The problem is the music-streaming companies | The Hill – Paul Williams

Songwriters have a number of allies in the ongoing fight to update our nation’s horribly outdated music licensing laws. But after reading the recent post by CALInnovate’s Mike Montgomery (“Songwriters are fighting the wrong fight,” 10/5/15), it’s clear that he is not one of them. On what grounds can Montgomery, who represents technology industry interests, claim that he speaks on behalf of songwriters?

As a songwriter elected to represent the interests of ASCAP’s more than 550,000 music creator members, I find Montgomery’s arguments absurd and grossly misleading.


Bumps Not Dumps: Merlin’s Pandora Catastrophe Continues

Merlin’s DMX-style direct deal with Pandora is the gift that keeps on giving.  As we expected, Pandora introduced their Merlin deal in the ratesetting preceding in Washington that sets all of our sound recording royalty rates for any service that uses the webcasting and simulcasting compulsory license.  This is done at the “Copyright Royalty Board,” which is three rate-court judges who rule on the rates we get paid on services like Pandora and Clear Channel/IHeartMedia.  This is different than the ASCAP and BMI rate courts for songwriters.

The way this works is similar to the “Chris Harrison Special” that DMX pulled with ASCAP and BMI.  The way this stunt works is that Pandora (under Chris Harrison’s guidance) goes out and finds some gullible label to make a direct deal with them at a low royalty rate.  (Harrison was the DMX lawyer who Pandora hired, likely because he did such a good job of screwing songwriters at DMX that Pandora wanted his special skills brought to their own end of the sty.  Harrison, aka Songwriter Enemy #1, has since gone on to greener pastures at SiriusXM where his special skills can be put to use in the Sirius direct licensing program–more on that later.)

They usually accomplish this by paying a big advance or giving the label some other incentive to make that direct deal.  Pandora then tries to use that low royalty deal as a “benchmark” for the Copyright Royalty Board to use as evidence of a market rate deal when setting the “willing buyer/willing seller” royalty rates that apply to everyone BUT the label that got the goodies for making the direct deal.

You can see that Pandora wants to make a direct deal with a royalty rate that is BELOW the current statutory rate that applies to the rest of us.  Why?  Because the assumption is that the current statutory rate will INCREASE in the current rate proceeding.  So if you’re Pandora, you want to try to find as many ways to screw artists and songwriters that you can, so you want to make as many of these “direct deals” as you can so you can put them in front of the Copyright Royalty Board to get the judges to IGNORE the goodies that incentivized the label to make the direct deal in the first place and ONLY look at the penny rate as evidence of an arms length “market rate” for the royalty rate that will apply to the rest of us who don’t get (and may not even want) the goodies.

The Chris Harrison Special

This is exactly the kind of “Chris Harrison special” that Pandora ran against us in the current rate setting (called “Web IV”).  The gullible label in this case is the Merlin label group.  What goodies did Merlin get?

1.   Advance:  Because we haven’t seen a copy of the Merlin deal with Pandora (or any side deals) we don’t really know what Merlin got in the way of an advance for Merlin labels or a flat fee for Merlin itself.  Even though Pandora had to file a copy of its Merlin deal with the Copyright Royalty Board in Web IV, the public version of that deal has the deal points blacked out.  That’s right–the very terms that Pandora and Merlin are using to screw the rest of us are secret.  Funny how The Verge hasn’t gotten a leaked copy of that deal.

2.  Steering Payola:  As David wrote in his comment to the FCC about the broadcasters request for a waiver of the payola rules, Pandora’s contract with Merlin allows Pandora to pay Merlin a lower royalty the more music they play from Merlin labels, called “steering”.  Remember–Pandora is now an FCC licensed broadcaster, so the payola rules apply to Pandora, and steering looks an awful lot like pay to play–a discount on royalties is just another form of payment.  David wrote the FCC to ask them to look into whether the Merlin steering deal with Pandora was even legal. Using forks and knives to eat their bacon!

3.  Direct Payments:  Merlin agreed that all artist royalties under the direct deal with Pandora should be paid through SoundExchange just like the compulsory license.  We really don’t know how this will work from a practical viewpoint.  This is kind of like what happens if a songwriter’s publisher pulls out of ASCAP or BMI because of the bizarre rate court rulings, but the writer wants to keep their writer’s share with their PRO.  It’s every bit as screwy.

We can’t believe that any Merlin label actually asked their artists if they wanted their records to be included in this direct deal rather than just get paid the compulsory rate directly from SoundExchange because the cost of accounting will probably exceed the royalty in many cases (through no fault of SoundExchange, by the way).  It appears that the only logical explanation for why Merlin wanted the artists to get paid directly in this screwed up deal was for the political cover it gave them.

Dumps Not Bumps

How is this fair for Merlin artists?  We’re not trying to speak for them, but by the looks of things, they need to wake up and smell the coffee.  We’ve heard of increases in royalty rate the better you do (“bumps”) but we’ve never heard of decreases in royalty rate the better you do (“dumps”).  Can you imagine the cocktail party conversation?  “Hey, man, I’m so special I get dumps from my label.”

It’s not enough that the royalty should be lower the more times you’re played or that your royalty should be lower the more times someone else is played, a deal that seems tailor made for the CRB to use to screw artists.  Surely that kind of royalty rate is not in anyone’s Merlin label record deal.

It’s also not enough that you don’t get told if there’s a Merlin side deal or what the terms of the Merlin side deal are, it’s not enough that your deal is going to be used by Pandora to screw every other artist–no, on top of it all, the cost of giving your label political cover has to make it so that the reporting administration for that political cover has to cost more than anyone else and may actually cost more than you make.

And who pays for that?  Who pays those additional reporting costs? Pandora?  Unlikely.  Merlin?  Even less likely.  More likely it’s SoundExchange, which may mean those costs (including the cost of fighting about it in the CRB) get “socialized” across all the featured artists, non featured artists and sound recording owners (often the same people at the featured artists).

How Can CRB Give Weight to an Illegal Payola Contract?

It’s pretty clear that the Copyright Royalty Board should give no weight to the Merlin contract in setting rates for the rest of us at least not until the FCC rules on David’s question to them in the Clear Channel payola waiver case.  Even if the FCC yields to Pandora’s lobbying power and upholds the deal, the Merlin deal still has nothing to do with anyone but Merlin, even if the steering contract isn’t illegal under the payola laws.

RAIN reports that Pandora is crowing about a ruling of the Register of Copyright that told the Copyright Royalty Board they were able to consider the direct deal as a “benchmark”:

The CRB judges asked for an opinion on the admissibility of specific direct-license benchmark agreements as evidence in their current proceedings. Today, the Copyright Office deemed that Pandora’s rate deal with indie label collective Merlin Network is admissible as a valid benchmark for the Copyright Royalty Board’s rate-setting proceedings.

Pandora’s antics would make you think they felt like they’ve won something major.  As we read the Register’s ruling, all she really said was that the CRB could consider “potentially probative benchmark agreements.”   We are mystified how a potentially illegal contract can have “potentially probative value” in setting the rates in a market that is itself defined by the compulsory license.

There’s a valid point to be made here that the CRB should not consider the Merlin deal at all when setting the compulsory rate because it really has no relation to everyone else’s deal.

Hopefully the CRB is on to Pandora’s “Chris Harrison Special” and will disregard it altogether.  Of course, if the CRB uses the Merlin rate minus goodies as a “benchmark” for our rates, then Pandora will have succeeded in screwing artists once again, and then we’ll all have to deal with that.


Streaming “Transparency” and the 70% Black Box Lie… The Solution Is #gettherateright

The argument goes something like this…

Streaming companies are paying 70% of their revenue but artists are not getting paid enough. This must be the result of record labels and rights holders not passing on the right amount to artists.

The first question is, how do we know that streaming services are actually, really paying 70% of their top line gross revenue to rights holders? We know what the revenue of a transaction is on iTunes, because it is factually transparent – it is the list price being charged. We all know this, and we can all verify this. A $9.99 album on iTunes pays out $7.00, or 70%. Same thing for a $.99 song that pays out $.70, that’s also 70% of revenue.

But when if comes to streaming services however we do not know what the revenue is that should be credited to artists and rights holders. This is what is actually of concern. There is a big black box at the top of the waterfall from which all other money flows downstream.

So if streaming services are paying 70% of revenue, what exactly is that revenue? Let us see it. So here we are with the issue of transparency. If we can’t actually see or know what that number is then yes, the low payouts are very much of concern and have very little to do with intermediaries.

We can disagree about how the 70% of revenue is passed onto artists from iTunes and other transactional sales. But one thing is clear, we all understand the transparent economics of how much money is generated on each transaction. This is not so with streaming. So without transparency at the top of the waterfall, everything that follows is suspect.

More importantly, and more to the point, if there are established retail and wholesale rates for each stream, the calculations become immediately transparent in the same way they are with Itunes. See, the issue here is not what is going on downstream, but rather what is happening at the top of the waterfall.


The truth is by now (and everyone should be able to agree on this), we know that streaming creates too little revenue relative to the value of the product. In other words the product is being sold to the consumer for less than the cost that it takes to create and produce it, and still remain sustainable.

In simple terms this is expressed as selling a Porsche for one dollar. It doesn’t matter how many Porsche’s you sell for one dollar while paying out 70% of the revenue, there will never be enough money to actually pay for the cost producing the car. Porsche’s, like professional music are expensive to produce. Despite the advances in recording technology, it is he cost of human labor that is the most important in the value chain.

This is the economics of music streaming in a nutshell, but with one added twist. The Porsche may be sold for one dollar one month, and be sold for only eighty cents the next month, and maybe the month after that sold for a dollar and ten cents. This is because of the fixed (and unsustainable) revenue pool that is divided by the total number of plays.

The common sense solution would be to establish a fixed per stream rate at each platform. This is the most simple way to encourage transparency and fairness as the revenue generated per stream can be transparently and easily calculated from top line data – no more black box at the top of the waterfall. The funny thing is, the people shouting the loudest for transparency also seem to be the most opposed to the easiest solution. Why is that?

So, if we are to have conversations about transparency let’s at least be clear about what it is that we actually need to see.


Why Apple Music and Tidal are the right business models with the wrong optics.

Since Spotify launched in 2010 the music business has been in an existential crisis. Convinced that ad-supported unlimited free access to on-demand music would ultimately grow recorded music revenues the major labels opted into what may be their worst decision ever. This decision aided by an estimated 18% (or more) equity position in Spotify has not grown overall music revenues over the past five years. In fact, for the year ending 2014 global revenues reported by the IFPI stated that revenues were at the lowest point in decades. So what to do?

For starters the first and most obvious solution would be to eliminate the unlimited ad-supported free access to on-demand music. This is the model that made ad funded, for profit piracy so popular on over half a million infringing links from unlicensed businesses served by Google search and delivered to your inbox by Google Alerts complete with social media sharing buttons. These unlicensed businesses are receiving hundreds of millions of DMCA notices annually from artists and rights holders. Let us not forget that this is also the same model that Daniel Ek helped to perfect as the CEO of u-torrent the worlds most installed bit-torrent client. Ek has said he’d rather shut down Spotify than give up his failed ad supported business model.  We thought Spotify was built on converting ad supported (where Spotify board member Google makes money serving ads) to subscription (where artists make money).  So much for that.

And this is who the record business is taking notes from? Perhaps that’s why Universal is restructuring.  This may have seemed like a good idea to some senior executives but it turned out to be a complete disaster.  Time to change.

Despite moves in the right direction by Tidal and Apple Music the optics for both of these companies at launch of their respective streaming models have been somewhere between missteps and an absolute disaster. Dismissing for a second that both Apple and Tidal could be the targets of public relations campaigns by competing corporations such as Spotify, Pandora and Google (YouTube) let’s look at what each is offering. Tidal and Apple Music offer no unlimited ad-supported free access to on-demand music. That means no business to those selling advertising… like, Google.

There is nothing more important to the future of the recorded music ecosystem than removing the unlimited ad-supported free access to on-demand music.

For all intents and purposes even free streaming is ownership and here’s how you can tell. If you can chose it, and access it, you essentially own it whether you pay for it or not. Streaming replaces ownership at the consumer level but does not compare to ownership on price. At some point there needs to be a market correction to properly value music consumption.

The launch of Tidal should have been a rallying cry for all artists to support a business model that limited free streaming, incentivized paid subscriptions through exclusive offerings and diversified consumer experiences with higher quality streaming formats. This is the model we should be focused on. As the Buddhist saying goes, “trust the teaching, if not the teacher.” In other words it doesn’t matter if you don’t like Jay-Z and Madonna.  And securities laws makes the whole stock issue so difficult that Tidal would have been far better off saying they’d pay all participating artists a bonus in the cash from the company’s own stock sales rather than get down the rabbit hole of who gets stock and who doesn’t.

Unfortunately the celebrity that could have united a community, instead divided it through messaging that most would acknowledge appeared to be less than inclusive. Worse, the optics appeared to be elitist whereby those already rich and famous seemed to be more focused on their own fortunes as opposed to a sustainable ecosystem for the next generation of musicians.

Perhaps if each of the artists at the Tidal launch would have appeared with a developing artist they were supporting the messaging and optics would have been more inclusive and more about community than celebrity.

We have to acknowledge what kind of business we want going forward. Clearly, unlimited ad-supported free access to on-demand music is not working. Both Tidal and Apple Music do NOT have unlimited ad-supported free access to on-demand music. So what’s the problem?

Following the Apple Music launch Spotify announced it had achieved 75m global users (we love that, “users” no kidding) and 20m paid subscribers. So let’s look at the numbers in relationship to what Apple Music could bring to the market place. Keep in mind that 55m of Spotify’s user base are NOT paying for the service. Based on reporting we’ve been provided the free tier accounts for 58% of plays which is only 16% of the total revenue.

With all the back and forth between Apple and labels and the announcement last week by NMPA of the publisher’s deal—freely negotiated without government “help” by the way–it’s pretty clear that Apple announced Apple Music without all their ducks in a row contractually.  This opened up an opportunity for haters who are just gonna hate.  Now that the picture is becoming a bit clearer, we feel more confident than ever that most of the noise is coming from competitors who would like to create yet another consent decree situation but this time for artists and record companies.

So there are a few questions we need to ask about the launch of Apple Music to evaluate the trade-off for eliminating the unlimited ad-supported free access to on-demand music. But before we ask those questions, we need to understand the mechanics of the Apple Music ecosystem.

First, the 90 days free without payment at launch requires the understanding that all consumers will get 90 days free at Apple Music whether they sign up at launch or at any other point later. This means that some people will opt in at launch, some will opt in at some later time. Based on what we have seen of how these streaming subscription services scale we have to ask a few questions.

How many people will have access to opt into Apple Music Streaming on launch? We’ll assume it’s the entire installed user base who upgrade into iOS 8.4. Here’s some back of the napkin math from the iPhone 6 launch when Apple dropped that U2 album into everyone’s Itunes.

According to CBS News 33 Million people of the 500 Million Global Itunes users “experienced” the U2 album. That’s just 6.7 percent of Apple’s reported consumer base.

So what kind of adoption and conversion rate could one expect from the launch of Apple Music? 10 million paid subscribers? 20 million paid subscribers? 50 million paid subscribers? It’s hard to know, but anything north of 20 million pretty much beats Spotify on paid subscribers.  And if you are looking for the company that has defined a paid music service, who you gonna call?  Apple or Spotify?  Who do you trust going forward?

What if Apple is able to convert 30 million or more consumers to paid streaming in only four months when it has taken Spotify five years to acquire 20 million paid?

Apple Reverses Course, Will Pay Artists During Apple Music Free Trial | Mac Rumors

Of course, Apple should use a couple of bucks from it’s 178 billion dollars in cash reserves to compensate musicians for the consumption of their music during the initial 90 day launch of Apple Music. This would  incentivized artists to promote the service as being both fair and artist friendly and give Apple the thumbs up from the people that matter the most, the artists themselves. Apple’s purchase of Beats was a three billion dollar acquisition, so surely there’s enough money in those coffers to pay artists something.

To put these numbers into perspective Spotify claimed to have paid artists and rights holders two billion dollars globally from it’s initial launch in 2008 through October of 2014.

Here’s some more perspective from In 2012, global music revenues were reported at $16.5 billion, with $5.6 billion coming from digital music. Of that $5.6 billion in music downloads, Apple paid labels $3.4 billion for iTunes sales, which is about 60% of the total digital revenues industry wide—IN LESS THAN ONE YEAR.

In 2012, Apple’s transactional digital model created more revenue for artists and rights holders in less than a year in then it took for Spotify to earn almost 6 years.

If we want to break the death spiral of unlimited ad-supported free access to on-demand music we have to embrace the trade-off of offering limited free trial periods as an incentive for consumers to make the switch.

And by the way—compare the classy way that Eddie Cue of Apple handled Taylor Swift compared to Daniel Ek who comes off like a semi-stalker.  Who understands artist relations the best?

The problem with ad-supported unlimited free access to on-demand music is illustrated below showing Spotify domestic streams and revenues. It’s just math and it’s time to move on. Apple Music and Tidal are showing us the way.


Digital Media Association (DiMA) Always Against Musicians

Who is DiMA? Glad you asked, the Digital Media Association. Why do we care? Well, because they are actively working against artists rights. How do we know? Three words… “Defending Against Songwriters”. Yes, DiMA is dedicated to “Defending Against Songwriters” because, you know songwriters are a force that businesses need to defend themselves against.

Wow, really? Seriously? Ok, check it out…


But lets take a look below where current DiMA policy positions are directly in opposition to artists and songwriters rights.

DiMA supports Pandora buying a terrestrial radio station in an effort to lower the royalties Pandora will pay to songwriters.

DiMA is opposed to the Fair Play, Fair Pay Act that would pay performers a terrestrial radio broadcast royalty.

DiMA is opposed to The Songwriter Equity act that would allow songwriters the ability to negotiate fair market rates for their work.


Who would work with DiMA that wasn’t forced to via statutory rates and rate courts?



NP AAAARGGHHHHH: @NPR CEO Jarl Mohn Funded Piracy Client Vuze and Vuze Sponsors Torrent Freak

We’ve been reporting for the last few days on NPR joining Pandora, Clear Channel, National Association of Broadcasters and Google in the MIC Coalition which seeks to lower rates paid to artists and to keep songwriters under DOJ supervision (because what these large corporate and state chartered near monopolies need is  “anti-competition” protection from songwriters?  WTF?).

This has puzzled us because NPR already enjoys a dramatically lower royalty rate than most other radio.  Further we artists often waive our rights and allow NPR use of our recordings royalty free  in perpetuity.  We willingly support NPR in this manner because we believe they provide a public service. We have been a solid ally of public and community radio. Why would they turn against us and join this dark side coalition?

Now we think we have the answer.

NPR CEO Jarl Mohn is a card carrying member of the dark side. He funded the  bittorrent piracy client Vuze not once but twice.  He was part of the B series round of $12 million and the C series round of $20 million.  And make no mistake Vuze is a key part of the piracy ecosystem.

Yeah yeah yeah, we heard it before:  “Vuze is just a tool and they don’t profit from piracy”  Bullshit.  Vuze profits directly from the illegal distribution of my material by knowingly serving advertising against it.

Allow me to demonstrate with the tracks from my latest album.

Screen Shot 2015-05-02 at 10.58.33 PM

This is a screenshot of the Vuze client while downloading an unlicensed copy of my new album Berkeley to Bakersfield.  Down in the left hand corner there is an ad for American Express served by the publicly traded web advertising firm Quantcast. (Coincidentally a couple of years ago I privately defended Quantcast against similar charges, now I feel like a fucking idiot.)

To be clear this is not a webpage and ad exchange banner advertising. No one played some “tunneling” or DNS forwarding trick to make American Express and Quantcast think it wasn’t advertising on this site.  This advertising  is embedded into a piece of software that is used almost exclusively for downloading illegally distributed films music and pornography. How does American Express not know this? Quantcast? Or Jarl Mohn?

How did NPR come up with a CEO  with such questionable ethics?  This guy had to know what he was funding: A tool to infringe the rights of artists on global scale.  If not he’s really really dim.


Screen Shot 2015-05-02 at 7.34.39 PM


But it gets worse. The piracy advocating website Torrent Freak appears to be sponsored by the very same company: Vuze.   That’s right the piracy revolution will not be televised but it will be sponsored by amoral Silicon Valley Venture Capitalists.   You really thought Torrent Freak was an ideological true believer fighting for your rights to “share” against the man?  Nope looks they are the marketing department for the man who makes advertising money off of your sharing activity.  


Here’s a screenshot from the Torrent Freak website helpfully alerting it’s readers to availability of the leaked Game of Thrones Season 5 on Kick Ass Torrents and the Pirate Bay.   Look carefully at the code.  The ad for Vuze isn’t just randomly served by some online adexchange. It’s embedded into the site.  Someone had to go in and place that link and that JPG into the code.  Plus the visible text actually claims them a “sponsor.”

So you are really gonna tell me with a straight face that no money is changing hands here?  Vuze is not paying “Ernesto” the editor of Torrent Freak?  While Ernesto is pretty much inducing piracy and giving advice on how to avoid prosecution?

How is this not a conspiracy?  I mean conspiracy like  RICO Conspiracy (See details below).

And it all started with money from NPR CEO Jarl Mohn.

Fire this guy.

NPR affiliates, DJs, Journalists and independent public radio stations need to stand with artists against these assholes. Heres our olive branch.  Please join us.


It’s Torches and Pitchforks time.  It’s not gonna be prett.y




I’m not a lawyer but the intent of the law seems pretty clear. To prevent groups of people-even if only informally organized-from engaging in coordinated criminal activity.  Specifically when it disrupts legitimate marketplaces like those for recorded music or online advertising.

“RICO is designed to attack organized criminal activity and preserve marketplace integrity by investigating, controlling, and prosecuting persons who participate or conspire to participate in racketeering.” Black’s Law Dictionary 1286 (8th ed. 2005).  

There are a host of organized “scams” that generally occur in the peer to peer advertising ecosystem including within the Vuze client. Maybe there are some prosecutors or litigators out there who can help me with this? Aren’t the following part of the RICO statute?

1)  Mass copyright infringement.

2) Advertisers publicly claim to not know where there ads are being served.  If this is true then there is fraud going on.  Someone along the way, advertising agencies, ad exchanges, and/or companies like Vuze are behaving improperly. Since it involves the online ad ecosystem wouldn’t this be Wire Fraud?

3) Uh… how do I say the obvious? P2P networks have a lot of pornography?  A lot!     I could be wrong, but I can’t imagine illegal pornography isn’t also being monetized with advertising as it’s transferred using the Vuze client.  How can you possible be allowed to make money off of illegal pornography and not be prosecuted?

4) Anyone visiting a site like The Pirate bay has probably noticed the relentless advertising for Russian or Asian Brides.  Human trafficking anyone?

5) These same sites often feature ads for third party websites that claim to enroll applicants into a  “US Green Card Lottery.”   The US has never used third parties for its “Diversity Visa” program and at the present time the US is not accepting applications for diversity visas.  All websites advertising for the 2017 lottery are highly suspect.  (An early version of this article made it seem as if the US never had a Diversity Visa or “Green Card Lottery” that was incorrect). 

Now check out the RICO definitions. My bold italics added.

18 U.S. Code § 1961 – Definitions:

As used in this chapter—
(1) “racketeering activity” means (A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which is indictable under any of the following provisions of title 18, United States Code: Section 201 (relating to bribery), section 224 (relating to sports bribery), sections 471, 472, and 473 (relating to counterfeiting), section 659 (relating to theft from interstate shipment) if the act indictable under section 659 is felonious, section 664 (relating to embezzlement from pension and welfare funds), sections 891–894 (relating to extortionate credit transactions), section 1028 (relating to fraud and related activity in connection with identification documents), section 1029 (relating to fraud and related activity in connection with access devices), section 1084 (relating to the transmission of gambling information), section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), section 1344 (relating to financial institution fraud), section 1351 (relating to fraud in foreign labor contracting), section 1425 (relating to the procurement of citizenship or nationalization unlawfully), section 1426 (relating to the reproduction of naturalization or citizenship papers), section 1427 (relating to the sale of naturalization or citizenship papers), sections 1461–1465 (relating to obscene matter), section 1503 (relating to obstruction of justice), section 1510 (relating to obstruction of criminal investigations), section 1511 (relating to the obstruction of State or local law enforcement), section 1512 (relating to tampering with a witness, victim, or an informant), section 1513 (relating to retaliating against a witness, victim, or an informant), section 1542 (relating to false statement in application and use of passport), section 1543 (relating to forgery or false use of passport), section 1544 (relating to misuse of passport), section 1546 (relating to fraud and misuse of visas, permits, and other documents), sections 1581–1592 (relating to peonage, slavery, and trafficking in persons)., [1] section 1951 (relating to interference with commerce, robbery, or extortion), section 1952 (relating to racketeering), section 1953 (relating to interstate transportation of wagering paraphernalia), section 1954 (relating to unlawful welfare fund payments), section 1955 (relating to the prohibition of illegal gambling businesses), section 1956 (relating to the laundering of monetary instruments), section 1957 (relating to engaging in monetary transactions in property derived from specified unlawful activity), section 1958 (relating to use of interstate commerce facilities in the commission of murder-for-hire), section 1960 (relating to illegal money transmitters), sections 2251, 2251A, 2252, and 2260 (relating to sexual exploitation of children), sections 2312 and 2313 (relating to interstate transportation of stolen motor vehicles), sections 2314 and 2315 (relating to interstate transportation of stolen property), section 2318 (relating to trafficking in counterfeit labels for phonorecords, computer programs or computer program documentation or packaging and copies of motion pictures or other audiovisual works), section 2319 (relating to criminal infringement of a copyright), section 2319A (relating to unauthorized fixation of and trafficking in sound recordings and music videos of live musical performances), section 2320 (relating to trafficking in goods or services bearing counterfeit marks), section 2321 (relating to trafficking in certain motor vehicles or motor vehicle parts), sections 2341–2346 (relating to trafficking in contraband cigarettes), sections 2421–24 (relating to white slave traffic), sections 175–178 (relating to biological weapons), sections 229–229F (relating to chemical weapons), section 831 (relating to nuclear materials), (C) any act which is indictable under title 29, United States Code, section 186 (dealing with restrictions on payments and loans to labor organizations) or section 501 (c) (relating to embezzlement from union funds), (D) any offense involving fraud connected with a case under title 11 (except a case under section 157 of this title), fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), punishable under any law of the United States, (E) any act which is indictable under the Currency and Foreign Transactions Reporting Act, (F) any act which is indictable under the Immigration and Nationality Act, section 274 (relating to bringing in and harboring certain aliens), section 277 (relating to aiding or assisting certain aliens to enter the United States), or section 278 (relating to importation of alien for immoral purpose) if the act indictable under such section of such Act was committed for the purpose of financial gain, or (G) any act that is indictable under any provision listed in section 2332b (g)(5)(B);
(2) “State” means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, any political subdivision, or any department, agency, or instrumentality thereof;
(3) “person” includes any individual or entity capable of holding a legal or beneficial interest in property;
(4) “enterprise” includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity;

screenshot-www vuze com 2015-05-03 18-48-20


screenshot-www crunchbase com 2015-05-03 18-46-16








Artist Rights Villians: Pandora’s Christopher Harrison

It’s common for lawyers to try to defend their poor moral choices in clients by saying, “I was just the lawyer,” kind of like “I was just following orders.”  If you were talking about a criminal defense lawyer or someone who chose to defend a controversial bad guy because everyone is entitled to a defense, that would be one thing.  Particularly if the lawyer was a poorly compensated public defender.  But when you’re talking about someone who takes a job complete with stock options that makes them rich, that “I was just the lawyer” thing is harder to rationalize.

Pandora’s Assistant General Counsel Christopher Harrison not only brings with him the Pandora baggage, but as Billboard reports, he’s seen this movie and he knows how it ends.  In Billboard’s post about the payola issues in Merlin’s direct deal with Pandora we discover some details about Harrison’s past that every artist and songwriter should know:

Merlin’s critics [who might they be, we wonder?] say the deal could backfire on artists and labels in another way. They point out that if incremental play produces an overall average per-stream royalty rate that is lower than the statutory rate, the Copyright Royalty Board could take the lower number as the market rate and lower the overall statutory figure in its revisions.

Why? Back in 2007-2010, when ASCAP and BMI rate court judges were involved in litigation between DMX and performance rights societies, the judges examined the direct licensing deals DMX cut with publishers. During that process, judges did not review the advances or any of the other aspects of the deal, and only looked at the reduced per-store royalty rate Consequently, in the case of BMI, this resulted in the per-store negotiated rate falling from $36.36 to a per-location fee of $18.91, much to the chagrin of the publishers, who stayed a part of the PROs’ blanket licenses. The ASCAP rate court returned a similar finding.

(Did we mention that Pandora vp of business affairs and assistant general counsel Chris Harrison was DMX’s vp of business affairs at the time of the rate court ruling in a lower per-location blanket fee?)

Harrison seems to have a thing about screwing artists and especially songwriters.  As Billboard reports, he has a particular modus operandi of twisting up a combination of direct deals with the government rate court’s boot on songwriters necks to profit his company and ultimately himself.  As former Googler Tim Quirk might say, Harrison  seems to have a royalty fetish.

You might even think that Pandora hired Harrison because he already made his bones screwing songwriters while he was at DMX.  Being “just the lawyer” when a certain group of people gets screwed once might be coincidence–but doing it twice at both DMX and Pandora is a little too coincidental.  What will he do for an encore?  You might get the idea that the guy actually likes it.

Meet the new boss, worse than the old boss–and we won’t get fooled again.

Pandora’s New Deal: Different Pay, Different Play | NPR

The new payola?

Performers get paid a small royalty each time one of their songs is played on Internet radio, at a rate set by a Royalty Court at the Library of Congress. But Internet radio and labels can strike individual deals, as Pandora did with Merlin. The Internet service will recommend Merlin artists over those not affiliated with the consortium in exchange for paying Merlin’s musicians a lower royalty rate.

Merlin artists get more spins, and Pandora winds up paying less in royalties than it would if were giving those same spins to non-Merlin artists. Plus, consortium labels will get to suggest favorite tracks.


Are Pandora’s Disclosures Deficient Regarding pre-72 Exposure to a Music Genome Shut Off?

Some readers noticed that we spotted an interesting defect in Pandora’s most recent quarterly filing with the Securities and Exchange Commission and asked how big a deal is this defect.  Our understanding is that Pandora has been paying royalties on pre-72 recordings since its inception, but recently stopped, following which they were sued in NY state court by a group of record companies.  (Remember The Turtles are suing Sirius for much the same reasons.)

The pre-72 lawsuit challenges Pandora’s use of pre-72 recordings without compensation or a license.  (If you are unfamiliar with the “pre-72” issue, it is essentially that federal copyright protection only covers sound recordings released after 1972.  Based on Pandora’s use of these recordings in its service without a license or compensation, you might get the impression that the pre-72 recordings had fallen into the pubic domain.  Nothing is further from the truth as the recordings are protected by common law copyright and a variety of state unfair competition statutes.)

Not only is Pandora using these recordings as part of its service in violation of the copyright owners’ exclusive reproduction right and public performance right, there is a question as to whether the music genome itself misappropriates each featured artist’s right of publicity by marketing the Pandora service based on channels created using the artist’s name, an issue that recently came up in the lawsuit brought by Goldieblox against the Beastie Boys and by the Ministry of Sound against Spotify in the UK.  Not unlike a fingerprint, the music genome is a copy of the underlying sound recording in a mathematical expression as we understand it, and to our knowledge no aspect of the music genome has ever been licensed.  It certainly is not covered by the compulsory license in 17 USC Sec. 114 (the webcasting compulsory license).

So the pre-72 litigation against Pandora is important not only because of the alleged violations of state law, common law copyright and unfair competition statutes, but also because it could draw attention to potential artist-related violations may go to the heart of Pandora’s business for both pre 72 and post 72 recordings.

What Are Pandora’s Disclosure Obligations under SEC Regulations?

A public company such as Pandora is required to make a variety of filings with the Securities and Exchange Commission so that the Commission, the company’s stockholders and the public (including the financial press) can have an idea of how the company is doing and how to assess the risk of owning the company’s shares.  The way that this assessment is communicated to the company, at least in part, is in the company’s share price.  If stockholders rely on the company to properly disclose risk, especially downside risk, then they may not look beyond these disclosures such as finding a copy of the copyright owners’ complaint.

Relying solely on these disclosures instead of doing your own research is not something we would recommend for reasons that will become apparent.  Pandora is a good example of why it’s good to drill down on the company’s disclosures (and in the case of the SEC, we’re a bit surprised that the examiners at the Commission didn’t catch this).

One of the risk factors that the SEC requires public companies to disclose is pending litigation brought against the company.  This should come as no surprise, as litigation can be an existential threat to a company and to the value of stockholder’s investment.  The SEC has very specific requirements about what is to be disclosed about litigation, and those requirements can be found in Regulation S-K (17 CFR Sec. 229.103):

§ 229.103 (Item 103) Legal proceedings.

Describe briefly any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or of which any of their property is the subject. Include the name of the court or agency in which the proceedings are pending, the date instituted, the principal parties thereto, a description of the factual basis alleged to underlie the proceeding and the relief sought. Include similar information as to any such proceedings known to be contemplated by governmental authorities.

The “Instructions” for Item 103 provide guidance for materiality regarding legal disclosures:

2. No information need be given with respect to any proceeding that involves primarily a claim for damages if the amount involved, exclusive of interest and costs, does not exceed 10 percent of the current assets of the registrant and its subsidiaries on a consolidated basis. However, if any proceeding presents in large degree the same legal and factual issues as other proceedings pending or known to be contemplated, the amount involved in such other proceedings shall be included in computing such percentage.

Given the scope of the pre-72 litigation, it is easy to understand why Pandora would have an obligation to disclose the claim based on materiality alone.  Then the question is did they?

Did Pandora’s Disclosure Comply With Its SEC Disclosure Obligations?

Here’s Pandora’s disclosure in its 10Q:

On April 17, 2014, UMG Recordings, Inc., Sony Music Entertainment, Capitol Records, LLC, Warner Music Group Corp., and ABKCO Music and Records, Inc. filed suit against Pandora Media Inc. in the Supreme Court of the State of New York. The complaint claims common law copyright infringement and unfair competition arising from allegations that Pandora owes royalties for the performance of sound recordings recorded prior to February 15, 1972.

Pandora’s disclosure does not seem to comply with the requirements of Regulation S-K because the company does not disclose, or does not disclose fully, “the relief sought” in the lawsuit.  There is a claim for money–“allegations that Pandora owes royalties”–and also a request for injunctive relief–not addressed in Pandora’s disclosure at all.  The injunction would order Pandora to stop using the pre-72 recordings.  The claim for money relates to both the public performance of sound recordings–“for the public performance of sound recordings recorded prior to February 15, 1972”–and also to the reproduction of those sound recordings as part of Pandora’s operations–not addressed in Pandora’s disclosure at all.

Pandora makes only a minimal disclosure of “the factual basis alleged to underlie the proceeding,” some might say a flimsy and self consciously limited disclosure.  Given the historic nature of this litigation, one would think that Pandora would spend time getting a little closer to the requirements of Regulation S-K and erring on the side of more disclosure than less.

So–Pandora seems to be treading in the grey area of its disclosure requirements at a minimum.  One can be ambivalent about whether Pandora met its obligations for discussion of the facts.  But what is clear is that Pandora did not disclose the copyright owners’ request for injunctive relief and a court order blocking Pandora’s use of the recordings.  One could read the disclosure and come away thinking that it’s just a dispute about money.  It certainly is that, but it’s not only that.

Maybe Pandora’s senior management team (including their CFO as CFOs are very involved with SEC filings) didn’t think there was anything material about the injunctive relief.  If successful, an injunction could have some obvious and not so obvious effects on Pandora’s business.  We view the injunction as the relief that is most likely to succeed because of Pandora’s untenable position that it does not have to pay royalties but gets to keep reproducing and performing the pre-72 recordings.  Even if you believe that there’s no performance right in pre-72 sound recordings, there’s a serious question of whether Pandora is reselling unauthorized reproductions.

Shutting off pre-72 recordings would have the obvious result of blocking Pandora’s use of the recordings. Given that Pandora’s music genome relies on looking up music that sounds like other music to build their barely compliant channels, if Pandora suddenly lost the ability to use all music genomes for pre-72 recordings that might seriously affect its business.  No mention of that, either.

Why Didn’t Pandora Fully Disclose?

You can attribute any manner of motives to Pandora for treating their filing obligations like a press release that they can shade and spin the way they do so many other communications.  You can also wonder about what the senior management team was thinking when they approved the risk factor.  One thing seems clear though–they wrote it they way they wrote because they thought they would get away with it.

Van Dyke Parks on How Songwriters Are Getting Screwed in the Digital Age | The Daily Beast

Forty years ago, co-writing a song with Ringo Starr would have provided me a house and a pool. Now, estimating 100,000 plays on Spotify, we guessed we’d split about $80. When I got home, on closer study, I found out we were way too optimistic. Spotify (on par with other streamers) pays only .00065 cents per play.

There’s less support for all the arts today, and the blade gets duller with every cut in arts funding. It degrades dance, opera, even academia and, significantly, the art of journalism. As a result, in the U.S., public opinion suffers from what we call “infotainment.” That’s a genre of media news that is not informing, entertaining, or remedial. And it’s a direct result of a vacuum of patronage (and by patronage, I don’t mean just Medici-style sponsorship but the willingness of all arts consumers to pay for what they listen to, read, and watch, and for the industry to fairly recompense creators).