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Archive for February, 2016

New Songwriter Class Actions Against Tidal and Slacker

February 29, 2016 Comments off

More on this to come, but Yesh Music has brought class actions against both Tidal and Slacker:

Yesh v Tidal

Yesh’s case against Tidal is assigned to Judge Kimba M. Wood (who heard the Limewire case if memory serves and had an interesting encounter with one Fred Von Lohman when he worked for the Electronic Frontier Foundation).  According to Entertainment Weekly, Tidal responded thusly:

“TIDAL is up to date on all royalties for the rights to the music stated in Yesh Music, LLC and John Emanuele’s claim and they are misinformed as to who, if anyone, owes royalty payments to them,” a TIDAL representative said in a statement to EW. “As Yesh Music, LLC admits in their claim, TIDAL has the rights to the Master Recordings through its distributor Tunecore and have paid Tunecore in full for such exploitations. Their dispute appears to be over the mechanical licenses, which we are also up to date on payments via Harry Fox Agency our administrator of mechanical royalties.”

The class action against Slacker is assigned to Judge Edward R. Korman.  We haven’t found any news coverage on the Slacker class action.

Yesh v Slacker

Artist Representatives Embarrass Themselves Again By Not Signing Their Clients for SoundExchange Royalties

February 29, 2016 Comments off

There’s another list circulating of some well-known artists who are not signed up for SoundExchange.  There’s always an implication somehow that this is the fault of SoundExchange as opposed to a failure on the part of the artist’s managers, business managers, accountants or lawyers.

Newsflash: SoundExchange can’t force anyone to sign up as a featured artist.  It is the role of the artist representatives to encourage their clients to get this done.

Newsflash:  It’s EASY to sign up.  In fact, it’s never been easier.

Newsflash:  Joining SoundExchange is one of the only ways a US artist can collect foreign performance royalties for sound recordings.

Affiliating with SoundExchange should be on the top of every representative’s new client checklist–right next to affiliating with ASCAP, BMI or SESAC.  If the manager failed to get their artist/songwriter client affiliated with a PRO, or let a PRO just sit on money they’d collected it would be management malpractice, right?  Why do these managers get a pass on SoundExchange?

Let’s get it together, people, please.  This is embarrassing.

Click here to sign up.

Future of What Podcast on Songwriter Class Actions Against Spotify

February 26, 2016 Comments off

The Future of What is a great podcast series with the awesome Portia Sabin on important topics in the music business.  In this episode, Portia dives into the class actions against Spotify with a series of interviews including songwriter (and plaintiff) Melissa Ferrick, Howell O’Rear, Christiane Kinney and me.

New Shit Has Come to Light: Google is Buying Spotify

February 24, 2016 1 comment

Remember when Kara Swisher reported (July 21, 2014):

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.

Thus, the new appointments appear unrelated. And, to be clear, Google’s top execs often join boards of companies, both with corporate ties to them and not.

Swisher then reported one day later (July 22, 2014):

Today — based partly on a previous filing by Google about an unnamed foreign company it tried and failed to buy for $4 billion to $5 billion and a line I had in a story that noted that a top exec at the search giant had expressed interest in buying Spotify — the Journal is reporting that Google tried to buy the music service, but walked away because the price was too high.

Riveting, perhaps — but not so much, again.

According to multiple (I just dialed my little fingers off) sources at both companies, there have been neither formal nor informal discussions between the companies about an acquisition, directly or indirectly.

That said, Spotify co-founder and CEO Daniel Ek has indeed met with Google execs about various and substantive commercial deals at YouTube, Google Play and Android.

Spotify has announced that Google is taking over Spotify’s “infrastructure”:

As a company most often associated with amazing music recommendations and awesome parties (not to mention life-changing employee benefits) [and not to mention shit royalties and stiffing songwriters], it’s rare that we get to talk about the exciting world of technical infrastructure – the real power behind the music – but today is special. Today we are announcing that we’re working with the Google Cloud Platform team to provide platform infrastructure for Spotify, everywhere.

This is a big deal. At Spotify we are obsessed with providing a streaming experience that feels as though you have all the music in the world on your phone. Historically, we’ve taken a traditional approach to doing this: buying or leasing data-center space, server hardware and networking gear as close to our customers as possible. This approach has allowed us to give you music instantly, wherever you are in the world….  

Recently that balance has shifted. The storage, compute and network services available from cloud providers are as high quality, high performance and low cost as what the traditional approach provides. This makes the move to the cloud a no-brainer for us. Google, in our experience, has an edge here, but it’s a competitive space and we expect the big players to be battling it out for the foreseeable future.

What really tipped the scales towards Google for us, however, has been our experience with Google’s data platform and tools. Good infrastructure isn’t just about keeping things up and running, it’s about making all of our teams more efficient and more effective, and Google’s data stack does that for us in spades.  

Here’s my bet–and I’m going out on a limb here–Google is buying Spotify.  Why?  Because it is becoming increasingly apparent that Spotify can’t render a royalty statement with a straight count, has probably never accounted properly to songwriters and is about to be audited by every mothers son.

And if they’re not now, they will be after discovery starts in the two songwriter class action cases brought by songwriters.

Another reason I think Google is buying Spotify is because the tech IPO market is essentially dead for 2016 based on what I see in the markets and hear from friends in that world.  (Check out the “Downround Tracker” reminiscent of fuckedcompany.com.) Spotify is trying to borrow $500 million in debt financing, remember?  The real question is whether Spotify is also issuing IOUs instead of royalties, at least to major labels and publishers.  And if you wonder what happens to those–also known as unsecured debt–check out the Rdio bankruptcy filings.

screen-shot-2016-02-21-at-5-21-06-pm

Which leads one to ask–would Google buy the company direct or would Spotify declare bankruptcy first in an attempt to wash out any copyright infringement claims and completely screw the equity holders–including the much vaunted equity holders among record companies–as well as their artists and every songwriter on the planet.

Another reason I think Google is buying Spotify is the absence of puffery from puffters about how Google is not buying Spotify.

I’m sure all the geniuses in our business anticipated this move, right?  Because we’re not going to allow another MTV to be built on our backs aside from the last ten times we allowed another MTV like, oh say YouTube.

How would you feel about Google being in control of Spotify?  Since Google clearly does not give a rats ass about what artists think of them and intend to continue to sell advertising on pirate sites that they drive traffic to through search among other activities that shock the conscience of everyone who doesn’t work in the Obama White House or Justice Department–they’re a perfect partner for Spotify.

And because ex-Google lawyer Renata Hess runs interference for Google at the Department of Justice and since Google pretty much owns the Federal Trade Commission, there will be no antitrust review of the transaction in the United States.  Europe, of course, is another story.

Remember–on May 12, 2014, Spotify’s director of economics Will Page gave a presentation at the Music Biz Conference in Nashville (hosted by the Google-dominated Music Business Association, formerly known as NARM in a soon to be forgotten day).  As reported by Billboard, Will Page gave the audience a good deal of evidence of Spotify’s domination of the online music market:

Spotify claims to have represented one out of every ten dollars record labels earned in the first quarter….Page’s claim shows the speed at which subscription services are gaining share of the U.S. market. According to IFPI data, all subscription services accounted for 10.2 percent of U.S. recorded music revenue in 2014. If Spotify had a 10-percent share in the first quarter, it’s safe to say the overall subscription share is well above the 10.2 percent registered last year.

These numbers suggest that while Spotify may have a significant share of overall U.S. recorded music revenue, Spotify is clearly dominant in the global subscription market with its now 25 million subscribers and probably is dominant in the U.S. music subscription market.  (Assuming you can believe any of Spotify’s numbers, of course.)

So don’t you think that the European Commission should take a close look at the competitive effects of combining Spotify and YouTube?

But here’s the good news–aren’t you glad that the labels traded away your royalty rate for equity?

Guest Post by Keith Bernstein: Holy GAAP! Publishers Not Getting the Upside

February 22, 2016 Comments off

[Editor Charlie sez: This is a guest post by Keith Bernstein, CEO of Crunch Digital and its sister company Royalty Review Council.  In a nutshell, non-cash components of licensing agreements–like stock–have been a hot topic lately when The Verge “leaked” a copy of Sony’s agreement with Spotify.  Years ago, the statutory streaming mechanical license rules attempted to include the value of shares of stock (or other non-cash consideration) in the “total content cost” of sound recordings.  That way, songwriters would get some of the benefit of the stock, etc.  Keith Bernstein suggests that due to an archaic use of the accounting rules called “GAAP” (Generally Accepted Accounting Principles”), the digital services can cut off that calculation and songwriters will get no benefit at all–shocker.  GAAP deals with issues like depreciation that have little or nothing to do with calculating royalties.  Will the fox put a chicken in every pot?]

I want to bring to your attention something that could be (or probably already is) problematic in Section 115 and the related regulations for the calculation of the amounts owed to publishers for certain streaming royalties.  In short, the concept of a royalty pool for publisher payments that is defined to take into account all cash and non-cash consideration given to record labels (referred to as the applicable consideration in the regulations and known as total content costs” (“TCC”)) appears to accomplish nothing for music publishers – despite the perception that it would when TCC was negotiated and announced a few years ago.

Look closely at the definitions in Section 115 for streaming and the related applicable consideration definitions.   For publishers, wasn’t the intent that there would be a royalty pool that would include all the various forms of consideration—cash and non-cash items such as stock shares given to record labels (hence “Total Content Cost”)?  With the references to GAAP in the way the regulations calculate TCC as we read them it appears that if cash and non-cash items given to labels are not expensed under GAAP by the streaming service, those items are not required to be included in the calculation of the royalty pool for publishers.   If you are a streaming service you are probably not going to elect to expense under GAAP what was given to record labels if it means you can exclude amounts from the TCC.  Excluding non-cash items from TCC has no impact on the labels – but direct impact on publishers.

Here is a story from Billboard in 2012 that outlines the intent of “total content costs”.   The article states:

The use of a total content cost will allow music publishers to potentially partake in whatever upside occurs when music labels negotiate in a free market how much they charge to supply their music to digital music service providers.

 “Also, if a major comes up with a creative deal that includes an equity stake in a digital music service provider or a guaranteed allotment of advertising, those items are assigned a value and included when figuring total content cost, which allows music publishers to participate in such deals.”

What the TCC was meant to accomplish may not actually work in practice.

This brings up two important points:

  1. Why is GAAP referenced in the regulations at all as it relates to TCC?  The answer is probably that most people think that if you throw GAAP in to a provision that it means certain standards and principles will be applied when it comes to royalty calculations and audits.  However, GAAP is not always applicable and can lead to unintended outcomes – and for Section 115 streaming royalties it appears that the reference to GAAP completely undermines the intent of the provision.
  1. Audits.  As you know, there is no audit right under Section 115 licenses. So, you cannot check to see what is actually included in the publisher royalty pool.

This may be one of the reasons behind why U.S. publishers feel that royalty payments from music subscriptions services seem so low – that’s because publishers are probably not getting paid from a royalty pool that they thought was clearly defined to include certain cash and non-cash consideration paid by streaming services to labels.

On a related note, Michael Simon of HFA announced at the AIMP meeting on October 15, 2015 in Los Angeles that HFA is conducting an audit of a subscription service client of theirs to confirm the accuracy of reporting that HFA prepares on their behalf.  Does this mean that HFA is effectively auditing themselves and their client as it relates to the accuracy of the statements that HFA prepares?  Am I missing something?  If true, this is like asking the fox (no pun intended) to do an after action report for the assault on the chicken coop. Chickens? There were no chickens.

If HFA is both (1) performing an audit of their subscription service client and (2) they may have insights from the accounting statements that they prepare for their client, they should be in a better position to know than anyone outside their client what’s being included and excluded from the publisher royalty pool.  (It appears that this HFA audit is one that would not be available under the current version of Section 115 which does not permit audits of statutory licenses—and sheds light on the need to provide an audit right to everyone.)  Michael Simon indicated from the AIMP dais that the audit is underway, so hopefully soon HFA can let music publishers know from their audit if their client is excluding amounts from the TCC that most publishers thought would be included.

How much in royalties have publishers already missed out on?  With revenue from streaming music services predicted to be the dominant source for the music industry in the future I would suggest getting this potential TCC GAAP requirement issue sorted right now.

The Great Triangulator: Whatever Happened with David Lowery’s Spotify Complaint to the NY Attorney General?

February 19, 2016 Comments off

Digital Music News is reporting that David Lowery sent a demand letter to Spotify around December 15, 2015 regarding Spotify’s failure to license some of his songs.  More about that later.

What’s interesting about that is that it suggests that Lowery was getting nowhere with his November 9, 2015 complaint to the New York Attorney General that Spotify was operating a massively infringing music service.  Not being able to get Spotify to address the problem and striking out with law enforcement authorities, Lowery didn’t have much choice.

Realize that Lowery was simply asking the current New York Attorney General to do that which his predecessor had done a decade before.  You can read about it in a press release from the AG’s office:

State Attorney General Spitzer today announced a deal with the nations top recording companies that returns nearly $50 million in unclaimed royalties to thousands of performers.

The agreement comes after a two-year investigation by Spitzer’s office found that many artists and writers were not being paid royalties because record companies had failed to maintain contact with the performers and had stopped making required payments. This problem affected both star entertainers with numerous hit recordings and obscure musicians who may have had only one recording.

As Lowery wrote:

I see no difference between the 2004 situation regarding record companies and the 2015 situation involving digital services.  I think that highly sophisticated and well-funded high-tech digital services like Spotify and Google should be held to at least the same standard as the record companies regarding unpaid royalties if not a higher standard—if licensees don’t know who to pay, then why are they using the music in the first place?

The implication being that at least the record companies owned or distributed the works for which they were not paying royalties unlike Spotify.  Seems pretty reasonable, doesn’t it?  What’s good for the goose, etc.?

Why would the New York Attorney General Eric Schneiderman simply ignore a letter complaining of such foul treatment?  Good question.

Recall that Spotify recently hired political operative Jonathan Prince, who has a long career in New York political circles as well as working in the Clinton White House and State Department–but also being the campaign manager for New York State Controller Bill Thompson‘s run for Mayor of New York as reported in the New York Times.

Jonathan Prince will be Mr. Thompson’s chief campaign strategist and manager. A former campaign adviser and speechwriter for President Clinton, he worked as the national deputy campaign manager for John Edwards’s 2008 bid, and more recently served as a top State Department official, focusing on the Middle East. A longtime Manhattan resident, Mr. Prince also worked on Fernando Ferrer’s unsuccessful 2005 race against Mr. Bloomberg.

And guess who endorsed Eric Schneiderman for Attorney General?

You don’t suppose…

That’s the same Eric Schneiderman who opened a short lived investigation into Apple Music the week Apple launched their streaming service competitor to Spotify.  But he can’t manage to respond to David Lowery.

You don’t suppose….

Spotify Strikes Out Again

February 18, 2016 Comments off

MTP readers will remember that David Lowery sued Spotify for failing to license, account and pay mechanical royalties for David’s songs as well as those of a potential class.  Naturally the early maneuvering in Spotify’s response to the case has to do with whether a class action is the appropriate vehicle for pursuing what appears to be Spotify’s massive infringement of songs.

Recall that there was another class action filed by Melissa Ferrick, a songwriter.  Melissa’s lawyers also represent The Turtles aka Flo & Eddy in their unrelated lawsuit against SiriusXM and Pandora for infringing pre-72 recordings.  (That case is still proceeding although the major labels settled outside of the class for $210 million against SiriusXM and $90 million against Pandora, for a total of $300 million–a number evenly divisible by…let’s see…Sony, Universal, Warner…3.)

Spotify’s papers in their Motion to Strike contain this chunk which kind of jumped out at me:

Plaintiff may seek to rely on a recent decision by another judge of this Court granting class certification in a copyright case. But that decision, Flo & Eddie, Inc. v. Sirius XM Radio, Inc., 2015 WL 4776932 (C.D. Cal. May 27, 2015), is incorrect. But more importantly, it is readily distinguishable.

That is an odd little passage.  First of all, it is the classic straw man argument–Lowery’s lawyers never raised the Turtles case in their complaint against Spotify.  At all.  It’s almost like the lawyers are planning to do a cut and paste job on this pleading to use against Melissa’s lawyers or maybe left the language in the Lowery motion by mistake.

But the oddest thing about the passage is that they say that the Turtles case–decided by a judge in the same courthouse where Spotify is fighting the Lowery case–“is incorrect.”  That is very strange.

However inartful the words may be, if you were going to say something so broad and sweeping that puts you squarely in opposition to fairly compensating Aretha Franklin, the heirs of Duke Ellington and many others, you would expect that “is incorrect” would be followed by some kind of citation or at least an argument.  I read that passage about 20 times trying to figure out what I was missing, but I’ve come to the conclusion that I’m not missing anything.

These New York lawyers actually said that a Court’s considered decision is incorrect.  Not over reaching, not too broadly stated, not anything except “incorrect.”  Note that the “incorrect” statement is followed by “it is readily distinguishable.”  What one would have expected to see was something like “the Flo & Eddie decision is readily distinguishable,” followed by the argument for why the Flo & Eddie case may appear to apply to the case at bar but can be shown not to.

Not the bald statement that a case that has not been raised against Spotify so far by anyone  is both “incorrect” and “distinguishable.”  Distinguishable is done all day every day in the law.  “Incorrect”–particularly when said to a judge about the ruling by another judge (especially in the same courthouse) is just bizarre.  And, frankly, in my opinion, rather rude.

 

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