As David pointed out, Merlin’s Charles Caldas has gotten himself sideways again over Spotify.  Well he’s nothing if not consistent.  Will someone just give this guy a CBE, please?  Maybe that will calm him down.

This time Caldas is reacting to statements by Lucian Grainge and Doug Morris that they’re taking a relook at their deals with Spotify on ad supported streaming.  Sidebar: Let’s not forget something–Grainge and Morris ARE REALLY LATE TO THE PARTY on questioning the value of the ad supported model.  So the fact that it took Taylor Swift to get these guys focused is the real story.

But Caldas wades steps right into it by giving a quote to the tech press:

“Treating consumers like children and telling them that everything they’ve enjoyed about these streaming services is going to be taken away because the biggest record companies don’t like it, that’s another Napster moment,” Charles Caldas, the CEO of Merlin Network, the global licensing agency for independent music labels, tells Quartz. “The major labels screwed Napster and screwed the market by killing what was potentially the biggest opportunity the industry could imagine in getting into the digital space early. If they follow through with this, they are going to do it again”.

So here’s a fact check–Napster may have had a license from AIM labels, but Napster did not have enough licenses to launch a commercial version of the Napster platform.  It also takes two to tango, so if there was any screwing of Napster, Napster was the one that got themselves in that position, so to speak.

Despite Daniel Ek’s connection to Bit Torrent, Spotify is nothing like Napster so Caldas is really reaching to jam Spotify into that box.  Almost all the labels and a bevy of independent artists have licensed Spotify as have songwriters.  Again, nothing like Napster.  If you have a license with a music service, that deal eventually comes to an end and then you get to decide if you like the deal and want to renew.  You also get to decide if you want to renew on the same terms or different terms.  And guess what?  The service gets to decide if they want to take your renewal terms.  If they don’t, you’re done.  The service has to get along without you.

We’ve long complained of Spotify’s absurdly low royalty rates.  Here’s how it works.  The major labels–and possibly Merlin–got extra goodies that they may or may not share with their artists like equity, breakage (unrecouped advances that don’t roll over) “technology fees” and other nonrecoupable payments.  And a royalty rate that is artificially low because all those goodies are not included in the value of the royalty rate.

When independent artists or labels (presumably that are not part of Merlin) license to Spotify, we don’t get those goodies, but we get the shit royalty.  So if Caldas wants to talk about “screwing the market”, we think this little structure qualifies.  And as far as we can tell Merlin went right along with it and still is.  To Merlin’s credit, many of the Merlin member labels have adopted the “Fair Digital Deals Declaration” to promote sharing of the “goodies” with artists.  There will be a time to discuss how the majors treat the pass through of the goodies, but that time is not today.  Everyone should be very clear that is a discussion that will be had the easy way or the hard way.

But make no mistake–they’re sharing because they got the goodies in the first place.  Just like the majors.  And we’re still taking the shit royalty because of it.

Here’s the larger point.  License deals eventually expire and according to Billboard and others, it looks like Universal’s and Sony’s  Spotify licenses are coming up for renewal.

Stop picture for a second–when Daniel Ek got into a public argument with Taylor Swift in October, he had to know with 100% certainty that he was publicly dissing the most successful artist on his biggest label partner over what was sure to be the biggest selling record of the year.  All because she didn’t like his deal.  How was that supposed to help him renegotiate with Universal on terms favorable to Spotify’s stockholders?

NOT!!

What Ek should have been telling his team was that Spotify needed to be in business with Taylor Swift PERIOD.  END OF DISCUSSION.  MAKE IT HAPPEN.  SCREW THE PRECEDENT.  But no, his strong move was to insult her publicly.  He should be summarily fired for this reason alone.  Which makes you ask, who’s in charge over there?

But back to the Universal and Sony licenses that Ek knew were coming up for renewal.  Here’s the issue:  Ek sold everyone on the idea that he could convert ad supported users to subscribers.  He has tried, but if you ask us, he hasn’t tried very hard.  You may disagree, and if you do, you leave your music on Spotify.  If you don’t, you pull it down.

Or you reach some compromise in the middle.  There’s no reason for people to get in a huff over this.  It’s nothing personal, it’s just business.

Here’s the interesting part.  When we look at the calendar and the history, it’s possible and maybe even likely that the major label deals are up before the Merlin deals.  If the majors get the terms they want–and they almost surely will, one way or another–Merlin labels may find themselves suffering under the old terms for quite a while.  We can’t know that for sure, but that might be motivating the invective.

What is hopeful about the Universal and Sony position on Spotify is that they are focused on the shit royalty.  Having raised that point, it’s probably not going to get lost with some under the table payment.  And far from “screwing the market” that could have the affect of boosting the market and boosting the actual royalty rate paid to all artists.

For the first time we’re hearing the majors talk about the royalty rates and not the “industry” payments.  Spotify is fond of touting the total royalty it pays out to labels and publishers, independent artists and songwriters.  For the individual artist, that “total” is a largely unpersuasive number, practically irrelevant.  What matters to us is what we get in our stocking.  Spotify is fond of trying to push the blame for low royalty rates onto labels, but we know better because we know what the independent artists get who receive the label’s share of the ad supported service.

And guess what–it’s still shite.

If there’s any screwing of the market going on, we know where it’s really coming from.

We said it before and we’ll say it again:  Lars was first and Lars was right.  So spare us the Napster analogies, Mr. Caldas.

As David said in his post FCC Payola Lanes: Big Broadcasters ask FCC for Payola Waiver, Clear Channel and other NAB radio gigantamo chains have asked the FCC for a “waiver” on the FCC’s payola rules.  What’s interesting about this is the filing date, November 26, 2014.

What else happened on November 26?  One thing is that NPR reporter Laura Sydell posted “Pandora’s New Deal: Different Pay, Different Play“.  Laura Sydell quoted David alongside Georgetown professor Jim Burger and Pandora CEO Brian McAndrews all on the subject of whether Pandora’s “steering” deal with Merlin labels is payola and whether the FCC’s payola rules apply to Pandora.  This would be based on Pandora being the only pureplay webcaster to at least try to become an FCC licensed broadcaster.  (We’re not really sure where that application is at, but if you do, please comment with a reference.)

Was Sydell’s post the first time the payola issue has come up in the context of steering or promotion in direct deals between broadcasters and labels?  Of course not, it’s come up repeatedly.  But it was the first time that we know of that it came up in the context of Pandora and especially in the context of Pandora’s “Chris Harrison special” that they are trying to run in the current rate court as Sydell reports (and as was later confirmed in Billboard’s (admittedly skeptical) reporting about the similarities between the Pandora and DMX licensing strategies.  Harrison worked at DMX before Pandora–see DMX’s chest-beating press release trumpeting its defeat of songwriters).

Not to get too tin foil hat about it all, but it is very coincidental that an NPR reporter starts asking about payola and then the NAB quietly asks the FCC to give them a waiver.

If the FCC rules in the broadcaster’s favor, that could also apply to Pandora’s purchase of South Dakota radio station KXMZ-FM.

And maybe to Pandora itself.

At today’s Senate Antitrust Subcommittee hearing, the one unifying theme between the Google-backed Public Knowledge, the National Association of Broadcasters and Pandora is that the reason for the consent decrees is that songwriters are a special class of people who simply cannot be trusted to behave themselves.

Time and time again throughout the hearing Public Knowledge, the NAB and Pandora regaled the subcommittee with stories for just how untrustworthy songwriters and publishers are as a class.  And of course the Google-backed Public Knowledge was just frothing at a chance to bash record companies who weren’t even present.

Then we had the database scam.  Guess who wants to control that database?  They what want a compulsory license on the world’s information.

The sum and substance of the NAB, Pandora and Google side of the table is that the music industry is just filled with bad people who you have to keep an eye on because the $2 trillion collusion of the broadcast, Internet and webcasting business is just so hard done by.

A favorite moment was when Senator Al Franken called out Pandora’s Chris Harrison (aka Songwriter Enemy #1) about the usual sensationalized statements about “$150,000 fines” that Pandora would pay for failing to license a song.  The truth–$150,000 is the maximum range that a court can set for statutory damages for willful copyright infringement.  We have it on pretty good authority that no court has ever set the damages that high, but shillers like Harrison always use this as an example.

Franken asked if Harrison could give one example of $150,000 damages being awarded.  After wriggling around trying to dodge the question, Harrison had to admit that he didn’t know of any music cases where it happened.  That’s because there are none.

That was worth the price of admission alone.

We always thought that singling out a class of people for prosecution by the government based on their status was unconstitutional.  Not in the new world order, apparently.

Remember when we called out McDonald’s for advertising on pirate sites?  (And remember how they never responded?)

Well, continuing McDonald’s tradition of screwing over artists and songwriters, the company is also refusing to pay artists ANYTHING for playing at McDonald’s SXSW showcase.  This is almost as good as “free beer and hugs” except it’s free food and exposure.  And McDonald’s has the gall to end their response with a “#slownewsday”

Slow news day?  Like the only reason anyone cares about artists being screwed over by megacorporations is because it’s a slow news day?  Hey Ronald McDonald, have you met Daniel Ek?

Is this what it’s come down to?  Free food and insults?

Apparently not–ExCops responded with a hearty fuck you.

A must read post by the band on their Facebook page

Read Stereogum (and a bunch of others including the New York Times):

Ex Cops Blast McDonald’s For Offering Its SXSW Talent Exposure Instead Of Money

Rolling Stone:

McDonald’s Responds to Indie-Pop Duo’s Viral Complaint

If you follow the Google Transparency Report, you will have seen this official Google description of what the report measures:

Google regularly receives requests from copyright owners and reporting organizations that represent them to remove search results that link to material that allegedly infringes copyrights. Each request names specific URLs to be removed, and we list the domain portions of URLs requested to be removed under specified domains.

That means that the transparency report only measures links in Google’s search engine.  That doesn’t include Blogger which is a hot bed of links to sites using the BitTorrent protocol, and it also does not include YouTube.

YouTube, of course, is a site that is 100% within Google’s control and for which Google sells 100% of the advertising.

We’ve always wondered why the transparency report doesn’t include all take down notices that Google receives across all of its platforms, because that would be…you know…transparent.

Today we find out from a Google representative (the elusive and nameless Google representative who really gets around) that YouTube took down 180 MILLION infringing videos LAST YEAR ALONE according to PC World:

Google argues that new laws aren’t needed to protect copyright holders.

“We’ll continue working to protect people using our services,” Google’s lawyer said Monday. Last year alone, he said, it removed 500 million “bad ads” and over 180 million YouTube videos for policy violations.

Aside from the mindblowing number of takedowns, this admission raises a more interesting question.  If any advertising was sold against the 180 million videos–and it would be hard to believe that NO advertising was sold–what happened to that money?  Did any advertisers get a refund?

What do you think?

(Ed note- The $50 dollar handshake was record industry slang for the age old practice of illegal payments by record labels to radio stations for preferential airplay.  The technique was for a record promoter to palm a $50 bill to a DJ concealed in a handshake.)

Pandora announced another “direct” deal this week, this time with Naxos Records.  Remember, Pandora is in the middle of a rate setting proceeding for the webcasting royalty at the Copyright Royalty Board (CRB)  in Washington. This is no accident that Pandora is trying to get as many of these direct deals done as possible before the CRB rules on its statutory webcasting rates that Pandora will pay–sound recording owners.  Record labels like Naxos have the ability to “opt out” of the statutory rate set by the CRB if they make a direct agreement with any service including Pandora.

And you know there’s always a trick with Pandora, so here it is.  If Naxos did nothing, they would get the statutory rate.  If they make a direct deal, they presumably got “something” better than the direct rate.

But why would Pandora make a direct deal with Naxos (or Merlin for that matter)  and pay a higher rate than the one they get from the CRB? It’s unlikely they did.  They have no incentive.  It only makes sense that Pandora got a lower-than-statutory rate and in exchange Naxos (like Merlin) got “something else” in exchange for taking the lower rate.

Be sure you don’t miss the point here–Pandora is trying to show these direct deals with Naxos and Merlin as evidence of what royalty rates should apply to the rest of us.  So Pandora wants the royalty rate to be lower than the rate that SoundExchange is asking for so they can use the Naxos and Merlin deals as examples of “free market” agreements between a “willing buyer” and a “willing seller”.

As the Radio and Internet Newsletter (RAIN) explained:

[Pandora’s p]rivate licensing deals are significant for another reason. The CRB process of setting government-mandated rates has been distorted, some audio publishers believe, by a lack of real-world deal-making examples which could establish a value of licensed music that isn’t theoretical. Pandora used its Merlin deal as an anchor example in its initial argument brief. Presumably, the Naxos agreement could bolster Pandora’s case during this year-long lead-up to new rates.

So again why would Naxos and Merlin agree to a rate that helped Pandora lower the royalties paid to everyone else?  There’s probably an easy answer to that.

Very likely because they got each something else that made it worthwhile.  And if by taking that vigorish it hurts the rest of us–well, it’s a cruel world, don’t you know.

Now what might that vig be?

In the case of Merlin, they accepted a lower rate in part in exchange for Pandora “steering” listeners to Merlin artists.  If this sounds a little like payola you wouldn’t be the first to question this practice. 

Pandora Says No Comment

“Steering” payments are a different beast–these are payments that benefit Pandora by triggering a lower royalty rate if Pandora plays more of the label’s artists.  That consideration that flows to Pandora is a lower royalty rate–the benefit to Pandora being the difference between what they would pay under the presumably higher statutory rate and what they do pay under the steering arrangement.  You know, consideration for airplay.

Consideration for airplay…isn’t that payola?

Was there a steering payment in the Naxos deal?  RAIN also noted:

We reached out to Pandora to ask whether the Naxos licensing agreement includes similar “steering” as with Merlin, and received a polite “no comment.”

Now why would that be?

Let’s recap a little history.  One trick that Pandora is trying to fool us with was originated by their in-house lawyer, Christopher Harrison when he was at DMX.  David Lowery noted that Billboard called out Harrison on the issue:

 Ed Christman did his homework on this part of the story, too and called Pandora lawyer Chris Harrison on the bullshit he pulled while he was at DMX that shafted songwriters and that Harrison is trying to duplicate for Pandora to shaft artists, musicians and vocalists.  Ed got that exactly right.

Here’s how Mr. Christman described DMX’s dirty tricks on songwriters:

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

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

Oh yes…the advances.  There is usually money involved after all.  We don’t know if Naxos or Merlin got any advances, or better yet for a label, nonrecoupable payments from Pandora–the kind they don’t share with artists.  (This is a variation on “breakage”, being payments that are so large there’s no chance that the label will ever recoup during the life of the license.)

But we do know that when Pandora filed the Merlin agreement with the CRB as evidence in their rate proceeding, there was a whole bunch of stuff blacked out so we couldn’t read it and know what the deal was.  What do you bet that had something to do with M-O-N-E-Y.

So if Naxos did a deal that is so great for their artists (including symphonies and conductors), why aren’t they singing it from the rooftops?  If Pandora only has the artist’s best interests at heart, then why isn’t Pandora singing it right along side Naxos?  Of course in a way, anyone doing a direct deal with Pandora is driven to it by the threat of having to take the statutory license if they don’t–the implication being that the statutory license that the rest of us have to live with will be worse than whatever deal Naxos made that did not rely on the statutory license.  So what could make it better?

The Merlin deal had “steering” payments in it…why would Pandora say “no comment” about a component of the Merlin deal that Pandora did sing from the rooftops at the time.

Why oh why oh why?

And right there you should understand what is really rancid about these direct deals.  If nothing else, the CRB rate setting process is transparent.  Artists, musicians, vocalists and sound recording owners are represented by SoundExchange and have more or less equal voting power on the SoundExchange board.  Three judges set the rates after hearing from all sides in the process.  Unlike the ASCAP and BMI rate courts, you don’t have a situation where a single judge can decide to just ignore a vital part of the evidence the way each of the single rate court judges did in the DMX case–not doubt to the great glee of Christopher Harrison.

Not only that, but who knows if Naxos is going to apply the artist share of webcasting against unrecouped balances of their artists, or simply keep the artist share of royalties.

SoundExchange hasn’t allowed labels to collect the artist share of statutory royalties.  Artists, musicians, vocalists and labels are all paid at the same statutory rate.  No under the table shenanigans, no side deals, no payola.  Plus SoundExchange audits these services on behalf of everyone.  There’s definitely some significant benefits to artists from staying in the SoundExchange system particularly as SoundExchange pays out hundreds of millions.

Instead of the relatively transparent CRB process, Pandora is repeating the sleazy DMX charade and is trying to hide the ball.  Would we prefer that the government wasn’t involved at all?  Would we prefer if everyone made their own deal?  Probably.  But we also like the idea that all the cards are on the table and appreciate the benefit of collective licensing.  (And we know it’s a good thing because Pandora tried to stop it in the infamous Internet Radio Fairness Act.)

But You Can Give Them to the Birds and Bees

What about this steering payola?  There’s a real question of whether these steering deals are even legal, particularly if Pandora is the service.  That’s because Pandora bought a radio station, and payola laws definitely apply to FCC licensed radio station owners.  David wrote about this before (“@Billboard is Demonstrably Short on Pandora Payola: Just Read FCC Website“) so let’s read an important long quote from David’s post:

As we previously posted, Pandora’s own high powered Washington DC lawyer, David Oxenford, wrote an article in 2008 about Internet radio and payola that everyone should read:

As Pandora lawyer Mr. Oxenford tells us:

“The payola statute, 47 USC Section 508, applies to radio stations and their employees, so by its terms it does not apply to Internet radio (at least to the extent that Internet Radio is not transmitted by radio waves – we’ll ignore questions of whether Internet radio transmitted by wi-fi, WiMax or cellular technology might be considered a “radio” service for purposes of this statute).  But that does not end the inquiry.  Note that neither the prosecutions brought by Eliot Spitzer in New York state a few years ago nor the prosecution of legendary disc jockey Alan Fried in the 1950s were brought under the payola statute.  Instead, both were based on state law commercial bribery statutes on the theory that improper payments were being received for a commercial advantage.  Such statutes are in no way limited to radio, but can apply to any business.  Thus, Internet radio stations would need to be concerned.”

So as Pandora’s lawyer tells us, if the FCC can’t get  jurisdiction over pureplay webcasters, state attorneys general may be able to under applicable state law commercial bribery statutes.  That’s potentially what’s called a 51 jurisdiction issue (50 states plus federal law)….

And if payola only applied to cash money as Pandora’s CEO would like you to believe, would the FCC have looked the other way when broadcasters received the legendary “hookers and blow”?  Vacation trips and clothes?  You know, “other valuable consideration”?  Do we really have to start quoting “Hit Men” or “Stiffed” here?  Morris Levy is laughing his ass off!

I’m just not hearing a credible argument for why getting a below market discount on something–in this case, royalties in exchange for airplay–is not “other valuable consideration.”   Therefore since Pandora is doing everything it can to buy a radio station (and is in front of the FCC right now trying to get their acquisition approved) you’d think they’d want to disclose receiving valuable consideration for playing Merlin artists. And they aren’t.

Billboard and I agree on this:  stranger things have happened in the U.S. legal system.  Far, far stranger things.  The only one who can sort this out is the FCC–and good news!  The FCC has a way to do that as part of its review of Pandora’s license for South Dakota radio station KXMZ that the FCC is reviewing right now.  And until the FCC rules on the payola issue with Pandora, it’s hard to see why Pandora’s lawyer Chris Harrison should be able to use Pandora’s end run around the law to lower everyone else’s rates in the [CRB] rate hearing in Washington….And won’t it be interesting if it turns out that Chris Harrison filed an illegal contract with the royalty hearing on everyone else’s already putridly low Pandora royalties to try to drive Pandora’s payments even lower.

Sounds like “no comment” is the safest thing that Pandora and Naxos could say at this point.