Not So Fast Pandora: Second District Court of Appeals Omission Could Mean Pandora Interactive

In the last 3 years Pandora has done just about everything it could to lower payments to songwriters and performers.  First there was the  Orwellian named “Internet Radio Fairness Act.”  They followed that up with multiple suits against songwriters’ organizations and now they are playing fast and loose with the Copyright Royalty Board apparently cutting direct deals to simply “create evidence.”

But sometimes you got to wonder if Pandora is a little too smart for its own good.  Because Pandora considers itself to be non-interactive it can avail itself of the compulsory licenses for sound recordings and go before the Copyright Royalty Board to seek lower rates. That is what is happening right now.  But is Pandora really a “non-interactive” service?   And shouldn’t that be the first question answered before proceeding to rates?   Has this question ever really been carefully examined? I don’t really know how the Copyright Royalty Board proceedings work but shouldn’t they be able to asks this question?

Pandora has never seemed to fit the definition of a non-interactive service to me.   But I’m not a legal expert.  Generally the answer from folks who are legal experts goes something like this:

“Because the Second District Court of Appeals ruled that LAUNCHcast was non-interactive Pandora has proceeded as if they were non-interactive and the music business let them get away with it.”

Okay.  The weird thing is that very few people have really read the LAUNCHcast decision.  Most experts don’t really know what the decision says and are loathe to go on record speculating whether it applies to Pandora    So I spent the last week reading up on the ruling myself.  Again I’m not a legal expert but I don’t think that Pandora can use the LAUNCHcast decision because the court does not address a key clause in the DMCA conference report that gives a clear example of an interactive service:

The recipient of the transmission need not select the particular recordings in the pro- gram for it to be considered personalized, for example, the recipient might identify certain artists that become the basis of the personal program.

The court quotes everything else in the paragraph. But not this.  In fact this omission is really quite stunning. They seem to steer around this particular sentence like it’s a pothole and they are driving a low rider Cadillac.    Look at my highlighted screenshots if you don’t believe me.  The significance is that Pandora lets you “build a program based on certain artists” and this example would seem to qualify Pandora as interactive. IMHO since the LAUNCHcast ruling seems to specifically avoid this clause it can’t be used by Pandora to justify non-interactivity.

Bye Bye compulsory license.

 

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The House Conference Report.

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 The relevant sections of the Launch Media decision. 

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Personalized Program: Don Henley Radio Station immediately plays a Don Henley track. 

 

With Skipping Pandora Seems to Let You Play any Artist On Demand, Why is It Before the CRB as a Non-Interactive Service?

Yesterday I built Pandora “stations” based on each of the following artists:

Prince, Don Henley, Eagles, Joe Walsh, Pharrell, John Lennon, Steely Dan and Fleetwood Mac.   With one exception  I was immediately played a song by that artist.   The exceptional case  was Fleetwood Mac, but after 2 seconds I hit the skip button and then got a Fleetwood Mac song.  I repeated this experiment today with a different set of artists.   How is this not an interactive service?

Here is the relevant paragraph in the DMCA.   It specifically identifies as interactive  services that offer playlists based on an artist (highlighted bold):

Subsection 114(j)(7)—‘‘interactive service.’’ The definition of ‘‘interactive service’’ is amended in several respects. First, personal- ized tranmissions—those that are specially created for a particular individual—are to be considered interactive. The recipient of the transmission need not select the particular recordings in the pro- gram for it to be considered personalized, for example, the recipient might identify certain artists that become the basis of the personal program. The conferees intend that the phrase ‘‘program specially created for the recipient’’ be interpreted reasonably in light of the remainder of the definition of ‘‘interactive service.’’ For example, a service would be interactive if it allowed a small number of individ- uals to request that sound recordings be performed in a program specially created for that group and not available to any individ- uals outside of that group. In contrast, a service would not be inter- active if it merely transmitted to a large number of recipients of

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Created station for Prince.

Pandora immediately played:

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Created station for Don Henley

Pandora immediately played:

 

 

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Created station for Eagles.

Pandora immediately played:

 

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Created station for Joe Walsh

Pandora immediately played:

 

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Created station for Pharrell

Pandora immediately played:

 

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Created station for Steely Dan

Pandora immediately played:

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Created station for Fleetwood Mac

Pandora started to play  Creedence Clearwater Revival

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Hit “skip” after two seconds and Pandora played:

 

 

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Is Pandora Really a Non-Interactive Service? Does It Really Qualify for Compulsory Licenses and Lower Rates?

What Is interactive radio?  And why isn’t Pandora considered interactive radio?

Although Pandora has always regarded themselves as a “non-interactive” Internet radio service  from what I can tell this assumption has never really been properly tested. The question is important because if Pandora is  “interactive” -not non-interactive -it could no longer rely on compulsory licenses.  Instead it would have to negotiate with rights holders to use sound recordings.  Further it would no longer be able to engage in its patented direct licensing shenanigans and “create evidence” for the copyright royalty board.  All of this would be a net plus for rights holders as Pandora has been relentless in trying to lower royalties paid to songwriters and performers.  And besides a little good faith negotiation never hurt anyone.

I will say that I have always felt that Pandora oversteps the bounds of what should be considered a non-interactive webcasting service.  Mostly because it’s… well it’s interactive!  It allows me to build my very own personal radio station based on a particular artist, even a particular song.  I can skip tracks, I can give a track a thumbs up, or give a track a thumbs down and I won’t ever hear that track again!  It’s very interactive.

But more importantly, if I build my personal station using just the artist (and not specific song) the first song played is almost always a song by the artist I requested.  If I specify a particular song and artist, I always get a track by that artist within the first five songs.  If I don’t want to wait for the first few songs to play,  I can “skip” the first four tracks to get to a song by the specified artist.  So for all practical purposes I can almost immediately make the service play a track by the artist I want to hear.

This intuitively seems to make Pandora an interactive internet radio service.

What does the law say?

I realize  using my own intuition for what is interactive and non-interactive is not law. So what does the law say?   I dug out the relevant paragraph that currently applies (H.R. Rep. No. 105-796 at 88):

Subsection 114(j)(7)—‘‘interactive service.’’ The definition of ‘‘interactive service’’ is amended in several respects. First, personal- ized tranmissions—those that are specially created for a particular individual—are to be considered interactive. The recipient of the transmission need not select the particular recordings in the program for it to be considered personalized, for example, the recipient might identify certain artists that become the basis of the personal program. 

This seems very clear.   Indisputable even.  Further the fact the cited paragraph is a clarification of the definition of interactive service it would seem to carry extra weight.  The previous definition had been criticized for being too vague, so this paragraph is intended to be more precise, more literal, and less open to interpretation than the previous language. Congress really meant it when they modified the  description.

From this we can objectively conclude that congress  clearly intended to include this specific kind of “personalization” as interactive. To argue otherwise is absurd. Otherwise why give it as an example?

Again let’s look at that last line:

“the  recipient might identify certain artists that become the basis of the personal program.”

If I can start my own personal radio station based on an artist and it immediately plays a song by the artist it is clearly giving me the artist “on demand.”  Clearly Pandora is interactive.  I think most reasonable people would come to the same conclusion.  But here is the problem.   Pandora (and other “non-interactive” services) take the position that they are no different than the now-defunct LAUNCHcast  And because  the Second District Court ruled that LAUNCHcast was non-interactive it follows that Pandora is also non-interactive.

Does this truly follow?  I don’t think it does.

The Second Circuit and Launch Media. 

Once upon a time there was a internet music service called LAUNCHcast.  And if you or I examined this service we might reasonably conclude that the service was “interactive” and hence could not avail itself of the compulsory licenses.   This is in fact what BMG/Arista argued in 2001 and subsequently took LAUNCHcast to court.  But the Second Court disagreed and allowed LAUNCHcast to be classified as non-interactive.   This decision was upheld by the Second Circuit Court of Appeals in 2009.

Many broadcast attorneys were surprised by the original decision and the result of the appeal. Even those that generally welcomed the expanded flexibility it granted internet broadcasters seemed to think it was maybe a little too good to be true.   As one IP litigator noted at the time:

In my opinion, the LAUNCHcast decision is quite persuasive. The court’s research into the legislative history is exhaustive, and its understanding of the relevant technology is impressive. But, if you read just the text of the definition of interactive service, it’s a pretty counter-intuitive result. – See more at: http://ipbreakdown.com/blog/pandora-almost-wasnt-the-definition-of-interactive-part-11-of-our-online-music-services-series/#sthash.pAxwQ8Gn.dpuf

There was even a sort of “fix” proposed, gradations of interactivity to create a sort of  “pseudo interactive streaming” service, since in the view of many the court should have kept LAUNCHcast in the interactive service but simply applied different rates.

Now I’m not trying to re-litigate the Launch media decision,  the real question is whether Pandora is interactive not LAUNCHcast.   However let me at least outline my  general criticism of the LAUNCHcast decision.  For if my reasoning is legally sound (due diligence if you are not aware I have no legal training) I believe it is very significant.

While the decision on LAUNCHcast is admirable in its craftsmanship (some would say admirable in a Rube Goldberg sort of way) it ultimately rests on some assumptions that I don’t think one can necessarily assume.  Further if I diagram the argument (I won’t do that here as it is a beast), it seems to rely on some false inductive reasoning at key points.  ( I will admit it’s possible that I don’t really understand the argument).   But these criticisms are ultimately unimportant, for IMHO there is a much bigger flaw.

The real problem with the decision requires one to  “zoom out” and look at the decision as a forest and not trees. From that “zoomed out” perspective you can see an enormous and troubling contradiction.

Specifically the Second Court’s interpretation of the law eliminates the need for an entire class of interactive services set up by the very same law.   How is the Second Court’s interpretation of the law possibly consistent with what congress intended?  Clearly congress didn’t intend to set up a class of interactive services that were unnecessary because they were actually non-interactive services.  But that is the consequence of the decision.

Two Classes of Interactive Services

 The DMCA not only distinguishes between non-interactive and interactive services, it further subdivides the interactive services in to two categories:

An “interactive service” is one that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording, whether or not as part of a program, which is selected by or on behalf of the recipient.  (17 U.S.C. § 114(j)(7))

or as described by Mary Ann Lane in the Alabama Law Review:

The DMCA provides two models of interactive services: (1) a program that is specially created for the recipient and (2) a program that allows an individual to request a particular sound recording.

As many commentators have observed the court explicitly accepted this distinction and only attempted to clarify whether LAUNCHcast was interactive under the first model.  Again quoting Lane in the Alabama Law Review:

The Second Circuit’s opinion began with a focus on the type of interactive service in which a program is “specially created” for the recipient. Because a LAUNCHcast user cannot request a particular song on demand, the court did not consider the other model of an interactive service—a program that allows a user to request a particular sound recording.

While the court focused on what was meant by “specially created” the court does not seem to address the fact that this decision effectively moves all services that congress intended to classify as interactive under model (1) to non-interactive.    It virtually depopulates the entire category.   This clearly is not what congress intended when it created (and then further clarified) this category of interactive services.

Are there any services in the US that are classified as interactive under model (1)? This is a serious question. I really don’t know.  Are there any services that are not on-demand that negotiate for sound recording licenses?  I’ve asked around but no one is quite sure.   I’m sure there must be a few but I can’t seem to find any.   iTunes radio and Spotify radio all appear to be classified as non-interactive.   Certainly if there are any services they must represent such an insignificant portion of the market that we can reasonably call this  category empty.    And this fact appears to be the direct consequence of this decision.

Reductio ad Absurdum

So now let’s go back to my earlier questions.   Pandora considers itself a non-interactive service presumably based on the LAUNCHcast decision.  The idea is LAUNCHcast was ruled non-interactive so Pandora is similar and therefore it follows non-interactive.  So does it truly follow? Is that truly the correct logical conclusion to make?   And if indeed it does follow that Pandora is non-interactive what does that say about the Second Court decision?

I say that no matter which logical fork you take, eventually you undermine the argument that Pandora is a non-interactive service.

1.  Assume the LAUNCHcast decision also classifies Pandora as non-interactive. But clearly Pandora allows  “the recipient to identify certain artists that become the basis of the personal program.” This is clearly interactive as this is one of the examples listed in the DMCA.  Therefore  a) the LAUNCHcast decision is  wrong or b) the decision is improperly applied to Pandora.

Either way Pandora does not get the benefit of the LAUNCHcast decision.

2. Assume Pandora does not have the benefit of the LAUNCHcast decision.  Then again, on its own merits and as noted above it passes the test for interactive and thus fails the test for non-interactive.

Either way Pandora is interactive.

Why are they even before the CRB as a Non-Interactive Service?   To quote Walter in The Big Lebowski  “Smokey, this isn’t ‘Nam, there are rules.”

 

 

 

 

 

 

Twilight in the Garden of Good and Evil and Hubris: Google Will Face at Least Two Antitrust Investigations in Europe

Originally posted on MUSIC • TECHNOLOGY • POLICY:

Good things come to those who wait
So just relax and wait for fate…

from Love You Madly by Duke Ellington and Billy Strayhorn

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According to the Wall Street Journal (EU files formal charges against Google):

European Union regulators formally accused GoogleInc. of violating the bloc’s antitrust laws by abusing its dominance of online search, escalating a long-running case that had stalled for years despite three separate attempts at a settlement.

Wednesday’s move is the first time that any regulator has filed formal antitrust charges against the California search giant, putting the EU in the vanguard of a global debate over the regulation of giant Internet platforms.

In a statement, EU regulators said they had reached the preliminary conclusion that Google “systematically positions and prominently displays its comparison shopping service in its general search results pages, irrespective of its merits.” That conduct started in 2008, the…

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How To Translate an Article on Spotify Finances into Non Magic Unicorn Math

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The Wall Street Journal is reporting that Spotify is close to finishing a new round of funding that values the money losing streaming service at approximately $8.4 Billion dollars.

Spotify nears deal to raise $400 million in a funding round valuing the company at $8.4 billion 

Now many of you that work for normal companies outside of Silicon Valley’s bubble-and-bullshit based economy are a little confused by the financial reporting on Spotify.   You see in the music tech industry they use a special kind of financial analysis generally referred to as Magic Unicorn Math (MUM).  It works very differently than the kind of financial analysis (non-MUM) used by businesses that are non-exploitative, make profits, and actually add value to our nation’s GDP.   Here let me give you an example:

Since Spotify is a a music tech company the Wall Street Journal correctly  uses MUM financial standards to report on it’s finances:

The money-losing company needs the cash to support its costly business model of paying nearly 70% of its revenue to rights holders as royalties. Spotify said in January that it had about 45 million free users and 15 million who pay $9.99 a month for an ad-free version.

If you break down this statement you can clearly see the differences between a “Magical Unicorn Math” financial analysis and Non-MUM financial analysis.  For instance if you were doing a financial analysis of a grocery store chain, you would use NON-MUM analysis and would never report as remarkable that a grocery store pays out 70% of it’s revenues for groceries. After all groceries are it’s primary product. Of course they pay a substantial portion of their revenues for this product!

However when you use MUM financial analysis,  paying for your primary product is not just unusual, it’s outside the pseudo-scientific quasi-religious postulates of Magic Unicorn Math financial analysis.  In MUM financial analysis your product or  “content” is expected to magically appear on your platform or network. Without ever having to pay for it!

Well I shouldn’t say “magically” because there is a real honest to goodness religious theory behind the magic.  The theory relies on something called “unicorn drag.”   Unicorn drag was first postulated by Dr. Blake Morgan.  As described by Dr Morgan “unicorn drag is a kind of ‘dark matter’ that is shed by unicorns as they invisibly zip about the board rooms of venture capital firms.”

In MUM financial analysis simply by building a platform or network, “unicorn drag” invisibly compels rights holders to freely give up their works at below market rates (or even for free!) so that venture capitalists can profit handsomely through an IPO or  “liquidity event”.   Liquidity events are sometimes more informally referred to as “bilking pension funds and little old ladies out of their life savings.”   Now this is a little confusing because our normal “civilized” ethics would discourage people from profiting in this manner and those that did profit in this manner would normally be shunned or even imprisoned.

However the Old Norse/Silicon Valley/Venture Capital religion on which MUM is based celebrates the “liquidity event.”   According to this particular mythology, the greater the abject immorality of your liquidity event the greater your reward in the afterlife.  Legend has it that those who profit the most shamelessly get to sit and drink from the skulls of their victims at the table of the great crypto-fascist-liBRATarian God Peter Thiel.   Skol!!

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I think I’ve made my point.  Let’s look at that WSJ statement again:

The money-losing company needs the cash to support its costly business model of paying nearly 70% of its revenue to rights holders as royalties. Spotify said in January that it had about 45 million free users and 15 million who pay $9.99 a month for an ad-free version.

For all of you that live in the real world, here’s how that WSJ paragraph should have been written using Non-MUM financial analysis:

The money-losing company needs the cash to buttress meager revenues from the advertising supported free tier of their service.   Spotify said in January that it had about 45 million free users and 15 million who pay $9.99 a month for an ad-free version.

(ED NOTE: We believe that the 15 million paying $9.99 a month is probably not correct, from our reading it looks like WSJ is counting users paying $4.99 a month in that $9.99 a month tier.)

#irespectmusic The New Improved Performance Rights Act: Because You Believed

Originally posted on MUSIC • TECHNOLOGY • POLICY:

Congressman Jerry Nadler and Marsha Blackburn, John Conyers and Ted Deutch will introduce legislation on Monday that responds to all of you who supported artist pay for radio play.  The thousands and thousands of you who signed the #irespectmusic petition, the hundreds of you who attended #irespectmusic events, the hundreds of you who responded to the Copyright Office’s request for comments on the Music Licensing Study and the “NABtweets” campaign on Grammy night, and who supported the Turtles fight against Pandora and SiriusXM.  All the bands who have hosted #irespectmusic shows around the country, all the fans who wore the “#irespectmusic AND I VOTE!” button at election time.

marsha blackburn

Janita, Rep. Marsha Blackburn, Blake Morgan and Tommy Merrill

nadler

Tommy Merrill, Rep. Jerry Nadler, Blake Morgan and Janita

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 Janita, Rep. Ted Deutch, Blake Morgan and Tommy Merrill

Some of you joined this movement recently, some of you were around for the last…

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Anti-Competitive Behavior: Billboard/Nielsen Hot 100 Chart Favors Spotify and other Incumbents

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Back in November Billboard announced it would change how it’s top 200 album chart was calculated.  It reasonably added a streaming component to the calculation.  What we did not like at the time it was announced is that it essentially overweighted the streams and disfavored albums not released to the streaming services.   We were also suspicious that this was yet another subtle partisan move by Billboard to bolster incumbent streaming services like Spotify, Pandora and YouTube. Why? Well it seemed suspicious to us that Billboard’s change came  right after Taylor Swift refused to release her album on free streaming services.

Today, in a very odd article, Glenn Peoples and Billboard warned artists that releasing content exclusively with the artist owned Tidal would hurt their showing on the Billboard/Neilson Hot 100 chart.   Peoples helpfully estimates just how much lower certain artists would rank on the Billboard Hot 100.  For instance he specifically calls out Beyonce on this point noting that her single “7/11″ would fall 8 places from #44 to #52.   Given that Tidal’s relaunch was the brainchild of her husband Jay Z, this seems a little like throwing down the gauntlet.   Since when is Billboard in the artist warning business?  And why start warning artists in the run up to The Billboard Music Awards?  It all seems odd.

Unless of course Billboard and Nielsen somehow have a dog in the fight.  I mean shouldn’t Billboard charts be service neutral?  Why should the charts favor (as Billboard readily admits) one streaming service over another?  Why would “The Bible of the Music Business” make it harder for upstarts that want to challenge the incumbent and dominant market players in the streaming business? Why would Billboard use it’s bully pulpit to seemingly discourage use of a particular streaming service?

We’ve noticed a very strong tilt in Billboards reporting in the last few years away from artists and towards the streaming services.  It has gotten so bad that when this blog exposed Tim Westergren’s (Pandora) donations to an anti-gay politician that Billboard immediately performed damage control for Westergren.  But this is even more disturbing.  Billboard seems to be putting a thumb on the scale here, favoring Spotify and the incumbents over Tidal.

Now I’m just speculating here,  but is there some other reason that Billboard has come out so strongly in support of certain streaming services?  Is it possible that Billboard has developed financial relationships with these companies? And if they have, wouldn’t this make them complicit in anti-competitive behavior by the incumbent streaming services?  Seems to me that someone should look into this.

But what do I know? I’m just a dumb artist.

 

 

 

 

 

 

Apparently Billboard Doesn’t Want Jay Z at Billboard Music Awards, Pimps for Spotify! @S_C_

Why on earth is Glenn Peoples and Billboard warning artists not to go exclusive with Jay Z’s Tidal?   Is Billboard pimping for Spotify?    We’ve long suspected this. Glad it’s almost out in the open.

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The ‘Zero Effect': Do New Consumption Charts Penalize Compilation Records and Artists Who Window?

 

 

New Math $.00666 : Billboard’s New “Consumption” Chart, Free Streams and the End Of Meaningful Metrics?

 

 

Copyright Royalty Board Filing Suggests that Pandora/Chris Harrison “Created Evidence” for Rate Court Proceedings

Sadly no one in the music business press seems to be paying attention to the Copyright Royalty Board filings. But we all should be watching this closely.   A couple days ago SoundExchange filed a letter with this bombshell in it:

“SoundExchange requested a specific email sent by Pandora executive Chris Harrison in December of 2013 in which Mr. Harrison highlighted the success of a strategy he implemented for DMX that involved entering into direct licenses in order to create evidence for a rate court proceeding. Evidence of a strategic motive underlying Pandora’s direct licensing would undermine the direct licenses Pandora has proffered as benchmarks. But Pandora has refused to produce the requested email and any other documents except for two. In light of their clear probative value to the key benchmarks Pandora has put at issue here, Pandora should produce all documents that constitute, comprise, memorialize, or analyze Mr. Harrison’s efforts on DMX’s behalf.”

full document here:

2015-04-07 Reply re Pandora [PUBLIC]

Created evidence?   That sounds a lot like “manufacturing evidence” to me.   If this is true,  Pandora at the behest of counsel Chris Harrison specifically cut this direct deal with MERLIN (the independent label consortium)  to “create evidence” for the rate court then this should be seriously investigated.  I’m not an expert but when I say investigate I mean law enforcement, The Judiciary Committee or at very least some bar association ethics panel.   If Harrison and Pandora are allowed to get away with this, it doesn’t just harm songwriters and artists, it harms the entire legal process.

(Also some of the labels represented by MERLIN need to start asking:  what it is that MERLIN/MERLIN executives got out of the Pandora deal? Who was banging on MERLIN’s door asking for a direct deal with Pandora?)

Meanwhile the DOJ (despite reports to the contrary) still have the anti-trust consent decrees pointed at songwriters rather than Pandora and Broadcasters.    What a world we live in.

The Great Disappointment: Tidal Highlights YouTube’s Moral Hazard for All the World to See

thetrichordist:

Escape from the Great Streaming Cult….

Originally posted on MUSIC • TECHNOLOGY • POLICY:

Part of Tidal’s business model relies on artists being able to grant exclusives.  The concept of an exclusive requires property rights that are respected by other platforms in the channel.

Imagine if Showtime began showing rips of Game of Thrones day and date with its HBO release.  Forget that HBO would sue them and win.  The actors, screenwriters, producers and the vast below the line personnel would think twice about working for Showtime in the future.

And that’s exactly what should happen to YouTube.

Beyonce released “Die With You” on Tidal as an exclusive.  Everyone at YouTube knows that it was intended to be an exclusive just like everyone at YouTube knows that YouTube could keep the track from being uploaded to YouTube if YouTube wanted to do that.

YouTube has worked hard at getting the world to accept the concept of “user generated content” as some kind of great…

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