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Why Creators Should Care About Google v. Oracle in the Supreme Court–@artistrights Watch

November 26, 2019 Comments off

There’s a case shaping up in the U.S. Supreme Court that I haven’t paid too much attention to–but suddenly realized it’s something we should all care about because it could set precedent for fair use cases for decades to come:  Google v. Oracle.

[MTP readers will remember the Oracle case because Judge William Alsop required the parties (provoked by Google shills) to file with the Court a list of the then-current “advocacy” groups Google paid that were also engaged in commentary about the case to affect public opinion.  We styled this filing the “Google Shill List” and it has been a useful resource that includes many of the same amici in the current SCOTUS appeal such as EFF, Jonathan Band, Public Knowledge, Engine Advocacy, CCIA, and so on to include the cozy and dedicated group of likeminded people dancing to Google’s tune.]

On the surface, the case is about the Java software code and certain Java libraries developed by Sun Microsystems, later acquired by Oracle.  But digging a little deeper it is also about Google’s obsession with “permissionless innovation”, Newspeak for “theft.”  And when I say “Google”, I don’t really mean Google as a company.  I mean the insiders.  This because of Google’s governance and dual class structure that gives Larry Page, Sergei Brin and Eric Schmidt control over the company and the ability to waste the shareholders money settling claims for their bad behavior and terrible management (such as $500 million for violating the Controlled Substances Act and billions in fines for competition law violations around the world)–and now this Oracle case.

So we will refer to “Google” but really we’re talking about the Google ruling class with 10:1 voting power: Larry, Sergei and Eric.

How did Google get sued by Oracle and not Sun?  According to Google’s SCOTUS brief (at 3):

Sun originally applauded Google for using the Java language. But after Oracle acquired Sun, it sued Google for copyright infringement.

Let’s not just blow past that statement.  (First of all, it’s not really true.)  That one sounds like Google would like to cut back the ability of a copyright owner to decide when and where to enforce their rights, including a subsequent purchaser of copyrights.  Because Sun, you see, were behaving like right thinking boys and girls, and then the evil ones came along to challenge Google the Sun God…or something like that.  Or said another way, 2+2=5.  And don’t you forget it.

You can see that Google would like to push that angle.

If, for example, a music publisher lacking the means to sue Google for infringing their catalog was later acquired by someone with the means to do.  That buyer then sues Google for those pre-acquisition infringements.  A ruling for Google in the current SCOTUS appeal could easily send a message that protects Google’s massive infringement through search, YouTube and God knows what else.

But at the heart of the Google infringement of Oracle’s copyrights is the “verbatim” copying of certain Java code into the Java-based Android systems.  As the amicus brief by the United States  tells us, one of the questions presented to SCOTUS is:

Whether the court of appeals correctly held that no reasonable jury could find that petitioner’s verbatim copying of respondent’s original computer code into a competing commercial product was fair use….

[Google] created much of the Android library from scratch. For 37 of the 168 packages included in the Android library, however, [Google] copied the Java declaring code verbatim, while writing its own implementing code.

As we have joked for years, Google thinks a fair use is when a YouTube user makes a verbatim copy of a television program or concert and posts it on YouTube in a different file format–you know, transformative.  Which is, of course, fair use.  Or was it a parody, I forget.

The brief by the United States disagrees, and so do I.

So let’s be clear:  This case is about Google getting away with verbatim copying that they then commercially exploit as only Google can.  And then scream fair use.

You have to wonder why SCOTUS took this case.  I suspect it has something to do with this absurd “transformative use” theme we have seen Google use again and again and again.

 

The Return of 100% Licensing and the Expansion of the Blanket License

November 21, 2019 Comments off

Who can forget the nightmare of the Justice Department’s counterproductive flirtation with 100% licensing the last time the DOJ reviewed the consent decrees.  (We covered the 100% licensing head fake in a podcast and a guide to 100% licensing.)

Since then, the Congress passed the Music Modernization Act, which includes a massive overhaul of the mechanical licensing system which is currently the subject of an implementing rule making.  What does the MMA have to do with the PRO consent decrees?

More than you might think.  If you recall, one of the big justifications for supporting the MMA legislation that did not include a terrestrial performance right for sound recordings was due to the lobbying firepower opposing the terrestrial right.  We were told that artists were never going to win the terrestrial right (which is what the #irespectmusic campaign is all about) so we should just give up and think of England, so to speak.  Or more precisely, support the MMA.

If you drill down on Title I of the MMA (which creates the Mechanical Licensing Collective, etc.), what it does at a high level is create a compulsory license for certain activities, a global rights database, and a regulatory authority for all of the above.

Note–“certain activities.”  At the moment, those activities are limited to digital phonorecord deliveries, including on demand streaming, limited and permanent downloads.

But–guess what?  Those activities could be expanded to include compulsory blanket licenses for other exploitation rights of songs, like general licensing (bars, hotels, restaurants), broadcasting and anything else the lobbyists can jam through.  All administered by the Mechanical Licensing Collective, which if such an amendment comes to pass probably would have to change its name to something catchier like, you know, Skynet.

And remember, we don’t stand a chance against these lobbyists, right?  Remember?  Now whoever saw that coming?  And how might the lobbyists get involved with a DOJ consent decree review?  Well, because of what I call “Title IV,” which is the provisions of Title I that relate to Congressional approval of any consent decree reform for the PROs and a couple other things the PROs wanted.  (Congressional review because you have to keep an eye on the anticompetitive leanings of those pesky songwriters against MIC Coalition members with a $5 trillion market cap.)  So who are these masterminds and lobbyists?  (There is no actual Title IV by the way, that’s just a teaching tool.)

MIC Coaltion Members 2019

The MIC Coalition

Billboard reports that we’re not the only ones worrying about this angle:

Sources further say the PROs and some songwriter groups both fear that if the issue goes to Congress [under Title IV], the music business will face several industries with more lobbying power than themselves, all intent on getting legislation for a compulsory license. Even worse, music licensees would also likely push for the law to include 100% licensing — meaning only one songwriter’s consent would be needed for a song to be used— an outcome which publishers, songwriters and PROs have described in the past as a disaster.

But don’t worry, the smart people will figure this out.  Don’t bogart the popcorn.

@musictechsolve: Defiance or Collaboration? The Role of the Presidential Signing Statement in MLC Board Appointments

November 20, 2019 Comments off

[This post first appeared on MusicTech.Solutions]

Even though they have a long history, Presidential Signing Statements are not exactly front and center in every civics class or constitutional public law class in America.  You may be hearing about them for the first time now.  But that doesn’t mean they have not been an important part of Constitutional law-making and jurisprudence.

Presidential Signing Statements were first used by President James Monroe in 1822 in the form of a “special message” to the Senate. Presidents Andrew Jackson, John Tyler and Ulysses Grant also issued signing statements, but they were used infrequently until the 20th Century.  Then their use picked up quite a bit starting with President Theodore Roosevelt and continuing to the present day.  So the use of Signing Statements is quite bipartisan.  While Signing Statements may not themselves have any actionable legal effect, they should not be ignored, either.  As the MMA’s Signing Statement relates directly to corporate governance and accountability (one of our pet topics on MTP as applied to what SEC Commissioner Robert Jackson called “corporate royalty” at Spotify, Google, WeWork, Facebook and others), this post may be of interest on an issue that has not been covered by the music press.

The MMA Presidential Signing Statement

Not surprisingly, there is a Presidential Signing Statement accompanying the Music Modernization Act (“MMA”) specifically relating to Title I and at that specifically relating to the MLC board appointments.  The relevant language is:

One provision, section 102, authorizes the board of directors of the designated mechanical licensing collective to adopt bylaws for the selection of new directors subsequent to the initial designation of the collective and its directors by the Register of Copyrights and with the approval of the Librarian of Congress (Librarian). Because the directors are inferior officers under the Appointments Clause of the Constitution, the Librarian must approve each subsequent selection of a new director. I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors.

Let’s explore why we should care about this guidance.

According to Digital Music News, there have been changes at the Mechanical Licensing Collective, Inc. (“MLCI”) the private non-profit permitted under Title I of the MMA:

[I]t appears that two separate MLC board members are jumping ship.  The details are just emerging and remain unconfirmed, though it appears that two members — one representing indie songwriters and the other on the publishing side — are out of the organization.

Because the board composition of MLCI is preemptively set by the U.S. Copyright Act along with many other aspects of MLCI’s operating mandate, the question of replacing board members may be arising sooner than anyone expected.  As MLCI is a creature of statute, it should not be controversial that law-makers play an ongoing role in its governance.

The Copyright Office Weighs In

The Copyright Office addressed board appointments for MLCI in its first request for information for the designation of the Mechanical Licensing Collective (83 CFR 65747, 65750 (December 21, 2018) available at https://www.govinfo.gov/content/pkg/FR-2018-12-21/pdf/2018-27743.pdf):

The MLC board is authorized to adopt bylaws for the selection of new directors subsequent to the initial designation of the MLC. The Presidential Signing Statement accompanying enactment of the MMA states that directors of the MLC are inferior officers under the Appointments Clause of the Constitution, and that the Librarian of Congress must approve each subsequent selection of a new director. It also suggests that the Register work with the MLC, once designated, to address issues related to board succession.

When you consider that MLCI is, for all practical purposes, a kind of hybrid quasi-governmental organization (or what the Brits might call a “quango”), the stated position of the President, the Librarian of Congress and the Copyright Office should not be surprising.

Why the Controversy?

As the Songwriters Guild of America notes in comments to the Copyright Office in part relating to the Presidential Signing Statement (my emphasis):

Further, it seems of particular importance that the Executive Branch also regards the careful, post-designation oversight of the Mechanical Collective board and committee members by the Librarian of Congress and the Register as a crucial prerequisite to ensuring that conflicts of interest and bias among such members not poison the ability of the Collective to fulfill its statutory obligations for fairness, transparency and accountability.

The Presidential Signing Statement, in fact, asserts unequivocally that “I expect that the Register of Copyrights will work with the collective, once it has been designated, to ensure that the Librarian retains the ultimate authority, as required by the Constitution, to appoint and remove all directors.”

SGA regards it as a significant red flag that the NMPA-MLC submission to the Copyright Office devotes the equivalent of ten full pages of text principally in attempting to refute this governmental oversight authority, and regards the expression of such a position by NMPA/MLC as arguably indicative of an organization more inclined towards opaque, insider management control than one devoted to fairness, transparency and accountability.

So the Presidential Signing Statement to the MMA is obviously of great import given the amount of ink that has been spilled on the subject.  Let’s spill some more.

How might this oversight be given effect and will it be in the public record or an informal process behind closed doors?  Presumably it should be done in the normal course by a cooperative and voluntary collaboration between the MLC and ultimately the Librarian.  Minutes of such collaboration could easily be placed in the Federal Register or some other public record on the Copyright Office website.  Failing that collaboration, it could be done by either the Department of Justice (unlikely) or by individuals (more likely) asking an Article III court to rule on the issue.

Of course, the issue should not delay the Copyright Royalty Judges from proceeding with their assessment determination to fund the MLC pursuant to the controversial voluntary settlement or otherwise.  One could imagine an oversight role for the CRJs given that Congress charged them with watching the purse strings and the quantitative implies the qualitative.  The CRJs have until until July 2020 to rule on the initial administrative assessment and appeal seems less likely today given the voluntary settlement and the elimination of any potential objectors.

Since the Title I proponents drafted the bill to require a certain number of board seats to be filled by certain categories of persons approved by Congress in a Madisonian balance of power, the Presidential Signing Statement seems well grounded and furthers the Congressional mandate.

Yet there is this conflict over the Presidential Signing Statement.  What are the implications?

A Page of History is Worth A Volume of Logic

The President’s relationship to legislation is binary—sign it or veto it.  Presidential Signing Statements are historically used as an alternative to the exercise of the President’s veto power and there’s the rub.

Signing Statements effectively give the President the last word on legislation as the President signs a bill into law.   Two competing policies are at work in Presidential Signing Statements—the veto power (set forth in the presentment clause, Article I, Sec. 7, clause 2), and the separation of powers. 

Unlike some governors, the President does not enjoy the “line item veto” which permits an executive to blue pencil the bits she doesn’t like in legislation presented for signature.  (But they tried–Line Item Veto Act ruled unconstitutional violation of presentment clause in Clinton v. City of New York, 524 U.S. 417 (1998).) The President can’t rewrite the laws passed by Congress, but must veto the bill altogether.  Attempting to both reject a provision of a new law as unconstitutional, announce the President’s intention not to enforce that provision AND sign the bill without vetoing it is where presidents typically run into trouble.

Broadly speaking, Presidential Signing Statements can either be a President’s controversial objection to a bill or prospective interpretive guidance.  Signing Statements that create controversy are usually a refusal by the President to enforce the law the President just signed because the President doesn’t like it but doesn’t want to veto it.  Or to declare that the President thinks the law is unconstitutional and will not enforce it for that reason—but signed it anyway.

The President can also use the Signing Statement to define or interpret a key term in legislation in a particular way that benefits the President’s policy goals or political allies.  President Truman, for example, interpreted a statutory definition in a way that benefited organized labor which was later enforced by courts in line with the Signing Statement.  President Carter used funds for the benefit of Vietnam resisters in defiance of Congress, but courts later upheld the practice—in cases defended by the Carter Justice Department.  The practice of using Presidential Signing Statements is now routine and has been criticized to no avail for every administration in the 21st Century including Bush II, Obama and now Trump.

Since the 1980s, it has become common for Presidents to issue dozens if not hundreds of Presidential Signing Statements during their Administration.  So it should come as no surprise if the Department of Justice drafted up the statement for the MMA prior to it being presented to the President to be signed into law.  (See the American Presidency Project archives https://www.presidency.ucsb.edu/documents/presidential-documents-archive-guidebook/presidential-signing-statements-hoover-1929-obama)

Defiance or Collaboration?

What does this mean for the MMA?  The President certainly did not call out the statutorily required board membership of the MLC as an unconstitutional overreach that he would not enforce.  To the contrary, the MMA Signing Statement expresses the President’s desire that the legislation comply with the requirements of the Constitution.

Moreover,  the MMA Presidential Signing Statement is not a declaration about what the President will or won’t enforce but rather interprets a particular section of a long and winding piece of legislation.  (Title I principally amended Section 115 of the Copyright Act—now longer than the entire 1909 Copyright Act.)  This kind of interpretation seems to be consistent with the practices of prior Presidents of both parties, not an end-run around either the veto power or separation of powers.

Failing to acknowledge the admonition of the signing statement would seem an unnecessary collision both with long-standing jurisprudence and with a sensible recommendation from the President of how the Librarian, the Copyright Office and the Justice Department expect to approach the issue in collaboration with the MLCI.  That’s possibly why the Copyright Office restated the Signing Statement in the RFP.

Title I of the MMA is a highly technical amendment to a highly technical statute.  A little interpretive guidance is probably a good thing.  Collaboration certainly makes more sense than defiance.

Must Read: @realrobcopeland: Google’s ‘Project Nightingale’ Gathers Personal Health Data on Millions of Americans

November 13, 2019 Comments off

Wall Street Journal reporter Rob Copeland has unearthed another Google data scraping scandal, this time your private health information.  As usual, Google doesn’t want you to focus on how they use this data in the background for data profiling in ways that you don’t know is happening and that you were never asked to consent to.

The scandal isn’t that it’s illegal, the scandal is that it isn’t illegal.  Yet.

Remember that where Google gets into trouble is not necessarily because of what you can see, it’s what they do with the data that you can’t see.  For example, Google uses Google Books as a corpus to teach their translation algorithm in the background through a process of machine learning.  That was what the Google Books case was about–not the “Digital Library of Alexandria” BS.

Just like many Google products, the company uses the old head fake to get you thinking the deal is about one thing, but it’s actually about something else you wouldn’t like.

 

 

 

 

Save the Date: Alissa McCain to Receive Cindi Lazzari Artist Advocate Award from TESLAW

November 10, 2019 Comments off

Alissa McCain will receive the 2019 Cindi Lazzari Artist Advocate Award from the Texas Entertainment and Sports Law Section (TESLAW) of the State Bar of Texas on November 20 at the InterContinental Stephen F. Austin Hotel.  Alissa has twenty years of dedicated and groundbreaking artist advocacy work that has had a substantial impact on the lives of thousands of artists across Texas.

A highly experienced and well-respected community leader, Alissa has maintained a singular focus:  the success and advancement of artists.

Her work at Texas Accountants and Lawyers for the Arts over the last seven years has provided both pro bono legal counseling to artists statewide in Texas and events and programs in all major cities in Texas.

In addition, Alissa was not only a founding board member of Capitol View Arts and working board member every year since its inception, she worked tirelessly as a member of the Austin Arts Commission to assist in re-working the funding metrics used to provide City of Austin grant money to help the smaller arts organizations receive their fair share of those funds.

Other notable accomplishments include her service as a Commissioner on the Austin Arts Commission (appointed by Council Member Ora Houston), a consultant and contributing writer to the Austin Music Census, COO of the Austin Creative Alliance, and Director of Programs and Operations for the Austin Music Foundation.

Alissa’s career embodies the traditions of the Lazzari Award — supporting and educating artists by creating the kind of resources that allow creators to thrive.  TESLAW will present the award to Alissa on Wednesday, November 20, 2019 at 6:15 P.M. at the Stephen F. Austin Hotel in conjunction with the welcome event for the 29th Annual Entertainment Law Institute hosted in Austin by the State Bar of Texas.

Alissa will receive a plaque created by renowned Austin Artist Rejina Thomas.

About the Lazzari Award:  The Lazzari Artist Advocacy Award is named for the late Cindi Lazzari, a leading Texas attorney who went far beyond the call of duty in her efforts to protect the rights of artists in the music industry.   It is awarded by TESLAW.

In these challenging times for Texas musicians, the Section wants to recognize the exciting heroes and heroines of all the music communities across Texas who carry on the tradition of Cindi’s good works.

Previous recipients of the Lazzari Award include Juan Tejeda (musician, arts administrator and activist), Robin Shivers (artist manager and founder of the Health Alliance for Austin Musicians), Texas Accountants and Lawyers for the Arts, SIMS Foundation, Nikki Rowling (co-founder of Austin Music Foundation and author of the Austin Music Census), Casey Monahan (the first head of the Governor’s Music Office) and Margaret Moser (the journalist and long-time music editor for the Austin Chronicle).

About the Artist: Rejina Thomas (African American Contemporary Artist) Circa 1979- present. Creative, Rejina Thomas has mastered her trades of Custom Glass Engraving and fabrication with mixed media including metal, stone, and plastics over the last three decades. Her acclaimed artwork is held in public places and private collections around the world.  She did all the double acid etch Victorian stencil pattern Glass Art in the Texas State Capitol.  Miss Thomas is also well respected as an abstract painter and muralist. Reji Thomas lives and works in Austin, Texas and continues every day to look at life through Abstract Colored glasses in order to see the best in Humanity.  https://www.rejithomasart.com/

Mystery Redaction in Spotify Filing for Eight Mile Style Lawsuit

November 8, 2019 Comments off

“We never get accustomed to being less important to other people than they are to us.”

Holly Martins in The Third Man by Graham Greene

As MTP readers will recall (especially newsletter readers), Spotify is being sued in Nashville by the publishers of a good chunk of Eminem’s extremely popular catalogs (on albums each streamed over 1 billion times on Spotify according to the press).  The lawsuit alleges that Spotify has failed to comply with the conditional (and highly controversial) reachback safe harbor under the Music Modernization Act’s Title I.  The suit also challenges the reachback element of the Title I safe harbor giveaway as an unconstitutional “taking”.  (The case is cited as Eight Mile Style, LLC and Martin Affiliated, LLC v. Spotify USA Inc., Civil Case No.3:19-cv-00736, U.S.D.C. Mid. Dist. Tenn., Nashville Div., Aug. 21, 2019.  You can read the complaint here.)

In pre-answer pleadings, Spotify has filed a motion to dismiss for improper venue and has asked the Court to transfer the case to the Southern District of New York failing dismissal.  (Spotify was also granted a pre-answer stay of discovery which makes even less sense.)  This is because despite the fact that Spotify has a Nashville office and has spent considerable resources for a very long time on a charm offensive directed at Nashville songwriters, Spotify alleges that all of its music publishing licensing operations are in New York.  That may be true, but that doesn’t mean that a Nashville jury should be denied the right to hear the case.  It’s also unclear why it would be inconvenient for Spotify to be tried in Nashville.

Because the Internet.

But we’ll see.  What was interesting about the Spotify motion to dismiss was that it is supported by an affidavit from a Spotify employee describing Spotify’s US mechanical licensing operations for songs.  This affidavit was the normal sort of thing you’d see from a defendant trying to give the Court context about why the Court should transfer the case to somewhere else where the defendant was shopping…sorry…where the defendant was based.

And…like most Big Tech multinationals, especially public ones, Spotify wanted part of that affidavit “sealed”, meaning they wanted the Court to prohibit the public from being able to read part of it and most importantly no doubt, they wanted the plaintiffs barred from being able to speak about the sealed part.  (Google especially likes that sealed business and has been successful employing that strategy.)

Crucially, this particular case involves critical issues of public policy that strongly militate against secrecy and in favor of complete transparency.  The timing of this case is itself of critical importance as the Copyright Office is currently considering regulations to implement the very bare bones federal statute at issue in the case.  The Constitutional issue presented alone is of the essence of Title I.  Therefore, normal practice on sealing materials in this vitally important lawsuit should be balanced against strong legitimate public interest.

This is particularly true because the redaction appears to address how Spotify is handling mechanical royalties for thousands of songwriters (and potentially many, many more ) both in the U.S. and around the world, all of whom have a strong interest in Spotify’s processes and a right to know where there money is.

It might be important to remind everyone involved in the case that the eyes of the world are upon them and that the money involved is payable under a license that songwriters are compelled by law to grant.  Therefore, all information relating to the payment of those monies should be made public.  This case is different than your garden variety rate proceeding which is aspirational in nature and where redactions are common and reasonable.  This case is brought because it appears that someone screwed up with the money.  And if they screwed up with Eminem’s money, they probably screwed up with everyone’s money.

Although it must be said that reading tea leaves about redactions must be a cautious undertaking because there could always be an innocent explanation rather than artifice, here’s what’s odd about the redaction.  (You can read the entire affidavit here.)

The affidavit lists some, perhaps all, of the current and former Spotify employees involved in mechanical licensing.  We’re not focused on them right now.  Who they are is less important than what they do.

After that list comes a heading “Relevant Third Parties”.

Spotify Declaration Eight Mile Style 1.png

Unsurprisingly, Spotify lists its parent company (Spotify AB) as a “Relevant Third Party”.  While not “third party” in the normal sense, we can understand why the defendant would want to treat the parent as such as a legal fiction.  Spotify also lists HFA, which is equally unsurprising as HFA has provided services to Spotify as Spotify’s agent for many years.  (This may be a little confusing to songwriters who thought HFA just worked for them, but that’s a story for another day.  For now, suffice it to say that HFA seems to be “on the wall” and works for both sides of the same transaction in some cases albeit providing different services in many cases.)

As an aside, HFA has been, I think, unfairly maligned in the press over its handling of Spotify’s mechanical licensing.  I think this is very unfair and I have defended HFA against these attacks.  At the end of the day, while HFA may have been the company’s agent, it was Spotify who decided to do what it did and Spotify alone should be held responsible.  Criticizing HFA for Spotify’s decision is not only silly and petty in my view, I also think it’s just a bad reading of the law.  Having said that, Eight Mile Style has made some serious allegations in its complaint and bears the burden of proving them up which may turn a different direction.

But back to the affidavit–observe the outline form of that redaction.  The redaction covers three paragraphs in a separate heading under the affiants’ “Relevant Third Parties” bullet. The redaction aligns with both “Spotify AB” and “Harry Fox Agency” bullets above it.  Whatever the redaction says, it appears to be describing a third entity that is neither Spotify AB nor HFA but that provides third party services similar to both.

Spotify Declaration Eight Mile Style 1 Annotated.png

Maybe nothing but maybe something.  If it is something, it appears to be an entity involved with handling songwriters money in yet a sixth lawsuit (including a class action) filed against the same company.  One could easily make a compelling argument that this is a lawsuit filed against the very company that drove a major amendment to the licensing practice under the Copyright Act in the form of Title I originating with David Lowery’s and Melissa Ferrick’s class action against Spotify.

And it appears from both the compliant and the affidavit that not much has changed after the passing of the Music Modernization Act. If you look at all the cases against Spotify, they all have one thing in common.  Spotify had many, many chances to settle the claim before it became a case.  They either ignored the claims before they went legal, or didn’t take them seriously.  Expensive oversight for the shareholders, but given Spotify’s governance by dual class voting stock, no surprise that the insiders’ moral hazard cuts against shareholders.  Here, Spotify not only had an opportunity to avoid liability, they even amended the Copyright Act to provide themselves a lifeboat.

If something was fixed at Spotify by the MMA, please tell me because I’m missing it entirely.  There does seem to be the strong possibility that unless something gets fixed at the company, the pattern will be full again very soon.  Eight Mile Style’s attorney Richard Busch must have become something of a bête noire for Spotify–is this the fifth lawsuit against them or are there more?  I’ve lost count.  Removing the Eight Mile Style case to Timbuktu won’t change the attorney though.  And even though it’s a stones throw from Spotify’s luxurious offices in World Trade Center, the SDNY just might be getting tired of seeing Daniel Ek’s smiling face in their chambers.  Maybe not yet.  But maybe they’d actually be better off staying in Nashville.

Someone should ask this question, so why not us–who is this mysterious third party who does Spotify’s mechanical royalty licensing or accounting that we are compelled to use by the statutory license?

How do they have their mitts on our money?  And why so secretive?

20 Questions for New Artists Part 7: Sound Recording Aggregators

November 6, 2019 Comments off

[From 20 Questions for New Artists by Chris Castle and Amy Mitchell]

An independent artist is practically required to sign up with an aggregator in order to have your works serviced to many online outlets–some aggregators service hundreds of different retailers. (So one example of a pre-existing contract under Question #10 may be a band member’s contract with a sound recording aggregator.)

It is important to remember that without marketing and promotion, a new artist is simply a needle in an even bigger digital haystack. Do not expect the aggregator to do any significant marketing or promotion, much less guarantee it.  This is the primary difference between a traditional distributor and an aggregator, but even traditional distributors may have a shaky ability to do marketing and promotion.

Given that there are so many potential digital outlets, it is important for an artist to be able to decide on a case by case basis whether they want to be included and preserve the right to opt-in to any retailer or to opt-out at any time.

Artists should also be able to terminate the aggregator deal on short notice for any or no reason (e.g., 30-60 days). If you are asked to sign a deal with an indie label or with a major label, these labels may well require that you give them exclusive distribution rights–including the digital rights you have already granted to the aggregator. That means that you need to have the ability to terminate your aggregator deal and transfer digital distribution to the new label, often as part of an exclusive bundle of rights. There have been instances where digital distributors tried to hold up artists from signing to a label with the previously released recordings–a problem solved by the payment of money. Keep an eye on that issue.

How the aggregator is compensated is also an issue of concern. In the traditional model, the aggregator took a percentage of sales as their compensation. This meant that the aggregator only made money if the artist made money. (This is similar to a traditional distributor model.) Some aggregators charge a flat fee on some basis (such as a per-retailer basis or an annual fee) instead of a percentage. There may also be initial setup fees.

Each model has its strong and weak points. The percentage model pays the aggregator regardless of whether they are making an effort to stimulate sales (which few of them do in any event). However, under the percentage model the aggregator only makes money if you make money, so the incentives are aligned. The percentage should be lower than the traditional 12-25% to take into account that the aggregator has lower incremental costs over time of maintaining content in their catalog.

The flat fee model has the artist pay the aggregator a fee for distribution instead of paying the distributor a percentage. While this is attractive from the point of view that the artist knows what their distribution costs will be up front, it also transfers much if not all of the financial risk of distribution to the artist.

In order to determine which is the better model, the artist should compare their most favorable percentage-based offer to the flat fee model and see what the breakeven point will be. Try using a formula like this:

[Flat Fee]/[percentage] = Gross Income Required to Equal Aggregator Payment

Gross Income/wholesale price = breakeven units

or, for example, if the flat fee charged is $100 compared to a distribution fee of 10% for the same services, a distribution fee of 10% will equal a flat fee payment of $100 if you earn $1,000 of gross income.

Said another way, the 10% model is better for the artist for the first $1,000 of income

$100/.10 = $1,000 (Gross Income)

How many units would you have to sell in order to reach $1,000 of gross income?

$1,000/$0.70 = 1428 units (rounded down) for a download.

$1,000/$0.00397 = 251,889 Spotify streams to earn back either a $100 flat fee or 10% distribution fee, or $1,000/$0.00783 = 127,714 Apple Music streams (roughly half what it costs on Spotify).

This means at breakeven, you will be indifferent between the two deals.  But it also means that if in reality you sell less than the breakeven numbers, you will be better off under the distribution fee model.  If you sell more, you will be better off under the flat fee model.

From the distributor’s point of view, on flat fee distribution deals they (i.e., distributors) will make more profit from artists who sell less than artists who sell more than the theoretical break even. It’s essentially a perversion of the normal goal of a distributor to encourage sales because a flat fee model distributor profits the most when they simply have a lot of content (rather than “popular” content). The classic quantity over quality.

In any of these examples, you will need to use your own projections on sales, wholesale price and configurations in order to get a projection that is relevant for your own use.

Also, the aggregator need not collect SoundExchange monies and should not be able to list itself as the sound recording copyright owner in order to receive statutory royalties.  The artist need only sign up with SoundExchange in order to collect statutory royalties.  SoundExchange has an entire artist relations staff to help you with registering and becoming a member.  (See Question #2 on SoundExchange).

Be aware that it may not be that obvious from the click through aggregator agreement that the company intends to collect SoundExchange royalties.  Look for words like “non interactive statutory royalties” which means royalties collected by SoundExchange.

It must also be said that no digital aggregator should be able to enter into any agreements on behalf of the artist/copyright owner that allows the aggregator to waive any rights on your behalf (such as litigation rights) or to settle any claims or audits.

Another big problem with flat fee aggregators is that you have no idea what their deals with their accounts may be and you are betting on their ability to both negotiate a favorable deal and also pass those benefits along to you directly including audit recovery (especially since you may not have the right to audit them).

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