Well, you can never say that performance rights organizations are unwilling to explore every option when attempting to snag a bit more income, ostensibly for their roster artists. American PROs (ASCAP, BMI, etc.) have attempted to collect from Girl Scouts, every cell phone owner with a ringtone and argued that a single person listening to their own music via the cloud is a "public performance." British PROs (PRS, mainly) have levied fees against pretty much any small business that has the audacity to play radios at an audible volume, as well as succeeding in collecting fees for "public performances" from hotels/motels who provide in-room radios for their guests. SABAM, Belgium's PRO arm, has managed to out-thug the rest of the world's PROs, demanding fees from truck drivers for listening to the radio in their cabs ("workplace") as well as collecting for bands that don't even exist.

There's a lot of competition out there in the dog-eat-dog world of performance rights double and triple-dipping, but it appears that Brazil's PRO, ECAD (Central Office of Collection and Distribution) is ready to play in the big leagues. Its strategy? Collect royalties from bloggers who embed videos. (As you may recall, ASCAP tried this a few years back to no avail, but Brazil's relationship with copyright could safely be described as "incomprehensibly inconsistent.")

(The following quotes come from a translated page, so they have been copied verbatim.) [UPDATE: Eduardo, the author of the original post, has sent over a better translation of the quotations.)

The saga of unusual collections of the Central Office of Collection and Distribution (ECAD) has added another chapter last week. The boys from the blog Caligraffiti received last Tuesday in an email warning that the collecting society would have to pay royalties for videos from YouTube and Vimeo that appeared on the site.

The saga of unusual collections from the Central Office of Collection and Distribution (ECAD) gained another chapter last week. The boys from the blog Caligraffiti received last Tuesday an email from the collecting society warning that they would have to pay royalties for videos from YouTube and Vimeo embedded on the site.

This is surprising. ECAD already collects performance royalties from Youtube Brasil for its artists. In fact, it collects quite a bit from Youtube.

YouTube Brasil will have to pay 2.5% of its gross revenue per exhibition of songs protected by Ecad (Bureau of Revenue Distribution) in the country. If the amount of the stipulated percentage does not reach BRL 258,000 (US $146,250) in a year, the site must pay the value as "minimum annual fee".

Not only does Youtube Brasil pay a minimum mandatory fee yearly but ECAD has also hit the site with a BRL 645,000 (US $366,000) "subscription fee." The PRO collected roughly BRL 510,000 (US $289,000) in 2011. With Youtube already on the hook for the performance royalties, how does ECAD arrive at the conclusion that embedded video (just a link back to Youtube for all intents and purposes) should subject bloggers to performance royalty payments?

Well, according to ECAD, Youtube is the "transmitter" and of course, has to pay. But blogs embedding videos are "relays" and are also subject to these fees. Basically, ECAD has found a loophole in the existing law and is looking to exploit it. ECAD's spokesman:

[UPDATE: Translation via Eduardo, along with this splendid note -- "This second one has a very bad wording in portuguese as well, written by lawyers in their own language."]:

The right of public performance in digital mode is through the concept of transmission exists in law and in this art. 5 of section II of Law 9.610/98, which issue is the transmission or dissemination of sounds or sounds and images through of radio waves, satellite signals, wire, cable or other conductor, optical or other electromagnetic process, so this includes the Internet.

The rights of public performance in digital media happen through the concept of transmission found in the article 5, section II of the law 9.610/98, in wich transmission or emission are the diffusion of sounds or images through radio waves, satellite signals, wire, cable or other conductor, optical or other electromagnetic process, so this includes the Internet.

ECAD also argues that the "transmitter" and the "relay" are completely different forms of use and as such, do not represent "double recovery." This is, roughly translated, complete horseshit. But it gets even worse. Bloggers are being charged a flat-rate based on a designation that ECAD itself decides. The cheapest option, most likely, is to be declared a "non-profit." But even that designation saddles the blog with crippling fees.

To blog [as] a nonprofit, the amount charged by Ecad is nothing lightweight: R $ 352.59 (US $204) monthly.

Caligraffiti is a niche blog dedicated to design and technology, with a hit count of 1,000-1,500 hits per day and is not profitable. Every contributor does something other than blogging for income. Despite this, ECAD has designated the blog as a "webcasting or broadcasting program originating from the internet," a category that is sure to increase the amount levied against it.

In response to this collection attempt, Caligraffiti was briefly taken offline. After some legal consultation, the bloggers decided to re-open and fight ECAD head on, stating that this is clearly an attack on the internet itself, which was built on open sharing and dissemination of information.

ECAD is also sticking to its guns, stating that although it has no collection arm "dedicated" to collecting from bloggers, anyone who "publicly performs music" (read: "embeds video") on their site is subject to these fees. Of course, ECAD isn't doubling up on royalties just to be greedy. Its focus is on "the awareness and enlightenment on the need for payment copyright," without which its covered artists would be "disrespected" by callous bloggers and their embedding code.

 

Eduardo has also confirmed that ECAD has gone after weddings with DJs for performance royalties (as Ninja pointed out in the comments) and pointed out that the BRL $359 amounts to roughly half a month's wages at minimum wage.

We were just discussing some of the details from Kenny Rogers' lawsuit against EMI/Capitol Records which showed the many, many ways in which record labels avoided paying artists what they were owed... and now some more details have leaked in the very similar (but further along) case concerning Eminem's royalties. You may recall that, back in 2010, Eminem's producers, FBT Productions, won its case against Universal Music, for the first time establishing that iTunes sales should be counted as licenses rather than sales. This was important, because sales get a royalty rate that's usually around 15%... but licenses get a royalty rate around 50%.

While Universal Music insisted that its deal with Eminem was unique and such a ruling wouldn't apply to most other artists, plenty of other artists have been suing their labels (like Kenny Rogers above), and estimates of upwards of $2 billion in back royalties that the labels may have to pay out.

The Eminem case is back at the district court as they try to sort out just how much FBT is owed, and Eriq Gardner, over at THResq, got his hands on one of the audit reports put together by an expert for FBT. It only shows a limited range of years (July 2005 to December 31, 2009), but also shows (similar to the Rogers lawsuit) how the report turns up all sorts of other areas where Universal likely underpaid FBT. As you can see, the audit shows $3.8 million owed for the missing royalties from iTunes downloads. But also of interest? FBT claims that it never received a cut of the YouTube settlement money -- which many people had been wondering if it was ever going to go to the artists. Apparently not.

However, the most insane thing here may be the line at the bottom, in which it appears that Universal held back $2 million in a "legal hold." Gardner notes that this is money held back to pay for this very lawsuit. This is classic record label economics. Everything that you do that costs money, they charge against the artists' royalties. Order pizza at the recording studio? They charge that against your (small) cut of the royalties. Want to do extra promotions? Charge it against the royalties.

And... apparently, sue Universal music for withholding millions in royalties? It looks like they'll charge that against your royalties too...

Steve Worona has a great post pointing out how the record labels have clear cognitive dissonance (the ability to hold two totally conflicting ideas in your head at the same time -- and argue for both of them) when it comes to the question of whether or not an iTunes purchase represents a "sale." He puts forth three examples of such cognitive dissonance in the legal context, with the final one being taken from two recent legal cases involving major record labels:

Example 1, the case of the kettle. As summarized by the Manhattan Institute for Policy Research, “Readers who’ve been to law school may remember the chestnut known as the ‘Case of the Kettle’. A man is charged with borrowing a kettle and breaking it. His reply is that, first, he never borrowed it; second, it was already broken when he borrowed it; third, it was intact when he returned it.”

Example 2, the case of the dog. Paraphrasing from a 1978 Wall Street Journal article about well-known Texas defense attorney Richard “Racehorse” Haynes: You say my dog bit you, but I don’t own a dog, and he doesn’t bite, and you kicked him first.

Example 3, digital downloads. Two recent court cases hinge on how the sale of an MP3 download compares to the sale of a conventional physical recording, known as a “phonorecord” in Copyright-speak. In one case, the singer Eminem demanded that Universal Music Group calculate his royalties for downloads based on the higher rate for licensed material instead of the lower rate for phonorecord sales. UMG refused, arguing that the sale of an MP3 download was the same as a phonorecord sale. In the second case, EMI filed suit against ReDigi, a company that allows purchasers of MP3 downloads to resell those files under Copyright law’s “first sale” doctrine. EMI argued that the MP3 files were not phonorecords and thus not subject to first sale.

What's being discussed here, of course, are two cases that we've covered. The Eminem case involved whether or not an iTunes purchase counted as a "sale" like a CD, where there was a very low royalty rate (probably around 15%), or as a "license" like for a movie, where the royalty rate was more like 50%. Universal argued stringently, and continues to argue in a series of follow-up cases, that an iTunes purchase is just like a CD purchase, and the much lower rates apply. However, in the ReDigi case -- where the company is trying to argue that if an iTunes purchase is just like a sale, then clearly the "first sale doctrine" applies and those files can be resold -- EMI, which is in the process of being acquired by Universal, argues that an iTunes sale is a license, and thus there's no first sale.

Worona sums it up beautifully:

Putting these two arguments together, we see the music industry imagining transactions where what’s sold is a phonorecord but what’s purchased isn’t.

To me this seems like the Schrödinger's Cat of copyright law. According to the record labels, if we're talking about it from the seller's perspective, it's a sale. But the second you flip the equation and look at it from the buyer's perspective, it's a license. The cat is simultaneously dead and alive. Either the major labels are full of it... or they're breaking new ground in quantum physics. I'll assume it's the former, rather than the latter.

We pointed out that the early reviews of Hollywood's new UltraViolet DRM aren't particularly good, but the industry is still pushing forward with the idea. Leading the way is Warner Bros., who is trying to turn the movie-based "social network" it bought a few months ago, Flixster, into the central hub for your movies. The NY Times has an article about it, where it repeatedly claims that the strategy is all about trying to get people to "buy" movies again, rather than just rent them via Netflix of Redbox. Of course, I find this pretty funny, because nothing about UltraViolet is about actually "buying" anything. You're still renting -- and if things ever went to court over, say, your first sale rights to resell a movie you "purchased" using UltraViolet, you can bet that Warner Bros. would be first in line to claim that the license shows you're merely renting the movie, and not buying it. It's just that you're renting it on an open-ended timeline, basically until the studios bail on UltraViolet and shut down the servers.

Rob Pegoraro, in commenting on the article, notes that oddly, the article doesn't even mention DRM in talking about why people don't want to buy from the studios or the fact that it's still much more convenient to get the content by unauthorized means. But that concept still hasn't reached the brain trust at Warner Bros., who seems to insist that as long as you can access the movies you "bought" from anywhere, people will prefer that to file sharing. While it's great that they're at least trying to add benefits, to make it more valuable and worth paying for, the whole thing smacks of someone's father trying to "act cool" for his kids' friends. Warner Bros. still doesn't seem to understand why people like things like Netflix: the convenience. Everything about Ultraviolet sounds inconvenient, and that hardly makes anyone want to "buy."

We've been following the record labels fight with Chinese search engine giant Baidu since it began in 2005. The labels kept claiming that Baidu was infringing on their copyrights by helping people find music. And while there were some questions about just how deeply involved Baidu was (including accusations that it didn't just link to mp3s, but may have hosted them knowingly as well), the company kept winning in court.

It appears that three of the big four record labels have finally realized, six years later, that rather than continuing to fight this fight, it's better to license the music and be done with it. An organization representing Universal Music, Sony Music and Warner Music has agreed to license their music to Baidu, who will make it available as a part of a licensed service. It'll be interesting to see if there are any crazy restrictions on this, but kudos to those three record labels for finally (way too late) realizing that this was always a business model issue, not a legal problem.

Ethan Kaplan strikes again. The always-thoughtful (and thought-provoking) former recording industry tech exec has put up a blog post that not only explains why Turntable.fm is so popular, but also reframes why the record labels have failed to embrace almost every cool new internet service. You should read the whole thing, but the short version is that users care about the experience, the big labels care about the legal rights. And it's really the experience that makes things valuable. But, if you (like the labels) have bet on the licenses, rather than the experience, then any time someone else makes the experience more valuable, all it does is highlight just how little value there really is in the licenses.

Value in the music business though is an odd thing: the more value added to the music by the fan directly, the less influence the rights holders have over it, and the more influence the creators of representational systems (i.e., turntable.fm) and rights creators have (i.e., artists going directly on turntable.fm with stuff that their labels don’t own). And rights holders do not like being taken out of the value equation.

Call it Kaplan’s Law: the more value a non-music company adds to the fan/artist relationship, the bigger the threat to those who’s business depends on being between the two.

To some extent, this is a (better) rephrasing of a point I tried to make a few years ago, that those who focus on "copyright" as the key to success in any industry are using copyright as a crutch. Rather than building real value and business models that users want, they're using this crutch which provides a simple business model. It makes them lazy, uncreative, uninterested in real user value -- and violently against any sort of innovation that increases value while diminishing the importance of that crutch.

The really interesting points are when you remove that crutch and realize that for a business model to work, it has to provide real value that willingly brings users in. Until the music industry figures this out, they're going to continue to miss the boat on important innovation on both the product side and the business model side.

But artists don't have to miss that boat. As Kaplan suggests, now is the time to focus on the "experience rights," not the "legal rights":

To artists: own your experiential rights. Participate in technology and hold your representatives (lawyers, labels and management companies) to the standards you want your content held to once you lose control of it.

People talk about patent laws as if they're about "protecting property." If only that were true. In most cases, they seem to be about the exact opposite. They're about getting paid for things that don't belong to you and which you had absolutely nothing to do with. Take, for example, Google's Android operating system. Microsoft has been using its patents to demand a cut of every Android phone. In fact, people have pointed out that Microsoft is likely going to make more money from Android than it makes from its own competing mobile operating system. Now add to that Oracle's decision to demand $15 to $20 for every Android device, and what you get seems like highway robbery. You have two companies -- Oracle and Microsoft -- who have done absolutely nothing to contribute to Android in any way, but who are both using large questionable patent portfolios to demand a cut. That's not protecting or encouraging innovation. That seems like the exact opposite. It seems to be shaking down people for cash that they have no right to. I'd argue that's much more like "theft" than anyone who infringes on a patent by building something the market wants.

I keep having the same conversation over and over again with people in the recording industry. A few days ago, I met with the head of a record label that is doing all sorts of cool and innovative experiments (both on the business model and with technology) and he still kept saying "but we gotta stop people from stealing." The problem, as always, is that they seem so focused on infringement that they miss the bigger picture: What does it actually mean for revenue? These are two separate questions, and the labels seem to prioritize the wrong one. They want to stomp out infringement at any cost, even if the net benefit is minimal.

If record labels were given a choice whereby they could support a new revenue stream that would bring in, say, $100 million without them having to do anything... vs. getting no such revenue and playing whac-a-mole with a few more "pirate sites," just making them move elsewhere and not actually get anyone to buy anything, they'd have to be crazy to not go with the $100 million option.

It appears they're crazy.

Google was clear, when it launched its Google Music, that it wanted to do much, much more, but that the things it wanted to do required licenses from the labels. However, the terms the labels offered were completely unacceptable. Now it's being reported that Google offered $100 million to the labels, and a key sticking point was that the labels wanted Google to wave a magic wand, figure out who was "pirating" music, and stop it. In other words, $100 million vs. Fantasyland. And the labels went with Fantasyland.

Via Glyn Moody, we get this bizarre story, which demonstrates how some "new media" execs at the major labels don't seem to understand "new media." A few weeks back, Michael Robertson had revealed the ridiculous demands that the major labels were making on anyone who wanted to license content for a cloud music player. Most of the demands made absolutely no sense and represented an ignorance of the technology involved. Remember, these services are about people uploading music they already have so that they can listen to it elsewhere. It's not about sharing music at all. Yet the labels, in their ultimate paranoia, continue to insist it is. Wayne Borean posted a link to Robertson's story on the astroturfing "Balanced Copyright" page, that is a front for the major record labels. Jeff Thistle, who is the "Director of New Media" for EMI Canada responded (also mirrored here), saying that these demands were "all reasonable." When Borean challenged him on this, Thistle replied:

What measures do you propose be put in place to prevent the uploading of major label owned content? I can't speak to the mechanism to determine what an annual fee would be (presumably it would be by percentage of catalogue * number of lockers that the content resides in), but asking that controls be put in place to prevent the service from becoming another illegal sharing vehicle is *very* reasonable.

How does that make any sense at all? Why should anyone, who has a legal and authorized copy of major label content, be prevented from storing it online to listen to it remotely? And most of these digital lockers don't allow downloads and are only for the one user who uploaded their own music. The claim that these will become "another illegal sharing vehicle" is a total red herring. So they make up a red herring and pretend they're doing this to "protect" that which doesn't need protecting... when the reality is that they're just trying to force people to pay over and over and over again for music they already paid for.

Earlier this morning, we wrote about the expectation that Google would be launching a music locker without first getting licenses from the labels. That's now been confirmed and officially launched (though, still limited to US users by invitation only, but it sounds like that will be expanded rapidly). I'm at the conference where Google announced this, and there's a fair bit of discussion about the legality of the service. At the press briefing afterwards, Google was clear: it was the major labels who responded with "unreasonable and unsustainable terms." They also noted that if they had abided by the terms offered by the labels, they would be offering a service that wasn't compelling. Other reports note that Google really wanted to offer some more innovative features, such as letting users "beam" music to their account by showing they had copies of it, without uploading it. At the press briefing, Google effectively admitted this by saying that it could enable that feature "with proper agreements." Separately, Google made it clear that, although the major labels were the issue, the indie labels and artists they spoke to directly were all excited about the offering. Indeed, the offering itself does appear to be a lot slicker than Amazon's music locker service, which is a bit surprising. I was expecting, in typical Google fashion, that it would appear pretty barebones, but instead it looks fairly advanced.

Separately, in another question concerning how Google would deal with the fact that some people will certainly upload tracks that were obtained through unauthorized means, Google first pointed out that the terms require people to only upload lawfully acquired music... but then also claimed that it would "respond appropriately to rightsholders who believe their rights were violated." That seems like a strange statement. I imagine it means the company will follow through on takedown requests... but how would the rightsholder ever know? If this is a private music locker, then the only person who should have access is the user. I'm kind of wondering if that statement was made just to make a "we're legal!" statement, without recognizing that such a situation doesn't seem to make much sense.

The whole major label situation is yet another example of fear driving the record labels, rather than opportunity and innovation. Again, these music lockers are really just a way to make the consumers' music experience better. It's an opportunity to make the music more valuable and to open up more opportunities for copyright holders to make money, but rather than embracing it, the labels make ridiculous demands to try to clamp down on the usefulness. So, instead, the industry moves forward in spite of their complaints, rather than with the majors.