Hollywood's New Talking Point: Gatekeepers Are Awesome

from the you-have-to-be-kidding-me dept

We've argued for years, that there are different kinds of middlemen involved in making markets. Some are efficient, leading to better reach, easier access, and more convenient transactions, while some are inefficient, blocking access, keeping prices inflated, and generally limiting a market. We tend to separate these into two camps: gatekeepers, who limit efficiency, and enablers, who increase efficiency. In truth, there's a pretty big spectrum between those two endpoints, and a single company can shift back and forth along the spectrum between being a gatekeeper some of the time and an enabler at other times. Historically, it's generally (though not always) been true that disruptive innovators are enablers, breaking down the walls set up by the gatekeepers, making markets more efficient, and generally distributing power away from a central gatekeeper out to the end points (the actual participants in the market, rather than the middleman). However, I had thought that it was at least generally recognized and accepted that gatekeepers tend to be bad for markets, and enablers tend to be good.

Obviously, you'd expect some who work for gatekeepers to disagree, though they tend to disagree by arguing that they're not really gatekeepers. However, perhaps I overestimated some of those who support gatekeepers. I was somewhat shocked to hear, recently, that when Public Knowledge's Gigi Sohn spoke at the World Creator's Summit, she was hissed at and booed for suggesting that gatekeepers are a problem. Apparently, the attendees of the World Creators Summit like gatekeepers who hold back actual creators, set up barriers to reaching a market, and only provide a winning lottery ticket to a very small number of creators. Weird.

I'd thought that perhaps that was a one-off situation. However, the "director of legal policy" for the Copyright Alliance -- a front group for the music labels and movie studios -- Terry Hart, has now written a blog post that could be entitled a defense of gatekeepers controlling artists' works. The article is really a summary of a new paper by a law professor, Guy Pessach, who argues that disintermediation is bad in the copyright realm. I will note that this is not a research paper or a study. It's an "essay." And the central theme is to take the rather contrarian position that "disintermdiation" (i.e., doing away with gatekeepers) in the copyright market will "undermine cultural diversity, decentralization and authors' welfare." This, despite all evidence to the contrary -- so it's worth a read.

Frankly, the paper is a mess. It more or less misinterprets the whole "disintermediation" argument, saying it's about getting rid of middlemen entirely, rather than moving from gatekeepers to enablers. The paper instead turns into an ill-informed and confused attack on internet companies as the problem. It actually seeks to argue that artists have less power and control when using internet services than they do in signing deals with major labels/studios. Bizarrely, and incorrectly, it tries to argue that internet intermediaries are locked in and static, while suggesting that traditional intermediaries (record labels, publishers, movie studios, etc.) are not.

Additionally, it is both anticipated and apparent that markets for Internet intermediaries are highly concentrated, with very few entities dominating. Since much of the cost of producing an Internet intermediary (design, technological innovation) is unrelated to the number of users of the service, the average cost of providing service to each additional user may fall as the number of users increases. Economies of scale reduce the level of competition. Cost of entry is rapidly rising while strong network effects give advantages to large-scale intermediaries

But, of course, that's false. Anyone who's paid even the slightest attention to the dynamic in both markets knows that's false. The major labels have dominated the recorded music business for many decades. Ditto the major studios. In the internet world, it's constantly changing. A decade ago, Yahoo was on top. Apple was just starting to return to being interesting. Facebook didn't exist. YouTube didn't exist. Even MySpace didn't exist a decade ago. Kickstarter didn't exist. Twitter, Tumblr, Hulu, IndieGogo, SoundCloud, SongKick, Bandcamp, TopSpin, TuneCore, Pandora, Spotify -- none of them existed. And that list could be much, much bigger. To argue that the internet world is stagnant and unchanging as compared to the recorded music or movie worlds is dumbfounding.

Then there's this bit of insanity:

I begin by referring to authors and creators while presuming that it is authors and creators, rather than traditional corporate media, who are in control of their copyrights. Even so, the bargaining position of originating authors and creators, versus a handful of Internet intermediaries, may be weaker than it was for traditional distributors and corporate media.

Really, now? With traditional intermediaries -- i.e., gatekeepers -- if you weren't able to sign a deal, you basically didn't have a career as in music or movies. And so those traditional intermediaries signed ridiculous contracts, in which you gave up your copyrights and nearly all of the royalties. The new enabling companies don't act as a gate. They let anyone make use of them, and they tend to give you full control and ownership of the effort -- you retain your copyright, and you tend to get a much larger percentage of the money earned.

Amusingly, the paper also seems to argue that the wide open internet is somehow less egalitarian than when you had an A&R guy at a major label deciding who the next big music act would be. Really?

It is now apparent and documented that due to network effects and power law distribution, 40 the typology of the Internet is such that there is a “a complete absence of democracy, fairness, and egalitarian values on the web . . . . [T]he topology of the web prevents us from seeing anything but a mere handful of the billion documents out there.”

Whereas, the old record label system basically cut that off much earlier. It wasn't egalitarian at all. It would sign a very small number of artists, and tell the rest to go do something else with their lives, and then it would select a very few acts each year, put all of its marketing muscle behind a payola scheme to convince the public "this is what you like this year."

Pessach also doesn't seem to understand the nature of promotion, and the concept of multiple revenue streams. Take, for example, his "case study" around YouTube, which he trots out to "prove" that artists suffer under the success of YouTube:

YouTube operates a content partnership program that enables creators who upload content to YouTube to earn revenues from advertisements that appear along with their video clips. This is YouTube’s main and only option that enables creators to get remuneration for making their content available to the public.

Actually, no, that's not the only option for monetization. First, YouTube allows links directly to buy the songs in question, on at least iTunes, Amazon and Google Play. YouTube also pays ASCAP/BMI and others a license for streaming, and so artists make money that way, contrary to Pessach's later claims that YouTube never pays for direct usage. To leave all that out suggests Pessach simply is unfamiliar with the site he's critiquing and basically removes all credibility from the argument. Second, it leaves out entirely the nature of indirect benefits to widespread attention on YouTube, which leads to sales, concert tickets, opportunities for licensing and much, much more. And, even if we assume that Pessach is accurate in claiming that the only option is to monetize through ads, the deal still tends to be better than most record label deals, where they take 85 to 90% of any royalties. He suggests it's unfair that artists get a "take it or leave it" deal from YouTube on the revenue sharing, but apparently he's never spoken to an artist who gets a record label contract. It tends to be the same thing, unless they're already a huge star.

If we recognize that YouTube is really the equivalent to radio, rather than a label, as Pessach seems to be trying to analogize, then the deal is so much better with YouTube. On radio, first of all, most artists never get any airtime. The few that do often have to have massive payola behind them, and then there are no performance rights royalties (in the US) for the musicians, though there are songwriting/publishing fees to ASCAP and such (but, again, that's true on YouTube as well). On radio there's no choice. On radio there are no direct links to buy as there are on YouTube (which Pessach apparently never noticed). On radio there's no ease of sharing with friends, no embedding to promote the artists you like to your friends. Oh, and there's no revenue share at all, a la YouTube's partner program. Pessach's argument, in short, is to compare apples and oranges, and then misrepresent the apples. Yikes.

He later gets to the crux of his argument, which is basically that the "new intermediaries" "don't finance or invest in the production of content." But, again, he's making a false comparison, pointing to YouTube or Facebook or whatnot, as if they're supposed to do advances. But that's silly, because we're talking about totally different types of intermediaries, ones that are more like radio, than a label. And, it's not like radio ever financed or invested in the production of content either. But if we want to talk about financing the creation of new production of content, let's talk about crowdfunding platforms like Kickstarter, IndieGoGo, PledgeMusic and more. Kickstarter is never mentioned in the paper. Not once. Or how about direct to fan models? TopSpin? Not mentioned. Bandcamp? Not in there at all. And yet, all of those services are used by thousands of artists to finance and "invest" in the production of new content by allowing artists to go directly to their fans and get support.

Instead, the paper keeps going back to YouTube as the problem. But, again, if you compare YouTube to terrestrial radio, using the same "metrics" that Pessach keeps going back to, it seems like YouTube wins every single time. Take, for example, the following:

Finally, in addition to authors’ and creators’ economic welfare, YouTube’s model may also give rise to long-term alienation that creators and authors may feel against their almost only effective channels to exposure and audience attention. Ironically, or not, it is the psychological and sociological motives of creativity (the same ones that underlie the disintermediation movement) which make creators and authors disadvantaged. Creators’ desire to be exposed and gain as much audience attention (and love) as possible to their creative works is a parameter, which further undermines their bargaining position against a handful of dominant networked intermediaries who control the bottlenecks to audience attention.

Beyond the fact that this paragraph is entirely speculative, rather than based on even the slightest bit of evidence, radio is a much much much bigger bottleneck for artists reaching their audience, in that most artists can never, ever get on the radio at all. Yet, somehow Pessach wants to believe that YouTube is worse for artists? Tell that to the growing number of artists like Alex Day, Jack Conte, Dan Bull, Macklemore and others who have built success stories around their YouTube videos.

Pessach's other "examples" of bad internet intermediaries are just as laughable. He points to the widely debunked story about Huffington Post being able to sell for $300 million and not giving any of that money to the bloggers who "made the site popular." Except, most of that story is a myth. HuffPo pays for a large editorial and reporting staff, and many of its most popular stories come from paid staff. For unpaid contributors, it's a tradeoff between whether they want the promotion of the platform. If not, they have a myriad of other options, including setting up their own damn blog. Unlike with the record labels where it used to be either "get signed to a label or go home," those who wish to blog could go in all different directions to make money.

His next example is what he says was "Instagram's failed attempt to commercially utilize, for advertisement purposes, photos that were uploaded by its users." That, again, is a total bastardization of reality. There was a lot of hype about this, but Pessach's interpretation of what happened is wrong. The reality was that a bunch of people didn't understand some boilerplate language used on tons of sites, and assumed, incorrectly, that Instagram was going to put your photos in ads. As the company explained, that had never been its intention at all -- but it was some boilerplate language in the terms, which it quickly changed to clarify for users. Again, when Pessach seems to continually misrepresent things, it really detracts from the argument. No wonder the Copyright Alliance is such a huge fan of the paper.

In the end, the paper is basically just an attempt to tar and feather new enablers that have given many new artists new ways to create, to promote, to connect and to monetize their art -- while bizarrely suggesting, absent of any proof -- that the old gatekeepers were somehow better for artists. About the only explanation it presents is "advances." Yes, the labels gave out advances to a very small number of artists... and then basically holds them as indentured servants as they seek to recoup that money, piling on more and more "expenses," and only counting the tiny fraction that is their royalties towards recouping. Or they could make use of the new platforms, retain control over their work, and only have to pay small fees (between 5 and 30% at the top) for the services provided. Furthermore, the suggestion that these new enablers have meant less diversity in content creation is simply laughable on its face, and deserves no further comment.

If the various RIAA and MPAA front groups are going to try to push support for gatekeepers, one would hope that they'd come up with slightly more competent arguments that can at least pass the laugh test.

Filed Under: copyright, disintermediation, economics, efficiency, enablers, gatekeepers, guy pessach, hollywood, middlemen