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Universal Leads Royalty Deadbeat Facebook Out of the Cold With Precedent Setting Licensing Deal

December 21, 2017 1 comment

This is what happens when you stick to your property rights–Bloomberg reports that Facebook, aka royalty deadbeat, has signed a multiyear licensing deal with Universal Music Group:

Facebook Inc. signed a multiyear licensing deal that lets the social network carry songs and artists from the world’s biggest record label, Universal Music Group, across its platforms.

The deal announced Thursday solves a long-running dispute, with Facebook agreeing to compensate the company and artists including Taylor Swift when users post videos that include copyrighted material. The accord includes Facebook, Instagram and Oculus virtual-reality technology, with Universal saying the company would become a “significant contributor” to the industry.

The deal sets Facebook up as a more direct competitor to Google’s YouTube, the most popular destination online for listening to music. Both technology giants are battling for a bigger share of people’s time, and music rights could help Facebook give users new ways to engage with its services.

The deal appears to cover UGC and no doubt includes both a settlement for the past (“solves a long-running dispute”) as well as a go forward license.  There may well be more settlements and licenses in the offing, but one fact is crystal clear–Universal was the only one of the rights owners that had the guts to stand up to Facebook by bearing down on sending the DMCA notices that allows Facebook to hoist their users as human shields from infringement claims.

As many have noted, Universal’s enforcement team did the thankless yeoman’s work that helped to remind Facebook that not only are there enforcable property rights online and offline, but Facebook would actually do much better for its stockholders and users by cooperating with artists, songwriters, labels and publishers.  It’s possible that Facebook is coming in from the cold and putting aside all that Lessig claptrap that is soooo 1999.   Claptrap that has only resulted in losses as far as the eye can see, not to mention endless hostility and gasoline known as Lyor Fully Leaded.

Credit where it’s due, it must be said that unlike Google or Spotify, Facebook has–so far–avoided the scorched earth litigation that is the hallmark of Silicon Valley’s relationship with artists and songwriters.  That decision had nothing to do with the negotiation team and everything to do with a corporate policy.  So we will see if Facebook is for real.

It also must be said that the Universal deal shows the importance and power of statutory damages.  The only leverage that anyone has against massive infringing by multnational technology companies is the power of statutory damages and attorneys fees provided in the U.S. Copyright Act.  Not everyone has Universal’s heft–class actions based on statutory damages is about the only route that many artists, songwriters, labels and publishers have against systematic and intentional knowing infringers like Facebook.

Under a Red Flag: The Other Side of Whack a Mole–will it be back to the future for MCNs?

February 21, 2013 Comments off

Après moi, le déluge

Attributed to King Louis XV of France

Right after Google’s YouTube acquisition, Googler Zahava Levine appeared on a bar association panel in Los Angeles and sneered at the assembled entertainment lawyers that even though YouTube was using their clients’ works without permission, YouTube would continue to rely on the DMCA notice and takedown.  Unless, of course, “Hollywood” wanted to stop playing whack a mole and make a deal.

And the assembled room witnessed the birth of an urban legend: The Notice and Shakedown.

And what  many told me they thought (after where do they find these people) was why would Google want to play whack a mole.  Surely this game of “catch me if you can” is going to come back to bite them?  (See Parlophone.)

Fast forward a few years and enter the multichannel network (or MCN), somewhat shadowy groups of content producers and aggregators on YouTube.  If I had to bet, my bet would be that when Google contract with MCNs, Google place a fig leaf on clearances for music used in MCN programming–they place the burden on the MCN.  If Google then gets a claim for infringement, they simply tender it to the MCN as an indemnity claim.

Enter the Very Successful MCNs.  These MCNs make real money and attract real investment, sometimes from Google itself.  Based on the announcement of the Universal deal, it now becomes apparent that there must be a significant amount of uncleared music on these MCNs.  And, of course, if Google invests in an MCN that has a contract with YouTube…Google will have diligenced the MCN as part of its investment (or certainly had the chance to do so).

So what does that mean for Google’s “see no evil” version of its Notice and Shakedown defenses?  I think it’s called “actual knowledge” that appears under a red flag.

Why is this meaningful?

Hard on the heels of the news of Universal’s deal with Fullscreen and Makers, the National Music Publishers Association made it clear that just because one publisher made a deal with two MCNs doesn’t mean that those two MCNs don’t have a problem with other songwriters, and that other MCNs don’t have a problem with all the songwriters.

‘Recent news that two large multi-channel networks (MCNs), MakerStudios and Fullscreen, have reached a licensing deal with Universal Music Publishing Group is an important first step in compensating songwriters.  But let me be clear – all MCNs must be licensed for the use of all songs. This agreement between two MCNs and one music publishing company does not solve the entirety of the problem.  As the popularity of digital entertainment has grown, MCNs have significantly profited, often without compensating the songwriters whose work is being used.

Those who use the works of songwriters in videos must fairly compensate those songwriters and music publishers, and NMPA is committed to finding a complete solution.”

So let’s crystallize that for the MCNs:  If you get down on your knees and beg to be sued, don’t be surprised if someone sues you.

And your good buddies, you know, your “partners,” at Google?  They will throw you under the bus in a heartbeat.  If they haven’t already.

Listen up–Google advertised the sale of prescription drugs to kids.  They distributed sex club apps that exploit teens.  Do you really think people who can do that give a damn about an MCN?

And ask yourself this Mr. MCN investors–why do you want to play whack a mole?  What possible motivation could you have?  Because you don’t make as much money as Google, so your profit motive is radically different than theirs.

I’d say there’s another element of brilliance to the Universal deal–they got their songwriters’ money out first.

Bringing Multichannel Networks in From the Cold: Universal’s Deal with Fullscreen and Maker Studios

February 19, 2013 Comments off

We’ve all heard the various canards from the freehadis–you can’t compete with free (meaning you can’t compete with advertising-supported piracy), and as recently as yesterday in the Guardian, the explanation for piracy is that music and movie companies haven’t “updated their business model” (whatever in the world that means), so they deserve to be stolen from.

But we rarely hear about the successes–for example, Napster (the elder) had a deal with the Harry Fox Agency and AIM, major labels licensed p2ps through SNOCAP, etc.  So here’s the latest success you won’t hear about (much)–Universal Music Publishing (home of one big-ass catalog) has licensed not one but two of the heretofore shadowy YouTube “multichannel networks” (or “MCNs”): Fullscreen and Maker Studios.

The deal is a huge feather in the cap for Universal.  The main reason?  Fullscreen and Maker have their own channels on YouTube for which they (a) produce most of the programming and (b) get a better split of advertising revenue than your average bear posting a video on YouTube (which can involve a direct sales team that sells ads on the channel).

Part of coming in from the cold is that we don’t look too much at the fact that these channels were around before they did their deal with Universal….others may not look so kindly on them.

For producers at an MCN, they know that if they use music licensed by Universal Music Publishing in accordance with the deal, they don’t have to worry about getting a claim later.  For executives and board members at an MCN, they know that they don’t have to worry about embarrassing their investors (especially investors from the movie business…not mentioning any names) with a lawsuit.  A particularly pointless lawsuit when a license is available.

And here’s the real lesson:  most of these licenses start with a claim for the infringing use of the works concerned.  The artists and songwriters would almost always prefer a license and license terms are frequently offered although often rejected.  History is strewn with the remains of those who tried to place themselves above the law, often against the advice of their own counsel.

Who are the real winners in Universal’s license of these MCNs?  First and foremost are Universal’s songwriters.  They will now be getting a share of the better advertising revenues that MCNs can negotiate with YouTube instead of zero.  Video producers at the MCNs also benefit from what is essentially an umbrella deal allowing them to use Universal’s songs.  (Umbrella deals is a technique long used in the music business with repeat users of music.)  Advertisers on MCNs benefit because they cannot be accused of supporting piracy.

And of course the MCNs themselves benefit because they can tell investors that the MCN is operating within the law and do not have to waste money on pointless litigation.

We assume that the MCNs are busily trying to do comparable deals with other music publishers so that their songwriters will also benefit.  Once again, Universal has demonstrated its “tough but fair” side and shown leadership.  Certainly, Universal is not the only big publisher who could have done this.  But they were the first and we have to assume there will be others.

Of course, the deal doesn’t take care of the inherent claiming problems within the YouTube CMS system or the endless screwups at YouTube–all of which increase the transaction costs of doing business with sloppy partners.  (And transaction costs ultimately reduce the royalties.)  It also doesn’t cover what must be a rather large pot of money due to YouTube’s policy of “monetizing” songs without having a license from all of the songwriters or their publishers on particular songs.  (Meaning that if a song is co-written–and there are tons of those–and if YouTube has a license from one of the writers, YouTube will “monetize” that song and accrue the songwriter royalties until the other songwriters come forward…which may be…never?  Do you think “catch me if you can” Google would actually reach out to find a co-writer? Can you say “red flag knowledge”?)

Extracting this unallocated revenue from YouTube will no doubt be an even bigger fight than songwriters had over the recent “pending and unmatched” settlement.  At least when you are dealing with record companies, they will pay up.  By comparison to Google, record companies pay up without a struggle.  Google is more than happy to pay songwriters–when you get a final, nonappealable judgement in every country in the world.  Or when you fight your way through a defective content management system that would give Mrs. Palzgraf the heebie jeebies.

It appears that Universal’s direct deal with the MCNs may well sidestep the unallocated problem with the larger YouTube because Universal likely can fix the YouTube matching problem at the source since MCNs license the music directly and report the revenue directly, too, which hopefully will translate into more control over the reporting for MCN revenue shares.

But Universal has shown one of the most important principles in the digital economy–make sure that all the people who want to play nice have a license, but more importantly make sure they pay you and that you are getting a straight count.

For more detail, see the Billboard coverage.

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