Guest Post: “Spotify Untold (“Spotify Inifrån”) the Corporate Bio Book is a View Into Daniel Ek’s State of Mind

By Chris Castle

Ever heard the expression, “you’re making my argument?”

You may have seen the book reviews of “Spotify Untold” (or in Swedish “Spotify Inifrån”). The book is currently only available in Swedish and has not been released in the US, but in a new marketing twist the authors are on a book tour in the US promoting their book in Swedish to an English language audience.  Must be nice.

The writers not only seemed to have missed the streaming gentrification part, which is of great consequence to artists, songwriters, and especially MP/TV composers–but those groups are pretty clearly not the authors’ audience.  They are also peddling a ghoulish yarn about Steve Jobs that gives far more insight into Daniel Ek’s midnight of the soul than anything else.  A simple fact check should have made one inquire further in my view.

If their interview with Variety is any indicator, the story line of “Spotify Untold” revolves around (1) music is a commodity (with no discussion of Spotify’s role in the commoditization of what is now openly called “streaming friendly music” not unlike “radio friendly” music–both equally loathed by artists whose name does not begin with “Justin”; and (2) Daniel Ek is a heroic genius (despite the resemblance to Damian in his teen pictures they are also handing out–he thankfully shaves his head).

But most importantly (3) Ek was pursued by Steve Jobs, the evil giant whose company he just happens to have filed a competition complaint against who was aided by the equally evil Sony and Universal as they were all in on it to keep our hero from entering the fabled land of Wall Street.  Yes, a yarn straight out of Norse mythology as retold by Freud; perhaps a little too much so.

But the book may also be a corporatized version of Joseph Campbell’s hero’s journey from The Hero With A Thousand Faces aka Star Wars).  You can plug Daniel Ek into the hero’s role pretty easily:
campbell heros journey

As reported in Variety:

Barely a page into the book “Spotify Untold,” Swedish authors Jonas Leijonhufvud…and Sven Carlsson paint an odd scene. The year is 2010 and Spotify co-founder and CEO Daniel Ek [the hero] is facing a succession of obstacles [the Threshold Guardians] gaining entry into the U.S. market [the region of supernatural wonder] — or, more specifically, infiltrating the tightly-networked and often nepotistic to a fault music industry. [Unwelcoming of the stranger from Asgard, so unlike Silicon Valley.]  As stress sets in [Challenges and Temptations], Ek becomes convinced that Apple’s Steve Jobs is calling his phone just to breathe deeply on the other end of the line, he purportedly confesses to a colleague[a Helper].

There’s a saying, “don’t speak ill of the dead.”  That’s probably a bit superstitious for the authors, but is good advice.  It’s unbecoming and Spotify should denounce it, although it’s highly unlikely that they will given their fatal attraction to PR disasters.

There’s also a saying, “don’t mock the afflicted,” so before you laugh hysterically at the story, realize that Steve Jobs caring enough about Daniel Ek to do such a thing (which assumes Steve knew Daniel Ek existed) was something that was very important to Daniel Ek.  Or in a word–is Daniel Ek more Loki than Thor?

What is really objectively and factually odd about the authors’ 2010 Steve Jobs story about heavy breathing phone calls is that Steve got a liver transplant in 2009 and was very, very sick throughout 2010–the year they say these calls occurred.

Steve left Apple for good in August 2011 and passed in October 2011. It is implausible to me that he was even paying attention to Daniel Ek in 2010, assuming that Steve even knew or cared who Daniel Ek was. Aside from the fact that at that time Spotify was small potatoes, Steve had many more important things on his mind like staying alive. Plus, in my experience if Steve was going to leave you a testy voicemail or phone call, you knew exactly who it was. Exactly.

I for one think that the entire anecdote simply does not scan and is unsubstantiated by the authors’ own admission. Bizarre. Freudian. Not to mention a crass and thoughtless smear against a man who really did change the world. Who can’t defend himself because he is dead.

Variety reports that the authors were not able to confirm this rather insulting and perverse allegation.  But don’t let that stop anyone from publishing gossip.

What Variety does report is this statement from the authors:

To us, Ek’s claim is as a reflection of how paranoid and anxious he must have felt in 2010, when Spotify was being denied access to the U.S. market, in large part due to pressure from Apple. The major record companies seem to have been quite loyal to the iTunes Music Store, and to Jobs personally….Because Spotify was hindered by Steve Jobs [it’s called competition], it forced the company to sweeten its deals with the record companies [also called competition]….Spotify is challenging Apple on a legal level right now.We address Spotify’s constant struggle with Apple in our book. If Ek were to talk about such sensitive topics in book form, [Spotify would] do it in their own way with full control.

The first thing I thought of when reading the story of “Spotify Untold” was that very competition claim that Spotify is pursuing in Europe right now.  That claim appears to have been scripted–Spotify pursued it with the Obama competition authorities a few years ago.  And then of course there was the New York and Connecticut state competition claim that curiously came out the same time as Apple Music launched in the US, apparently manipulated by Spotify’s very own Clintonista lobbying operative who was a political ally of Eric Schneiderman the former (ahem) New York Attorney General.  (Spotify tried to drag Universal into that one, too–so this is a movie script that Spotify pulls down every so often for a polish and sometimes changes the supporting characters.)

While the authors claim that they spoke to many Spotify executives but not Ek, the book still has curious timing–as does the authors’ disclaimer that the book is not connected to Spotify directly, the plausible deniability that is the hallmark of black bag operations.

And if you believe as I do that Daniel Ek actually hates the major labels (read the Spotify DPO filing and you’ll get the idea), it’s only natural that he would try to twist Sony and Universal into the story.  He just didn’t know that his major label negotiation experience was garden variety stuff and not unusual in any way.  They didn’t get stock in iTunes so they damn well would in everything that came after iTunes.  Daniel Ek was not singled out–rather, he opted in.

I would be very curious to know why the authors of “Spotify Inifrån” came away from their research thinking that the major labels were “quite loyal” to iTunes and to Steve Jobs.  While that may have been true of certain executives, the reason that the labels required licensees to sell in Windows Media DRM (i.e., the format nobody wanted) was because they wanted to encourage competition with iTunes.

The labels eventually ended that failed policy after Steve called them out and suggested that they drop the DRM part (about which I strongly agreed in one of the first posts on MusicTechPolicy in 2006).  Even after the labels dropped that failed idea, record companies large and small did not want a single digital retailer dominating the online market.  So the idea that they colluded with Steve Jobs and Apple to make life difficult for a poor little hacker boy from Sweden is so inconsistent with reality to be laughable.

In fact, one could argue that were it not for Steve asking for more competition with iTunes Music Store (and in fairness, sell more iPods and later iPhones), there may never have been a Spotify at all.  What that does not include is the accelerating failing belief in one of Spotify’s major selling point–the free service converts users from piracy to a paid service.  That didn’t happen at anything like the rates that Spotify sold,  nobody believes it anymore and it was unbelievable in the first place. But exactly what you’d expect a hacker to say.

And here’s some other research that got left out:  Spotify’s psychographic data profiling is largely based on the work of Dr. Michael Kosinski, whose work also inspired the techniques of Cambridge Analytica and the Internet Research Agency.  See Kosinski et al, The Song Is You: Preferences for Musical Attribute Dimensions Reflect Personality (2016).  More on this influence another time.

So why would these authors be slinging this unlikely brew?  It’s possible that the book is an answer to “Spotify Teardown,” funded by a grant and published (in English) earlier in 2019 with a much less mythological and much more recognizable approach to a Spotify reality according to an NPR review:

[“Spotify Teardown”] argues that Spotify isn’t a media company per se – and…asserts that it’s structurally much closer to a Facebook or Google, particularly in its digital business model.  Indeed, Spotify was never really so much a music company as an Internet brand. “Spotify’s business model never benefited all musicians in the same manner but rather appeared — and still appears — highly skewed toward major stars and record labels, establishing a winner-takes-all market familiar from the traditional media industries.”

You won’t find that in a corporate bio.  That sounds like the streaming gentrification reality and definitely wasn’t written by anyone named Justin.  So while I don’t know what motivated the “Spotify Inifrån” authors, I do think that there’s a definite whiff of Astroturf in a book that tells a story that fits almost perfectly with the hero’s journey that Spotify would like to be telling competition authorities.  I think the authors are aware of this, hence their disclaimers.

And I’m still waiting for the last leg of Daniel Ek’s hero’s arc, the transformation and atonement.  Which is the part that makes the hero a hero.  As the authors tell us, “[Spotify] would probably rather tell their story themselves than have us do it for them, but I think they understand our role as journalists.”

I just bet they do.

But look–credit where credit’s due.  Ek used the music to make himself rich and he changed the economics of the music industry to keep making himself even richer.  He gets million dollar performance bonuses when he doesn’t meet his performance targets.  There are a growing number of niche and cultural artists who hate him. He’s also changed the way that fans interact with music online through the use of personality traits and data profiling instead of genre or artist based selection.  And he invented “streaming friendly music” to the great joy of elevator operators everywhere.

For all his idiosyncrasies, Steve is largely revered and recognized as someone who really did change the world. Or as Daniel Ek tweeted when Jobs passed in 2011–after supposedly being harassed by Steve:

“Thank you Steve. You were a true inspiration in so many parts of my life, both personal and professional. My hat off to our time’s Da Vinci.”

Exactly.  That Danny is a complex little man.

Remember those Mac/PC ads?  You could just as easily run the same ad campaign for Spotify/Apple Music with only a few tweaks.   And when it comes to marketing, what should be keeping Ek up at night is not devising sick stories he can tell about Steve Jobs but rather very justified fear of what will happen when Apple turns its marketing team loose on Spotify.  He ain’t seen nothing yet.

If you think this is paranoid, watch this video from the distinguished journalist Sharyl Attkisson.  Let’s just say I don’t put anything past these guys.

 

Attorney Chris Castle Talks About What is Happening at Pledgemusic on the Music Biz Weekly Podcast and Reading List

What are the chances that PledgeMusic will just disappear into the night, never file bankruptcy/administration, never pay back the artists, fans and vendors and never disclose how much money they owe the artists?  The less they talk about Pledge’s misdeeds, the more likely that Pledge is simply never pursued by anyone and the statute of limitations will run.

What PledgeMusic should do is voluntarily publish their financials and bank statements from the beginning until today so that all the artists and consumers can tell what what in the world was going on and be able to compare it to what they were told by Pledge and who was on the board when the problems first arrived.  It would also be nice if they published all their board minutes (assuming they have any).

If that seems aggressive–understand this:  The longer Pledge is allowed to delay (and they’ve managed to delay for nearly a year) the more likely it is that they will say the books were “lost” and no one will ever know.

No government is looking into what happened as far as we know, and nobody else can afford to pursue them.  We agree with UK Music that called for a government investigation into the apparent shenanigans at Pledge as Billboard reported:

Following the news that PledgeMusic had declared bankruptcy, Michael Dugher, ceo of umbrella organization UK Music, demanded a government investigation into the troubled UK-based crowdfunding platform.

On Thursday (May 9), Dugher wrote a letter to small business and consumer minister Kelly Tolhurst, imploring her to look into PledgeMusic’s “speculated collapse” as the company heads into administration, and refer the case to the UK’s Competition and Markets Authority (CMA). “As a consequence, creators who used PledgeMusic’s services are likely to lose money if it goes into administration without resolving its outstanding debts,” he writes.

“Emerging musicians often rely on crowdfunding platforms to raise capital to support album recording costs, music video costs and other capital expenditures,” he adds. “Musicians should be able to trust crowdfunding platforms to fulfill their obligation of delivering money pledged by fans and supporters.”

UK Music Letter

 

Pledge Music Reading List:

Guest Post by Iain Baker of @jesusjonesband on the PledgeMusic Situation (MusicTechPolicy)

Guest Post by Iain Baker of @jesusjonesband: An update on the PledgeMusic Debacle (MusicTechPolicy)

Guest Post by Hattie Webb: The day I broke into the PledgeMusic office (@hrdwebb) (MusicTechPolicy)

Crowdfunding Site PledgeMusic Was an Antidote to Music Biz Middlemen—Until It Cheated Artists Out of Millions (Pitchfork)

PledgeMusic’s Failed Promise Leaves Artists in Limbo and the Future of Music Crowdfunding in Jeopardy (Billboard)

Paste Media Group Acquires NoiseTrade From Embattled Crowdfunding Platform PledgeMusic (Billboard)

Where Was the Board? Some Thoughts on Potential Legal Issues in Pledge Music “Administration” Bankruptcy (MusicTechPolicy)

Another Loose End: PledgeMusic’s Non Profit Messaging But For Profit Motive (ArtistRightsWatch)

 

Guest Post by @poedavid: “Dance Like Nobody’s Paying?” Spotify isn’t

by David Poe

Spotify’s disastrous “dance like nobody’s paying” ad campaign has now been demolished in the national press, garnering negative coverage in Newsweek, Billboard, NME, Hypebot, and more. Sometimes big corporations slip up and show us what they really think of us, and this was one of those times.

6a00d83451b36c69e20240a4bb7b77200b-450wi

But what’s Spotify’s plan?  Here, Variety’s Patrick McGuire suggests Spotify’s intent is to divide listeners and musicmakers:

Similar to the way many people bite into a cheeseburger with no consideration for the cow and farm of its origin, campaigns like Spotify’s widens the growing divide between listeners and creators. Audiences intellectually understand that music doesn’t magically materialize out of nothingness for the exclusive purpose of entertaining them, but as music continues its irreversible transition to all things digital, listeners are becoming less aware and interested in how artists create, record, produce, and share music. With a 2017 Nielsen Music report showing that, on average, Americans now spend over 32 hours a week listening to music, it’s clear that music is hugely important in the lives of listeners — just not in ways that provide meaningful visibility and support to musicians.

Ever heard that song “Put another nickel in / In the Nickelodeon”? It’s from 1950 (written by Stephen Weiss & Bernie Baum.)

Everyone loves streaming. But more than half a century later, most streaming services contend that a song isn’t worth a penny. I respectfully disagree.

Because a song isn’t really a song until someone listens to it, no  musicmaker should be faulted for utilizing all available platforms. But streaming in 2019 forces music makers and fans into the middle of a moral hazard. Music enthusiasts should be able to listen to streaming music without having to compromise their scruples, or that of their favorite bands.

Despite the lack of transparency in the music industry, The Trichordist has managed to cobble together an annual Streaming Price Bible.  It is the most credible summary I’ve found on what each streaming service pays, which may impact where Spotify listeners choose to put their dough-re-mi:

2018_streamingbible

How Bad Is it for Music Makers?

You can easily see from the chart what each service pays for recordings.  At about $0.003 per stream, Spotify pays little but has the greatest market share.  At about $0.0002 per stream, Google/YouTube is even worse.

Very different companies. Their commonality: free music, which has made them rich from ad revenue and data scraping, but mostly from their stock price increasing at the expense of musicmakers.

Let’s put this in context.  To earn a monthly US minimum wage, an artist on Spotify would need 380,000 streams by some estimates.

To make the same monthly salary as the average Spotify employee, a songwriter would need 288,000,000 streams.

Frozen Mechanicals

For reference, the statutory rate for a song on a CD or download is 9.1 cents — 4.1 cents more than ye olde Nickelodeon of the 1950s.

FROZEN MECHANICALS 1909-1977

You might say that’s better than the old days—but it isn’t as good as it looks, because the song rate was frozen for 68 years before it began gradually increasing … only to be frozen again in 2009, where it will stay until 2022.

FROZEN MECHANICALS 2009-2022

Clearly, streaming has all but replaced CDs and downloads, but without replacing revenue from songs to musicmakers.

Money is being made from streaming if you look at it on an industry-wide basis.  But—due to the hyper efficient market share distribution of the “big pool” revenue share accounting instead of a user-centric model (or the “ethical pool,”) individual music makers are far worse off.  More than ever, streaming revenue is not paid to music makers who don’t share in the big advances or Spotify stock.

You Can’t Compete With Free

The vast majority of Spotify users are in the “free tier”. By offering free access, Spotify artificially distorts the streaming market and disallows competition amongst streaming companies. As musicians have learned the hard way, you can’t compete with free.

Spotify likes to say it’s artist-friendly, a tool for music discovery.

Guilty of chronic copyright infringement, Spotify was founded by a former pirate.  It’s a corporate ethos built on theft.  The Music Modernization Act essentially gave Spotify a new safe harbor, but its tactics haven’t changed.

There’s additional shadiness here: allegations of gender discrimination and equal pay violation,expensive, state-subsidized offices, executive  bonuses,corporate lobbyists,a dicey DPO and of course, the “fake artist” scandal.

Spotify’s ongoing lobbying campaign against artist rights continues despite the unanimous passage of the Music Modernization Act in Congress last year (and the jury is out on the MMA and Spotify’s safe harbor).  Shocker—Spotify apparently reneged on agreements it made to accept the Copyright Royalty Board’s mandated increase in songwriter pay.  Another bonehead move that was publicly rebuked by songwriters from Spotify’s “secret geniuses” charm offensive, including Nile Rodgers and Babyface.

Spotify was joined by Amazon, Google, and Pandora in “suing songwriters” to appeal the Copyright Royalty Board’s ruling that increased the paltry streaming mechanical rate, which Spotify lawyer Christopher Sprigman argued against in court.

Apple Music does not have a free tier and yet was the only major streaming service that did not challenge the new royalty (44% more, which means 0.004 instead of 0.003, which is still bullshit.)  

This may be because Apple recognizes that music helped save its ass from financial ruin 20 years ago. Math is not my strong suit, but numbers indicate music (via the iPod, a now-obsolete door stop) generated nearly half of Apple’s accumulated wealth not to mention introducing a new audience to Apple’s other awesome products.

Or it could just be that Apple understands creators and may actually like us.  There’s a thought.  We were early adopters—Macs have been in every recording studio and creative department for decades.   

Apple Music’s intent to increase artist pay to a penny per side is its best yet, but now long overdue.   Which is a shame, because a trillion dollar market cap company could afford to redistribute some wealth.  If Apple offered a fair alternative, most would run screaming from the competition.

The Generational Problem

There are many who are more expert than me, some quoted in this post. I’d rather be staring into space strumming guitar and writing a song than here discussing music and money.

But I’m concerned for the next generation of artists, especially the musical innovators. Here’s why:

There used to exist a sort of musical middle class. Artists in all mediums expected financial struggle but there was the possibility of making a living and even growing as an independent artist.  That might include a record deal or selling CDs at a gig in order to make it to the next town.

Songwriters could get an album cut and get by or even do well if the album sold (Jody Gerson has a great explanation of this.)  Musicians of quality could see a light at the end of the tunnel.

Streaming has “disrupted” all of that.

Light’s out.

Bands’ streaming access may—may—help build an audience that may somehow convince talent buyers to book gigs that route your tour, which is awesome. But sustaining a career is still cost-prohibitive for many.

Thus the Top 40 is full of the children of the affluent.

Not children of millionaires: Stevie. Dylan. John & Paul. Aretha.

Those of us who have been making music for awhile will remember the optimistic, 1990s-era “monetize the back end” argument: bands on the road can make up income lost to streaming by selling merch.

I tour, too. I wish the best to every band who does so.

But not every musician can travel … or got into music to sell a fuckin hat.

Another common sense rebuttal to “shut up and tour:” INCOME FROM LIVE SHOWS WAS NEVER MEANT TO REPLACE THAT OF MUSIC SALES — plus both have investment costs and overhead to produce.

Gas costs what gas costs.

Mics cost what mics cost.

Streaming doesn’t pay what music costs.

Sorry to yell. Just sick of this lie that to make up for streaming losses all recording artists, especially senior citizens, should tour forever. Or the assumption they are all rolling in dough! Tell that to the punk rock drummer, alto player, the cellist, the songwriter.

Note: It’s almost impossible to buy a new car or laptop that plays a CD. Low income streaming has effectively replaced higher income physical sales.

So if streaming is to be the primary method of music distribution — if not the only one — then pay artists fairly.  Or it really will be lights out, if not for the huge artists who regularly celebrate stupidity then for the ones whose songs you want played at your funeral.

Without musicmakers, Spotify has nothing. When Spotify says “dance like nobody’s paying,” it’s because they don’t.

Given support from listeners and lawmakers, this era of economic injustice via streaming may one day be a footnote.  Fans should not be paying for music they don’t listen to which is what has been happening and is a hallmark of streaming gentrification.

Now, listeners must demand fair pay for musicians they claim to love, whether it is higher streaming royalties or a user-centric royalty allocation—or both.

#IRespectMusic

[This post first appeared on MusicTechPolicy]

Guest Post @musictechpolicy: Another Bad Artist Relations Week for Spotify

By Chris Castle

Spotify released one of their groovy ad campaigns last week.  This time celebrating their freebie subscription campaign.

D_SMUJEW4AAwd6c

You really do have to wonder where they find the people who come up with these things.

Blake Morgan, David Lowery and David Poe all laid into Spotify with their own tweets.  Just like Lowery’s seminal “Letter to Emily” post, but much faster, social media began driving traditional media with the story.

Billboard, Newsweek, Variety and New Music Express all picked up the story in 24 hours, and many others are also picking up the story.  I did a short post that Hypebot connecting the dots from the giveaway campaigns to user-centric royalties.

But the capper was the Godwin’s Law moment when Spotify’s lawyer and NYU professor Christopher Sprigman went after both Blake and David Lowery on Twitter for reasons that are frankly lost on me.  Professor Sprigman had something of a bizarre moment when he compared Lowery to Alex Jones which culminated in this exchange (recall that Alex Jones was deplatformed):

Sprigman 1

It should not be lost on anyone that Professor Sprigman supported Professor Lessig’s losing argument in the Eldred v. Ashcroftcase and apparently was co-counsel with Lessig in another losing argument in the Kahle v. Gonzalescase.  It also must be said that David Lowery and Melissa Ferrick’s class action against Sprigman client Spotify and Lowery’s case against Rhapsody were probably among the most consequential copyright cases (along with BMG v. Cox)  in the last five years.  Some would say that the Lowery cases set the table for the Music Modernization Act (and it should come as no surprise that David was asked to serve on one of the committees).

So while Professor Sprigman may find that Lowery “isn’t important”, there is a crucial difference between Professor Sprigman’s big copyright cases and David’s.  Want to guess what it is?

Some are speculating that Sprigman is retaliating on Blake and David Lowery for their successful commentary on his client Spotify–but I’d want to see a lot more proof.  Until then, you’d have to say Charlie has a point when he says that Sprigman is kind of an academic Bob Lefsetz.

Sprigman 2

And Spotify stumbles across the finish line of another bad media week of dissing artists.  Whew. Thank God it’s Monday, right?

MLC Candidates Agree to Hold Black Box Until 2023, Copyright Office to review unmatched distribution practices — Artist Rights Watch

[Editor Charlie sez:  It appears that the pressure on the Copyright Office to supervise black box distribution practices by the conflict-ridden Mechanical Licensing Collective procedures has resulted in a commitment to hold the initial distribution until 2023.  It is unclear if this also means that the designated MLC cannot offset its startup costs against the black box.  As Ed Christman reported in Billboard on June 26, 2019 (“House Judiciary Hearing on Copyright Office Reviews Music Modernization Act, Black Box Royalty Concerns”) the Copyright Office intends to commence their best practices study after designating the MLC on July 8, which should give everyone an opportunity to weigh in on how the MLC should operate.  Commenters could include the digital services who could voluntarily disclose the efforts that they and their outside vendors had in place during the period that the black box accrued.]

 

[U.S. Register of Copyrights Karen A.] Temple repeatedly assured the committee that the MMA gives the Copyright Office responsibility to distribute the black box money appropriately, noting that in addition to the agreement not to distribute before 2023, the Copyright Office has the responsibility to review the processes that the MLC is engaging to reduce black box money.

Read the post on Billboard

 

[Here is the code section from MMA about the Copyright Office study that appears to be the basis for regulations on the MLC’s distribution of unmatched funds, a study that may be the only time in a generation that songwriters get to be heard about these unmatched payments.]

UNCLAIMED ROYALTIES STUDY AND RECOMMENDATIONS.— (1) IN GENERAL.—Not later than 2 years after the date on which the Register of Copyrights initially designates the mechanical licensing collective under section 115(d)(3)(B)(i) of title 17, United States Code, as added by subsection (a)(4), the Register, in consultation with the Comptroller General of the United States, and after soliciting and reviewing comments and relevant information from music industry participants and other interested parties, shall submit to the Committee on the Judiciary of the Senate and the Committee on the Judiciary of the House of Representatives a report that recommends best practices that the collective may implement in order to— (A) identify and locate musical work copyright owners with unclaimed accrued royalties held by the collective; (B) encourage musical work copyright owners to claim the royalties of those owners; and (C) reduce the incidence of unclaimed royalties.

 

via MLC Candidates Agree to Hold Black Box Until 2023, Copyright Office to review unmatched distribution practices — Artist Rights Watch

Guest Post: @musictechsolve: Betting on the House: Issues that House Judiciary Should Investigate Against Google–End Supervoting Shares for Publicly Traded Companies

by Chris Castle

The House Judiciary Committee announced recently that it was opening an antitrust investigation into “tech giants” including Google.  Chairman Jerry Nadler said:

[T]here is growing evidence that a handful of gatekeepers have come to capture control over key arteries of online commerce, content, and communications…Given the growing tide of concentration and consolidation across our economy, it is vital that we investigate the current state of competition in digital markets and the health of the antitrust laws.

We’re going to do a series of posts about some issues Chairman Nadler should consider in the Judiciary Committee’s review of Big Tech business practices.  These posts will cover issues that relate both to Google as well as Facebook, Spotify and some others.  Let’s start with reforming corporate governance and bring eyesight to the willfully blind.

1.   One Share, One Vote, Not Ten Votes for the Special People:  Anyone in the music business has had just about enough of government oversight from the consent decrees to rate setting to the Music Modernization Act, so I don’t recommend it as a solution in general.  But–in the absence of marketplace transparency, the government is about the only place to go to bring reforms to well-heeled corporations.  So rather than ask the government to fix specific problems on an ad hoc basis, the government would do well to ask what causes the market to fail as it clearly has with Google.  Then rip out that problem root and branch.

The first question to ask when confronted with all of Google’s overreach is where was the board?  That’s an easy question to answer in Google’s case–they were in the pockets of the insiders as you will see.  But we ask that question because corporate boards of directors are supposed to be the first line of oversight to keep companies, especially publicly traded companies, from running off of the rails.

In Google’s case, the core problem is both easy to find and (I hope) easy to fix.  It lies in the voting structure of the shareholders.  Shareholder rights and corporate charters are state law matters and don’t relate to the federal government, but–the federal government does have a say about who gets to sell shares to the public. (For those reading along at home, I’m thinking of the Securities Act of 1933 and the Securities Exchange Act of 1934 under the jurisdiction of the Securities and Exchange Commission.)

The federal government also has an interest in protecting those who purchase the shares of publicly traded corporations.  It is this nexus that gives the House Judiciary Committee clear oversight authority over the corporate structure of at least publicly traded corporations.  Once a start up decides to feed from the trough of the public’s money, they should expect to answer to their public shareholders.

While anti-coup d’etat provisions might make sense for private companies whose investors are sophisticated financiers, or newspapers seeking to retain editorial independence, once that company is publicly traded a bald discrepancy that simply mandates voting power to the insiders forever seems like it has to go.  And as we have seen with Google, the lack of corporate oversight has resulted in unbelievable arrogance and a complete failure of corporate responsibility.  And worse yet, because Google got away with it, lots of other tech companies follow essentially the same model (including Facebook, Spotify and Linkedin).

Take stock buy backs for example, such as the $1 billion stock buy back announced by Spotify.  It must also be said that stock buybacks approved by a board where insiders who benefit from the buyback have supervoting shares and control the board is a practice that reeks to high heaven.  Buybacks and dual class supervoting shares have been widely criticized including by Securities and Exchange Commission Commissioner Robert Jackson who is also a critic of supervoting shares.

So how did Google come to give control to its insiders, essentially forever?  Google’s supervoting structure started when Google was a private company as a way for the founders to preserve control and avoid venture capital investors pushing them around.

OK, fine, I understand that. But once Google went public with their IPO that made those same insiders billionaires several times over, why should the insiders keep that level of control?

You may ask how that supervoting stock works?

Google (which is really its parent company, Alphabet) trades under two ticker symbols on the  NASDAQ: GOOGL Class A and GOOG Class C.

Oops.  What happened to Class B?  Ay, there’s the rub.

Class B shares are not publicly traded and are held by insiders only.  But as you will see, they control every aspect of the company.  So how do Google’s insiders get this share structure?  There’s actually a simple answer.  Class A shares (GOOGL) get one vote per share, Class B shares get 10 votes per share and Class C shares (GOOG) get no votes.

That’s right–Class B shares cannot be purchased and their holders get 10 times the voting power of the Class A holders, often called “supervoting” shares, because their super power is…well…voting.  (When sold, Class B shares convert to Class A shares.)

The Class C shares were created as part of a 1:1 stock split that doubled the number of shares, halfed the price per share, but resulted in no change of the voting power of the Class A and C shareholders.  Class A holders got double the shares but half the voting power post-split.

When the dust settled, the Google/Alphabet voting capitalization table looked something like this:

Class A: 298 million shares and 298 million votes, or roughly 40% of the voting power with votes counting 1:1.

Class B: 47 million shares and 470 million votes, or roughly 60% of the voting power with votes counting 10:1.

What this also means is that the holders of Class B shares voting as a bloc will never–and I mean never–be outvoted at a shareholder meeting, their board of directors will never be challenged much less replaced and shareholder meetings are a one way communication event where the insiders tell the stockholders how the insiders will spend their money.

Who controls the Class B shares?  I culled out some numbers for individual holders which may not be entirely accurate, but the individual holders are who you would expect.  These numbers shift around a bit depending on whose sold what (if you want to drill down, you can check the SEC’s Form 4 filings, such as this one for Sergey Brin).  These are the people that Commissioner Jackson might call the “corporate royalty“:

Larry Page: 20 million shares (as of 2017)

Sergey Brin: 35,300 Class B shares plus 35,300 Class A shares (as of 2018)

Eric Schmidt: 1.19 million Class B shares, 40,934 Class A shares, and 10,983 Class A Google shares, plus 2.91 million Class B shares through family trusts.

Sundar Pichai: 6,317 Class A shares and no Class B shares.

The House Judiciary Committee has a chance to correct the supervoting system as bad policy and implement a long-term fix across the board for all dual-class companies that want to trade on the public exchanges.

This means that the “corporate royalty” at Google, Facebook and Spotify would be much more accountable to shareholders which would help keep the company on the rails. I think that the Judiciary Committee might find that they are pushing on an open door at the SEC, especially with Commissioner Jackson.

The essential proposal is a simple tradeoff–if you want to keep supervoting stock, sell your shares privately to sophisticated investors under a registration exemption and don’t sell shares to the general public.  But if you want to sell shares to the public, keep your corporate governance at least arguably transparent and fair by sticking to one share one vote.

[A version of this post first appeared in Chris Castle’s MusicTech.Solutions blog]

 

Guest Post by Hattie Webb: The day I broke into the PledgeMusic office (@hrdwebb) — Artist Rights Watch

via Guest Post by Hattie Webb: The day I broke into the PledgeMusic office (@hrdwebb) — Artist Rights Watch

I did something relatively gutsy and not entirely unprovoked, I broke into the offices of PledgeMusic.

On the evening of Friday 1st February 2019 I saw artists posting online that PledgeMusic was in financial trouble. A shock of adrenaline surged through me. For 20 months PledgeMusic had been stalling paying me £5.4K, the final instalment of the money I had raised on the PledgeMusic site to pay for the making and release of my first solo album ‘To The Bone’. PledgeMusic received 3.1K in commission of the total 17.3K of income of pre-orders. (The campaign commenced in December 2015.)

On Monday 4th of February, with a fire in my belly and after no response from the phone lines at PledgeMusic, I looked up their office address, took the train to central London and went for the first time to the PledgeMusic offices in Soho (a very beautiful office I might add). When I was told by reception that the office would not receive anyone, I asked where the toilets were. I then walked past the toilets, hiked up the stairs, opened the office door and plonked myself down on the communal sofa.

A PledgeMusic associate approached me and I said I would not leave until I could speak with the director.

I waited. Malcolm Dunbar was on the phone in the main boardroom, I could see him through the glass wall. There were about ten people working at their computers across the office space. The environment looked buoyant. I had a moment thinking, “maybe this crisis is not as bad as we thought?”. My hopes were short lived. Malcolm signed off on his phone call and ushered me in.

I said because no one will reply to me, I have had to come to them. I demanded they transfer payment or I would not leave the premises.

After 20 months of having faith in their explanations, after my many phone calls and zillions of emails sent since my campaign completed in June 2017, I needed to see action.

One might ask why I had not seen the red flags sooner. I’m a little ashamed to admit, it was mainly because of the calibre of the other artists that chose to work with PledgeMusic, artists I admired immensely. These artists had chosen this new creative home, leaving their previous old music business model abodes, to great success. How current it is in todays climate, that credibility can be so blinding it shrouds the real truth. I was gullible as to what the real reasons were for these extensive delays.

These are some of the many explanations I had previously received:

“at the moment finance are going through some procedural changes and they’ve got a slight backlog in payments”…”we’ve been experiencing delays due to PayPal terminating us using them as our payment provider” …”a backlog exists, and the process is manual because it’s been forced that way by the hand we’ve been dealt” …“we now work with a far inferior back up payment provider” …”it’s where we’re at and we’re doing our very best to catch up” …”the knock on effect has been more impactful than we ever imagined it would be” …”I’m very very sorry to hear you’ve still not received this payment. I did request it back when we last spoke and am trying to find out why that wasn’t paid” … “I understand this is in no way helpful to you right now, but it’s where we’re at and we’re doing our very best to catch up.” …”I’m planning another payment this week against the balance owed and we’ll get the full balance up to date in early Jan 2019.”

The list goes on.

I said, I feel like an idiot for believing it all. Not once were the real reasons mentioned.

I spoke with Malcolm for over an hour and part way through, Paul Barton joined. They said that there was no way they can pay me until new potential partners come on board as New York has stopped all accounting.

I asked to speak with New York.

Malcolm called the new financial director Jim on his mobile phone in New York (who had apparently been with Pledge for a month) and passed on the phone to me. I asked for an explanation as to why we all haven’t been paid. Jim suggested that I get a lawyer to write to PledgeMusic to ‘stake my claim’. I said, I may have been previously naive, but spending another few hundred pounds to pay a lawyer to send a letter to sit at the bottom of an ever increasing pile was not something I intended to do.

I said I have actually been an ally and champion of PledgeMusic because of what they previously stood for. Their mission statement being that “PledgeMusic is dedicated to bringing innovative artists and passionate fans closer together than anywhere else…by giving artists a platform.” I know many extraordinary artists who haven’t had support from labels, who have taken the bull by the horns and with their bare hands, created, funded and released incredible albums with the support and platform of PledgeMusic.

I told them that eventually I had to get a loan for the amount of money owed to me by PledgeMusic to pay my team, print my cds, merch and to post them all out. I said that I only hope that this can be brought to a righteous place. That we all receive our rightful payments, raised with blood sweat and tears (truly) and to restore the belief that bands and fans had in them. That the level of transparency in their communications, particularly now in a challenging time, will shape how each of them individually and as a team are seen in this industry and in the world. How important is your word and code of honourability in life? To me, it is everything.

Paul said that the reason they have stopped answering my messages is that they had run out of things to say. I said there’s always something to say, even if it is to take responsibility for their current position and reiterate their intentions. I also said that when the public statement was sent out to press on Friday, how much it would have meant to all who had signed up with them, to have received an email illuminating us about the situation, versus us randomly reading about it online. I think we deserved that level of consideration. Surely there was one person in that office that could have been allocated that essential task? Or were the artists still a thing very low on the list of importance when it came to their music business model? This certainly didn’t fit their mission statement.

Malcolm and Paul said that it has been horrendous for them too, they looked deeply disheartened that so many artists are going through this and said that they personally have received a lot of abuse. I am sorry for this, no one should have to put up with abuse, but I truly believe that with more transparency, it could have been avoided.

They told me about their plans to have new investors and pay everyone by April. I asked directly…at this point, why would anyone have faith in their company name even if they do get bailed out? They said it would be the same platform with a complete rebrand. Plus that the artist’s money would never actually go to the PledgeMusic bank account, only the commission.

But it wasn’t enough for me without an explanation. I asked them how long the financial crisis has been going on at PledgeMusic? They said over a year. I asked them why they have prime real estate in the center of Covent Garden London as their offices (next to the very elegant private members club, ‘The Hospital Club’), particularly throughout the time they’ve been in financial trouble and whilst they are avoiding paying artists? I said this is not a good use of the money! I asked if there were some offices in Croydon or Staines, out in the suburbs they could have moved to? I didn’t mean to be condescending. We as artists had not been part of the conversation with how our money was spent. They both agreed and said those decisions came from New York.

They also said that the whole finance team had been fired due to disastrous and disorganised accounting.

Shockingly, they said that many of the PledgeMusic employees had been asked to max out their personal credit cards to help the cash flow.

They said that they had been financially sunk by the USA division of the company. Wrecked by the rebranding costs and an outrageous ambitiousness to compete with Spotify. Who really knows where the money went, but the money was gone.

I asked why someone hadn’t flagged this up sooner and reigned in spending money on fluff? Was this a trailblazing music industry model or just the same scenario swaddled up in community soaked language?

For someone like me who has also been through the sometimes deeply disheartening sausage factory of being signed to a major label, someone who has been financially and emotionally rogered by both major artist management and my own personal management, I’m sorry to say, I believed it. (I say all of this knowing I have been very lucky with the chances I have been given too, believe me.)

I laid it out that if they don’t reply to emails and now that their phone line is down, how can I trust their word that they will communicate with us moving forward? I have had the wool pulled for too long. What will happen if I walk out of this office, will I ever hear back from them again? They gave me both of their private mobile phone numbers.

When I left that day, I noticed their plastic ‘PledgeMusic heart-logo placard’ on the side table in their office. As I stepped outside onto the Soho street, there was a dark shadow where it had once been positioned on the outside main wall. It was an odd feeling, as if they didn’t want it to be known they were still there in residence.

(Side note: that night, I went to see Steve Ferrone play at the 606 with Hamish Stuart, it seriously kicked butt and was a welcome and joyful distraction.)

(Second side note: In December 2018 I did receive 1.5K of the amount owed, perhaps after my increasingly pressurising emails.)

Mostly, after the initial shock, at this point I feel sad to think of all the music, of the artists and their lives that have been detrimentally affected by PledgeMusic’s actions or lack there of. I know business is not a straight line, but for many, this situation is hugely more difficult than the shabby hand I have been served. Because my release was back in 2017, I was able to honour every one of the 524 orders of my album and merchandise that friends and followers had purchased, pre-investing in my album, before this shutdown.

Not everyone has had the chance for their work to see the light of day because PledgeMusic has a claim on it. There are also many people who have made purchases directly with PledgeMusic and haven’t received any merch. Most have had no response from PledgeMusic about the return of their money.

I am eternally gratefulfor those that invested and travelled with me on the journey of creating and releasing my record and for the extraordinary team of sound engineers, artists and collaborators I worked with. I had the time of my life making it.

I do feel heavy hearted that many artists with so much to contribute to this crazy world, have had a previously effective grass roots route destroyed. The connective tissue between creating and having the support to send that out into the world is an essential part of being an artist, there is a circular nature to it. The ability and freedom to fund and create has been savagely shredded by big business greed and a continuing lack of respect for the very artists that make it possible for the business side to exist. Not a new music business model as advertised.

Since all of this has happened, a community has been forming of artists affected in the fallout. For this I am also grateful.

At the heart of the matter, the passion at the core of creativity shall never be diminished! We are immensely blessed to have the freedom to express our truth in whatever form we feel, that is ever powerful.

As my friend Francesco Mastromatteo said “We work with something we can not see and we can never possess. Sound is simply always free and has an endless value”.

On Friday, I read that the sale had fallen through and that bankruptcy was inevitable for PledgeMusic. I read ‘the sale of which would be used to pay artists’. I immediately texted Paul and Malcolm to find out how these so called ‘remaining assets’ will be divided. Is it not the righteous decision at this final stage, to communicate directly with the artists with what will happen moving forward?

I have not heard back since.

[We’re honored that Hattie gave us permission to post her account of her personal experience with PledgeMusic.  You can find Hattie at HattieWebbMusic.com and her Twitter is @hrdwebb. Reading Hattie’s account is enough to make you stand up and salute as she banishes the ennui of learned helplessness to the dustbin of history.  I recall a Leonard Cohen lyric from “Everybody Knows” that could apply to the music business as a whole, more so with each passing day:

“Everybody knows that that boat is leaking, everybody knows that the captain lied….”]

Right On Cue, YouTube CEO Unveils Google’s Lobbying Plans Against Copyright Directive Implementation–the fight is just beginning

The European Copyright Directive was a great victory for artists, right?  The Silicon Valley multinationals were sent packing, yes?

True as far as it goes, but it does not go all the way.  Now each of the 28 member states of the European Union are to adopt implementing legislation at the national level to put the Directive into legal effect and they have two years to do it.  Google calls this an opportunity to continue the meddling and interference lobbying campaign.

How do we know?  Because YouTube’s CEO told us so in a fine specimen of oligarchical collectivism.

In a post on the oxymoronic YouTube “creators blog” (aka Pravda Chrome), YouTube CEO Susan Wojcicki tells us about the only thing that she really could say after Google’s massive dezinformatsiya campaign, but yet clearly outlines Google’s next steps during that two year implementation period:

While the Directive has passed, there is still time to affect the final implementation to avoid some of the worst unintended consequences. Each E.U. member state now has two years to introduce national laws that are in line with the new rules, which means that the powerful collective voice of creators can still make a major impact.

Especially the ones Google pays.

Google really only has a limited number of messages when it comes to copyright.  Like George Orwell’s Ministry of Truth, we have Google’s own variation on WAR IS PEACE–that being COPYRIGHT IS CENSORSHIP.  Given that Google doesn’t seem to have a Plan B when it comes to interference lobbying, we can bet that what Ms. Wojcicki means is that Google is going to commence the same kind of fake petitions, bot farming and paid messaging from YouTubers that were the embarrassing (and potentially illegal) hallmarks of Google’s strategy against the Copyright Directive.  The only difference is that this time it will be against the national legislatures (such as the House of Commons in the UK or the National Assembly in France) instead of the European Parliament.

It’s not really the only difference, though.  The other difference is that we are ready for them and we know what to watch for as do the members of the 28 national parliaments.

Americans should also realize that if you thought Google’s disinformation campaign against the Copyright Directive was bad, just wait and see what happens if the Congress should take up the DMCA safe harbor.  That party is just getting started.  And the party–so to speak–is all happening in Room 101–how many fingers, Winston?

 

 

Save the Date: The Pledge Music Crowdfunding Debacle, May 22 Austin Bar Association

Music attorney Chris Castle will moderate a panel on “The Pledge Music Crowdfunding Debacle” at noon on May 22 at the Austin Bar Association, 816 Congress Avenue, Suite 700, Austin, Texas 78701.  Details to follow.  Read about the Pledge Music crisis in Billboard by Colin Stutz.

 

 

SOUTH AFRICA PETITION AGAINST THE SIGNING INTO LAW, THE CURRENT AMENDMENTS TO THE COPYRIGHT ACT No. 98 of 1978 BY HONORABLE PRESIDENT RAMAPHOSA

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More skullduggery afoot from Google, this time in South Africa–and that’s the fact.  Minister Rob Davies and the Chair of the Portfolio Committee of the National Assembly’s Department of Trade & Industry both need to be called out on exactly how this legislation came to so closely resemble Google’s marching orders on safe harbors and pirate utopias.  As we’ve seen in Europe, Google has no respect for the nation state or local creators.

Sign the petition here and stand shoulder to shoulder with artists in South Africa against Big Tech’s lobbying onslaught.