The news that UK licensing and collection society PRS For Music is suing SoundCloud remains one of the biggest stories posted by MBW this year.
Yet this is not a straightforward tussle. There are a wealth of significant secondary factors swirling around PRS’s decision to take on SoundCloud, which boasts in excess of 175m users.
What could a victory – or defeat – for PRS mean for the CMO, its songwriter members and the music biz at large?
For starters, the timing is intriguing: PRS has taken legal action just as SoundCloud was beginning to look legit, with licensing deals secured with Warner Music Group, US publishers, independent labels and (MBW is told) Universal Music Group.
The UK collection and licensing society’s motivations also warrant further discussion.
What’s it after? A cash settlement, perhaps? Or are there a bigger legal ambitions at play here?
Read on, as MBW explores some of the most pertinent factors surrounding a fascinating development in the relationship between music rights and tech…
Whatever the ins and outs of the case, on the surface of it, PRS’s motivations are straight-forward: SoundCloud has failed to secure a PRS licence in the UK and across Europe.
That means songwriters and publishers signed up to the PRO aren’t being paid when their work is used on the platform, and haven’t been since SoundCloud launched in 2007.
If you choose to believe PRS’s version of events, SoundCloud ‘does not accept that it requires a licence for its existing service in the UK and Europe‘.
SoundCloud disagrees, claiming that it was in an “active commercial negotiation” with PRS before the lawsuit hit.
“By demanding money for retrospective streams, PRS would be gambling all of its chips.”
The crucial factor betwixt these two seemingly contradictory statements: PRS says it’s been attempting to agree a licence with SoundCloud for five years.
It therefore appears likely that the PRO won’t just be satisfied with a go-forward licensing solution – it will want some form of payment for retrospective use/infringement of its members’ work.
“By demanding money for retrospective plays, PRS would be gambling all of its chips,” one music biz insider told us.
“On the one hand, it’s true that a company with a near-billion dollar valuation shouldn’t just be allowed to refuse to pay for use of music.
“But on the other, SoundCloud has recently begun to move into a licensed environment with its Warner, NMPA and Merlin deals. These licenses have agreed on the basis of what’s to come, not what’s gone – an attitude ushered in by the platform’s new ad-funded tier, On SoundCloud.
“What if the unthinkable happens and PRS lose the court case? Can they really then negotiate a new licence with SoundCloud for its advertising and subscription offerings alone?
“If not, what does that mean for the countless tracks written by PRS members on SoundCloud – many of which form the basis of tracks signed to Warner and independent labels?
“If PRS For Music tracks are pulled down from SoundCloud, the fear is that its users could splinter off to a number of other unlicensed alternatives.”
PRS tells MBW that it expects SoundCloud to mount a Safe Harbour defence in court.
Safe Harbour laws exist to protect those who have innocently hosted or made available illegal content from legal repercussions: an ISP who doesn’t want to be blamed for its users indulging in The Pirate Bay, for instance.
SoundCloud says it complies with Safe Harbour law, by taking down any infringing material when requested by rights-holders – but that its individual users are ultimately responsible for such transgressions as they’re the ones distributing the content.
In legalese, SoundCloud will argue that it is a ‘mere conduit’ for such behaviour.
What may weigh in PRS’s favour is that SoundCloud has sought proper licenses for its On SoundCloud ad-funded tier, which launched at the end of last year.
(SoundCloud has also publicly promised to launch a licensed subscription premium tier in 2015 – something which remains conspicuous by its absence.)
“The fact YouTube has a licensing deal in place with the PRS will not help SoundCloud’s case.”
Tahir Basheer, Sheridans
“The safe harbour defences were designed with the intention of protecting genuinely passive and neutral online service providers from liability deriving from infringing user-generated content,” explains Tahir Basheer (pictured inset), a digital media and entertainment lawyer at Sheridans.
“However, it is difficult to see how this applies to a service that is actively marketing itself on the basis of being able to stream a huge repertoire of content for free while generating profit through advertising.
“The fact that YouTube has a licensing deal in place with the PRS will not help SoundCloud’s case.”
However, a past precedent may come to SoundCloud’s aid.
In 2007, Viacom filed a $1bn lawsuit against Google and YouTube for massive copyright infringement of its IP. It said that over 150,000 unauthorised clips of Viacom programme such as Spongebob Square Pants and The Daily Show were available illegally on YouTube.
YouTube stuck to its Safe Harbour defence throughout the US trial, while claiming that Viacom had actually uploaded some of the material itself before sending takedown requests.
The two parties eventually settled out of court in 2010, but not before YouTube won two orders granting it summary judgements.
Had Viacom won the case outright, PRS could have pointed to that decision as a solid legal precedent. As it stands, it’s in uncharted territory…
3) youtube will be watching closely…
But should it be victorious in its lawsuit, you can expect serious repercussions for other completely free music services – particularly YouTube.
“Should this matter go to court the biggest implication will be in relation to how similar services can continue to rely on the safe harbour defences,” says Sheridans lawyer Tahir Basheer.
“Without the ability to ‘hide’ behind this defence, online providers of free streamed content will be in a much weaker position with regard to negotiating licences with collecting societies and licencing bodies.”
That won’t necessarily mean PRS getting anywhere near a court room with the Google-owned video giant – especially as PRS signed a YouTube licensing deal in 2013 across Europe.
“A PRS victory would mean tech startups would need to enter into licensing discussions with the music industry earlier.”
Tahir Basheer, Sheridans
PRS boss Robert Ashcroft said at the time: “YouTube’s vast reach around the world offers our publishers and songwriters a unique stage and music lovers access to millions of songs. I am delighted we have reached such an important multi-territory agreement.”
However, he knows better than anyone YouTube’s proven ability to rely on Safe Harbour laws to avoid penalties for copyright infringement.
A SoundCloud case victory would weaken YouTube’s reliance on Safe Harbour in the EU, and strengthen PRS’s hand in any subsequent licensing renegotiation.
“[A PRS victory] would also mean that startup tech businesses wishing to utilise music content will need to enter into licensing discussions early in their lifecycle,” adds Basheer.
“Some would argue that this may have a constraining effect on some of those tech businesses in terms of their ability to grow fast and test whether the model actually works and solves a problem.
“The answer inevitably is having licensing discussions and agreements that can be closed quickly to incentivise early stage businesses to obtain those licenses and which will ensure the music industry feels secure that its rights are properly valued.”
4) There are potential conflicts of interest
Warner Music Group was the first significant music company to license SoundCloud’s ad-funded tier (On SoundCloud), and its upcoming subscription tier.
In a deal struck during November last year, Warner Music Group (WMG) is believed to have taken a little extra protection for its license, acquiring 5% equity in SoundCloud.
MBW understands that Universal Music Group (UMG) has also inked a licensing deal with SoundCloud, complete with equity acquisition, before PRS made its surprise lawsuit announcement.
UMG and WMG both fully own publishers that are, in turn, members of the PRS in the UK – Universal Music Publishing Group and Warner Music Group, respectively.
“SoundCloud’s shareholders will be starting to ask: ‘How are we going to get our money back. Without rights-holders, that’s going to be very difficult.”
It will be interesting to see if their names are on PRS’s lawsuit – potentially an attempt to obtain millions of pounds from a business that UMG and WMG both own a stake in.
MBW understands that all current licensing agreements with On SoundCloud are effectively US-only; the ad service currently only pays out in the States.
That, at least, puts some legal daylight between PRS’s UK/EU lawsuit and SoundCloud’s existing commercial arrangements with music industry players.
“There is a lot of pressure on the EU to revisit Safe Harbour provisions,” a source tells MBW. “For a long time, streaming services have been allowed to sit outside of the licensed environment as their audience gets bigger.
“Hopefully SoundCloud will be the last platform able to build to such as size without the proper licences.
“It’s getting to the point that these services have a clear choice: compete in the licensed environment, or run out of money.
“SoundCloud’s shareholders will be starting to ask, ‘When and how are we going to get our money back?’ Without the endorsement of music rights-holders, that’s going to become very difficult.”
It is naturally premature to begin speculating on how much money PRS might obtain from the SoundCloud case should it win.
One copyright expert told MBW that it was “the principle, rather than the payout, which PRS will most want to establish”.
That’s particularly true if any sum SoundCloud is forced to pay threatens the future of the loss-making business, just as major music rights-holders are tentatively helping it build legally licensed offering.
However, whether through settlement or court order, if SoundCloud does end up shelling out for its use of music from PRS For Music’s members, the subsequent division of that money will be worth monitoring.
For all of the upset it’s caused the music industry, SoundCloud has proven especially popular with artists, producers and songwriters who do not have a weight of professional music industry connections.
“Soundcloud has proven extremely popular with artists and songwriters without a weight of ‘professional’ music biz connections.”
Many of these amateur/emerging acts are amongst PRS For Music’s 110,000 members, and there is concern in these quarters that their material will even be pulled down against their will.
(MBW has discovered that the PRS attempted to license SoundCloud on the basis of both performance and mechanical rights. As described in the Copyright, Designs And Patents Act 1988, these are referred to as the ‘rights of reproduction’ and ‘communication to the public’. However, it is only suing SoundCloud for infringement of performance rights.)
Should PRS obtain a payout at the end of all of this, how will it then re-distribute this money to its members?
If it attempts to do so on the basis of market share – whereby the vast majority would go to Sony/ATV and other major publishers – it will undoubtedly upset those individual creators who make up such a significant chunk of activity on SoundCloud.
Then there’s the question of whether UMPG and Warner/Chappell will – or will be permitted – to accept any of this cash.
That is, if any cash emerges.
The industry watches on with interest.Music Business Worldwide