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Just Say No: Will Spotify Still Be Seeking Forgiveness During Its IPO?
[A version of this post appeared in last month’s MusicTechPolicy Monthly.]
While Spotify’s technocrats may be breathing a sigh of relief after the company’s most recent multimillion dollar settlement with songwriters, it is well to remember that the company is probably not anywhere close to out of the woods. As others have learned the hard way, once you replace the rights of songwriters and artists with your own lust for IPO riches, the lawsuits can go on for a very long time indeed. You would think that after nearly 20 years of massive infringement online, the obvious answer would suggest itself to the “get big fast” group: Don’t use music you don’t have rights to use.
Yes, that’s right. Just say no.
The typical reason given by interactive services about why their need to offer unlicensed music exceeds their desire to offer only licensed music is because of competitive pressure from YouTube. Why do they feel this competitive pressure? Because their investors tell them at every board meeting that they should feel it. But let’s be clear–I doubt that Tim Cook gets Eddie Cue in a headlock over the issue over at the Infinite Loop. If you agree, then that kind of narrows it down.
But entertain that idea for a moment, however ill founded. Why is YouTube able to sustain this competitive position that supposedly makes otherwise licensed services soil themselves with fear of being undercut and overrun by YouTube?
That’s right–the “DMCA license”, or YouTube’s absurd use of the “safe harbors” granted to them under the U.S. Copyright Act which YouTube likes to think makes them bullet proof. (Which is also what Cox Communications thought until they weren’t and is probably what Facebook thinks, too.)
So get that straight–some would say that The Golden Child (aka Spotify) is to be allowed to limp their way to the increasingly inexplicable goal of some kind of big financial reward (or “exit”) in an IPO of whatever stripe while we are all asked to look the other way and allow them the same shite arrangements that YouTube enforces through lobbying, litigation and unprecedented monopoly position (aka crony capitalism).
And you thought it was all about the “Value Gap”? Apparently not.
We are being told that the licensing practices of interactive services should be allowed to look more like YouTube’s widely loathed safe harbor and YouTube tries to make us believe that they are really pro-artist. We are asked to hold the proposition “A” and the proposition “not A” in our heads simultaneously. It can be done, but it is rather uncomfortable and it is uncomfortable because in this case it is unnatural. Not to mention, it is, of course, all bull. Irving Azoff crystalizes the view no doubt held by everyone who has ever dealt with any of these people:
“The truth is that, despite having to compete with services like YouTube who hide behind outdated, safe harbor protections, legitimate services like Spotify and Apple Music are attracting more subscribers than ever,” he continued. “If YouTube had the same level of commitment, their subscription service would be more than a head fake—and they’d be working hard, like Spotify does, to convert users to the paid tier for unlimited music. Maybe Google should do a study on that.”
The difference is that Irving is actually looking out for the best interests of his clients and is not afraid to tell the truth. The one clarification I have to his assessment is that Apple doesn’t seem particularly worried about their competitive position–it is Spotify that runs to the Nanny State at every turn and files mass “address unknown” NOIs all the livelong day.
And then, of course, the whole “Value Gap” concept is only half right–it should really be called the Pinto Gap, because it’s not just that Google decided to make money off the backs of artists and songwriters through a distorted loophole. Google also made that choice to be a knowing mass infringer the same way Ford decided to knowingly sell consumers its Pinto model with an exploding gas tank. It profited them to do so, just like it profits them to trade in terror recruiting videos.
So the Pinto Gap is not much of an excuse for either a competitor service, the DMCA safe harbor, or as a policy the industry should support. (And that goes for Facebook, too.)
As it stands now, it would at least potentially be a big mistake to assume that Spotify has done sufficient ameliorative work to be prepared for the big bucks to roll in (for everyone except the songwriters and artists). All that these songwriter settlements have done is allow songwriters the chance to earn a royalty from Spotify that starts two or maybe three or maybe four decimal places to the right, depending on the month and which of Spotify’s two main services are serving the song or recording. This is not particularly exciting news for songwriters once the bloom is off the class action rose.
It’s entirely possible that a lawsuit could be brought by any songwriters who are not part of the latest class action or a private settlement. That certainly would explain why Spotify showed a sudden interest in serving hundreds of thousands of notices on the Copyright Office using the “address unknown” NOI loophole. The company has probably been advised this tactic would fend off future infringement lawsuits and allow Spotify to use songs under the compulsory license. It might, but there is a telling section of the settlement document (at p.4) that echoes my own criticism of the mass NOIs (so naturally it caught my eye):
Spotify will invest time and resources to initiate and support an industry-wideeffort (to include representatives of composers, publishers, streaming services,labels, and others) with the goal of obtaining and digitizing all U.S. CopyrightOffice registration records for musical works registered before January 1, 1978,and making that information far more accessible to the Class. (my emphasis)
Why is that language intriguing? Because it is likely there for a reason the language dances around–the public records of the Copyright Office are only searchable online for registrations or recordations after January 1, 1978 and are paper records before that date. We have long believed that digital services are not going to search the paper records of pre-78 works but are going to file mass NOIs based on “address unknown” status on pre-78 works without actually checking to see if the address is in the Copyright Office records. Why? Because when you’re born digital you don’t stoop to looking through paper. And because it is consistent with their “seek forgiveness not permission” approach that is proving so costly. Even if they get sued faster than a three finger swipe.
That’s also not going to help them with any stream rips of live shows that have found their way into the extremely porous aggregators that distribute to these services or any other illegal distributions of sound recordings for which a compulsory license isn’t available in the first place.
In other words, if Spotify (or any other service) relies on the mass “address unknown” NOI loophole for pre-78 works without doing the proper research, they are potentially right back where they started–if not worse, because they potentially have misfiled their mass NOIs on a grand scale. And you know who is good at looking into things done on a grand scale is a grand jury.
So it comes down to the same issue–if the service really is all that valuable, then wouldn’t the fastest way of identifying song owners be by refusing to post their songs until there’s a license in place? Particularly if you don’t buy into the Pinto Gap excuse? Isn’t the market much more likely to produce that information in an efficient way through the exercise of leverage and rules? You know, like the Copyright Act?
Spotify IPO Watch: Blame ≠ Profit — Music Tech Solutions
A combination of factors have gotten Spotify where it is now. Market conditions, bad management, arrogance, stiffing songwriters and getting too big, too fast. Until all those things change to one degree or another, it’s likely that the Spotify IPO myth will remain just that.
via Spotify IPO Watch: Blame ≠ Profit — Music Tech Solutions
@hannajkarp: Will Pandora Be Allowed to Create A Spotify-Style Black Box for Songwriters AND Screw pre-72 Artists? — Artist Rights Watch
Members of MIC Coalition That Lobbied DOJ for Changes to ASCAP and BMI Consent Decrees
Songwriters are about to allow another digital service to launch with all the makings of another Spotify-style black box. How will Pandora use the new Copyright Office NOI filing rules to screw songwriters and will foreign societies allow a US user to benefit from blanket licensing when it is not fully licensed in the US?
David Lowery is Spotify’s Worst Nightmare
It’s important to remember that David Lowery could have just sued Spotify over his own catalog. He didn’t do that. He brought a class action for the good of all songwriters who get overlooked and disrespected by Spotify and that’s a lot of people. I don’t know Melissa Ferrick, but I would bet the same could be said of her.
The plaintiff who can’t be bought off is a defendant’s worst nightmare. This is particularly true in David’s case because in addition to whatever money damages the class may be awarded, David is also asking for an injunction to require Spotify to bring in an independent third party compliance examiner to fix Spotify’s massive failure to identify copyright owners.
That injunction is probably more fear-inducing than whatever the payment might be, because that will once and for all fix the problem and eliminate the slush fund–or force Spotify to stop exploiting uncleared tracks. Make no mistake–unpaid royalties are a source of interest-free loans. While each songwriter may be owed a relatively small amount on average, when the service holds on to royalties they owe to thousands of songwriters, that can add up to millions of dollars.
Why do I think that Spotify is most afraid of someone they don’t control getting inside the company and looking under the hood? In Spotify’s motion to strike Lowery’s class action (and in the cut and paste job filed in Melissa’s case) Spotify’s lawyers say:
Next, Plaintiff wrongly contends that whether Spotify “made accurate royalty payments” is a common question [among class members]. To the contrary, that question could be answered, if at all, only on an individual song-by-song basis, and only after a detailed investigation into the streaming history and licensing circumstances of that song, as well as an accounting audit with respect to that song.
That task will be daunting—if not impossible—as it will require individualized inquiry into the royalty payments for each song.
Set aside how ludicrous it is to question whether getting stiffed on royalties is NOT a common question among the songwriters who got stiffed, the lawyers are right that it would require “a detailed investigation into the streaming history and licensing circumstances of that song, as well as an accounting audit with respect to that song.” But the Spotify lawyers are wrong about this: “That task will be daunting—if not impossible—as it will require individualized inquiry into the royalty payments for each song.”
That’s called a royalty compliance examination in the trade, sometimes shortened to an “audit”. Audits are neither “daunting” nor “impossible.” These audits happen all the time. In fact, they happen so frequently that the Harry Fox Agency has been conducting an audit of Spotify for several months now according to statements made by HFA representatives at the California Copyright Conference this week.
You may ask how could HFA be conducting an audit of a service for which it rendered outsourced song research and royalty accounting services. You may also ask, isn’t that HFA auditing itself? And these are questions you certainly should ask.
If HFA can audit Spotify, it sounds like what David is asking for is not “daunting–if not impossible” at all. It’s so possible that Spotify probably has already accrued a liability account to cover the HFA audit settlement payment to the songwriters represented by HFA’s publishers.
So let’s be clear–David is not in this to enrich himself. These positions are not those of someone who is looking for a quick payment. They are the positions of someone who wants to get to the truth.
And exactly what Spotify needs if they want to ever get out of the haunting treachery that Spotify have managed to smear all over themselves. Spotify should want what David wants–a court supervised examination of Spotify’s accounting practices. That’s the problem that Spotify has with plaintiffs like David and Melissa.
Because the question Spotify can’t answer is why they knowingly used the music without a license.
These plaintiffs want what’s right for everyone. And that’s a big problem for Spotify.
Future of What Podcast on Songwriter Class Actions Against Spotify
The Future of What is a great podcast series with the awesome Portia Sabin on important topics in the music business. In this episode, Portia dives into the class actions against Spotify with a series of interviews including songwriter (and plaintiff) Melissa Ferrick, Howell O’Rear, Christiane Kinney and me.
More Fancy Stuff From Spotify Against David Lowery
I’ve been reading over Spotify’s papers filed in response to David Lowery’s lawsuit against the company and noticed a couple of things. One that is hiding in plain sight, so to speak, the other that is quite a gloss on reality.
The Case of the Purloined Stream
Recall that Spotify has said several times that they want to pay “every penny” they owe songwriters, they just need to know who to pay. (Leave aside for the moment that this is more “Fancy” Grade bullshit because they actually don’t need to know who to pay in order to rely on the compulsory license–they just need to send the U.S. Copyright Office a notice of their intention to rely on the compulsory under the plain language of 17 U.S.C. Sec. 115(b)(1)–“If the registration or other public records of the Copyright Office do not identify the copyright owner and include an address at which notice can be served, it shall be sufficient to file the notice of intention in the Copyright Office”. While this may not be popular at the Copyright Office, I’m sure some accommodation could be worked out.)
Recall also that Spotify said in the company’s blog that:
[w]hen one of our listeners in the US streams a track for which the rightsholder is not immediately clear, we set aside the royalties we owe until we are able to confirm the identity of the rightsholder. When we confirm the rightsholder, we pay those royalties as soon as possible.
So why is it that the lawyers for Spotify did not inform Judge Beverly Reid O’Connell of their client’s action in the responsive papers? That begs the question, what is different about a blog post compared to a court filing?
Perhaps it is because the lawyers filing the court papers have an obligation as officers of the court not to make a false or misleading statement to the Court? Perhaps it is because the statement in Spotify’s blog post is not, strictly speaking….whatchamacallit…I guess you’d have to say “true”?
When Is A Job Not A Job?
Spotify’s lawyers are–quite understandably–throwing the Fancy against the wall to see how they can knock this suit out of the box in California where Spotify applied to do business as a foreign corporation:
One way they can do this is to prove that Spotify has insufficient contacts with the judicial district where the suit is filed to permit the Court to assert jurisdiction over Spotify (sometimes called an “inconvenient forum”), a common delaying tactic. Even so, it is becoming clear that Spotify wants to fight the case in New York. Here’s an example of that argumentation:
Plaintiff’s complaint points to only one form of contact that conceivably reflects Spotify’s direction of contacts towards California in particular: Spotify’s two California offices. But those offices are irrelevant to specific jurisdiction, because they are not related to this lawsuit….Spotify’s two small offices in California do not fit the bill. They employ a total of approximately 50-60 employees. This is far less than the 450-500 employees located in New York, which is the hub of the company’s United States operations. All but eight of these employees work in roles unrelated to the content part of Spotify’s business….The majority of California employees work in advertising sales and of the few California employees who perform work related to the content side of Spotify’s business, not a single one is involved with music composition licensing—the subject matter of this litigation.
High level, Spotify argues that if the defendant in a lawsuit has not originated contact with the particular judicial district by actions related to subject matter of the particular suit, then the defendant may be able to have the case removed to a judicial district where the plaintiff has more relevant business contacts, New York in Spotify’s case. Spotify is arguing that all the jobs that relate to Spotify’s publishing business are in New York–aside from the fact that Los Angeles is a major music industry hub and aside from the fact that the parent corporation of Spotify’s clearance agents the Harry Fox Agency has extensive offices in Los Angeles.
So remember–Spotify’s lawyers tell the Court that “not a single one is involved with music composition licensing.”
Imagine my surprise to find this job posting for a Los Angeles-based Director of Publisher and Songwriter Relations, North America on the Spotify website:
Particularly because the job description provides for the Director of Publisher and Songwriter Relations, North America to work on “reporting…finance and legal.” A director level job often reports to a senior director or VP and has various managers reporting to the director.
Sounds like a pretty “Fancy” job.
So perhaps what the lawyers meant to say was “not a single one is involved with music composition licensing”–yet.
Spotify’s Reply To @DavidCLowery: When the going gets tough, the tough get fancy
“And if they could talk to one another, don’t you think they’d suppose that the names they used applied to the things they see passing before them?”
The Allegory of the Cave by Plato, line 515b2.
David Lowery is leading a class action lawsuit against Spotify for failing on what appears to be a massive scale to do three crucial things: license rights, pay reproduction or “mechanical” royalties for songs it exploits, and fix Spotify’s deeply flawed song licensing and essentially nonexistent mechanical royalty accounting systems for the future. Songwriter and recording artist Melissa Ferrick has separately brought a similar class action.
It’s A Mystery
We now have a legal response from Spotify to give us some idea of how Spotify wishes the world to view its excuse for its massively flawed song licensing practices. And here is what it boils down to–because there has never been a “global rights database” in the history of recorded music, it is just impossible to know (1) who owns what, (2) what any song might actually be given similar song titles, (3) which songs might be in the public domain, and (4) how the music industry has managed to stumble along for the last 100 years is a mystery of biblical proportions. And oh, by the way–any claim to class membership will be as complex to solve as the Happy Birthday case. Because songwriting is, as Philip Henslowe might say, just a big mystery.
A mystery that justifies massive copyright infringement.
The Ontological Definition of Risk
One might think that the absence of such a database would be a reason that songs did not get exploited at all, for who could ever know anything about anything having to do with any song?
And since you couldn’t know, that is, because according to Spotify it is an ontological certainty that it is beyond human comprehension to acquire any concrete knowledge of the existence and form of any song, anyone wishing to use any songs without a direct license with a robust indemnification would have to be INSANE?
No wait–Spotify’s unspoken conclusion appears to be that because obtaining such knowledge is impossible, then Spotify have done nothing wrong. Meaning everyone should be able to exploit all songs in any way they like without fear of any day of reckoning because it’s all just a mystery. That’s certainly what Spotify did and what they now seek absolution for. Plus–Spotify cites to the U.S. Copyright Office and the National Music Publishers Association to support this very argument. (Which of course is in the category of what a great man once called “pure applesauce” or as a less great man said, pure unadulterated “Fancy” Grade Bullshit.)
So what makes bullshit “Fancy”? Spotify’s lawyers actually do an excellent job of revealing the contours of the business risk that Spotify intentionally undertook when they launched the company in their biggest market. Because the obvious conclusion one comes to in reading this parade of horribles and red herrings trotted out by the lawyers is that knowing all these risks, Spotify did it anyway.
And that’s the part where the lawyers don’t do such a great job. They never once called Judge Beverly Reid O’Connell’s attention to Spotify’s public statements about accruing royalties for unlicensed songs. Because it seems that the lawyers are actually arguing against their client’s public position–if Spotify can accrue royalties for songs they know are not licensed (setting aside the question of how they even know what rate to accrue royalties at for unlicensed songs), then how can it be that Spotify has no way of knowing which songs are unlicensed based on the lawyers’ parade of horribles? According to Spotify:
When one of our listeners in the US streams a track for which the rightsholder is not immediately clear, we set aside the royalties we owe until we are able to confirm the identity of the rightsholder. When we confirm the rightsholder, we pay those royalties as soon as possible.
So at best these songs are “known unknowns”–Spotify knows that it doesn’t know who owns the song. That precludes a direct license for the known unknown (otherwise the song would be a known known), and probably means that Spotify did not send in the unknown copyright owner NOI to the Copyright Office. Of course, that also means that Spotify knows that it exploited the song without a license…which is kind of the point of this whole thing, right?
So which is it–Spotify knows which songs are not licensed and are accruing royalties at some theoretical rate (to the tune of millions of dollars according to press reports), or song ownership is such a mystery that such an accrual is not capable of mortal knowledge?
Don’t you think the Court might want to know about that accrual part? And learn it from Spotify’s lawyers? Or do you think that if they raised it the Court might be confused by that A and Not-A business?
Spotify has told us that they intend to pay every penny they owe and they have accrued royalties for songs for which they have no licenses. That means they know which songs they have been using and for which they have accrued royalties. Now that Spotify has been called out, rather than publishing a list of these songs, Spotify tries to hide behind the lack of some unicorn database to excuse their bad behavior. A unicorn database that has never existed. And certainly never existed when Spotify decided to enter the U.S. market.
Because if the situation really was as dire as Spotify would have you believe, then how could they ever believe that any license they ever get for anything is real, that it actually represents anything more than a flickering shadow on a cave wall? So why pay anyone anything ever?
The Better to Stream You With, My Dear
And this is where the bullshit gets really fancy. Because whatever the Copyright Office, NMPA or anyone else said about the desirability of the unicorn database, they never said that their general comments about the general state of things that would be nice to have supported the theory that Spotify could feast on the creative output of generations of songwriters without licenses or compensation in the absence of the unicorn.
These cases are of particular interest because they expose both Spotify’s hypocrisy and the potentially fatal flaw that streaming music boosters simply do not want to acknowledge–streaming services are in such a mad rush for IPO riches that they have little idea what music is or is not licensed. Spotify’s hypocrisy because it has from the beginning tried to mask its craven greed in the mantle of saving the music business from piracy like the Big Bad Wolf in grandma drag.
When the Going Gets Tough, the Tough Get Fancy
To put this in perspective, estimates in the press are that Spotify has failed to license or pay royalties for at least 10% of the total number of songs that Spotify offers on its service, and some estimates are as high as 25%.
Before you blow that off as a small percentage realize the number of songs that Spotify is distributing–some 30 million songs with daily increases of tens of thousands. So that means that Spotify has failed to license about three million songs at a minimum.
Three million songs. This is copyright infringement on a massive scale, a scale so large that it sounds…well, what would you call it? Certainly big enough that it overwhelms the ability of any one songwriter to effectively bring the law to bear.
This is the kind of scale that one would expect the government to get involved with.
At least you might expect the government to get involved if you thought that songwriters should expect at least as much protection from their government as do their cousins amongst the primates, amphibians and fowl, not to mention the land itself. For it is undeniable that the brown pelican, the snail darter, the desert tortoise and even wetland marshes get greater protection from the U.S. government than songwriters. Or as an afternoon hanging around committee rooms of the Texas Legislature will show you, hogs have more lobbyists than artists.
So if you’re asking yourself why David Lowery and Melissa Ferrick have to sue Spotify for massive failures to comply with the law instead of the government, there’s a simple explanation.
Songwriters are just the wrong species. Ask BP what happens when you pull that kind of thing on a brown pelican.
So make no mistake–that’s why the songwriters have to take care of what should be the government’s problem. And that’s some pretty fancy bullshit.
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MusicTechPolicy Podcast: Chris Castle and David Lowery Discuss Facebook’s Massive Infringement
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