Techdirt. Stories about "soundexchange"

Recording Industry Lobbyists Accuse Pandora Of Deliberately Not Selling Ads To Plead Poverty To Congress

Mike Masnick — Fri, 5 Apr 2013 08:51:56 PDT

I'm always amazed at how copyright maximalists from the entertainment industry insist that no one can comment on their own businesses unless they're "in it" while freely commenting on other businesses they clearly know nothing about. Here's the latest example. The musicFIRST coalition, which is basically a lobbying operation set up by a few of the big legacy players in the recording industry (including the RIAA, A2IM and SoundExchange) in order to push for ever higher royalties for music, has been fighting hard against any effort to create royalties for internet companies that would allow those companies to survive. Like the Golden Goose, the labels have decided that if anyone online is making money, it's best to squeeze as much of it out of them as possible until they're dead, rather than allowing them to grow and to provide sustainable revenue back to the industry.

But their latest blog post really takes public cluelessness to new and impressive levels. It's a response to the news that Pandora's listener base has been growing. That should be celebrated, but, as Pandora has been pointing out for ages, thanks to the crazy high royalty rates that it has to pay SoundExchange (which are many times the rates of satellite radio and infinitely larger than terrestrial radio, since terrestrial radio has an exemption from performance royalties) it is close to impossible for Pandora to ever be profitable. Even worse (for musicians, the industry and the public) these crazy high rates means a lot less competition, fewer new authorized services and a smaller market overall. Pandora has been seeking more reasonable rates that would actually allow it to provide more services and to grow the overall pie even more by adding more value. However, so far, that's been cost-prohibitive given how much goes out the door to SoundExchange.

So, along comes MusicFIRST with the "solution" to all of Pandora's profitability problems: sell more ads. No, that's not a joke. They seriously seem to think that Pandora's problem is that it has chosen to take on less revenue and that all it has to do is turn the knob up and sell more ads:

As economist Jeff Eisenach testified last year regarding Pandora royalties, "the ratio of Pandora's content costs to its revenues is within Pandora's control: To raise its revenues, it need only choose to sell additional advertising" or find other ways to cash in on its popular and successful product.

Pandora is choosing to limit revenues for now by keeping advertising low and attracting customers to its free service tier.... It's no reason to plead poverty in the face of massive audience growth and "better than expected" earnings reports.

As someone who relies on advertising for a portion of my income, I wish musicFIRST had just told me all along that the fact that ad rates are so low and that fill rates are so dismal on advertising all across the internet is because I just wasn't trying enough and that I'd purposely been "limiting revenues." Why don't we just flip that one around? Perhaps the reason that the major labels and SoundExchange have been making so little money is that they're not selling enough. All they need to do is sell more and all their problems are solved. No need to go plead poverty to Congress and demand a jacking up of rates, since -- by their own logic -- they just need to sell more, and clearly, that's easy. If they're not selling more, it's because they've decided to limit revenue.

Stories like this make you wonder if anyone actually takes musicFIRST seriously.

Separately, musicFIRST trots out the lamest trope in the book in the attacks on Pandora: focusing on the value of the company and the equity its founders hold. Only someone who is deliberately misleading or completely clueless on basic financial issues would equate a company's valuation with revenue. The two are wholly different beasts. And yet, these lobbyists pretend that the equity that Pandora execs hold somehow is taken unfairly from artists. That, of course, makes no sense if you actually understand the difference between equity and revenue. Any artist could have had the same equity if they had built Pandora. They didn't, so they don't.

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First Amendment Concerns About Internet Radio Bill Not Just Overblown But Completely Backwards

Mike Masnick — Mon, 3 Dec 2012 12:57:26 PST

I've been tossing around a longish blog post about some of the controversy concerning the Internet Radio Fairness Act (IRFA) over the past month or so, but haven't had a chance to put it all down in a blog post. I did, however, wish to pick up on a small thread that got a brief spark of attention from some people who don't seem to understand legal stuff in the slightest. It started with musician David Lowery (you may remember him from past nonsensical rampages) claiming that Section 5 of the bill muzzled free speech and thus violated the First Amendment. This isn't just wrong. It's completely backwards. But the language and history here is a bit complex, so let's dig in a bit.

First off, you have to understand that the amounts that satellite and internet radio pay for a "performance right" for broadcasting songs is not (generally) an individually negotiated rate, but rather is set by the Copyright Royalty Board, using a variety of questionable standards. As we've noted in the past, the CRB is notoriously bad at setting reasonable rates -- and part of that is because part of its very charter is to block disruptive innovation if it has an impact on "generally prevailing industry practices." Thus, it tends to set rates super high. This is exceptionally bad for innovation, competition and for artists in the long run, though I'll get to that in another post. One thing that it more or less ensures is that these industries will be dominated by a very small number of super large players, because no one else will be able to afford the rates -- and this effectively locks in the top guys. That's what's happened, as you have Sirius dominating satellite radio and Pandora dominating internet radio. But the rates are so crazy that it's difficult to impossible for these companies to ever be profitable.

We'll get back to that in a moment. But, now, go ahead and read the full text of the bill if you'd like. For this discussion, jump over to Section 5, entitled "Promotion of a Competitive Marketplace." The section is relatively short.

SEC. 5. PROMOTION OF A COMPETITIVE MARKETPLACE.
(a) Limitation of Antitrust Exemptions-
(1) EPHEMERAL RECORDINGS- Section 112(e)(2) of title 17, United States Code, is amended--
(A) by inserting ‘, on a nonexclusive basis,’ after ‘common agents’; and
(B) by adding at the end the following: ‘Nothing in this paragraph shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1).’.
(2) DIGITAL SOUND RECORDING PERFORMANCES- Section 114(e) of title 17, United States Code, is amended by adding at the end the following:
‘(3) Nothing in this subsection shall be construed to permit any copyright owners of sound recordings acting jointly, or any common agent or collective representing such copyright owners, to take any action that would prohibit, interfere with, or impede direct licensing by copyright owners of sound recordings in competition with licensing by any common agent or collective, and any such action that affects interstate commerce shall be deemed a contract, combination or conspiracy in restraint of trade in violation of section 1 of the Sherman Act (15 U.S.C. 1).
‘(4) In order to obtain the benefits of paragraph (1), a common agent or collective representing copyright owners of sound recordings must make available at no charge through publicly accessible computer access through the Internet the most current available list of sound recording copyright owners represented by the organization and the most current list of sound recordings licensed by the organization.’.

The important thing to understand here is that there's currently an antitrust exemption for SoundExchange, the organization that collects money from internet and satellite radio offerings (and sometimes has difficulty finding artists to pay them). SoundExchange basically needs an antitrust exemption because it is, by definition, a monopoly. What the bill is doing is something simple which is actually beneficial for artists. It's saying that SoundExchange can't use that antitrust exemption to try to stop artists from having the option, if they want to go do direct deals with internet or satellite radio providers. The second part is similar, but not referencing an antitrust exemption. It's just saying that any group that is representing multiple artists can't seek to block other artists from choosing to do a direct deal.

Sirius XM, in particular, has been trying to negotiate direct deals that route around SoundExchange. Now, why would artists ever want to negotiate directly with a Sirius or Pandora when they've already got the Copyright Royalty Board forcing ridiculous high rates on those providers? It's not as if those sites will choose to pay more directly. However, what they can do is offer better service than SoundExchange. That is: they can pay faster, they can provide more data and details, better access to users, etc. And that's what both companies are attempting to do. Also, for artists who actually act as their own label, they can actually make more money because they're cutting out a lot of middlemen who take their cut (it's convoluted, but click that link to see the details).

So, short version: it's certainly not for everyone, but some artists might find it beneficial to go direct. If they choose not to, they can still have SoundExchange collect and distribute their money and that's fine as well.

Now, jump to March of this year... when Sirius sued SoundExchange and A2IM (the RIAA of indie labels) claiming antitrust violations. Sirius argues in its lawsuit that SoundExchange and A2IM conspired and colluded to effectively forbid artists from going direct. Because proving direct collusion is difficult, Sirius' lawsuit is filled with circumstantial evidence, which doesn't prove an antitrust violation, but infers that there might be fire behind the smoke. The goal, there, is to get to discovery to try to suss out some smoking guns of collusion. So, the lawsuit includes various bits of circumstantial evidence, including a number of artists and indie labels that Sirius reached out to who flat out told them that A2IM prevents direct licenses, or that they'd have to first ask A2IM for permission. As part of the circumstantial evidence, Sirius also points to this blog post from A2IM that argues against doing direct licenses.

That lawsuit is still crawling along, so it's unclear if it's going anywhere. Honestly, proving collusion is crazy difficult, and I doubt Sirius will succeed, but some of that circumstantial evidence is eye-opening.

And that leads us to Section 5 of IRFA. As you can read above, what it makes clear is that the existing antitrust exemption cannot be used to "prohibit, interfere with, or impede direct licensing" and similarly that any group acting for some artists could violate antitrust laws by blocking the free will of other artists to negotiate their own deals. In other words, the bill makes it clear that if A2IM or SoundExchange really are colluding to impede artists from choosing to do direct deals, that could be seen as an antitrust violation. This, then, is about protecting artists and indie labels from large organizations like SoundExchange or A2IM, should they try to block those artists and labels from voluntarily doing direct deals.

So you would think that self-declared, if often confused, "defender of artists rights," David Lowery, would like that. But he doesn't for reasons that suggest a serious misreading of the bill or misunderstanding of this background. He points to the language, and then at the text of the Sirius lawsuit, apparently not understanding the nature of circumstantial evidence, and argues that "This is the type of explanatory speech — not conduct — that Sirius XM thinks is illegal and IRFA definitely would outlaw." The only problem with this statement is, well, everything. It's wrong. Nothing in the bill would outlaw that kind of speech. At all. Nor does Sirius' lawsuit claim that such explanatory speech is illegal. Instead, it is arguing that that blog post, along with a host of other circumstantial evidence, is enough to suggest there's a fire somewhere providing all that smoke. Under IRFA, such blog posts would still be perfectly legal, so long as A2IM didn't also use those blog posts to collude and directly hinder copyright holders from doing direct deals.

All that Section 5 of the bill is saying is that the A2IMs and SoundExchanges of the world can't try to hide behind antitrust exemptions to argue that such coercion to block artists from doing direct deals is free from antitrust scrutiny. And, outside of the exemption, they also cannot restrict artists from doing direct deals.

And yet, Lowery (and some of his followers) have taken up the banner claiming that this is a First Amendment violation and that it censors free speech. What he seems to be missing is that the only speech it blocks is speech that is used to collude or to block artists from voluntarily making a deal. Under Lowery's interpretation of the bill, collusion by large companies to force independent artists and labels to do business their way only is legal... because it's free speech to collude..

That's kinda nutty. His argument is, basically: legalize collusion!

A few weeks ago, Lowery gleefully confronted supporters of the bill with this argument at the Future of Music Coalition Conference, which led bill sponsor, Senator Ron Wyden, to hit back and claim that, as one of the strongest defenders of the First Amendment, he'd never support a bill that took away free speech rights. He promised Lowery that he'd review the specific language of the bill, and if there were any interpretations that impacted free speech rights, he'd fix them.

And he followed through with that, asking the Congressional Research Service to look into the matter, which it did. In a note published last week, they make it quite clear that it is extremely unlikely that there would be a First Amendment issue raised by the bill:

... it seems unlikely that, in practice, Section 5 would impinge upon First Amendment rights for a few reasons.

They then go on to detail those reasons -- which can be summed up as, Congress has the right under its authority to regulate interstate commerce, to create antitrust law that blocks collusion (as it applies to interstate commerce). Basically, since antitrust law is Constitutional, so is Section 5:

The antitrust laws are generally considered to comport with the First Amendment, because though the Sherman Act may restrain speech on occasion, the restraint is incidental to Congress's legitimate goal of maintaining a free market. In the case of Section 5, Congress would arguably be creating a similar prohibition, particularly since the bill specifically references the antitrust laws. As noted above, Section 5 would generally prohibit copyright owners acting jointly from taking any action to interfere with direct licensing negotiations. This provision appears to be intended to further the government's interest in preserving the rights of individual copyright owners to negotiate directly with potential licensees without interference from entities like member-based royalty collection organizations. It could be argued that this is similar to Congress's intent to preserve a free market by enacting the antitrust laws. Under Section 5 an individual copyright owner would have the option, as she always has, of negotiating royalty rates individually or collectively, but with an added protection from interference on the part of groups of copyright owners that might seek to prevent her from exercising her individual rights. If the provision is read to prohibit activity and speech similar to, and not broader than those prohibited by the Sherman Act, Section 5 likely would not violate the First Amendment for similar reasons that the antitrust laws do not violate the First Amendment. The restrictions on speech may be interpreted to be incidental to a valid exercise of Congressional authority to regulate interstate commerce.

In other words, exactly what we were saying: unless you're arguing that collusion is legal because it's free speech, the argument that Section 5 violates free speech is quite unlikely.

Because the CRS is quite thorough, it also does work through some scenarios under which the bill might possibly have Free Speech implications. But the only thing it can come up with is that a court would have to somehow interpret Section 5 to restrict speech beyond what's in antitrust laws (i.e., beyond activity designed to restrain trade). Considering how vocal bill supporters have been about this clause not being intended to go beyond the law, it would be somewhat incredible for a court to have that interpretation.

Of course, to make things even more amusing, Lowery himself posted about this CRS destruction of his key argument... and declared victory. Why? Because the CRS report, in its typically even-handed manner, discusses Lowery's scenario, of a blog post potentially violating Section 5, and notes that "though this hypothetical presents a broad interpretation of the language of Section 5, it is not an implausible one." Lowery cuts off the text at that point and declares victory... conveniently leaving out the detailed explanation of why this isn't a First Amendment violation (as explained above).

The confusion, it appears, stems from yet another misreading by Lowery of the CRS report. He interprets the "not implausible" claim to refer to his overall argument that the bill restricts free speech rights. But that is not what it is saying. It is saying that he is right that if a blog post somehow interfered with someone else doing a direct licensing deal -- i.e., restricted interstate trade under existing laws -- then it could violate the Act... but as such would not likely violate the First Amendment. So, the conditions here are that the blog posts themselves would have to actually impede trade, which the CRS report itself notes would require a very broad interpretation of the bill, one that is quite unlikely.

In the end, this appears to be much ado about nothing. The original complaint was a misread, which the CRS report clearly corrects, and Lowery doubles down by then misunderstanding the report itself. Still, from this vantage point, it's been rather amusing to watch a somewhat confused David Lowery thinking that he's "protecting artists," while he's been arguing against a provision in the bill that is actually 100% designed to protect artists against collusion to block them from doing their own deals -- deals which (especially for truly independent artists) could be more lucrative. It would be almost comical, if it weren't that a bunch of artists who haven't understood all this have been parroting Lowery's claims, believing that they're arguing for their own self-interest, when the reality is that they're literally arguing that organizations like SoundExchange and A2IM should be able to collude and block their ability to negotiate favorable deals.

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SoundExchange, Once Again, Warns Artists That If They Don't Register, It Might Keep Their Royalties

Mike Masnick — Fri, 12 Oct 2012 18:39:00 PDT

You may recall that nearly a decade ago, people began to question why SoundExchange, the RIAA spinoff created to collect satellite and internet broadcasting royalties, was allowed to keep any of the money for artists it couldn't find. That resulted in some controversy, when people realized that it was sitting on over $100 million and suggesting it might keep the money for a big list of artists it couldn't find. After much uproar, SoundExchange backed down, and said that it wasn't, in fact, keeping the money. And, to its credit, in the past few years, SoundExchange has been very good about working a variety of angles to get artists signed up to get the money they're owed from such webcasting royalties (such as those Pandora was just talking about).

However, some artists still aren't signing up -- and SoundExchange is apparently giving people something of an ultimatum, in which they hint at the fact that, you know, if they wanted to they absolutely could just keep the money.

Register by Oct. 15 as you may risk losing any royalties collected three (3) or more years ago by SoundExchange.

SoundExchange is authorized by law to release older unclaimed royalties to offset our costs and distribute proportionally to those we already pay. We have repeatedly held off on doing this, but we need your help to spread the word and get recording artists and record labels to register.

As some have noticed there are some pretty big names on the "unclaimed" list. Swedish House Mafia, N.W.A., Billy Bob Thornton, Sublime, Fleetwood Mac, Rebecca Black, Louis CK, Grandmaster Flash, The Byrds, Charlie Sheen, Brother Ali... and a bunch of others. I'm pretty surprised that Rebecca Black and Louis CK haven't figured this out yet... but there's one name on the list that is stunning: Gene Simmons. Simmons is famous for being focused almost entirely on getting money, even to the point of saying that artists should sue their fans. You'd think that somewhere along the line he'd notice that he should register with SoundExchange to get what's owed to him.

For what it's worth -- while there were some legitimate concerns that SoundExchange was doing little to "find" these artists, I no longer believe that's the case. Having watched their efforts over the past few years, they really have done quite a lot to try to get artists to register. Of course, this really just highlights one of the problems of setting up a system like SoundExchange in the first place. Creating unnecessary middlemen may seem like a useful solution, but it often seems to just prevent more direct support of artists. Still, if you are a recording artist of any kind, it's worth getting registered to avoid having SoundExchange keep the money it has for you for itself.

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SoundExchange & A2IM Sued For Antitrust Violations By Sirius

Mike Masnick — Thu, 29 Mar 2012 08:25:11 PDT

Well, well. Last fall, we discussed how Sirius XM was aiming to cut out SoundExchange and try to do deals directly with labels for performance rights. There's some history here. SoundExchange was set up and spun out of the RIAA specifically to collect performance royalties from Sirius XM and emerging internet streaming offerings. Radio doesn't pay performance rights to musicians (they just pay mechanicals to songwriters/publishers), and while the RIAA has wanted that to change for years, it used the "newness" of satellite and the internet to suddenly claim that this extra tax must be paid there, and then set up SoundExchange to collect it. The "rate" was a statutory rate set by the Copyright Royalty Board (CRB), which involved a huge fight, with SoundExchange basically demanding a significant cut of everyone's revenue. The CRB eventually agreed to a sliding rate starting at 6% and moving up to 8% over time -- much, much lower than what SoundExchange wanted (there was an even more intense fight over internet rates, but that is a separate issue).

Even with this "lower" rate, Sirius XM provides a huge chunk of SoundExchange's revenue -- around $200 million last year alone. Realizing that the deal that set up SoundExchange noted that it was "nonexclusive," Sirius sought to cut SoundExchange out of the loop and go direct to labels. Obviously, Sirius's goal is to pay less in royalties, and that led some to wonder why a label would want to do it, since the royalty rate would be lower. Except, it's a little more complex than that.

Sirius notes that in cutting out the middleman, you avoid SoundExchange's (hefty) administrative fee, as well as its notoriously opaque payment process which has left many labels scratching their heads. SoundExchange provides little information as to why artists get paid what they're paid, leaving open significant concerns that the money is not being accounted for properly. Similarly, SoundExchange has been notorious for having "difficulty" finding artists -- though I will say that they've definitely been improving a lot on that front, and really have made a huge effort to reach out to artists. Still, there certainly could be benefits for labels to go direct. Cutting out the middleman, having more relevant and accurate data, as well as more timely payments could certainly be worth it. In fact, Jeff Price at TuneCore explained how indie artists who were their own labels would almost certainly benefit by going direct.

However, the wider industry flipped out and closed ranks, with SoundExchange, the RIAA and A2IM (like the RIAA but for indie labels) all urging labels not to have anything to do with direct deals. Sirius XM looked at all of this and saw a clear antitrust violation as it certainly feels like the entire industry colluding against it. To that end, it has sued SoundExchange and A2IM for antitrust violations -- and even gone so far as to ask for SoundExchange to be "dissolved and unwound." While the actions of other music industry trade groups -- including the RIAA, NARAS, AFRTA and AFM -- are mentioned in the lawsuit, they are not listed as defendants (yet). The focus is very much on SoundExchange and A2IM, whose boss, Rich Bengloff, sits on the board of SoundExchange (along with a bunch of RIAA folks).

In the filing (embedded below), Sirius reports on multiple attempts it made to sign deals with indie labels, in which it was repeatedly rebuffed with claims about how Rich or A2IM had urged them not to do direct deals.

For example, Sirius XM's direct license outreach to independent label Bandit Records was short-circuited when a representative of Bandit Records told Sirius XM that "[w]e're members of A21M and Merlin. I think that prevents a direct license." Upon information and belief, one or both Defendants communicated with Bandit Records (or through its representative Merlin Network) and pressured them to refuse a direct license.

O. Sirius XM's effort to engage in direct license discussions with independent label Unitedlnterests was similarly derailed when, on August 30, 2011, a representative of Unitedlnterests wrote: "I heard that XM was making these requests. I will look at the license, but will also confer with A2IM and other indies." Upon information and belief, UnitedInterests pursued those discussions and therefore agreed with A2IM and/or other record companies not to enter into a direct license.

Sirius XM's approach to independent label CA Management was stopped in its tracks when, on October 27, 2011, a representative of CA Management told Sirius XM that he was "getting mixed reviews about the best way to handle" the direct license offer. Several weeks later, on November 15, 2011, he told Sirius XM that "the RIAA has asked everyone to hold off." CA Management never entered into a direct license with Sirius XM because, upon information and belief, after CA Management communicated with RIAA, it agreed to participate in the industry boycott.

There are more, similar, examples in the filing. There's also a discussion of some indie labels who did sign on, but then backed out, claiming pressure from A2IM. From the filing:

Defendants' unlawful efforts have also extended to extracting agreements from labels that have already signed direct licenses to attempt to back out of them. By way of example. on November 28. 2011. Sirius XM entered into a direct license with Paracadute, TMB Productions, Michael Doughtv. and Michael Viola. On February 9, 2012, Paracadute and TMB Productions requested that they be released from the deal. Surprised by this request, Sirius XM's agent asked Darren Paltrowitz, the person with whom they had negotiated the deal, for an explanation. Mr. Paltrowitz's, response was an e-mail with talking points strikingly similar to the Defendants' press release, which Mr. Paltrowitz indicated were supplied by the bands' business manager. That business manager is Perry Resnick, an artist manager with RZO LLC, and a longtime member of the SoundExchange Board. After further discussions, on February 22, 2012, Mr. Paltrowitz wrote that he "relayed [Sirius XM's] feedback to RZO, and they -- per conversations with A2IM and other folks beyond SoundExehange -- stand their ground about wanting us to opt out" of the direct license. That same day. Mr. Paltrowity cut and pasted an email he received from Mr. Resinick that stated: "I know for a fact that Rich Bengloff, the head of A2IM ... is against this. Rich and I have had this exact conversation, and are both in agreement that SoundExchange is the better way to go."

Of course, there are a few reasons why SoundExchange and its board members would be so against this. As noted earlier, they still think that the royalty rates should be much higher, and have indicated multiple times that in the next round of ratesetting at the CRB, they are going to push for royalty rates double to triple of what Sirius XM is already paying. That's certainly part of why Sirius would like to cut them out of the picture. But, as some have noted, doing direct deals outside of SoundExchange doesn't just let Sirius avoid whatever crazy rates the judges at the CRB choose out of thin air, but it allows them to argue that the actual market rate is lower. You see... the way the CRB works is that it's supposed to try to set a statutory rate that is effectively what the market would choose on its own. Historically, since there were no market-based deals, it had nothing concrete to base its decision on, other than what SoundExchange or Sirius told the judges. However, if Sirius is able to cut direct deals (and do them at an even lower rate) then when the CRB hearing comes around, Sirius now has empirical evidence of a lower market rate. That's a pretty big deal.

Honestly, I'm not sure either side in this fight comes out looking good. It's really just a fight about who pays how much, and who gets a cut. This is the kind of messy thing that happens when a clueless Congress decides that a clueless judicial board should magically "set rates" based on nothing in particular. Sirius XM is hardly an angel in this fight, but based on some of the quotes in the filing, there may be something of a case here -- though proving full on antitrust violations are not easy.

The real issue, it seems, is that groups like A2IM are supposed to represent the industry, but are not supposed to be a central point of collusion for the industry, driving policy decisions back to the labels. That's coordinated effort among competitors that could very well cross the line. The close-knit nature of the SoundExchange board makes all of this even more complicated (and again raises serious questions why Congress ever allowed SoundExchange to be birthed from the RIAA, rather than being truly independent in the first place). I can't image a court would actually dissolve SoundExchange, but if it turns out that this lawsuit has legs, things could get very, very messy in the industry (and it certainly could shake up A2IM in a big way as well). This is one worth paying attention to.

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Universal Music Keeps Trying To Claim Zoe Keating's Royalty Checks, Despite Having Nothing To Do With Her

Mike Masnick — Wed, 19 Oct 2011 10:45:46 PDT

Zoe Keating is a wonderful musician, who you hopefully already know about. A truly independent (but quite successful) musician, she's been showing how to connect with fans in a variety of interesting ways, building up a massive fan base (and she recently explained how she approaches her career over at our Step2 service). A few months back, she had mentioned to me that she was surprised when she received a statement from SoundExchange (who collects money for artists for online streaming), in which the royalties for some of her original music was being claimed by Universal Music Group. I was curious to see how such a thing could happen. Keating filed a complaint with SoundExchange, who checked with Universal, who admitted the music was Keating's alone... and the whole thing was worked out. Mistakes happen, and while it was a bit of a pain, it all got corrected, and we decided not to write a story about it.

However, earlier this week, Keating noted that Universal Music was once again claiming her own music as its own, and trying to claim the royalties owed to her. I asked her for some details, and she passed along all of the various emails, including the ones from earlier this year, in which SoundExchange insisted that everything was sorted out. Of course, in one of those emails, SoundExchange also admits that such situations are "not uncommon." That seems pretty ridiculous, but as long as they sorted everything out.

The latest, however, is that even though SoundExchange had previously reached out to Universal Music, on behalf of Keating, it now sent her an email saying that there were, once again "overlapping claims." Even worse, the note said that if she didn't respond within 90 days, the royalties would go to Universal, because they give preference when songs are claimed directly by a label.

Keating was forced, yet again, to complain to SoundExchange over Universal Music trying to take her royalties. In response, someone from SE suggested that it may have been Keating's own confusion -- even suggesting that she may have been confused about the difference between master sound recordings and compositions (Keating was not confused, and holds the rights to both, since they're entirely original compositions and recordings by her).

Those with a conspiratorial bent might think that this is a neat way for the major labels, like Universal Music to simply claim the rights to any indie artist's music. Just keep making the claim, and leave it to the artist to sort it out by working through SoundExchange's bureaucracy. I certainly doubt that's truly the case. It probably is just someone, somewhere making an administrative mistake in how things are recorded -- but just the fact that Keating has to continually explain this situation just to keep Universal Music from getting the royalties owed to her is pretty crazy. On top of that, each time this happens, such funds are held until the conflict is resolved. For an indie musician, having such funds held can be a pretty big deal.

The whole situation seems pretty ridiculous all around.

Update: The situation has now been resolved, with Universal admitting -- yet again -- that it does not have any claim or rights to Keating's music. Separately, SoundExchange wanted to make clear that the "conflict" in data came from a (nameless) webcaster, who incorrectly listed Keating's music on their playlist as belonging to Universal Music. They insist that Universal had nothing to do with the actual claim. What's unclear is why SoundExchange relies on webcasters for the copyright holder info. I can understand getting a listing of songs and artists, but asking them to figure out who the label/copyright holder is seems like a situation that is going to turn up all sorts of bogus data, something that SoundExchange admits outright is "a challenge across the industry."

Separately, SoundExchange claims that they do not give preference to labels as I stated in my post. But in the letter sent to Keating on Monday, it states: "our policy is to give preference to repertoire that is claimed directly by a label. Therefore, if we haven't heard from you within 90 days, we will adjust the claim in favor of the new claimant." That certainly sounds like they would have given preference to Universal Music. If that's not the case, it seems like they should clarify the language in such emails.

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Who's Who Of Clueless Music Industry Lobbyists Send Angry Letter To Wrong Publisher

Mike Masnick — Wed, 24 Nov 2010 13:44:20 PST

Sometimes it just feels like the legacy music industry folks spend their time trying to make it easy for us to call them on their bizarre positions. The latest is a pretty laughable angry letter from a who's who of the organizations, who represent the past of the music industry. Signers to the letter include (among others) the heads of the RIAA, ASCAP, SoundExchange, BMI, SESAC, NMPA, AFTRA, Harry Fox and the Songwriter's Guild. The target of their scorn? Well, officially, it's the CEO of Ziff Davis, publisher of PC Mag, for publishing two articles in the wake of the shutdown of Limewire telling people about "alternatives" to Limewire. The problem? Well, beyond being totally pointless, PC Mag only published one of the articles (the one the letter seems to find less objectionable). The other article that they complained about was published by a totally different publication. Accuracy is not big with the old school music industry, it seems.

Yes, PC Mag published an article highlighting alternatives to LimeWire, just like a ton of other websites did. Anyone who was looking for an alternative to LimeWire didn't need PCMag to find them. In fact, many reports noted a noticeable increase of downloads of those alternatives pretty quickly after LimeWire went down. The lobbyists get pretty worked up about all this, though:

Let's be honest. The vast majority of LimeWire's users were interested in one thing and one thing only: downloading our music for free with the full knowledge that what they were doing was illegal. The harm done to the creative community when people are encouraged to steal our music is immeasurable. Disclaimer or no, when you offer a list of alternative P2P sites to LimeWire -- and include more of the serial offenders -- PC Magazine is slyly encouraging people to steal more music and place at risk the tens of thousands of music industry jobs -- including singers, songwriters, musicians and the technical professionals who put it all together. Even worse is offering a direct link to a "resurrected" Limewire as follows: "I went ahead and downloaded LimeWire Pirate Edition for *ahem* research purposes, and can report that it appears to be working very smoothly. In the event that you, yourself, would like to do some research, you can download the client here (direct link)."

Yes, they're quite upset about that article about the LimeWire Pirate Edition (which we wrote about as well). Only problem? PCMag didn't publish it. Nor did any other Ziff Davis publications. It was actually in PC World, which is published by IDG -- a totally different company than Ziff Davis. Now, it's not hard to confuse PCMag and PC World -- lots of people do. But when sending an angry letter condemning a publisher, you would think that maybe one of these super powerful industry lobbyist/mouthpieces would think to actually check the sources before mouthing off.

Apparently not.

Given this mistake, it should come as little surprise that the rest of the letter is also full of factually ridiculous claims, such as "job loss" numbers due to "piracy" -- numbers that have been widely debunked so many times that it's almost pathological that these groups still cling to them like some talisman. Also, it's kind of funny that they imply the publishing business would feel differently if it had also been decimated by free competition (they call it "piracy," but they mean free competition). Ziff Davis is, in fact, a shell of its former self due to exactly that situation. However, the company has been trying hard to resurrect itself by actually competing in the marketplace -- something the signers of this letter could learn from.

Of course, I'm sort of curious what these groups actually think they're accomplishing with a letter like this. If it's to pressure magazines like PC Mag (or, ahem, PC World) not to publish such stories, that won't stop the info from getting out there. It will only increase the irrelevance of those publications -- especially if they feel brow-beaten by a bunch of dinosaurs, who refuse to adapt no matter how many times it's been shown to them how they can embrace the future successfully. This really feels like the sort of letter that these guys signed onto so they can show their constituency that they're "doing something" by stomping their feet, rather than actually doing something helpful like helping those they represent to adapt and embrace new opportunities. The full amusing letter is included after the jump...

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Recording Industry Using Net Neutrality Debate To Try To Link Child Porn With Copyright Infringement Again

Mike Masnick — Thu, 19 Aug 2010 15:04:20 PDT

We've already seen how music industry execs and lobbyists cynically use "child porn" to their advantage (even, sickeningly, declaring "child porn is great") by lumping it in with copyright infringement in trying to force filters or other third party policing of the internet on politicians and companies. What's amazing is that they don't seem to have any shame at all in doing so. The latest example can be found in the "open letter" put together by a bunch of music industry trade groups (RIAA, A2IM, AFM, AFTRA, ASCAP, BMI, NMPA, SESAC, SoundExchange, the Recording Academy, the California Songwriters Association, the Music Managers Forum, and the Nashville Songwriters Association International) to Verizon and Google asking them to make sure their proposed "framework" for net neutrality still doesn't cover forcing ISPs to be copyright cops. It's no surprise why they sent this letter, but the inclusion of "child porn" with copyright infringement is really ridiculous:

The music community we represent believes it is vital that any Internet policy initiative permit and encourage ISPs and other intermediaries to take measures to deter unlawful activity such as copyright infringement and child pornography.

The industry seems to work overtime to try to link these two concepts together, despite the vast differences between them. It's really an incredibly cynical, exploitative and disgusting move by the recording industry, and people should really start calling them on it.

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Responding To SoundExchange... By Their Numbers

Fred Wilhelms — Mon, 11 Jan 2010 10:55:00 PST

This is a guest post from Fred Wilhelms, a lawyer whose concerns about SoundExchange we recently wrote about. Due to the length of the post, we've put some of it after the jump, so you'll need to click through to read the whole thing -- but, trust us, it's worth it.

Back before New Years, Techdirt's Mike Masnick picked up on my comment to p2pnet.net regarding the list of artists SoundExchange said it couldn't find. I wrote that the list was not on the website. I was wrong about that, and Mike got suckered into repeating it. I went blissfully without the Internet for a couple weeks (yes, it is possible) and missed the whole thing. I just got it wrong. The list is there. I just couldn't find it.

My apologies, in order, to SoundExchange, Mike, and his readers. The list itself is a very interesting document on several levels, and I will be dealing with that later. This particular note has a specific purpose relating to Mike's piece.

SoundExchange folks like Director Dick Huey and staffer Laura Williams have been gushing all over about SoundExchange's new open communications policy. I have been trying to engage them in actual conversation, rather than simply criticizing their serial press releases. Their campaign seems to be faltering, however, as they've resorted to commenting on my supposed factual errors to third parties like Techdirt rather than deal with me directly. I don't mind. It's the tactic they've used with outside critics like me for years. It's arrogant, but what can we expect from an organization where the Board of Directors is hand-picked by the RIAA?

So, let me take this opportunity to deal with the "Top Ten Reasons Laura Williams Tells Techdirt Why I Am So, So Wrong About SoundExchange (But Won't Tell Me Directly)."

1. About the "missing" list of unpaid artists, I said it wasn't on the website. They said:

"Not sure how FW missed this. It's at http://soundexchange.com/performer-owner/does-sx-have-money-for-you/unpaid-artists/. It's been there all along, old website and new, and this version is easier to use than ever."

As noted before, I missed it.

There used to be a link directly from the homepage to the list, and a rolling counter of artists removed from the list. Those are gone. I used the search function on the site for "unregistered artists" (the term SoundExchange used to use to describe the entries on the list) and came up with nothing. I'm not sure how "easier" the list is to use, given that the alphabetizing scheme used by SoundExchange is even more idiosyncratic than the old one, but I will deal with the contents of the list, and what it means, separately.

All that aside, SoundExchange is right about this. I just missed the list.

2. About what happens to forfeited money, I said SoundExchange gets to keep the money. They said: "This is a common misperception about SX. While our congressional mandate allows us to liquidate funds after 3 years, the board has repeatedly declined to do so, in hopes of locating more artists to pay properly. EVEN IF THEY DID RELEASE FUNDS, those funds go directly to the artists and rights holders who are currently registered, in a windfall royalty - SX is a non-profit and does not keep that money."
There's a whole bunch of misdirection and spin going on in those 70 words.

There's no "congressional mandate." The forfeiture is permitted by Federal regulation adopted by the Copyright Office, specifically, 37 CFR 261.8. A regulation is not a "congressional mandate," although I admit that mandate stuff makes it sound like it is something SoundExchange has to do, rather than something that SoundExchange asked the Copyright Office to do for them, which is what really happened. SoundExchange wants everyone to think they are forced by Congress into taking money from artists they can't find, even if that really isn't so.

Perhaps SoundExchange wants everyone to think it is a matter of Federal law because they don't want anyone looking at the regulation itself. You see, the regulation requires that all money that should be paid to an unidentified or unlocated recipient be placed in a segregated trust account. I've asked SoundExchange repeatedly over the years to advise me where the "segregated trust account" is held, but the inquiries are always met with silence. I've also asked them to tell me how much money is in that segregated trust account. They've ignored that too. I don't think the segregated trust account exists, for the simple reason that SoundExchange doesn't have the slightest idea which artists are entitled to what share of the undistributed money.

About "repeatedly declining" to forfeit more artist money, they say this as if refusing to take money from people who don't know about it is an act of moral courage. They also say this as if they actually never intended to do it again, when history proves otherwise. In January, 2007, immediately after the deadline for the first forfeiture, SoundExchange announced they were going ahead with a second one. Strangely, for an organization that claims to be so vitally concerned with serving artists, they never mentioned the new forfeiture program anywhere but on the website page that linked to the list of unregistered artists. In other words, you had to already know they had your money in order for you to find out they were going to take it. There was not one press release announcing the forfeiture, and not even a notice about it anywhere on the website, or anywhere else for that matter. In blunt point of fact, SoundExchange "declined" to go through with the second forfeiture only because there was public outrage that they would do it again and try to keep it a secret. SoundExchange clearly wants everyone to pretend that they never really meant to try a second forfeiture. The problem is, they did.

I said SoundExchange gets to keep money it forfeits from unfound artists. SoundExchange disputes that and claims that "those funds go directly to the artists and rights holders who are currently registered," which is utter bull. As that regulation so clearly states, SoundExchange doesn't pay the money "directly" to anyone. They get to use the forfeited funds to defray their own expenses, which, when you come down to it, means they get to use it for their own purposes. Technically, SoundExchange doesn't "keep the money," so the "correction" is correct in a very strict literal sense. However, reality shows that they don't keep it because they spend it, which doesn't match up with what they say here.

Now, of course, if they reduce their own expenses, that makes more money available for distribution to registered artists and copyright holders because they have to take less out of the current receipts. That's a good thing, but reality tells me that there are a couple problems. First of all, anyone who has ever worked for a non-profit that must keep a lid on expenses can tell you that "extra" money that can be used to defray expenses tends to get used up pretty fast. In the case of SoundExchange, I can clearly imagine that the forfeited money financed a good part of the musicFIRST campaign for the terrestrial radio performance royalty. Secondly, take a look at what happens to whatever money does get through that "expense" process to be paid to registered recipients. As royalty money is split 50/50 between artists and copyright holders, and, by their own estimates, 70% of the copyright holder royalties goes to the four RIAA members who directly control six of the eighteen seats on the SoundExchange board (and who appointed the other twelve out of the goodness of their hearts), that means that 35 cents out of every forfeited artist royalty dollar goes to the four RIAA members. The one thing SoundExchange got right in its "correction" of my comment is the idea that this is a "windfall." I don't think they meant it the way it actually comes out, because the greatest windfall ends up in the lap of the RIAA labels, but they won't tell you that outright and if you ask them about it, like I have, they ignore you. Because they can.

If SoundExchange actually spent that forfeited money on improving their efforts to find the artists, like the language of the forfeiture regulation actually intends that they do, that would be fine. But they don't, and their "correction" of my comment is nothing but more smoke and mirrors to hide that.

Click the read more or comments link below to see the additional eight points Wilhelms raises in response to SoundExchange.

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SoundExchange Claims To Open Up, But Somehow Its List Of Unpaid Musicians Has Disappeared [Updated: List Found]

Mike Masnick — Tue, 29 Dec 2009 13:01:00 PST

Update: SoundExchange got in touch to respond to some of these points, please read the updates in the post and at the end.

SoundExchange, the collections group in charge of collecting and distributing money to musicians from a variety of different services (radio, satellite, webcasting, etc.), is technically a "spinoff" of the RIAA, but as many people who have dealt with SoundExchange will tell you, it's still tied at the hip with the RIAA. In fact, I was recently talking with someone who told the story of "negotiating" with SoundExchange, and was surprised to discover at the meeting that there was an RIAA representative who did all the talking. The SoundExchange guy stayed quiet.

Why the government has granted exclusive rights to this industry group to collect and distribute money to musicians is troubling enough. But it's made worse by the fact that if SoundExchange "can't find" musicians to give the money to, it gets to keep the money. Thus, for years there's been a struggle over the fact that SoundExchange seems to have incredible trouble finding musicians -- including some huge rock stars, and that means that SoundExchange, officially a non-profit, is holding on to a ton of cash (currently somewhere around $200 million). There are also questions about how SoundExchange has violated the law that created it, in order to lobby for even more rights to collect money from radio stations.

Based on all this, we've always had trouble taking SoundExchange seriously, so consider us skeptical now that the organization claims that it's going to be much more open and communicative and has launched a new website to help be more open. ~~Only problem? The big list of artists that SoundExchange can't find has gone missing~~ Update: Apparently this was a mistake by the lawyer criticizing SoundExchange who was unable to find the list, though it is still there. In the link above to P2Pnet, entertainment lawyer Fred Wilhelms goes through a variety of questions that SoundExchange hasn't answered, and he asks what happened to that list (while also noting how the list almost never seemed to change) Update: Again this appears to be an error on the part of Wilhelms, as the list is on the website:

The new website is a lot cleaner and easier to use, but there's one thing the old site had that the new site doesn't; the unregistered artist list.

As of now, there's no way for anyone outside the organization to assist in the effort to locate artists that SoundExchange has been unable to register since 2006. Despite your glowing reports on how many artists SoundExchange has been finding, you and I both know that, before the list disappeared, no names had been removed from the published list in over seven months, and only a couple dozen in the last 18 months. I'll take your subsequent assertion that the full and updated list will appear on the website at face value. Is there any schedule for that? Please don't tell me "soon." That's a devalued coin in the SoundExchange treasury.

Wilhelms also notes that for all of SoundExchange's claims to be "open" it's also conveniently not explaining how it determines who gets paid:

There's another thing that is missing from the new website which was repeatedly promised to me by John Simson and Neeta Ragoowansi; an explanation of how SoundExchange uses samples to determine which artists get what share of the royalty revenue when complete census data is not available. I was told two years ago that this information would be provided on the website, but I find that, not only is sampling not mentioned, SoundExchange continues to say things like "Get Paid When You Get Played." That's the header on the Featured Registered Artist page.

I have clients who have gotten a lot of play, but haven't gotten paid, and they've been told it was because their plays were not in the sample playlists provided by the webcasters who play them. Perhaps you can explain why SoundExchange has decided not to mention sampling on the website. I come back to related problems later on in this letter, but I would like to know if SoundExchange is ever going to explain how it samples, or even that it relies on sampling at all.

This is a big issue. As we've seen over and over again, many of these collections societies use sampling and counting methods that greatly overvalue big stars (who need the money less) at the expense of up-and-coming artists. It's like the poor get to pay the rich.

From there, Wilhelm's letter goes on in great detail responding to claims from SoundExchange and debunking them one by one. SoundExchange claims that they're now going to be much more open and respond to these types of questions. We'll be interested to see what they have to say.

Update: SoundExchange disputes many of the assertions in the post and in the letter from Wilhelm. I've corrected the one factually incorrect issue that we made -- the list was still there (though some in our comments argue it's now much more difficult to use). I'm not going to edit Wilhelm's letter, because that is his work, but SoundExchange disputes his claim that "sampling is not mentioned" by pointing to an FAQ response, and also disputes the issue of the list not updating by stating "We do not update the list on the website as it was a one-time release of artists who stood to lose money in a 2006 pool release (which was later cancelled in favor of ongoing efforts to find artists). This is clearly stated on the list. Names come off the unpaid list all the time, but the website list was a static, one-time release." Even though this is stated on the list, it seems like it would only make sense to keep the list current.

The other issues that SoundExchange has with the post are points of disagreement, but are not factually incorrect. It notes that while it can keep the money, it has not done so (though, leaves out the fact that this was due to publicity over the fact it was going to do so). SoundExchange also disputes the claim that it has "trouble finding artists," saying that the real problem is the rightsholders themselves, who fail to register. If that's the case, then it would certainly be useful to provide details on how many artists that SoundExchange holds money for that SoundExchange has contacted and then still failed to register. SoundExchange also insists that it has every right to lobby, but I'll link to the original article explaining why it seems likely that SoundExchange is in violation here. Finally, SoundExchange doesn't like being lumped in with other performance rights groups who use sampling methods which tend to favor large artists over smaller ones, saying it supports "census" data that would accurately account for all plays. Duly noted.

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Senate Judiciary Committee Approves RIAA Bailout Radio Tax

Mike Masnick — Fri, 16 Oct 2009 04:54:35 PDT

Because the federal government apparently hasn't helped the RIAA enough in the past century -- despite repeatedly changing copyright laws to favor the industry again and again and again (and again) -- the Senate Judiciary Committee has approved the Performance Rights Act, which effectively serves to tax radio stations for promoting music. It's quite obvious to anyone who actually understands radio economics that this makes no sense. After all, the history of radio has always been about payola -- having the labels pay the radio stations to play certain works. That's because the record labels know quite well that airtime leads to more money in terms of promoting an artist and building a business model around music, concert and merchandise sales. To the labels, airplay has always been the equivalent of advertising. That's why they pay for it.

But now they want the radio stations to pay them to advertise the labels' music? Isn't that getting the equation backwards?

This is nothing more than a federal bailout of the RIAA, who still refuses to embrace new business models. Instead, they have to squeeze others and get the government to force them to hand over money. A real business model doesn't involve changing the law. It involves giving others a reason to buy. Apparently, that's too difficult for the RIAA.

As for the claims that a performance license will somehow help musicians, that's bogus as well. First, ask the RIAA's SoundExchange about all the money it keeps for itself and about all the musicians it "can't find." Besides, all this will do is harm up-and-coming musicians. Because radio stations will now need to pay more for playing music, they'll play less music, and if they're playing less music, they'll focus just on the big name acts. Smaller up-and-coming artists should be furious with the RIAA for giving radio stations less incentive to play their works. Remember, this is the opposite of payola. While payola got new records on the air, this will make sure fewer get on the air. But it will sure put a bunch more money in the pockets of the major record labels. So there's that.

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Pandora Continues To Push Users To Vote For Shameful Radio Performance Tax

Mike Masnick — Wed, 14 Oct 2009 08:18:00 PDT

We mentioned back in July how Pandora was urging its users to support the Performance Rights Act, which is effectively a government bailout for the RIAA by taxing already struggling radio stations for the right to help promote the RIAA's music. It's a travesty. The only reason Pandora supports it is because Pandora was pressured into its own ridiculous webcasting rates and wants to help bring down radio too. While I like Pandora as a service, I think it's shameful that it's now using the political process to burden competitors with a government created tax, that goes straight to the RIAA.

Apparently, Pandora has once again ramped up this effort to have the government tax its competitors. A whole bunch of you have been forwarding these ridiculous emails from Pandora that urge people to contact their elected officials in support of the RIAA Bailout bill. Most of those submitting those emails to us have said that you'll be doing the exact opposite, and are offended that Pandora is pushing you to support such a thing.

Yes, Pandora, it sucks that you got stuck with ridiculous webcasting rates that will make it difficult to remain profitable, but that's no excuse for trying to get the government to dump an unfair tax on your competitors.

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Why Is The FCC Even Giving The Time Of Day To RIAA's Bogus Radio Witchhunt?

Mike Masnick — Tue, 11 Aug 2009 13:55:27 PDT

Earlier this year, MusicFirst, a lobbying group that is run by the RIAA and pushing for a special tax on radio stations for daring to promote songs, came out with its latest in a long list of bizarre claims, demanding that the FCC investigate the fact that radio stations were supposedly boycotting musicians who supported the Performance Royalty tax. There were numerous problems with this claim. First, we thought it was rather hypocritical of MusicFirst to demand that radio stations play these artists, when it was the very same MusicFirst that was also claiming that radio was "a kind of piracy" for playing the music of these very same artists without paying a performance tax.

So, apparently if a radio station does play these artists, it's piracy. If it doesn't play these artists, it requires an FCC investigation.

Beyond that, MusicFirst failed to note that many of the artists topping the charts (including the Black Eyed Peas, who topped the charts at the time) were some of the most outspoken artists in favor of this tax. If there was some big conspiracy to not play these artists on the radio, someone forgot to tell... well... pretty much every radio station around.

That highlighted the third problem: MusicFirst didn't happen to point to any radio station that actually did this. The only one that could be dug up was a small high school radio station that had publicly boycotted artists supporting such a tax (which would have shut down the radio station), but only did so for one month and that month happened two years ago, and was a clearly supported expression of free speech.

And that brings up the final point. The recording industry has no right to demand that radio stations play certain artists. A radio station is free to play whatever artists they wish and run whatever commercial they wish. This is a pure free speech issue, and it's quite troubling that the recording industry is targeting radio stations when they have no right over this.

Based on all of this, you would hope that the FCC would simply laugh off the petition... but tragically, it's opened up a consultation on the matter and is asking for public input (found via Michael Scott). The article linked here goes through all of the First Amendment questions raised by this, and notes (thankfully) that the FCC seems to recognize those issues as well. But, if that's the case, why even bother holding this investigation in the first place?

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Pandora: If We're Getting Taxed So Heavily By SoundExchange, Radio Should Be Too

Mike Masnick — Tue, 14 Jul 2009 12:34:21 PDT

Well, this is rather disappointing. Just days after caving in and agreeing to new webcaster rates that will harm pretty much everyone, Pandora has gotten right into bed with the RIAA/SoundExchange in supporting the Performance Right Act (the RIAA Bailout Act) to extend a similar unnecessary tax on radio. Pandora's reasoning is no surprise: basically it's saying that if it has to pay such a silly tax to help promote musicians, it's unfair that radio stations get away without paying something similar. But, still, it's disappointing. Rather than looking at adding value to the overall market, Pandora has basically decided that it's "enemy's enemy is a friend" and is supporting such a law simply because it will harm radio stations. This makes me think significantly less of Pandora.

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Why The New Webcasting Rates Are A Death Sentence For Webcasters

Mike Masnick — Fri, 10 Jul 2009 17:15:58 PDT

When the announcement came out this week that webcasters had somehow "come to an agreement" with SoundExchange over webcasts, what was unbelievable was that many presented this as a "victory" for webcasters. Hell, even SoundExchange made public statements about how it was disappointed by the rates, but it was an "experiment." But when you looked at the actual numbers, this made no sense. The rates are ridiculously high when compared to royalty rates for traditional radio or satellite radio. Michael Robertson breaks down the numbers and explains away the myths of this deal. It will almost certainly bankrupt nearly every webcaster out there. Robertson focuses on the big webcasters, and points out that the 25% royalty rate promoted by the press isn't accurate at all, and for a company like Pandora the real rate will be north of 40% of revenue -- which is not even close to sustainable.

Meanwhile, small webcasters don't get much of a break either. Live365 is pointing out that these rates will basically kill off every webcaster it hosts by requiring a $25,000 fee. As the company notes, the guy running the Armenian folk music station for $10/month isn't going to pay $25,000 and certainly isn't going to make enough revenue to pay up.

Make no mistake: these new rates are effectively going to kill off a significant portion of online webcasters. The recording industry, of course, doesn't find this problematic, because they don't like the fact that they can't control webcasters the way they can radio, so they are fine with taxing them out of business. But what a waste of what technology allows. These days, anyone can and should be able to effectively express their own musical views by webcasting what they like. And that's about to become prohibitively expensive for no reason other than that SoundExchange/RIAA have a gov't granted monopoly over any kind of broadcasting.

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Why Should Webcasters Pay 25% Of Revenue To Promote Musicians?

Mike Masnick — Tue, 7 Jul 2009 17:33:16 PDT

After years of back and forth negotiating (and more than a couple public spats), it appears that SoundExchange and music webcasters like Pandora have finally worked out an agreement on webcasting rates. If you don't recall, the Copyright Royalty Board assigned absolutely ridiculous royalty rates a few years ago, which seemed to have no bearing on reality (random aside: no one has yet explained why we feel it's okay for a small group of judges to determine what is a "fair rate"). The original rates would almost certainly put most webcasting operations completely out of business. But before delivering that death sentence, SoundExchange, the RIAA-spinoff that gets to collect the money (and has a long history of hanging onto it for longer than necessary and having trouble "finding" the artists it owes money to), thankfully agreed to hold off enforcing the new rates while everyone negotiated.

Since then, there has been a wide variety of back and forth details until the official agreement was put in place today... and even though many of the news stories present this as SoundExchange somehow backing down and "Pandora" winning, the details, frankly, seem so out of touch with reality it's difficult to see how it makes any sense at all. The main issue is performance rights, which radio stations already don't have to pay because radio is helping to promote artists. The idea that webcasters/broadcasters should need to pay artists for the right to promote them to fans just seems bizarre and borderline incomprehensible in the first place.

Also worth noting is that the royalty rates that traditional broadcasters do pay (to composers/songwriters/publishers) averages out between 3 and 4% of revenue. So, if you really had to come up with a reasonable rate to pay performers as well, you might think that it would start around that same 3 or 4%. Even that would be a pure bonus for performers who are used to getting nothing as a royalty (tax) from radio. But... no. The agreement is an astounding 25% of revenue as a bare minimum, with a requirement to kick-in $25,000 just to be a webcaster at all.

Pandora claims they're happy about this because it keeps Pandora in business (and settles a big legal dispute, which hopefully allows them to go raise some money to stay in business). But it's a stunningly large percentage of revenue that will make things prohibitively expensive for most webcasters to really stay in business. You now have to have huge margins to get anywhere in a notoriously competitive business.

Who loses? Well, just about everyone outside of SoundExchange/RIAA. Already, despite being happy about this deal, Pandora has announced that it's sharply curtailing its free service, and if you listen to more than 40 hours per month, you'll need to start paying. Most webcasters now have a huge expense that will make it difficult for many of them to remain in business at all. Musicians are severely harmed as well. While a few top musicians might get a new royalty check from SoundExchange (when and if it gets around to "finding" those artists), most musicians will now get less exposure, making it that much more difficult for them to put in place the successful modern business models needed to succeed today. This basically just rewards the RIAA/SoundExchange and a few large artists who will get an extra royalty check. Everyone else is worse off.

Some might say the NAB and traditional radio stations also make out nicely, in that since these rates may harm webcasters, it takes away some competition, but even if the radio stations are happy in the short-run, it's a bad deal. These rates, certainly, will likely influence any eventual "performance right" that's added to terrestrial radio, and could significantly jack up the cost of running a regular radio station as well.

We're living in an era of amazing technological progress, where it's easy for anyone to go out and promote musicians to others and help get those musicians and a larger audience, and all the RIAA has done, time and time again, is work as diligently as possible to prevent anyone but itself from promoting artists. What a shame. This "deal" does nothing to help up-and-coming artists and will significantly limit their ability to get their music noticed.

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Yet Another Copyright Lobbying Group Caught Infringing

Mike Masnick — Fri, 3 Apr 2009 08:48:00 PDT

These days, it's nearly impossible not to infringe on copyright in one way or another during your regular day -- but it's always amusing when big-time copyright supporters are caught infringing (and it seems to happen quite frequently). The latest is musicFIRST, the lobbying group funded (potentially illegally) by the recording industry, which has been pushing a campaign claiming that radio is piracy and demanding that radio stations pay even more royalties than they already do.

But, of course, when it comes to licensing or paying royalties itself... well, you know... that's a different story.

Billboard has noticed that MusicFIRST appears to have quoted the entire lyrics to the Beatles song "We Can Work It Out" in a mocking press release it put out earlier in the week -- but failed to get the necessary license. Now, of course, many of us believe that quoting lyrics like that is perfectly reasonable fair use. But... the recording industry (you know, the folks behind MusicFIRST) doesn't believe that, which is why they've shut down plenty of people for posting lyrics on the web and even thrown people in jail for posting lyrics on the web.

But, when they do it? It's fine? Funny how that works...

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How Come SoundExchange Is Holding Onto Over $100 Million?

Mike Masnick — Mon, 23 Mar 2009 14:11:00 PDT

We've talked about the ridiculousness of the various music collections societies being involved in the discussions on new music business models. To them, the answer is always the same: add another license and let us collect it. They're middlemen and they take in tons of money and would only be all too happy to take in more. Some got upset with us in the comments, by noting that some of these collections societies are non-profits. In fact, the new Choruss offering, which we've already explained why it's a bad idea that's more of a bait-and-switch than anything useful, has been described as a similar "non-profit" collections group.

But, as we've noted in the past, supposedly nonprofit collections groups such as SoundExchange (a spinoff of the RIAA) are notorious for not finding artists to pay -- even some of the biggest names in the business. Oh, and did we mention that if the royalties go "unclaimed" the recording industry (via SoundExchange) often gets to keep the money? Given that bit of info, it's perhaps no surprise at all that P2Pnet is noticing that SoundExchange's own tax returns note that the nonprofit was sitting on over $100 million at the end of 2007, a pretty significant leap over previous years, and a somewhat startling sum for a supposed "nonprofit" in charge of both collecting and distributing funds.

It seems like those musicians sure are difficult to find.

The P2Pnet report also points out that it will be interesting to see how much SoundExchange has spent on lobbying efforts. SoundExchange is actually barred from lobbying the government, but has been ignoring that for years by funding musicFIRST, a recording industry lobbying group that's trying to add a new license for radio stations to pay (collected by SoundExchange, of course) by claiming that radio is actually a form of piracy.

So, even if Choruss or these other collections societies seem to be designed with the best intentions in mind (and I'm sure they are), it seems that they're wide open to abuse -- which is yet another reason to be quite worried about simply handing over the entire industry's business model to such an operation.

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Traditional Radio Stations Agree To Webcasting Rates; Internet Only Webcasters... Not So Much

Mike Masnick — Wed, 18 Feb 2009 01:18:32 PST

While the big radio stations, represented by the NAB seem to have worked out a deadline deal on webcasting rates, it appears that internet-only webcasters have had their talks break down. This is bad news, of course. The whole situation is something of a farce. Rather than letting the market work the issue out directly, the Copyright Royalty Board (basically some internet-illiterate judges) basically gave the recording industry everything it wanted when it declared what the rates should be -- and made them quite high. Many online radio stations noted that the rates were so high that they would shut down. And, of course, the whole process would make RIAA-spinoff SoundExchange tons of money in administrative fees while separately benefiting the major labels that make up the RIAA by driving the smaller indie webcasters (who play less RIAA music) out of business. A win-win! And, of course, protesting by playing non-RIAA music wouldn't help. SoundExchange gets to collect for that music as well.

About the only reasonable thing was (despite the CRB's refusal to stay the ruling) that SoundExchange agreed to hold off new royalties while the parties negotiated. Time to work out a deal was supposed to end last fall, and despite SoundExchange and many webcasters asking for more time, the NAB lobbied hard to deny that extra time. Luckily they got it anyway, but even the extended period of time has ended. NAB and its big radio stations are fine with their deal, but internet-only webcasters still don't see anything reasonable. On top of that, SoundExchange made a separate offer to "small" webcasters, but most have found that to be way too onerous as well -- especially the part where if they ever get acquired by a larger player, they'll have to go back later and pay the higher rates even for the time when they were small and independent.

And, no one has yet explained why webcasters should need to pay so much money for helping to promote new acts in the first place. Radio, streaming online or over the air, is a great way for people to learn about new acts, giving them reasons to go out and buy products and merchandise or see those acts live. By forcing the very people who want to promote the music to pay ridiculous fees, all the industry is doing is shooting itself in the foot. Again.

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Is The Copyright Royalty Board Unconstitutional?

Mike Masnick — Fri, 16 May 2008 14:44:17 PDT

Last month, we wrote about a Constitutional challenge to the patent appeals board. It was based on the theory that the Constitution clearly says that certain appointments can only be made by the President, the courts or the heads of a department. A legal change a few years back let the USPTO director appoint judges to the patent appeals board -- but the Patent Office director is not the head of a department. He reports to the Commerce Secretary who should be nominating the judges -- thus suggesting that all of the appointments over the last few years have been unconstitutional.

Of course, it didn't take long for folks to recognize that the same question may apply well beyond the patent appeals board. In fact, there's a court case challenging whether the current Copyright Royalty Board is constitutional as well. While the article doesn't go into details, it sounds like it's an identical issue. The CRB members are appointed by the Librarian of Congress rather than the President or the head of a department. This particular lawsuit has been filed by an organization that was hoping to compete with SoundExchange for collecting and distributing royalties. The CRB rejected the request. Given how many problems SoundExchange has had in carrying out its charter, it would seem like competition is a pretty good idea. However, rather than fighting that decision specifically, the company recognizes this same constitutional question. Funny how the boards involved in both copyrights and patents may be unconstitutional for the same basic reason.

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SoundExchange Caught Lobbying, Despite Strict Rules Against Using Its Money For Lobbying

Mike Masnick — Mon, 6 Aug 2007 07:50:32 PDT

SoundExchange, which is a "non-profit" spinoff of the RIAA is supposed to be a neutral party, simply in charge of collecting certain royalties and distributing it to the artists. Of course, things aren't always the way they're supposed to be. After all, SoundExchange is famous for having trouble finding many of the musicians it's supposed to pay -- which isn't all that surprising since it gets to keep the money that goes unclaimed. However, part of the law that governs SoundExchange's existence makes very clear that the organization may only use its money for three things: administration of collecting and distributing royalties, settling disputes about the royalties and licensing and enforcement. One thing clearly not on that list is building a PR campaign and lobbying Congress to expand its ability to collect royalties from other sources. However, Eliot Van Buskirk over at Wired has discovered that's exactly what SoundExchange is doing, and it appears to be breaking the law.

You'll recall the recent stories about the music industry claiming that radio stations are getting a free ride in not having to pay musicians' royalties, despite the fact that, for years, the record labels felt they needed to pay the radio stations just to get airtime. This came out as a new lobbying group and PR campaign kicked off -- including the ridiculous assertion that radio makes people buy less music. It turns out that the group behind this lobbying effort, musicFIRST, happens to be funded in part by SoundExchange. It makes sense why SoundExchange would do this. After all, it would be in charge of collecting those royalties. However, the law seems pretty clear that SoundExchange can't use its money for lobbying (especially lobbying to expand its own power). Van Buskirk got the run around from SoundExchange on this, with the executive director ignoring the question and simply repeating the laughable statement that radio stations (who are promoting the music for the record labels) are somehow getting "a free ride." A lawyer for SoundExchange then tries to explain the situation away by saying that the royalty money being used for lobbying was authorized to be used this way by SoundExchange members. That's like saying it's okay that they broke the law, because they gave themselves permission to break the law. Very convincing.

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Wow -- SoundExchange Does Something Reasonable, Says It Won't Enforce New Webcast Royalties Yet

Carlo Longino — Fri, 13 Jul 2007 00:23:00 PDT

On Thursday, an appeals court denied a stay of the new (and significantly increased) royalty rates webcasters would have to pay to stream music online. However, as pointed out in the comments on that post, a Wired blog reports that SoundExchange says it's won't enforce the new rates as discussions/negotiations with webcasters continue. The founder of streaming service Pandora says that this development came about as a direct result of Congressional lobbying by webcasters and their listeners -- and hopefully those efforts will lead Congress to take a look at the proposed legislation that would establish much more realistic royalty rates. However, this shouldn't be seen as a victory for webcasters. It's not clear if the SoundExchange reprieve applies to webcasters that aren't part of the Copyright Royalty Board hearings, or what will happen if negotiations don't produce an acceptable outcome for SoundExchange and its RIAA friends -- a demand for retroactive payments would seem the most likely outcome. In any case, internet radio won't die Sunday night; hopefully the reprieve will give a reasonable solution a chance to surface.

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