You probably have seen the breathless announcement of the “Rethink Music Transparency and Money Flows in the Music Industry” from the Berklee College of Music.  David wrote about it earlier this week.

The Berklee “report” starts with this premise:  If you have a problem with your streaming royalties, your problem is with your record company–assuming you’re signed–because record company accounting is not “transparent”, whatever “transparent” means.  In other words, the report seems to glorify Big Tech as holding the keys to truth and justice and points fingers at record companies and PROs as being the source of low royalties.  Or as some people call streaming royalties, cryptocurrency.

This premise will sound familiar if you have been following Daniel Ek’s embarrassing diatribes against his label “partners” in the public press.  In fact, there is some oddly similar language between the report and statements made both by Ek and Christophe Muller a YouTube executive at Midem 2015 that predate the report’s release date.  It’s almost like they had seen an advance copy.  (In fact, Christophe Muller is thanked in the Berklee report’s acknowledgements.  Midem has their logo on the Rethink Music website right next to Google beneficiary the Berkman Center.)

In fact, two of the companies directly lauded by the report are Spotify and Kobalt.  (Kobalt received a $60 million investment from Google Ventures and apparently paid for the Berklee report.  Spotify reportedly has Google’s Chief Business Officer on their board.)  The Berklee report continues Spotify’s attack on Taylor Swift.  There are many other cues that confirm the Berklee “transparency report” is not only not transparent, but not particularly self-critical either.

This all might be easier to understand if we could find a “written by” credit anywhere in the report so we could tell the authors biases.  Particularly since the “report” is not peer reviewed in any traditional academic sense.   There’s lots of acknowledgements that take the circular congratulatory award–more about them in another post–but if you can find an actual “written by” credit, please let us know.

We suggest starting with a different premise:  How can artists and songwriters be empowered to verify whether the revenue-share royalties they receive from services like Spotify and YouTube are in fact correctly calculated?  Why should this be the bedrock principle on which a creator’s relationship with a user of music is based?  Very simple–if you can’t confirm whether you are getting a straight count, then what good is any royalty statement?

As the U.S. Copyright Office summed it up in the Music Licensing Study:

At bottom, the issue in the music industry is that participants want reassurance that they are being treated fairly by other actors.

Confirming your straight count is called a “compliance examination” or a “royalty audit.”  A royalty audit has nothing to do with the kind of work your CPA does when the IRS audits your tax return or “audited financials” that you see with the preparation of a company’s income reports.  It doesn’t really have anything to do with Generally Accepted Accounting Principles (GAAP).

The royalty examiner is focused on verifying whether you were paid correctly under your contract, not whether the company correctly depreciated its assets or some other GAAP principle that has nothing to do with whether you were paid accurately.  A “royalty audit” is simply a forensic-type investigation that matches transactions to income reporting based on the terms of a contract whether it is Tunecore’s click through agreement or Spotify’s major label contracts.

Record companies and music publishers are subject to royalty audits by every writer, artist and songwriter.  Relatively few artists or songwriters have the right to audit Big Tech companies or digital aggregators–typically only the major labels and publishers have the right to audit companies like YouTube or Spotify.

You know–artists and songwriters like Berklee College of Music students and grads.

So if you were writing a report about “transparency” like the Berklee report, wouldn’t transparency start with the source of the revenue–the digital services? We’re not worried about GAAP, we’re worried about GIGO–garbage in, garbage out.

The only time this issue comes up in the transparency report is in a reference to the Copyright Office recommendation about changing the U.S. Copyright Act to “Allow songwriters and publishers to audit a licensee’s statements”.  Including a digital services statements.

There is nothing to stop digital services from voluntarily agreeing that all songwriters, artists, record companies and music publishers can conduct royalty audits TODAY.  It doesn’t require amending the Copyright Act.  The fact that the Berklee report fails to call for voluntary transparency should tell you all you need to know about who controlled the pen in writing the Berklee report.

It wasn’t the Berklee students or the grads.

More importantly, if you are going to go to the trouble of conducting a royalty examination of companies like YouTube and Spotify that pay based on a share of advertising revenue, you should also be able to verify the advertising revenue allocated to your music.  Where do these numbers come from?  How is it that YouTube accounts for a significant chunk of Google’s revenues but pays out squat when music is such a huge part of YouTube spins?  How does Spotify calculate the revenue that they are sharing with artists and songwriters?  Why are some spins on YouTube accounted at different rates including zero?  Aside from the Google NDA culture of secrecy–never mentioned in the Berklee report.

If we are being paid on a revenue share basis and YouTube revenues are up (Google’s insiders made $8.3 billion in one day last Friday), shouldn’t our share of revenue also rise at roughly the same rate?  If not, why not…”partner”?

If you can’t ever check the revenue side, then how would you ever know?  So it’s not a question of whether the split is 70% or x%, the question is x% OF WHAT?  70% OF WHAT?  Even if you can confirm that you were paid on the right spins, if you can’t ever check if the revenue was properly calculated, what use is any of it?

That’s the kind of transparency recommendation we would have expected from the Berklee College of…you know…Music.