‘The music industry needs more innovators and fewer lawyers’

A string of big money lawsuits have been taken out against digital service providers in the US – including Spotify, TIDAL and Google Play – for allegedly failing to pay due royalties to songwriters. Some feel the argument is a simple one: if these companies have failed in their duty of identifying and properly recompensing copyrighted works, and built their businesses while doing so, they deserve the legal repercussions. Others worry what the long-term consequences will be of such litigation. Tracy Maddux, CEO of CD Baby (pictured) falls firmly in the latter camp. In the below blog, he delivers his thoughts on the matter…

UPDATE: David Lowery, whose legal team has issued a major class action suit against Spotify, has responded to the Tracy Maddux blog below. Read Lowery’s comments through this link.

Ninety-nine percent of the data in existence was created within the past two years. Yet, more than 99% of recorded music was created before the past two years.

Recorded music was largely an analog phenomenon until the ’90s and the digital era. The institutions that sprung up around the music – to record, distribute and monetize, even to secure copyrights and administer royalties – were all created as analog institutions, not forced to compete, or even exist, in a digital world until very recently.

The bulk of the data meant to help collect revenue for music rights holders is not ready for the digital world. Much of this metadata is incomplete. It is often in conflict with other data sources and does not form a complete picture of the recording it’s meant to describe.

The underlying music that consumers enjoy and which serves as the livelihood for songwriters, labels, publishers and artists must have clean and connected data to ensure that digital revenue reaches its correct earner.

Setting aside feelings, good and evil, what is happening in our industry is technological disruption and changing patterns of consumer preference as renting music becomes as popular as buying music. This is irreversible and as participants in an industry, we have to choose our path to the digital world carefully for our industry to prosper.

“We can’t stand by as class-action vampires step in to sue everybody and anybody whose data is incomplete.”

If the participants in our industry vilify and attack each other, either through litigation or extortive threats of litigation, we engage in zero-sum behavior: one entity wins, one entity loses. This is not a path towards the creation of a healthy music industry. And it does not solve the metadata problem.

What the industry needs are more innovators and fewer lawyers. We can’t stand by as class-action vampires step in to sue everybody and anybody whose data is incomplete. The winners from that kind of strategy are the lawyers; no one else will benefit in the long run. I repeat: litigation is a zero sum strategy and it is a wealth destroyer, not an industry creator. Litigation rarely enables or forces fundamental changes.

We need to find a way forward, but first we need to reframe the problem in a way that sets up mutually acceptable outcomes. Certain industry players and middle-men have set up the debate (we’ll call these the value destroyers from here on out) to say the newest entrants to the market, like Spotify, operating on imperfect metadata, intended all along not to secure rights or pay rights-holders.

These value destroyers say, “They are inherently evil and will have to pay for their actions!” This view of the world is overly simplistic and dangerous to the industry itself.

Other industry participants such as the artists, composers and their labels and publishers (we’ll call them value creators from here on out) facilitate the creation of wealth for themselves and art for the consumer by making music, distributing it and monetizing music rights via the digital service providers (DSPs). There are other neutral intermediaries in the market that serve vital interests: publishing organizations, data consortiums, the societies in collecting performance royalties, SoundExchange, distributors. These all have a place in the value chain, enabling value creators.

The DSPs operating with this imperfect data are not inherently evil and their intent has rarely been maligned. In fact, new technology takes time to get right; new business models take time to make money. We’ll call these the market makers.

We are on the cusp of an all-out war in which the value destroyers attack the market makers to the detriment of the value creators. We will all lose if we choose to allow this to happen.

“We are on the cusp of an all-out war in which the value destroyers attack the market makers.”

Let’s start with two basic facts.

One: There are competing interests with the music industry around the sound recording and composition copyrights. These interests compete for a pool of revenues allocated by market makers through direct negotiation or statute.  These competing interests must work together in order to assure working marketplaces.

Two: The most critical factor ensuring that all copyright holders get paid their appropriate share of revenue is to have metadata at the song or track level that describes all those interests perfectly.

If there are gaps in the data, someone gets screwed. Their money goes undistributed – for a time at least – into ‘black boxes,’ or pools of money allocated for unidentified interests to claim. After a time, that unidentifiable ‘black box’ money is distributed on a pro-rata basis to the top earning value creators. All of the venerable institutions of administration, the PROs and SoundExchange for instance, from time to time release un-attributable money to the big earners.

This is not true of the market makers, who hold this money until their intermediaries, like HFA or MRI, can identify the appropriate rights holder. Those pools of money are growing, and smelling increasingly attractive for attack by the value destroyers.

Now, I’ll make an argument that will not be popular with the value destroyers and a few value creators. Legal action, such as the recent songwriters looking to get certified as a class action, will in the end only distribute others’ money unfairly and to the detriment of all value creators. All of the revenues earned on DSPs such as Spotify are subject to claim by rights holders first. Without willing participants in the marketplace, the market makers cannot succeed.

“It’s a devil’s bargain for those songwriters on the sidelines considering similar action.”

Lawsuits against market makers, for harms real and imagined, will enrich lawyers and intermediaries and do nothing to solve the underlying problem of bad data. And it’s a Devil’s bargain for those songwriters on the sideline who are considering similar action. Join, and you might get paid if you win the lawsuit. Don’t join; your pool of potential royalties just got diluted to pay a settlement. In actuality, the class-action lawyers will likely find a way get paid win or lose, from pools of creators’ money generated on the marketplaces.

What is a creator to do? My suggestion is this: go and perfect your metadata.

If you believe that your music has been used and that you have not been paid because your claim on the underlying music is not perfected, then go and perfect it. It’s a much more effective and beneficial action to use your trade group, publisher, agent, manager, distributor, aggregator or even lawyer to point out and take ownership in a work and then go and ask for money than seeking remedy in the courts.

It is the primary function of any intermediary to go and represent your interest in a direct and constructive way than to utilize the blunt force of a lawsuit that will take years to complete and will only destroy the value of the market makers and redistribute the pool of royalties in an inequitable way.

Imagine a music industry wrought with litigation that drains the economic life and vitality from it. Now imagine a music industry that values rewarding creators first. Now choose.Music Business Worldwide

Related Posts