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Power Transition, Lawfare and the Spotify/Google Interlocking Directorate

July 30, 2015 1 comment

Though this be madness, yet there is method in it.

Hamlet, by William Shakespeare

Power Transition in Business

When a relatively unequal competitor is about to overtake a dominant competitor, lawfare is most likely to break out when the less dominant competitor perceives their opportunity to replace that hegemon.  At this point in the power relationship, the less dominant competitor may seek interlocking relationships with other less dominant competitors in the relevant market in order to attack the hegemon by reducing competition with each other and coordinating lawfare operations against the hegemon.

These interlocking boards or corporate relationships may work well when there is something in it for the allied less dominant competitors that helps each of them in ways that do not harm each of them.  For example, in an alliance of two less dominant competitors G and S against hegemon A, this will be particularly true if company G has discrete  goals with hegemon A that only tangentially affect company S.  If lawfare against hegemon A would greatly benefit company G and would not harm company S, S may find an alliance with G for lawfare against A to be beneficial.

This may be particularly true if A is competing directly with S in a related market and (with apologies to Professor Kugler) at a moment when A is temporarily weaker than S, but S perceives A as about to overtake S.  In other words, lawfare is not most likely to break out when A in fact overtakes S, but rather at the moment when S perceives A as about to overtake S.  It is at that moment that an interlocking alliance with G may be most desirable to S so that the two companies can bring their collective power to bear on A by making lawfare on A.  (This is a version of the “power transition” theory of international relations.)

In the world of corporate realpolitik, such alliances may form well in advance of an anticipated move by A that threatens both S and G.

Spotify’s Dominant Market Position

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 20 million subscribers and probably is dominant in the U.S. music subscription market.

Yet it is Spotify’s failure to convert users of the Spotify ad supported service (with ads served by Google) to the Spotify subscription service that is at the heart of objections to continuing to license the ad supported service.  Not to mention the bait and switch aspect.

The Return of the Interlocking Board

While Spotify may have enjoyed global domination in music subscriptions, it did so with an eye over the shoulder at the much anticipated and inevitable launch of the a subscription service by Apple, which also happens to be Google’s main competition in the smartphone market.  Not surprisingly, we saw this July 21, 2014 story in Re/Code by the highly credible tech journalist Kara Swisher a few weeks after Page’s presentation:

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.

In any case, Google is still planning on launching a long-delayed YouTube subscription music service this year that would compete with Spotify. If it actually does get going, it will be the second such offering from the company.

That YouTube subscription service is now even longer delayed.  In fact, I’m beginning to wonder if it will launch at all.

Ms. Swisher revisited that July 21 story on July 22 to clarify the reference to Google’s potential purchase of Spotify–only.   She wrote:

…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.

“There has not been a single conversation about Google’s interest between the two,” said one source, reflecting many others. “There was never a price, never a negotiation, never anything.”

Ms. Swisher followed up that July 21 story with a post on September 11, 2014:

As Re/code previously reported it would do, Spotify has officially added Google’s business head, Omid Kordenstani, to its board.

And thus the interlocking alliance was formed.

Google’s Shady History With Apple

Recall for a moment that the Federal Trade Commission pressured Google Executive Chairman (and then-CEO) Eric Schmidt to resign from the Apple board of directors.  This after Google launched a series of products that directly compete with Apple and is so coincidental as to call into question whether Schmidt violated his fiduciary duty as an Apple director (Droid, Google Tablet, AdMob, Google TV, and what was then called Google Music).

So what about that resignation?  According to Engadget, Steve Jobs said:

“Unfortunately, as Google enters more of Apple’s core businesses, with Android and now Chrome OS, Eric’s effectiveness as an Apple board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest.”

According to Reuters, on July 9, 2009 the Federal Trade Commission announced that it would continue investigating Schmidt:

The U.S. Federal Trade Commission said it will continue to investigate the relationship between the boards of Apple Inc and Google Inc, after Google’s chief quit Apple’s board on Monday.

Richard Feinstein, director of the FTC’s bureau of competition, commended both companies for recognizing that sharing directors raises competitive issues, in light of the resignation of Google Chief Executive Eric Schmidt from Apple’s board.

Feinstein said regulators have been investigating the Google-Apple tie for “some time,” even as the two companies increasingly compete with each other in markets such as smartphones and operating systems.

“We will continue to investigate remaining interlocking directorates between the companies [for violations of the Clayton Act],” Feinstein said.

Well, that 2009 investigation seems to have trailed off and gone nowhere.  2009, 2009, what else happened in 2009?

It can safely be said that Google’s war on Apple is long standing and there is no love lost there.  It should not come as a surprise that Spotify would view Google as a valuable ally in its own competition with Apple.  Not only was Spotify’s dominant position in the music subscription market directly threatened by the launch of Apple Music, but Apple’s gifted executive Eddie Cue delivered further humiliation to Daniel Ek involving Ek’s bête noire, Taylor Swift.

Artist relations problems need to be solved quickly and generously (and frankly if an issue get to become an artist relations problem, it’s your own damn fault).  Mr. Cue quickly solved an artist relations problem around Apple’s proposed 90 day royalty free launch by his deft handling of criticism from Taylor. Mr. Cue’s successful handling of Taylor’s criticism solved his company’s artist relations problem.  Whether Mr. Ek knows it or not, this was a further humiliation to him after Spotify’s brand damage from his widely-reported collision with the Taylor juggernaut.

The Washington Hackathon Continues Apace

In September 2014, Spotify announced a hire that was largely overlooked at the time.  Taking “hackathon” to a whole new level, Spotify announced that it had hired Washington lobbyist and Clintonista Jonathan M. Prince as its corporate communications revolving doorman.

Jonathan M. Prince Revolving Door Profile from OpenSecrets.org

Now why do you suppose this person was brought on?

Compounding the urge to merge was the announced policy change at Sony and Universal demonstrating an increasingly skeptical view of the ad supported services like Spotify and YouTube, also broken by Re/Code in a March 8, 2015 interview by the outstanding journalist Dawn Chmielewski (who has written extensively on the music business for many years) with Universal’s Lucian Grainge.  This was followed shortly by a statement from Sony’s Doug Morris indicating dissatisfaction with the free content model that is at the heart of Spotify and Google’s business (“In general, free is death.”)

I seriously doubt that these relatively simultaneous statements by Lucian and Doug came as a total surprise to either Spotify or Google, but the public nature of the statements combined with personnel changes probably put a fine edge on reality for Spotify and Google.  Lawfare was now in order.

Not only did Spotify and Google have interlocking interests in preserving the ad supported model, but each brought complimentary skill sets to the lawfare ready room.  Spotify is able to play the role of plucky startup victimized by the big bad Apple and the smaller but badder major labels that are conspiring to take free music away from consumers.  Google is able to hang out in the shadows and bring its investment in Washington, DC agency capture and vast experience being on the wrong end of antitrust investigations around the world.  And in particular, Google’s stunning influence over the U.S. government through the Obama Administration including the Federal Trade Commission.

Just a quick reminder of Google’s dominance of the U.S. government:

President’s Council of Advisors on Science and Technology and Obama Campaign Volunteer: Eric Schmidt (call sign “Uncle Sugar”)

Google Lobbyist: Katherine Oyama (former Associate Counsel to Vice President Joseph Biden)

Counselor to the Chairman, Federal Communications Commission: Gigi Sohn, formerly CEO of Google Shill Lister Public Knowledge.

Special Assistant to Chairman, Federal Communications Commission: Sagar Doshi (Google Product Specialist)

Chief Digital Officer, Office of Management and Budget and Featured Revolver at OpenSecrets.org‘s Revolving Door Site: Jason Goldman, formerly Product Manager at Google.

Director of Google Ideas (and co-author with Uncle Sugar of The New Digital Age): Jared Cohen (formerly a member of the Secretary of State’s Policy Planning Staff and as an advisor to Condoleezza Rice and later Hillary Clinton).

Director of United States Patent and Trademark Office: Michelle Lee (formerly Google’s Head of Patents and Patent Strategy)

U.S. Chief Technology Officer: Megan Smith (formerly at Google[x])

Deputy U.S. Chief Technology Officer: Alexander Macgillivray (formerly Google’s point man on orphan works)

Director of Google Advanced Technology and Projects Group: Regina Dugan (former director of DARPA)

Director of U.S. Digital Service aka savior of Healthcare.gov (in case you couldn’t tell): Mikey Dickerson (former Site Reliability Manager at Google)

YouTube Global Communications and Public Affairs Manager:  Chelsea Maugham (former U.S. State Dept. Chief of Staff)

Google Head of Global Development Initiatives: Sonal Shah (Advisory Board Member, Obama-Biden Transition Project)

Deputy U.S. Chief Technology Officer (White House): Nicole Wong (former Google Vice President & Deputy General Counsel)

And then there are dozens if not hundreds of former Hill staffers now working for Google’s DC shillery.

Not to mention FTC Commissioners Joshua Wright and Edith Ramirez, Julie Brill and Maureen K. Ohlhausen.

Timing is Everything

In yet another case of curious timing involving a Google relationship, the day that Apple Music launched the New York Attorney General announced an investigation into whether Universal–remember, the same Universal that had announced it was going to take a relook at its ad supported deals of the kind it had with Spotify and YouTube–and Apple Music had somehow colluded to undermine Spotify and YouTube.  As NPR’s Laura Sydell reported:

The investigation centers on whether Apple may have urged [Sony and Universal] to drop support for free, ad-supported streaming services such as Spotify and Google’s YouTube. Such a move could be seen as anti-competitive.

That investigation was later dropped by the New York AG (who also signed the amicus brief supporting Mississippi Attorney General Jim Hood against Google).  Why was it dropped?  Well, possibly because there are solid commercial reasons for deciding that the experiment with ad supported music was a disaster?  Possibly because it became apparent that Spotify’s story about converting free users to subscribers was not borne out by the…you know…results?

How do you suppose that this investigation got started?  Just a coincidence?

I think not.

Guess what also happened right around the same time?

Spotify Lobbying According to OpenSecrets.org

Spotify Lobbying According to OpenSecrets.org

Yes, those Washington lobbyists don’t have to use a scientific calculator to add up what Spotify pays them!

The NY complaint was a skirmish before the main attack.  And here’s where the real lawfare gets interesting.  Remember, Google has been fighting Apple for years and Eric Schmidt left the Apple board under a cloud (no pun intended).  Independently of Spotify, I think it’s pretty safe to say that if Google could find a way to jack with Apple they would jump on it.

Also remember that Google has been bashing apps for quite a while and it takes no great genius to suspect that the reason is because they can’t stalk you inside of apps very easily.  So if Google could find a way to attack Apple’s apps, don’t you think they’d jump on it?

And what better way for Google to attack Apple than to go after Apple’s pricing model in the App Store?  (Apple takes 30% of “digital consumables” sold by developers through the App Store, including most subscriptions.)

Of course if Google itself went after Apple’s App Store pricing that might be a little transparent, so that won’t do.  What to do, oh what to do?

Things That Go Bump in the Night

According to the Radio and Internet Newsletter’s July 9, 2015 reporting:

Spotify has sent an email to Apple iOS subscribers, suggesting they cancel their Spotify Premium accounts, if those subscriptions were purchased through the Spotify app, and re-subscribe on Spotify’s website.

The reason for this surprisingly suggested workaround is to save money. A Spotify Premium plan costs $13 when purchased through iTunes, and $10 when bought directly from Spotify. “The normal Premium price is only $9.99, but Apple charges 30 percent on all payments made through iTunes,” Spotify said in the subscriber email acquired by Engadget.

Here’s part of the email:

Spotify Attachment-1.0

As RAIN confirmed, Apple has nothing to do with setting the price for in-app purchases.  That decision lies with the developer exclusively.  The developer–Spotify in this case–knows going in what the cost will be.  Spotify knew that when it first put the Spotify app in the App Store years ago.

But RAIN notes the curious timing of Spotify’s misleading advertising campaign:

The timing of Spotify’s communication, soon after Apple’s launch of a competing on-demand music service, cannot be ignored. It must be particularly galling to Spotify that Apple is potentially luring users to its own service, and taking a portion of Spotify subscription payments. The risk of Spotify’s communication strategy is that subscribers will cancel their Spotify/iTunes subscriptions, as Spotify recommends, and sign up for Apple Music’s three-month trial. The advice here, for what it’s worth, is for Spotify to drop the in-app subscription price to $10, eat the loss, hand the saving to subscribers, and retain its users. Complaining isn’t aggressive business. Pricing is.

There is, of course, a long way from “galling” to “illegal.”  And that’s what lawfare is all about.  So it should come as no surprise that the Federal Trade Commission is now investigating Apple for deceptive trade practices.

The Washington Post reporting on the investigation contains a helpful quote from an employee of Google shill-lister Public Knowledge (so you know it must be important to Google):

What is so tough for regulators here — other than that they are using relatively arcane laws that probably never anticipated the innovation now going on in the tech sector — is that the streaming companies really do have a lot of ways to reach consumers. They can sell it over the Internet. And they all offer apps on Google’s store, which actually serves more customers around the world than Apple does.

So is Apple’s behavior truly anti-competitive?

“The fundamental question is if it is big enough to wield enough market power that can harm the competitive process,” said Gene Kimmelman, president of media public interest group Public Knowledge. “Music distributors would need to show that they truly need to be in the iTunes ecosystem to demonstrate a legitimate competitive concern.”

Actually–the fundamental question is whether Google is manipulating the Federal Trade Commission to conduct lawfare against Apple to preserve the shite artist royalties from ad supported services like YouTube and its interlocking relationship partner Spotify.  This is not just a Nixonian fantasy.

You Won’t Have Johanna Shelton to Kick Around Anymore

After the Wall Street Journal’s release of internal FTC staff memoranda recommending that Google be prosecuted for antitrust violations (a prosecution that was squashed by political appointee FTC commissioners) Google lobbyists were caught instructing FTC commissioners to be be publicly supportive of Google according to Buzzfeed:

Johanna Shelton, a senior lobbyist at Google, emailed an official at the Federal Trade Commission with a pointed request: release a public statement that would help the search giant deal with a negative story. Two days later, the agency did just that….Google was “deeply troubled” and “puzzled” by the agency’s silence on the matter, Shelton said in the email, which emerged in response to a public records request and was obtained by BuzzFeed News. She said the inadvertently released document was being used by Google’s rivals to “sow confusion and undermine the FTC’s conclusions, especially in Europe.”

“We believe it is critical for the FTC to defend its reputation, showing that it followed a thorough process and fully took into account the Bureau of Competition staff memo, among other internal agency opinions including the Bureau of Economics,” Shelton said in the email. “A public statement standing by the FTC’s ability to make a final decision after assessing differing internal views would go far in the international space to restore the reputation of the FTC, especially on due process.”

Two days after the email was sent, and after the Wall Street Journal published another article about Google’s relationship with Washington, the FTC released a statement that provided the context Shelton had sought.

In other words, Google lobbyists said jump and the FTC’s political appointees merely asked how high.

Is Google pulling rank to get the FTC to investigate Apple on a pricing policy that has been in place for years?  Is Google using its interlocking board seat with Spotify to use Spotify’s competition with Apple in the music subscription market to get the FTC to attack Apple in a way that also benefits Google in the smartphone market?

Of course now that Spotify has Jonathan Prince on board, the company may be able to use Prince’s easy access to senior White House staff to sick the FTC on Apple all by themselves.  But either way, the motives are oddly aligned.

However–Digital Music News tells us that Apple Music to date has had no effect on Apple App Store downloads of the Spotify, Pandora or YouTube iOS apps.  I wonder what the FTC thinks of that stat?

Let’s remember that Spotify is a music service.  It’s not in as many business lines as Google.  The only reason why Spotify is able to spend hundreds of thousands on lobbying (probably soon to be millions at this run rate) is because they get cheap deals on music.  Those deals have an end point.

The most meaningful statistic of all, though, is the number of subscribers to Apple Music.  Apple reached 10 million subscribers in about 45 days.  Spotify reached 20 million subscribers in seven years.  If Apple Music continues on anything like this run rate, it is going to be very difficult for company S to overtake hegemon A.  Apple Music provides market confirmation that free music is not necessary to get users to subscribe to a music service.

And that is not good for company G or company S.  Not to mention that lawfare can backfire.  What they have to worry about is that in their effort to stop Apple by manipulating the FTC, Google and Spotify will have demonstrated that something is really rotten in Washington, DC.  And Mountain View.  Not to mention Sweden.

The MMF’s Google Problem

July 5, 2015 Comments off

David Lowery’s recent post on the Trichordist reveals the disclosure by an apparent whistleblower that the Music Managers Forum and to some extent the Feature Artist Coalition have each been taking undisclosed money from Google and Spotify.  (Given the context, I assume the whistleblower is referring to the MMF chapter in the UK.)  Why is this important?  Because when confronted with the artist rights grass roots movement that Lowery personifies, we can expect Google to do what they always do–try to co-opt it one way or another.

Want evidence?  If you’ve had a look at the Public Citizen report “Mission Creep-y“, Google’s technique of buying their way into issues or industries and increasing their dominance in their ownership and influence through control of resources should come as no surprise.  The venerable good government group provides extensive documentation of Google’s massive investment in indirect lobbying through funding a host of academic institutions (who can forget the millions Google paid for Lawrence Lessig’s enterprises at Stanford), organizations like Creative Commons, the Electronic Frontier Foundation, Public Knowledge, the Center for Democracy and Technology, and a host of others.

Creative Commons 2008 Schedule B

What’s the Spotify connection?  The distinction between Google and Spotify is more blurred after Spotify let Google onto their board of directors last year.  I find it hard to believe that Google got a Spotify board seat without a Google investment in Spotify which would be typical of how you get a seat on private company boards of directors most of the time.

In addition to any ownership stake that Google may have, what unites Spotify and Google is advertising supported, i.e., “free”, music.  For which Google sells the ads, of course.  Or as they might say, “content,” which has implications for everyone from visual artists, to movie makers, to journalists, to artists and songwriters.

As Spotify’s billionaire investor Sean Parker told CNN’s Poppy Harlow, the most important aspect of Spotify’s business success is the ability to offer music at scale–or as Thom Yorke said more accurately, the ability to commoditize music.  Commoditizing music is also exactly what Google’s goal is with the YouTube data honeypot, for example, as scale makes scraping the data from YouTube users more profitable.

YouTube Tracking

For these reasons, I think Lowery is on to something with the whistleblower disclosures.  I would agree with David that artists would want to know if their manager is participating in this co-opting exercise.  It’s all entirely believable to me as it is a 100% fit with Google’s modus operandi that I have observed.

How far does this influence penetrate the many MMF chapters?  And what about the International Music Managers Forum umbrella association?

Strange Bedfellows for the IMMF

The mission statement of the International Music Managers Forum says:

The IMMF is an international umbrella organisation comprising of regional associations of music managers from +30 countries from five continents, which currently represent +1.200 artist managers. It’s the IMMF’s mission is to defend the economic and legal interests of artists on an international scale with the vision to create Transparency and Fairness. This shall be accomplished by three core activities: training and education, networking and lobbying.

Sounds good, right?  So why is the IMMF part of a lobbying astroturf group based in Brussels (to lobby the European Commission) called “Copyright 4 Creativity“?  The group features on its home page the IMMF’s “Open Letter on Record Label and Music Publishing Deals” as a tool to accomplish some lobbying goal.  That’s the letter that was written after the mysterious leak of the Spotify/Sony agreement.  So if the group is going to use that letter as a lobbying tool we would expect that the other members of Copyright 4 Creativity would be in line with the IMMF’s mission statement, right?

Wrong.  For starters, the Computer and Communications Industry Association (Google is a member), the Center for Democracy and Technology and the Electronic Frontier Foundation (Google provides support) are all backed by Google.  Google was forced to disclose that connection in its litigation with Oracle on a filing that has become known as the “Google Shill List.”   These groups are also included in Public Citizen’s “Mission Creep-y” lists.

There are some other names on that list that seem odd bedfellows for the IMMF that purports to represent artists but in which artists have an indirect voice at best.  This is a prime example of why artists who take individual action can be so effective (I’m especially thinking of David Lowery and Blake Morgan).

For example, Google and the Computer and Communications Industry Association are also members of the MIC Coalition, a massive lobbying effort organized to continue the practice of denying artist pay for radio play in the US.  I think it’s fair to say that the CCIA has opposed every effort by artists and songwriters to improve their lives.

Dima Panel

Using IMMF positions to lobby for the goals of these other groups seems antithetical to an artist rights organization that the IMMF purports to be.  It’s certainly something deserving of a vote by artists.

While Google itself is not a member of Copyright 4 Creativity, the organization is run by a long-time Brussels lobbyist whose firm represents Google, and even a cursory look at the Copyright 4 Creativity materials reveals some of the same rhetoric we have heard for years from the Google-funded anti-artist crowd.  This, of course, is how the astroturf game is played.

Here’s the real problem–artists have never confronted a multinational media corporation that is willing to spend millions and millions to undermine copyright and artist rights on a worldwide basis.  Through lobbying and strategic investments in academics, astroturf groups and competitors, Google is doing just that while at the same time trying to pass itself off as your best friend.  So the question is how many of the members of Copyright 4 Creativity get money from Google and is IMMF in that position?

There may be explanations for how MMF-UK and IMMF have ended up in this situation, and I’d love to hear what it is.  We owe them a fair hearing, but I think they owe artists an explanation and an opportunity to be heard.  That’s a fundamental aspect of the legitimacy of representation.

The Free Speech Rights of Advertisers (h/t to @LaurieSegallCNN)

March 26, 2015 Comments off

As we have seen in Google’s attempt to stop being investigated by Mississippi Attorney General Jim Hood and other members of law enforcement, Google are quick to cast themselves as the defenders of free speech under attack from law enforcement–as they serve ads on YouTube against ISIS recruitment videos as reported by CNN, NBC an a host of others.

The latest example is the aspirational video posted by Jund al-Aqsa promoting the group’s most recent suicide bombing attack (YouTube Distributes Jund al-Aqsa Video Glorifying Jihadi Suicide Bombers).

One group whose free speech rights were not discussed: Advertisers.  But thanks to courageous reporting by CNN’s Laurie Segall, the truth is starting to emerge on just how bad Google’s adserving platforms really are.  (See These Ads Ran Before ISIS Videos).

aqap 4

NBC covered the story, but this time the reporters unfortunately succumbed to the Google Spin (Ads Shown Before YouTube ISIS Videos Catch Companies Off-Guard):

With more than 300 hours of footage uploaded every minute, and with ISIS-related videos cropping up from a variety of accounts, YouTube relies heavily on its users to flag content that violates its community guidelines. YouTube also has a “promotes terrorism” flag as an option underneath every video, and it reviews content that anyone flags.

In other words, Google’s defense is that in an environment that is 100% within Google’s control, Google is unwilling to spend the money to properly filter videos that violate laws against giving material assistance to terrorists before YouTube distributes them widely around the world through ISIS’s much vaunted social media campaigns.

And serve advertising against them, thus forcing their advertisers to subsidize terror.

aqap 3

There are several steps the Congress could take that would  go a long way toward fixing Google’s unwillingness to treat advertisers fairly and honestly.  These are best summarized by Professor Ben Edelman of the Harvard Business School in his “bill of rights for advertisers” which offers a robust multi-tiered approach easily adopted in regulation and against which one can imagine little principled objection.  Consider right #1:  The advertiser’s right to say no.

Ask Advertisers Where They Want Their Ads to be Placed

It usually comes as a surprise to the casual observer of YouTube’s distribution and monetization of terror that advertisers—the true source of the revenue for Google—are kept in the dark about the ultimate destination of their ads.  As Professor Edelman says,

“It is nonsense to pay for ad space without knowing where an ad will appear; sites vary too much in user quality and context.”

Refusing to tell advertisers where their ads appear is a common practice, in fact is the industry standard.

Why might that be the case?  Is it that the adserving company doesn’t want to bear the cost of producing the information for its clients, or is it that the adserving company doesn’t want to get the advertisers’ approval.  Or take a chance that the advertiser might leave the service or worse yet—refuse to pay for advertising against YouTube videos that it had instructed Google were not to have the advertising.

Yet by producing this piece of information—no law enforcement costs to the government involved—advertisers speech rights are protected and Congress helps the market to correct for many of these anomalies.

Clearly, providing decent accounting information and true choice to advertisers is not a panacea.  But it is certainly something that Google could do tomorrow as an undeniable benefit for truth in advertising.

It is the FTC’s long held view that

“cyberspace is not without boundaries, and fraud and deception are unlawful no matter what the medium. The FTC has enforced and will continue enforcing its consumer protection laws online to ensure that products and services are described truthfully in online ads….These activities benefit consumers as well as sellers, who expect and deserve a fair marketplace.” (emphasis mine)

Requiring the FTC or other government agency to enforce such a law as part of the FTC’s “truth in advertising” regulations is a vital part of aiding law enforcement —particularly if the Congress retained oversight over the law to make sure that powerful commercial interests were not able to take advantage of special treatment by industry insiders who come through the revolving door into the agency.

It would also go a long way toward stopping adserving companies from free-riding on the brands of unsuspecting advertisers as well as the life’s work of artists.

As a never ending flood of stories are released almost daily about Google’s influence over the US. government in general and the Federal Trade Commission in particular, it may just be that the U.S. government is so far in the tank with Google that we can not expect the federal government to do its job.

That’s why it is important for Mississippi Attorney General Jim Hood to succeed in at least being able to investigate Google’s seedy business practices.  While the big advertisers have enough of a relationship with Google to get the attention of the Leviathan of Mountain View, the little advertisers in Mississippi represented by the populist Hood will never get a human on the phone at Google to discuss the problem, much less the time of day.

The “little guy” can only turn to their State Attorney General when confronted with Google, a company that averages one meeting a week with the White House.  Crony capitalism and the special interests can only be defeated by sunlight brought by crusaders like Attorney General Hood.

Only Jim Hood and AGs like him can force Google to stop defrauding advertisers and to stop YouTube from pumping jihad into our homes–jihad that Google monetizes.

Corporate Astroturf and Manipulation of Media Messages by @SharylAttkisson at TEDxUniversityofNevada

February 7, 2015 Comments off

Uncle Sugar and Big Daddy and their Edifice Complex

As we enter the a new session of Congress, we can anticipate being assaulted by the combined forces of Google, Facebook, Pandora and SiriusXM, the Electronic Frontier Foundation, Public Knowledge, the Digital Media Association, the Computer & Communications Industry Association and its host of “studies”, the Cato Institute, the Heritage Foundation, the Stanford Institute for Internet and Society, the Berkman Center, the Consumer Electronics Association, the Internet Association and of course, the National Association of Broadcasters.

What’s different about the current state of play for artists, songwriters, producers is that our side really doesn’t have anything like the complex and systematized network of 501(c)(3)s, cy pres awards, special interest groups and academics that are on Google’s payroll and increasingly on the payroll of Facebook and the new Internet Association (which itself spends approximately $400,000 a quarter on lobbying alone).

I highly recommend you read this article by Tom Hamburger and Matea Gold from the Washington Post, “Google, once disdainful of lobbying, now a master of Washington influence.”  You’ll begin to get the idea that Google spends so much money on “astroturf and manipulation of media messages” that it had to start finding ways to create other ways to spend the money.  Hamburger and Gold lead their reporting with this example:

In May 2012, the law school at George Mason University hosted a forum billed as a “vibrant discussion” about Internet search competition. Many of the major players in the field were there — regulators from the Federal Trade Commission, federal and state prosecutors, top congressional staffers.

What the guests had not been told was that the day-long academic conference was in large part the work of Google, which maneuvered behind the scenes with GMU’s Law & Economics Center to put on the event. At the time, the company was under FTC investigation over concerns about the dominance of its famed search engine, a case that threatened Google’s core business.

Indeed, this manipulation has gotten so bad, the judge in Oracle v. Google required the parties to make court filings listing all the public commenters on the case which has come to be called the “Google Shill List” which you can read here.  The Trichordist has an excellent “connect the dots” post showing Google’s history of financing those filing “friends of the court” briefs in Google’s efforts to stop Mississippi Attorney General Jim Hood’s investigation into Google’s violation of various laws.  All this in the aid of what the EFF might call “obfuscation”–Google and its “amici” would have you believe that Hood’s case is just about the acts of people using Google or its products, for which Google has a variety of statutory protections.  Nothing to see here, move along.

But as Hood points out, the four-year sting operation run against Google by a combination of federal agencies before a federal grand jury in Rhode Island showed that Google and its senior management team right up to Google’s CEO Larry Page was complicit in violating the Controlled Substances Act to the point of helping the bad guys get around Google’s own filters.  Google paid a $500,000,000 forfeiture for those drug violations for advertising the sale of prescription drugs–not for what the advertisers did, but for what Google did.

Sorting through more than four million documents, prosecutors found internal emails and documents that, they say, show Mr. Page was aware of the allegedly illicit ad sales. Under this week’s $500 million settlement, those emails won’t be released, avoiding the possibility of disclosure at trial.

“Larry Page knew what was going on,” Peter Neronha, the Rhode Island U.S. Attorney who led the probe, said in an interview. “We know it from the investigation. We simply know it from the documents we reviewed, witnesses that we interviewed, that Larry Page knew what was going on.”

Subsequently, Google’s lawyer said in open court that the Department of Justice apologized to Google for the statement by Mr. Neronha (Transcript of hearing at pp 11-12):

“The U.S. attorney in Rhode Island went off the reservation and gave a long interview about all the evidence and why it was he was so excited about the case,” lawyer Boris Feldman told the judge at a Delaware state court. “It ended up being so far off the reservation that the Justice Department apologized to Google for it and muzzled him.” (emphasis mine)

So when Hood served his subpoena, you could easily imagine Larry Page telling Google’s lawyers to MAKE IT STOP!  I’M RICH, I’M ENTITLED, HE CAN’T DO THIS TO ME!

MUZZLE HIM!

Because, the U.S. Attorney for Rhode Island told the Wall Street Journal that Page was implicated.  Google is now settling shareholder class action cases against Larry Page and the Google senior management team and board members alleging that Page is implicated.  There is a potential for a host of criminal violations at the State and federal level from consumer fraud, to RICO, to Sarbanes Oxley.  And the best Google can come up with for friends of the Court are the usual suspects and trade groups?  When the federal Justice Department is issuing apologies to multinational corporations, it’s left to state law enforcement officials to seek justice.

Just like the copyright battle in the Congress yet to come this year, Attorney General Hood’s investigation is a significant upping of the ante in these cases.  Hood’s case is one of the few times that an American multinational corporation tried to muzzle a criminal investigation into its own practices before it ever started.

And that’s worth bringing to bear a whole lot of astroturf just the copyright law–that in Google’s case presents a host of loopholes on which it’s built its business.

As the Trichordist points out, the venerable public interest watchdog “Public Citizen has released a study called Mission Creepy a great guide to Google’s labyrinthine influence buying.”  Even if you skim that report, I think you’ll agree we haven’t seen as comprehensive a takeover of the federal government, tax exempt organizations and the academy since the days of John D. Rockefeller, maybe not ever.  No wonder the Department of Justice is apologizing to Google.

But it’s not just controlling government officials that’s the problem.  It’s the combined work product of all this influence buying that is truly insidious.

How does this work?  This video by award wining investigative journalist Sharyl Attkisson is an excellent discussion by the former CBS news reporter about the new media world we live in.  Ms. Attkisson uses the example of pharmaceutical companies doing a variety of things like manipulating search results and controlling Wikipedia.  Ahem….

Here is a link to the Columbia Journalism Review article that Ms. Attkisson references:  Bitter Pill: How the press helps push deadly prescription drugs, sometimes with deadly consequences.

Attention Mr. Almunia: Justice Department Evidence Against Megavideo Confirms Adsense Account

December 26, 2013 3 comments

by Chris Castle

Joaquín Almunia, the Vice President of the European Commission in Charge of Competition currently investigating Google’s unsavory business practices in Europe may wish to consider the dark underbelly of Google’s advertising business when deciding whether to give the company an unprecedented third opportunity to settle the competition questions against the global monopolist.

According to evidence released by the Justice Department in the Megavideo criminal prosecution, Megavideo was a Google Adsense customer until at least May 17, 2007:

On or about May 17, 2007, a representative from Google AdSense, an Internet advertising company, sent an e-mail to DOTCOM entitled “Google AdSense Account Status.” In the e-mail, the representative stated that “[d]uring our most recent review of your site [Megaupload.com,]” Google AdSense specialists found “numerous pages” with links to, among other things, “copyrighted content,” and therefore Google AdSense “will no longer be able to work with you.” The e-mail contains links to specific examples of offending content located on Megaupload.com.

While the quotation appears to be carefully worded email relating to Megaupload.com‘s Adsense account, it is unclear whether the government is pursuing the role that Google played in shoveling money to the “Mega Conspiracy” prior to that termination, and whether all accounts that benefited the Mega Conspiracy prior to and after the email were in fact terminated.  Given the numerous examples of Google serving advertising to referring sites that drove traffic to Megavideo, this email quoted by the government actually raises more questions than it answers.

The DOJ also notes evidence that the Mega Conspiracy opened a Google Analytics account for Megavideo to provide data to help the company steal more efficiently, that apparently rose to the level of email exchanges with Google employees:

According to internal e-mails and documents obtained from Google, members of the Mega Conspiracy, including DOTCOM and VAN DER KOLK, began accessing Google Analytics reports for Megavideo.com, Megaupload.com, and Megaporn.com. The Google Analytics account was opened at least as early as November of 2008 under the name “TIM VESTOR,” which is an alias for DOTCOM. Google Analytics provides website measurement tools, such as the number of visits during a specified time period….

A particular Google Analytics report shows that between November 19, 2010, and February 18, 2011, Megavideo.com had roughly 1 billion visits. Less than 13% of these visits were “direct traffic” — meaning visits that were likely generated by the user having directly typed the URL link into the web browser or having bookmarked the URL link. More than 85% of the visits to Megavideo.com were from “referring sites,” meaning the user appears to have clicked a URL link on the referring site that directed the user to Megavideo.com. The top referring websites during that time period were third-party linking sites, such as seriesyonkis.com (more than 110 million referrals) and sidereel.com (more than 60 million referrals).

The reports from Google Analytics for the following time periods reflect similar data: February 19, 2011 — May 18, 2011; May 19, 2011 — August 18, 2011; August 19, 2011 — October 27, 2011….A particular Google Analytics report shows that between November 19, 2010, and February 18, 2011, Megaupload.com had roughly 1 billion visits. Less than 20% of these visits were “direct traffic,” and roughly 80% were from “referring sites.” The top referring websites during that time period were third-party linking sites, such as taringa.net (more than 50 million referrals), seriesyonkis.com (more than 25 million referrals), and multiupload.com (more than 20 million referrals). The reports
from Google Analytics for the following time periods reflect similar data: February 19, 2011 — May 18, 2011; May 19, 2011 — August 18, 2011; August 19, 2011 — October 27, 2011.

It’s not surprising, then, that the government obtained emails from Google relating to this level of traffic as it beggars belief that a Google Analytics customer with this level of traffic was just kind of getting an automated report.

These reports prepared by Google also demonstrates that Google knew or should have known that its terminated Adsense customer was in a business of getting most of its traffic from referring sites–and as Ellen Seidler has documented on Popup Pirates, these referring sites triggered pop up advertising pages that served “Ads by Google” and did so in the tens of millions.  Advertising for some of the biggest brands in the world.

There was clearly an Adsense account somewhere in this mix for these referring sites, even if the Adsense account for Megaupload got to hot to maintain.  It is now clear that Google was preparing reports that detailed exactly which sites were referring traffic to the Mega Conspiracy.

There are two questions that the DOJ has not asked as yet:

1.  What happened to the money that Google made on Google’s share of revenue paid to the Mega Conspiracy before May 17, 2007?  If this is like other instances where Google has profited from crime (as it told the BBC regarding advertising for counterfeit Olympics tickets, for example) and selling human growth hormone, RU486 and oxycontin, the only way Google will give up any of the proceeds from crime is if Google is criminally prosecuted.  So let’s get on that, shall we? and

2. What is the relationship was between Google and these referring sites documented in the Google Analytics statements it sent to the Mega Conspiracy, how were they paid, and did any of that income originate in the US or was the revenue disguised outside of the US (such as in Google’s China operations that played a leading role in Google’s payment of $500,000,000 for violating US controlled substances laws.  Did Google provide any income tax disclosure or filing regarding the income, including for its own share of advertising revenue?  (Actually paying tax might be a bit much to expect, but at least telling the government how much income it was not paying tax on might have happened.)  Was any of this income included in SEC filings and audited financial statements for Google and if not, why not?  What did Google’s CFO Patrick Pichette know and when did he know it?  Or perhaps John Dixon at Ernst & Young?

There’s a term for this…what is it again?  Oh, yes.  A Racketeer Influenced Corrupt Organization a/k/a how they sent  Michael Milken to prison and bankrupted his company for a lot less evil.  If the U.S. government is not going to pursue this investigation, Mr. Almunia is perfectly positioned to do so–why would he want to give an unprecedented third chance to a company that does not come to him with clean hands?

As the DOJ tells us:

On or about September 2, 2007, via Skype, VAN DER KOLK said to ORTMANN, “we’re modern pirates :-)”. ORTMANN responded, “we’re pretty evil, unfortunately”, “but Google is also evil, and their claim is ‘don’t be evil.’”

It takes a conspirator to know a conspirator.

Cramdown Part 3: War is Peace, Ignorance is Strength and Search is Neutral

December 19, 2012 Comments off

The hoopla over the FTC investigation of Google frames one of the most important questions for consumers: Does Google hardwire search results?

Google’s explanation for this has gone all over the map over several years.  Eric Schmidt denied that Google cooked the books in his testimony before the US Senate Antitrust Subcommittee (that the Senators did not believe); Google lawyer Jon Jacobsen denied that there is any (known) evidence to suggest bias); Marissa Mayer exclaimed that “it’s only fair!” for Google to promote their own services over others; and Google has consistently made legalistic statements that even if they do it, they have no legal obligation to assist rivals anyway, so it’s all perfectly legal.

We have said for years that it seems apparent that Google has hard wired YouTube search results above all others and extended its monopoly from search to video search by illegally subsidizing YouTube with Google’s monopoly profits from advertising–including advertising sold on pirate web sites.

Like Orwell’s Minitrue, Google would have you believe that SEARCH IS NEUTRAL, which has to go right up there with other half baked monstrations like WAR IS PEACE and especially IGNORANCE IS STRENGTH.

After a two-year investigation, the FTC has a pretty good idea of the answer and the public deserves to be told.  Up or down, right or wrong, the FTC is the best bet that the American consumer has to know exactly what is going on under the hood at Google.

An uninformed consumer cannot drive competitive markets.  The FTC has the power to either leave them in the dark (which is where Google likes them) or inform consumers through evidence trial and testimony under oath.  Ignorance is not strength, and Google should not be allowed to make the FTC an accomplice in their deception.

It’s time to come clean.  It’s time for transparency.

It’s time to bring this case to trial.

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