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A Guide to the Department of Justice Ruling on “100% Licensing”

December 11, 2017 Leave a comment

[Editor Charlie sez:  This is a repost of the original from September 2016 in light of the recent appeal by the Department of Justice.]

By Steve Winogradsky and Chris Castle, all rights reserved.

The recent ruling by the U.S. Department of Justice in United States v. Broadcast Music, Inc. and United States v. American Society of Composers, Authors and Publishers has left many songwriters, publishers, motion picture and television producers and, yes, even lawyers scratching their heads to understand the import of the ruling.  Not to mention Texas Governor Greg Abbott who has written to Attorney General Loretta Lynch asking her to reconsider the DOJ ruling.

The authors have summarized the ruling in the chart that follows.  The thing speaks for itself.

As you will see, the left hand column lists the various roles of a music creator (starting with “Songwriter”) or music user.  The rows describe some of the potential combinations of co-writers who will run afoul of the DOJ’s ruling.  The chart is followed by a list of descriptions of what rule will apply to your situation.

If you find yourself in the left hand column, scan across the rows to see if you fit in any of the co-writer positions.  Then look for which note applies to you in the list of notes below the chart.

For example, if you are an ASCAP songwriter who has co-written with a BMI songwriter (1st box in column and 6th row across), Note E applies to you.

This chart is based on the authors’ interpretations of the DOJ’s statement and is not dispositive or based on a court ruling as there has been none as of this writing.  Obviously, this is not meant as legal advice and you should not rely on it.  This is a complex area that has gotten even more complex, and you should consult with your own lawyers.

For further background, listen to the MTP podcast with Steve Winogradsky, David Lowery and Chris Castle and read Steve’s book Music Publishing–the Complete Guide.  And essential reading on the issue is that evergreen resource for legal research on takings and other government behavior in the digital age, The Trial, by Franz Kafka.

By popular demand, download a copy of this post with the chart here.

 

100% ASCAP or 100% BMI (single writer or all co-writers belong to the same PRO) 100% SESAC and/or GMR

(single writer or all co-writers belong to one of these PROs)

100% Foreign PRO/ASCAP Collects in US 100% Foreign PRO/BMI Collects in US Co-write

ASCAP & BMI

Co-write ASCAP or BMI with Other U.S. PRO Co-write foreign writers, where 1 is represented in the U.S. by either ASCAP or BMI and the 2nd is represented by a different PRO
Songwriter Note A, below Note B, below Note A, below Note A, below Note E, below Note E, below Note E, below
Publisher Note A, below Note B, below Note A, below Note A, below Note F, below Note F, below Note F, below
TV Producer Note C, below Note B, below. Note C, below Note C, below Note G, below Note G, below Note G, below
Film Producer Note C, below Note D, below Note C, below Note C, below Note G, below Note G, below Note G, below
Webcaster Note A, below Note B, below Note A, below Note A, below Note G, below Note G, below Note G, below
TV Broadcaster Note A, below Note B, below Note A, below Note A, below Note H, below Note H, below Note H, below
Radio broadcaster (terrestrial or satellite) Note A, below Note B, below Note A, below Note A, below Note I, below Note I, below Note I, below
Interactive Streaming (Subpart B&C) Note A, below Note B, below Note A, below Note A, below Note J, below Note J, below Note J, below

Notes

A. All songs may be licensed under either ASCAP or BMI’s blanket licenses

B. All songs may be licensed under both SESAC and GMR’s blanket licenses

C. Obtain synchronization licenses from each party for their respective shares, as is current custom and practice. All songs may be licensed under either ASCAP or BMI’s blanket licenses

D. Obtain synchronization licenses from each party for their respective shares, as is current custom and practice. All songs may be licensed under both SESAC and GMR’s blanket licenses

E. Songs may not be licensed under a blanket license from ASCAP or BMI unless the co-writers agree to have only one PRO administer a particular song, which may require restructuring their co-writer agreement and PROs setting up a structure for paying non-member writers. Depending on their songwriter/publisher agreements, writers could issue direct licenses to users upon request and collect performance royalties directly

F. Songs may not be licensed under a blanket license unless the co-publishers agree to have only one PRO administer a particular song, which may require restructuring their co-publishing agreement and PROs setting up a structure for paying non-member writers & publishers. Publishers could issue direct licenses to users upon request (which might include the writer’s share) and collect performance royalties directly

G. Obtain synchronization licenses from each party, as is current custom and practice. Songs may not be licensed under a blanket license unless the co-publishers agree to have only one PRO administer a particular song, which may require restructuring their co-publishing agreement. TV, film or webcaster producer could request directly performance licenses and pay parties directly. If no direct licenses are available and songs are not covered under the blanket license, producer may not include songs in their productions.

H. Songs may not be licensed under a blanket license unless the co-publishers agree to have only one PRO administer a particular song, which may require restructuring their co-publishing agreement. Broadcaster can either require TV & film producers to obtain direct licenses or broadcaster can obtain them directly from publishers (which would include the writer’s share of royalties. If no direct licenses are available and songs are not covered under the blanket license, producer may not include songs in their productions.

I. Songs may not be licensed under a blanket license unless the co-publishers agree to have only one PRO administer a particular song, which may require restructuring their co-publishing agreement. Broadcaster can obtain direct licenses from publishers (which would include the writer’s share of royalties). If no direct licenses are available and songs are not covered under the blanket license, broadcaster may not include these songs in their broadcasts.

J. Songs may not be licensed under a blanket license unless the co-publishers agree to have only one PRO administer a particular song, which may require restructuring their co-publishing agreement. Streaming service can obtain direct licenses from publishers (which would include the writer’s share of royalties). If no direct licenses are available and songs are not covered under the blanket license, broadcaster may not include these songs in their streaming service.

 

 

@krsfow: @theblakemorgan on The Future of What Podcast Talks #IRespectMusic

December 8, 2017 Leave a comment

A real treat, Portia Sabin talks with Blake Morgan about the #irespectmusic campaign and more, two of my favorite people on the best music business podcast!

 

Must Read Post by @rhettmiller: The Loneliness of the Long Distance Rocker

December 7, 2017 Leave a comment

Rhett Miller’s important “meet the new boss, worse than the old boss” critique.

In the days of the old business model, there were successful predators at the top of the food chain, but the kids who made the music were hiding down in the bushes with our friends. The local model of music delivery, unlike the giant streaming info-combines that lord over today’s music world, had a strikingly flat hierarchy of striving characters: the club owners, record store clerks, college radio DJs, and rock critics who owed a thousand words to the local weekly. At closing time on any given night in the ’90s you could find any or all of these satellite scenesters mixed in among the proper musicians at the Art Bar in Dallas, behind Club Clearview. We all knew that there was a cutthroat cabal of music industry execs waiting on the top floor of a tower in Rockefeller Center to offer us a lopsided contract, but we also knew that we were the good guys, the proletariat to their bourgeoisie, the Rebel Alliance to their Empire. We had each other’s back. The worst thing we could be expected to do was steal a girlfriend from one of the Buck Pets or envy the Toadies their unexpected national radio play. Those were, as they say, the days.

The Talent Scouts are Bots

It’s all different now. My own observation of the current music industry is colored by my history with the extinct model. I can’t begin to imagine what it must be like to come up in this world of SoundCloud rappers and Swedish hit factories churning out auto-tuned EDM or whatever. Believe me, I’m keenly aware that even these two meager examples must make me sound impossibly old. My point is that if I was a fourteen-year-old depressive nowadays, I’m not sure what would even draw me into the world of music to begin with. The ability to record oneself in a bedroom represents an impressive flash-forward advance in technology, but it also is profoundly isolating. For starters, it negates the very human necessity of convincing small-time investors to fund a session, or the simultaneously joyful and agonizing experience of collaborating with the requisite technicians to make such a recording happen. In short, it eliminates people from the equation. And more to the point, it eliminates all the good people from the equation.

You’ve still got the execs in the tower in Rockefeller Center—only now all the lower floors that used to house the junior execs and the young A&R kids are crammed with barbed wire and land mines. The Artists & Repertoire department has been replaced by a bot that alerts the label chief when an artist reaches a predetermined number of Twitter followers or Facebook likes. This sort of micro-market calculation was once anathema to creativity—it’s the origin of the old punk-rock contempt for “the suits” who moved product on the AM airwaves. Today, however, an obsessive attention to online clicks and listens is all that an independent artist can rely on to outfox the system. Writing a song might now be less important to your success than paying for a hundred thousand imaginary account holders to follow you on social media.

Read the post on The Baffler

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Holiday Reading List

December 4, 2017 Leave a comment

Every now and then some of you ask me about suggested reading.  These questions tend to fall about now or before the summer, so here’s some ideas by topic in no particular order.  You can find them all at Book People or at your local independent bookseller.  (You don’t need to buy them from Amazon and I for one would prefer you didn’t.)

Technology

Irresistible: The Rise of Addictive Technology and the Business of Keeping Us Hooked by Adam Alter

The Future of Violence by Benjamin Wittes and Gabriella Blum

The Imagineers of War by Sharon Weinberger (a history of DARPA)

Weapons of Math Destruction by Cathy O’Neil

China

The Hundred-Year Marathon by Michael Pillsbury

On China by Henry Kissinger

North Korea

Nuclear Showdown by Gordon Chang

Escape from Camp 14 by Blaine Harden

The Aquariums of Pyongyang by Chol-hwan Kang

Contemporary Middle East and South Asia

ISIS: Inside the Army of Terror by Michael Weiss and Hassan Hassan

Ghost Wars by Steve Coll

The Siege of Vienna by John Stoye

The Perfect Kill: 21 Laws for Assassins by Robert Baer

The Seven Pillars of Wisdom by T.E. Lawrence

Fiction

Greenmantle by John Buchan

The Man Who Was Thursday by G.K. Chesterton

The Quiet American by Graham Greene

Military

My Share of the Task by GEN Stanley McChrystal

Cochrane: The Real Master & Commander by David Cordingly

Seize the Fire: Heroism, Duty and the Battle of Trafalgar by Adam Nicholson (probably the best short book on Nelson and Trafalgar)

 

@profgalloway: Must See Presentation by NYU Professor Scott Galloway on “The Four Horsemen”

December 3, 2017 Leave a comment

A deep and prescient 2015 presentation by NYU Professor Scott Galloway, who predicted the Amazon/Whole Foods acquisition.

“Facebook will disrupt YouTube…”

The Information’s Expose on Google’s Hostile Work Environment is a Cry for Corporate Reform

December 1, 2017 2 comments

“All animals are equal, but some animals are more equal than others”

Animal Farm: A Fairy Story by George Orwell

The Information has conducted an extensive review of Google’s apparently hostile work environment and one thing is clear–all the stories we heard about Google’s headman, Eric “Uncle Sugar” Schmidt really have had the predictably corrosive effect.

The romantic relationships within the walls of Google made ideal fodder for gossip columns and magazine profiles.

Co-founder Larry Page dated Google lieutenant Marissa Mayer in the company’s early days, and co-founder Sergey Brin later drew attention for dating Amanda Rosenberg, a younger colleague. CEO Eric Schmidt dated publicist Marcy Simon when she did work for Google. The stories had sex, money and power against a backdrop of one of the world’s largest tech empires. It was like something out of a rebooted soap opera—Dynasty 2.0.

But an examination by The Information found that those interoffice relationships, and others featuring some of the company’s top leaders, have for years been a flashpoint of frustration and anger among Google’s employees. The relationships often violated at least the spirit of a company policy that prohibits superiors from secretly dating subordinates. But employees noted that there had been no apparent repercussions for the powerful, mostly male, leaders who had such relationships.

As a result, many Google employees expressed the opinion that the company’s culture appears to tolerate, or even endorse, such workplace relationships. In interviews with nearly 40 current and former Google employees, many said the issue had tainted the perception of women who earn promotions, created uncomfortable encounters at off-site events and had raised concerns over whether human resources would address inappropriate conduct. Some described their own experiences with sexual harassment at the company.

And it goes on from there.  While you may ask, where was the board, the Google board of directors was actually exactly where Uncle Sugar wanted them to be:  In the words of the Rolling Stones’ classic, under his thumb.

of-all-the-ceos-google-interviewed-eric-schmidt-was-the-only-one-that-had-been-to-burning-man-which-was-a-major-plus

Eric “Uncle Sugar” Schmidt at Burning Man

The Roman dictator Sulla is credited with originating the practice of decimatus from which we derive the word “decimation”.  The practice was military in origin and was a punishment meted on a Roman cohort often for the dishonor of the unit such as mutiny or abandoning the line.  The cohort (about 500 men) was divided into groups of 10 and each group drew lots to identify a single soldier to be killed by the others, usually clubbed to death.

Google practices a kind of reverse decimation as the three Google insiders Eric Schmidt, Larry Page and Sergei Brin are the only Google stockholders who are allowed to hold a class of stock that gives them 10 votes for each share.  And extending the Roman motif, holding this 10:1 voting power over other Google stockholders affords them a kind of co-emperor status–for you Roman Empire fans, think Diocletian and Maximian.  I guess you could say that Schmidt is the senior co-emperor and Page and Brin are the junior co-emperors.

But co-emperors they are indeed with a 10:1 power to decimate the lesser stockholders who dare challenge them.

The futility of stockholder votes at Google is obvious at Google stockholder meetings where ordinary stockholders are routinely decimated by the 10:1 voting power of the co-emperors.  The predictable results of the voting are often announced by David Drummond, the company’s head lawyer, who is himself implicated in The Information’s report.

So when you are reading The Information’s report on the internal workings of Google, just remember that not only were the employees captive to the Google culture, the perpetrators also had complete control of their board of directors.  In addition to the other takeaways from this sorry episode, it should be obvious that not only should Google be broken up, but the Google method of insider control needs to be thoroughly investigated.

@TaylorSwift13 Thinks Outside the Stream to Bridge the Value Gap

November 25, 2017 Leave a comment

There are several myths about streaming, but none so prevalent as the “savior” trope, which streaming services are doing their best to splice into the DNA of the music business.  Without streaming, we are told, then piracy: “Streaming stops piracy”.  Piracy, of course, is a constant, and is factored into sales these days as a limiting factor.  Also factored in is the cost of the faux legality of piracy on DMCA-protected services which also must be managed in order for windowing to work.

Streaming is now baked into the charts, which is the first step to becoming a self-fulfilling prophecy: “Streaming is radio”.  Artists must stream or be lost:  “Windowing punishes fans” (just like selling albums “punishes” fans).

All these myths ignore the basic proposition that windowing, exclusives and other contract based rights are simply ways to divide up our property rights–no more, no less.  And contracts take two to tango–if the deal is bad, no one will take it which undermines the myth.  And like all myths that fall apart when reality diverges from dogma, the curia fights back.

Given Spotify’s monopoly, or certainly dominant, position in their streaming market, it should not surprise that they push all of these myths, and they seem to do it like clockwork whenever Taylor Swift releases a new album.  Why?  Because Taylor Swift has four–count ’em–four albums that sold over one million copies in their first week of US release.  And–she’s the only artist ever to have done so.  And–she windowed every one of them, pre and post Spotify’s US launch.

Title Year Sales
Reputation 2017 1,290,000
1989 2014 1,287,000
Red 2012 1,208,000
Speak Now 2010 1,046,000

Let’s be clear–any distributor getting a Taylor Swift record in the fourth quarter sure makes up for a multitude of commercial sins in their year.  At least that’s true of profit-making companies whose executives actually have consequences for commercial sins.  Loss-making companies, on the other hand, are not motivated by pesky things like profits if they are on the “get big fast and exit” track.  You may say, oh, that’s so 1999, surely they have learned their lessons from the Dot Bomb debacle.

Nah.

The exit is still the thing for these venture backed tech companies.  The problem with exits is that the people who are only in it for the money move on to self-driving cars, climate default swaps, bitcoin or whatever.  People who are in it because they love it are stuck with the consequences.  The music business will be picking up the pieces from the streaming exit for decades because of a simple logic:  You cannot take away something that sold at a $10 price point and replace it with something that “sells” at a $0.005 price point and expect to have a business.  Remember–the trendline since 2008 is predominantly flat so while streaming may be a bigger piece of the pie, the pie itself is not growing much.  That’s cannibalization.  We’ll see how much that trend changes this year–and how much of that change is Taylor Swift.

Recorded Music 1973-2016

Source: RIAA

It must be said that there’s a real question of how many Taylor Swifts the business will sustain going forward if we don’t listen to the lesson she is teaching for those who care to pay attention and think outside the stream.

Remember that salted in the 1,290,000 units that reputation sold in week 1 are quite a few units that were sold as a fan package on an exclusive–there’s that word again–at a higher price point than the general release CD.  That should mean that the gross revenue to the distributor conservatively averages around $8 after discounts or something like $10 million in distributor gross for the week (in the US alone).

Producing that amount of streaming revenue would require approximately 2,000,000,000 streams in a week depending on whose average streaming royalty you buy into.  “Call It What You Want”, Taylor’s first single from reputation, entered HITS song revenue chart at #4 with 9,259,698 streams earning $66,186 (a chart with revenue metrics I have a quibble with due to averaging of free/sub streaming revenue, but that’s another subject).

Regardless of the underlying math, you can see that there is no way that streaming is going to put much of a dent in the revenue from the physical release.  If you are in a future oriented profit making business and not an exit oriented loss making business, you like those numbers.  Why?

Because it tells you that you could probably keep doing this for a while.  That’s called a career, and it’s what managers were supposed to foster.

How was this received at the dominant streaming platform?  Spotify hired the former Lady Gaga manager, Troy Carter, as its “global head of creative services” reporting to one Stefan Blom.  (Mr. Blom was formerly chairman at EMI Nordic, but songwriters will recognize Mr. Blom as the Spotify executive who can’t seem to find millions of songwriters despite Spotify’s vast technical abilities and signs Spotify’s “address unknown NOI” filings with the Copyright Office denying royalties to millions of songs.)

Mr. Carter did not take well to Taylor Swift’s decision to hold the reputation album off of Spotify (notwithstanding reports of Spotify’s recent agreement to accept windowing as a condition of closing its Universal license).  Variety reports:

Taylor Swift’s decision to keep her new album “Reputation” off streaming services like Spotify will drive people back to piracy, said Spotify’s global head of creator services Troy Carter at the Internet Association’s Virtuous Circle Summit Monday morning. [The Internet Association is antagonistic to artists as a general proposition.]  “A lot of it is going to be pirated,” he said. “It kind of sets the industry back a little bit.”

However, Carter also said that he understood Swift’s decision: “Taylor is super smart. We are not mad at her for the decision she made,” he said. Swift and Adele, who sold millions of copies of her “25” album while waiting seven months to release it to streaming services, are among the few artists who can withhold an album from such platforms without significantly impairing its exposure.  [Emphasis mine–note the “among the few” rationalization of the “streaming is inevitable” narrative.  If you shame everyone away from windowing, how will you ever know that it’s a “few”?]

Carter, who managed artists including Lady Gaga and Meghan Trainor before joining Spotify in 2016, was also critical about the music industry’s past business model. “We screwed over consumers for years,” he said, arguing that consumers were forced to buy highly priced albums for years that only included one or two songs they wanted. Carter drew a direct line from this attitude to exclusives on streaming services.

So we have Mr. Carter trotting out several myths at once here–although it must be said that Mr. Carter’s former employer from 2007-2013 is herself not without experience in the rarified air of the First Week Million Club–Lady Gaga herself has one record in that group with her 2011 release, Born This Way.  Of course, with its May 23, 2011 release, Lady Gaga did not have to address the Spotify new release windowing issue as the service had not yet launched in the US at that time.

Even though Mr. Carter was clearly wide of the mark with his advice to Taylor Swift, his messaging was a vast improvement over Daniel Ek’s mansplaining to Taylor on 1989 which was one of the more bizarre public encounters between an artist and a retailer in history.  Can you imagine Tower Records chief Ross Solomon saying any of these things in public?

I still hold the view that the windowing issue changes depending on whether the artist concerned has a fan base that wants their physical record.  If they do, then streaming services become like record clubs.  Nobody ever wanted the clubs to get their record until they’d had at least a 90 day holdback, more frequently 6 months or even a year.  So it is with streaming services, including Spotify.

The bigger questions are what effect windowing has on the ability to sell physical at all.  I’m still waiting to see the consumer research suggesting one drives the other, and based on industry revenues over time, it seems far more likely that streaming cannibalizes physical.  Another question is how much elasticity is there in the subscription price?  If we are expected to welcome low margin streaming as a replacement for higher margin physical and downloads, please don’t tell me that the answer is we’ll make it up on volume, t-shirts or touring.

For now, we have to acknowledge that for artists who anticipate large sales of physical and permanent downloads, singles-only streaming releases combined with physical sales is probably the principal way their distributor can afford to breach the value gap and send enough DMCA notices to keep the album off of YouTube.

 

 

 

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