The Unheard Battle Over Social Media Licensing
10 min read

The Unheard Battle Over Social Media Licensing

Hello, hello, and again hello. The sun is shining and the temperature is creeping up in New York City, so my smile is getting wider by the day. Last week, my favorite fashion podcast Nymphet Alumni arrived twice in my feed with an appearance on the Default Friend podcast and their own episode on music festival culture, if you needed a music tie-in. Otherwise, no updates this week, so let’s chat about under the radar multi-million dollar deals between music labels and tech firms.

Last year, the Financial Times captured an amazing detail in its profile of Lucian Grainge, the CEO of Universal Music Group. The story closed with Grainge on the Zoom call giving instructions on how to deal with social media companies in licensing negotiations. An anonymously quoted former UMG employee said: “he has ice in his veins” to describe how the industry-leading boss deals with technology rivals on the other side of the negotiating table. The deal with Snapchat, for example, took years to get done but Grainge, and co., see these companies as offering an important additional revenue stream for an industry that understands the value of diversified incomes.

The strikingly candid scene captured an industry dynamic that’s often unseen in favor of highlighting the ongoing struggle between musicians and streaming platforms. Rightfully, the plight of musicians against big bad technology firms makes for an easy narrative. I've certainly contributed to this fact, but major labels engage in many kinds of deals without much scrutiny and that again leaves the voice of the artist outside of the room.

This kind of large-scale music licensing isn't new. The tension between major labels and MTV in the early 80s shows that the growth of major labels in the late 20th century resulted in protracted clashes between media conglomerates. Yet, by the early 00s that shifted, as the deals were suddenly found between increasingly desperate, and overextended, record labels, as opposed to young but flushed with cash tech firms. Back in 2006, the majors started signing deals with YouTube, which got them a split on ads run on their videos, an agreement YouTube would try to take down copyrighted materials, and they even got $50 million when the company sold to Google. Those early deals shaped what became routine negotiations between record labels, publishers, and other industry players when working with emergent tech firms.  

Last year, the UK’s Music Manager Forum, in its written testimony to the parliamentary inquiry into music streaming economics, made an interesting observation. I’ve mentioned this numerous times in this newsletter, but they wrote: “With some social media services that are still working out how they plan to actually use music, the advance may be a one-off lump sum payment covering a set period of time. No additional payments are made during that time period and what music has actually been streamed may not be reported.” Annabella Coldrick, the CEO of the Music Managers Forum, repeated those exact concerns in a January Medium post, where she highlighted the large unaccounted lump sum payments from social media platforms like Facebook to the pockets of majors without much clear evidence of how it would be given to the actual musicians. Now let’s try our best to better understand where that money goes.  

Back in early 2018, Digital Music News received a leaked contract between Facebook and the independent publishers. The agreement included details about separate pools of money for independent labels ($45 million), the amount given to majors remains unknown, but it was the method of calculations that concerns independent labels. Payments were not based on music play count or how much a song might be featured in Facebook content, but rather were determined by a market share rate calculated by the National Music Publishers’ Association judging other streaming platforms' usage. Certainly, a problematic source of truth for “independent” labels, not represented by the NMPA and there were concerns that the royalties were to be administered by Harry Fox Agency, the Blackstone Group-owned company not unfamiliar with disputes over not properly paying songwriters. These circumstances caused certain independent songwriters to balk at the deal since it was so heavily tilted against them.

The details of this contract being out in the public is rare. The more typical way to peer into the process is following lawsuits, or maybe better phrased “threats of a lawsuit” by the NMPA and major labels against these companies. Twitch got dragged into this process and ended up with a settlement with the NMPA. Music Ally mentioned a few of the details included: “‘an opt-in deal allowing for future collaborations to bring new facets to both the gaming experience and songwriter exposure’, as well as a new system for music rightsholders to report unauthorized use of their music to Twitch. The NMPA said that the first part of this agreement will benefit uses ‘virtual shows to studio sessions’ on Twitch: so specific music performance live streams.” The immediate next question should be what artists will benefit from such collaborations. Billboard reported that Twitch paid the trade association an undisclosed sum to make up for previously unlicensed usage of music on the platform, but again no other details were provided on how much, or even how that money would be divided.

If details are underreported then another method of guessing what’s up could just be following executive job changes. Snapchat felt the ire of labels for not signing a deal, and notably poached a former Warner Music Group executive, Michael Lynton, before eventually signing deals with all the major labels and publishers. To mention Warner, an even more confusing set of finger-pointing was committed by NMPA towards the Roblox Corporation. The organization, which represents Warner/Chappelle along with the other major publishers, threatened to sue the video game maker for $200 million over unlicensed music, meanwhile, WMG invested millions of dollars into the video game company and even got its biggest artists like David Guetta to perform inside of the game. The conflicting interests of the record industry were laid bare, as a major label was leaning into a new investment, meanwhile one of its biggest trade groups was threatening to take court action. Eventually, the Roblox Corporation, like Twitch, arrived at a deal that could pave the wave for future work with major publishers but appeared primarily interested in squeezing out a few more dollars and sending out some nice press statements.

Now, every tech company doesn’t quite have the deep pockets of a Facebook or even a Snap to just absorb what are pretty expensive costs to license an entire company’s worth of music. This is why Peloton, the now struggling exercise bike company, in its IPO filing explicitly mentioned these deals saying: “From time to time, we execute music royalty agreements with various music rights holders. As part of these go-forward license agreements, we may also enter into agreements whereby we are released from all potential licensor claims regarding our alleged past use of copyrighted material in our content in exchange for a mutually-agreed payment”. They got hit with a $150 million NMPA lawsuit in 2019 only a year after seeing positive headlines about how the company was offering a new source of revenue for the music business. But again, considering most of the saber-rattling against Pelonton was by the NMPA and not songwriters or musicians, it’s a good question of how much the millions of dollars they’re paying out is reaching the pockets of said artists.

The large-scale consumptive shift of transitioning from the industry supporting sheet music sales, physical sales, digital sales, and now streaming has been intense for working musicians. That’s why historically there’s been musician outcry since the early 20th century about technological change, not out of reactionary Luddism, but from the knowledge that these changes would ultimately be to their detriment. Over the last year, there’s become a more concerted pushback against the terms that musicians are forced to agree with streaming platforms as seen in the #BrokenRecord and “Justice at Spotify” campaign. Yet, there’s often nary a peep, the Music Managers Forum an exception, about these particular deals I’ve detailed above even though major labels now are seeing them become a meaningful source of income for their own bottom lines.

Last year, Steve Cooper, the CEO of Warner Music Group, called special attention to “alternative” platforms for being another pillar of industry growth. Music Business Worldwide ran with that line and noted that “Facebook/TikTok/Peleton/et al” are likely already generating a billion dollars of revenue for the industry, even though many of these companies just signed deals with major labels and publishers the last few years. The newness is why I sought to dive deeper into the topic this week. Every latest crypto crash and continued smallness of thinking within the web3/NFT space pulls me back to better understanding the dynamics of platforms used by tens, if not hundreds of millions, of people that can often be the first place where people discover new music in 2022. These companies sign deals for millions of dollars and it isn’t explicitly clear to artists, or fans, how musicians are being compensated. The newness of this bucket of money shouldn't be stashed away in oblique, never seen contracts but should be another way of thinking about how the value of music culture can be distributed.

Unheard Labor

The Copyright Royalty Board continues a slow-moving shift towards the demands of activist songwriters. Earlier in May, the board improved increasing the mechanical royalty rate on physical and download sales from 9.1 cents to 12 cents, a shocking uptick of 32%. Chris Castle over at Music Tech Policy gives a nice retelling of what happened. He highlighted the many individual songwriters and certain organizations like the Ivors Academy secured this win, not the National Music Publishers Association or other groups that were quick to be quoted and gloating about the board’s decision. Especially the NMPA, which Castle’s blog made clear was previously fine with the anti-songwriter status quo.

Outside of the CRB, the United States Congress continues to hammer Spotify about the lack of transparency around its Discovery Mode feature that critics liken to old school radio payola, where artists are paying Spotify for an undisclosed promotion, instead of a DJ. The Tech Workers Coalition did an interesting story about a chatbot company (LISA) unionizing, noting that many of the workers are classical musicians and used the less than ideal experience at the American Guild of Musical Artists (AGMA) to build a different union culture. Their vote ends in early June, so good luck to these musicians fighting for a better job within a space, AI chatbot, which exists in many ways to obscure labor. To close, voters in Switzerland approved a law that’d make Netflix contribute 4% of revenue towards local content, following in the footsteps of other western European countries. Critics warned this could be replicated for music platforms as well, which sounds lovely. Get to it folks.

A Note of Financialization

Primary Wave bought a “stake” in the catalog of country songwriter David Malloy and a “share” of Bob Dylan’s writing with the supergroup the Traveling Wilburys. (Yes, this is a bit confusing when Universal Music Publishing Group and Sony Music bought his publishing and recording respectively over the last couple of years.) Reservoir Media alongside previous business partner PopArabia bought the Egyptian Label 100COPIES. This continues Reservoir Media’s eye toward expansion into non-western publishing markets. To close this week, Sony Music Publishing linked up with Domain Capital Group, an Atlanta-based investment firm, to reportedly spent $40 million on half of the catalog of Ashely Gorley. Notably, Gorley already sold half of his catalog to Round Hill a few years ago, so shout out to him for the double-dip.

This isn’t “news” but it is a bit fun nonetheless. Rostrum Records, via a Billboard article, stated they’re trying to sell the label’s master recordings that include early works by Mac Miller and Wiz Khalifa. This is part of an emerging trend of big-name artists explicitly stating a desire to sell their music to build up hype. Gotta work from every angle, especially since they’re aiming for an $80 million payday!

Sounds from the Fediverse: an Introduction to Funkwhale, a Decentralised, Community Audio Platform - INS-RT

I attempt to reply to most emails I get and here is a great reason why. Jake emailed me years ago to speak for a school research paper, and now wrote an extremely interesting profile of Funkwhale, a music project trying to build its own platform that holds many similar promises to web3 but sans crypto. The project certainly feels a bit throwback but it’s nice seeing a music initiative neither funded by Andreessen Horowitz nor a major label and in fact, sits firmly against such easy-to-be co-opted ventures.

Music NFT Sales in 2021: What We Learned - Water and Music

Water and Music pulled together an extensive report on music NFT sales in 2021. It’s long but certainly not too dense to understand and shows that while initial interest in the format peaked in early 2021, it continued to find new audiences. I hope W&M does this again next year because it'll be great to see some year-over-year comparisons of this nascent market.

K-Pop Is Not Popular in America - The Idolcast

Kara, who does the Idolcast podcast, explores how over the last ten years we’ve seen K-Pop hyped to be the next thing despite never truly gaining mass cultural capital in the west. I’d stress her observation on the unreliability of this era of Billboard charts with fan manipulation actively distorted, an attempt to gauge popularity. Coordinated global fan communities, encouraged by the record labels themselves, can easily distort the perceived domestic popularity of an act. This isn’t to say BTS doesn’t have fans or even no. 1 hits, but the overly consumptive and cult-like behavior of K-Pop masks what is a relative niche, but a financially well-resourced, product.

What BlackRock, Vanguard, and State Street Are Doing to the Economy - The New York Times

The three firms in the headline above manage $22 trillion worth of assets. A dumb amount of money, but the first name in the headline should ring a bell. BlackRock invested $300 million into Primary Wave back in 2016, and six years later Pimco, a slightly smaller investment manager, would announce a deal with BMG. The music business press is rarely critical of music investments either in song catalogs or startups but the size of these firms shouldn’t be overlooked, and their influence on this industry needs to be better understood.

Big Tech Trouble in China - This Machine Kills

Frequent readers should know I’ve taken a keen interest the last couple of years in China’s recent anti-technology pivot. Much of that interest can be reflected in the hardline stance against over-consumption of media, curbing certain business models, and just outright saying “no” to how certain firms operate. This podcast provides a strong high-level summary of these political decisions and notes that many of these reforms are still early, so I hope they revisit the topic in due time.

China Orders Livestreaming Platforms to Step Up Oversight of Underage Users - Reuters

More reporting on what these Chinese Communist Party anti-tech policies look like in practice. Still, the exploitation and profiteering off of children by companies in the guise of fandom are certainly worth cracking down upon.