#HiHowAreYou Day in Austin, a Celebration of Daniel Johnston — Artist Rights Watch

Here’s a message from the #HiHowAreYou concert and related campaign.  If you’re not in Austin, you can stream the show from the links below, featuring Flaming Lips, Built to Spill, Gavin DeGraw, Bob Mould and many more.  Please consider showing your support as best you can.
January 22nd is Day – a celebration of the music and art of Daniel Johnston and a day of . We’re celebrating with a free livestream featuring , , Yo La Tengo + many more! Learn more at

Today is the day. We are all doing our part to upend the stigma around mental health issues. Our challenge to you is to connect with someone and actively listen. The conversation starter is easy, yup you guessed it, “hi, how are you?”. Learn more about how to get involved at hihowareyou.org
We’ve got an all-star line up and you’ll have the best the seat in the house. On Jan 22nd we’re live streaming Hi How Are You Day featuring special sets from Gavin DeGrawThe Flaming LipsBuilt to SpillBob Mould, and many more! Tune in for free and rock on for a cause. Check out the lineup and see what we have in store for you: hihowareyou.org#hihowareyou
Tonight, we’ll live stream the performances of , , , & many other artists invited to the concert. The FREE live stream will start at 8pm EST/5pm PST. Follow the link |

 

Guest Post: MTP Podcast: Why Artists Should Care About Data Center Lobbying

Guest post by Chris Castle from Music Tech Policy

Show Notes

Today’s podcast is about the impact on climate of the massive data centers operated in states outside of California and New York by Google, Facebook, Amazon and others.  I focus on Oregon and Nebraska, but there are many other locations.  These massive building projects enable Google to exercise its lobbying muscle in states you wouldn’t expect and on the federal senators and representatives of those states on issues familiar with our old adversary:  Artist rights, profit from human trafficking, drugs and brand sponsored piracy.

Carbon Clouds: Should Artists Ask Why Aren’t Google, Amazon and Facebook in the Green New Deal?

The Mother’s Milk of Algorithms: Google Expands Its Data Center Lobbying Footprint in Minnesota–Home to Senator Amy Klobuchar

Are Data Centers The New Cornhusker Kickback and the Facebook Fakeout?

What’s Up With @SenSasse’s Vicious Little Amendment on pre-72?

Here Comes the Shiv: Sen. Sasse to Move to Strike the CLASSICS Act and Screw Pre-72 Artists

Greenpeace “Dirty Data” research. www.greenpeace.org/archive-interna…-greenpeace.pdf

Nature magazine sums it up (www.nature.com/articles/d41586-018-06610-y):

“Upload your latest holiday photos to Facebook, and there’s a chance they’ll end up stored in Prineville, Oregon, a small town where the firm has built three giant data centres and is planning two more. [Hello, Senator Wyden.] Inside these vast factories, bigger than aircraft carriers, tens of thousands of circuit boards are racked row upon row, stretching down windowless halls so long that staff ride through the corridors on scooters.

These huge buildings are the treasuries of the new industrial kings: the information traders. The five biggest global companies by market capitalization this year are currently Apple, Amazon, Alphabet, Microsoft and Facebook, replacing titans such as Shell and ExxonMobil. Although information factories might not spew out black smoke or grind greasy cogs, they are not bereft of environmental impact. As demand for Internet and mobile-phone traffic skyrockets, the information industry could lead to an explosion in energy use.”

According to the National Resources Defense Council www.nrdc.org/resources/americas…ing-amounts-energy:

“Data centers are the backbone of the modern economy — from the server rooms that power small- to medium-sized organizations to the enterprise data centers that support American corporations and the server farms that run cloud computing services hosted by Amazon, Facebook, Google, and others. However, the explosion of digital content, big data, e-commerce, and Internet traffic is also making data centers one of the fastest-growing consumers of electricity in developed countries, and one of the key drivers in the construction of new power plants.

Google emits less than 8 grams of carbon dioxide equivalent per day to serve an active Google user—defined as someone who performs 25 searches and watches 60 minutes of YouTube a day, has a Gmail account, and uses our other key services.”

In Google-speak “less than 8” usually means 7.9999999999. So let’s call it 8. As of 2016 there were 1 billion active gmail users. So rough justice, Google acknowledges that it emits about 8 billion grams of carbon dioxide daily, or 9,000 tons. And based on the characteristically tricky way Google framed the measurement, that doesn’t count the users who don’t have a gmail account, don’t use “our other key services” and may watch more than an hour a day of YouTube.Upload today,

Don’t Get Fooled Again: Piracy is still a big problem-MusicTech.Solutions

Guest post by Chris Castle (from MusicTech.Solutions)

I know it’s not very “modern,” but music piracy is still a huge problem.  As recently as yesterday I had a digital music service executive tell me that they’d never raise prices because the alternative was zero–meaning stolen.  (This demonstrates the downward effect on prices from massive piracy that David has noted many times on the Trichordist.)

Very 1999, but also oh so very modern as long as Google and their ilk cling bitterly to their legacy “safe harbors” that act like the compulsory licenses they love so much.  Except the safe harbor “license” is largely both royalty free and unlawful.  Based on recent data, it appears that streaming is not saving us from piracy after all if 12 years after Google’s acquisition of YouTube piracy still accounts for over one third of music “consumption.”  The recent victory over Google in the European Parliament indicates that it may yet be possible to change the behavior of Big Tech in a post-Cambridge Analytica world.

It’s still fair to say that piracy is the single biggest factor in the downward and sideways pressure on music prices ever since artists and record companies ceded control over retail pricing to people who have virtually no commercial incentive to pay a fair price for the music they view as a loss leader.  The current thinking seems to be that streaming will save us by having more users subscribe to music services at a price that reflects the market distortion of massive piracy.  In other words, less is more–the revenge of Chris Anderson.  Except now we are to treat the head of the tail as though it were the long tail.

On the other hand, if the Googles of this world were living up to their ethical responsibilities that should be the quid pro quo for the profits they make compared to the harms they socialize, then you wouldn’t see numbers like this chart from Statistica derived from IFPI numbers:

The good news is that there is a solution available–or if not a solution then at least a more pronounced trend–toward making piracy much harder to accomplish.  It may be necessary to take some definitive steps toward encouraging companies like Google, Facebook, Twitch, Amazon, Vimeo and Twitter to do more to impede and interdict mass piracy in return for the safe harbor they love so much and misuse every day.

Private Contracts:  It may be possible to accomplish some of these steps through conditions in private contracts that include sufficient downside for tech companies to do the right thing.  That downside probably should include money, but everyone needs to understand that money is never enough because the money forfeitures are never enough.

The downside also needs to affect behavior.  Getting Google to change its ways is a tall order.  Witness Google’s failure to comply with their nonprosecution agreement with the Criminal Division of the Department of Justice for violations of the Controlled Substances Act.  When the United States failed to enforce the NPA against Google, Mississippi Attorney General Jim Hood sought to enforce Mississippi’s own consumer protection statutes against Google for harms deriving from that breach.  Google sued Hoodand he ended up having to fold his case, even though 40 state attorneys general backed him.

Antitrust Actions:  Just like Standard Oil, the big tech companies are on the path to government break ups as Professor Jonathan Taplin teaches us.  What would have been unthinkable a few years ago due to fake grooviness, the revolving door and massive lobbying spending all over the planet, in a post-Cambridge Analytica and Open Media world, governments are far, far more willing to go after companies like Google, Amazon and Facebook.  At least in Europe where fines against Google for competition law violations exceed $5 billion.

Racketeer Influenced and Corrupt Organizations Act Civil Prosecutions:  “Civil RICO” claims are another way of forcing Google, Facebook, Amazon & Co. to behave.  Google is fighting a civil RICO action in California state court.  Civil RICO may be a fertile solution against one or more of Google, Facebook and Amazon.

As we know, streaming royalties typically decline over time due to the fact that the revenues to be divided do not typically increase substantially (and probably because of recoupable and nonrecoupable payments to those with leverage).  At any rate, the increase in payable revenues is less than the increase in the number of streams (and recordings).

While it’s always risky to think you have the answer, one part of the answer has to be basic property rights concepts and commercial business reality–if you can’t reduce piracy to a market clearing rate, you’ll never be able to increase revenue and music will always be a loss leader for immensely profitable higher priced goods that artists, songwriters, labels and publishers don’t share be it hardware, advertising or pipes.

I strongly recommend Hernando de Soto’s Mystery of Capital for everyone interested in this problem.  The following from the dust jacket could just as easily be said of Google’s Internet:

Every developed nation in the world at one time went through the transformation from predominantly extralegal property arrangements, such as squatting on large estates, to a formal, unified legal property system. In the West we’ve forgotten that creating this system is what allowed people everywhere to leverage property into wealth.

What we have to do is encourage tech companies to stop looking for safe harbors and start using their know-how to encourage the transformation of the extralegal property arrangements they squat on and instead accept a fair rate of return.  My bet is that this is far more likely to happen in Europe–within 30 days of each other we’ve seen Europe embrace safe harbor reform in the Copyright Directive while the United States welcomed yet another safe harbor.

If we’re lucky, the European solution in the Copyright Directive may be exported from the Old World to the New.  And if Hernando de Soto could bring property rights reform to Peru in the face of entrenched extralegal methods and the FARC using distinctly American approaches to capital, surely America can do the same even with existing laws and Google.

Content Creators Coalition & MusicAnswers Applaud the Revision and Passage of the Music Modernization Act by the Senate Judiciary Committee — Artist Rights Watch

[A brief word–TheTrichordist and MusicTechPolicy are always there to provide a platform for the songwriters, artists, musicians and vocalists when grassroots needs to be heard.  We all have to thank the Content Creators Coalition, MusicAnswers and especially Maria Schneider for enduring the tactics used against them in their unwaivering fight for fairness and transparency for the creator community.  The good protective changes to MMA in Senate Judiciary are due to their efforts and the kind willingness of Senators Grassley and Feinstein to listen to compelling ideas presented by effective advocates.

We also thank all of our readers and supporters for helping to get the word out and taking action.  We would be nowhere without you.  If MMA passes, the collective’s operations will require hyperdiligence from the grassroots creator community around the world, so we commit to keeping the heat on for fairness, transparency and honesty.  In the end, the example set by these brave leaders C3, MusicAnswers and Maria teach us that community is the oversight.  We commit to doing our share of these future tasks and then some if called upon.  We invite you to do the same.]

PRESS RELEASE

[Washington, D.C.] – The Content Creators Coalition and MusicAnswers released today the following statement on the Senate Judiciary Committee’s vote in support of the Music Modernization Act.

C3 and MusicAnswers applaud the Senate Judiciary Committee’s vote to advance the Music Modernization Act, while incorporating key changes we had urged to make the legislation stronger, more transparent, and more equitable.

The MMA will strengthen the music ecosystem and all its participants, including songwriters, publishers, performing rights organizations, artists, record companies, music services and fans. It ensures digital music services will pay fair royalties for every song they stream, establish a better standard for determining royalty rates, and eliminate some out-of-date provisions of the PRO consent decrees. In return, digital music services get certainty, legal protection, and new streamlined tools to bring more music to more people at lower cost.

It’s a reasonable bargain, and, therefore, we have consistently and publicly supported the basic construct of the legislation.

We are especially grateful that the Senate Judiciary Committee, led by Chairman Chuck Grassley (R-IA) and Ranking Member Dianne Feinstein (D-CA), was willing to engage with our organizations on ways to improve the bill and include in the Managers Amendment approved today key protections for creators and the public.

As a result, the MMA now provides greater transparency, including rigorous audits to make sure that royalties are flowing to the correct parties, a commitment to educating all music creators about their rights and the royalties due them collected under the new Music Licensing Collective (MLC), a requirement to study and follow best practices in order to find the proper owners of unclaimed royalties, and increased clarity regarding who owns the data generated by the new system.

While we support the legislation and are proud of the changes we have achieved as artist and songwriter advocates, we continue to have concerns about three key issues: whether the entity that is designated as the MLC is being foreordained by the bill and precludes competition with the MLC; the composition of the Board of Directors of the MLC, which is unduly tilted towards major publishers; and the methods used to distribute royalties from works where even using best practices the authors could not be identified.  We urge the full Senate and the House to consider further improvements to those flawed provisions and we call on the Copyright Office to ensure in implementation of the final legislation that no stakeholder group can dominate the MLC and that all royalties are distributed in a fair and equitable and non-self-interested manner.

The process leading to this moment has been strong in many ways. But it has also included its fair share of divide-and-conquer tactics and efforts by powerful incumbent forces to crowd out grassroots organizations like ours and to divide the music community within itself.  We believe that we are strongest when we respect and support each other – a lesson too many in our business still have yet to learn.

We are deeply appreciative of the partnership c3 and MusicAnswers have forged. Together, we represent thousands of writers, producers, performers, and music business professionals, and over the past few weeks we have worked steadfastly to pursue improvements in the MMA. We look forward to future collaboration and welcome the involvement of other collaborative groups and individuals.

via Content Creators Coalition & MusicAnswers Applaud the Revision and Passage of the Music Modernization Act by the Senate Judiciary Committee — Artist Rights Watch

@soundexchange: SXWorks Announces New Services for Music Publishers and Songwriters — Artist Rights Watch

PRESS RELEASE

 

JUNE 12, 2018

SXWorks Announces New Services for Music Publishers and Songwriters

NOI Premium Expands on NOI LOOKUP Tools

WASHINGTON, DC – June 12, 2018 – SXWorks, a subsidiary of SoundExchange, today announced that it has developed two new services to expand upon NOI LOOKUP, the innovative new tool launched in January to help music publishers and songwriters search the more than 70 million address unknown Notice of Intention to Use (NOI) filings made with the U.S. Copyright Office.
NOI Premium Services, available beginning today from SXWorks, will give publishers and songwriters more opportunities to claim unpaid mechanical royalties from digital service providers (DSPs) and facilitate communication for creators with DSPs and the Copyright Office.

“Development of NOI Premium Services is a direct result of interest in our NOI LOOKUP service and the demand for more services from the publishers who use NOI LOOKUP,” said Michael Huppe, Chairman of the Board of SXWorks. “Since the introduction of NOI LOOKUP, songwriters and publishers have asked us to advance our efforts to help them get paid fairly and accurately.”

The new NOI Premium Services unveiled today are Works Claiming and Recordation.

Works Claiming helps publishers submit ownership claims and works shares to a digital service provider (DSP) for its use of a musical work. NOI Premium Services customers upload their works claims to SXWorks. SXWorks then sorts, formats and aggregates the uploaded file and forwards the rights owner’s claim and information to the proper contact at the DSPs identified by the publisher that filed NOIs for the musical work in question. A flat fee of $100 covers the cost of submitting up to three Works Claiming spreadsheets during a one-year period, each with up to 500 titles listed.

Recordation services take the Works Claiming tool a step further. If a songwriter or publisher requests the Recordation service, SXWorks will facilitate submission of the proper information and documents to the Copyright Office so the Office’s records are current and DSPs can locate a publisher’s contact information and ownership data. The recordation fee is $75 per submission plus fees charged by the Copyright Office.

“These new services represent the next step in the evolution of NOI LOOKUP. We know that giving publishers more control by creating new tools will help us chip away at the problem surrounding NOIs and unpaid royalties,” Huppe said. “It’s also important to note that NOI LOOKUP and NOI Premium Services represent the latest innovation – following our International Standard Recording Code (ISRC) Search and our new Music Data Exchange (MDX) program launched last month – to help publishers and songwriters by bringing transparency and efficiency to the music industry.”

To learn more about the new Works Claiming and Recordation services, read our FAQs here.

About SXWorks
SXWorks provides global services to music publishers to support multiple licensing configurations. SXWorks, a subsidiary of SoundExchange, is governed by a board consisting of leading music publishers and SoundExchange executives. SXWorks was created in conjunction with the 2017 acquisition of the Canadian Musical Reproduction Rights Agency Ltd. (CMRRA). CMRRA represents the mechanical rights of music publishers and administers the majority of songs recorded, sold and broadcast in Canada.

via @soundexchange: SXWorks Announces New Services for Music Publishers and Songwriters — Artist Rights Watch

Goliath Never Learns: Watch Out for Music Choice Duping Artists for Music Modernization Act in Senate — Music Technology Policy

Remember when Blake Morgan called out Tim Westergren for sending emails to artists trying to get them to write their Member of Congress to support the Internet Radio Fairness Act (IRFA) and lower royalties for Pandora?  “Million-a-month” Tim really stepped in it that time because he didn’t expect the artists to figure out he was both pushing a deceptive deal on them and treating them like they were idiots. And that started the #irespectmusic campaign.

patrick stewart

So now there’s yet another email campaign targeting artists to act against their own interest.  This time it’s about preserving a subsidy for Music Choice’s cable music service.  If you still have cable, you’ll probably find Music Choice in the highest numbered channels.

Here’s how the subsidy works–which you should know because it’s paid with your money.  Music Choice (like Pandora) gets to take advantage of the statutory license created by the Congress in 1998 for the use of your recordings in “noninteractive” digital services.  This statutory license is a huge benefit for everyone who uses it as they can avoid individual negotiations, get streamlined royalty accounting to SoundExchange and never have to pay–clutching pearls–artist advances.

Because the license is statutory, the government also has to set the royalty rate you get through a process now conducted by the Copyright Royalty Judges.  The CRJs are supposed to set a market rate based on economic analysis and the services using the statutory license pay those rates.

But–some services are more equal than others.  Back in 1998, the Congress was trying to encourage investment in a new market for digital music services and so certain named services were given special treatment by the government to protect them from what’s called the “willing buyer/willing seller” standard that more closely tracks market rates.  This special treatment was to give certain services that were already up and running in 1998 a break on royalty rates–your royalty rates–through what is effectively a government subsidy that you finance.  This was because these “preexisting services” had started their businesses in reliance on the subsidized rates–and guess what, they kind of got to liking that subsidy.

Three of those preexisting services still exist today:  SiriusXM, Musak and Music Choice.  All three of these companies have enjoyed the break you gave them on your royalty rates for 20 years.  However–the reason to give them that break has long passed.

MTP readers will remember this issue came up with IRFA in 2012.  As we noted then, SiriusXM’s then-CEO Mel Karmazin told CNBC’s Jim Cramer in an interview about the merger of Sirius and XM Radio, both of which got the same subsidy as Music Choice:

Free cash flow is what enables you to buy back your stock, make acquisitions, pay down debt. And I believe free cash flow is an important metric. Our free cash flow now, is growing– it’s extraordinary. Before the merger we had negative free cash flow of $500 million. Negative free cash flow. This year we will have $700 million of free cash flow. We haven’t given guidance for next year. Analysts have us at a billion of free cash flow and continuing to grow. So it’s a great start.

The Music Modernization Act would switch these three subsidized services onto the same royalty rate as the thousands of other services that somehow seem to get by with the unsubsidized “willing buyer/willing seller” rates.  And Music Choice is leading the charge to keep that subsidy that you’re giving them, Musak and SiriusXM.  Presumably this is because Music Choice is more sympathetic than the cash-rich goliath SiriusXM.

To the point—Music Choice is evidently sending out an email to some artists (possibly through intermediaries like distributors) to lobby the Senate Judiciary Committee to preserve the Music Choice subsidy.  Why?  The Music Choice letter they want you to sign tells you:

Many of us have had our careers explode because of the exposure we got first on Music Choice which is critically important to the artist community.

Really.  That’s news to me.

And then there’s this:

Being played on just one Music Choice channel is like being played on every radio station in the country serving a particular music format.

No it’s actually nothing like that.

And here’s my personal favorite:

None of the streaming services provide anywhere near the level of promotion and support that we have received from Music Choice.

Exposure bucks, baby.  It’s so 1999–back to the future with Music Choice.  Where’s that flux capacitor when you need it?

Exposure Bucks

Preserving Music Choice’s subsidy would be a material change in the bill that might be enough to derail the coalition that backed it in the House and that was clearly influential on the Senate Judiciary Committee in the recent hearing.  Remember–the Senate version of the Music Modernization Act has to pass the Senate before it becomes law.  It also has to pass in essentially the same form as the House version which already passed the House unanimously.  Continuing the subsidy to these three services is a material change to the bill that could cause the whole bill to fail.  

Which, of course, would be just fine with Music Choice, SiriusXM and Musak because that would also preserve their subsidy.

So heads up–they’re running the old IRFA play all over again.  Don’t get duped.

But don’t let that stop you from supporting the Kickstarter campaign to buy a DeLorean DMC-12 for Music Choice so they can get back to the future in the style to which they have become accustomed.

@musictechsolve: How to Fix The Music Modernization Act’s Flawed “Audit” Clause — Music Tech Solutions

By Chris Castle (crosspost from MusicTech.Solutions)

Доверяй, но проверяй

The famous old Russian proverb reminds us to trust but verify.  That’s been the story in the record business since the cylindrical disc.   All the “modernization” in the world will not soothe songwriter’s genetic suspicion of their accounting statements.

The collective to be established by the Music Modernization Act (“MMA”) undertakes the obligation to handle other people’s money.  It quickly follows that those whose money the collective handles need to be able to verify their royalty payments from time to time.  This has been an absolutely standard part of every royalty-based agreement in the music business for a good 50 years if not longer.

But like every aspect of the MMA, one has to always remember that while all songwriters may be equal, some songwriters are more equal than others.  The MMA creates a two tier system–those who opt out of the compulsory blanket license by the mutual agreement of a rights owner and a digital service in the form of a voluntary agreement and those who do not.  Those who do not have this opt-out right appear to receive payment directly from the collective instead of directly from the service–adding another set of hands and transaction costs.  (It must be said that this group receiving payment under the compulsory blanket license will presumably also include those who currently have a voluntary license with digital services that is not renewed it in future.)

The collective undertakes the responsibility of accounting should anticipate concerns of songwriters regarding verifying the accuracy of the statements and payments it renders.  However, the MMA provides no supervisory oversight and in my view has a rather punitive black box clause that allows “unmatched” royalties to be paid on a market share basis to publishers, and then on to their lucky songwriters pro rata.  This suggests that everyone who is in that lucky songwriter’s chain, like managers, business managers and lawyers working on a percentage basis may also get a share of these black box distributions in compensation.

So on the face of it, the MMA creates a relatively large category of people who have an economic interest in the black box.  You can be cynical and think that they have an interest in the black box being as large as possible (meaning the accounting controls are as weak as possible), or you can agree with five-time Grammy winner Maria Schneider that if the “lucky” songwriters actually knew that they were being paid with money that belonged to the “unlucky” songwriters, they would be angry about that unfairness.  Emphasis on the “actually knew”.

Or you could say, let’s not go either direction–let’s set up transparency and controls so that the incentives are properly aligned to create the smallest black box possible.  No publisher needs the writer-relations headache of suspicious minds, and the collective should do what it can to be above reproach.  Here are a couple solutions to increase the trust level:  Add oversight of the collective by the Office of the Inspector General (as a quasi-governmental organand at least  designated by the Copyright Office and operating under the control of the Copyright Office, and also tighten up the audit clauses in the MMA to treat songwriters auditing the collective the same as the collective is treated by the digital services.

The Inspector General

One way to make sure that the collective–a quasi governmental organization in my view–is run honestly is to make it subject to oversight review by one of the U.S. Government’s many Inspectors General.  Rick Carnes of the Songwriters Guild of America suggested this to Rep. Doug Collins at the University of Georgia Artist Rights Symposium in a question from the floor.

For example, the Library of Congress (currently where the Copyright Office is housed) has an Inspector General.  Since the Copyright Office has a lot to do with the creation and periodic review of the collective, they could save themselves a bunch of Freedom of Information Act requests from angry songwriters by having an Inspector General  review the collective annually (or better yet, in real time).

My understanding is that giving an IG jurisdiction over the collective will require some enabling legislation, but I think it’s something well worth looking into.  It would give the songwriters of the world a true-blue fiduciary to represent their interests as well as comfort that they had a line of appeal with some teeth short of expensive litigation.

Audits

The Inspector General is not in the current draft of the MMA, but audits are–both audits of the collective by songwriters and audits by the collective of digital music services.  We’ll focus on audits of the collective in this post.  It should be said that under the current compulsory license now in effect (i.e., pre-MMA), songwriters get no audit right, so the fact that there is an audit right at all is an incremental improvement.

Unfortunately, the MMA’s audit right still keeps songwriters away from auditing the right party–the digital services–and keeps that upstream data away from them.  Plus, all audits under MMA appear to be subject to confidential treatment.  I don’t think there’s a good reason to keep these secret.  If a smart auditor finds a flaw in the collective’s accounting systems, that flaw should be disclosed and there should be an automatic true up of everyone affected.

But first, let’s realize what an “audit” actually is.  It is a term of art in the music business and really means a “royalty compliance examination” which is solely focused on making sure that statements and payments rendered conform to the contract concerned, or in this case, the statutory requirements of the compulsory blanket license.

(It also must be said that as Maria notes, the MMA specifically exempts the collective from any responsibility for incompetent royalty accounting other than “gross negligence”, which usually means blatant indifference to a legal duty or something along those lines–assuming the collective’s board or employees actually have a legal duty to account correctly which it may not.)

The person conducting a royalty audit is typically not a certified public accountant as there is nothing about conducting this examination that requires a knowledge of Generally Accepted Accounting Principles (“GAAP”), financial accounting, or Sarbannes Oxley compliance.  It is, in fact, quite rare for a royalty audit to be conducted by a CPA, and I’ve even had lawyers conduct an audit because the analysis involved is mostly that of contractual, or statutory, interpretation.  Analysis of music industry-specific contracts is typically not part of the training of CPAs.  So even if an auditor is a CPA, the skills needed to conduct the audit are typically learned through on the job training.

What is very common, however, is for someone on the receiving end of the audit to try to require the auditor be a CPA, arguably to increase the cost of the audit on the person owed money.  CPAs often bill at higher rates than do royalty auditors, which creates a disincentive for audits.  What is also common is for lawyers to think that every time they draft a clause about anyone conducting anything having to do with accounting, that they need to limit the person doing that examination to a CPA, because…well, because…  This is what I call stupid lawyer tricks, and the CPA requirement is something that is routinely negotiated away in record deals and publishing deals if you have an ounce of leverage.

Here’s the preamble of the MMA’s audit clause for audits of the collective:’

A copyright owner entitled to receive payments of royalties for covered activities from the mechanical licensing collective may, individually or with other copyright owners, conduct an audit of the mechanical licensing collective to verify the accuracy of royalty payments and distributions by the mechanical licensing collective to such copyright owner

Remember–copyright owners under the compulsory are not allowed to audit the service, although the collective may audit the service.  (And, of course, voluntary agreements are governed by their terms regarding audits and are not subject to the compulsory.)

Limiting the audit right to “copyright owners entitled to receive payments” means that if songwriters have an administration or co-publishing agreement, they will probably not be able to conduct an audit of the collective (even if their administrator or co-publisher is a board member of the collective).  Because the audit is limited to “verifying the accuracy” of prior payments, the audit of the collective will not be able to look “upstream” to the service making the payment and may not be able to look at payments made to the collective, just the payments by the collective.

The audit shall be conducted by a qualified auditor, who shall perform the audit during the ordinary course of business by examining the books, records and systems of the mechanical licensing collective, as well as underlying data, according to generally accepted auditing standards and subject to applicable confidentiality requirements prescribed by the Register of Copyrights…

Sounds good, right?  A “qualified auditor” is a defined term, however:

QUALIFIED AUDITOR.—The term ‘qualified auditor’ means an independent, certified public accountant with experience performing music royalty audits.

Again, I don’t think that the auditor needs to be both a CPA and have experience.  Experience is enough.  For example, if the auditor has performed audits for members of the collective’s board of directors, perhaps that would be enough.

The qualified auditor shall determine the accuracy of royalty payments, including whether an underpayment or overpayment of royalties was made by the mechanical licensing collective to the auditing copyright owner(s); provided, however, that before providing a final audit report to such copyright owner(s), the qualified auditor shall provide a tentative draft of the report to the mechanical licensing collective and allow the mechanical licensing collective a reasonable opportunity to respond to the findings, including by clarifying issues and correcting factual errors.

This clause is a problem.  First, the auditor is hired–and has a professional duty–to find underpayments of royalties.  That’s what they look for.  The auditor does not have a duty to do the collective’s work for it and find overpayments.  The auditor is not hired to find overpayments, they are hired to find underpayments.

The collective should hire its own accountants to review its royalty statements, and it surely will do so if it gets an audit notice.  Otherwise the US Government is placing a heavy burden on the auditor and the copyright owners to look for overpayments as though the auditor played the role of a public financial accounting firm looking for accuracy on behalf of stockholders.

Plus, the requirement to force that auditor to give the collective the audit report before giving it to the people who hired that auditor is a bit much.  Fair enough to meet and confer at the work paper stage to make sure there weren’t inaccuracies in the analysis, but that should not place any prohibition on whether the auditor’s own client can see the report first.

If this is really the role that the Government wants the auditor to play, then by all means let’s make any miscalculations by the collective available to the public and publish them in the Federal Register.  Let’s not have the auditor’s findings subject to any confidential treatment.  If that brings down a host of other audits or a need to restate millions of royalty payments, then so be it.  Because we are not just looking for underpayments we are searching for the truth, right?

I don’t think so.  And the next part of the audit clause shows why:

The auditing copyright owner(s) shall bear the cost of the audit. In case of an underpayment to the copyright owner(s), the mechanical licensing collective shall pay the amounts of any such underpayment to the auditing copyright owner(s), as appropriate. In case of an overpayment by the mechanical licensing collective, the mechanical licensing collective may debit the accounts of the auditing copyright owner(s) for such overpaid amounts, or such owner(s) shall refund overpaid amounts to the mechanical licensing collective, as appropriate.

Like so many other parts of the MMA, this is essentially an “ad terrorem” clause, or a right coupled with a penalty if it is exercised.  What I think this means is that regardless of how much the underpayment might be–including both a material and nonmaterial amount–the songwriter bears 100% of the cost of the audit.  The songwriter’s auditor has to look for overpayments (and bill their client for that extra review), and if the auditor finds any, the auditor has to report the overpayment.  The songwriter then not only has to repay that amount (whatever “as appropriate” means), but also pay for the expense of finding it.

Compare this to the rights of the collective when auditing a digital music service:

The mechanical licensing collective shall pay the cost of the audit, unless the qualified auditor determines that there was an underpayment by the digital music provider of 10 percent or more, in which case the digital music provider shall bear the reasonable costs of the audit, in addition to paying the amount of any underpayment to the mechanical licensing collective. In case of an overpayment by the digital music provider, the mechanical licensing collective shall provide a credit to the digital music provider.

So what’s good for the goose is not good for the gander.  When the collective is auditing upstream, the collective gets the benefit of that standard underpayment penalty.  That means that the service has to pay for the cost of the audit if the underpayment exceeds a fixed percentage, in this case 10%.  If there is an overpayment, the collective never has to repay the overpayment, just credit the account with an offsetting amount.

There should be no obligation on the part of the songwriter to have to find overpayments and if an overpayment is found in the normal course, it should simply be credited (which is the effect of the collective’s audit clause on songwriters downstream).

Songwriters should get the same underpayment protection on audit costs that the collective enjoys.

Appointing an Inspector General and cleaning up the audit clause would certainly make the MMA more fair for songwriters than it currently is.

Guest Post: Revelations from SX Works NOI Lookup

by Chris Castle

You’ve probably heard about the “mass NOI” problem resulting from the Copyright Office allowing Big Tech to profit from a loophole in the Copyright Act.  The loophole permits digital music services to get away with what would otherwise be both infringement and nonpayment of royalties under yet another safe harbor, this time from 1976.

Remember that under U.S. law, unless the service has a direct license with the copyright owner, a digital service can rely on the government’s compulsory license by sending a “notice of intention” (or “NOI”) to the copyright owner.  One could argue that those are mutually exclusive end states, so keep that in mind.  As anyone who has done song research knows, there are a number of reliable places to look for a song copyright owner, starting with the performing rights societies like ASCAP and BMI that provide a free lookup service on their websites.

But…you can’t find what you don’t look for.  Enter the loophole.  The Copyright Act says that if you can’t find contact information for the song copyright owner in the Copyright Office’s public records, then you can send your NOI to the Copyright Office instead of to the copyright owner.  Then you are deemed to have a compulsory license after that service date.  The problems is that while the government might have thought in 1976 when the section was enacted that they had to tie up that loose end by referencing the Copyright Office, they probably did not realize that they were also requiring a look up in what was to become arguably the least reliable source of song information.  Not to mention that updating the Copyright Office records is done at a waddling pace.

Oh and one more thing–if the service sends the address unknown notice to the Copyright Office, they don’t have to pay royalties until the copyright owner becomes identifiable in the public records of the Copyright Office, which may be never.  (I have an article in the American Bar Association Entertainment & Sports Lawyer periodical on this for those who want more information.)

The way the loophole works is that if a song has not been registered in the Copyright Office (which is not required) then the service can say that the address of the copyright owner is “unknown,” even if the service has actual knowledge of the copyright owner’s contact.  See the loophole?  Even if they know who you are and how to reach you, they can say they don’t know if you haven’t registered your copyright–which you are not required to do unless you’re planning on suing.  In addition to actual knowledge, there’s also the argument that a reasonable person could have found the song copyright owner if, for example, that song is in the Billboard Hot 100’s Top 5.

If you’ve ever tried to register a copyright, you know how long the Copyright Office can take to get you a conformed copy of your registration–months.  Why?  Because they appropriately give your registration the once over to make sure that you filled it out correctly and giving that attention takes time.  Anywhere from six to ten months in fact.

Copyright Registration Processing

The large print giveth and the small print taketh away….

Unfortunately, the Copyright Office does not give the same degree of attention to address unknown filings.  In fact, as far as I can tell, they give no attention at all to address unknown filings.

Historically, there were a handful of these “address unknown” filings.  But all of a sudden after independent songwriters and publishers started suing Spotify, millions of “address unknown” filing started appearing at the Copyright Office in April 2016.  There are now over 60,000,000 of these notices on file that have been posted.  That means that there are 60,000,000 free licenses in effect.

When the Copyright Office started getting these filings, they began posting them in huge compressed files.  So if Amazon filed an address unknown NOI, it would appear to be one or a few NOIs, but each one of those NOIs had an Excel spreadsheet attached that had tens of thousands of songs on it in most cases.

NOI June v 1 TALA-2

Given that the Copyright Office chose to post the NOIs in this manner, it was essentially impossible for a songwriter or even most music publishers to search all of the NOIs to see if their songs were included or included incorrectly.  This creates an obvious and forseeable problem for anyone wanting to check if their songs were incorrectly included in a mass NOI.

Since the Copyright Office wasn’t checking and since they made it virtually impossible for anyone else to check, it is likely that there are many incorrectly filed “address unknown” NOIs, which means that there are likely an equally massive number of infringements as those compulsory licenses would be invalid.  Of course, services would argue that if their compulsory license fails, they have an implied license since they notified song copyright owners of their usage through the address unknown NOI at the Copyright Office and nobody caught them.  Notwithstanding the fact that the Copyright Office chose the least transparent way to make the information available to the public.  So is the address unknown NOI good notice to the world if the world can read it?

How bad is this?  If there is even a 1% error rate, that is 60,000 songs.  Seems like a lot to me, and I would bet that the error rate is a lot higher than 1%–courtesy of the U.S. government.

Remember this started in April 2016.  No one has lifted a finger to fix it since then, but the Music Modernization Act has a new safe harbor that sweeps all these NOIs into the new blanket license without anyone ever checking to see if they were filed correctly.  Given the other safe harbor–I know, the MMA has so many safe harbors for Big Tech that it’s hard to keep them straight–that protects infringers from suits for statutory damages filed after January 1, 2018, it is unlikely that anyone will ever pay the piper for this massive and industry wide screw up.  A good reason for all mass NOI filings to be excluded from the MMA’s litigation safe harbor.

Or in the words of Judge Patel, “You created this monster, you fix it.”

A good place to start fixing it is by indexing all of the Copyright Office mass NOI filings and making that searchable database available to the public.  There are a number of companies that indexed the address unknown filings but SoundExchange recently launched theirs.  The SX Works NOI Lookup is free to use and very fast. Here’s a video describing the service.

I tried running a few queries on it to see what showed up using the top five songs from the Billboard “Hot 100” singles chart starting January 1, 2018, a date that will live in infamy.

Here’s what I found.  First, we have “God’s Plan” by Drake.  Remember, if the song is in the NOI lookup, the service is claiming they can’t find the song owner.

Gods Plan Drake SX Lookup

Notice that Spotify has four separate NOIs filed for “God’s Plan” and each one lists that song’s writers.  Notice that Google and Amazon list the writers as “unknown”.  Here’s a little speculation–the reason that both Google and Amazon list the writers as “unknown” is probably because they each got the same new release feed on the record side and did not take advantage of the songwriter information provided by the label.  Or they did no matching work–notwithstanding that Google owns Content ID which very likely has all of the song ownership information already inputted for them.

Spotify on the other hand does have the songwriter information, so either they were given it by the label and passed it through or they got it from another source.  It seems unlikely that they had all the songwriter information and none of the publisher information.  It must be said that the labels are under no obligation to provide any publishing information much less clear the rights.  This is the deal Spotify (and all the other services) made–repeatedly.  So the labels can’t be blamed for the lack of songwriter or song owner information.

Here’s the NOI look up for Ed Sheeran’s “Perfect”:

Perfect Ed Sheeran SX Lookup

Again, Spotify tends to have the writer information and Google and Amazon rely on “unknown” for a top 5 record (that also went #1).  But it’s “address unknown” for all of their NOIs.

You may be wondering how it is that these writers aren’t getting paid for huge numbers of streams.  I wondered that, too.  But–remember that there are two ways for services to license songs: voluntary direct licenses and compulsory.  Here’s some speculation:  the top songs are written by songwriters who very likely have publishing deals with major publishers and major publishers very likely have direct deals with Spotify, Google, Amazon, etc.  So these services don’t need to send “address unknown” NOIs in order to get a compulsory license.  They already have a voluntary direct license and they probably paid a pretty penny to get it.

And notice–Apple is nowhere to be seen in these mass NOI filings.

How about Bruno Mars’ “Finesse”.  Yep, address unknown:

Bruno Mars Finesse SX Lookup

This is getting to be a pattern, right?  “Finesse” has been a top 5 single for weeks.  How could they not know who to license from?  At least Google lists “Bruno Mars” as the writer–good guess for the biggest search company in the known universe.  Think they looked it up in Content ID?  And as we saw before, Spotify lists all the writers.  But no copyright owners, I guess.

So why would these Big Tech companies want to have both a compulsory license and a voluntary license?  Maybe so they will be covered with a royalty free license if the voluntary license should expire for some reason?

Is it really correct for services to be able to burden the Copyright Office with these mass filings for songs that are already subject to a voluntary license?  Which gives them actual knowledge of the song copyright owner?

Here’s “Rockstar” by Post Malone.  Apparently, the biggest corporations in the world have no idea who owns the song.

Rockstar Post Malone

No idea who owns “No Limit” by G-Eazy either, although both Google and Spotify know the writers.

No Limit G-Eazy

Or Lil Pump’s “Gucci Gang”….

Gucci Gang Lil Pump SX Works

Or Camila Cabella’s “Havana”….

Havana SX Lookup

although it’s quite easy to find in ASCAP’s database….

Havana ASCAP

And no joy on Imagine Dragons, either:

Thunder Imagine Dragons

Or Halsey’s “Bad at Love”

Bad At Love Halsey SX Works

So let’s get this straight.  None of Google, Amazon, Spotify, or iHeart could find any of the copyright owners of any of the songs in the Top 5 for the last 7 weeks.  Or are they sending “address unknown” NOIs as a matter of policy for all songs recorded in the tracks delivered to them by labels including songs already available to them under a voluntary license?  Which is more likely?

In the latter case, this gives them a back up compulsory license that will continue if their voluntary license should ever expire.  Or if they allow it to expire.

Are they really relying on these fake compulsory licenses and not paying royalties or accounting on songs licensed under a voluntary license?  Seems hard to believe?  This shortfall might be a bit hard to catch, although if you have a writer in the top 5 it does seem like something you should know and act on if you’re getting stiffed.

Or are the services paying under the voluntary licenses and just stiffing every songwriter who is outside of a voluntary license?  And are they doing so retroactively for songs delivered prior to April 2016?

Now that the SX Works NOI look up is available, it really brings home the absurdity of the mass NOIs.  Not to mention the absurdity of the fact that no one in Congress does anything to stop it and that Big Tech has bootstrapped this absurdity into the Music Modernization Act.

 

@KRSfow: Future of What Podcast on the Transparency in Music Licensing and Ownership Act

 

Episode #94: Recently, a bill was introduced by Republican congressman Jim Sensenbrenner which calls for the creation of a comprehensive database of compositions and recordings. The “Transparency in Music Licensing and Ownership Act” claims to make things easier for coffee shops, bars and restaurants who want to license music to play in their establishments. To many in the music industry, the bill seems like a wolf in sheep’s clothing with the potential cause big problems. On this episode we dig deep into the bill with Future of Music Coalition’s Kevin Erickson and attorney Chris Castle.

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A Benefit for Hurricane Harvey Victims w/ Guy Forsyth & Friends (Aug. 31, Antone’s 9:30 pm)

This Thursday, 8/31/17 Legendary Blues Club Antone’s (305 East 5th Street, Austin) will host “A Benefit for Hurricane Harvey Victims with Guy Forsyth, Carolyn Wonderland & Friends” starting at 9:30.

Acting quickly, locally based but world traveling Austin music icon Guy Forsyth has donated his already booked show to the Red Cross to help raise money for the unprecedented disaster still unfolding on the Gulf coast.

“This is heartbreaking, and the only way to deal with something of this scale is find a way to help.” said Forsyth this morning. “So this is what we do, Texans take care of their own. Carolyn Wonderland was the first person I asked and she said yes in seconds.”

Carolyn Wonderland is known internationally for her soul saving voice and down right damning guitar playing. Other guests are expected…

Tickets on Ticketfly

To help people affected by , please visit or text the word HARVEY to 90999 to make a $10 donation.

 

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