier Foundation, an advocacy group that fights for the rights of Internet users and technology companies. According to Wood , LimeWire founder Mark Gorton testified that he and former company Chief Technology Officer Greg Bildson received questionable advice from von Lohmann.

“Gorton states that another attorney, [von Lohmann], gave [LimeWire], including Bildson, confidential legal advice regarding the need to establish a document retention program to purge incriminating information about LimeWire users’ activities,” Wood wrote in her decision.

You will not be surprised to know that the EFF went back to court to request that the judge at least remove the reference, which the judge eventually did.  But that’s all she did—she issued no statement that I saw exonerating von Lohmann, possibly because she knew exactly what he did.

Point made.

In the EFF’s filings to get von Lohmann off the hook, there was a general assertion that his “professional reputation” was harmed.  Some long time observers of von Lohmann thought this was hysterically funny, because if anything, his professional reputation was enhanced in his world.

So no one who was familiar with the situation was surprised when Fred von Lohmann left the EFF and went to work for Google shortly after Limewire lost its case.  To use a metaphor that will resonate in the Googleplex, it was similar to two people finally shacking up who had been denying they were having an affair for years.

As an observer of Mr. von Lohmann’s career for many years, I would have to say that in my view, he is the perfect person to obfuscate Google’s true mission.

And it leads me to believe even more firmly that Google must be making a fortune from shady to outright criminal activity through the sale of advertising.

False Premise:  The Music Industry is Not an International Business

In order to reach a false conclusion (“Google Fights Piracy” or “YouTube is your friend”), it helps to have a few false premises to argue from.  In fact, to keep this post at a reasonable length, we’re going to have to pick and choose the false premises we analyze in the Google self-study because there are so many of them.

Here’s one on the first page:

In the past, music distribution had been mostly regional, making it difficult to hear great artists from around the world.

This is, of course, patently false.  I find it hard to believe that von Lohmann does not know that the statement is false.  Here are a few counter-examples in no particular order off the top of my head:  Arcade Fire, Mumford & Sons, Celine Dionne, Adele, Edith Piaf, Shirley Bassey, Dusty Springfield, The Who, Brian Adams, Gerardo, Sting, Oscar Peterson, Led Zeppelin, Nickelback, Triumph, Ozzy Osborne, ELO, and…oh yes, Arctic Monkeys, the Rolling Stones and The Beatles.

And here’s another equivocal statement, a little more subtle:

But with a global platform like YouTube, which is owned and operated by Google, anyone is able to discover and share music from anywhere.  This means new revenue opportunities for artists—according to outside estimates “Gangnam Style” generated over $8 million in advertising deals in the first six months alone and has been purchased digitally millions of times.

As MTP readers will recall, that “$8 million” from “outside estimates” comes from two places: Washington Post coverage of a Google stockholder conference call which erroneously quoted an online publication called Quartz.

The source for the Quartz story was the Associated Press which said this:

With one song, 34-year-old Park Jae-sang – better known as PSY – is set [maybe] to become a millionaire from YouTube ads and iTunes downloads, underlining a shift in how money is being made in the music business. An even bigger dollop of cash will come from TV commercials.

From just those sources [i.e., YouTube ads, iTunes and commercials–not just YouTube as both Quartz said and WaPo implied], PSY and his camp will rake in at least $7.9 million this year, according to an analysis by The Associated Press of publicly available information and industry estimates….TubeMogul, a video ad buying platform, estimates that PSY and his agent YG Entertainment have raked in about $870,000 [not $8 million or $4 million] as their share of the revenue from ads that appear with YouTube videos. The Google Inc.-owned video service keeps approximately half.

So are downloads and endorsements “new revenue opportunities” caused by YouTube?  No.  Downloads and endorsements are what happens when you have an international hit record.  Just like they have been since the invention of the cylindrical disc.

What’s different is the YouTube channel from which YouTube supposedly made about $373,000 by giving PSY a YouTube channel—but how would anyone know that was the right number because the advertising revenue attributed to YouTube is from cross-platform sales on Google properties, allocated entirely at Google’s discretion with no transparency.

This is not to say that YouTube has no value, but we should all understand that the value chain does not start with YouTube, it starts with the artist.  And the artist’s (and songwriter’s) work is worth a lot more to YouTube than YouTube is worth to the artist or the songwriter.

Because what we do know about YouTube—and bear in mind we haven’t even gotten to the piracy stuff yet—is that the biggest mover in YouTube’s short history resulted in an artist royalty of $870,000 for 1 billion views.

$0.000870 per play.

If You Get a Red Flag 4 Million Times a Week, Does that Tell You Anything?

The next obfuscation in Google’s self-study is in the discussion of Google’s treatment of DMCA takedown notices:

GOOGLE SEARCH

We process more takedown notices, and faster, than any other search engine. We receive notices for far less than 1% of everything we index, which amounts to four million copyright removal requests per week that are processed, on average, in less than six hours.

von Lohmann echoes this assertion in his official Google Policy Blog post:

When it comes to Search, Google is a leader in addressing the concerns of copyright owners, responding to more copyright removal notices, and faster, than ever before. During 2012, copyright owners and their agents sent us removal notices for more than 57 million web pages. Our turnaround time on those notices was, on average, less than 6 hours. That’s faster than we managed in 2011, despite a 15-fold increase in the volume of requests.

The fact that Google is “responding to more copyright removal notices than ever before” begs the question:  What is it about Google’s products that is so defective that they are receiving “removal notices for more than 57 million web pages” in the first place?  The fact that they are responding in 6 hours addresses only the “expeditious” requirement in the DMCA–not the threshold question of why Google points users to so much infringing content.

Also notice that this is carefully drafted:  The report says 4 million notices a week–208,000,000 notices a year.  von Lohmann says they received notices for 57 million web pages–considerably less.  One explanation might be that they received multiple notices for the same web page which is what would happen if Google indiscriminately drove traffic to infringing sites.

If you ask the drafters of the DMCA safe harbor whether they intended that anyone who is notified that their product facilitates infringement 4 million times a week would still be eligible for the safe harbor, I suspect they would tell you no they did not.  Rather emphatically.

Recall that in order to enjoy the DMCA safe harbor, the search company must satisfy the knowledge predicate in 17 USC 512(c)(1)(A) that states the service provider:

(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing;

(ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent; or

(iii) upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material;

Once the service provider gets a valid notice, that pretty much satisfies the “actual knowledge” requirement.

But if getting 4 million notices a week doesn’t satisfy being “aware of facts or circumstances from which infringing activity is apparent”, how many would it take?  (And then there is the repeat infringer issue which is beyond the scope of this post, but see the Hotfile case.)

Follow the Money: Where Did It Go?

For reasons I don’t fully understand, Google has latched on to what they call the “follow the money” approach for advertising revenue on unauthorized sites.  This is probably because they would like to lead investigators down a rabbit hole that may well come out in China (as it did in the criminal investigation into Google’s profit from advertising illegal drugs).  But here’s an easier twist.

Google tells us the following about Google’s profit from criminal enterprises (echoed in von Lohmann’s blog post):

ADS

Our policies restrict infringing sites from using our advertising services. In 2012, Google disabled ad serving to 46,000 sites for violating our policies that prohibit the placement of ads on sites with infringing content, the vast majority being violations Google detected before we were notified.

von Lohmann tells us in his official Google Policy blog post:

When it comes to rogue sites that specialize in online piracy, other anti-piracy strategies will have limited effect so long as there is money to be made by their operators. As a global leader in online advertising, Google is committed to rooting out and ejecting rogue sites from our advertising services, to ensure that they are not being misused to fund these sites.

So first of all, how did 46,000 illegal sites get Adsense/Doubleclick accounts in the first place?  And if the sites were already up and generating advertising revenue, how long were they operational?

But most importantly—Google has a revenue share deal with these sites that is somewhere around a 70/30 split.  If these “infringing sites” were operational and generating revenue until Google disabled the accounts, what happened to Google’s share of the money?

I know they were shocked, shocked that infringement was going on in that establishment—but don’t forget that Captain Renault got his share of the house’s winnings.

What’s more likely is that Google kept their share of the money from these illegal sites and when they disabled their Adsense account, Google kept the pirate’s share of any money in the pipeline, too.

Why do I think this?  Because that’s what Google did with advertising revenue for counterfeit Olympics tickets.  According to the Daily Mail (in turn quoting the BBC):

Illegal websites selling drugs, fake passports and unauthorised tickets for the 2012 Olympics have been advertised by Google.

The internet search giant…has removed the ads following police requests and subsequent media attention.

However, the company has said it will keep any money made from those illegal adverts, the BBC’s 5 live Investigates programme revealed.
(See “Google admits profiting from adverts for drugs, fake passports and illegal Olympic tickets.”)

So it appears that in reality, Google actually salts its profits by disabling illegal sites and keeping 100% of the advertising revenue.

46,000 times a year.

So OK, let’s follow the money.  All the way home.

And then there’s this example of Doubleclick profiting from what’s probably hate speech in many jurisdictions:

To be continued in Part 2.