You Don't Own What You 'Bought': Disney And Amazon Play The Role Of The Grinch In Taking Back Purchased Film

from the ownership...-wazzat? dept

We've discussed many times before how, in the digital age, you no longer really seem to own what you've "bought." Instead, you're getting a temporary license, and at times that means that the copyright holder and partners can remove it. In a story making the rounds this week, it appears that Amazon pulled the film Prep and Landing 2 just in time for Christmas! The issue came up when Bill Jackson settled down to watch the video -- which he "bought" last year -- with his two kids, aged two and eight. It didn't work and he contacted Amazon to find out what was up. Despite the fact that when he paid the $3, he was told it was to allow him to "watch and re-watch as often as you like" Amazon told him that Disney had asked them to pull it, and they did so:

Amazon has explained to me that Disney can pull their content at any time and 'at this time they've pulled that show for exclusivity on their own channel.' In other words, Amazon sold me a Christmas special my kids can't watch during the run up to Christmas. It'll be available in July though!"

Amazon did give him a $25 credit as an apology, and then when the story started making news, Amazon changed its story claiming it was something else:

Amazon blamed the removal on "a temporary issue with some of our catalog data" which it says has been fixed, adding that "customers should never lose access to their Amazon Instant Video purchases."

"Should" never lose access is quite different from "will" never lose access. Just the fact that Amazon has the power to take back what you've bought should be a pretty big concern for those who think that they're actually buying what they've been told. As some have noted, Amazon's terms of service appear to give it the right to do exactly what the original version described:

Availability of Purchased Digital Content. Purchased Digital Content will generally continue to be available to you for download or streaming from the Service, as applicable, but may become unavailable due to potential content provider licensing restrictions and for other reasons, and Amazon will not be liable to you if Purchased Digital Content becomes unavailable for further download or streaming.

While it is true that buyers can download copies and this only impacted the streaming versions, it still seems rather troubling that people who thought they were buying something found out that they weren't. This is one of the many reasons why people are so concerned about these kinds of offerings. They know that you're no longer really "buying" anything, but getting a (very) limited license.

Filed Under: buying, copyright, licensing, movies, prep and landing 2, streaming
Companies: amazon, disney

German Copyright Troll Sends Thousands Of Shady Demand Letters To Users Of Streaming Porn Site, Redtube

from the this-again? dept

Online porn is big business, perhaps not so much for pornographers as it is for copyright trolls and anxious government entities. Urmann and Colleagues (U+C), a German copyright troll, is continuing the settlement letter tactics it began last year. The difference this time is that rather than pursuing downloaders via torrent tracking and threatening to out them as porn watchers if they don't pay up, U+C is now targeting viewers who have streamed allegedly infringing content from porn aggregator Redtube.

Tens of thousands of German internet users have been sent threatening letters by a law firm apparently acting on behalf of a rights-holder, on the basis that they watched copyrighted material on the pornographic video-streaming site Redtube.

The letters, issued by law firm U + C on behalf of Swiss firm The Archive AG, demand €250 ($344) per watched clip. The films in question include titles such as “Hot Stories” and “Amanda’s Secrets.”

According to the source article, a Cologne-based lawyer estimates that, based on the number of calls he alone has received, U+C has targeted 20,000-30,000 viewers.

There are multiple problems with what's going on here. First of all, The Archive AG is itself a "copyright protection" company, meaning it's acting on behalf of the porn producers through U+C, rather than producing the porn. Beyond that, the titles listed in the letters (Miriam's Adventures, Amanda's Secret, Dream Trip, Hot Stories) show up in searches only a) as part of articles detailing U+C's actions or b) as the unrelated names of websites and blogs. If this porn exists other than on Redtube, it's not easily located on the web.

Furthermore, U+C offers no proof that these titles were uploaded to Redtube without permission. On top of that, there's plenty of legal questions surrounding the supposed illegality of viewing infringing streams, especially since users are never fully in possession of the infringing content. Even if they were in possession of the video (however temporarily), German law allows for "private copying" without legal penalty.

Then there's the question of how U+C obtained IP addresses. Data on streaming viewers isn't as easy to obtain as it is with torrent services.

As for how the viewers’ IP addresses were identified, that also remains a mystery for now. The itGuards “Gladii” software mentioned in court records is reportedly only designed for monitoring file-sharing networks. File-sharing is easier to monitor in this sense, as IP addresses are there for the harvesting unless the user deploys a VPN or proxy.

Some have suggested that users were targeted with malware that harvested their IP addresses. If so, this would be a new low for a particularly obnoxious facet of the copyright industry.

According to the source article, U+C apparently misrepresented Redtube as a file sharing site ("swap meet" in the original article) in order to obtain court orders demanding the release of subscriber IP addresses.

What this looks like is Prenda-type tactics. Misrepresentation to the court. Possible honeypot deployment (the porn titles seem to be nonexistent). Shakedown letters sent en masse. And, going one step further than the most infamous of porn copyright trolls, the possible deployment of malware to track IP addresses. (Google currently indicates that Redtube "might be hacked.")

With the ownership of the disputed clips almost impossible to verify and U+C's tactics crossing the line from "shady" to "possibly illegal," lawyers in Germany are advising recipients of the demand letters to ignore them for the time being and by no means encourage U+C by paying the legally dubious fee. Of course, it will probably take more than this to discourage U+C. Settlement letters are generally issued on the same principle as mass mailing: a 1% response rate is more than enough to cover the expenses incurred.

Filed Under: copyright, copyright troll, germany, streaming
Companies: porn, the archive ag, u+c, urmann and colleagues

Billy Bragg Says Don't Blame Spotify; Blame The Record Labels

from the there-we-go dept

There's been so much misguided hatred towards successful internet music services lately, with the main targets being the most successful: Spotify and Pandora. Could those services be doing better? Yes, absolutely, but so much of the the hatred seems incredibly misplaced. Here are services that are actually paying artists, and that have built platforms that millions upon millions of people love. Many of the complaints about the "low payout" numbers involve people totally misunderstanding the data as well. But there's also been one elephant in the room which hasn't received as much attention: Spotify and Pandora pay the record labels, since they hold the copyright. Often, a big part of the problem is that the labels then do everything to avoid paying the artists.

In the past, I've disagreed with singer Billy Bragg's view of internet services, but this time around, he's right: in many cases, the real problem (yet again) are the labels and not these services. He's written a detailed Facebook post explaining this position, noting that complaining about Spotify is like "campaigning against the Sony Walkman" when it was first introduced. Going against what music fans want is never a good strategy.

From there, he gets to the real issue: how the labels account for streaming revenue:

The problem with the business model for streaming is that most artists still have contracts from the analog age, when record companies did all the heavy lifting of physical production and distribution, so only paid artists 8%-15% royalties on average.

Those rates, carried over to the digital age, explain why artists are getting such paltry sums from Spotify. If the rates were really so bad, the rights holders - the major record companies - would be complaining. The fact that they're continuing to sign up means they must be making good money.

Here in Sweden - where I'm doing a show tonight in Malmo - artists have identified that the problem lies with the major record labels rather the streaming service and are taking action to get royalty rates that better reflect the costs involved in digital production and distribution. UK artists would be smart to follow suit.

Of course, there have already been lawsuits about similar issues, related to legacy contracts. You hopefully remember Eminem's big lawsuit over whether or not digital sales count as licenses or sales, since "licenses" involve a 50% cut, while "sales" are more like 10 to 15%. As the Guardian article notes, there are some labels that do in fact pay a greater percentage on streaming deals, as they should, but many legacy artists are locked into bad contracts. And, of course, there's always the issue of how well the labels actually handle their accounting, and the way they play games to make sure artists never "recoup," making it difficult to get any royalties.

The internet services definitely can do more to help artists, but much of the blame often seems misplaced, so it's great to see someone like Bragg recognizing that.

Filed Under: billy bragg, contracts, labels, luddites, streaming
Companies: pandora, spotify

Why Pulling Music From Spotify Only Holds Back The Artist Doing The Pulling

from the 1.-Eliminate-revenue-stream-2.-Gripe-about-it-3.-???-4.-Profit! dept

David Byrne, former lead singer of the Talking Heads, has pulled "as much of his catalogue" as he can from Spotify. Why? Because it's the thing to do these days. Abused math and sins of omission have led to headlines declaring Spotify to be the worst ripoff since the major labels, paying only pennies for millions of plays. Many artists have done it. Some are insulted by the low payoffs. Others believe it will cannibalize their sales.

Byrne's editorial for the Guardian names a few of these artists -- the Black Keys, Aimee Mann, Thom Yorke, etc. These artists have withheld their music from the super-popular streaming service simply because they've deemed the payout too low, and the risk of losing sales too high, to take part in the way people listen to music at the present. A rather strange about-face for Byrne, who previously lauded Radiohead's pay-what-you-want experiment and other efforts along that same line.

Dave Allen, formerly of Gang of Four and Shriekback (among others) has posted a very thorough and thoughtful response to Byrne's editorial. (And there's plenty to respond to. When you state, "The internet will suck all the creative content out of the world," with a straight face, you can expect to be thoroughly riposted -- from multiple angles.)

Along the way to what I feel is the simplest, most succinct point to be made in this Spotify "debate," Allen also points out how Byrne (along with Thom Yorke and others) are clouding the issue by couching the discussion of dispassionate themes (economic and technological shifts) in emotional language ("fairness," "ethical internet"). Critics of Spotify insist the royalty payouts are too low -- proof that the streaming service is evil -- despite the fact that these payouts are 70% of Spotify's revenue.

As for the decline of the recording industry -- which Allen takes pains to point out is not the same thing as the "music industry" -- it's been a long time coming. This doesn't mean music is dying -- only the industry that attached itself to musicians in a remora-like fashion and sucked as much income out as possible over the past several decades is dying. As Allen puts it in his post, the recording industry simply made it possible for artists to "pay off the mortgage, but never own the house" by providing advances in exchange for copyright control.

The industry was set up to fail -- an untenable construct that began to disintegrate upon the first sign of friction. What the industry considers to be right and fair and normal -- selling music to make money -- is nothing more than a blip on the timeline, as no less an old-school artist than Mick Jagger has stated.

[T]here was a small period from 1970 to 1997, where people did get paid, and they got paid very handsomely and everyone made money. But now that period has gone.

So if you look at the history of recorded music from 1900 to now, there was a 25 year period where artists did very well, but the rest of the time they didn't.

But here's the ultimate point:

One thing is certain: When artists remove their music from Spotify they are simply ensuring that they will receive zero royalties from that service. They will also ensure that they are not in a service that provides massive distribution of their work that is not a walled garden like FM radio is. And remember, not all artists are popular therefore not all artists receive the same amount of royalties from airplay or from streaming services. It is worth noting that Spotify has one billion playlists created by users. Musicians are not the only creators. Internet users most likely make far more content to post to the Web for free than all musicians combined. It’s a societal phenomenon that can’t be denied.

The first sentence is key. As has been stated here before, you cannot achieve a positive result simply by removing a negative. Labels and movie studios may spend tons of money fighting piracy, but that doesn't budge the needle towards a purchase. If millions of people are happy "renting" their music through streaming services (or YouTube), you can't push them towards a purchase by removing your music. They'll likely just find someone else to listen to, and when that artist tours or runs a Kickstarter or whatever, it's the artists they've been listening to that will receive that additional support.

All these artists are doing is shutting down a revenue stream under the mistaken impression that they'll pick up the money elsewhere. It may only be pennies, but it's pennies they don't need to lift a finger to collect. For every artist that has pulled their music from Spotify and pointed to first week sales as "proof" that ditching the world's most popular streaming service "works," there's another list of artists that have sold just as much without resorting to cutting out streaming revenue.

Giving music fans fewer reasons to use Spotify is also short-sighted. As a streaming services, its high end is only limited by the number of users. If enough artists pull out, the service loses some of its ability to attract users. Artists should want millions more to join, which is the most efficient way to increase royalty payouts. More users is more money. If Spotify manages to find a way to attract more paid users, the amounts will increase exponentially.

Cutting Spotify out doesn't make sense, no matter how small the checks are. You can't "force" sales, especially not when your attitude fails to sync with a majority of your potential customers.

[Bonus: here's some Shriekback for your listening pleasure, just in case your estimation of Dave Allen needed to be increased...]

Filed Under: business models, david byrne, music, streaming
Companies: spotify

Court Says ASCAP Can't Selectively Remove Songs From The Blanket License It Gives Pandora

from the some-sense dept

The legacy recording industry's ridiculous war on Pandora has reached some really ridiculous levels, especially as ASCAP has continually tried to pretend that Pandora was trying to stiff artists. The details suggested something entirely different. After staying quiet for a while, Pandora finally highlighted the true story, which showed that the claims about Pandora were completely bogus. It was actually ASCAP who was playing sick games with Pandora, trying to remove the right to play certain songs, without even letting Pandora know which songs.

Historically, Pandora has paid essentially the same rate as all other forms of radio, a rate established unilaterally by the performing rights organizations, ASCAP and BMI, in the late 1990s. In November of last year, following a lengthy negotiation, Pandora agreed with ASCAP to a new rate, an increase over the prior amount, and shook hands with ASCAP management. Not only was our hand-shake agreement rejected by the ASCAP board, but shortly thereafter we were subjected to a steady stream of “withdrawals” by major publishers from ASCAP and BMI seeking to negotiate separate and higher rates with Pandora, and only Pandora. This move caused us to seek the protection of the rate, also recently negotiated, enjoyed by the online radio streams of broadcast radio companies. It’s important to note that these streams represent 96% of the Internet radio listening hours among the top 20 services outside of Pandora (talk about an un-level playing field). We did not enter this period looking for a lower rate – we agreed to a higher rate. But in a sad irony, the actions of a few small, but powerful publishers seeking to gain advantage for themselves has caused all songwriters’ royalties to go down. Any characterization of Pandora as being out to cut publishing rates flies in the face of the facts.

And while not highlighted there, Pandora also noted that ASCAP refused to let Pandora know which tracks were being withdrawn, leading to uncertainty over potential liability if it played the wrong track:

During negotiations, ASCAP and the publisher increased the pressure by refusing to provide Pandora the list of tracks that were being withdrawn, exposing Pandora to copyright infringement liability of up to $150,000 per work. At Pandora’s scale, such liability would be enormous.

As we noted at the time, this appeared to be in direct violation of a long-term antitrust agreement ASCAP has with the DOJ, given ASCAP's massive market power. Some in our comments suggested it was crazy to suggest this move violated the antitrust agreement, but a court has basically ruled strongly in favor of Pandora, noting that it goes against the agreement to selectively remove songs from the blanket license, and allowing Pandora to continue to stream such songs. Basically, the court rules that the consent decree from the antitrust fight means that ASCAP can't divide up the various copyrights to separate out things like "new media rights," but rather if it has a song in its catalog, it must license it under its blanket license.

ASCAP’s argument is predicated on the Copyright doctrine of “divisibility of rights” within a copyrighted work. It is true that “[t]he Copyright Act confers upon the owner of a copyright a bundle of discrete exclusive rights, each of which may be transferred or retained separately by the copyright owner.” But while the Copyright Act allows rights within works to be alienated separately in general, [the consent decree] imposes restrictions beyond those imposed by the Copyright Act on ASCAP. [The consent decree denies] ASCAP the power to refuse to grant public performance rights to songs to particular users while, at the same time, retaining the songs in question in its repertory.

I await ASCAP's next press release insisting that Pandora is the one playing games....

Filed Under: antitrust, blanket license, streaming
Companies: ascap, pandora

As Expected, TV Networks Win Copyright Ruling Against Alki David's Name-Changing TV Streaming Service

from the bad-news,-bad-precedents dept

We warned that this was likely: Alki David, the eccentric rich guy who is being sued for an online TV streaming service with some similarities to Aereo -- whose name he changes (as he himself admits "on a whim") regularly -- has lost in court yet again. The company, which had been known as FilmOn, BarryDriller and Aereokiller, is apparently back to being called FilmOn, except that it's now FilmOn X. As we noted, there are significant differences between Aereo and whatever-the-hell David wants to call his company -- and part of that is that Aereo built its system very carefully with copyright law in mind, and was also quite careful about its legal strategy, with a wider plan for establishing a good legal precedent showing that copyright law shouldn't be different just because the length of a cable is different.

Unfortunately, FilmOn's similar efforts have been sloppy and at times reckless. It's no wonder that Aereo has won all of its court rulings, while David's multi-named offerings have lost all of their court rulings. Earlier, FilmOn (as BarryDriller) had lost in California. The court had held that the ruling only applied in the 9th Circuit, in part because of Aereo's success in the 2nd Circuit. That resulted in the networks suing again in the DC Circuit, where we predicted David would lose, setting yet another bad precedent, and that's exactly what happened. The court basically looks at the rulings in NY and California, and then comes to the same basic conclusion as the California court, more or less accepting the TV networks' argument that even though there's an individual antenna for each user, and each copy is only accessible to that single user account, each stream counts as a "public performance."

This is because copyright law is insane. The only real difference between someone watching a TV show remotely online using an antenna in their own home with a Slingbox and doing what these services do is in where "the box" and "the antenna" are placed. That's it. That means the real difference is merely the length of the wire between the TV and the antenna/recording device. If the cable is long (i.e., the antenna and recording device are at a different location), suddenly, according to these two courts, it's a "public performance." If the cable is short, it's not. That doesn't make any logical sense at all.

The TV networks asked for a nationwide injunction here, and Judge Rosemary Collyer basically gave it to them with the minor exception that it doesn't apply in the 2nd Circuit, given the Aereo rulings. Of course, as pretty much everyone has suspected, this growing "circuit split" almost certainly means that one of these cases will end up before the Supreme Court. I just hope that it gets there with Aereo's legal team, rather than David's. The TV networks, obviously, are hoping for the opposite.

Update: As if you need any more evidence of how "seriously" David is taking the case, check out his "response" to this rather big loss:

I’m on my yacht in (the) Mediterranean at the moment so they can kiss my hairy Greek ass.

He also claimed that the judge is "in the pockets" of the entertainment industry -- a charge that people throw around way too often.

Filed Under: alki david, copyright, public performance, rosemary collyer, streaming
Companies: aereo, aereokiller, barrydriller, filmon

Administration Can't Let Go: Wants To Bring Back Felony Streaming Provisions Of SOPA

from the not-this-again dept

We've been working our way through a paper released last week by the Commerce Department, concerning copyright reform, and will have a much more detailed post about it soon (there's a lot in there), but over at the Washington Post, they're highlighting the silly recommendation to bring back the plan to make unauthorized streaming a felony. This was a part of SOPA and was widely discussed. It wasn't technically in PIPA, but there was something of a "companion" bill from Senator Amy Klobuchar that effectively had the same thing. This got a fair amount of attention when Justin Bieber was asked about the law, and said that Klobuchar should be locked up.

It's no surprise that this is coming back. It's one of the points that's been raised a few times since the death of SOPA. As we explained back during the original debate, there are different "rights" associated with copyright law, including distribution, reproduction, etc. For very good reasons, when the government put in sections on what could be considered criminal infringement, they left the "public performance" right off of the list of possible felonies. And that's because it's fairly absurd to consider a felonious public performance of a work. But, because of the rise of streaming sites, and the continued myopia of the entertainment industry, they're afraid that sites that embed works from elsewhere might not be seen as technically violating the distribution or reproduction rights (for good reason), and thus they want to elevate public performance as a felony to try to let the feds go after such sites.

This is misguided on a variety of levels. First of all, it's an attack on secondary liability. A site that is posting embeds of content hosted elsewhere shouldn't be held criminally liable for that content -- especially when that content may change over time and they have no direct control over it. If the original content is infringing, go after whoever uploaded/hosted the original content. Not the sites that merely have an embed. Furthermore, because the lines between reproducing, distributing and public performance can get blurry at times, it's very likely that any increased criminality for public performance will be stretched and abused to cover things that people think should be perfectly legal. As Harvard law professor Jonathan Zittrain explained in detail last year, the streaming provisions could clearly apply to something as simple as posting videos of yourself performing a cover of a popular song you don't have a license to.

Part of the issue is that current copyright law defines a public performance as follows (from 17 USC 101):

To perform or display a work "publicly" means (1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or (2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

Note just how broad that is. If you "transmit or otherwise communicate a performance or display of the work" for the purpose of having it performed or displayed at a place open to the public, you may be involved in a public performance. It's not hard to see how that might be used to include people posting videos on YouTube.

And, really, this whole idea is misguided. It comes from the entertainment industry's ridiculous belief that if they just keep playing Whac-a-mole with whomever they've decided is the "enemy" this week, it will eventually bring back old business models. Sites that embed streams from elsewhere aren't the enemy. Trying their operators into felons is fraught with all sorts of dangerous unintended consequences. You'd think that, given what happened with SOPA that administration officials would shy away from pushing more such backwards-focused plans... but they just can't resist.

Filed Under: copyright, felony, public performance, sopa, streaming

ASCAP Asks FCC To Block Pandora From Buying Radio Station, Because ASCAP Doesn't Like Pandora

from the because-reasons dept

We'd already talked about how the legacy players in the recording industry had lashed out at Pandora for buying a small radio station. As we noted, Pandora was doing this to more or less highlight the absolute hypocrisy (and possible illegality) of ASCAP who offers cheaper streaming rates for terrestrial radio stations to stream their programming online. Since this stuff gets a bit confusing, as a reminder, ASCAP (along with others like BMI and SESAC) collect and distribute money for composers and publishers, not for musicians playing the music (though, obviously, sometimes the composers also play). ASCAP has a variety of different rates that it charges for things, and Pandora noted that its online competitors, such as iHeartRadio -- which is owned by ClearChannel, the largest owners of terrestrial radio stations in the US -- pay a lower rate for online streaming.

ASCAP has been offering iHeartRadio and other terrestrial stations that also do streaming cheaper licenses for their streaming than it offers to Pandora. Pandora has argued that this violates the antitrust agreement that the DOJ made ASCAP agree to, after it was discovered that ASCAP was engaged in a variety of anti-competitive practices to restrict the market.

The hysteria over this from some less-than-well-informed folks in the music industry has really been quite incredible. Contrary to some claims that we've seen, Pandora is not trying to get a special deal. Nor is it trying to say that it doesn't have to pay performer rights (which are a whole different issue). All it's really doing is highlighting how ASCAP is discriminating against online-only streaming services by charging them different rates than online streaming services that happened to be owned by terrestrial radio stations.

The latest, however, is that ASCAP is now asking the FCC to block the purchase, mainly because ASCAP doesn't like it.

Pandora is buying KXMZ for one reason – to argue that it is entitled to pay lower music performance royalties to composers, songwriters and lyricists for its billions of online-only internet music streams.

Actually, it seems like Pandora is buying KXMZ to demonstrate that ASCAP has discriminatory and unfair pricing practices in how it offers its licenses. It's not that Pandora is claiming that it alone is magically entitled to lower royalties -- it's pointing out that everyone else gets lower royalties and Pandora is wondering why it is singled out for higher royalties.

Honestly, that's about the extent of ASCAP's argument. Beyond that, it focuses on some procedural issues about the paperwork that Pandora filled out -- ASCAP claims they didn't follow all the rules. But, clearly, ASCAP doesn't go around making sure that everyone buying radio stations has dotted their i's and crossed their t's. ASCAP is just upset that Pandora is suddenly calling attention to ASCAP's discriminatory online streaming rates. Even on the technicalities ASCAP is being particularly ridiculous. For example, it claims that Pandora did not properly disclose its ownership, because it claims that Pandora improperly referred to Wellington Management Company as "an investment adviser" in the past, but for this document, refers to it as "an investment company." That's the sort of minutiae ASCAP is pulling out to try to block this.

The whole thing is petty in the extreme. ASCAP clearly has discriminatory pricing practices against online-only streaming companies -- and is embarrassed by Pandora making this point very clearly by purchasing this tiny radio station. Is it a move to "game" the system? Yes, it is but a move necessitated by ASCAP's discriminatory pricing. If ASCAP is so upset about this, perhaps it shouldn't have priced internet streaming differently depending on whether or not you own a radio station.

Filed Under: composers, fcc, rates, songwriters, streaming
Companies: ascap, pandora

In What World Is Having Three Judges Set The Price Of Streaming Music 'Free Market Capitalism'?

from the just-wondering dept

Greg Sandoval over at The Verge has an interesting post about "Pandora's PR problem" concerning its attempt to get out from under ridiculously draconian royalty rates that are clearly unsustainable. I agree that Pandora has failed on almost every aspect of the PR front, though the article seems seriously one-sided on a few points. First, it compares Pandora's situation to Spotify's, where Spotify has also been criticized for its royalty rates at times, and yet its reputation isn't quite as bad. Recently Spotify has signed some "big" name artists to publicly support its platform. Of course, the way it did so was to throw a ton of money at those artists. And there's a strong argument that Spotify's current royalty rates are even more unsustainable than Pandora's -- it's just that Spotify has a long runway and is choosing to put off the eventual day of reckoning it's going to have to face over royalty rates for internet music. Furthermore, the article seems to ignore the fact that much of the "controversy" and PR failures by Pandora are actually the result of a coordinated campaign, set up by a RIAA front group, focused on flat out lies and bogus attacks.

Of course, Pandora isn't blameless in all of this, but I put a lot of blame on Pandora's stupid decision back in 2009 to agree to the ridiculous rates it now realizes are impossible to sustain (something that many people pointed out at the time). But, the craziest part of the article is the claim that Pandora's attempt to lower rates somehow goes against free market capitalism. Sandoval mentions this argument twice. First, in noting that some "conservative" groups made this argument:

Citizens Against Government Waste, a conservative think tank, accused Pandora of trying to undermine the free market.

And then again in quoting an analyst who makes the same argument:

Michael Pachter, a research analyst with Wedbush Securities, believes Pandora will eventually thrive but that its attempt to legislate lower costs is misguided. "The bill is idiotic," Pachter said. "It's insulting to Congress to say you want regulation to lower your costs at the expense of artists. Did you see who was on stage with Obama helping him campaign? Jay-Z and Bruce Springsteen. That's the Democrats, and how many Republicans are going to want to legislate against capitalism and the free market?"

But neither of those claims makes any sense at all. When it comes to royalty rates for web streaming there is no free market. In fact, the status quo is so far away from the free market or capitalism as to be laughable, and it seems like anyone claiming that it represents some sort of free market is either being purposely misleading or is totally uninformed.

The rates for web streaming sites like Pandora fall under what's called "non-interactive digital music streaming" -- and the rates for those are set by a three judge board, known as the Copyright Royalty Board. If someone can explain to me how a selection of three judges flat out setting prices is a "free market," that would be good to know, because last I checked, the government setting prices is kind of the opposite of a free market. Of course, the last time the CRB set those rates, they set them so high that it was impossible for anyone to pay those rates. That's how completely clueless the CRB tends to be. So, in response, Pandora and other webcasters did negotiate lower rates, but those rates were still impossibly high. Some might argue since Pandora's current rates are those "negotiated" rates, it is a free market, but that's clearly not true either. The "fallback" that the record labels had in those negotiations was "fuck you, here's what the CRB says the rates are, pay up or go out of business." When they have those CRB rates as the fallback, their negotiating position is obviously quite strong, and the results are obvious. The "negotiated" rates are impossibly high. Pandora's big mistake was agreeing to those rates (even though it felt it needed to if it wanted to actually live to fight another day).

No matter how you look at it, that's not free market capitalism. Coming up with a way to change those rates may not be free market capitalism either, but to argue that moving away from the existing rates goes against free market capitalism makes no sense. So, if either Citizens Against Government Waste or Michael Pachter can explain how three out of touch judges with no market experience setting the official rates is "free market capitalism," it seems like, perhaps, they shouldn't argue that Pandora is trying to "legislate against capitalism and the free market."

Filed Under: capitalism, copyright royalty board, economics, free market, michael pachter, music, royalties, streaming
Companies: citizens against government waste, musicfirst, pandora, riaa, soundexchange, spotify