A Solution to YouTube’s “Value Gap”

Hello, hello, happy to be back this week. No real news this week, so I’ll make this brief call to action. If you enjoy this newsletter, please forward or recommend it to a coworker, friend, or whoever, I won’t be picky. Now, let’s just jump into this week’s topic of YouTube, legislative reform, and the long shadow of governmental regulations.

The record industry never loved YouTube. Even though major labels received a nice paycheck when the platform was purchased by Google in 2006, its particular treatment of copyrighted content never sat well with established entertainment firms. This is typically summarized as a “Value Gap” in that YouTube pays out the worst of all major streaming platforms and rightsholders are forced to play whac-a-mole to remove copyright-infringing works. This creates a race to the bottom of both song value and how rights holders are treated. YouTube’s existence, and right now to a lesser degree digital piracy, are pulling down the potential income artists could make from their craft. However, this less than optimal situation holds some roots in a late 90s copyright reform well before the emergence of the video sharing platform.

Last year, the United States Copyright Office released a 200+ report examining a single part of the 1998 Digital Millennium Copyright Act, called Section 512. It’s this singular section that’s largely molded the current framework of digital music consumption that we have in 2021. I’ll be largely following much of the findings of this report because it’s a fairly comprehensive look at what can certainly be called a complicated issue. (Think of this as a companion to my earlier writing on the Copyright Royalty Board this year.)

A couple of years prior to the passage of the DMCA, there was growing international interest in addressing questions around copyright and new digital technologies. This was being led by the World Intellectual Property Organization (WIPO) and provided some framework of what the United States would address. After a couple of years of back and forth, the DMCA was signed by Bill Clinton in October 1998, and according to the Copyright Office, here’s what Section 512 codified: “...the new section created a “safe harbor” framework under which OSPs can obtain a limitation on liability for infringement occurring on their systems by satisfying certain statutory conditions, generally consisting of implementing measures to expeditiously address infringing activity. While encouraging OSPs to continue the growth and development of internet services, Congress simultaneously intended these provisions to encourage creators “to make their works available to legitimate consumers in the digital environment” by “protecting intellectual property rights.”

The “safe harbor” provision was extended to allow emerging internet ventures some leeway when dealing with the content placed on their platform without a consistent lawsuit filing dangling above their head. The Copyright Office repeatedly stresses throughout the report just how different the internet functioned when the bill was originally written versus today. There was no YouTube, Spotify, TikTok, or even Napster. There was no mobile internet usage, the idea of platforms with hundreds of millions of users across the globe where people can instantaneously upload content just wasn’t on the radar of legislators at the time.

Concerns about the DMCA began immediately upon its passage. Early calls for reform came loudest from emergent digital platforms like MP3.com that saw the law as favored too strongly towards copyright holders (major labels and publishers). Though objections were raised the law remained. Wired in 2008, on the tenth anniversary of the bill’s signage captured just how quickly the winners-and-losers calculation quickly flipped: “Blogs, search engines, e-commerce sites, video, and social-networking portals are thriving today thanks in large part to the notice-and-takedown regime ushered in by the much-maligned copyright overhaul.” However, the rise of YouTube, Spotify, and other streaming platforms produced a new choir of voices seeking reforms.

Throughout the 2010s, more musicians, music trade organizations, and advocacy groups started raising concerns about the DMCA, but especially Section 512 with specific concern around “safe harbor”. In 2017, the Record Industry Association of America (RIAA), the National Music Publishers Association (NMPA), and many others kept raising concerns about Section 512; they weren’t alone in sensing something off with the law, as the Copyright Office opened a study into the topic. A year prior, a number of musicians from Taylor Swift to Paul McCartney wrote an open letter to offer support of reforming “safe harbor” with a particular eye towards YouTube. However, the Copyright Office’s report suggested a slight change that could help address a number of concerns. They pointed out that the original DMCA included creating a Standard Technical Measure to help copyright holders find and defend their works. The report proposed: “...recommends that both stakeholders and Congress may wish to consider either legislative, regulatory, or practical avenues to encourage the adoption and development of technologies as STMs in the spirit originally intended by Congress.” This reform wouldn’t remove safe harbor protections but would allow all copyright holders, not just those with deep pockets to better defend their works on platforms like YouTube.

In the United States, reform of Section 512 of the DMCA is just one of many legislative fights being taken up by an increasing cluster of musicians and rightsholder organizations. This month, a campaign was launched by MusicFirst to rally support behind the American Music Fairness Act, which would allow recording artists to be paid by radio broadcasters, a major shift that would put the United States just in line with most other countries. There was the bill put forward by Ted Deutch that would allow artists to directly negotiate with streaming platforms bypassing some antitrust concerns. This and the implementation of a Standard Technical Measure could offer a real footing for artists to challenge digital streaming platforms for the value of their work. Though not as comprehensive as the set of reforms and reports produced by the United Kingdom this year, the United States is cohering its own parallel set of music reforms.

YouTube’s long championed safe harbor under the DMCA because it basically allowed their business to succeed. Where I’ll leave this week is that researching this topic and reading the Copyright Office report there are two sets of voices often clearly underheard. The first is independent musicians, who are often never in the rooms where these decisions get made and are forced to work with programs like YouTube’s Content ID system that is built with larger rights holders, who’ll have the time and resources to hunt potential money. The other is that of smaller music platforms, a concept that might’ve been legible decades ago but when Spotify, YouTube, Apple Music, and Amazon Music account for over 90% of streaming revenue, most smaller platforms are increasingly marginalized and used only to justify, less, rather than better tailored, a regulator of larger firms. Reform of the DMCA should allow artists to regain control of their works that’s been obscured in the 21st century, while encouraging alternative platforms that don’t and might not aspire, towards YouTube’s scale.

Unheard Labor

The United Kingdom’s Musicians’ Union, a number of politicians, and other music industry groups raised concerns over Lucian Grainge, the CEO of the newly public Universal Music Group, reportedly pulling in more money (over $200 million) from that IPO than every English songwriter made combined in a year. The absurdity is worthy of condemnation. This also shows that while legislative bills haven’t been passed, the UK still holds a keen skeptical eye towards the industry.

A Note of Financialization

Last month, Kara, who helped me do research on the K-Pop industry earlier this year, clued me to an interesting trend within South Korean song rights. (Do check out Kara’s podcast here.) Musicow, a Seoul-based company that allows fans to buy fractional shares of popular songs, is looking to go public with a valuation of over $850 million. Earlier in the summer, the company received backing from the Korea Development Bank, a state-owned bank, along with a number of private investors. While bigger western investors dominate the news around catalog purchases, this is an increasingly global trend.

Then last week, Hybe, one of South Korea’s biggest music companies, announced purchasing a $421 million stake in Dunamu, a Korean financial tech company, with them getting a $590 million stake in Hybe. All with the reported goal of diving into the world of NFTs and ever more commodifying the K-Pop industry away from music. Not to be left out of the NFT news, Universal Music Group is joining with the Bored Ape Yacht Club, which feels like a scheme to juice up the value of the Apes and boost a bit more hype for the newly public company. The comparison to the 00s band Gorillaz came to mind for many people but I think that gives too much credence to what is more than likely a marketing exercise in the world’s first project manager-centered music initiative.

Now, what’s happening in the western world of catalog purchases. Primary Wave picked up the publishing and master rights of Mike Scott, of the band The Waterboys. I’ll just note this continues the continued trend of more masters being sold alongside publishing. CTM Outlander, our favorite Dutch and Dallas-based firm, purchased “music rights [covering] the last decade” from the country singer Natalie Hemby.  And though not yet confirmed, Sony is reportedly looking to buy the publishing catalog of Bruce Springsteen, which five years ago might’ve been shocking but now feels pretty routine. A new player in this space just emerged. M3, an independent Colombia-based record label, is partnering with Catch Point Rights Partners to scope out Latin American music catalogs. Still not clear where Catch Point is pulling in money but maybe someone reading knows.

6 Links 2 Read

How Hits by Drake, Ye & More Get Released Before Songwriter Pay Splits Are Settled - Billboard (Subscription)
An interesting walk through the complicated, and perhaps becoming more so, process of songwriting credits. The story shows why companies are lining up to simplified artist payouts, as the current system twists further into an interlocking pretzel.

The Ubiquity Paradox: do far more of this but also do a lot less of that - Music Business Worldwide

Eamonn Forde, the author of the excellent book The Final Days of EMI: Selling the Pig, makes a keen point in this column. He points out how different versions of songs can exist for various markets that in another era would’ve been limited to a country’s retail shelves or radio waves that are now slotted next to each other on global, easy-to-access, music platforms. A sign of the industry’s skewing ever more towards this upper tier of already successful music. A label may get a feature to allow a song to have traction in South Korea or Brazil, while an asset manager-backed song rights fund may be happy knowing an old song that they bought is sampled in that hit. What a boon for contemporary song plugging.

New US Subscribers Are Drying Up in TV Streaming Competition - The Financial Times (Subscription)

Anna Nicolaou charts out warning signs within the streaming media business in television. Record labels are primed to discover new ways to squeeze profits out of their intellectual property beyond streaming; the actual business case for Spotify, or perhaps more pointedly Apple or Amazon Music, may be worth keeping a closer eye on. Ongoing battles over the Copyright Royalty Board rulings show the limits of what these technology companies will pay for music.

Surprise! The Future of Media Involves a Crypto-Based Popularity Contest - Vice / Notes on Web3 - Robin Sloan

Two considerate challenges of Web3, a rather tedious phrase, that poke a bit more about what can or is being built by these new financial models, and less obsession with the novelty of tax-avoidance monetary pooling.

Who Goes Crypto? - Mother Jones

Who knew Obama’s bailout of the banks and lack of tech regulation, helped seed the social base for cryptocurrencies. Always appreciate crypto coverage that provides context for people’s passion rather than gawk with bemusement.

In Just One Year, Beijing’s Crackdown Has Changed Corporate China Forever - Bloomberg (Subscription) / TechScape: Xi Jinping’s ‘Little Red Book’ of tech regulation could lead the way - The Guardian

Bloomberg put together a nice graphical illustration of recent actions by the Chinese state against its own technology firms. Then the Guardian teased out a broader theory for the country’s shift. Even though this isn't connected too directly with music, this remains one of the most fascinating technological stories to emerge since the pandemic.