Artist Rights Symposium III at @TerryCollege at UGA, Keynote by @MMercuriadis of @HipgnosisSongs

We’re back! David Lowery hosted the third annual Artist Rights Symposium at the University of Georgia’s Terry College in Athens on November 15 as an in-person event. The Symposium is an all-day event that allows students in the Music Business program to participate and interact with panelists as part of the music business program.

Our keynote speaker was the inspiring Merck Mercuriadis, long time songwriter advocate, manager and music industry veteran who founded and runs the Hipgnosis Songs Fund. Merck is an active songwriter advocate around the world, particularly with the recent inquiry into the music streaming economy by the UK Parliament’s Digital Culture Media & Sport Committee and the UK Competition and Markets Authority. As Kristin Robinson reported on Billboard

Merck explained why he feels the industry is in the “age of the songwriter.” “There has been a massive paradigm shift,” he said. “Forty years ago, the power was in the artist brand,” but now, most songs that top the Billboard charts are written by a larger number of songwriters than ever, meaning the demand has never been higher for good hitmakers. “But songwriters have to have a place at the negotiating table now,” he said, citing that in the United States, rates for mechanicals are set by the government’s Copyright Royalty Board, barring “free market” negotiations. “Let’s face it, [the government controlling rates] is insulting to songwriters.”

This year’s symposium topic was “The Future of Authorship and the US Copyright Office” and Merck and the stellar panelists had a lot to say about the many advocacy issues facing contemporary songwriters.

Fortunately, thanks to Terry College the symposium is available on YouTube at no charge and you can watch it in its entirety.

Welcome/Opening remarks

9:00 AM -9:10 AM David Barbe, Director, Terry College Music Business Program

Georgia Legislative Overview and Agenda 9:10 AM- 9:30 AM

Panel 1: Libraries vs Authors: The Internet Archive’s “Controlled Digital Lending” and Fair Renumeration for Authors. 9:35 AM- 10:50 AM

Panelists

Janice Pilch.  Rutgers University
John Degen:  Writer, Head of Writers Union Canada.
Stephen Carlisle: Copyright Officer Nova Southeastern University,Florida
Mary Rasenberger, CEO, Authors Guild and Authors Guild Foundation.

Panel 2 Managing a longer Table at the Copyright Royalty Board 11:10 AM to 12:25 PM

Dr. David C. Lowery Moderator
Rick Carnes, Songwriters Guild of America
David Turner, Penny Fractions, SoundCloud
Crispin Hunt, Songwriter, Ivors Academy, #BrokenRecord

Lunch and Fireside Chat with Merck Mercuriadis 12:45– 2:00 PM

Panel 3 #DoubleStat: The Future of Compulsory Rates 2:20 PM – 03:35 PM

Chris Castle Moderator, Founder Christian L. Castle, Attorneys, Austin and MusicTechPolicy blog
Richard Burgess, CEO of the American Association of Independent Music (A2IM)
Helienne Lindvall, President, European Composers and Songwriters Association
Samantha Schilling, Songtradr, IAFAR

Metadata, Matching and Claiming at the MLC 3:55 – 5:10 PM

Moderator Abby North, North Music Group
Erin McAnally, Artist Rights Alliance
Helienne Lindvall President, European Composers and Songwriters Association
Melanie Santa Rosa, Word Collections, The MLC

Please leave a comment if you have any questions!

Will the Copyright Royalty Board approve Big Tech’s attempted cover-up? 

By Chris Castle

[This MusicTechPolicy post appeared on Hypebot]

There’s an old saying among sailors that water always wins. Sunlight does, too. It may take a while, but time reveals all things in the cold light of dawn. So when you are free riding on huge blocks of aged government cheese like the digital music services do with the compulsory mechanical license, the question you should ask yourself is why hide from the sunlight? It just makes songwriters even more suspicious. 

This melodrama just played out at the Copyright Royalty Board with the frozen mechanicals proceeding. Right on cue, the digital services and their legions of lawyers proved they hadn’t learned a damn thing from that exercise. They turned right around and tried to jam a secret deal through the Copyright Royalty Board on the streaming mechanicals piece of Phonorecords IV. 

To their great credit, the labels handled frozen physical mechanicals quite differently. They voluntarily disclosed the side deal they made with virtually no redactions and certainly didn’t try to file it “under seal” like the services did. Filing “under seal” hides the major moving parts of a voluntary settlement from the world’s songwriters. Songwriters, of course, are the ones most affected by the settlement–which the services want the CRB to approve–some might say “rubber stamp”–and make law.

To fully appreciate the absolute lunacy of the services attempt at filing the purported settlement document under seal, you have to remember that the Copyright Royalty Judges spilled considerable ink in the frozen mechanicals piece of Phonorecords IV telling those participants how important transparency was when they rejected the initial Subpart B settlement.  

This happened mere weeks ago in the SAME PHONORECORDS IV PROCEEDING.

Were the services expecting the Judges to say “Just kidding”? What in the world were they thinking? Realize that filing the settlement–which IF ACCEPTED is then published by the Judges for public comment under the applicable rules established long ago by Congress–is quite different than filing confidential commercial information. You might expect redactions or filings under seal, “attorneys eyes only,” etc., in direct written statements, expert testimony or the other reams of paper all designed to help the Judges guess what rate a willing buyer would pay a willing seller. That rate to be applied to the world under a compulsory license which precludes willing buyers and willing sellers, thank you Franz Kafka. 

When you file the settlement, that document is the end product of all those tens of millions of dollars in legal fees that buy houses in the Hamptons and Martha’s Vinyard as well as send children to prep school, college and graduate school. Not the songwriters’ children, mind you, oh no. 

The final settlement is, in fact, the one document that should NEVER be redacted or secret. How else will the public–who may not get a vote but does get their say–even know what it is the law is based on assuming the Judges approve the otherwise secret deal. It’s asking the Judges to tell the public, the Copyright Office, their colleagues in the appeals courts and ultimately the Congress, sorry, our version of the law is based on secret information.

Does that even scan? I mean, seriously, what kind of buffoons come up with this stuff?  Of course the Judges will question the bona fides and provenance of the settlement. Do you think any other federal agency could get away with actually doing this? The lawlessness of the very idea is breathtaking and demonstrates conclusively in my view that these services like Google are the most dangerous corporations in the world. The one thing that gives solace after this display of arrogance is that some of them may get broken up before they render too many mechanical royalty accounting statements.

To their credit, after receiving the very thin initial filing the Judges instructed the services to do better–to be kind. The Judges issued an order that stated:

The Judges now ORDER the Settling Parties to certify, no later than five days from the date of this order, that the Motion and the Proposed Regulations annexed to the Motion represent the full agreement of the Settling Parties, i.e., that there are no other related agrements and no other clauses. If such other agreements or clauses exist, the Settling Parties shall file them no later than five days from the date of this order.

Just a tip to any younger lawyers reading this post–you really, really, really do not want to be on the receiving end of this kind of order.

Reading between the lines (and not very far) the Judges are telling the parties to come clean. Either “certify” to the Judges “that there are no other related agreements and no other clauses” or produce them. This use of the term “certify” means all the lawyers promise to the Judges as officers of the court that their clients have come clean, or alternatively file the actual documents.

That produced the absurd filing under seal, and that then produced the blowback that led to the filing of the unsealed and unreacted documents. But–wait, there’s more.

Take a close look at what the Judges asked for and what they received. The Judges asked for certification “that there are no other related agrements and no other clauses. If such other agreements or clauses exist, the Settling Parties shall file them no later than five days from the date of this order.”

What the Judges received is described in the purportedly responsive filing by the services:

The Settling Participants [aka the insiders] have provided all of the settlement documentsand, with this public filing, every interested party can fully evaluate and comment upon the settlement. The Settling Participants thus believe that the Judges have everything necessary to “publish the settlement in the Federal Register for notice and comment from those bound by the terms, rates, or other determination set by the” Settlement Agreement, as required under 37 C.F.R. 351.2(b)(2). The Settling Participants respectfully request that the Judges inform them if there is any further information that they require.

Notice that the Judges asked for evidence of the “full agreement of the Settling Parties”, meaning all side deals or other vigorish exchanged between the parties including the DSPs that control vast riches larger than most countries and are super-conflicted with the publishers due to their joint venture investment in the MLC quango.

The response is limited to “the settlement documents” and then cites to what the services no doubt think they can argue limits their disclosure obligations to what is necessary to “publish the settlement”. And then the services have the brass to add “The Settling Participants respectfully request that the Judges inform them if there is any further information that they require.” Just how are the Judges supposed to know if the services complied with the order? Is this candor?

It must also be noted that Google and the NMPA have “lodged” certain documents relating to YouTube’s direct agreements which they claim are not related to the settlement to be published for public comment. These documents are, of course, secret:

[And] are not part of the settlement agreement or understanding of the settling participants concerning the subject matter of the settlement agreement, and do not supersede any part of the settlement agreement with respect to the settling participants’ proposed Phonorecords IV rates and terms. Further, the letter agreements do not change or modify application of the terms to be codified at 37 C.F.R. 385 Subparts C and D, including as they apply to any participant. Rather, the letter agreements simply concern Google’s current allocation practices to avoid the double payment of royalties arising from YouTube’s having entered into direct agreements with certain music publishers while simultaneously operating under the Section 115 statutory license.

You’ll note that there are a number of declarative statements that lets the hoi polloi know that the Data Lords and Kings of the Internet Realms have determined some information involving their royalties is none of their concern. How do you know that you shouldn’t worry your pretty little head about some things? Because the Data Lords tell you so. And now, back to sleep you Epsilons.

So you see that despite the statements in the group filing to the CRB that the “Settling Participants” (i.e., the insiders) claim to have provided all of the settlement documents required by the Judges, Google turns right around and “lodges” this separate filing of still other documents that they think might be related documents with some bearing on the settlement that should be disclosed to the public but they apparently will not be disclosing without a fight. How do we know this? Because they pretty much say so:

Because the letter agreements are subject to confidentiality restrictions and have each only been disclosed to their individual signatories, each such music publisher having an extant direct license agreement with Google, Google and NMPA are lodging the letter agreements directly with the Copyright Royalty Judges, who may then make a determination as to whether the letter agreements are relevant and what, if anything, should be disclosed notwithstanding the confidentiality restrictions in each of the letter agreements.

Ah yes, the old “nondisclosure” clause. You couldn’t ask for a better example of how NDAs are used to hide information from songwriters about their own money.

The Judges noted when rejecting the similar initial frozen mechanical regulations that:

Parties have an undeniable right of contract. The Judges, however, are not required to adopt the terms of any contract, particularly when the contract at issue relates in part, albeit by reference, to additional unknown terms that indicate additional unrevealed consideration passing between the parties, which consideration might have an impact on effective royalty rates. 

So there’s that.

What this all boils down to is that the richest and most dangerous corporations in commercial history are accustomed to algorithmically duping consumers, vendors and even governments in the dark and getting away with it. The question is, if you believe that sunlight always wins, do they still want to hide as long as they can and then look stupid, or do they want to come clean to begin with and be honest brokers.

As Willie Stark famously said in All the King’s Men, “Time reveals all things, I trust it so.”

The @CMAgovUK UK Competition and Markets Authority’s Missed Opportunity: Reaction from @MrTomGray #BrokenRecord

The literature suggests that in the presence of…positive feedbacks [from the Get Big Fast strategy], firms should pursue an aggressive strategy in which they seek to grow as rapidly as possible and preempt their rivals. Typical tactics include pricing below the short-run profit-maximizing level (or even below the cost of goods sold), rapidly expanding capacity, advertising heavily, and forming alliances to build market clout with suppliers and workers and to deter entry of new players. Intuitively, such aggressive strategies are superior because they increase both industry demand and the aggressive firm’s share of that demand, stimulating the positive feedbacks described above.

Limits to Grown in the NEw Economy: Exploring the Get big Fast strategy in ecommerce https://scripts.mit.edu/~jsterman/docs/Oliva-2003-LimitsToGrowthInTheNewEconomy.pdf

By Chris Castle

You may have seen that the UK Competition and Markets Authority released a report on music streaming in the UK. Of course, because the same players dominate the UK market like they do in France…sorry, I meant Germany…sorry I meant Canada…sorry I meant Sweden…sorry I meant the United States…how different could the competition issues be for US artists and songwriters? You have the biggest corporations in commercial history (Apple, Amazon, Facebook and Google) and the “get big fast” wannabes like Spotify (and Pandora in the US) on one side, the three major labels and the music publishing affiliates on the other side and the artists, songwriters, indie labels, indie publishers and especially the session musicians and vocalists squeezed in the middle.

Plus you have all of the biggest of Big Tech companies as well as wannabe Get-Big-Fast acolytes like Spotify and Pandora setting almost identical price points and freezing them there for a decade while refusing to exercise pricing power and nobody finds that just a trifle odd? Then in the grandest of grand deflections passing this off as the “pie” that everyone should look at instead of acknowledging that it’s the poptart served at the kid’s table in the nursery instead of the feast at the adult’s table in the dining room where the gravy bowls of shares of public stock are handed out dot-bomb style with a side of advertising barter. All while singing an apologia for payola and consumer welfare based on cheapness? You know there’s another way to get really, really cheap goods for consumers that ain’t quite so well received in history.

And yet somehow the Competition and Markets Authority passes this off as good for the consumer? With no meaningful discussion of the Malthusian and anticompetitive effects of the pro-rata model and pretty much summarily ignoring the actual revenue earned by “successful” artists in the beggar-thy-neighbor pricing and revenue charade. Not to mention the complete failure to discuss the supervoting stock at Spotify, Google and Facebook and all the other accoutrements of power that give Daniel Ek, Martin Lorentzen, Tim Cook, Sergey Brin, Larry Page, Mark Zuckerberg and Jeff Bezos control over the global music industry–pale males one and all and also looking pretty stale around the edges the singularity notwithstanding. And then there’s Bytedance and Tencent.

The logic of the CMA in avoiding these issues rivals the Warren Commission’s Single Bullet Theory. But makes total sense as the triumph of the lobbyists for the biggest corporations in commercial history. And sometimes you just might find you get what you need.

We will continue to dig into this latest report and its methodology as will others like Tom Gray, the dynamic founder of the hugely effective #BrokenRecord campaign that led to this investigation which is not over by a long shot. Tom had this reaction to a what’s next question and we take his guidance:

The CMA’s initial findings are:

the music market doesn’t have much competition;

the actions of the Majors and DSPs actively reduce that competition;

artists and songwriters are mostly, if not entirely, doing badly out of it;

but they accept the status quo using the narrowest paradigm of competition and its value to the consumer. It doesn’t go near the fact that the Majors used market power to create the very ‘norms’ the report resigns us to.

A difficult read: one which points to the weakness or indifference of national ‘authorities’ in the face of the gross expansion of multi-nationals unfettered by regulation. Monopolies should be broken to protect citizens and workers, not only to defend consumerism’s need of a saving.

What’s most ironic is you could take the CMA’s findings to a different authority with a more progressive outlook and get a completely different result. They simply don’t seem to have considered it their job to care about the hugely visible negative consequences of concentrated power on musicmakers.

If you would like to tell the Competition and Markets Authority what you think about their statements they want to hear from you.

San Antonio Musicians: Texas Public Radio Presents the Music Artist Forum TODAY

Get more info and materials here

TPR Music Artist Forum | In Partnership with SLATT Management

Musicians of all ages are invited to a networking workshop and panelist discussion dedicated to understanding the future of music technology, copyright law, entertainment law, obtaining royalties, and navigation of music streaming services.

Address:

321 W. Commerce St, San Antonio, TX 78205

Doors open at 6:30pm. 

Panelist discussion will take place at 7:00pm.

Guest Panelists:

Ondrejia Scott | 7:00pm – 7:10pm

Chris Castle | 7:10pm – 7:20pm

Krystal Jones | 7:20pm – 7:30pm

Dr. Steven Parker | 7:30pm – 7:40pm

Linda Bloss-Baum | 7:40pm – 7:50pm

Food and drinks will be provided.

Musicians are welcome to submit an original track to be featured on our TPR Music Artist Forum playlist:

Professional headshots will be offered free of charge by Oscar Moreno.

We will be ending out the night with a special live performance by J. Darius live in the Malú and Carlos Alvarez Theater.

RSVP here to reserve your spot for this free event!

Save the date: A2IM Indie Week Panel with @musictechpolicy on the Impact on Indie Labels of Unfreezing Mechanicals

If you are coming to Indie Week, Trichordist readers might enjoy a panel Chris Castle is on to discuss the impact on indie labels of the Great Unfreeze! 

Entitled How the CRB’s Rejection of Frozen Mechanicals Will Affect Your Label?, the panel goes off at 10:30 am ET on Wednesday, June 15 at the New York Law School.

Speakers are Victor Zaraya: Concord (Moderator), Danielle Aguirre: NMPA (National Music Publishers’ Association), Glen Barros: Exceleration, and Chris.

If you want to read up on the issues that caused the Copyright Royalty Board to reject the failed settlement, here’s some background:

Copyright Royalty Board’s Rejection of NMPA, NSAI, Sony, Warner, Universal settlement

Copyright Royalty Board’s Reaction to Second Settlement Proposal by NMPA, NSAI, Sony, Warner and Universal

Survey Results from Songwriter Survey on Frozen Mechanicals

Comments:

Rosanne Cash

Helienne Lindvall, David Lowery, Blake Morgan

David Poe

Abby North, Erin McAnally, Chelsea Crowell

Kevin Casini

NMPA, NSAI, Sony, Warner, Universal Comment with Copy of MOU4

Chris will post about the panel afterward.

Unfrozen: What will the new physical mechanical rates do to or do for valuations? — Music Tech Solutions

There are some decades in which nothing happens and some weeks in which decades happen. This was one of those weeks. You no doubt have seen that the Copyright Royalty Judges offered a breath of fresh air in the contentious and labyrinthine Phonorecords III and IV proceedings by refusing to accept the insider “settlement”…but if mechanical royalties have been understated, what does it mean for catalog valuations in the past and in the future? Looking at you, Bob Dylan!

Unfrozen: What will the new physical mechanical rates do to or do for valuations? — Music Tech Solutions

Spotify’s ESG fail: Governance

This is the third of a three part post on Spotify’s failure to qualify as an “ESG” stock. 

[This is an extension of Spotify’s ESG Fail: Environment and Spotify’s ESG Fail: Social. “ESG” is a Wall Street acronym often attributed to Larry Finkat Blackrock that designates a company as suitable for socially conscious investing based on its “Environmental, Social and Governance” business practices. See the Upright Net Impact data model on Spotify’s sustainability score. As of this writing, the last update of Spotify’s Net Impact score was before the Neil Young scandal.]

Spotify has one big governance problem that permeates its governance like a putrid miasma in the abattoir: “Dual-class stock” sometimes referred to as “supervoting” stock. If you’ve never heard the term, buckle up. I wrote an extensive post on this subject for the New York Daily News that you may find interesting.

Dual class stock allows the holders of those shares–invariably the founders of the public company when it was a private company–to control all votes and control all board seats. Frequently this is accomplished by giving the founders a special class of stock that provides 10 votes for every share or something along those lines. The intention is to give the founders dead hand control over their startup in a kind of corporate reproductive right so that no one can interfere with their vision as envoys of innovation sent by the Gods of the Transhuman Singularity. You know, because technology.

Google was one of the first Silicon Valley startups to adopt this capitalization structure and it is consistent with the Silicon Valley venture capital investor belief in infitilism and the Peter Pan syndrome so that the little children may guide us. The problem is that supervoting stock is forever, well after the founders are bald and porky despite their at-home beach volleyball courts and warmed bidets.

Spotify, Facebook and Google each have a problem with “dual class” stock capitalizations.  Because regulators allow these companies to operate with this structure favoring insiders, the already concentrated streaming music industry is largely controlled by Daniel Ek, Sergey Brin, Larry Page and Mark Zuckerberg.  (While Amazon and Apple lack the dual class stock structure, Jeff Bezos has an outsized influence over both streaming and physical carriers.  Apple’s influence is far more muted given their refusal to implement payola-driven algorithmic enterprise playlist placement for selection and rotation of music and their concentration on music playback hardware.)

The voting power of Ek, Brin, Page and Zuckerberg in their respective companies makes shareholder votes candidates for the least suspenseful events in commercial history.  However, based on market share, Spotify essentially controls the music streaming business.  Let’s consider some of the  implications for competition of this disfavored capitalization technique.

Commissioner Robert Jackson, formerly of the U.S. Securities and Exchange Commission, summed up the problem:

“[D]ual class” voting typically involves capitalization structures that contain two or more classes of shares—one of which has significantly more voting power than the other. That’s distinct from the more common single-class structure, which gives shareholders equal equity and voting power. In a dual-class structure, public shareholders receive shares with one vote per share, while insiders receive shares that empower them with multiple votes. And some firms [Snap, Inc. and Google Class B shares] have recently issued shares that give ordinary public investors no vote at all.

For most of the modern history of American equity markets, the New York Stock Exchange did not list companies with dual-class voting. That’s because the Exchange’s commitment to corporate democracy and accountability dates back to before the Great Depression. But in the midst of the takeover battles of the 1980s, corporate insiders “who saw their firms as being vulnerable to takeovers began lobbying [the exchanges] to liberalize their rules on shareholder voting rights.”  Facing pressure from corporate management and fellow exchanges, the NYSE reversed course, and today permits firms to go public with structures that were once prohibited.

Spotify is the dominant streaming firm and the voting power of Spotify stockholders is concentrated in two men:  Daniel Ek and Martin Lorentzon.  Transitively, those two men literally control the music streaming sector through their voting shares, are extending their horizontal reach into the rapidly consolidating podcasting business and aspire soon to enter the audiobooks vertical.  Where do they get the money is a question on every artists lips after hearing the Spotify poormouthing and seeing their royalty statements.

The effects of that control may be subtle; for example, Spotify engages in multi-billion dollar stock buybacks and debt offerings, but has yet makes ever more spectacular losses while refusing to exercise pricing power.  

So yes, Spotify is starting to look like the kind of Potemkin Village that investment bankers love because they see oodles of the one thing that matters: Fees.

On the political side, let’s see what the company’s campaign contributions tell us:

Spotify has also made a habit out of hiring away government regulators like Regan Smith, the former General Counsel and Associate Register of the US Copyright Office who joined Spotify as head of US public policy (a euphemism for bag person) after drafting all of the regulations for the Mechanical Licensing Collective;

Whether this is enough to trip Spotify up on the abuse of political contributions I don’t know, but the revolving door part certainly does call into question Spotify’s ethics.

It does seem that these are the kinds of facts that should be taken into account when determining Spotify’s ESG score. At this point, it looks like Spotify is an ESG fail–which may require divesting by some of the over 600 mutual funds that hold shares.

20 Questions: An artist’s checklist for an NFT pitch

By Chris Castle

[This post first appeared on MusicTechPolicy.]

If you’ve been pitched to lend your name to an NFT platform or promotion, or if you are an NFT promoter who wants to attract artists to your program, there are some issues that should get addressed. Obviously, discuss all this with your lawyers since this isn’t legal advice, but the following are some issues that you may want to consider before you commit to anything.

As NFTs are priced in cryptocurrencies, a word about that. You should understand that cryptocurrencies use a huge amount of energy due to “mining” (See the Cambridge University bitcoin energy consumption index) and the current spike in the cost of energy is going to have an effect. Also realize that when someone tells you that an crypto enterprise is “green” you have to ask them what they mean exactly–for example, Google tells you that their data centers are “green” because they buy carbon offsets or use hydroelectric power from Oregon or wind farms in Nebraska (just ask Senators Ron Wyden and Ben Sasse), but that doesn’t mean that it doesn’t still take enough electricity to power Cincinnati in order to operate YouTube. There are no magic elves on golden flywheels producing electricity as if by magic. They still plug into the wall like everyone else.

1.  What artist rights are being granted and to whom?

2.  Does grant of rights match the project summary and are license agreement, smart contract, marketplace/auction TOS and cryptocurrency rules all consistent?  Has a subject matter expert been engaged to produce a report stating and certifying that the smart contract code implements the actual deal or needs to be revised?

3.  What royalty is paid and to whom and when?  Does artist, previous owner or charity participate in resale revenue after initial sale? Are any state or federal relevant tax rules implicated? What have you done to keep NFT revenue as far away from MLC as possible? (Remember that Etherium vehicle Consensys is somehow involved with the MLC.)

4.  Are there exploitation or marketing restrictions on the NFT that would prevent the NFT and artist name being used in ways that are offensive to the artist, at least during the artist’s lifetime? Could heirs enforce these rights?

5. Are there any third party payments involved like producer payments, production company overrides, or any third party rights involved, re-recording restrictions. Will any letter of direction be required, e.g., for producers?

6. Are you being asked to clear publishing? If someone is telling you that they have cleared publishing, has the publisher confirmed the license and are individual songwriters actually receiving a share of revenue? The tendency is that the major publishers “settle” these kinds of cases for a lump sum and prospective royalty, which may or may not be received by individual songwriters after multiple commissions being siphoned off the top.

7.  When does NFT terminate?  (On resale, transfer by owner, term of years)

8.  What is the governing law and venue?  (And how to enforce)

9.  Who maintains the blockchain and who is responsible for policing it? What happens if they fail to do so? (See my post with Alan Graham on this subject.)

10.  Is artist asked to make representations, warranties and indemnity?  Can the artist make such reps and warranties?

11.  Is indemnity capped?  

12.  Are there any active disputes among anyone in the chain on the NFT promoters’ side? (“Disputes” is any disagreements, including, but not limited to, litigation or threatened litigation.) Who will cover artist’s costs of defense?

13.  Is there insurance on chain of title, failure to enforce the smart contract, nonpayment, business risk?

14.  Can license agreement or smart contract be revised unilaterally?

15.  Is the NFT or NFT collection comprised of “generative art” or artwork created by machines, algorithms, artificial intelligence, and related technologies (i.e., potentially not capable of copyright protection)? What are implications for name and likeness rights.

16.  What assurances have been given to identify purchasers of NFTs to enforce terms or prosecute breaches for first or subsequent sales?

17.  Are any union rules implicated (e.g., SAG-AFTRA Basic Agreement Par. 22A)?  See my post on NFT union payments.

18. Is NFT or any NFT cash flows implicated in any sanctions placed on persons related to the Russian Federation? Given the strong reaction to Russia’s invasion of Ukraine, consider any implications if China were to invade Taiwan and similar actions were taken against China or China-based companies.

19.  Has NFT seller or marketplace obtained legal opinion regarding whether the NFT constitutes a “security” that would require sale by a registered securities broker-dealer or other regulatory oversight?

20. Are any state securities laws, tax laws or regulations, or “doing business” laws implicated or reporting obligations triggered?

Each NFT raises its own questions, so this checklist is just a starting point.  

@agraham999 and @musictechpolicy: Forever is a Long Time–thoughts on the state of NFTs

By Alan Graham and Chris Castle

If you’ve followed any of the drama surrounding the NFT music infringement marketplace Hitpiece, you know it has deservedly received a lot of grief—and at least one pretty potent cease and desist letter–for its blatant attempt at profiting from allegedly scraped IP it didn’t own. But the interesting thing is that it actually gives us an opportunity to discuss some of the greater potential challenges surrounding NFTs, and how it may in fact be impossible to live up to their promise. Let’s start by picking apart Hitpiece, and see where we get with this teachable moment.

Blockchains or databases that represent ownership, must have one trait in common to provide value, and that is a consensus mechanic whereby each party that is allowed to write data is known to the system, therefore the data that is written is trusted, and then all copies (or nodes) can commit these changes. Ta-da.  There is an inherent logic to the consenus mechanic.  It’s what Shawn Fanning’s SNOCAP accomplished with its registry in sharp contrast to the Wild West of p2p and essentially lies at the heart of Hernando de Soto’s extensive work in macroeconomics.  Good things can happen when people trust the system.

It’s also the starting point of what went wrong at Hitpiece.  Instead of using a blockchain solution like Ethereum, we’re told Hitpiece operates some kind of a “private blockchain.”

So what does that actually mean? It should suggest a distributed ledger, hosted by multiple separate parties to keep everyone honest, with a method of cryptographic consensus (who can write data, how are they known to the system, how is it trusted).  Remember, the definition of “good faith” is “honesty in fact” and it is an essential condition of contracts, all contracts be they smart or just human

The novel bit Hitpiece was doing, from what we can read, is that they were using regular credit card payments, not crypto, to allow collectors to mint/purchase the NFTs, which is actually very clever. Seriously, there’s no reason you have to use a cryptocurrency to pay for something, if you are in fact also hosting the blockchain/database. A private blockchain doesn’t need a cryptocurrency, it just needs trusted parties, and there’s the rub. Cryptocurrency is a sufficient condition of a successful NFT platform, but a trusted consensus mechanic is a necessary condition.

Now while we could go on and on picking apart many of the flaws in the Hitpiece model, it opens up a broader discussion that we’d like to have as to how NFTs plan to offer their grand promised future of benefits and entitlements (buy my NFT and get xyz). Whenever you challenge someone in the crypto space about how they plan to handle this, they simply say “smart contracts”, when what they really mean is, “I have no idea how/if this is going to work”.

Terms of Service

First, in order to have a product or service that you sell or provide online, there has to be a series of terms as to what is being purchased, who is paid each successive purchase price, what is being provided to the purchaser, and for how long. That means, in the case of a platform that allows creators to mint/sell/auction NFTs, the party that is minting/selling the NFT has to provide a Terms of Service as to what can be expected, not the platform. The platform is simply a service provider. It’s buyer beware, because the seller doesn’t necessarily have any technical solutions for supporting future benefits.  It’s also seller beware because if the initial seller specifies terms for the sale (and subsequent sales), there ought to be a believable and efficient way to enforce those future rights and post-sale conditions.

So if you are a creator promising this, you need to spell out what those might be, the term of that relationship, and be damn sure you can deliver on it. Likewise, if you are a creator being promised something will happen after the initial sale, you have to believe that your rights can be enforced in an efficient way (like the future sale can’t close without X being the case or $Y being paid to you).  This is a concern for both featured and nonfeatured recording artists (as well as union signatory record companies with collective bargaining obligations), plus co-writers of songs and their publishers.

To pluck two examples from the headlines on The Trichordist, Neil Young might want to place conditions on future NFT sales that have nothing to do with money;  elderly songwriters might want to be assured of a stream of future income from NFT sales that they can ill-afford to sue over.  This is not hard—it happens with real estate every day of the week in practically every country of the world (and was at the heart of Hernando de Soto’s “Peruvian miracle” that started with land reform).  If you don’t meet the sale conditions, you don’t close on the property and the title company won’t take money from the buyer or pay it to the seller.

Perhaps this is especially true of collectibles where resales may be part of the buying motivation.  (See for example, the pending lawsuit over the Quantum NFT against Kevin McCoy and Sotheby’s regarding the Namecoin blockchain that is for “slander of title” among other things—a real estate concept.)  The expectation most buyers will have is that the thing in question will live in perpetuity. For example, If you purchase a physical painting, you have the expectation of enjoying that painting as long as you possess it.

But what are your expectations regarding the NFT? This entire subject seems to be heavy on promises of future benefits and entitlements, but lacks any hard explanations of how that’s possible and for how long. That puts creators and collectors at great risk, because there’s no guarantee of being able to deliver on that promise—until there is. Technology practically assures us that whatever you buy today, will not necessarily work 10 years from now.  How’s that WordPerfect program working out for you?

Technical Challenges

The second issue we never see talked about derives from the first. It seems common for promoters to promise benefits/entitlements in the future from owning NFTs, but how? Where’s the mechanic that makes this possible? Simply saying “smart contracts” is just procrastinating and hoping something will exist later. In order to provide a series of benefits, like exclusives, you have to also provide a structure to interpret these, and we’re dealing with potentially thousands of intermediaries, and millions/billions of NFTs. We don’t have any idea how anyone expects this to work with the existing NFT model.

Say you want to provide exclusive first access to concert tickets to anyone who has a particular NFT. The ticketing site or agency has to be able to recognize this NFT and be able to trust it. One way to do this is they can run native code that runs independently on the site that can say, “I know this collectible” by being able to recognize who cryptographically signed something with a known set of keys. Or they could run an embed from a third party that did the same thing. The most secure way to do any of this is likely having more than one party sign the NFT to prove it is real, but not really something trustless blockchain folks like.

The ability to trust the NFT sale and automatically enforce the terms of each sale is vital for creator-driven NFTs.  If a creator places marketing restrictions on how the NFT can be used downstream, there ought to be a way to enforce those restrictions.  Recording artists and songwriters commonly have such restrictions in their artist or songwriter agreements with record companies or music publishers.  They have approval rights over how their works are used and they have blanket prohibitions.  Approval rights means they are asked before a license is granted by their label or publisher and they can sue if that fails to happen.  A blanket prohibition could, for example, prohibit the use of the work in a commercial promoting a product, say firearms, that the artist or songwriter doesn’t agree with, or a country whose laws the creator rejects, say Beastie Boys with China over Tibet, or a platform that distributes a podcaster the creator doesn’t want to be associated with.

The punchline there is why would a creator take, or allow their label or publisher to grant, lesser rights in an NFT than the creator has for the same work outside the NFT?

You Can Check Out Any Time You Like

Then we get into talking about serious security implications, as NFTs might have both a monetary value, and a potential “smart contract” that remunerates/rewards the purchaser, and has an ancillary connection to the collector’s wallet. Any compromise in this chain and you could not only put one creator or collector at risk, they could all be at risk including the seller (All apes, everywhere, stolen). A single errant smart contract or malicious developer, could put creators or downstream sellers at serious legal risk because they exposed the collector’s wallet to compromise. That means you’ll want to see that every NFT marketplace has serious security experience and precautions, but also as a collector, you’ll want to know that everything you purchase has an audit trail whereby you can verify the NFT is authentic and each link in the chain can be trusted.

That’s a whole lot of magical hand waving.  And title insurance or the equivalent.

In any case, not only does someone need to build, service, and maintain this, but also has to maintain it forever, and it can never fail.

And forever is a long time.

Not You, ARPU: Another Way to Value Streams on Spotify

[This post first appeared on MusicTechPolicy.]

By Chris Castle

I recently co-wrote with the noted international economist Professor Claudio Feijoo a paper for the World Intellectual Property Organization on a new “streaming remuneration” royalty to be paid to all musicians and vocalists by streaming services. Part of our justification for the new royalty is that these creators, especially “non-featured” musicians and vocalists are not paid at all for streaming which is rapidly replacing radio (for which they are paid through SoundExchange). The value that the streaming remuneration would try to capture is not just revenue based (which is how all streaming royalties are derived currently) but also derived from the market valuation conferred on companies like Spotify. Spotify remember is more like YouTube would be than say Google because it is essentially a “pure play” music stock, kind of like Pandora was.

Claudio has done considerable work on trying to capture and express this value, so for today let’s do some rough justice using one of the approaches from the paper. There are more bells and whistles to the calculation than I’m going to give you here, but you’ll get the idea that a stream is assigned a much, much lower value when calculated on the revenue side of loss-making organizations than when calculated on the extraordinary wealth-making side of the public markets valuation of Spotify. And if you want to make a causal connection between low royalties and high market value, who am I to stop you?

The formula is simple: Divide Spotify’s market capitalization by the number of royalty bearing streams in a month and you have a rough idea of how much value each stream confers on the monopoly streamer.

Spotify’s recent market capitalization is $41,056,000,000 give or take an Arsenal in the rounding. A recent number of monthly plays as reported by the MLC is 24,815,407,149.

Divide market capitalization by number of streams. The result is $1.65 per stream in market valuation. According to the last Trichordist streaming price bible, Spotify’s per-stream rate was $0.00348 and for songwriters, even less.

$1.65 versus $0.00348. Where oh where might that delta go? It goes somewhere and it’s not to the people who made them rich. Not a perfect metric, but you get the idea.

You might say how do they sleep at night? The answer? Sleeping very well on much nicer sheets than you, thank you, and for one reason–they do not give a flying hoot about your problems because Daniel Ek doesn’t think you’re working hard enough to make him and all his employees richer.