Techdirt. Stories about "aol"

Appeals Court Smacks Down Unpaid HuffPo Bloggers Who Demanded A Cut Of HuffPo Sale

Mike Masnick — Tue, 18 Dec 2012 00:12:00 PST

After Huffington Post was sold to AOL for $315 million, there was a really, really silly discussion among a small group of the volunteers who blogged on the site for free (again, voluntarily), who whined about how this was somehow unfair. They ignored the fact that they took none of the risk, spent none of the money, had no obligations to provide content and clearly agreed to receive no money for their actions -- but still, they whined. Some then went even further and filed a very silly lawsuit, led by Jonathan Tasini. Tasini, previously, had successfully sued the NY Times concerning that company's handling of freelance works. Of course, given that he's now sued two major publications which he freelanced for, what publication would ever allow him to write freelance pieces again? It seemed that his success in the NYT suit led him to be over confident with this lawsuit. There was simply no basis for it: he blogged on the site voluntarily, knowing that he'd receive no compensation for it. To then whine that the investors, who took all the risk, made some money selling the site when he had no equity stake in the site, isn't just sour grapes, it's legally ridiculous.

Thankfully, the district court smacked the case down pretty hard, and did so with prejudice, denying him the ability to refile an amended complaint. However, Tasini wasn't ready to give up, and appealed the original ruling. The appeals court has now taken its turn in smacking down the lawsuit, noting that Tasini's argument is simply ridiculous, as you can see in the full filing (also embedded below):

The problem with plaintiffs' argument is that it has no basis in their Amended Complaint. Nowhere in the Amended Complaint do plaintiffs allege that The Huffington Post represented that their work was purely for public service or that The Huffington Post would not subsequently be sold to another company. To the contrary, plaintiffs were perfectly aware that The Huffington Post was a forprofit enterprise, which derived revenues from their submissions through advertising. Perhaps most importantly, at all times prior to the merger when they submitted their work to The Huffington Post, plaintiffs understood that they would receive compensation only in the form of exposure and promotion. Indeed, these arrangements have never changed.

Though it is no doubt a great disappointment to find that The Huffington Post did not live up to the ideals plaintiffs ascribed to it, plaintiffs have made no factual allegations that, if taken as true, would permit the inference that The Huffington Post deceived the plaintiffs or otherwise received a benefit at the expense of the plaintiffs such that equity and good conscience require restitution.

In other words, Tasini's inability to accept the deal he made, and the fact that he apparently got jealous of Huffington's ability to sell the site, is not a legal issue at all. The court also re-affirms that the dismissal with prejudice was entirely proper. Maybe, instead of spending all this time on lawsuits, Tasini would be better served trying to build his own site. Of course, as was ironically noted after he filed his lawsuit, Tasini actually did that once and didn't pay the bloggers who blogged for him...

Permalink | Comments | Email This Story

HuffPost Moderates Comments To Please Advertisers [Updated: Or Not]

Mike Masnick — Tue, 30 Oct 2012 10:48:21 PDT

Update: After hearing from a few people at Huffington Post, it appears that the original explanation from Isaf was unclear, and led us to believe they were moderating comments based on advertiser preferences. However, Huffington Post has now clarified that they use the same AI just to determine how to post ads on certain content -- and that's what Isaf meant with his remarks. Not that they moderate comments based on advertiser preferences.

We've been somewhat excited that we're rapidly approaching one million total comments on Techdirt. We thought it was quite a nice milestone. But we feel a bit small to learn that the Huffington Post already has over 70 million comments just this year alone. Over at Poynter, Jeff Sonderman has a fascinating interview with the site's director of community, Justin Isaf, about how they manage all those comments. Apparently they have a staff of 30 full time comment moderators, helped along by some artificial intelligence (named Julia) from a company they bought just for this technology.

Now, obviously, sites have lots of different philosophies on moderating comments. Our own is pretty open. We have a spam filter that tries to cut out obvious spam (of which we get about 1,000 per day, last I checked) and other than that comments are basically unmoderated. We do have a system that allows the community to vote on funny and insightful comments (which we then round up in a weekly "best of" post). We also, just recently, introduced our first word/last word feature, which lets the community promote certain comments. Finally the community can also "report" comments they find problematic, which then minimizes those comments, though they remain available for anyone to see with one click. We've found that this system of trusting the community works pretty damn well overall.

HuffPo, on the other hand, between the technology and the moderators, seems more focused on nudging the conversation themselves. I can understand and respect that choice, but there was one detail that struck me as a bit questionable:

I’m a big fan of having machines help us with the lower level tasks, freeing up time, resources and brain power for more interesting and complex tasks. Julia [the artificial intelligence system that HuffPo owns] takes that a few steps further and helps us with a lot of other aspects of HuffPost in addition to helping weed out abusive members, including identifying intelligent conversations for promotion, and content that is a mismatch for our advertisers. She has allowed us to do a lot more with a lot less.

(Note: see update at the top). I recognize that these are all advertising businesses, but I'm a bit surprised to see HuffPo so blatantly admit that they moderate comments if they're "a mismatch for our advertisers." I've seen plenty of sites say they'll moderate inappropriate commentary, but leave reasonable commentary alone even if it's critical. But HuffPo is basically saying that if advertisers aren't likely to like the comments, they may moderate them. It's their system, and they can do what they want with that, but personally, that makes me feel uncomfortable. We've always tried to promote the fact that our own community is very opinionated (and not shy about it) when we've spoken to advertisers, and we use that as a way of explaining why things they do should be authentic and real, rather than forced and phony. And, because of that, we'd like to think that we're able to drive more interesting engagement. If you leave open the possibility of moderating comments that advertisers won't like, that seems to only encourage bogus and annoying advertising, since marketers may never learn that people don't actually like that kind of thing.

In the end, HuffPo's position is obviously self-serving, even as they pretend that it's best for advertisers. What they may end up doing is hiding the fact that the advertisements are bad, rather than improving the quality of the advertising. Now, obviously, I'm sure AOL does quite fine with HuffPo's ad selling (and they're a hell of a lot bigger than us), but it still struck me as interesting to see the company so blatantly admit how it reacts to content their advertisers might think is "a mismatch."

Permalink | Comments | Email This Story

Turns Out That The iPad Won't Magically Bring Back Scarcity For Magazines

Mike Masnick — Fri, 3 Aug 2012 15:31:00 PDT

Back in 2010, we suggested that the mad dash by various publications to build fee-based iPad apps was completely misguided, reminiscent of the belief in the 90s that publications could sell CD-ROM versions of their magazines. As we noted, there's nothing that special about the iPad format that takes away the natural abundance of the internet, and pretending that it was really any different than a portal to the wider internet with all its options was a fool's errand. In particular, we called out Rupert Murdoch's obsession with creating an iPad-only publication. In fact, we were confused why all the publishers investing so much in apps didn't put that same sort of effort into improving the features on their websites. A few months ago, the editor-in-chief and publisher of MIT's Tech Review more or less made the same point, saying that the future was on the web, betting on HTML 5 to make the site "look great on a laptop or desktop, tablet or smartphone" and then killing off the apps it had developed.

While others aren't going that far, there's more and more evidence that betting on apps was, in fact, the exact mistake that we predicted. Mathew Ingram summarizes how both The Huffington Post and Murdoch's The Daily have failed with their fee-based iPad app strategy. He makes the same basic point that a winner of our "most insightful comment" (by Robert Weller) made recently: that people get their news from lots of sources, so paying for a bunch of apps just doesn't make sense. In fact, it takes away from the value. As Ingram notes:

Whether media companies like it or not (and they mostly don’t), much of the news and other content we consume now comes via links shared through Twitter and Facebook and other networks, or through old-fashioned aggregators — such as Yahoo News or Google News — and newer ones like Flipboard and Zite and Prismatic that are tailored to mobile devices and a socially-driven news experience. Compared to that kind of model, a dedicated app from a magazine or a newspaper looks much less interesting, since by design it contains content from only a single outlet, and it usually doesn’t contain helpful things like links.

What he's basically saying is that the publishers focusing on apps are trying to create artificial scarcity by building digital silos. But that actually takes value away from those publications. People interact with the news in all sorts of ways that go way beyond "reading." But individual apps often make that more difficult. It involves extra effort (and cost) while providing less benefit. All because publishers are looking for something (anything!) that resembles some fencing so they can build a gate and go back to pretending they're in the gatekeeper business.

Hopefully publishers will finally stop looking to recreate the past by building artificial walls, and start looking at ways to make money that embrace the internet and what it enables.

Permalink | Comments | Email This Story

AOL Threatens Blogger With Copyright Infringement Charge... For Doing The Exact Same Thing AOL Has Done On A Large Scale

Mike Masnick — Mon, 4 Jun 2012 06:45:00 PDT

There have been plenty of accusations made against AOL's the Huffington Post concerning its habit of "over aggregating" content from other sites. While, personally, I think people who accuse HuffPo of being just an aggregator are overreacting on two separate issues (one: HuffPo does a ton of actual reporting also and two: HuffPo's aggregating adds value in its own way), it would be pretty damn hypocritical for AOL to then threaten another blogger for doing exactly the same thing that HuffPo does, wouldn't it?

Enter, Maryland Juice. A local Maryland blog, which recently had a post about some happenings in Montgomery County, which included relatively large excerpts of parts of an article from Patch, another property owned by AOL. It also included an image from the article. The Maryland Juice article included a significant amount of commentary about the article and, in particular, the photo, which was used to illustrate the point (that it was not a representative sample of county residents at the local meeting). And, yet... AOL lawyers sent a cease and desist letter:

As owner of the Content, AOL has the obligation to prevent the improper use of its proprietary material. Before pursuing any additional avenues to remove the Infringing Content, we are demanding that MarylandJuice.com take immediate steps to remove Patch’s image and either 1) display no more than a 1-2 sentence snippet of this Content, with credit explicitly given as well as a link back to the full article available at http://wheatonmd. patch.com/articles/proposed-rule-change-for-accessory-apartments-meets-opposition ; or 2) remove and disable access to all Infringing Content, and agree to never repost or use the Infringing Content or any other AOL Content, absent compliance with the third-party use guidelines identified above.

David, the Maryland Juice blogger, explains how excerpting, discussing and linking is all part of being neighborly online, and tells AOL to shove off, claiming fair use. Of course, you know who should know an awful lot about this kind of thing? Yeah, AOL and HuffPo. You see, a few years ago, when HuffPo tried to do its own "hyper local site," it was accused of doing more or less the exact same thing (but with less commentary, and more copying):

And seeding HuffPo Chicago is a scheme whereby the publication takes some — in many cases all — of the content from another site, with a link back to the original.

The result is quick and easy traffic for the new Chicago edition, since the publication ends up catching some Google searches for keywords contained in the (Chicago-related) articles it takes. HuffPo already has good Google PageRank, so its own version of the content floats to the top of the results, even though it was not the original source.

HuffPo's justification, at least when the publication was pulling this crap with us, taking the entirety of our RSS feeds, was that the reprinted posts were good promotion, since they included (a totally buried) backlink to the original content on our site.

But, apparently, when someone does it to AOL, it's no longer okay? Now that's hypocritical.

Permalink | Comments | Email This Story

Facebook Buys Most Of The AOL Patents From Microsoft That It Bought Just Weeks Ago

Mike Masnick — Mon, 23 Apr 2012 11:10:00 PDT

You may recall that, a few weeks ago, Microsoft bought all of AOL's patents for about a billion dollars. Last week, the news came out that Facebook had bid on the patents too, but lost. However, it's now worked out a deal to buy a bunch of those patents from Microsoft anyway for about $550 million. There's also some sort of cross-licensing as a part of this. The end result is that it's more like Microsoft and Facebook teamed up to pool resources to buy the patents from AOL. It's unclear who now has the Netscape patents, or what's going to be done with these patents. It's good that they didn't end up in the hands of pure trolls, but it still seems like a shame that these companies have to spend so much money on something of which the only value is in either keeping them from getting sued or in shaking down others for innovating. What happened to the days when companies could just compete with products in the marketplace?

Permalink | Comments | Email This Story

AOL Sells Its Patents To Microsoft For $1 Billion: Microsoft Now Owns Netscape IP

Mike Masnick — Mon, 9 Apr 2012 14:28:00 PDT

Just a few weeks ago, we had mentioned reports that AOL was looking to sell its patents. Sometimes, those kinds of things take a while, and may even involve auctions and whatnot. However, it looks like AOL got the deal done quickly, selling over 800 patents to Microsoft for just over $1 billion. The "good news" here is that the patents don't end up in the hands of a pure patent troll, who will do nothing but sue over them. The bad news, of course, is that Microsoft is quite aggressive in suing others for patent infringement anyway, and you can expect some of these patents to start showing up in wasteful, innovation-hindering lawsuits before too long. And, of course, there's the natural dead-weight loss of a ton of money going into buying patents, rather than directly into actual innovation.

Of course, there's an interesting twist in all of this. Peter Kafka notes that Microsoft basically bought all Netscape assets outside of the name/trademarks, etc. From a historical standpoint, that's pretty interesting, seeing as how big the early internet battle was between Microsoft and Netscape for who would win the war to control the window into the internet. It would then be especially ironic (and ridiculous) if Microsoft used those patents to sue others, after spending so much time trying to kill off Netscape... Such is the bizarre world of patents these days, I guess.

Permalink | Comments | Email This Story

AOL Won't Go Full Yahoo Patent Troll... But May Sell Patents To A Patent Troll

Mike Masnick — Tue, 27 Mar 2012 06:20:47 PDT

It appears that AOL isn't going down the Yahoo patent trolling path directly, but it is looking to sell off its patent portfolio -- meaning they may end up in the hands of trolls anyway. You can understand why AOL is doing this. It's been struggling to find its footing for quite some time now, and patents are selling for crazy amounts these days. So they get sold... and abused to sue others. It's the sad reality of the patent system these days. While it's nice to see that AOL isn't doing a full Yahoo, the selling of a patent portfolio to the highest bidder can be just as bad in the long run.

Permalink | Comments | Email This Story

National Writers Union Drops Huffington Post Boycott After Discovering That No One Cared

Mike Masnick — Wed, 26 Oct 2011 16:05:27 PDT

Back in March, we thought it was pretty silly that the Newspaper Guild and the National Writers Union were calling for a boycott of the Huffington Post, because some of the writers who had agreed to post on the site for free no longer liked the deal. As we said at the time, if you think that writing for free undermines your profession, you have a pretty simple solution: don't do it. But don't agree to write for free and then bitch about how it's unfair. In the end, we suspected that the same reasons why people had written for the Huffington Post in the first place (in order to share their thoughts to a wider audience) would continue to win out.

It appears that is absolutely the case. The National Writers Union has now admitted that it's dropped the boycott, because, well, no one cared. What's amusing is that rather than quietly dropping it, they actually put out a press release saying they were "withdrawing the boycott" which almost no one paid attention to in the first place.

Permalink | Comments | Email This Story

Fark Gets Patent Troll To Settle For Nothing... Did Reddit Pay Up?

Mike Masnick — Wed, 10 Aug 2011 12:01:00 PDT

Last summer we wrote about an absolutely ridiculous patent troll, named Gooseberry Natural Resources LLC, who holds a ridiculously broad patent (6,370,535) that it claimed covered the basic concept of generating a press release online, which it then used to sue a bunch of companies who had been in business since way before the patent was issued. At the beginning of this year, we noted that Gooseberry tried to expand the definition of what the patent covered, and sued a bunch of tech sites you probably read, including Fark, Reddit, Slashdot, TechCrunch and Digg. As we noted at the time, as with most patent trolls, Gooseberry was just a shell company, and the real owners of the patent were a secret. Tragically, even with the combined investigative power of those sites, no one was able to piece together who really owns that patent.

In February, Drew from Fark explained why patent trolling is so incredibly detrimental. Unlike most other bogus lawsuits, you can't just point out that the patent has absolutely nothing to do with your business and get the case dismissed. You basically have to go to court and spend hundreds of thousands, if not millions, of dollars to fight it. This is what makes patent trolling so successful. It's cheaper to just pay up. In fact, patent trolls totally rely on this, because going to court is expensive for them too -- and they almost always lose. So they have just as much incentive to avoid court as the folks being sued, in many cases.

So it's awesome to hear that Drew stared down Gooseberry and got them to agree to "settle" for absolutely nothing. Even more amazing is that he convinced them to wipe out the "standard" NDA on a patent troll settlement. Almost every settlement includes an ironclad non-disclosure agreement which says you can't say what the amount of the settlement was. This means that even if you pay nothing, they still tell the world that you "settled" and imply it was for millions and talk up how this proves their patent is valid. Not in this case:

Their patent had nothing to do with Fark. The patent troll realized we were going to fight them instead of settle, so they asked for our best offer. I said how about you get nothing and drop the lawsuit? They accepted.

Normally, we wouldn't be able to talk about any of the details. Terms of patent lawsuit settlements are usually bound by ironclad nondisclosure agreements. NDAs allow patent trolls to extract maximum settlements from each entity they've filed lawsuits against - as a result no one knows who paid what. In the last round of settlement negotiations we asked to strike the NDA provision. They agreed (and to the attorneys out there reading this, I'm as baffled as you are).

Striking the NDA was crucial because I wanted to be able to tell everyone what really happened: we didn't pay them a single dime

Unfortunately, Drew also notes that Conde Nast (the owners of Reddit) also "settled" this week, which probably means they paid something (not much), though I wonder if they were able to ditch the NDA as well. It sounds like TechCrunch/AOL is still fighting this (and hopefully will be emboldened by Drew talking publicly about getting them to back down). Still, the bigger point is how much of a toll this kind of thing takes on businesses. Fark is quite successful, but this kind of thing could have destroyed it. As someone who is too often threatened by completely bogus lawsuit threats, I certainly can understand the emotional impact these things can take on someone, which Drew discusses as well:

At any rate, this bullshiat is finally over. It was a nightmare. Imagine someone breaking into your home, then being forced to sit on the couch while their lawyers file motions over how much stuff they can take. My wife Heather said my first draft of this post sounded too angry, probably due to the fact that every third word was an f-bomb (among other things I paraphrased our best one-time settlement offer as "how about jack sh*t and go f*ck yourself", which may be a more accurate depiction of how I really felt at the time). I won't lie though, I was angry and I am still. Too much money was wasted on this, too many sleepless nights, too many hours away from running Fark, and all this because someone else decided that suing companies for bearing a vague resemblance to their patent (patents they don't even appear to use themselves) is a good business model. We're short a full-time employee thanks to these douchebags.

People who cheer on trolls and bogus lawsuits have no idea what a massive emotional impact such bogus lawsuits have on legitimate businesses. Kudos to Drew for not just standing up to one and winning in pretty much every conceivable way, but also being willing to express just what kind of emotional impact these kinds of bullshit lawsuits have on people.

Permalink | Comments | Email This Story

If You Think Writing For Free Undermines Your Profession, Just Don't Do It!

Mike Masnick — Mon, 21 Mar 2011 08:32:27 PDT

I had kind of hoped we were done last month with the silly arguments about how writers should boycott writing for the Huffington Post because it doesn't pay people, when we explained how clueless the argument was. People who wrote for the Huffington Post for free did so out of their own free will. They did so for a variety of reasons, including the (free) exposure it gave their works. Assuming that any of those writers leveraged those works into greater success elsewhere (as some have), wouldn't we all think it's insane if Arianna Huffington suddenly called them up and demanded money for helping them get attention?

Of course we would. So why is anyone making the exact opposite argument? The latest is the Newspaper Guild, which should know better, but seems to be hellbent on attacking any innovative news platform that isn't a member of its old boys' club. It has called on all its members to boycott the Huffington Post with some really tortured logic. Let's dig in.

The Newspaper Guild is calling on unpaid writers of the Huffington Post to withhold their work in support of a strike launched by Visual Arts Source in response to the company’s practice or using unpaid labor. In addition, we are asking that our members and all supporters of fair and equitable compensation for journalists join us in shining a light on the unprofessional and unethical practices of this company.

Once again, "unpaid" is in the eye of the beholder. For many writers, the Huffington Post gave them a massive platform for attention, and attention is an incredibly valuable commodity. That the Newspaper Guild, of all places, doesn't understand this says some worrying things about the Newspaper Guild. As for "unprofessional and unethical," I would argue that the Newspaper Guild willfully misrepresenting the situation here is significantly more unethical and unprofessional than anything done by the Huffington Post. No one who wrote for the Huffington Post was misled about the arrangement. It's made quite clear upfront that if you're a blogger on the site, you don't get paid. You do get attention, however. It's then up to you to make the determination if it's worth it. If not, there are literally billions of other websites to go write for, or you can go create your own. Many people felt this was a fair trade: attention and platform in exchange for writing. Why claim it's unethical when so many people entered into it willingly?

Just as we would ask writers to stand fast and not cross a physical picket line, we ask that they honor this electronic picket line.

Good luck with that. The Huffington Post draws readers like almost no one else out there. If Newspaper Guild fans want to shut themselves off from that traffic firehose, that's their decision, just like it was their decision to use that firehose for free to get attention to their work.

In response to the Huffington Post’s refusal to compensate its thousands of writers in the wake of its $315 million merger with AOL, the Newspaper Guild has requested a meeting with company officials to discuss ways the Huffington Post might demonstrate its commitment to quality journalism. Thus far, the request has been ignored.

This is the part that bugs me the most. The whole $315 million merger bit is a total red herring, used to drum up emotion, but is meaningless. Again, would the Newspaper Guild support Arianna in asking someone who became successful, in part, by writing for the HuffPo for a cut of their earnings? Or, if the Huffington Post had run out of money, would the Guild have supported a request that the writers help hand over money to keep it running? Of course not. The investors and founders of the Huffington Post put the money in and took the risk. And they got rewarded for it. The writers did not. They didn't put their own money or equity on the line. They got the benefit of those who did. To then demand a piece of the $315 million suggests a complete misunderstanding of how basic capitalism works.

As Cherie Turner, one of the former writers, explained, "Certainly, we all have written for free for the great exposure the Huffington Post can give us, but what's the cost? Those of us on strike feel it undermines the value of our profession and is unethical, especially in light of great profits by those at the top. We are only asking for a fair share of what we are helping to create. We are also speaking out against real journalism being run side-by-side with advertorial.

"We feel it is unethical to expect trained and qualified professionals to contribute quality content for nothing. It is unethical to cannibalize the investment of other organizations that bear the cost of compensation and other overhead without payment for the usage of their content. It is extremely unethical to not merely blur but eradicate the distinction between the independent and informed voice of news and opinion and the voice of a shill.

In other words, Turner and her group want to get double paid. They know the deal they made: to get exposure. But apparently now that's not enough. They want to get paid for the exposure they got as well? And if they didn't get their "fair share" then why did Turner and her friends write for HuffPo in the first place? It's like the Newspaper Guild is flat out admitting that it's completely clueless on basic economics.

Honestly, I get two key urges out of this move by the Newspaper Guild: (1) figure out if there's any way to "short" the Newspaper Guild for pure economic cluelessness and (2) suddenly I feel like writing for the Huffington Post in protest against those who are now "boycotting." Oh, and one final point: it's not a boycott. It just means you're turning down the traffic that HuffPo gave you. I'm sure HuffPo can survive fine without you. Whether or not you can survive without that attention... well, we'll see.

Permalink | Comments | Email This Story

Why The Arguments That The Huffington Post Must Pay Bloggers Is Misguided: Payment Isn't Just Money

Mike Masnick — Thu, 10 Feb 2011 09:37:29 PST

We didn't mention the whole AOL buying Huffington Post story earlier this week, because there just didn't seem to be that much to say about it. It was an interesting deal, to be sure, and I'll be curious to watch what AOL does with the property, but, beyond that, it seemed like just another content acquisition deal. However, almost immediately after the deal went through, I started seeing some rumblings on Twitter, picking at the scab that has always annoyed a certain group of people about The Huffington Post: that it doesn't pay most of its writers. Sure enough, it didn't take long for this issue to start to spread, with the inevitable summary line of: "Hey, HuffPo became famous because all these people worked for free, and yet, they don't get a cut of the sale."

That story is now snowballing. Dan Gilmor wrote a blog post arguing that it was the "ethical" thing to do to start paying bloggers. Douglas Ruskoff said that he'd no longer blog on the site for free. And, of course, a bunch of cranky HuffPo contributors have created a whole campaign arguing that Arianna Huffington had no right to sell the site, since it was built off of their free labor.

They're all wrong.

Of course, we've been through this before. Five years ago, Nick Carr tried to argue that all the various big Web 2.0 sites like (at the time) Digg, YouTube and MySpace were really digital sharecroppers exploiting labor. As we argued at the time, this was hogwash. People were using those sites because they provided a valuable service. The reason they provided labor was because they got something of value in return -- whether it was attention or hosting or distribution or reputation.

Three years ago, we saw an almost identical controversy after AOL bought Bebo and musician Billy Bragg demanded some of the $850 million AOL paid (in retrospect, a massively bad decision). Bragg argued that Bebo made this money based on all of the "free labor" of musicians who used the site. But that ignored the fact that those musicians got tremendous value in using the Bebo platform to connect with fans and distribute their music... all for free. The folks who got to keep the money were the ones who took the actual risk. The ones who had to cover the expenses to keep the site and the service running, even when it wasn't making enough revenue. They took the risk, they should get the reward. The people who used the site did so of their own free will knowing quite well that the benefit they got from using the service was worth it to them at the time. Along those lines, if Bebo had struggled and faced bankruptcy instead of a massive buyout, would Bragg have felt obligated to give them money to keep it going? Similarly, if HuffPo had been running out of money, and Arianna had gone back and demanded that those who used the platform pay up retroactively, how would these people have reacted?

There are more ways to "get paid" than with money.

The reason that people chose to blog for free at the Huffington Post was because it's a fantastic platform for exposure. It brings traffic like no one else out there, and if you want to present something in a way that's likely to get more attention than on your own blog that no one visits, posting at HuffPo can be quite a good way to go.

And that's the point: the people who chose -- of their own free will -- to post at the Huffington Post for free did so because they clearly got value out of doing so. Otherwise, why would they have done so in the first place? To then say that the only proper thing is to pay them is completely missing the point. It's an attempt to retroactively go back and change the terms of a deal. If you wanted to get paid directly for what you write, fine, don't write for the Huffington Post. It's that simple. Go out and pitch your stories to publishers who pay freelancers. But don't go back and complain afterwards when the folks who actually did take the risk of putting together the site, financing it, organizing it, hiring the staff, buying the servers, paying for the bandwidth, and building it up so that it was such a successful platform, then get paid for their efforts.

Permalink | Comments | Email This Story

Paul Allen Files Amended Patent Lawsuit; Shows It's Even More Ridiculous Than We Originally Thought

Mike Masnick — Wed, 29 Dec 2010 15:03:00 PST

Back in August, many people were surprised that Paul Allen had suddenly decided to go full on patent troll, using a bunch of patents he had received as part of his complete business failure, Interval Research, during the 90s. Interval was supposed to be kind of like Xerox PARC, a research center focused on inventing the future, but the plan was to actually commercialize what came out of the labs. However, in the end, Interval did little of anything and, after spending many of Allen's Microsoft millions, shut down. Yet, years later, he suddenly starts suing a ton of companies over incredibly broad patents? In this initial lawsuit (apparently more are planned), he sued Google (and separately, YouTube), Apple, AOL, eBay, Facebook, Netflix, Yahoo, Office Depot, OfficeMax and Staples. Earlier this month, we noted that the lawsuit had been dismissed due to the failure by Allen to actually explain how these companies violated his patents. Of course, as mentioned at the time, he was free to try again, and everyone knew he would. He has now filed that amended complaint, complete with the "details" of what each of these companies has done that's infringing, and it's even more ridiculous than we originally thought.

As a reminder, here are the patents he's suing over:

6,263,507: "Browser for use in navigating a body of information, with particular application to browsing information represented by audio data."
6,034,652 & 6,788,314 (really the same patent, involving continuations): "Attention manager for occupying the peripheral attention of a person in the vicinity of a display device"
6,757,682: "Alerting users to items of current interest"

We have the full amended filing embedded below, but his claims of what's infringing are ridiculously broad. For the first patent (the '507 patent), he basically seems to be claiming that any website that offers a listing of "related items" or uses any kind of spam filter is infringing. Basically, that's a huge percentage of content-based websites out there. Does anyone really (honestly, now) believe that without such a patent, the idea of "related content" or spam filters would never have been developed?

Then there's the next two (related) patents ('652 and '314), about "peripheral attention." According to Allen, the use of products that pop up a little notifier in the corner of your screen window violate this patent: so AOL, Google and Yahoo all violate this because of the little instant messenger/email pop up tools they offer. Apple supposedly violates this because of the Apple Dashboard and related widgets that pop up information such as sports scores and weather. Really, Paul? You want to claim ownership of any system that pops up information in the corner of your screen? That's sickeningly broad.

Finally, the last patent (the '682 patent), he appears to be claiming that it covers making recommendations to users on things they might like. So, the fact that AOL will alert you to products you might like? Infringing. Same with all the other companies, who all offer basic recommendations of one form or another because offering recommendations is one of the most obvious things out there.

To say that Allen's interpretation of what these patents cover is extraordinarily broad would be to downplay the concept of broad interpretations of patents. Allen's interpretations are so broad as to make a mockery of the entire patent system, and how ridiculous concepts put forth in a patent can (years later) cover a significant number of all websites out there, all doing obvious things to make their websites useful to users. Honestly, reading through the details makes me wonder if the conspiracy theory that some have put forth -- that Allen is doing this just to demonstrate how silly patents have become -- seems somewhat more plausible. I still don't really believe that, but either way, this lawsuit certainly represents the madness of the patent system.

Permalink | Comments | Email This Story

Paul Allen Becomes A Patent Troll, Sues Google, Apple, Facebook, eBay And Others...

Mike Masnick — Fri, 27 Aug 2010 12:44:00 PDT

Microsoft's "other" co-founder, Paul Allen, has had a long string of business failures since leaving Microsoft. It's actually quite impressive. One of his most high profile ventures, back in the 90's, was Interval Research, which was designed to be a pure research institute "done right." It was described as trying to replicate Xerox PARC, but that it would actually commercialize the amazing ideas. Of course, as we've pointed out for ages, ideas are only a small part of innovation. Actual execution is the really difficult part, and one thing Interval was never able to do was execute. After eight years and over $100 million of Allen's money, the operation was shut down back in 2000. That was about the last we'd heard of Interval... until now.

Because, while Interval was unable to actually execute, thanks to the wonders of the US Patent system, it was able to secure lots of patents, and now it looks like Paul Allen has gone full on patent troll. He's using those patents to sue Google (and, separately, YouTube), Apple, AOL, eBay, Facebook, Netflix, Yahoo, Office Depot, OfficeMax and Staples -- you know, the companies that actually did innovate and did execute -- for being successful where he failed. Of course, Paul Allen has been tangentially related to patent trolling operations in the past, so perhaps it was just a matter of time. Still, this is a pretty disgusting situation all around.

The WSJ article about the lawsuits doesn't mention the actual patents (why do so few reporters actually point you to the useful info?), but they're the following:

6,263,507: "Browser for use in navigating a body of information, with particular application to browsing information represented by audio data."
6,034,652 & 6,788,314 (really the same patent, involving continuations): "Attention manager for occupying the peripheral attention of a person in the vicinity of a display device"
6,757,682: "Alerting users to items of current interest"

According to a report by Todd Bishop at Techflash, Interval may just be getting started: "This is the most recent step in a long process," he said in an email, "but it is not necessarily the end of the process." What a sad, sad legacy Mr. Allen is leaving behind.

Permalink | Comments | Email This Story

If You Have A Generic Domain Name, Don't Expect Trademark Protection On It

Mike Masnick — Tue, 10 Aug 2010 20:38:11 PDT

I remember, when first learning about trademark law, thinking how bizarre it was that having your name be considered "generic" was a bad thing. After all, when your brand became synonymous with the product you were selling (think Kleenex, Xerox, Band-Aid etc.) it meant that you had really dominated the product category. Except... if you're a lawyer. Because the fear, of course, is that if your brand becomes generic, you lose the trademark, and then suddenly others can make use of that brand that you worked so hard to build up. I'm still not convinced that's really a problem if you're a savvy business person, but it's the way things are.

However, as something of "natural" proof of this, just look at how much of a gold rush there was in the early dot com era for "generic" dot com domain names. Everyone involved in those businesses just knew why this was important. They believed that by having those key generic terms, "books.com," "pets.com," and even "sex.com" that you would be one of the first places people would go, even if they didn't know who you, as a company, were. Of course, it actually didn't turn out that way for many players who ended up with those domains. A lot of the early companies who had "great" domains faded pretty quickly. Execution matters more than just a good name.

And, of course, this whole generic business really gets in the way of that backwards trademark view, where having your name be generic is "bad." For example, in a recent lawsuit, AOL learned that its advertising.com domain name isn't really valid as a trademark because of its generic nature. In fact, the court notes that if people are asked about a company, it's perfectly reasonable to describe it as "an advertising dot com." I also like how the court smacked down AOL's claim that without getting a trademark on advertising.com it would take business away from the company:

this is the peril of attempting to build a brand around a generic term.

Exactly. If you want the advantages of building around a generic term, you also have to realize there are some trade-offs, and one is that you don't get to trademark it. However, as we noted when a similar ruling came down last year against hotels.com, it's not clear how much this really matters. It only matters if you overvalue the trademark. The domain itself is still unique and the brand is still unique. So does the trademark really even matter?

Permalink | Comments | Email This Story

Journalists Worried About Content Farms Are Missing The Point: The Web Has Always Been Filled With Crap

Mike Masnick — Fri, 9 Jul 2010 09:14:15 PDT

There's been a lot of fretting lately in the journalism field about the rise of so-called "content farms." These are operations like Demand Media or Associated Content (recently purchased by Yahoo) or even AOL's "Seed" experiment, that focus on generating a ton of content at very low cost, mostly aimed at ranking high on search engines. Last year, Wired Magazine ran a pretty good story covering the details of this particular business model. Basically, you find really cheap freelancers, tell them to quickly write up content on "popular" topics, pay them very, very little and don't worry too much about quality. The whole point is to rank high in search engines when people search on various topics.

Not surprisingly, this state of affairs worries some journalists who fear that these "content farms" are "killing" journalism. In fact, a group of online content syndicators are even talking about setting up an official "online quality" standards guidelines for internet content, even to the point of considering "accrediting" whatever is considered "quality" journalism.

I certainly understand and recognize the concern. When you look at much of the content produced by these content farms (and it's certainly worth pointing out that these operations deny the whole "content farm" claim -- as well as the insinuation that their content is bad), it's hard not to quickly recognize that much of the content is really, really bad. It's not well written. It's not very thorough. It's often not very accurate or useful. But, even given all of that, the "concerns" that this is somehow harming journalism seem wildly overblown.

The internet has always been filled with a lot more crappy content than good content. That's what every internet-hater points out first. But that's always been a search and filter problem. Bad content does not directly impact good content unless you become obsessed over the fact that some people are reading the bad content over your good content. In the early days, it's why sites like Yahoo developed in the first place: as a directory to try to help you find the good content instead of the crappy content (so, yeah, Yahoo buying a content farm is a bit ironic). And when the concept of "directories" became overwhelmed, we moved onto search, mostly based on things like metatags. And when that got gamed to death such that crappy content crowded out the ability to find good content, we moved on to much better search algorithms, like those found at Google, which tried to solve that basic problem.

The situation that we're in right now is one where the current filtering mechanisms might not yet be good enough to distinguish quality content from crappy content. But that's a temporary state of affairs. On top of that, one person's crappy content may be good enough for whatever it is they're trying to do or understand. There is no rule that says the best quality content has to win. For those of us who like quality content (and, every so often, try to produce it), it may be painful to hear that, but welcome to the competitive marketplace. If someone's serving the need better than you, then that's the market you deal with. It doesn't mean that quality content producers should crappify their content, but it might mean they need to rethink some aspects of what they're doing -- such as not relying on crappy filters as the source of your traffic.

It's that last point that highlights the real "problem" that journalists seem to have with these content farms. The journalists have become so convinced that Google is where they need to get all their traffic, that when Google ranks web farm content higher, that's somehow the fault of the content farms. In reality, it means that relying on Google for traffic may be a mistake. Quality content is hard to figure out algorithmically, though my guess is that Google is working on this issue all the time. If Google starts realizing that people do, in fact, find content farm content to be useless, that content will eventually get rated down, no matter how much they try to play SEO games.

But, even beyond that, the way people discover and consume higher quality content is changing as well. The value of "passed" or "earned" links -- i.e., links that are sent around via email or social networks -- is growing rapidly, and that's the sort of filter that tends to focus more on "better" content, rather than pure content farm content. So, in the end, this seems like a "problem" that corrects itself over time. Sure, right now, these content farms are good at getting their content seen. But if that content really isn't that useful, the rest of the market will adapt and adjust.

Permalink | Comments | Email This Story

Engadget Latest To Try Comment Cooling Off Period; I Can't Figure Out Why

Mike Masnick — Tue, 2 Feb 2010 21:29:00 PST

Last month, we wrote about a local news website in Illinois that was getting frustrated with the dialog in its comments, and it instituted a "cooling off period" where it shut down its comments for a while, hoping that it would drive away the less desirable comments. The whole thing made no sense to us. Those types of commenters would eventually come back, and the solution should be offering better incentives and better overall discussion for commenters, not blocking out everyone. And yet... (without giving credit to the site that led the way last month), it looks like super popular gadget blog Engadget has done the same thing, apparently after comments over the whole iPad thing got too heated. Engadget, of course, is owned by AOL -- and you would think that if there were any company out there that understood group dynamics online by now, it would be AOL. Honestly, I'm still really confused as to what this will actually do, other than make Engadget a lot less interesting for those readers who took part in the community.

Permalink | Comments | Email This Story

A Look Back: NBC's Words Against AOL/Time Warner Merger May Come Back To Haunt

Mike Masnick — Tue, 8 Dec 2009 13:03:00 PST

NBC Universal is probably wishing that people didn't remember stuff from a few years ago right now. The folks over at the National Journal dug up NBC Univeral's vehement opposition to the AOL/Time Warner merger, which used all sorts of arguments that I would imagine NBC Universal would prefer were not used against its pending merger with Comcast. The letter, sent to the FCC in July of 2000 included this point:

"Given the size and scope of the proposed merged company, AOL/Time Warner will have both the ability and the incentive to discriminate against unaffiliated content providers such as NBC."

Furthermore, NBC Universal was quite worried about how that deal would impact net neutrality and asked the FCC to make clear net neutrality principles if it allowed the merger to move forward, asking the FCC:

"to establish firm principles of non-discrimination in the treatment of unaffiliated content providers in the broadband services marketplace"

Of course, Comcast is now very much against that concept.

Not surprisingly, the letter was signed by NBC Universal's General Counsel, Rick Cotton, who has a long history of sticking his foot in his mouth in saying things he later regrets -- such as his still hilarious quote about how corn farmers were being harmed by movie piracy, and who was a major source for the bogus Hollywood propaganda piece on 60 Minutes. Still, you have to imagine that he now regrets that letter -- and the fact that reporters have now brought it back to light.

Permalink | Comments | Email This Story

AOL's New Strategy Is To Fill The Internet With Crap?

Mike Masnick — Wed, 2 Dec 2009 15:19:18 PST

Remember how AOL first became "famous"? It cluttered the world (and our garbage dumps) with millions upon millions of CD-ROMs offering "try AOL for free!" It seems that pollution is in AOL's genes, and it just can't get away from it. How else to explain AOL's new plan to rebuild its brand: to flood the internet with poorly written, but quickly written, content based on whatever search terms are hot. Danny Sullivan points out the amusing fact that AOL is looking to leverage search engines for more traffic this way, at the very same time as others, such as Rupert Murdoch, are claiming that Google is "stealing" from him in sending traffic, and he's considering opting-out.

But, of course, that doesn't make AOL's strategy very well conceived either. Farhad Manjoo makes the case for why this is a dumb plan, and there's plenty to agree with:

The trouble with AOL's plan, then, isn't that it's based on data-mining. Instead, it's what the company will likely do with search data--publish quick, vapid posts that do little to advance any hot story and instead feed readers a collection of factoids gathered from other places. How do we know this will happen? Because AOL's model is strikingly similar to that of Demand Media and Associated Content, two start-ups that also use search data and user contributions to build Web content. Indeed, AOL's Armstrong--who was an advertising executive at Google until earlier this year--is reportedly an investor in Associated Content, whose CEO is also a former Googler.

Associated Content stands as a cautionary tale for anyone looking to do news by the numbers. It is a wasteland of bad writing, uninformed commentary, and the sort of comically dull recitation of the news you'd get from a second grader.

Effectively, it's a plan based on adding crap into the system to trick search engines. It's pollution and web spam as a business model. But as folks like Umair Haque are fond of pointing out, business models based on tricking people and not adding any real value aren't business models that will last. They're short-term scams. Manjoo, in his writeup, helps explain why:

Will this plan do wonders for AOL's bottom line? It very well might, at least in the short run. If AOL can replicate the success of Associated Content across its network of sites, it will surely see huge gains in traffic and renewed interest from advertisers. But this plan hinges on something that can't be guaranteed for long--a weakness in search engines. By any measure, stories like those found on AC don't deserve top billing in search results. If you search for "Tiger Woods mistress pictures," you should get pictures of Tiger Woods' alleged mistress, not a story that repeats that phrase a dozen times. Google and other search engines constantly battle search engine spam, and over time they're sure to steer people away from sites that rely on such trickery to get visitors. Then what? Associated Content gets 90 percent of its traffic from search engines. Once Google and co. wise up to AC's schemes, its business model is toast.

A short-term strategy based on polluting the internet with bad content may be a last-gasp effort to revive a dead brand, but it's difficult to see how that's any sort of long-term strategy to survive.

Permalink | Comments | Email This Story

News Corp. Digital Boss Says Free Doesn't Work, Doesn't Bother To Explain How Pay Will Work

Mike Masnick — Fri, 29 May 2009 12:28:00 PDT

A bunch of folks have been sending in various versions of the fact that News Corps. digital media boss Jon Miller apparently said that "free doesn't work," though that isn't quite what he actually said. He said that ad-supported content doesn't work. Now, it may be true that he's making the (false) assumption that the only way to make money off of free content is advertising, but that's not the same as saying "free" doesn't work. Either way, I'd argue he's wrong. Ad supported free content has been shown for ages to work in various different ways if you do it right. Perhaps the problem is that he's not doing it right. Either way, his suggestions for where News Corp. is heading don't sound very promising:

"It's pretty clear that there has to be some recognition of value," said Jon Miller.... Miller noted that Web companies will have to figure out a way to charge consumers for content they have grown accustomed to getting for free, noting that cable television service providers learned how to charge for television shows. Miller also said he expected to see the rise of Internet micro-payments.

If there's one nearly universal truth out there, it's that you can never go back to charging for content people were used to getting for free. You may be able to charge for new content or services, but never what they're already used to getting for free.

But the real root of the problem is Miller's opening statement. That there needs "to be some recognition of value." There is a recognition of value. Otherwise people wouldn't consume your content. But that doesn't mean they'll pay for it. Notice what he doesn't say. He never says that they need to give people a reason to buy. He's talking about putting up a paywall, not providing a reason to buy. That's destined to fail.

The reason that cable providers learned to charge for television shows was because there was a scarcity there... and even then there's a big push to break out of that and move to free television shows online as well. Trying to cram the internet into that dying model sounds like a terrible idea.

The most ironic thing about all of this is that, if anyone should understand all of this, it's Jon Miller. After all, he was the one who realized that AOL's walled gardens were killing the company, and put in place its strategy of opening up and going free. So now he wants to do the opposite for Fox Interactive? Good luck!

Permalink | Comments | Email This Story

AOL Sued For Putting Ads In Email

Mike Masnick — Fri, 24 Oct 2008 10:17:00 PDT

We Americans sure do love filing lawsuits for just about any reason. The latest is a guy who has sued AOL for putting text ads in his email messages, claiming that because he pays for his AOL account (that might be his first mistake), these ads are "fraud, unjust enrichment" and a violation of California business codes. He's trying to turn it into a class action lawsuit as well. Here's another suggestion: switch your email account. Hopefully this gets thrown out quickly.

Permalink | Comments | Email This Story

AOL To Nuke Users' Content On Halloween

Mike Masnick — Tue, 21 Oct 2008 19:01:02 PDT

theodp writes "Blaming an unquantified decline in usage, AOL has notified users it's decided the best thing to do is delete all of their blogs and files on October 31st. Want to save that precious blog of yours? AOL not-so-helpfully suggests: 'The quickest and easiest way to do this is by copying and pasting your content into a word processing document such as Microsoft Word, Notepad or even into an email and mailing it back to yourself. If you have any images we suggest you save them separately by right clicking on the image, choosing "Save Picture As" and allocate the drive on your PC where you would like to save them to.' Gee, thanks. And don't get too smug, Google users - the search giant has put its users on notice that Google Page Creator will be a thing of the past by year-end, although details of the transition have yet to be provided."

These are just a few more in a long line of attempts by big companies to enable user generated content without much of a plan. With so much attention in the space, plenty of large companies (including Yahoo and Microsoft, in addition to Google and AOL mentioned here) rushed out various tools for users, but forgot to explain to them why they might want to use them. For the most part, they just launched them and figured users would show up willingly. It turns out that, even if you're a big company, it's not so easy to get user adoption if you don't offer anything particularly special compared to what's already out there.

Permalink | Comments | Email This Story

Andrew Cuomo Gloats Over Getting AOL To Do What It Already Does

Mike Masnick — Fri, 11 Jul 2008 11:46:00 PDT

We've already pointed out how ridiculous it is for NY Attorney General Andrew Cuomo to be pressuring ISPs to start blocking news groups and access to certain websites with "objectionable" content. Doing so actually makes the problems Cuomo is trying to fix worse. That's because he's not actually going after the source of the problem, meaning that it will continue to exist and just be harder for law enforcement officials to track down. This is pure political theater with Cuomo getting his name in the headlines for pretending to solve the problem, when all he's really done is get some ISPs to sweep the problem under the rug -- where it's only going to fester more.

Even more ridiculous, however, is the latest announcement from Cuomo, gloating over the fact that two more ISPs, AT&T and AOL will join with the ISPs from the original announcement and cut off access to newsgroups and objectionable websites. In the case of AOL, this is especially ridiculous since it's already done this for many years. Declan McCullagh even got AOL to admit: "We have not changed any policies or procedures as part of today's announcement."

Of course, "we're doing what we've always done" doesn't make good headlines for ambitious politicians.

Permalink | Comments | Email This Story

Apple, eBay And AT&T All Give In On Visual Voicemail Patents

Mike Masnick — Tue, 17 Jun 2008 18:28:00 PDT

The reason patent hoarding firms are often successful in getting companies to pay up has little to do with the quality of their patents, but the fact that fighting these lawsuits out in court is so very expensive and time consuming. It's often much easier and cheaper to just settle. Klausner Technologies has been very successful in getting companies to pay up for daring to use the concept of "visual voicemail." Klausner for years has basically claimed ownership to any sort of "visual" phone info, such as the time it sued AOL for daring to display caller ID info on your screen -- something that clearly no one would have ever thought of if not for Klausner's patent. AOL just settled rather than deal with the mess of fighting it. Ditto for a similar lawsuit against Vonage. The latest trio to settle up are Apple, eBay and AT&T. With Apple and AT&T the lawsuit was over the visual voicemail feature found on the iPhone -- guess all those patents Steve Jobs hyped up didn't protect it from patent lawsuits.

So now Klausner has even more money to go after others (Comcast and Cablevision are listed as targets) -- and it will use the fact that all these big name companies settled as "evidence" that its patents are valid, even if the only thing it really means is that companies did the math and realized it's cheaper to settle. Even the press is falling for this false claim. News.com notes that Apple, AT&T and eBay probably would have lost because AOL and Vonage licensed the patent. That's not at all true. Both companies settled because it was cheaper and easier, rather than due to any acknowledgment that the patents are valid. The fact that some firms settle have no bearing on whether or not other companies could have won in court.

Permalink | Comments | Email This Story

SEC Sues Former AOL Execs For Ad Scam

Mike Masnick — Mon, 19 May 2008 18:52:00 PDT

It's somewhat amazing that this case is still going on, but AOL's sneaky ad deals to boost its own revenue are still the target of lawsuits. Back in 2006, we noted that federal prosecutors had decided that it wasn't worth prosecuting the executives involved. However, it appears that the SEC feels differently. It's now sued eight former AOL execs for taking part in the scam -- though, four of them have already settled. If you don't recall, AOL had this nice little trick where it would "swap" ads with other sites, where no money changed hands, but both sides would record revenue. That let them boost revenue (up to a billion dollars for AOL) without any actual revenue coming in. It's a nice little trick... and it's also illegal. Though, it all took place in the 2000/2001 timeframe, so it's not clear why it took the SEC seven years to do something about it.

Permalink | Comments | Email This Story

Do Songwriters Deserve A Cut Of Yahoo Search Revenue?

Mike Masnick — Tue, 13 May 2008 10:45:13 PDT

You may recall a couple weeks ago that a judge set new rates to be paid to ASCAP by AOL, Yahoo and RealNetworks. ASCAP represents the songwriters, and those three companies and ASCAP could not agree on licensing terms for music streamed online. While ASCAP ran around touting the (somewhat made up) $100 million owed, there was plenty more in the decision that deserved discussion. At last week's San Francisco Music Tech Summit, I got into an interesting discussion with a few folks who had read through the 153 page decision thoroughly, and noticed a variety of problems. You can read the whole decision (pdf) yourself, if you want, but there are a few key points that are extremely disturbing, and could spell a lot of trouble. Basically, there's a meaningless "formula" that's applied to a very large segment of these companies' revenue, taking a huge chunk of money that seems beyond reasonable.

The judge seems to consider what AOL and Yahoo do somewhat equivalent to the way TV stations use music, and refers back to the rate agreements set up with various TV networks, despite vast differences in the way these websites operate. It suggests a misunderstanding between the difference between broadcast and interactive content. But what's really troublesome, is when you look at the overall formula for how the royalties are set. It clearly overvalues the music, and undervalues just about every other part of these three companies' businesses. The formula is, basically, the total revenue made by any business unit (minus a few specific costs) multiplied by a bizarre fraction (called the music-adjustment fraction): total number of hours that music is streamed, divided by total number of hours used on the website. Then, you take the result of that and multiply it by the "rate fee" of 2.5%.

This formula is applied to revenue coming in from any business unit that is considered to have used music. This includes things like Yahoo's search engine. That's because Yahoo (smartly, from a consumer perspective) allowed users who searched on a musician or song to stream that song directly from the search results. But, in making that so user friendly, the company has now opened up its cash cow search revenue to this formula, despite the fact that it's incredibly difficult to think that music has anything to do with nearly all of the revenue Yahoo makes from this site. Similarly, RealNetworks has almost its entire consumer division revenue included in this formula, despite the fact that it makes a ton of revenue from its gaming business. Wondering why RealNetworks decided to spin off the gaming business a week after this decision was announced? Maybe because a rate court judge just chopped off a huge chunk of revenue from it and handed it over to songwriters who have nothing to do with these games.

As for the formula itself, it makes little sense. The "music-adjustment fraction" is a totally meaningless number. The number of hours music is streamed is hardly an indicator of how much of a site's revenue is actually music based. If I have music streaming in the background all day, but am still using the site for other purposes, it seems ridiculous to include all of that as music-based revenue. The denominator of the fraction is "total number of hours on the website" which is also a totally meaningless and unrelated number. Even worse, since the court notes that none of these sites actually track that information, the judge ruled that everyone should just use Comscore's numbers instead -- the same Comscore that most people admit is not particularly accurate. So, basically, you're dividing a meaningless number by an even more meaningless number and multiplying it by the total revenue of units who often have very little to do with music, and then taking 2.5% of that. If anything, this ruling should make any site think twice before including any streaming audio from any ASCAP-affiliated songwriters.

Permalink | Comments | Email This Story