Author: Trichordist Editor

Trichordist Editor

The Consensus for Conditional Approval of The MLC, Inc. by the @CopyrightOffice

By Chris Castle

I am pleased to see that there is a consensus against more happy talk among commenters in The MLC, Inc.’s five year review of its operations at the Copyright Office. The consensus is an effort to actually fix the MLC’s data defects, rogue lawmaking and failure to pay “hundreds of millions of dollars” in black box royalties.  But realize this is not just the songwriter groups you would expect to see raising objections (discussed in excellent Complete Music Update post). It’s also coming from some commenters who you would not expect to see criticizing The MLC who may not come right out and say it, but are essentially proposing a conditional redesignation.

When did Noah Build the Ark? The Two Arguments for Conditional Approval

There is a significant group, and sometimes from unexpected corners, who fall into two broad camps: One camp is “approve The MLC, Inc. with post-approval conditions” that may lead to being disapproved if not accomplished until the next five year review rolls around.

The other camp, which is the one I’m in if you’re interested, is to spend some time now getting very specific. The specifics are about crucial improvements The MLC, Inc. needs to put into effect and payments they need to make. This would be accomplished by bringing in advisory groups of publishing experts, especially from the independent community, roundtables, other customary tools for public consultations. But–the redesignation approval would occur only after The MLC, Inc. accomplished these goals. 

Either way, the consensus is for conditions if not the timing. I’m not going to argue for one or the other today, but I have some thoughts about why delayed approval is more likely to accomplish the goals to make things better in the least disruptive way.

Remember, once The MLC, Inc. is approved, or “redsignated,” then all leverage to force change is lost. Why? Because if the last five years is any guide, exactly zero people will enforce the government’s oversight role and everyone knows it.

Putting operations-based obligations on The MLC, Inc. to be responsive to their members before they get the valuable approval preserves leverage and will force change one way or another, The reward for successfully accomplishing these goals is getting approved for another term (or the balance of their five year review). Noah built the Ark before the rain.

What if we fired them?

I’m actually pleased to see the consensus for conditional approval. Simply firing The MLC, Inc. would be disruptive (and they know it), mostly because the Copyright Office hasn’t gotten around to requiring that a succession plan be in place so that firing the MLC would not be disruptive.  That’s a failure of oversight. You can’t expect the MLC to make it easy to fire themselves.

The simple solution to this pickle is for the Copyright Office to make any redesignation conditioned upon certain fixes being accomplished on an aggressive time frame. I say aggressive because they’ve had five years to think about this; it shoudln’t take long to at least implement some fixes. But if we don’t make it conditional the MLC will lack the incentive to actually fix the problems.

A conditional approval would simply say that if the MLC cleans up its act, say in the next 24 months, then they will be officially redesignated. If they don’t, it’s on to the next after that 24 month deadline.

Conditional Approval

I have to say I was encouraged by the number of commenters who said that The MLC, Inc. needs some very definite performance goals. Many commenters said that those goals needed to be met in order for The MLC, Inc. to get approved for another five years until the next review. I’m not quite sure how you approve them for another five years with performance goals unless you are really saying what some commenters came right out and said: Any approval should be conditional. 

I think that means that the Copyright Office needs a plan with two broad elements: One, the plan identifies specific performance goals, and then two, establishes a performance timeline that The MLC, Inc. must meet in order for this current “redesignation” to become final.

That “conditional redesignation” would incentivize The MLC, Inc. to actually accomplish specific tasks like everyone else with a job. The timeline will likely vary based on the particular task concerned, but impliedly would be less than five years. There’s a very good reason to make the approval conditional; there’s just too much money involved. Other people’s money.

The Black Box

Every comment I read brings up the black box. Commenters raised different complaints about how The MLC, Inc. is managing or not managing the matching that is required for the black box distribution contemplated by Congress. They all were pretty freaked out about how big it is, how little we know about it, and the fact that the board of The MLC, Inc. is deeply conflicted because the lobbyists drafted an eventual market share distribution. Strangely enough, there’s every possibility that the market share distribution will happen, or could happen, right after the redesignation. Also known as losing on purpose in a fixed fight.

There’s an easy correction for that one–don’t do the market share distribution, maybe ever. 

The harsh but near certain fact is if there is an announced market share distribution of the black box, the MLC (and everyone involved) will be sued before the actual distribution. It almost doesn’t matter how clean it is. So why do it at all? The MLC is supposed to set an example to the world, right? (And we know how much the world loves it when Americans say that kind of thing.) What if we said that the market share distribution was just bloodlust by the lobbyists salivating over a really big poker pot? On reflection, it should be put aside particularly because Congress may not have been told how big the black box really was if anyone knew at the time. Ahem….what did they know and when did they know it?

The Interest Penalty

This actually goes hand in hand with another interpretation of the black box provisions of Title I of the MMA which requires the payment of compound interest for black box money to be paid by The MLC, Inc. to the true copyright owner. That compound interest accrues at the “federal short term rate” in effect from time to time (that rate is adjusted monthly and is currently 5.01%). MLC’s interest obligation accrues in an account set up for the true copyright owner’s benefit, not for the recipients of the market share distribution. 

Interest runs from the time the unmatched money is received by the MLC until it is matched and paid. There could easily be several different interest rates in effect if the unmatched royalties stay in the black box for months or particularly years. This concept is elaborated in a comment by the Artist Rights Institute. (And of course, why doesn’t the interest run from the time the black box is first held rather than the much later date that the unmatched is paid to the MLC?)

Title I requires this “penalty” the same way that it requires the statutory late fee which itself has been the subject of much negotiation. It is important to note that the word “penalty” does not appear in Section 115, but both the interest rate and the late fee are obviously “penalties” in plain English and in plain site. You don’t have to call it a thing a penalty in order for it to be a penalty. It doesn’t stop being a penalty just because the statute doesn’t define it as one, just like a large furry animal with big teeth, big claws, a loud roar and really bad breath who wants to eat you stops being a bear just because it doesn’t have a sign around its neck saying “BEAR”. Particularly when the furry animal has you by throat.

Align the Incentives

I have to imagine that a penalty of compound interest would incentivize both the MLC and the licensees who pay its bills to match that black box right quick. If a third party is paying the statutory interest penalty which is how it is now according to MLC CEO Kris Ahrend’s testimony to Congress (under oath), then there’s really no incentive for the MLC to pick up the pace on matching and there’s even less incentive for the licensees to make them do it.

It makes sense that the MLC is to maintain an account for each copyright owner (or maybe for each unmatched song since the copyright owner is not matched), so it only makes sense that these accounts and compound interest would be maintained on the ledger of the MLC rather than in a third party bank account, much less a mutual fund. It would be pretty dumb to just lump all the money into one account and run compound interest on the whole thing that would have to be disaggregated and paid out every time a song is matched. Assuming matching was the object of the exercise.

Plus, there’s nothing in Title I that says that black box money has to be put in a bank account that accrues interest so that the MLC doesn’t have to pay this penalty for being slow. Again, the word “bank” does not appear in Section 115. It definitely doesn’t say a federally insured bank account, a bank in the Federal Reserve system, or the like–because the statute does not require a bank.  I would argue that if Congress meant for the money to be kept in a bank they would have said so.

Even so, I have to believe that if you want to an insurance company and said I will bring you the “hundreds of millions of dollars” if you write me a policy that will cover my interest expense and insure the corpus, somebody would take that business. If they can write derivatives contracts for fluctuations in natural gas futures in global energy markets, I bet they could write that policy or my name’s not Jeffrey Skilling.

William of Ockham Gets Into the Act

What makes a lot more sense and is a whole lot simpler is that Congress wanted to incentivize the MLC to match and pay black box royalties quickly. Congress established the compound interest penalty to add jet fuel to that call and response cycle following the jurisprudential theory of subsidiarity. 

That penalty is part of the normal costs of operating the MLC therefore should be paid as part of the administrative assessment, i.e., by the services themselves. If the MLC sits on the money too long, the services can refuse to cover the interest costs beyond that point and the MLC can then pass the hat to the board members who allowed that to happen.  Again, subsidiarity principles suggest that it is good government to create the incentive to fix a problem in the pocketbook of the one who is best positioned to actually get it fixed.

So everyone has a good incentive to clean out the black box. Brilliant lawmaking. I don’t think that’s such a bad deal for the services since they are the ones who sat on the money in the first place that produced the initial hundreds of millions of dollars for the black box. They got everything else they wanted in the MMA, why object to this little detail? Let’s try to hold down the hypocrisy, shall we?

There may be some arguments about that interpretation, but here’s what Congress definitely did not do and about which there should definitely not be an argument. Congress did not authorize the MLC to use the black box money as an investment portfolio. Nowhere in Title I is the MLC authorized to start an investment policy or to become a “control person” of mutual funds. Which they have done.

That investment policy also raises the question of who gets the upside and who bears the downside risk. If there’s a downturn, who makes the corpus whole? And, of course, when the ultimate market share distribution occurs, who gets the trading profits? Who gets the compound interest? Surely the smart people thought of this as part of their investment policy.

The Key Takeaway

You may disagree with the Institute’s analysis about what is and isn’t a penalty, and you may disagree about putting conditions on redesignation, but I think that there is broad agreement that there needs to be a discussion about forcing The MLC, Inc. to do a better job. I bet if you asked, the Congress clearly did not see the Copyright Office’s role as handing out participation trophies or pats on the head. And that should not be the community’s goal, either. This whole thing was cooked up by the lobbyists and they were not interested in any help. That obviously crashed and burned and now we need to help each other to save songwriters today and in future generations. If not us, then who; if not now, then when; if not here, then where?

[A version of this post first appeared on MusicTech.Solutions]

by Trichordist Editor

5/30/24: @davidclowery Panelist at @JusticeATR and @StanfordGSB Workshop on Promoting Competition in Artificial Intelligence: Updated

David will be a panelist on a day-long workshop at Stanford Graduate School of Business on competition and antitrust issues in artificial intelligence. The workshop is co-sponsored by the U.S. Department of Justice Antitrust Division and SGBS. You can live stream on YouTube.

David’s panel goes off at 3:35 pm PT, and you’ll see some old friends are also on the panel and we’re looking forward to hearing from the new friends.

David wrote a new paper for the workshop link is here, but here’s a teaser for you:

If inclusion in AI data sets becomes a lucrative new use for copyrighted music, potentially displacing other existing income streams, requiring these training uses to be licensed is critical to keep in the place the same positive incentives that encourage creation and recording of new music today. If a major future use becomes un-protected and un-monetizable, music creation itself would become destabilized and decay.

Strong copyright on the data side will also set in motion real competition for access to valuable works for datasets – putting market forces to work to set prices and terms for licensing these works that reward creators and steer rights and access to the developers and innovators who value them the most. Essentially, it puts real innovators and risk taking start-ups on equal footing with tech giants for access to valuable materials to use in creating new AI products – and while Microsoft and its ilk may assume that means the biggest firm will always win, basic economics tells us rights should end up with the bidder who has the best idea and highest value use.

Submission of David Lowery Promoting Competition in AIDownload
by Trichordist Editor

@human_artistry: Scarlett Johansson calls for federal protections against generative AI

Reality is that this could happen to anyone, but like other online pirates they come for the famous people first to free ride on their brand.

by Trichordist Editor

Minnesota Bans Speculative Ticketing

There will be no pork bellies for StubHub in Prince Country. Minnesota Governor Tim Walz today will visit the iconic First Avenue venue in Prince Country to sign HF 1898, the state’s expansive new protection for fans, venues and artists against speculative ticketing abuse by the StubHubs of this world.

Readers will remember we have a big issue with speculative ticking (which we think is illegal securities trading like trading pork belly futures) so we are naturally quite pleased to see the Governor champion this legislation along with Minnesota Lieutenant Governor Peggy Flanagan plus State Senator Matt Klein and Representative Kelly Moller who co-authored the legislation. David and Mala Sharma testified against speculative ticketing in Georgia and Chris testified in Pennsylvania supporting that state’s proposed ban on the practice.

The key provisions of the new Minnesota law include prohibitions for:

  • directly or indirectly employing another person to wait in line to purchase tickets for the purpose of reselling the tickets if the practice is prohibited or if the venue has posted a policy prohibiting the practice
  • sell or offer to sell a ticket without first informing the person of the location of the venue and the ticket’s assigned seat, including but not limited to the seat number, row, and section number of the seat
  • advertise, offer for sale, or contract for the sale of a ticket before the ticket has been made available to the public, including via presale, without first obtaining permission from  the venue and having actual or constructive possession of the ticket, unless  the ticket reseller owns the ticket pursuant to a season ticket package purchased by the ticket  reseller. 
  • An operator, online ticket marketplace, or ticket reseller must not sell a ticket unless:
  • the ticket is in the possession or constructive possession of the operator, online ticket marketplace, or ticket reseller; or
  • the operator, online ticket marketplace, or ticket reseller has a written contract with the place of entertainment to obtain the ticket.

Good stuff, another step forward for the good guys.

by Trichordist Editor

On the Internet, “Partners” Don’t Hear You Scream: Spotify CEO Makes a $350M “Bundle” While Sticking Songwriters with an ESG “Bundle” of Crap

Here’s a quote for the ages:

MICHAEL BURRY

One of the hallmarks of mania is the rapid rise and complexity 
of the rates of fraud. And did you know they’re going up?

The Big Short, screenplay by Charles Randolph and Adam McKay,
based on the book by Michael Lewis

We have often said that if screwups were Easter eggs, Spotify CEO Daniel Ek would be the Easter bunny, hop hop hopping from one to the next. That’s is not consistent with his press agent’s pagan iconography, but it sure seems true to many people.

This week was no different. Mr. Ek cashed out hundreds of millions in Spotify stock while screwing songwriters hard with a lawless interpretation of the songwriter compulsory license. That interpretation is so far off the mark that he surely must know exactly what he is doing. It’s yet another manifestation of Spotify’s sudden obsession with finding profits after a decade of “get big fast.”

The Bunny’s Bundle

Let’s look under the hood at the part they don’t tell you much about. Mr. Ek evidently has what’s called a “10b5-1 agreement” in place with Spotify allowing staggered sales of incremental tranches of the common stock. Those sales have to be announced publicly which Spotify complied with (we think). And we’ll say it again for the hundredth time, stock is where the real money is at this stage of Spotify’s evolution, not revenue.

As a founder of Spotify, Mr. Ek holds founders shares plus whatever stock awards he has been granted by the board he controls through his supervoting stock that we’ve discussed with you many times. These 10b5-1 agreements are a common technique for insiders, especially founders, who hold at least 10% of the company’s shares, to cash out and get the real money through selling their stock.

A 10b5-1 agreement establishes predetermined trading instructions for company stock (usually a sale so not trading the shares) consistent with SEC rules under Section 10b5 of the Securities and Exchange Act of 1934 covering when the insider can sell. Why does this exist? The rule was established in 2000 to protect Silicon Valley insiders from insider trading lawsuits. Yep, you caught it–it’s yet another safe harbor for the special people. Presumably Mr. Ek’s personal agreement is similar if not identical to the safe harbor terms because that’s why the terms are there.

As MusicBusinessWorldWide reported, Mr. Ek recently sold $118.8 million in shares of Spotify at roughly the same time that he likely knew Spotify was planning to change the way his company paid songwriters on streaming mechanicals, or as it’s also known “material nonpublic information”.

As Tim Ingham notes in MusicBusinessWorldwide, Mr. Ek has had a few recent sales under his 10b5-1 agreement: “Across these four transactions (today’s included), Ek has cashed out approximately $340.5 million in Spotify shares since last summer.” Rough justice, but I would place a small wager that Ek has cashed out in personal wealth all or close to all of the money that Spotify has paid to songwriters (through their publishers) for the same period. In this sense, he is no different than the usual disproportionately compensated CEOs at say Google or Raytheon. 

Stock buybacks artificially increase share price. Now why might Spotify want to juice its own stock price?

Spotify Shoves a “Bundled” Rate on Songwriters

Spotify’s argument (that may have caused a jump in share price) claims that its recent audiobook offering made Spotify subscriptions into a “bundle” for purposes of the statutory mechanical rate. (While likely paying an undiscounted royalty to the books.) 

That would be the same bundled rate that was heavily negotiated in the 2021-22 “Phonorecords IV” proceeding at the Copyright Royalty Board at great expense to all concerned, not to mention torturing the Copyright Royalty Judges. These Phonorecords IV rates are in effect for five years, but the next negotiation for new rates is coming soon (called Phonorecords V or PR V for short). We’ll get to the royalty bundle but let’s talk about the cash bundle first.

You Didn’t Build That

Don’t get it wrong, we don’t begrudge Mr. Ek the opportunity to be a billionaire. We don’t at all. But we do begrudge him the opportunity to do it when the government is his “partner” so they can together put a boot on the necks of songwriters. This is how it is with statutory mechanical royalties; he benefits from various other safe harbors, has had his lobbyists rewrite Section 115 to avoid litigation in a potentially unconstitutional reach back safe harbor, and he hired the lawyer at the Copyright Office who largely wrote the rules that he’s currently bending. Yes, we do begrudge him that stuff.

And here’s the other effrontery. When Daniel Ek pulls down $340.5 million as a routine matter, we really don’t want to hear any poor mouthing about how Spotify cannot make a profit because of the royalty payments it makes to artists and songwriters. (Or these days, doesn’t make to some artists.) This is, again, why revenue share calculations are just the wrong way to look at the value conferred by featured and nonfeatured artists and songwriters on the Spotify juggernaut. That’s also the point Chris made in some detail in the paper he co-wrote with Professor Claudio Feijoo for WIPO that came up in Spain, Hungary, France, Uruguay and other countries.

Spotify pays a percentage of revenue on what is essentially a market share basis. Market share royalties allows the population of recordings to increase faster than the artificially suppressed revenue, while excluding songwriters from participating in the increases in market value reflected in the share price. That guarantees royalties will decline over time. Nothing new here, see the economist Thomas Malthus, workhouses and Charles Dickens‘ Oliver Twist.

The market share method forces songwriters to take a share of revenue from someone who purposely suppressed (and effectively subsidized) their subscription pricing for years and years and years. (See Robert Spencer’s Get Big Fast.). It would be a safe bet that the reason they subsidized the subscription price was to boost the share price by telling a growth story to Wall Street bankers (looking at you, Goldman Sachs) and retail traders because the subsidized subscription price increased subscribers.

Just a guess. 

The Royalty Bundle

Now about this bundled subscription issue. One of the fundamental points that gets missed in the statutory mechanical licensing scheme is the compulsory license itself. The fact that songwriters have a compulsory license forced on them for one of their primary sources of income is a HUGE concession. We think the music services like Spotify have lost perspective on just how good they’ve got it and how big a concession it is.

The government has forced songwriters to make this concession since 1909. That’s right–for over 100 years. A century.

A decision that seemed reasonable 100 years ago really doesn’t seem reasonable at all today in a networked world. So start there as opposed to the trope that streaming platforms are doing us a favor by paying us at all, Daniel Ek saved the music business, and all the other iconographic claptrap.

Has anyone seen them in the same room at the same time?

The problem with the Spotify move to bundled subscriptions is that it can happen in the middle of a rate period and at least on the surface has the look of a colorable argument to reduce royalty payments. If you asked songwriters what they thought the rule was, to the extent they had focused on it at all after being bombarded with self-congratulatory hoorah, they probably thought that the deal wasn’t “change rates without renegotiating or at least coming back and asking.”

And they wouldn’t be wrong about that, because it is reasonable to ask that any changes get run by your, you know, “partner.” Maybe that’s where it all goes wrong. Because it is probably a big mistake to think of these people as your “partner” if by “partner” you mean someone who treats you ethically and politely, reasonably and in good faith like a true fiduciary. 

They are not your partner. Don’t normalize that word.

A Compulsory License is a Rent Seeker’s Presidential Suite

But let’s also point out that what is happening with the bundle pricing is a prime example of the brittleness of the compulsory licensing system which is itself like a motel in the desolate and frozen Cyber Pass with a light blinking “Vacancy: Rent Seekers Wanted” surrounded by the bones of empires lost. Unlike the physical mechanical rate which is a fixed penny rate per transaction, the streaming mechanical is a cross between a Rube Goldberg machine and a self-licking ice cream cone. 

The Spotify debacle is just the kind of IED that was bound to explode eventually when you have this level of complexity camouflaging traps for the unwary written into law. And the “written into law” part is what makes the compulsory license process so insidious. When the roadside bomb goes off, it doesn’t just hit the uparmored people before the Copyright Royalty Board–it creams everyone.

David and friends tried to make this point to the Copyright Royalty Judges in Phonorecords IV. They were not confused by the royalty calculations–they understood them all too well. They were worried about fraud hiding in the calculations the same way Michael Burry was worried about fraud in The Big Short. Except there’s no default swaps for songwriters like Burry used to deal with fraud in subprime mortgage bonds. 

Here’s how the Judges responded to David, you decide if they are condescending or if the songwriters were prescient knowing what we know now:

While some songwriters or copyright owners may be confused by the royalties or statements of account, the price discriminatory structure and the associated levels of rates in settlement do not appear gratuitous, but rather designed, after negotiations, to establish a structure that may expand the revenues and royalties to the benefit of copyright owners and music services alike, while also protecting copyright owners from potential revenue diminution. This approach and the resulting rate setting formula is not unreasonable. Indeed, when the market itself is complex, it is unsurprising that the regulatory provisions would resemble the complex terms in a commercial agreement negotiated in such a setting.

PR IV Final Rule at 80452 https://app.crb.gov/document/download/27410

It must be said that there never has been a “commercial agreement negotiated in such a setting” that wasn’t constrained by the compulsory license. It’s unclear what the Judges even mean. But if what the Judges mean is that the compulsory license approximates what would happen in a free market where the songwriters ran free and good men didn’t die like dogs, the compulsory license is nothing like a free market deal.

If the Judges are going to allow services to change their business model in midstream but essentially keep their music offering the same while offloading the cost of their audiobook royalties onto songwriters through a discount in the statutory rate, then there should be some downside protection. Better yet, they should have to come back and renegotiate or songwriters should get another bite at the apple.

Unfortunately, there are neither, which almost guarantees another acrimonious, scorched earth lawyer fest in PR V coming soon to a charnel house near you.

Eject, Eject!

This is really disappointing because it was so avoidable if for no other reason. It’s a great time for someone…ahem…to step forward and head off the foreseeable collision on the billable time highway. The Judges surely know that the rate calculation is a farce

But the Judges are dealing with people negotiating the statutory license who have made too much money negotiating it to ever give it up willingly although a donnybrook is brewing. This inevitable dust up means other work will suffer at the CRB. It must be said in fairness that the Judges seem to find it hard enough to get to the work they’ve committed to according to a recent SoundExchange filing in a different case (SDARS III remand from 2020).  

That’s not uncharitable–I’m merely noting that when dozens of lawyers in the mechanical royalty proceedings engage in what many of us feel are absurd discovery excesses. When there are stupid lawyer tricks at the CRB, they are–frankly–distracting the Judges from doing their job by making them focus on, well, bollocks. We’ll come back to this issue in future. The dozens and hundreds of lawyers putting children through college at the CRB–need to take a breath and realize that judicial resources at the CRB are a zero sum game. This behavior isn’t fair to the Judges and it’s definitely not fair to the real parties in interest–the songwriters.

Tell the Horse to Open Wider

A compulsory license in stagflationary times is an incredibly valuable gift, and when you not only look the gift horse in the mouth but ask that it open wide so you can check the molars, don’t be surprised if one day it kicks you.

A version of this post first appeared on MusicTech.Solutions

by Trichordist Editor

@SAGAFTRA and Major Labels Reach a New Sound Recording Agreement With AI Protections

Looks like both sides listened and respected each other so no strike necessary. And yet there are groundbreaking first-time AI protections for musicians and vocalists. Amazing what can happen when you actually respect the workers, looking at you YouTube. And guess what? The workers get to vote on the deal. Imagine if songwriters could do the same.

PRESS RELEASE

SAG-AFTRA and leading record labels reached a tentative multiyear agreement on a successor contract to the SAG-AFTRA National Code of Fair Practice for Sound Recordings.

Covering the period starting Jan. 1, 2021, and ending Dec. 31, 2026, the agreement includes Warner Music Group, Sony Music Entertainment, Universal Music Group and Disney Music Group.

The SAG-AFTRA Executive Committee unanimously approved the tentative agreement on Wednesday, April 10. It will now be sent to members for ratification.

SAG-AFTRA National Executive Director & Chief Negotiator Duncan Crabtree-Ireland said, “SAG-AFTRA and the music industry’s largest record labels have reached a groundbreaking agreement establishing, for the first time, collective bargaining guardrails assuring singers and recording artists ethical and responsible treatment in the use of artificial intelligence in the music industry. It is a testament to our mutual unwavering commitment to work together to safeguard the rights, dignity and creative freedom of our members.

“This agreement ensures that our members are protected. SAG-AFTRA stands firm in the belief that while technology can enhance the creative process, the essence of music must always be rooted in genuine human expression and experience. We look forward to working alongside our industry partners to foster an environment where innovation serves to elevate, not diminish, the unique value of each artist’s contribution to our rich cultural tapestry.”

The Record Label Negotiating Committee said, “We are pleased to reach this agreement with SAG-AFTRA and continue our strong partnership as we enter this exciting and fast-moving new era for music and artists. Together, we’ll chart a successful course forward, embracing new opportunities and facing our common challenges, strengthened by our shared values and commitment to human artistry.”

The artificial intelligence guardrails take effect immediately upon ratification. The terms “artist,” “singer,” and “royalty artist,” under this agreement only include humans. In this agreement, clear and conspicuous consent, along with minimum compensation requirements and specific details of intended use, are required prior to the release of a sound recording that uses a digital replication of an artist’s voice.

Additional highlights among the contract gains include increased minimums, health and retirement improvements, and an increase in the percentage of streaming revenue to be covered by contributions, among other gains.

by Trichordist Editor

@CadeMetz @ceciliakang @sheeraf @stuartathompson @nicogrant: How Tech Giants Cut Corners to Harvest Data for A.I.


[This is a must-read, deeply researched, long form article about how Big Tech–mostly OpenAI, Google and Microsoft–are abrogating consumers trust and their promises to creators in a mad, greedy, frothing rush to some unknown payoff with AI. The Dot Bomb boom is dwarfed by the AI gold rush, but this article is a road map to just how bad it really is and how debased these people really are. Thanks to the destruction of the newsroom, only a handful of news outlets can deliver work of this quality, but thankfully the New York Times is still standing. How long is another story.]

OpenAI, Google and Meta ignored corporate policies, altered their own rules and discussed skirting copyright law as they sought online information to train their newest artificial intelligence systems….

OpenAI researchers created a speech recognition tool called Whisper. It could transcribe the audio from YouTube videos, yielding new conversational text that would make an A.I. system smarter.

Some OpenAI employees discussed how such a move might go against YouTube’s rules, three people with knowledge of the conversations said. YouTube, which is owned by Google, prohibits use of its videos for applications that are “independent” of the video platform.

Ultimately, an OpenAI team transcribed more than one million hours of YouTube videos, the people said….

Like OpenAI, Google transcribed YouTube videos to harvest text for its A.I. models, five people with knowledge of the company’s practices said. That potentially violated the copyrights to the videos, which belong to their creators.

Last year, Google also broadened its terms of service. One motivation for the change, according to members of the company’s privacy team and an internal message viewed by The Times, was to allow Google to be able to tap publicly available Google Docs, restaurant reviews on Google Maps and other online material for more of its A.I. products.

The companies’ actions illustrate how online information — news stories, fictional works, message board posts, Wikipedia articles, computer programs, photos, podcasts and movie clips — has increasingly become the lifeblood of the booming A.I. industry. 

Read the post on New York Times.

by Trichordist Editor

Search is Ripping Us Off Again, this time for AI

By Chris Castle

In case you think that infringement of copyrights in AI training happens only to rock stars, photographers, record companies or movie studios, let me give you a personal anecdote that might cause you to reconsider. I asked Bing’s Copilot AI tool to list the deal points in a record producer agreement, and this is what I got back:

Copilot

Certainly! When negotiating a producer agreement, several key points should be considered. Here are some common negotiation points from the artist’s perspective:

  1. Scope of Engagement:
    1. The producer is generally engaged for one album project at a time.
    2. Clarify the scope of work, including the number of songs or recordings to be produced.
  2. Budget and Compensation:
    1. Determine the budget for the project (e.g., $10,000 in your case).
    2. Agree on the producer’s compensation, which may include an upfront fee, points on sales, or a combination.
  3. Ownership and Rights:
    1. Address ownership of the master recordings:
      1. Will the artist own and control the masters?
      2. Does the producer retain any rights?
  4. Credits and Royalties:
    1. Specify how the producer will be credited on releases.
    2. Discuss any royalties or backend points for the producer.
  5. Recording Schedule:
    1. Set a timeline for recording sessions.
    2. Define the two-week period for your project.
  6. Logistics:
    1. Determine where the recordings will take place.
    2. Outline the artist’s approval process.
    3. Define the producer’s deliverables.
  7. Termination Clause:
    1. Include provisions for termination if either party breaches the agreement.
    2. Address payment for work completed up to that point.

Remember that each negotiation is unique, and it’s essential to tailor the agreement to your specific needs and circumstances. Legal advice is recommended to ensure compliance with local laws and industry standards1 3 4.

Source(s)

1. An Artist’s Guide to Negotiating Record Producer Agreements – Medium

2. Negotiating a Music Producer Agreement: 7 Key Issues

3. 5 Things to Look for in a Music Producer Agreement – Lawyer Drummer

4. How to Negotiate: Steps, Phrases & Tips to Win the Deal – Selling Signals

Notice that Copilot lists “Source(s)” and that source #1 is an article from the Medium website.

My article.

I’ve written a number of articles about negotiating producer agreements and I can categorically say I haven’t given permission or been asked to give permission for any of those articles to be scraped and used to train AI. So how did it come to be in Copilot’s training materials? 

My guess is that Medium (and probably a lot of other sites) were crawled by Bing’s spider and that copies of Medium pages were stored in Bing’s (or Microsoft’s) data centers. When Microsoft launched its Copilot AI tool, one could imagine that the temptation would have been strong to use those copies as part of the training tools for Copilot. In fact, the Verge reports that “companies around the web are using your site and its data to build massive sets of training data, in order to build models and products that may not acknowledge your existence at all.” Can you say Section 230 or DMCA? Maybe there will be a question at the April 11 House Energy & Commerce hearing on Section 230.

So Google-style “innovation” has a self-destructive flavor consistent with their oikophobic capitalism. Greater Silicon Valley’s view of culture in general and copyright in particular is as sources of wealth extracted by destruction–you know, creative destruction, permissionless innovation, etc. (It’s no wonder Google was inexorably attracted to defense contracting despite all the “don’t be evil” hoorah. After all, what creates massive wealth faster than convincing governments to pay big money to blow things up that must be replaced by ever more big money to blow even more things up.)

Are you surprised then that two of the biggest operators in the AI space are the search engine operators Google and Microsoft? This is another example of how Big Tech helps itself to your data and work product without you even knowing it’s happening. So now what? I now know I’m being ripped off, and I’m wondering if Medium is in on it.

The Verge tells us:

The ability to download, store, organize, and query the modern internet gives any company or developer something like the world’s accumulated knowledge to work with. In the last year or so, the rise of AI products like ChatGPT, and the large language models underlying them, have made high-quality training data one of the internet’s most valuable commodities. That has caused internet providers of all sorts to reconsider the value of the data on their servers, and rethink who gets access to what. 

Ya think?

by Trichordist Editor

The First Shot Across the Bow at the MLC’s “Redesignation” Proceeding #TheReup

We must always tell what we see. Above all, and this is more difficult, we must always see what we see.
Charles Peguy

By Chris Castle

The Reup is on! MTP readers will remember that The MLC, Inc. is in the beginning of its “redesignation” proceeding before the U.S. Copyright Office that we call “the rep,” because…because….well, you have to laugh at some point. Having appointed (or “designated”) The MLC, Inc. as the statutory mechanical licensing collective in 2019, the Copyright Office is required by statute to review The MLC, Inc. to see how they are doing with their exclusive monopoly over songwriter streaming mechanical collections.

It’s important to remember that the mechanical licensing collective (lower case) is a statutory body. Congress tasked the head of the Copyright Office with selecting an entity to actually do the work. In a shocker that rocked the industry, the Copyright Office selected (or “designated”) the favorite corporation of the National Music Publishers Association and the Nashville Songwriters Association International that styled itself “The MLC, Inc.” 

The MLC, Inc. then turned right around and selected the Harry Fox Agency as its data vendor to actually run the accounting part of the collective–another shocker. If you thought you were going to escape the hubris and incompetence of HFA under the glorious revolution of the Music Modernization Act, tough break. So it is now the Copyright Office’s decision to either redesignate The MLC, Inc. (and by default, HFA) for another five years of holding onto your money in their vast black box, or find someone else.

And just to be clear, these exclusive appointments or “designations” last for five years. Every five years, Congress required the Copyright Office to take a critical look at the wisdom of their prior decision and determine after soul-searching and self-criticism whether they should ratify their previous genius by extending the monopoly another five years. As Congress said in the legislative history narrative:

The Register [the head of the Copyright Office] is allowed to re-designate an entity to serve as the collective every 5 years after the initial designation. Although there is no guarantee of a continued designation by the collective, continuity in the collective would be beneficial to copyright owners so long as the entity previously chosen to be the collective has regularly demonstrated its efficient and fair administration of the collective in a manner that respects varying interests and concerns. In contrast, evidence of fraud, waste, or abuse, including the failure to follow the relevant regulations adopted by the Copyright Office, over the prior five years should raise serious concerns within the Copyright Office as to whether that same entity has the administrative capabilities necessary to perform the required functions of the collective. In such cases, where the record of fraud, waste, or abuse is clear, the Register should give serious consideration to the selection of a new entity even if not all criteria are met pursuant to section 115(d)(3)(B)(iii).

So the way this is going to go down according to the Copyright Office is that they will seek a kind of thesis defense from each of The MLC, Inc. and the MLC’s counterpart for the digital services called the Digital Licensee Coordinator or “the DLC” which we often forget is there. Then the public gets to comment on how things are going.

Let’s understand how this game is played. Nobody likes to open the kimono and have their operations examined. But opening the kimono is actually a much bigger deal for the MLC than for the DLC. The MLC has a lot of functionality that perpetuates the same old spaghetti code from HFA and the need to hide it from sunlight. In my view the sense of entitlement and hubris is overwhelmingly stronger at The MLC, Inc. than at the DLC. Remember, the DLC pretty much just writes the overpriced checks to keep MLC executives in the style to which they have become accustomed (see Trichordist “Know Your MLC 2022“).

We are starting to get a sense of how the DLC is going to approach the reup proceeding given a recent blog post by Graham Davies, the new head of the Digital Media Association. DiMA essentially is the DLC. Technically, the DLC’s mission is to represent all users of the blanket mechanical license, and I think perhaps for the first time, the DLC will represent all the users both large and small, not just DiMA members. Let’s take a look at some of the points Graham raised.

The Insult of Governance

But first, remember that the MMA created the first US mechanical licensing CMO. This was an event that had been coming for oh, say 100 years round numbers. The first difference between the US and most other countries is that in the US there is not equal board representation between publishers and songwriters. This is an insult to songwriters. 

That’s right–in the rest of the world, songwriters have at least equal representation. Just call it what it is, it’s an insult. And not a casual insult or the insult of low expectations. This insult is right in your face.

There will be a lot of rending of garments about the unfairness of the MLC’s board composition and that’s all fine, but know this: You will not change the board composition until you change the mindset that produced the board composition.

What is astonishing about how this happened is that before they get to Washington, all these publishers with board seats have good relations with songwriters and value their writers. Do we have arguments inside the family? Sure. But something happens to these publishers when they get to Washington, DC and they go rogue or they are encouraged to go rogue. 

So I would encourage these board members to come back to your values and what you hold dear and don’t listen to the bad advice. The bad advice didn’t build your companies; your relations with your songwriters did. Yet there is such hostility toward this board composition that it will take you years to overcome the insult and the distrust it produced. It didn’t have to happen that way and it should not be allowed to continue.

No Free Lunch

The next big difference is that the cost of standing up and operating the MLC is born by the licensees. There is a reason that this doesn’t happen in any other country–it is a bullshit idea. It OBVIOUSLY produced an inherent conflict of interest at the outset. Does it shovel money onto the kitchen tables of the insiders? Of course. Does it feed into salaries, bonuses and T&E of the MLC? Oh, yes. So let’s see what Graham Davies has to say about this one.

For starters, here’s a headline: THE MONEY IS NOT HAPPY. Get it? What do you think happens when the money is not happy? Maybe, just maybe, you think they might not want to keep paying? Maybe just maybe they gave you your lead for five years and let you get good and hooked before they started reeling you in?

As Graham says:

All around the world, it is the rightsholders who bear the cost of the collectives licensing their rights, and copyright offices or similar government bodies often have oversight powers over the collectives to ensure that royalties are distributed fairly and the collectives operate efficiently.  

In the US, unlike anywhere else in the world, legislators placed the burden of funding the collective’s operations on the licensees as opposed to the rightsholders. This particular arrangement was a feature of the statute, but means a collective’s traditional incentives for optimum performance are not inherently built in and may become skewed. [Now there’s a shocker.]

This structure makes it even more important that the Copyright Office ensures fair and efficient operation of the collective, including for those who fund it.

How can you read that and not realize that THE MONEY IS NOT HAPPY. See what you see. Anyone who believed that the licensees large and small would just go on writing the checks for absurd salaries and ridiculous travel and entertainment expenses must be from Washington.

Oversight Culture Clash

This goes hand-in-hand with the true problem with the entire megillah which is where Graham starts: Lack of oversight. Don’t blow past this. 

Remember, DiMA represents the biggest corporations in commercial history and make no mistake–they own Washington, DC. So when the DiMA members look at this oversight issue, from their point of view the government works for them and the government is falling down on the job. The money is not happy. See what you see.

Oversight is a key part of Graham’s complaint.

As we embark on the redesignation process, oversight of the mechanical licensing collective is a key issue. Collective licensing is common for many rights in the music sector, because it is a sensible solution for reducing transaction costs and improving efficiencies between rightsholders and licensees….

The MMA mandated that the MLC be run by a Board made up largely of music publishers and some songwriters. While it makes sense for rights holders to have oversight over a collective of their rights, it has become apparent in the five years since the MMA was passed, that this structure, without guardrails and robust oversight, provides little incentive for the collective to carefully weigh risks and conduct rigorous cost-benefit analysis of decisions before action. [Like any CMO conducts a “rigorous cost-benefit analysis”–try not to laugh, but you get the idea.] This is of great importance because without a clearly circumscribed remit for The MLC, the positions the collective takes can have significant consequences for the functioning of the US music market.

The record shows that in passing the MMA, Congress chose to establish a collective that would serve as the administrator of  the mechanical blanket license….Congress [did not] intend to write the collective a blank check.  Indeed, Congress was astute in requiring that streaming services be responsible only for the reasonable costs of the collective. Such reasonable costs relate to the collective’s core functions – such as work registration and matching. Where The MLC has focused on these core functions, there is good work [no there isn’t], particularly in the context of the relatively short window from designation to operation [already making excuses]. However, where The MLC has gone beyond its remit, there has been, and continues to be cause for concern. Reasonable costs of the collective cannot include everything from traveling to distant countries to conduct outreach to songwriters far beyond the U.S. licensing system, to suing one of the licensees that pays its costs — using licensee money to pursue its allegations against a licensee on a novel legal theory. [This is the Pandora lawsuit filed by The MLC, Inc. I was wondering how long that would take to get under the skin.]

I take Graham’s point and understand his frustration (and discretion in not calling out the ridiculous salaries). But it must also be said that only lobbyists in the Imperial City would have drafted Title I of the MMA to provide for oversight of a private company by a government agency. That’s just idiotic. First of all, it’s really unfair to expect the Copyright Office to supervise the MLC’s travel and entertainment expenses. They barely have the resources to manage their own operations much less have oversight on Kris Ahrend’s tips in transit. It’s also just not in the cerebral culture of the Copyright Office to have the kind of dressing down relationship with the MLC that would be necessary for financial oversight. 

I also have to call bullshit on this complaint about costs being framed as an oversight issue. Yeah, sure, I guess on some level everything is an oversight issue. But if anything, this is an issue for the board of directors at the MLC which includes the DLC. But in most companies it’s a management issue for the CEO and the CFO. So if Graham has a beef about T&E (which sounds like a legitimate beef and is not the first I’ve heard of it), he needs to take it up with the management. You know, the management that reports to the board the DLC sits on (nonvoting or not).

Alternatively, the operating budget of the MLC comes through the Copyright Royalty Board which approves the budget in the form of the “Administrative Assessment.” The DLC can raise these complaints about spending in that forum as well and really should.

So Graham raises some important points that we should be aware of as the MLC enters its all-important reup proceeding. Stay tuned for responses.

by Trichordist Editor