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Posted on Techdirt - 11 January 2010 @ 10:55am

Responding To SoundExchange... By Their Numbers

from the going-through-the-details dept

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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