Wednesday, July 20, 2016

6 Real Problems in Music Business the DOJ Should be Investigating

Written by David Lowery — Songwriters are perplexed by the attention that the Department of Justice Antitrust Division has given to a rather obscure facet of the public performance licensing of songs. 97% of the market is already completely regulated by the ancient (1941) and outdated DOJ consent decrees that govern BMI and ASCAP. Specifically the DOJ antitrust division process sets the public performance royalties for 97% of the songs in existence. There is no legislative basis for this regulation. Most living songwriters were not born when the consent decrees were enacted and thus never gave their consent to have their rights limited. Nor has their ever been any proper due process. This is simply the executive branch gone wild.

Regardless a relatively small amount of songwriters have managed to escape this unconstitutional and overbearing regulation by joining small performing rights organizations like SESAC and GMR not subject to consent decrees. Unfortunately the DOJ’s novel “reinterpretation” of the 70 year old consent decree brings the last of the free songwriters under their control by mandating that any prices for songs co-written with BMI and ASCAP songwriters should be 100% priced by consent decrees and not fractionally priced as is often mandated by existing private contracts and international treaties. This creates absolute chaos in the music licensing system by introducing a host of administrative and payment issues; additional constitutional rights violations; the specter of wholesale withdrawal of publishers/songwriters from the songwriter performing rights organizations; and appearance of impropriety by a former Google lawyer now working in the DOJ as the one entity it clearly benefits is YouTube/Google.

And you might also wonder “how is this even an antitrust issue?” We are wondering that as well. The DOJ has indicated that it views the fact that a tiny percentage of songwriters can refuse to license their songs to monopoly digital services as an existential threat to competition in the digital music marketplace.


This is some spectacular through-the-looking-glass thinking right there. The kind of mass-hysteria-groupthink you can only get when the entire government is run by lawyers that all went to one of four elite copyleft law schools. It takes a special kind of arrogance that only a Harvard, Stanford, Yale or Berkeley law degree gives you to not ask: Aren’t the monopoly digital services actually the real threats to competition? And hasn’t the DOJ by forcing virtually all songwriters to license their songs to these services at below market rates created monopsonies that are driving consolidation among music publishers? Aren’t the actions of DOJ antitrust lawyers killing competition rather than enhancing it?

But that all presupposes that the Department of Justice is in the business of meting out justice and protecting the little guy rather than protecting a few politically favored corporations. To illustrate I’ve come up with 6 real pressing problems that a Department of Justice that was interested in justice would pursue.

Online advertising fraud

The online advertising industry is riddled with fraud. Bots and related fraud ensure that advertisers are paying for ads that no one sees. Ad Week estimates it is costing advertisers 7 Billion dollars a year. Where is the DOJ investigation? Do you think the fact that Google/Facebook control 70% of the online ad market has anything to do with the DOJ’s blind eye? After all these two companies are some of the biggest campaign contributors to Obama/Clinton campaign coffers. The executive branch is lousy with former Google lawyers including Renata Hesse in the antitrust division who appears to be pushing the 100% licensing rule. So how exactly does ad fraud impact musicians? Most digital music services rely on ad revenue. Ad revenue per spin, per click and per view has been falling rapidly because advertisers have lost faith in the entire online advertising system. Hence revenue per spin is rapidly falling. Midia consulting reports YouTube’s per spin rate has been halved in the last year.

Ticket Master/Live Nation/Secondary ticket markets

When most people focus on Live Nation invariably their concern is Live Nation’s share of concert promotion business. This is a misplaced concern. The real problem is that Live Nation owns Ticketmaster which has a near monopoly on ticket sales. This allows Live Nation to extract a “vig” on concerts it doesn’t even promote. It also raises concerns of a data monopoly, whereby Ticketmaster has the biggest and best pool of data on who is likely to buy a Luke Bryan ticket in Buffalo New York. This makes it extremely hard for an upstart to compete against TicketMaster. But the most pressing issue is that billions of dollars of live music revenue is not going to artists. Instead it is going to “scalpers” and ticket resellers. A cursory and unscientific review of the StubHub indicates that most of these tickets are coming from Live Nation/Ticketmaster events. Granted Live Nation/Ticketmaster has a dominant market share, but I find it curious that there are so few tickets sold through TicketFly finding their way to StubHub.

Unlicensed songs on streaming services

What if 25 percent of the CDs in the biggest music chain store were bootleg and no royalties were being paid to songwriters? You would think the DOJ would investigate. Right? Yet Billboard reports that as much as 25% of the royalties payable to publishers/songwriters are not being paid. Meanwhile Senator Warren (hmm another Harvard professor) is urging the antitrust division to investigate alleged anti-competitive practices by Apple on behalf of Spotify. You would think smart Harvard professors would realize not paying 25% of your songwriters gives Spotify an unfair competitive advantage.

Abuse of the DMCA Safe Harbor by YouTube

YouTube is clearly abusing the DMCA safe harbor to extract the most favorable royalty rate from rights holders. It is essentially using piracy by its users as the “broken window” in a protection racket shakedown. How is it that the antitrust division manages to ignore this anticompetitive practice? Fuck that, how is this not a RICO violation? This is why it’s so important that we remove former Google lawyers like Renata Hesse from the antitrust division. This sort of illegal and anti-competitive behavior will never be investigated while Google exercises influence at the DOJ.

Harry Fox Agency/Spotify mail fraud

As I have detailed here, The Harry Fox Agency on behalf of Spotify has been sending many songwriters fraudulent “Notices of Intent” to obtain a compulsory license. Since these notices are not in fact valid compulsory licenses (they have clearly been backdated) they are misleading songwriters into thinking they no longer have a right to negotiate a potentially more beneficial direct license. That is a kind of fraud. I’m not a attorney but the fact these are sent through the US mail this seems to meet the criteria for mail fraud, which is a RICO predicate. Where is that investigation?

The DOJ Antitrust Division Litigation Section III

The Office of the Inspector General of the Justice Department should investigate whether the Renata Hess violated ethics rules by not disclosing work for Google in her official DOJ bio. and pushing through an “interpretation” of the consent decree that clearly benefits her former client. More on how she violated ethics rules right here.

But more important is the big picture on the DOJ Antitrust Litigation Section III. As evidenced by this very article, Litigation Section III which oversees the entertainment industry has not just failed to do its job, its actions have dramatically decreased competition. The entire section is corrupt or incompetent. It should be disbanded or at the very least reorganized.

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