Artists Rights Advocates Make Gains in 2015… Web/Tech Admissions Laid Bare.

So many of the issues we’ve been talking about for years are finally becoming part of the larger and more mainstream conversations about artists rights and an ethical internet.

Seems like there is a little bit more than a slight draft blowing on house of cards that Silicon Valley has built. Here’s a quick recap.

FREE, UNLIMTED, AD-SUPPORTED, ON DEMAND STREAMING IS UNSUSTAINABLE.

Pandora CEO Mike McAndrews first started teasing this talking point during an earnings call in October. You can read those comments at Re/Code. But it was the more direct article McAndrew’s authored for Business Insider that really cemented what we’ve been saying all along…

“This gray market is unsustainable. If consumers can legally listen to free on-demand music permanently without converting to paying models, the value of music will continue to spiral downward to the benefit of no one.”

There is no turning back from this admission.

It’s funny how in years past so many in the music and tech communities could not and would not admit to this simple fundamental truth often telling musicians the true value of their platform was “exposure” so artists could “tour and sell t-shirts”. Well it now looks like the wheels have been run off that nonsense for good.

What would be really great is to see Pandora join the fight with artists against Ad-Funded Piracy. Pandora, Spotify, YouTube and every other Ad-Supported music platform must be aware of the fact that the downward pressure from these infringing pirate sites not only diminishes the value of music, but also the value of advertising on legitimate and licensed paltforms.

WINDOWING WORKS. ASK ADELE, TAYLOR SWIFT AND THE MOVIE BUSINESS.

Taylor Swift, Adele, Beyonce, Prince, Coldplay, The Black Keys, Thom Yorke and other artists have proved that Hits Don’t Need Spotify, but rather Spotify Needs Hits. The Wall Street Journal reports that Spotify is caving in on windowing.

Now, the service is caving in, according to people familiar with the matter.

In private talks, Spotify has told music executives that it is considering allowing some artists to start releasing albums only to its 20 million-plus subscribers, who pay $10 a month, while withholding the music temporarily from its 80 million free users. The company is only interested in withholding albums that can be kept off of other free music sites, such as Alphabet Inc.’s YouTube, for the same amount of time, one of these people said.

There is no turning back from this admission.

This means that Spotify has admitted that it is NOT a discovery medium, it is a retail outlet. Spotify is the digital cut-out bin offering the lowest amount of value to artists. The big problem for Spotify now is who decides who is a lessor or greater artist? Who is going to have that conversation with artists and managers that they are a lessor artist and not worthy of Spotify’s stamp of approval to only be streamed to paying subscribers? Ironically, but predictably the new boss is worse than the old boss.

As with Pandora’s admission about unlimited free streaming being unsustainable, Spotify also recognizes that Ad-Funded Piracy, particularly of the YouTube variety (and mentioned by name) must be managed effectively for windowing to work.

YOUTUBER’S GET PIRATED ON FACEBOOK EXACTLY HOW MUSICIANS GET PIRATED ON YOUTUBE, AND THEY DON’T LIKE IT.

Here’s a shocker. YouTuber’s who create original content through their own investment of time, money and resources are outraged when Facebook users “Freeboot” (aka Pirate) those videos depriving the original creator of the revenue. Hank Green writes a post on Medium that breaks it down.

According to a recent report from Ogilvy and Tubular Labs, of the 1000 most popular Facebook videos of Q1 2015, 725 were stolen re-uploads. Just these 725 “freebooted” videos were responsible for around 17 BILLION views last quarter. This is not insignificant, it’s the vast majority of Facebook’s high volume traffic.

There is no turning back from this admission.

Every argument that has been used against musicians, filmmakers and other creators for using the DMCA to protect their work suddenly takes on new dimensions when the tables are turned.

Larry Lessig had convinced a generation that they we’re being criminalized because musicians were “out of touch” with the “sharing economy”. When musicians issued DMCA notices to YouTube they were vilified, taunted and publicly shamed “Sorry that video is no long available due to a copyright claim by the artist.

THE DMCA IS NOT A “LICENSE” FOR INFRINGEMENT, COX LOSES SAFE HARBOR IN JURY VERDICT. 

Perhaps the single greatest ruling of the year involves Cox Communications losing it’s safe harbor under the DMCA. Digital Music News reports on the jury verdict.

Ultimately, the court found the situation to be more complicated than that, with Cox now ruled guilty of both contributory and willful contributory copyright infringement by a federal jury.  The jury award is $25 million, though that probably represents a small prelude to damages that could ultimately push into the hundreds of millions.

There is no turning back from this verdict.

For those of you keeping score at home it is the DMCA abuse that has been used as a shield against copyright infringement liability by the internet and web/tech communities. Many businesses including many ISP’s and content hosting platforms such as YouTube have used the DMCA to build massively profitable businesses that are largely comprised of infringing works, otherwise known as User Pirated Content. That may be about to change thanks to this ruling.

THE PIRATE / FREE CULTURE MOVEMENT HAS FAILED. 

In a recent interview Peter Sunde, the founder of The Pirate Bay, the flagship of the free culture movement admitted he had failed and was giving up. The most interesting admission by Sunde is at the end of the interview where he echoes what we and other’s have been saying for years.

So, is there like a concrete thing we should focus on? Or do we need to aim for a new way of thinking? A new ideology?

Well, I think the focus needs to be that the internet is exactly the same as society.

There is no turning back from this admission.

There is an excellent open letter in response to Sunde by David Newhoff at The Illusion of More that is well worth reading with a detailed look at why Sunde has failed. But it is Sunde himself who makes the most profound admission.

We have centuries of rule of law for civilized societies that respect and protect individual creators rights in the authorship of their work. The United Nations Universal Declaration of Human Rights, Article 27, part 2 states “Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.”

The greatest irony here is that Sunde set up The Pirate Bay as an attack on capitalism, but he started by attacking artist’s and creator’s moral rights firsts. The paradox of “pirate logic” expands when one recognizes that The Pirate Bay was said to be making over four million dollars year. Yeah, that’s the way to fight capitalism, attack the ability for artists to survive and pocket four million a year. We couldn’t make this up if we tried.

SO LETS CHECK THE MATH HERE AT THE END OF 2015

  • Pandora attacks Spotify stating the Unlimited, Ad-Supported, On Demand, Free Streaming is Unsustainble.
  • Spotify attacks YouTube stating that Windowing Can Only Work If Windows Can Be Enforced.
  • YouTuber’s attack Facebook stating that Stealing and Monetizing their work Without Permission is bad.
  • Cox Communications attacked the DMCA stating “F*ck The DMCA” and lost.
  • Peter Sunde attacks Capitalism stating that… oh well, forget it… it’s nonsense.

There is a lot of work to be done, however these admissions set the framework for the future of these conversations going forward.

jean michael jarre IRM 1

[NOTE : THIS ARTICLE WAS UPDATED ON SATURDAY DEC 19 TO ADD THE PARAGRAPH ABOUT COX COMMUNICATIONS]

Three Simple Steps To Fix The Record Business in 2016… Windows, Windows, Windows…

windows

This time last year we correctly predicted the restructuring of at least one major label group when we asked the question, “Who will be the First Fired Label Execs over Spotify Fiasco & Cannibalization?“. It didn’t take long for us to find out, “It’s Just Math : Digital Music Execs Exit, But will the Pivot to Paid Subs Be Enough To Save The Record Biz?” We’re still not sure that even paid subscription streaming actually works in the long term, but we know for sure that unlimited free streaming does not!

What a difference a year makes. What a difference Taylor Swift makes. What a difference Adele makes.

Going into the next year our prediction is that the power of windows can not be overstated as the leading solution to the problems faced by the record industry. Effective windowing has always been a part of the economic life cycle of every album release. The physical singles sales business (ya’ll remember 45 prm records, right?) – well, that was largely a loss leader to boost singles chart positioning that combined retail and radio reports.

In every record store there was the “hit wall” of discounted new releases to encourage higher volume sales. Every store stocked a robust variety of titles across different genres and price points comprised of front line titles, mid-line titles, budget line titles, and at the end there was the cut-out bin. Also, let us not forget the “11 records for a penny” record clubs advertised in magazines.

Those, my friends, are windows. Those who are advocating against windows are probably too young to know better or have been lead around by the nose by some digital snake oil salesman protecting their own interests.

This is not a philosophical discussion. This is financial reality. Respected stock analyst Robert Tullo who is the Director Of Research at Albert Fried & Company says this:

Longer term IP Radio and Spotify are good annuity revenue streams and great promotional tools. However, we believe the system works better for everyone when artists have the right to distribute their Intellectual property how they see fit.

Ultimately we think windows for content will form around titles that look much like the Movie Windows and that will be great for investors and the industry as soon as all these so called experts get out of the way and spot trading fashionable digital dimes for real growth and earnings.

Mr. Tullo is correct. Not only will artist (and rights holders) do better when they have the freedom of choice but so will the partner platforms. This is how it works in the film business. Every month the “virtual inventory” on Netflix is rotated. New titles come in, old titles go out. If you really, really, really want to see something right now, you have to rent it or buy it via a transactional stream or download. The record business will benefit from the same models and strategies. Windowing works. Period.

See here’s the thing… If these new digital platforms are so great for artists, why wouldn’t artists want to participate on them?  The benefits would be self evident? If the product that Spotify, Pandora, YouTube (and others) are offering is so good for artists, why are these companies so afraid of artists and rights holders opting out? Maybe, just maybe these platforms are not offering the type of value that their suppliers find meaningful?

It really speaks volumes when a business model is so bad that one of  the essential features for survival of the company is to deny its suppliers the option to fairly negotiate their participation or have the ability to opt out. In the old neighborhoods that was known as a protection racket, or extortion.

Silicon Valley didn’t invent the freemium, they’re just doing it wrong. Really wrong. Horribly wrong.

Let those who want to give away their work freely do so, but also allow those who would rather opt out the ability to do so. If artists find value in the freemium tier, and they may well as they always have, then let them chose how to best utilize that option. Musicians pioneered the freemium model often using street teams to canvas concerts by giving away cassettes to fans of similar music.

If digital platforms allowed artists to use their technologies creatively, everyone might be pleasantly surprised how much better (and more profitable) things would work out.

Watching Pandora lose $5 billion in value in a year becomes a punch line when they believe they are better suited to dictate to artists how to best communicate with their own fans. It is indeed interesting to see Pandora admit what we’ve been saying for years, unlimited, ad-supported free streaming unsustainable. No Kidding. Here it is from Brian Andrews, CEO of Pandora:

“This gray market is unsustainable. If consumers can legally listen to free on-demand music permanently without converting to paying models, the value of music will continue to spiral downward to the benefit of no one.”

Of course what makes this comment most interesting is that Pandora is entering the crowded field of on demand streaming with it’s purchase of the failed Rdio. Pandora now has to compete with Spotify’s very large free tier of unpaid and entrenched users. Migrating those users to a new on-demand streaming platform will be a challenge (ask Apple and Tidal), and even more so as artists and labels grow tired of subsidizing these horribly flawed business models.

Here’s three uses of freemium streaming most artists (and rights holders) would probably embrace if given the choice.

1: The Hit Single

– Using the freemium platform to launch a single to gain ubiquitous awareness of a new album release. This is what both Taylor Swift and Adele did and the results speak for themselves. More artists would probably embrace releasing one or two songs or singles from an album on freemium tiers. With the artists support this becomes far more valuable than extorting the them into releasing their entire album on a platform they feel devalues their work.

BONUS: What if Adele made an official playlist of her favorite songs, leading with her new single? How much added value does an artist of this caliber bring to a platform when they feel they are being respected and valued? Answer, ALOT.

2: The Focus Track

– Not everyone has a hit single, but most artists have a focus track from their album. Like the hit single, these artists would embrace the opportunity to be discoverable and to build an audience of new fans. Developing artists are the most eager to try new opportunities because the have the most to gain. If digital streaming platforms worked with artists in a meaningful and respectful way, the mutual benefits could be huge for everyone.

3: Rotating Inventory Management

– By adopting a Netflix like inventory management of monthly rotating titles on the freemium (or even paid subscription) tier more artists might feel compelled to be more engaged. Rotating inventory management is a smart way to keep users and fans engaged as old titles rotate out and new ones in. This simple trick restores a great deal of the consumer engagement that is a part of discovery, and promotion.

Of course, the goal of every freemium model is to lead to more paid revenues in higher value products. Working together with artists and rights holders the future of streaming distribution could be very bright. But to get there we need to let go of Stockholm Syndrome. the old neighborhood protection rackets, bullying extortion threats and just plain bad business models.

There is a lot that can be done in the world of streaming. Streaming is not bad, it’s just a technology. Free streaming and subscription streaming both have their place in the ecosystem. What is bad are the exploitative business models, lack of transparency and devaluation of the artists work. These are fixable issues that have nothing to do with technology, just a lack of common and business sense.

Quoted: Pandora CEO says free on-demand music streaming is bad | Silicon Beat

“This gray market is unsustainable. If consumers can legally listen to free on-demand music permanently without converting to paying models, the value of music will continue to spiral downward to the benefit of no one.”

Brian McAndrews, CEO of Pandora, in an op-ed published by Business Insider Tuesday.

Where have we heard this before? Now we wonder how long it may be until they acknowledge that Ad Funded Piracy Is Big Business?

READ THE FULL STORY AT SILICON BEAT:
http://www.siliconbeat.com/2015/12/02/quoted-461/

 


 

 

Streaming Is the Future, Spotify Is Not. Let’s talk Solutions.

 

Why Spotify is not Netflix (But Maybe It Should Be)

 

It’s Just Math : Digital Music Execs Exit, But will the Pivot to Paid Subs Be Enough To Save The Record Biz?

The problem is the music-streaming companies | The Hill – Paul Williams

Songwriters have a number of allies in the ongoing fight to update our nation’s horribly outdated music licensing laws. But after reading the recent post by CALInnovate’s Mike Montgomery (“Songwriters are fighting the wrong fight,” 10/5/15), it’s clear that he is not one of them. On what grounds can Montgomery, who represents technology industry interests, claim that he speaks on behalf of songwriters?

As a songwriter elected to represent the interests of ASCAP’s more than 550,000 music creator members, I find Montgomery’s arguments absurd and grossly misleading.

READ THE FULL STORY AT THE HILL:
http://thehill.com/blogs/congress-blog/technology/256247-the-problem-is-the-music-streaming-companies

Bumps Not Dumps: Merlin’s Pandora Catastrophe Continues

Merlin’s DMX-style direct deal with Pandora is the gift that keeps on giving.  As we expected, Pandora introduced their Merlin deal in the ratesetting preceding in Washington that sets all of our sound recording royalty rates for any service that uses the webcasting and simulcasting compulsory license.  This is done at the “Copyright Royalty Board,” which is three rate-court judges who rule on the rates we get paid on services like Pandora and Clear Channel/IHeartMedia.  This is different than the ASCAP and BMI rate courts for songwriters.

The way this works is similar to the “Chris Harrison Special” that DMX pulled with ASCAP and BMI.  The way this stunt works is that Pandora (under Chris Harrison’s guidance) goes out and finds some gullible label to make a direct deal with them at a low royalty rate.  (Harrison was the DMX lawyer who Pandora hired, likely because he did such a good job of screwing songwriters at DMX that Pandora wanted his special skills brought to their own end of the sty.  Harrison, aka Songwriter Enemy #1, has since gone on to greener pastures at SiriusXM where his special skills can be put to use in the Sirius direct licensing program–more on that later.)

They usually accomplish this by paying a big advance or giving the label some other incentive to make that direct deal.  Pandora then tries to use that low royalty deal as a “benchmark” for the Copyright Royalty Board to use as evidence of a market rate deal when setting the “willing buyer/willing seller” royalty rates that apply to everyone BUT the label that got the goodies for making the direct deal.

You can see that Pandora wants to make a direct deal with a royalty rate that is BELOW the current statutory rate that applies to the rest of us.  Why?  Because the assumption is that the current statutory rate will INCREASE in the current rate proceeding.  So if you’re Pandora, you want to try to find as many ways to screw artists and songwriters that you can, so you want to make as many of these “direct deals” as you can so you can put them in front of the Copyright Royalty Board to get the judges to IGNORE the goodies that incentivized the label to make the direct deal in the first place and ONLY look at the penny rate as evidence of an arms length “market rate” for the royalty rate that will apply to the rest of us who don’t get (and may not even want) the goodies.

The Chris Harrison Special

This is exactly the kind of “Chris Harrison special” that Pandora ran against us in the current rate setting (called “Web IV”).  The gullible label in this case is the Merlin label group.  What goodies did Merlin get?

1.   Advance:  Because we haven’t seen a copy of the Merlin deal with Pandora (or any side deals) we don’t really know what Merlin got in the way of an advance for Merlin labels or a flat fee for Merlin itself.  Even though Pandora had to file a copy of its Merlin deal with the Copyright Royalty Board in Web IV, the public version of that deal has the deal points blacked out.  That’s right–the very terms that Pandora and Merlin are using to screw the rest of us are secret.  Funny how The Verge hasn’t gotten a leaked copy of that deal.

2.  Steering Payola:  As David wrote in his comment to the FCC about the broadcasters request for a waiver of the payola rules, Pandora’s contract with Merlin allows Pandora to pay Merlin a lower royalty the more music they play from Merlin labels, called “steering”.  Remember–Pandora is now an FCC licensed broadcaster, so the payola rules apply to Pandora, and steering looks an awful lot like pay to play–a discount on royalties is just another form of payment.  David wrote the FCC to ask them to look into whether the Merlin steering deal with Pandora was even legal. Using forks and knives to eat their bacon!

3.  Direct Payments:  Merlin agreed that all artist royalties under the direct deal with Pandora should be paid through SoundExchange just like the compulsory license.  We really don’t know how this will work from a practical viewpoint.  This is kind of like what happens if a songwriter’s publisher pulls out of ASCAP or BMI because of the bizarre rate court rulings, but the writer wants to keep their writer’s share with their PRO.  It’s every bit as screwy.

We can’t believe that any Merlin label actually asked their artists if they wanted their records to be included in this direct deal rather than just get paid the compulsory rate directly from SoundExchange because the cost of accounting will probably exceed the royalty in many cases (through no fault of SoundExchange, by the way).  It appears that the only logical explanation for why Merlin wanted the artists to get paid directly in this screwed up deal was for the political cover it gave them.

Dumps Not Bumps

How is this fair for Merlin artists?  We’re not trying to speak for them, but by the looks of things, they need to wake up and smell the coffee.  We’ve heard of increases in royalty rate the better you do (“bumps”) but we’ve never heard of decreases in royalty rate the better you do (“dumps”).  Can you imagine the cocktail party conversation?  “Hey, man, I’m so special I get dumps from my label.”

It’s not enough that the royalty should be lower the more times you’re played or that your royalty should be lower the more times someone else is played, a deal that seems tailor made for the CRB to use to screw artists.  Surely that kind of royalty rate is not in anyone’s Merlin label record deal.

It’s also not enough that you don’t get told if there’s a Merlin side deal or what the terms of the Merlin side deal are, it’s not enough that your deal is going to be used by Pandora to screw every other artist–no, on top of it all, the cost of giving your label political cover has to make it so that the reporting administration for that political cover has to cost more than anyone else and may actually cost more than you make.

And who pays for that?  Who pays those additional reporting costs? Pandora?  Unlikely.  Merlin?  Even less likely.  More likely it’s SoundExchange, which may mean those costs (including the cost of fighting about it in the CRB) get “socialized” across all the featured artists, non featured artists and sound recording owners (often the same people at the featured artists).

How Can CRB Give Weight to an Illegal Payola Contract?

It’s pretty clear that the Copyright Royalty Board should give no weight to the Merlin contract in setting rates for the rest of us at least not until the FCC rules on David’s question to them in the Clear Channel payola waiver case.  Even if the FCC yields to Pandora’s lobbying power and upholds the deal, the Merlin deal still has nothing to do with anyone but Merlin, even if the steering contract isn’t illegal under the payola laws.

RAIN reports that Pandora is crowing about a ruling of the Register of Copyright that told the Copyright Royalty Board they were able to consider the direct deal as a “benchmark”:

The CRB judges asked for an opinion on the admissibility of specific direct-license benchmark agreements as evidence in their current proceedings. Today, the Copyright Office deemed that Pandora’s rate deal with indie label collective Merlin Network is admissible as a valid benchmark for the Copyright Royalty Board’s rate-setting proceedings.

Pandora’s antics would make you think they felt like they’ve won something major.  As we read the Register’s ruling, all she really said was that the CRB could consider “potentially probative benchmark agreements.”   We are mystified how a potentially illegal contract can have “potentially probative value” in setting the rates in a market that is itself defined by the compulsory license.

There’s a valid point to be made here that the CRB should not consider the Merlin deal at all when setting the compulsory rate because it really has no relation to everyone else’s deal.

Hopefully the CRB is on to Pandora’s “Chris Harrison Special” and will disregard it altogether.  Of course, if the CRB uses the Merlin rate minus goodies as a “benchmark” for our rates, then Pandora will have succeeded in screwing artists once again, and then we’ll all have to deal with that.

image

Streaming “Transparency” and the 70% Black Box Lie… The Solution Is #gettherateright

The argument goes something like this…

Streaming companies are paying 70% of their revenue but artists are not getting paid enough. This must be the result of record labels and rights holders not passing on the right amount to artists.

The first question is, how do we know that streaming services are actually, really paying 70% of their top line gross revenue to rights holders? We know what the revenue of a transaction is on iTunes, because it is factually transparent – it is the list price being charged. We all know this, and we can all verify this. A $9.99 album on iTunes pays out $7.00, or 70%. Same thing for a $.99 song that pays out $.70, that’s also 70% of revenue.

But when if comes to streaming services however we do not know what the revenue is that should be credited to artists and rights holders. This is what is actually of concern. There is a big black box at the top of the waterfall from which all other money flows downstream.

So if streaming services are paying 70% of revenue, what exactly is that revenue? Let us see it. So here we are with the issue of transparency. If we can’t actually see or know what that number is then yes, the low payouts are very much of concern and have very little to do with intermediaries.

We can disagree about how the 70% of revenue is passed onto artists from iTunes and other transactional sales. But one thing is clear, we all understand the transparent economics of how much money is generated on each transaction. This is not so with streaming. So without transparency at the top of the waterfall, everything that follows is suspect.

More importantly, and more to the point, if there are established retail and wholesale rates for each stream, the calculations become immediately transparent in the same way they are with Itunes. See, the issue here is not what is going on downstream, but rather what is happening at the top of the waterfall.

“WE HAVE A MONETIZATION PROBLEM”

The truth is by now (and everyone should be able to agree on this), we know that streaming creates too little revenue relative to the value of the product. In other words the product is being sold to the consumer for less than the cost that it takes to create and produce it, and still remain sustainable.

In simple terms this is expressed as selling a Porsche for one dollar. It doesn’t matter how many Porsche’s you sell for one dollar while paying out 70% of the revenue, there will never be enough money to actually pay for the cost producing the car. Porsche’s, like professional music are expensive to produce. Despite the advances in recording technology, it is he cost of human labor that is the most important in the value chain.

This is the economics of music streaming in a nutshell, but with one added twist. The Porsche may be sold for one dollar one month, and be sold for only eighty cents the next month, and maybe the month after that sold for a dollar and ten cents. This is because of the fixed (and unsustainable) revenue pool that is divided by the total number of plays.

The common sense solution would be to establish a fixed per stream rate at each platform. This is the most simple way to encourage transparency and fairness as the revenue generated per stream can be transparently and easily calculated from top line data – no more black box at the top of the waterfall. The funny thing is, the people shouting the loudest for transparency also seem to be the most opposed to the easiest solution. Why is that?

So, if we are to have conversations about transparency let’s at least be clear about what it is that we actually need to see.

 

Why Apple Music and Tidal are the right business models with the wrong optics.

Since Spotify launched in 2010 the music business has been in an existential crisis. Convinced that ad-supported unlimited free access to on-demand music would ultimately grow recorded music revenues the major labels opted into what may be their worst decision ever. This decision aided by an estimated 18% (or more) equity position in Spotify has not grown overall music revenues over the past five years. In fact, for the year ending 2014 global revenues reported by the IFPI stated that revenues were at the lowest point in decades. So what to do?

For starters the first and most obvious solution would be to eliminate the unlimited ad-supported free access to on-demand music. This is the model that made ad funded, for profit piracy so popular on over half a million infringing links from unlicensed businesses served by Google search and delivered to your inbox by Google Alerts complete with social media sharing buttons. These unlicensed businesses are receiving hundreds of millions of DMCA notices annually from artists and rights holders. Let us not forget that this is also the same model that Daniel Ek helped to perfect as the CEO of u-torrent the worlds most installed bit-torrent client. Ek has said he’d rather shut down Spotify than give up his failed ad supported business model.  We thought Spotify was built on converting ad supported (where Spotify board member Google makes money serving ads) to subscription (where artists make money).  So much for that.

And this is who the record business is taking notes from? Perhaps that’s why Universal is restructuring.  This may have seemed like a good idea to some senior executives but it turned out to be a complete disaster.  Time to change.

Despite moves in the right direction by Tidal and Apple Music the optics for both of these companies at launch of their respective streaming models have been somewhere between missteps and an absolute disaster. Dismissing for a second that both Apple and Tidal could be the targets of public relations campaigns by competing corporations such as Spotify, Pandora and Google (YouTube) let’s look at what each is offering. Tidal and Apple Music offer no unlimited ad-supported free access to on-demand music. That means no business to those selling advertising… like, Google.

There is nothing more important to the future of the recorded music ecosystem than removing the unlimited ad-supported free access to on-demand music.

For all intents and purposes even free streaming is ownership and here’s how you can tell. If you can chose it, and access it, you essentially own it whether you pay for it or not. Streaming replaces ownership at the consumer level but does not compare to ownership on price. At some point there needs to be a market correction to properly value music consumption.

The launch of Tidal should have been a rallying cry for all artists to support a business model that limited free streaming, incentivized paid subscriptions through exclusive offerings and diversified consumer experiences with higher quality streaming formats. This is the model we should be focused on. As the Buddhist saying goes, “trust the teaching, if not the teacher.” In other words it doesn’t matter if you don’t like Jay-Z and Madonna.  And securities laws makes the whole stock issue so difficult that Tidal would have been far better off saying they’d pay all participating artists a bonus in the cash from the company’s own stock sales rather than get down the rabbit hole of who gets stock and who doesn’t.

Unfortunately the celebrity that could have united a community, instead divided it through messaging that most would acknowledge appeared to be less than inclusive. Worse, the optics appeared to be elitist whereby those already rich and famous seemed to be more focused on their own fortunes as opposed to a sustainable ecosystem for the next generation of musicians.

Perhaps if each of the artists at the Tidal launch would have appeared with a developing artist they were supporting the messaging and optics would have been more inclusive and more about community than celebrity.

We have to acknowledge what kind of business we want going forward. Clearly, unlimited ad-supported free access to on-demand music is not working. Both Tidal and Apple Music do NOT have unlimited ad-supported free access to on-demand music. So what’s the problem?

Following the Apple Music launch Spotify announced it had achieved 75m global users (we love that, “users” no kidding) and 20m paid subscribers. So let’s look at the numbers in relationship to what Apple Music could bring to the market place. Keep in mind that 55m of Spotify’s user base are NOT paying for the service. Based on reporting we’ve been provided the free tier accounts for 58% of plays which is only 16% of the total revenue.

With all the back and forth between Apple and labels and the announcement last week by NMPA of the publisher’s deal—freely negotiated without government “help” by the way–it’s pretty clear that Apple announced Apple Music without all their ducks in a row contractually.  This opened up an opportunity for haters who are just gonna hate.  Now that the picture is becoming a bit clearer, we feel more confident than ever that most of the noise is coming from competitors who would like to create yet another consent decree situation but this time for artists and record companies.

So there are a few questions we need to ask about the launch of Apple Music to evaluate the trade-off for eliminating the unlimited ad-supported free access to on-demand music. But before we ask those questions, we need to understand the mechanics of the Apple Music ecosystem.

First, the 90 days free without payment at launch requires the understanding that all consumers will get 90 days free at Apple Music whether they sign up at launch or at any other point later. This means that some people will opt in at launch, some will opt in at some later time. Based on what we have seen of how these streaming subscription services scale we have to ask a few questions.

How many people will have access to opt into Apple Music Streaming on launch? We’ll assume it’s the entire installed user base who upgrade into iOS 8.4. Here’s some back of the napkin math from the iPhone 6 launch when Apple dropped that U2 album into everyone’s Itunes.

According to CBS News 33 Million people of the 500 Million Global Itunes users “experienced” the U2 album. That’s just 6.7 percent of Apple’s reported consumer base.

So what kind of adoption and conversion rate could one expect from the launch of Apple Music? 10 million paid subscribers? 20 million paid subscribers? 50 million paid subscribers? It’s hard to know, but anything north of 20 million pretty much beats Spotify on paid subscribers.  And if you are looking for the company that has defined a paid music service, who you gonna call?  Apple or Spotify?  Who do you trust going forward?

What if Apple is able to convert 30 million or more consumers to paid streaming in only four months when it has taken Spotify five years to acquire 20 million paid?


BREAKING NEWS AT PRESS TIME. APPLE WILL PAY ARTISTS DURING THE FREE TRIAL PERIOD!
Apple Reverses Course, Will Pay Artists During Apple Music Free Trial | Mac Rumors


Of course, Apple should use a couple of bucks from it’s 178 billion dollars in cash reserves to compensate musicians for the consumption of their music during the initial 90 day launch of Apple Music. This would  incentivized artists to promote the service as being both fair and artist friendly and give Apple the thumbs up from the people that matter the most, the artists themselves. Apple’s purchase of Beats was a three billion dollar acquisition, so surely there’s enough money in those coffers to pay artists something.

To put these numbers into perspective Spotify claimed to have paid artists and rights holders two billion dollars globally from it’s initial launch in 2008 through October of 2014.

Here’s some more perspective from asymco.com: In 2012, global music revenues were reported at $16.5 billion, with $5.6 billion coming from digital music. Of that $5.6 billion in music downloads, Apple paid labels $3.4 billion for iTunes sales, which is about 60% of the total digital revenues industry wide—IN LESS THAN ONE YEAR.

In 2012, Apple’s transactional digital model created more revenue for artists and rights holders in less than a year in then it took for Spotify to earn almost 6 years.

If we want to break the death spiral of unlimited ad-supported free access to on-demand music we have to embrace the trade-off of offering limited free trial periods as an incentive for consumers to make the switch.

And by the way—compare the classy way that Eddie Cue of Apple handled Taylor Swift compared to Daniel Ek who comes off like a semi-stalker.  Who understands artist relations the best?

The problem with ad-supported unlimited free access to on-demand music is illustrated below showing Spotify domestic streams and revenues. It’s just math and it’s time to move on. Apple Music and Tidal are showing us the way.

 

Digital Media Association (DiMA) Always Against Musicians

Who is DiMA? Glad you asked, the Digital Media Association. Why do we care? Well, because they are actively working against artists rights. How do we know? Three words… “Defending Against Songwriters”. Yes, DiMA is dedicated to “Defending Against Songwriters” because, you know songwriters are a force that businesses need to defend themselves against.

Wow, really? Seriously? Ok, check it out…

DimaDoubleDipSongwriters

But lets take a look below where current DiMA policy positions are directly in opposition to artists and songwriters rights.

DiMA supports Pandora buying a terrestrial radio station in an effort to lower the royalties Pandora will pay to songwriters.

DiMA is opposed to the Fair Play, Fair Pay Act that would pay performers a terrestrial radio broadcast royalty.

DiMA is opposed to The Songwriter Equity act that would allow songwriters the ability to negotiate fair market rates for their work.

DimaPOlicyAgainstArtists

Who would work with DiMA that wasn’t forced to via statutory rates and rate courts?

 

 

NP AAAARGGHHHHH: @NPR CEO Jarl Mohn Funded Piracy Client Vuze and Vuze Sponsors Torrent Freak

We’ve been reporting for the last few days on NPR joining Pandora, Clear Channel, National Association of Broadcasters and Google in the MIC Coalition which seeks to lower rates paid to artists and to keep songwriters under DOJ supervision (because what these large corporate and state chartered near monopolies need is  “anti-competition” protection from songwriters?  WTF?).

This has puzzled us because NPR already enjoys a dramatically lower royalty rate than most other radio.  Further we artists often waive our rights and allow NPR use of our recordings royalty free  in perpetuity.  We willingly support NPR in this manner because we believe they provide a public service. We have been a solid ally of public and community radio. Why would they turn against us and join this dark side coalition?

Now we think we have the answer.

NPR CEO Jarl Mohn is a card carrying member of the dark side. He funded the  bittorrent piracy client Vuze not once but twice.  He was part of the B series round of $12 million and the C series round of $20 million.  And make no mistake Vuze is a key part of the piracy ecosystem.

Yeah yeah yeah, we heard it before:  “Vuze is just a tool and they don’t profit from piracy”  Bullshit.  Vuze profits directly from the illegal distribution of my material by knowingly serving advertising against it.

Allow me to demonstrate with the tracks from my latest album.

Screen Shot 2015-05-02 at 10.58.33 PM

This is a screenshot of the Vuze client while downloading an unlicensed copy of my new album Berkeley to Bakersfield.  Down in the left hand corner there is an ad for American Express served by the publicly traded web advertising firm Quantcast. (Coincidentally a couple of years ago I privately defended Quantcast against similar charges, now I feel like a fucking idiot.)

To be clear this is not a webpage and ad exchange banner advertising. No one played some “tunneling” or DNS forwarding trick to make American Express and Quantcast think it wasn’t advertising on this site.  This advertising  is embedded into a piece of software that is used almost exclusively for downloading illegally distributed films music and pornography. How does American Express not know this? Quantcast? Or Jarl Mohn?

How did NPR come up with a CEO  with such questionable ethics?  This guy had to know what he was funding: A tool to infringe the rights of artists on global scale.  If not he’s really really dim.

 

Screen Shot 2015-05-02 at 7.34.39 PM

 

But it gets worse. The piracy advocating website Torrent Freak appears to be sponsored by the very same company: Vuze.   That’s right the piracy revolution will not be televised but it will be sponsored by amoral Silicon Valley Venture Capitalists.   You really thought Torrent Freak was an ideological true believer fighting for your rights to “share” against the man?  Nope looks they are the marketing department for the man who makes advertising money off of your sharing activity.  

Tool

Here’s a screenshot from the Torrent Freak website helpfully alerting it’s readers to availability of the leaked Game of Thrones Season 5 on Kick Ass Torrents and the Pirate Bay.   Look carefully at the code.  The ad for Vuze isn’t just randomly served by some online adexchange. It’s embedded into the site.  Someone had to go in and place that link and that JPG into the code.  Plus the visible text actually claims them a “sponsor.”

So you are really gonna tell me with a straight face that no money is changing hands here?  Vuze is not paying “Ernesto” the editor of Torrent Freak?  While Ernesto is pretty much inducing piracy and giving advice on how to avoid prosecution?

How is this not a conspiracy?  I mean conspiracy like  RICO Conspiracy (See details below).

And it all started with money from NPR CEO Jarl Mohn.

Fire this guy.

NPR affiliates, DJs, Journalists and independent public radio stations need to stand with artists against these assholes. Heres our olive branch.  Please join us.

Otherwise?

It’s Torches and Pitchforks time.  It’s not gonna be prett.y

+++++++++++++++++++++++++++++++++

STOP IF YOU DON’T WANT TO GO INTO A DEEP DIVE ON RACKETEERING AND CORRUPT ORGANIZATION (RICO) STATUTES.

+++++++++++++++++++++++++++++++++++++

I’m not a lawyer but the intent of the law seems pretty clear. To prevent groups of people-even if only informally organized-from engaging in coordinated criminal activity.  Specifically when it disrupts legitimate marketplaces like those for recorded music or online advertising.

“RICO is designed to attack organized criminal activity and preserve marketplace integrity by investigating, controlling, and prosecuting persons who participate or conspire to participate in racketeering.” Black’s Law Dictionary 1286 (8th ed. 2005).  

There are a host of organized “scams” that generally occur in the peer to peer advertising ecosystem including within the Vuze client. Maybe there are some prosecutors or litigators out there who can help me with this? Aren’t the following part of the RICO statute?

1)  Mass copyright infringement.

2) Advertisers publicly claim to not know where there ads are being served.  If this is true then there is fraud going on.  Someone along the way, advertising agencies, ad exchanges, and/or companies like Vuze are behaving improperly. Since it involves the online ad ecosystem wouldn’t this be Wire Fraud?

3) Uh… how do I say the obvious? P2P networks have a lot of pornography?  A lot!     I could be wrong, but I can’t imagine illegal pornography isn’t also being monetized with advertising as it’s transferred using the Vuze client.  How can you possible be allowed to make money off of illegal pornography and not be prosecuted?

4) Anyone visiting a site like The Pirate bay has probably noticed the relentless advertising for Russian or Asian Brides.  Human trafficking anyone?

5) These same sites often feature ads for third party websites that claim to enroll applicants into a  “US Green Card Lottery.”   The US has never used third parties for its “Diversity Visa” program and at the present time the US is not accepting applications for diversity visas.  All websites advertising for the 2017 lottery are highly suspect.  (An early version of this article made it seem as if the US never had a Diversity Visa or “Green Card Lottery” that was incorrect). 

Now check out the RICO definitions. My bold italics added.

18 U.S. Code § 1961 – Definitions:

As used in this chapter—
(1) “racketeering activity” means (A) any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), which is chargeable under State law and punishable by imprisonment for more than one year; (B) any act which is indictable under any of the following provisions of title 18, United States Code: Section 201 (relating to bribery), section 224 (relating to sports bribery), sections 471, 472, and 473 (relating to counterfeiting), section 659 (relating to theft from interstate shipment) if the act indictable under section 659 is felonious, section 664 (relating to embezzlement from pension and welfare funds), sections 891–894 (relating to extortionate credit transactions), section 1028 (relating to fraud and related activity in connection with identification documents), section 1029 (relating to fraud and related activity in connection with access devices), section 1084 (relating to the transmission of gambling information), section 1341 (relating to mail fraud), section 1343 (relating to wire fraud), section 1344 (relating to financial institution fraud), section 1351 (relating to fraud in foreign labor contracting), section 1425 (relating to the procurement of citizenship or nationalization unlawfully), section 1426 (relating to the reproduction of naturalization or citizenship papers), section 1427 (relating to the sale of naturalization or citizenship papers), sections 1461–1465 (relating to obscene matter), section 1503 (relating to obstruction of justice), section 1510 (relating to obstruction of criminal investigations), section 1511 (relating to the obstruction of State or local law enforcement), section 1512 (relating to tampering with a witness, victim, or an informant), section 1513 (relating to retaliating against a witness, victim, or an informant), section 1542 (relating to false statement in application and use of passport), section 1543 (relating to forgery or false use of passport), section 1544 (relating to misuse of passport), section 1546 (relating to fraud and misuse of visas, permits, and other documents), sections 1581–1592 (relating to peonage, slavery, and trafficking in persons)., [1] section 1951 (relating to interference with commerce, robbery, or extortion), section 1952 (relating to racketeering), section 1953 (relating to interstate transportation of wagering paraphernalia), section 1954 (relating to unlawful welfare fund payments), section 1955 (relating to the prohibition of illegal gambling businesses), section 1956 (relating to the laundering of monetary instruments), section 1957 (relating to engaging in monetary transactions in property derived from specified unlawful activity), section 1958 (relating to use of interstate commerce facilities in the commission of murder-for-hire), section 1960 (relating to illegal money transmitters), sections 2251, 2251A, 2252, and 2260 (relating to sexual exploitation of children), sections 2312 and 2313 (relating to interstate transportation of stolen motor vehicles), sections 2314 and 2315 (relating to interstate transportation of stolen property), section 2318 (relating to trafficking in counterfeit labels for phonorecords, computer programs or computer program documentation or packaging and copies of motion pictures or other audiovisual works), section 2319 (relating to criminal infringement of a copyright), section 2319A (relating to unauthorized fixation of and trafficking in sound recordings and music videos of live musical performances), section 2320 (relating to trafficking in goods or services bearing counterfeit marks), section 2321 (relating to trafficking in certain motor vehicles or motor vehicle parts), sections 2341–2346 (relating to trafficking in contraband cigarettes), sections 2421–24 (relating to white slave traffic), sections 175–178 (relating to biological weapons), sections 229–229F (relating to chemical weapons), section 831 (relating to nuclear materials), (C) any act which is indictable under title 29, United States Code, section 186 (dealing with restrictions on payments and loans to labor organizations) or section 501 (c) (relating to embezzlement from union funds), (D) any offense involving fraud connected with a case under title 11 (except a case under section 157 of this title), fraud in the sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or otherwise dealing in a controlled substance or listed chemical (as defined in section 102 of the Controlled Substances Act), punishable under any law of the United States, (E) any act which is indictable under the Currency and Foreign Transactions Reporting Act, (F) any act which is indictable under the Immigration and Nationality Act, section 274 (relating to bringing in and harboring certain aliens), section 277 (relating to aiding or assisting certain aliens to enter the United States), or section 278 (relating to importation of alien for immoral purpose) if the act indictable under such section of such Act was committed for the purpose of financial gain, or (G) any act that is indictable under any provision listed in section 2332b (g)(5)(B);
(2) “State” means any State of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States, any political subdivision, or any department, agency, or instrumentality thereof;
(3) “person” includes any individual or entity capable of holding a legal or beneficial interest in property;
(4) “enterprise” includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity;

screenshot-www vuze com 2015-05-03 18-48-20

 

screenshot-www crunchbase com 2015-05-03 18-46-16

 

 

 

 

 

 

 

Artist Rights Villians: Pandora’s Christopher Harrison

It’s common for lawyers to try to defend their poor moral choices in clients by saying, “I was just the lawyer,” kind of like “I was just following orders.”  If you were talking about a criminal defense lawyer or someone who chose to defend a controversial bad guy because everyone is entitled to a defense, that would be one thing.  Particularly if the lawyer was a poorly compensated public defender.  But when you’re talking about someone who takes a job complete with stock options that makes them rich, that “I was just the lawyer” thing is harder to rationalize.

Pandora’s Assistant General Counsel Christopher Harrison not only brings with him the Pandora baggage, but as Billboard reports, he’s seen this movie and he knows how it ends.  In Billboard’s post about the payola issues in Merlin’s direct deal with Pandora we discover some details about Harrison’s past that every artist and songwriter should know:

Merlin’s critics [who might they be, we wonder?] say the deal could backfire on artists and labels in another way. They point out that if incremental play produces an overall average per-stream royalty rate that is lower than the statutory rate, the Copyright Royalty Board could take the lower number as the market rate and lower the overall statutory figure in its revisions.

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

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

Harrison seems to have a thing about screwing artists and especially songwriters.  As Billboard reports, he has a particular modus operandi of twisting up a combination of direct deals with the government rate court’s boot on songwriters necks to profit his company and ultimately himself.  As former Googler Tim Quirk might say, Harrison  seems to have a royalty fetish.

You might even think that Pandora hired Harrison because he already made his bones screwing songwriters while he was at DMX.  Being “just the lawyer” when a certain group of people gets screwed once might be coincidence–but doing it twice at both DMX and Pandora is a little too coincidental.  What will he do for an encore?  You might get the idea that the guy actually likes it.

Meet the new boss, worse than the old boss–and we won’t get fooled again.