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@andreworlowski: Spotify wants to go public but can’t find Ed Sheeran (to pay him) — Artist Rights Watch

March 2, 2018 Comments off

How Shareholder Lawsuits Against Spotify May Have Just Gotten Easier

February 25, 2018 2 comments
maginot-line

The Maginot Line

The Digital Media Association is as obsessed with crushing the ability of independent songwriters and small publishers to sue companies like Spotify for copyright infringement as the industry negotiators are with presenting a new safe harbor for infringers like it was a fantastic give in the Music Modernization Act.  But at least where Spotify is concerned, as a public company they may be begging for the very statutory damages they are so anxious to eliminate.

Spotify lawyers like Christopher Sprigman and his compadre Lawrence Lessig have been trying to get rid of statutory damages and bring back 1909-style copyright registration for years.  (See also Pamela Samuelson and the list goes on.)

But now that the industry has acquiesced in both of those long cherished goals of the anti-copyright crowd, songwriters will have to look elsewhere to regain the kind of punch that they got with the statutory damages stick.  Why?  Because  a benevolent and patriarchal government is taking that stick away from the little guy and giving it to the largest corporations in commercial history.  (And recording artists and record companies–you’re next and you’ll know who to thank.  See Transparency in Music Licensing and Ownership Act that is quietly adding co-sponsors.)

But you say, what could be a bigger stick than statutory damages?  It might be shareholder derivative suits.  And Sprigman’s benefactor Google is a great example of what that means.

MTP readers will recall that we have written before about Google’s “dual class shares” that created 10 for 1 supervoting stock that is owned only by insiders like Eric “Uncle Sugar” Schmidt, Larry Page and Sergey Brin.  If you’ve ever watched the video of a Google shareholder meeting, you’ll have seen David Drummond (who has his own problems) reading out the news of how any shareholder motion that was not supported by the insiders was defeated–and massively defeated due to the supervoting stock.  The only thing that’s remarkable is that the shareholders keep trying.  Because while all shareholders are equal, at Google, some shareholders are more equal than others.  Ten times more equal if they give you voting stock at all.  Google shareholders give the right to be forgotten a whole new meaning.

That’s right–Google has what I call the “you break it, you bought it” class of stock that gives the insiders total control over all aspects of their corporation.  If you’re not an insider, your role is to shut up and enjoy the ride.  Don’t get me wrong–lots of people do.

But some don’t.  Most recently, a Google shareholder tried to question the company’s top executives about their pre-#metoo opposition to the Stop Enabling Sex Traffickers Act.

If you watch the video, you’ll get the idea.  Google is comfortable with their opposition to stopping sex trafficking in favor of profitable safe harbors, so sit down, shut up and count your money.  That should demonstrate two things:  First, the Alphas are not interested in anything anyone else has to say although they will go through the motions to tolerate the poor Epsilons.  Second, these policy positions and more importantly corporate actions are solely the responsibility of the insiders in the More Equal Than You system of corporate governance.

And guess what?  Bloomberg reports that Silicon Valley mogul wanna be Daniel Ek mimicked the Google model with the supposedly egalitarian Spotify.

Chief Executive Officer Daniel Ek and Vice Chairman Martin Lorentzon own a class of stock that assures their hold on the company after the shares begin trading, said the people, who asked not to be identified because the terms aren’t public. Another class will be tradeable by investors.

That means public investors will be able to own part of the world’s largest paid music service in the next couple of months, but won’t have much say about its future. Years after going public, some of the biggest technology companies, including Google parent Alphabet Inc. and Facebook Inc., remain under the control of founders who hold shares with super-voting rights.

Company founders employ so-called dual-class structures to take advantage of the perks of being publicly traded without surrendering control. Such owners can make acquisitions that dilute their economic interest without loosing their grip.

Ek, who co-founded Spotify about a decade ago in Stockholm, has looked to such companies for direction. He invited Facebook founder Mark Zuckerberg to his wedding and has publicly praised the leadership of Snap Inc., which gave its investors no voting rights in its initial public offering last March.

If the Google shareholder meetings are any guide, it’s not that investors won’t have much say, they won’t have any say at all.  Unless they are sued by their stockholders in what is called a shareholder derivative suit.  A shareholder suit is when a shareholder sues the corporation’s officers or board of directors for a cause of action against the corporation that isn’t being brought because it would require the board of directors to sue itself.  These are often based on breach of fiduciary duty.

Case in point:  Google’s sale of advertising promoting the sale and distribution of illegal drugs.  Google signed a nonprosecution agreement with the Department of Justice, second cousin to a plea bargain, after a four year grand jury investigation, producing four million documents to the investigators and paying a $500,000,000 fine.  Walking around money for Google, but nobody was fired and according to the U.S. Attorney bringing the case, the paper trail implicated Google’s senior management including Larry Page (which disclosure resulted in an apology to Google from the DOJ and the “muzzling” of the US Attorney,)

Shareholders were pissed and a pension fund brought a derivative case (read the complaint) against the Google board including Page, Brin, Schmidt, John Doerr and Sheryl Sandberg.  (Yes, that Sheryl Sandberg.)  This case resulted in a settlement that required Google to spend over $250,000,000.

Shareholder Suite

So this is the kind of thing that stockholders bring themselves when they know that the government never will and there’s a case to be made.  Shareholder suits are kind of like the “private attorney general” laws that used to be in the Copyright Act where the government avoided the burden of actually enforcing its laws itself and instead relied on the market to do so.  How did they do this?  By giving private actors a big stick like the statutory damages and attorneys’ fees (recent precedent notwithstanding) they are now taking away from songwriters in the Music Modernization Act.

But never fear–songwriters who are also Spotify stockholders will still have the stick of shareholder derivative suits to go after malfeasance in the boardroom.  Shareholder derivative suits are in a very broad sense kind of like class actions, something Spotify is very familiar with.  The class is stockholders and the defendants are often limited to the officers and directors of the company for doing things like, oh, say, committing massive acts of willful copyright infringement that probably could be criminally prosecuted if there were any prosecutors with the chutzpah to actually enforce the copyright law.

And once Spotify sells shares to the public, the insiders may control the infringement but they can’t control who buys their stock.

Since Mr. Ek seems to want to be just like Google, maybe he’ll be just like Google in another way, too.  And remember–this is just the beginning of the disclosure of the inner workings of Spotify that will start to dribble out as its SEC disclosures become due and payable.  And these supervoting stock classes are a very good way to demonstrate that you broke it, you bought it.

You want all the control?  Well, you got it.  And having all the control means having all the responsibility, too.  Just ask Uncle Sugar.

 

@songpreneurs: Why Is Tom Petty Suing Spotify and How Does This Relate to the Music Modernization Act? — Artist Rights Watch

January 8, 2018 Comments off

[Editor Charlie sez:  Another songwriter group against the controversial Music Modernization Act! See the Songwriter’s Guild opposition letter here  and read the legislation here.]

The end of 2017 and beginning of 2018 has seen a flurry of activity as headlines reveal another $1.6 Billion Dollar Lawsuit against the tech streaming online distribution company, this time by Wixen Music Publishing, who represent compositions by Neil Young, Tom Petty, Rage Against the Machine and others.

This latest lawsuit joins nearly half a dozen other class action / lawsuits against Spotify by independent music creators and rights administrators filed in the past two years.

“The Trichordist” blog collaborator, Cracker and Camper Van Beethoven front man, David Lowery of Athens, Georgia and songwriter Melissa Ferrick successfully sued Spotify and settled with a $43.4 Million Fund for unpaid songwriter and publisher royalties last year.

Around the same time the NMPA (National Music Publishers Association) also stepped in and made their own $30 Million settlement with Spotify as reported by Robert Levine in Billboard in May of 2017.

Nashville / Texas based Bluewater Music Services Corp filed a lawsuit against Spotify in 2017, led by champion of the underdog attorney Richard S. Busch, the same lawyer who represented the victorious Marvin Gaye estate in their “Blurred Lines” infringement case, and helped Eminem successfully stand up to EMI when his rights were being squashed in the name of commerce.

The Bluewater suit and yet another Spotify lawsuit by an independent music publisher, Rob Gaudino are both detailed in this Variety article “Spotify Faces Two New Lawsuits From Music Publishers” by Janko Roettgers in July 2017.

 These lawsuits highlight Spotify’s ongoing battle to do business with its suppliers, the songwriters and music publishers who are forced through federal regulation to make their material available to Spotify and other streaming companies against their will through a practice known as Compulsory Licensing, whereby the rights owners are not permitted to deny usage of their intellectual property.

What kind of negotiation can actually happen if one party cannot walk away?  Not much, we are proving.

Read the post on Songpreneurs

 

Just Say No: Will Spotify Still Be Seeking Forgiveness During Its IPO?     

June 5, 2017 Comments off

[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.)

Spotify CO May 12

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-wide
effort (to include representatives of composers, publishers, streaming services,
labels, and others) with the goal of obtaining and digitizing all U.S. Copyright
Office 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

August 25, 2016 Comments off

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

August 22, 2016 Comments off

 

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?

via @hannajkarp: Will Pandora Be Allowed to Create A Spotify-Style Black Box for Songwriters AND Screw pre-72 Artists? — Artist Rights Watch

daniel-ek-spotify-ceo-2012billoardspoof-2

David Lowery is Spotify’s Worst Nightmare

March 10, 2016 1 comment

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.

 

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