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

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

October 27, 2015

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.

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