A Year Later: Review of the Campaign Against EU Copyright Reform

Guest Post Volker Rieck

A year later: A review of the campaign against EU copyright reform

More recent findings allow a closer look at the campaigns, their backgrounds and, in particular, the key players in financing them.

About a year ago, the German protests against the reform of EU copyright law began. A group of about 120 demonstrators gathered in front of the Brandenburg Gate, but they had some bad luck with the weather; June 22 was one of the few rainy days in the otherwise very dry German summer of 2018.

As reported in this blog, the discrepancy between the size of these and other demonstrations and the sheer mass of mails and tweets received by MEPs in July and August 2018 gave rise to considerable doubts about the actual size of the alleged protest movement. The fact that the protests themselves had a real core was not questioned by anyone – not even by reports published here. However much more was made of the online tools used at the time, because there were, for instance, no verifications. These tools could easily be controlled by automated scripts as we demonstrated several times on this website.  And indeed, there were many indications that many of the tweets and emails were not organic.  For instance, why did number of tweets remain steady or increased in overnight hours in Europe.  Why were tweets directed a specific country’s MEPs and then suddenly change to another set of MEPs?

Nevertheless, such facts seem to have little relevance for Green politicians* like Tabea Rössner – in her statement made in a debate in the Bundestag on 13.03.2019 she stated that we claimed in our reports “bots” were responsible for the protests and couldn’t be explained otherwise.

This is not only factually wrong, but also foolish. No such claim was ever made.

While Ms Rössner puts forward these straw man arguments she also successfully represses other facts.  For example, she fails to note that she herself gave a speech at the “Day of Action” against the Directive at the end of August 2018 in Mainz in front of just 10 demonstrators, while MEPs were flooded with emails and tweets.

2017: Origins of the campaigns

In order to better understand the campaign as a whole, it is worth taking a somewhat broader look back. In spring 2017 the terms Censorship-Machines and Linktax appeared at the Canadian NGO Open Media in connection with the EU directive.

Illustration: OpenMedia promoted the slogans “link tax” and “censorship machines” in March 2017 including a webform to contact MEPs.

Unfortunately, Open Media is anything but transparent with regard to its financing. The last audited annual report dates back to 2016. Platinum sponsors like Mozilla mysteriously disappear from the website, and financial reports were temporarily removed from the site. Who really financed Open Media in 2017 and beyond remains unclear. One should note Open Media’s board does includes Jacob Glick formerly Public Policy chief for Google in Canada.

Shortly after Open Media introduced the framing of the terms Censorship-Machines and Linktax for their campaign in the EU, the Internet conference Re:Publica took place in Belin, where a panel on Censorship-Machines was shown.

Illustration: Youtube video of the panel from 17.05.2017

The composition of the panel is particularly interesting because 3 of the 4 panel participants or their employers should play a decisive role in the later course of the campaign.

The participants were present:

– Jake Beaumont-Nesbitt, International Music Manager Forum, rather an exotic in the group, but his association is a member of Copyright for Creativity (C4C).

– Raegan MacDonald, Senior EU Policy Manager of Mozilla,

– Diego Naranjo, Senior Policy Advisor at EDRi

– Caroline de Cock, who is described on the Re:Publica websites as coordinator of Copyright for Creativity (C4C); that she is also managing director of the Belgian lobby company N-Square, was not mentioned at all.

Illustration: Re:Publica presentation pages of the panel participants

Mozilla was demonstrably one of the financiers of Open Media, which in turn, through its subsidiary New/Mode, provided the “engagement tools” with which MEPs were flooded with e-mails and tweets in the summer of 2018.

Mozilla sponsored financially and technically the telephones calls to MEPs. The webform that auto connected callers helpfully included a script to read to MEPs and their representatives.

In autumn 2018, however, Mozilla suddenly disappeared from the Open Media sponsor list.

As was already known, it was Caroline de Cock who registered the website saveyourinternet.eu in May 2018. At no time did the site itself have a legally valid legal notice in accordance with the E-Commerce Directive, but merely referred to C4C. At some point at the end of 2018 C4C disappeared from the site and was replaced by the note “managed by EDRi”, which also does not fulfill the legal notice obligation. The site also began to use the anonymization service Gandi. It seems obvious that the actual owner or operator of the site was persuaded by someone to better conceal the ownership of the site.

Moreover, saveyourinternet.eu completely lacks data protection notices, which are also mandatory under the Basic Data Protection Regulation.

The lynchpin of the relevant campaigns: a US industry association!

The “ad hoc coalition” C4C (own statement) with the “coordinator” de Cock counts the US industry association CCIA (Computer and Communication Industry Association) among its donors.

However, the CCIA also financed the campaign site Create.Refresh, which had demonstrably targeted YouTubers since the summer of 2018 in order to have videos created against the (what was then called) Article 13 of the Copyright Directive. In practice, this procedure included talking points which, although wrong, were bluntly adopted by several prominent YouTubers.
Research from the German newspaper FAZ also found that some YouTubers were offered money to create such videos.

Create.Refresh may also have invested a large part of its money in the campaign via Twitter. From August/September 2018 on, it was impossible to avoid the sponsored Twitter posts anymore, especially since the German Pirate Party MEP Julia Reda happily retweeted these sponsored tweets – which, I might add,  are political advertising.

Illustration: Retweet of a campaign contribution of Create.Refreh by Julia Reda in August 2018

The CCIA can be described as a key player in the campaign. They not only used to finance C4C, saveyourinternet.eu and Create.Refresh, but also to provide substantial parts of the N-Square/KDC Group 2018 budget, as the EU Transparency Report stated at the end of June 2019.

Illustration: Extract from the EU Transparency Register, N-Square/KDC Group Financing 2018

As payments in the EU Transparency Report only have to be reported in funding level brackets,the CCIA’s share of N-Square’s business may well have been significant.

 

No less than four organizations that played a decisive role in campaigns against the copyright reform received money from a US industry association that tried to exert a massive influence on EU legislation and at the same time to sell these efforts as civil society resistance (grassroots movement).

 

Friends of science

To complete the picture, at the Re:Publica 2019 Prof. Kretschmer from the University of Glasgow gave a lecture on EU copyright reform.

Illustration: Prof. Martin Kretschmer at the Re:Publica 2019, source YouTube

Prof. Kretschmer expressed doubts about the evidence presented by myself, this blog, The Times of London and other newspapers on the funding and actions of the groups identified in this article.  This despite the fact all the evidence comes from the groups themselves or is derived from the EU transparency database. And the actions of these groups are proudly proclaimed by the groups themselves.  In the American vernacular Kretschmer acts as a “merchant of doubt” despite the fact there seems to be no doubt to sell.

Almost inevitably, however, the question arises about Prof. Kretschmer’s cooperation with N-Square, which as noted here was of central importance in the campaign. Did it cease in 2017?

 

Illustration: Website of the University of Glasgow about Prof. Martin Kretschmer and his projects in June 2017

It can therefore only be speculated whether his statement, heard in the video, that he was “not completely innocent” in the debate was possibly meant quite differently.

Prof. Kretschmer only knows the truth himself.

 

The Countdown to Modernity: Copyright Royalty Board Posts Notices and Rules for MLC Assessment Proceeding–Artist Rights Watch

Since there was no advance commitment or agreement on the budget for the Mechanical Licensing Collective (MLC) under Title I  of the Music Modernization Act, it appears that the clock is ticking on an agreement before the parties have to go before the Copyright Royalty Judges to be told what the budget (or the “assessment”) is to be.  The Copyright Royalty Board has beat the July 8 deadline for noticing the proceeding and has posted the notice and the rules for the hearing.

The “Notice announcing commencement of Initial Administrative Assessment proceeding and requesting Petitions to Participate” can be found here:

The regulations require the participation of the MLC and the Digital Licensee Coordinator (DLC) in the proceeding and permit the participation of copyright owners, digital music providers, and significant nonblanket licensees. 37 CFR 355.2(c)–(d).

The Judges hereby announce commencement of the proceeding, direct the MLC and the DLC to file Petitions to Participate, and request Petitions to Participate from any other eligible participant with a significant interest in the determination of the Initial Administrative Assessment…

Any participant that is an individual may represent herself or himself. All other participants must be represented by counsel….

Petitions to Participate and the filing fee are due on or before July 23, 2019.

The CRJ’s rules relating to the proceeding can be found here and have some relevant language relating to who can participate in addition to the MLC and DLC:

[T]he Judges believe that the views of other participants may be helpful, and perhaps essential, for the Judges to determine whether good cause exists to exercise their discretion to reject a settlement. The Judges, therefore, have modified [the regulations for the settlement negotiations and proceeding] to clarify that participants other than the MLC and DLC may participate in settlement negotiations and may comment on any resulting settlement.

“ACTA2” Trolls Publish Hit List on Pastebin of Artists who Supported Copyright Directive in Europe — Music Technology Policy

Many independent musicians, authors, songwriters and photographers have been targeted on a blacklist from anti-copyright trolls associated with the Pirate Party and Anonymous.  As this is not only harassment but also an illegal commercial boycott you should ask your national anti-competition authorities to investigate.   Read more at MusicTechPolicy.com

“ACTA2” Trolls Publish Hit List on Pastebin of Artists who Supported Copyright Directive in Europe

via “ACTA2” Trolls Publish Hit List on Pastebin of Artists who Supported Copyright Directive in Europe — Music Technology Policy

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

No, Streaming Is Not Saving Us. Revenues still down by Half.

We’ve been hearing an alarming narrative that “record labels are making more money than ever from streaming, but they’re just not paying musicians”. To be clear, we certainly have our issues with major labels, however we also need facts and to be truthful.

The truth is, that a decade after losing half of it’s revenues due to piracy as reported by CNN (click here), record labels are now only getting back up to half of what the peak business was in 1999. Half of where we were in 1999, twenty years later. Let that sink in. As unpopular as he was twenty years ago, Lars Ulrich was right.

Twenty years later, and we’re still only half of where we were in 1999.

There are only three numbers that matter when looking at the record industry post-piracy and here they are:

1999 : $14.6b = $22.01 in 2018 Dollars
2009 : $6.3b = $7.37 in 2018 Dollars
2018 : $9.8b = $9.8b in 2018 Dollars

This is clearly illustrated in the chart below provided by the RIAA, the trade group responsible for tracking these figures. At their lowest point in 2014, revenues from record sales were less than one third of their peak.

What this chart also shows is a decade long loss of $10b or more annually, which is over $100b in lost revenues to labels and artists. That’s $100b in lost revenues to labels and artists in just the past decade.

If we track total lost revenue to labels and artists since the launch of Napster in 1999 it totals just under $200 Billion Dollars in the USA alone.

The fundamental problem remains the same. There’s a hole in our bucket and all that revenue falling out though the bottom leads more or less to advertising funded piracy and YouTube. Many have suggested that YouTube is effectively the largest ad supported piracy platform. As we reported earlier this year in our updated Streaming Price Bible, the YouTube Value Gap is very, very real.

In future posts we’ll offer solutions and suggestions that should be under consideration at every major label. Not the least of which is transitioning subscription streaming models to incorporate a per stream transactional baseline, or a minimum wholesale price per stream.

In streaming, consumption does not grow revenues. More consumption and more streams do not generate more money. Revenue can only be generated by charging more for subscriptions, generating more advertising revenue (ad supported only, obviously) and expanding into more markets (gaining new subscribers). But eventually, everything flattens.

So the biggest question remains. What happens to overall revenues as streaming matures and cannibalizes the remaining revenue sources into purely niche markets. Digital Downloads will account for less than 10% of recorded music revenues by the end of the year, if not already. The CD market continues drop, and vinyl also declined slightly from 2017 (4.4%) to 2018 (4.3%).

Will streaming compensate for the lost revenues in other formats and continue to grow revenues towards a true recovery? It’s possible, but there will have to be some changes to address the economics presented to consumers despite what Goldman Sachs says. For the year of 2018 the industry reported $9.8b in revenues. To make that $37.2b by 2030 the industry needs to add nearly $3b a year for the next 10 years!

We don’t know what else they’ve got in that crystal ball that can predict revenues over a decade into the future but even by their bullish estimate of $37.2b in 2030, that is only $28b in 2019 dollars. Right now we’re still about $20b short.

 

 

 

@musictechpolicy: Wixen Music Publishing Files Lyric Infringement Lawsuit Against Pandora And Raises Questions About Lyric Licensing

Guest post by Chris Castle

In the “it was only a matter of time” department, Wixen Music Publishing has sued Pandora over infringing reproductions of the lyrics in songs it represents.  (For those reading along at home, Wixen is represented by badass David Steinberg, so good luck Pandora.)

All these cases against tech companies start with very similar facts–they were given a chance to fix the problem and they either entirely ignored the copyright owner (like David Lowery and Bluewater) or they obfuscated and tried to deflect blame, or did both.

Here’s the key fact from this Wixen case:

Plaintiff’s representatives put Pandora on actual notice of its infringing conduct in early 2018, yet Pandora did not even attempt to address its infringing conduct until May 2019, when it first purported to cease displaying some of the lyrics to the Musical Compositions on its service….Pandora’s infringement is therefore willful and deliberate.

In other words–Pandora apparently blew off its responsibilities for over a year and still didn’t fix the problem.  Here’s a practice point–when Wixen or someone like Wixen calls, you need to fix your problem.  Right. Now.

But this case raises an interesting side point that may indicate a likely waypoint down the trail.  There is a company called LyricFind that licenses lyrics for many publishers according to their advertising.  Wixen notes in the complaint:

Pandora may claim that it had obtained licenses to display the lyrics to the Musical Compositions from one or more sources, including an entity called LyricFind, the self-proclaimed “largest lyric licensing service” in the world, which claims that it “has licensing from over 4,000 music publishers, including all majors.” However, as Pandora knows, and has known, LyricFind did not have the authority to grant licenses to Pandora for the display of any of the lyrics to the Musical Compositions on its service.

How does Pandora know this?  Probably because Wixen (and possibly other publishers) told them so.  It’s entirely possible that Pandora has a license with LyricFind for the songs it represents, but if Wixen hasn’t authorized LyricFind to represent them for lyric licensing (which they evidently have not), then this is an irrelevant fact.

I have to believe until shown otherwise that LyricFind would be the first to tell their licensees that LyricFind does not purport to license all the lyrics for every song ever written or that ever may be written in any language from any songwriter or publisher in any country on the face of the Earth.

The problem seems to be the same problem that Big Tech has had with music from the beginning–the tech companies don’t want to have to confirm their rights because that involves human beings and human beings cost money.  It’s this dismally poor administration of licenses by the licensees that seems to be the stumbling block.

However, it does make for interesting viewing to see exactly what was said by whom when about what, and what assurances were given.  My bet is that the next step will be like the Music Modernization Act–a retroactive safe harbor with a blanket license and a statutory monopoly.

Read the Wixen complaint here.

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….”]

Pledge Music Fiasco is Weirder than You Think: Part I

“Success has many fathers, failure is an orphan” -Generally attributed to Roman Senator Tacitus approximately 98 AD

To Gursh: To overstate one’s role in the success of a record or artist; or conversely, to understate one’s role in the failure of a record or artist- NY music industry slang dating from at least the early 1980s.

In the offices and boardrooms of any corporation it is not uncommon to find executives wildly overstating their role in the success of some corporate initiative, or conversely radically understating their role in a spectacular failure.  It is just in the nature of homo corporaticus.  It is an evolutionary tool designed to insure survival of the species.

Music industry professionals are no different.  But since this is the music business we created a word for it: Gurshing. And we perfected it as an art. This is largely because the music business is built on the illusion of success. Most songs are failures. Most albums are failures. Most artists are failures.  Even if you are an extremely talented producer or A&R executive your raw track record is going to suggest a success rate in the low double digits.  14% of the albums you record as a producer actually make any money? 8% of the acts you sign make money for the record label?  All guesses but probably not far off. But because successful songs, artists, records make so much money the high failure rate doesn’t actual matter in the long term to producers, managers, songwriters, publishers and labels.

However, no aspiring artist or songwriter wants to be confronted with the terrible odds and sheer capriciousness of success in music industry. They don’t want to sign with an entity or individual that has a 12% success ratio.  Thus the high failure rates are rarely discussed and instead we create little stories that make ourselves and our companies seem reliably successful. If you want to sign, produce or co-write with other writers you have to distort your track record. The easiest way to do that is through gurshing.  If you do this artfully enough you create the appearance of continual success.  Then through the magic of something called The Matthew Effect you gain access to a more talented pool of artists thus increasing the odds of your success.  Eventually this virtuous cycle turns perceived success into real success. You just have to be willing to gursh like a con-artist in the beginning and then stick it out.

On the other hand, one thing you absolutely never do in the music business is purposely associate yourself with failure.  This is not Silicon Valley.  Failure is not fetishized.  Getting tarred with a big failure can undo years of careful gurshing and reputation management.

l bring all this up because I find it fascinating to watch Benji Rogers co-founder and former president of Pledge Music rushing into the burning building that is Pledge Music. A company he left and would seem to have no apparent obligation to save. In the music business this is the type of thing you normally want to gursh away from. Benji genuinely qualifies as child of music industry royalty. His parents and stepfather were successful managers and publishers. So gurshing should be like a pavlovian reflex to him. So his behavior is not what I would have expected from some one who grew up in the music industry.  Nobody in the music business steps back in to help when this kind of failure occurs.

It’s admirable in many ways.  An expression of loyalty to former company, partners, employees, customers and artists. A sign of a stand up guy.

It is also totally understandable. Of all his many companies (Benji lists 8 on his LinkedIn Profile) Pledge Music is obviously the only real “hit.” He made his name with Pledge Music. It’s part of who he is.

However, I just have to say,  it’s really not helpful to anyone. Not to partners, employees, customers, artists and even Benji Rogers himself. Yes, it’s complicated  It always is.  But let’s start with the most obvious reason it’s unhelpful.  It muddies the story.  It seems to be a distraction, unintentional, but still a distraction from the fact Pledge Music’s  purported majority shareholder Joshua Sason, is the guy named first in the SEC complaint below.

 

(The other defendants Sharma and Salviola have an interesting history See here, here,  here and  here. Also named is the fabulously named Zirk de Maison. He is also an interesting person: see here.)

Now this complaint doesn’t directly have anything to do with Pledge Music, but it is certainly part of the story.  The majority shareholder of a company running out of money gets an SEC complaint for what appears to be a fraud perpetrated by his other company? C’mon!  Anyone associated with Pledge pretending like it’s not part of the story? Well, that makes it part of the story.

If you read the complaint it alleges pretty crazy stuff. From the SEC press release that goes with the complaint:

“According to the SEC’s complaint, from approximately December 2012 to June 2013, microcap stock financier Magna Group, which was founded and owned by Joshua Sason, engaged in a scheme to acquire fake convertible promissory notes supposedly issued by penny stock issuer Lustros Inc. and then to convert those notes into shares of Lustros common stock. The defendants then sold the shares to unsuspecting retail investors, who did not know that the shares were fraudulently acquired and were being sold illegally. The defendants’ sales of the Lustros shares also had the effect of destroying the value of the Lustros shares held by the public.”

So this guy didn’t get charged because he forgot to file a form, or checked the wrong box. According to the SEC he is charged with violations usually associated with con men.  And according to the SEC he didn’t do it just once:

“The complaint also alleges that in November 2013, Magna Equities II, which was also wholly-owned by Sason, and Manuel, purchased another fake promissory note from Pallas Holdings. Magna Equities II and the note’s issuer, NewLead Holdings, Ltd., later agreed to retire the fake debt in exchange for shares of the issuer through a court-approved settlement agreement. To obtain approval of the settlement, Sason and Magna Equities II falsely swore to the court that the fake promissory note was a bona fide debt of NewLead. Kautilya “Tony” Sharma and Perian Salviola, who controlled Pallas Holdings, are alleged to also have participated in the scheme.”

 

It was shortly after this Sason reportedly invested 3 million in Pledge Music. And that’s another reason why this should be part of the story.  If true did some of that 3 million come from the alleged fraud? According to Billboard

“Sason, 31, has been member of the PledgeMusic board of directors since 2014. That same year, Magna reportedly invested $3 million into PledgeMusic and Magna Entertainment vice president Russell Rieger — a former exec with Maverick Records and London Records, who is not being charged by the SEC — was also appointed as a director to PledgeMusic’s board.”

The weird thing about this investment is I can’t seem to find it reflected in the share tables or other documents.  I could be a total idiot. But it’s not under Sason’s name or even any of his known companies (more on “known” part later). Perhaps it was a loan? Or maybe the Billboard’s source was wrong?

Similarly, according to  Billboard in 2016 Sason becomes majority shareholder in Pledge Music.  From Billboard Feb 19 2019: 

In 2016, it was reported Magna Entertainment acquired a major position in PledgeMusic, but deal terms were not publicly announced. Sason is currently the only director listed as a person with significant control in PledgeMusic, according to the U.K.’s Company’s House.

But again, I don’t see shares going to Sason or one of his known companies. If you want to check, look here. Maybe Billboard source is wrong.   Or I’m a total idiot. (Leave comment if you find something i missed).

It does seem that UK corporate authority (Companies House) has flagged Pledge Music for missing documents and accounts. See screenshot above. Perhaps that’s where one will find the transfer of shares?

Around this time Sason’s Vice President at Magna Entertainment (a different company than the one named in the SEC case, but still owned by Sason) becomes GM of Pledge Music.

This last bit is fairly normal stuff. New owners new people in.   Until you step back and look at the big picture.  Digital Music news, Bloomberg and other publications have noted Sason made his fortune lending money to failing companies and then obtaining big discounts on shares. There is no evidence Sason did this with Pledge. And there is nothing necessarily illegal even if he did (as long as board approved). The 2016 deal terms that gave Sason control of company were not announced, there are no clues in available company documents but something like this could have happened.

Also phrasing in the Billboard story is curious: “acquired a major position.” Not “purchased a majority share.” Then again it could mean absolutely nothing. No one knows or will know until a creditors list is released in bankruptcy proceedings.

So who might those creditors be?

Well there is one clue listed in company documents.  In Feb 2019 after the company was clearly in deep financial trouble this loan facility was activated.  (Agreement originally entered into Sept 2015 about the time Sason reportedly took control of the company, but loan was not activated.)

So who are the lenders?

PledgeMusic.com is borrower, but another arm of the company a “Special Purpose Vehicle” PledgeMusic SPV is the lender.  As well as a Panamanian Company called Beacon Assets Holdings Limited BVP I LLC. Another board member David Rowe through his bank (Sword and Rowe) is the Collateral Agent.  Collateral Agent is generally a neutral party. But does not have to be. In this case it is not.

As our sister publication Artist Rights Watch reports:

“So I found that reference to be a little odd for a company that was scraping by on 15% of artist campaigns.  What was even stranger was the date of the loan:  February 12, 2019.

What was PledgeMusic doing borrowing money in February, mere weeks before it went into ‘administration’ in the UK–roughly the equivalent of bankruptcy?  Who–besides the shylocks–would loan them money?”

So a subsidiary of Pledge Music is loaning money to itself.  Right before bankruptcy. And collateral agent is one of the board members. This just all seems so odd. It’s a very complicated way to do business.

Further it appears the document allows the creditors PledgeMusic SPV and Beacon Assets Holdings to effectively take control of the checking accounts which may or may not hold artists’ co-mingled funds. As Artists Rights Watch reports:

“This may be important if, as has been reported, Pledge failed to maintain a separate escrow account for the artists’ pledges and simply co-mingled all of Pledge’s money with the artists’ money.

But follow the next step: By using the SPV method, it is possible that Pledge might try to extract the money from its own accounts to repay the loan that it made to itself (along with the other lenders in the syndicate) by foreclosing its security interest on its own bank accounts in which it co-mingled funds.”

The Artists Rights Watch article goes into great detail and anyone interested should read the whole thing. It’s a remarkable piece of detective work. But there’s more.

I also want to note that there is another unusual thing here.  I am not an expert, and I may be reading this wrong but it looks like in the same document the loan syndicate (Pledge SPV and Beacon Assets Holdings) also effectively takes control of insurance payouts. See above. Or here.  I don’t know if the company has liability insurance for it’s directors in the case of say a class action lawsuit.  But this document looks like this would give the loan syndicate first dibs on the payout.  So is it possible the board members will have to personally pay out of pocket in the event they have some liability?  If my reading is correct this is really weird. Is this like a poison pill to discourage a class action? Does this arrangement leave someone else holding the bag in the event there is some liability to directors? I caution, I could also be reading this wrong.  It’s a very long and complicated document.

Regardless, if I were Don Ienner and David Walsh I would be getting very very nervous right now. I’d wanna make sure I was covered by some sort of insurance.  Everyone else on board looks like they already have bigger problems or are on other side of the loan.

And what about this other company Beacon Assets Holdings?

Beacon Assets Holdings appears in the ICIJ so called “Panama Papers” database.  It’s essentially an offshore shell company of some kind.  There is nothing necessarily illegal about this. There are plenty of non-illegal reasons for investors to protect their assets (and privacy) in this manner. In fact let me just reprint the ICIJ disclaimer here:

“There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any people, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly. Many people and entities have the same or similar names. We suggest you confirm the identities of any individuals or entities located in the database based on addresses or other identifiable information. If you find an error in the database please get in touch with us.”

I reiterate.  Just because a company is in this database doesn’t mean they are doing something illegal.

However,  Beacon Assets Holding appears to have a single shareholder, Covent Business Limited of British Virgin Islands.

This company (Covent Business LTD) was incorporated July 26th 2012 and then  became inactive less than 18 months later. The British Virgin Islands appears to have “struck off” the company in 2015.  Basically this company has been dissolved. Could mean nothing at all.  Perhaps the owner decided they didn’t need this company for a host of reasons.

So this looks to be a timeless story.  An idealistic entrepreneur starts a company to help musicians and artists.   The company has to borrow money along the way.  The creditors eventually take control of the company and either through incompetence or in an attempt to make a fast buck run it into the ground.  I really don’t know what happened.  All I’m saying is this story is much weirder and more complex than it seemed at first.

But there is more to tell.  I’ll explore this further in part II.

 

 

 

 

 

UPDATE: Panel on The Pledge Music Crowdfunding Debacle

You’ve probably heard the news that PledgeMusic is fast approaching some kind of end.  You may have read Iain Baker of Jesus Jones story of the band’s encounter with Pledge here and hear.

Digital Music News reports giving a chronology of the events leading up to what seemed the inevitable fire sale result of “new boss” syndrome:

Now, a leaked e-mail has revealed how bad things truly are for Rogers’ company, and for artists who depended on the platform.

“Please, please, please buy PledgeMusic!  But, don’t worry.  You don’t have to pay back artists.”

Earlier this morning, Digital Music News received an interesting e-mail from an anonymous source.

FRP Advisory LLP, a UK business advisory firm, has been named the proposed administrator of PledgeMusic.com Limited and its subsidiaries (dubbed ‘The Group’).

With a pre-liquidation fire sale set to take place, FRP Assistant Manager Robbie Wirdnam has now sought “expressions of interest in the business and assets of the Group’ – i.e., PledgeMusic.

By way of introduction, I’m part of the corporate finance team at FRP and assisting my colleagues in the restructuring team, as the proposed administrators of PledgeMusic, in the marketing of the Group’s business and assets.  As you have previously looked at the opportunity on a solvent basis, I’m circling back to determine whether you have an interest in the business and assets for sale, ahead of an administration process.” [“Administration” in the UK is sort of like bankruptcy.“]

Wirdnam explains that the British crowdfunding platform faced two ‘pressures’ which ultimately lead to its demise – working capital pressures and a lack of ongoing funding.

This is serious stuff.  There’s potentially millions at stake and thousands of people worldwide who will be harmed, not only the artists but also fans and vendors, producers and songwriters.

UPDATE: As Jem Aswad in Variety notes in “PledgeMusic Nearing Bankruptcy, Although Sale Talks Continue“:

It should be noted that a buyer of PledgeMusic would be taking on the debts owed creditors, which include artists who launched programs with the company and owed money, which is estimated to be as much as $3 million total (here’s a small list of how much certain artists were owed, as of February). As the company has demonstrated in the past, tends to go to the most prominent, or at least the loudest, artists affected.

Hypebot also has a story on the FRP situation “Pledge enters pre-administration as buyer deliberates”:

UK based corporate advisory FRP has been named to contact potential buyers and value the company’s assets in pre-administration; while in parallel, the interested buyer finishes due diligence.

If no buyer steps forward within the week, PledgeMusic will likely enter Administration with FRP as the proposed administrator.

If you’re in Austin, Chris Castle is moderating a panel about Pledge with Jesse Moore and Peter Ruggero, two bankruptcy law experts.  The panel is co-hosted by the Austin Bar Association Entertainment & Sports Law and Bankruptcy sections  and titled “The Pledge Music Crowdfunding Debacle” on May 22.  Here’s the event description:

The panel will review the reported facts on the decline of PledgeMusic.com, a crowdfunding platform directed at independent artists, established artists with significant fan bases and labels.  PledgeMusic has taken in contributions from fans but has not paid out all or a significant portion of those funds to the artists for over a year. Many Texas consumers, artists and vendors have been affected by the company’s collapse.

The panelists will analyze the effects of this collapse on artists, the rights of consumers and vendors and the potential future outcomes if the company does not solve its financial crisis and seeks protection of the insolvency and bankruptcy laws.

As far as we know, this is the only response from the legal community so far.  Chris tells us that it is directed at artists, fans and vendors as well as lawyers.  $5 covers pizza and parking.

Deets are:

Wed, May 22, 2019
12:00 PM – 1:00 PM CDT

Austin Bar Association
816 Congress Avenue, Room # 700
Austin, TX 78701

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