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Billions and Billions: Carl Sagan, Meet Christophe Muller and Daniel Ek

October 30, 2015 Comments off

If you ever watched Cosmos, who can forget Carl Sagan’s many references to millions, billions and trillions.  But Dr. Sagan ain’t got nothing on YouTube and Spotify.

In their desperate attempt to quell the international wave of anger against the respective services, YouTube’s Christophe Muller and of course the venture capitalist darling Daniel Ek have been quick to throw out vague numbers of a Sagan-level billions and billions of dollars in royalties each service has paid out to “rights holders”.

I confess–I’m far too ready to just tune out all this Sagan-esque puffing as utter bullshit and just tune it out.  My bad.

Thankfully, the eagle-eyed Tim Ingham at Music Business Worldwide was paying closer attention and noted a couple items in the timeline:

YouTube claims to have paid more than $2bn to music rights-holders in the past few years….YouTube’s Global Director of Music Partnerships, Christophe Muller said…“We’ve generated over $2 billion in revenue for the music industry in the last few years alone….”

There are a few really noteworthy things about this statement, the first time to MBW’s knowledge that the [$2 billion] figure has been publicly used.

Firstly, it’s been 20 months since a YouTube rep claimed at Midem 2014 that the service had paid $1 billion-plus to music rights holders (here’s a version of that key phrase again) “over the last several years”….The fact remains: YouTube appears to have, by default, paid out more than $1billion to music rights-holders within this time period (ie. the difference between $1bn and $2bn [in 20 months]).

That’s right–billions and billions.

And then there’s Spotify.

The Swedish service made its own ‘we’ve paid $2bn to music rights-holders’ announcement fairly recently – in November 2014, back when Daniel Ek was busy saying sorry-not-sorry to Taylor Swift.

But Spotify’s made a bigger announcement since then: in June this year, the service said it had now paid out more than $3bn to music rights-holders, with $300m in the first quarter of this year alone.

Again, there will be a bit of room for error here, but around seven months passed between Ek’s statement in November 2014 and the June 2015 announcement.

If Spotify’s payouts to rights-holders really did grow by $1bn in this time period, it would have been paying out $142m per month.

That’s almost three times what YouTube appears to have been paying labels, publishers, artists and songwriters. Despite the fact Spotify’s total active audience (75m) amounts to somewhere around 1/14th of YouTube’s billion-plus user base.

Both companies are private (although YouTube is wholly owned by Spotify board member Google) and do not publish financials.  It’s also nearly impossible for artists or songwriters to conduct a royalty compliance examination (aka a royalty audit) of either company.  YouTube is particularly well known for being both highly secretive and litigious, so it’s unlikely that anyone will ever find out whether these statements are true.

However–Morgan Stanley produced this chart after some green eyeshade working over of Google’s publicly disclosed revenues in an effort to break out YouTube’s contribution to revenue (which neither Google nor YouTube provide directly).  Morgan Stanley thinks YouTube’s revenue is growing 38% year over year.  You know–that revenue we’re supposedly sharing in.  I’m sure your YouTube royalties are growing at the same rate.

So do you think that YouTube is paying out 1/6th of its gross revenues for music videos?

As Dr. Sagan observed:
It took nature hundreds of millions of years to evolve a bacterium and billions of years to make a grasshopper….
I wonder how many billions these services will make before they evolve a
sustainable royalty?  Now there’s an orbiting snowball for you.

More Free Non-Display Uses of Music: Google’s Tying Agreements Force Phone Companies to Use YouTube

October 28, 2015 Comments off

We’ve talked before about how Google profits out the back door from its “fair use” of scanning millions of books at its high security scanning center (see “Epsilons at the Brave New Googolplex“), what I call “non-display” uses of works of authorship.  Here’s another one, this time with YouTube.

Remember–YouTube is essentially a datamining honeypot disguised as a video service.  Google uses the behavioral and other data scraped from YouTube users (very likely indiscriminately including children) to assemble its highly refined data profiles that it makes most of its revenue from exploiting.  That’s the real money, not the advertising that some YouTubers get a few mils from permitting to clutter up their videos.

Needless to say, none of that revenue finds its way to the pot.  Hence–non-display, as in happening in the background and undisclosed.

Not only does Google profit from data profiling culled from YouTube users, Google also engages in what’s called “tying” in the antitrust world.  Google forces handset makers to pre-load Google Apps on the phones as a condition of using the Android operating system.  And that’s really non-display.  This practice may well be “tying,” a practice that has been held to be unlawful in cases like U.S. v. Microsoft (although the Microsoft case was settled).  Tying occurs “[f]or competitive purposes, [if] a monopolist [uses] forced buying, or “tie-in” sales, to gain sales in other markets where it is not dominant and to make it more difficult for rivals in those markets to obtain sales.

The Information shines some light on this practice:

Google for years has tweaked its search engine to promote other revenue-generating Google Web services in the search results, much to the dismay of some rival Web companies. Now, there is new evidence Google is following the same playbook with its Android mobile operating system, which has become a key vehicle to distribute its revenue-generating mobile apps on phones.

Confidential documents viewed by The Information show Google has been adding requirements for dozens of manufacturers like Samsung Electronics, Huawei Technologies and HTC that want to build devices powered by Android. Among the new requirements for many partners: increasing the number of Google apps that must be pre-installed on the device to as many as 20, placing more Google apps on the home screen or in a prominent icon folder and making Google Search more prominent.

So which Google apps might be forced upon handset makers?

A general theme has emerged: Google is finding new ways to integrate more of its services into Android and, in particular, to direct device owners to use Google Search.

[The Mobile Application Distribution Agreement (MADA) required of companies like companies like Samsung, Lenovo Group and Xiaomi] said there must be a Google search “widget” on the “default home screen” of the device, along with an icon for the Google Play app store. It said an icon on the device home screen labeled as “Google,” when clicked, must provide access to a “collection” of 13 Google apps (Google Chrome, Google Maps, Google Drive, YouTube, Gmail, Google+, Google Play Music, Google Play Movies, Google Play Books, Google Play Newsstand, Google Play Games, Google+ Photos and Google+ Hangouts). The newer agreement also specified the order in which this collection of apps must be listed, from left to right and top to bottom within the Google icon.

So Google uses YouTube and Google Play to force its way onto handsets, expand its monopoly and increase its Android footprint in mobile while at the same time leveraging YouTube for its other apps.

Handset makers and carriers aren’t as stupid as the music business–they can negotiate for a cut of Google’s revenues (albeit with some restrictions):

Beyond the MADA contracts, if a device manufacturer or wireless carrier wants a cut of the revenue Google generates from Google Search or Google Play on the device, it must sign an additional agreement. As The Information previously reported, those agreements now typically preclude partners from pre-installing Web-search apps like Bing or Yahoo Search that compete with Google Search. (Those apps are still available for manual download by the device owner.) There are also some restrictions regarding preloading app stores that compete with Google Play.

So it’s not like nobody ever gets a cut of Google’s revenues from Google Play, and given the competitive advantages that accrue to Google from non-display uses of YouTube and Google Play, it seems like we should be thinking about getting ours.

Pandora’s Butterfly Effect on Deezer: They should have just paid the Duke

October 28, 2015 Comments off

The Wall Street Journal reports that the (largely) European streaming service Deezer has pulled its initial public offering float of shares on the Euronext exchange in Paris.  Let me tell you, pulling an IPO is no small thing, particularly on the eve of registering the shares.  That’s the kind of thing that can ruin your whole day, and makes it very, very difficult to keep the underwriting syndicate together.

Why did it happen?  Partly due to the sharp drop in Pandora stock after investors began to realize that Apple Music had made significant gains against “free music” services like Pandora and Spotify that survive on advertising often served by Spotify board member Google.

This is to be expected–even Google’s legendary ability to suppress news about its interests that it doesn’t like cannot break through this:

Pandora Stock Drop

Pandora Media, Inc., from Wall Street Journal

We can understand how a public company’s stock can get buffeted by market conditions, particularly one with as many short sellers as Pandora.  Pandora can’t avoid what others do.  However, Pandora can avoid being boneheads.

The WSJ tells us that another factor to the collapse of investor support for Deezer (and potentially for the ad-supported streaming sector altogether) was Pandora’s bonehead decision not to pay royalties on pre-72 recordings by artists like Duke Ellington and Louis Armstrong:

Pandora also announced it had agreed to a $90 million settlement with record labels over its unpaid use of music recorded before 1972, which isn’t protected by U.S. copyright law. The settlement, amounting to about 10% of Pandora’s annual revenue, also spooked investors already concerned about the high costs that streaming companies must pay to license music.

Remember, Pandora has only settled with the major labels.  The Turtles and their courageous lawyers Henry Gradstein and Harvey Geller who had the chutzpah to bring the case in the first place are still representing the class of all other sound recording owners.  If Pandora treats them the way that streaming services typically treat independents, Pandora will drag out the settlement in a game of cheap relative.  Of course, now that the markets are spooked, all these services may start being more inclined to do the right thing because it affects their executives’ ability to cash out–not because it’s the right thing.

So thanks to the Turtles, Duke Ellington, Satchmo, Aretha Franklin and all the other artists who make up our musical heritage, there may actually be a “butterfly effect” from Pandora’s stupidity.  There already has been at Deezer.

The Global Database Fallacy: Disdain for Rights + Numerosity + Secrecy = Steroidal Black Box

October 27, 2015 Comments off

You’ve probably heard a lot about the gut wrenching need for a “global rights database” because “music licensing is broken”.  It sounds like of like a political campaign advertisement, right?

Music licensing is broken

Let’s drain the swamp

And protect the future for our children

Let’s get something straight at the outset:  This “if we only had a database” jive is the grand deflection at work.  You see it coming from a number of places all at once which is a bit of a head scratcher.  I think that having a global rights database will do absolutely nothing to fix what is looking more and more like a totally predictable and massive black box of earned but unpaid royalties at streaming services (other than Apple).  Which is why streaming services are trying so hard to get you to “look ovah theah” with the light touch of a James Carville (a soulmate of Spotify’s resident Clintonista, Jonathan Prince).

I suggest to you that all a global rights database would do absent far easier changes to behavior would give the streaming services a long, long delay in resolving their current black box, do nothing to stop the black box from occurring, and–if the database were ever completed, a HUGE if–it would simply make it easier for music users to look up who they were not paying.

What needs to change is attitudinal, procedural and revelatory.  And, frankly, it’s all on the digital services as I think you’ll see.  Added bonus:  I will get through this entire argument without using the hackneyed “transparency”.

1.  Attitudinal Change: Disdain for Rights:  The emotion that comes across from digital services (other than Apple) about clearing rights is that the services simply do not understand the creative process, especially for songwriters.  This is, I would suggest for lack of a more fundamental explanation, largely cultural.

While tech folk understand large teams working on code or hardware, for example, what they never experience is ownership of that work product by the creators of it.  Rights in code or hardware are owned by an employer.  Nobody at Google’s search algorithm coding team would ever think for one minute that they would have the right to approve or decide how that code is used, even if it is used for activities that are at worst crimes and at best morally suspect.

Songwriters and artists, however, have every expectation that they will have a lot to say about how their songs are used, at least to the extent that the boot of the government is not on their throats.  Writing teams definitely claim ownership in their work product and fully expect to have some degree, often a large degree of control over how it is exploited–if not total control.

Tech folk also do not become personally identified with their work product, except in rare cases of lottery winners like Mark Zuckerberg and the Pep Boys Eric, Sergey and Larry.  However, songwriters and particularly artists are closely identified with their music.  (This is not limited to music, of course, and includes actors, directors, authors, illustrators, photographers, painters, sculptors, all the creative classes.)

Because digital services don’t understand the creative process at a fundamental level, they are, quite unsurprisingly, mystified by the licensing process which is a direct corollary of creativity in music.  What they cannot understand through logic, they try to understand through magic–a common human trait that can be traced to cave dwellers when, for example, confronted by lunar eclipses or fire.  This produces mythical beliefs, mostly having to do with shapeshifting evil totems exhaling miasmas of bad juju such as record companies.  In the digital Vulgate (possibly originating with the Song  of Napster), the “music labels” cast spells over artists, music publishers and songwriters (even though record companies have nothing to do with licensing songs for third parties).  Plucky little digital companies must fight back with goodness and reason that makes up for their failure to turn a profit.

And…wait for it…justifies failing to respect the dignity of the creative process and using works of authorship without respecting the dignity of creators and using their work without rights, terms, or even payment of imaginary terms.  Granted the legitimate services do pay royalties, just not all the time.  And if you’re the one not getting paid, they don’t pay at all as far as you’re concerned.

It is this disdain for rights that is common to many digital services and must necessarily be present for a service to run up a gigantic black box with no legal basis whatsoever.  Fixing this disdain for the dignity of creators will not be fixed by a global rights database, but it can be fixed by a radical attitude adjustment coming from the top down.  As that attitude adjustment has not appeared in many years, it is unclear what will produce it, but all the lip service in the world is given the lie by a gigantic black box at the digital services (starting with YouTube and Spotify).

I believe this is a fundamental shift that must be accomplished internally–Apple does not have this attitude and does not have this problem.  Apple doesn’t seem to have needed a global rights database.  Why should anyone else?

2.  Numerosity versus Scale:  What makes clearances difficult is not that there are three writers on a song, three PROs, or international rights holders.  What makes clearances difficult is when digital services decide to get into the music business and that they also need 20 million tracks before they can operate.  Notwithstanding that probably 90% of their revenue comes from a relatively small subset of recordings and songs.

It is numerosity that makes it difficult.  This would be like starting Sony, Universal and Warner with full catalogs and new releases all on the same day.  Here’s the problem for the digital services:  Nobody asked them to get into this business, and the numerosity problem was absolutely clear and predictable from Day One.

Realize that numerosity is different from scale, at least to me.  Scale implies demand.  While there may be demand for a digital service generally, that demand is usually driven by hit artists and their record companies, either currently for new releases or in the past on catalog.  Surely it should be intuitive that there cannot be equal demand for 20 million tracks?

A simple answer to this problem is to question the business logic of anyone who believes that in order to be successful they must carry every SKU, or at least a large number of SKUs that don’t sell.  If they do, that’s their business, but it is their business.  They must undertake the burden of being in that business and the associated transaction cost of clearing and accounting for all those tracks and songs, even if they sell .  Services undertaking that burden cannot then turn around and blame anyone else (the bad juju of evil spirits) for their problems.

And a global rights database would not solve that problem, either.

3.  Secrecy:  Digital services typically decide to hold royalties “in escrow” for songs that they exploit but “can’t identify”.   They hold these royalties in secret–if you were never contacted about your song (or possibly track) being used on the service in the first place and the service never discloses they are holding your money, how could you ever take action to protect your rights?  Or to collect your money, even if the service unilaterally decides to use your songs on terms they set, what I call “aspirational terms” and “aspirational escrow”.

Let’s be clear about what “escrow” means.  An escrow is not something that can be imposed unilaterally by the party getting the benefit of the use of property.  Escrow is typically established by a three party contract–for example, the party owning a property, the party acquiring or licensing the property and the escrow agent.  The escrow agent is frequently a bank, title company or an independent third party, and the escrow account usually involves fairly liquid assets like cash or stock.  You could make a pretty good argument that the reason you have an escrow agent is because the two parties don’t trust each other with the cash that is to be paid out according to the terms of the escrow contract.  So if one of the parties unilaterally decides to hold the other’s money, that’s not an escrow.  Particularly if the money being held is under aspirational terms.

When digital services fail to properly license a song but use it anyway–whether because they have a cultural disdain for the dignity of the songwriter, mistakes due to numerosity or other reasons–there is no deal.  The service can hope that the songwriter or other rights holder will agree to the services aspirational terms (often statutory license rates that the service has failed to qualify for), but that’s just a hope, i.e., aspirational terms.

Taking the next step of holding on to the accrued royalties in an “aspirational escrow” or what might better be called a “fiduciary fantasy” and its sequel, the “legend of the constructive trust.”  It would make a lot more sense if the service contemporaneously posted a list of songs for which they are holding money.  This would, of course, be an admission of infringement in all likelihood, but at least it would not create such a conspiracy to infringe.  And it would smell a whole lot better.

This is particularly true when the service refuses to subject themselves to a royalty compliance examination, aka an “audit”.

And saying I’m using your track or song on terms I decide, not paying you money, not telling you I’m holding the money, and refusing to let you audit will not be fixed by a global rights database.

While there may be unallocated sums at PROs, record companies or music publishers, the last people we need “helping” us are digital services.  We have interlocking economic relationships with all our traditional partners, and we have audit rights.  We’ve solved these problems before the Internet and we can solve them now.  The services and their fellow travelers need to just butt out.

So let’s be honest–this fascination with a global rights database isn’t going to fix any of the fundamental causes of the black box at digital services.  All of the causes of the black box are within the control of the executives who run these services and they could all be changed this afternoon.

But they won’t.  As Guy Forsyth said, Americans are freedom loving people, and nothing says freedom like getting away with it.

It’s Not About the Database: Spotify’s Blame the Victim Spin Machine Finds a New Gear

October 22, 2015 2 comments

We’ve all seen the kabuki dance from various sources that support the central theme of why digital services don’t pay songwriters consistently:  If there was only this central database in the sky, then all would be solved.  This has been the theme since the Napster lawsuits–if you can’t tell anyone what you own, then they’ll just use it without permission or payment.

If you look a 16th of an inch below the surface in most cases, you’ll see that even if such a database existed, it would not solve the problem most of the time.  The problem isn’t that services can’t find the owner, the problem is that services use the songs anyway.

The database argument would sound a lot better if it was about holes in the offerings of services offering millions of tracks.  Wouldn’t it make more sense if the service said, because there is no authoritative database, we can’t offer all the world’s music?

But they don’t do that.  They rarely ever don’t use the songs.  The problem is that they blow past the getting a license stage.

By the way–this would not solve Spotify’s problem with Victory Records and its affiliated publisher.  Spotify knows who to pay, they’re apparently just not paying them.  How would an “authoritative database” solve that problem?  It wouldn’t.

So having created extraordinary amounts of bad press over their braindead handling of a $23,000 issue, the Spotify PR machine is now in high gear trying to get back on message as Billboard reports:

Regardless of what occurred with Audiam and Victory, sources familiar with Spotify’s stance on the issue say the company’s management is aware of the problem surrounding proper payments to publishers and songwriters and is involved in discussions to not only ensure that the current outstanding payments get to where they are supposed to go, but is interested in working with publishers and the NMPA to resolve the issue.

Let’s play the unnamed source game–who might be someone who is a “source familiar with Spotify’s stance on the issue” who would know what the “company’s management” is aware of (knowledge), and that the “company’s management is involved in discussions.”

Want to play “guess the source”?  Gee…who might that be?  My bet is that behind door #3 is that old triangulator himself, Jonathan Prince, Spotify’s resident Washington revolving doorman, Clintonista and all round flack.

Desperately trying to get back on the message that has been so carefully refined since the Verge “leak” of Spotify’s Sony agreement.  “Regardless of the fact that Spotify is acting like a petulant child, knowingly interfering with contract, maybe massively infringing and is using its monopoly position in streaming to cram down terms by forcing publishers off the service, the problem isn’t Spotify, let’s not forget it’s actually the songwriters’ fault.”

Nice try.

Second Circuit Hands the NSA a New Toy in Google Books Case

October 21, 2015 Comments off

As the major non-state actor funding copyright irredentist movements across the globe, Google put another notch in its lawfare belt by taking down authors, illustrators and photographers.  Yes, the bizarre Google Books case was upheld on appeal in the Second Circuit.

That’s right—appointed for life judges think that it’s OK for Google to scan and exploit millions of books without regard to what creators’ rights are implicated.

If there’s not something that wrenches your guts out about the very idea of this Nixonian-level violation of the human rights of artists by a multinational crony capitalist, you probably can stop reading now.  On the other hand if it does bother you deeply—like it did the governments of Australia, Canada, France and Germany who complained about Google to the Obama Administration, then read on.  (I know that sounds like a joke, but these countries actually thought that the U.S. would support its own authors over Obama pal Eric Schmidt.)

Let’s look at some of the less obvious implications that the Court didn’t trouble itself with. While the strange geeks at your State university library awake from dreaming the dreams of the sovereignly immune and catch a breath after spewing the sanctimony of the “digital library of Alexandria,” ask them how they feel about scans of their books being used to help the National Security Agency with its “chatter” problem.  These are typically called “nondisplay uses” of the corpse…sorry, the corpus…of the books included in Google Books.

Example:  How can you teach a machine to recognize language and translate it into dozens of languages?  Realize that machines don’t learn languages the way humans do.  We conjugate verbs, learn vocabulary, study how to read and write.   Then we do the same in a different language than our own.

Machines?  Not so much.  Machines don’t really have a “native” language.  Machines are usually asked to translate a particular word or phrase, also called a text string.  The machine requires a very large number of works to refer to, preferably works that have been translated into many languages.  Or more preferably still, works that someone else has laboriously translated into many languages at someone else’s expense.

Catching on yet?  Then you’re miles ahead of the Second Circuit.

This way, the machine can look for words in a text string that appear in a certain sequence in these things called “books” and then look for the corresponding words in various languages.

This is called “corpus machine translation” and Google actually has a handy video on the subject posted on YouTube.

So corpus machine translation works if you already have some text in a language you or your client might be interested in, oh say, Pashto for example.  Or Russian, for all you new cold warriors out there.  How would you use corpus machine translation if you were interested in “chatter” or lots and lots of conversation, you know, like telephone conversations you might have to listen to with some guys who were hanging around at the time over Across the River.

Fortunately, Google has another handy product that solves that problem—Google Voice, the descendant of GOOG-411.  As the ever helpful Marissa Meyer told Infoworld in 2008:

You may have heard about our [directory assistance] 1-800-GOOG-411 service. Whether or not free-411 is a profitable business unto itself is yet to be seen. I myself am somewhat skeptical. The reason we really did it is because we need to build a great speech-to-text model … that we can use for all kinds of different things, including video search.

The speech recognition experts that we have say: If you want us to build a really robust speech model, we need a lot of phonemes, which is a syllable as spoken by a particular voice with a particular intonation. So we need a lot of people talking, saying things so that we can ultimately train off of that. … So 1-800-GOOG-411 is about that: Getting a bunch of different speech samples so that when you call up or we’re trying to get the voice out of video [such as from YouTube], we can do it with high accuracy.

Marissa Meyer, interviewed in Info World, October 23, 2007–nearly 8 years ago.

And more recently, the Google Now product.

Google is not just listening to your searches, but the search engine is also recording and storing every single voice search you make.

Google is incredibly accurate at understanding your voice. The company secretly stores its users’ searches from its voice-activated assistant Google’s Voice Search and search feature Google Now to turn up relevant advertisements as well as improve the feature.

But what many of you do not realize is that after every voice searches you made, Google makes a recording of it and stores it in a remote part of your account.

So…Google Books provides the corpus for the corpus machine translation.  Google Voice provides the ability to turn voice into text through speech recognition, and Google Now provides the ability to recognize the voice as yours.

And who might want to have that capability?  Oh, just some guys who were hanging around at the time over there Across the River.  Perhaps clients of Google the defense contractor.

Thanks, Second Circuit.  Major twofer for The Man 2.0—slam the crap out of artists and also give the NSA a nice new toy.  Illuminating discussion in the “fair use” opinion…oh, snap.  It’s not there.

Spotify Has Apparently Failed to License, Account and Pay on More than 150 Cracker and Camper Van Beethoven Songs

October 21, 2015 Comments off

And it’s not just Victory….

The Trichordist

Everyone in the music industry is abuzz with the news that

  1. Spotify failed to license much of the Victory Records song catalogue.
  2. Spotify failed to pay royalties on these songs.
  3. After Victory Records went public Spotify pulled the entire catalogue

Spotify spokesperson Jonathan Prince was quick to say this:

“We want to pay every [fraction of a] penny, but we need to know who [sic] to pay. The industry needs to come together and develop an approach to publishing rights based on transparency and accountability.”

No sorry that’s not how the law works.  You have to have a license before you even use the song on a streaming service.  That means you have to either contact the owner of the songs and directly negotiate a license.  Or you can fall back on a slightly less convenient statutory license (Whereby the federal government compels the songwriter to license at a…

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