Value Gap – The Dog Ate My Homework (or Music Licensing 101)

Dear European policy-maker – when you make policy for the “Value Gap”, please don’t forget about the different kinds of intermediaries.

I was on a panel once with a professor who argued that copyright must be reformed for the digital age. He said that intellectual property is granted by the public. I said I once wrote a book and it sure felt like it belonged to me and not the public. It was I who pressed all those keys to make the words appear. Not the public. Our brief exchange captures the polarized positions of tech companies and creators. Who does the content belong to? If everything belongs to the public, how do we make it worth the effort to make something new? Can we have the cake and eat it?

Looking at the Right Question

From the abstract to the tangible, this may be the issue of the day: How should internet platforms pay for the content they monetize? Assuming the conversation on this topic has progressed from “internet platforms are only technology providers” and “if users post unauthorized material, rights owners should request it to be taken down”, this is the right question today. Youtube is the best example, but the same is true for other types of content and platforms. Many use Youtube as a music player. It has the biggest and best collection of music on all platforms, but it does not pay license fees at anything like the same level as its competitors Spotify and Apple Music. In fact, Spotify pays music rights-owners over 20 times more than Youtube per user, according to the industry. This is not because of technology innovation or a better business model, only because Youtube can hide behind its users and the competitors can’t. Youtube monetizes the content, promotes the content and court records from a case brought by Viacom in 2007 show that this was always part of the business strategy. In fact it has announced plans to make a music player for “their” content. The European policy-maker does not buy these objections, instead looks for a way to bridge this “value gap”. That is looking at the right question. But is it thinking about the right answer?

Remedy for the Value Gap

Now, in trying to figure out the remedy for the value gap, we must consider the process of how the works reach their audience and the associated cost. The traditional communication model is source – channel – receiver. Or in the case of music: artist – channel – listener. Real life is of course a little more complicated. There is not one channel but many. Youtube, Spotify, Apple Music and others are storefronts. They pay different prices for the same content, but they pay after the song is played. No advances, no investment, no financial risk (in the content at least). Except the cost for creating the content has to be paid earlier (duh!), so somebody else has to put some money upfront. Also, the artist might like some help making the song sound better, like bringing in a producer, renting a studio or hiring a background vocalist or string section for the recording. Besides the song itself, a lot of work in things like styling, press photos, album cover (yes, still relevant in the digital age!), making a music video, promoting the song to radio DJs and playlist makers. And lots of other marketing activities to help make the song know to the public. Life is unfair: even the best song ever cannot be sure to reach its audience just by being made available somewhere. One in five songs on Spotify have never been played by anyone. Even if you throw the best party in the world with balloon animals, fire-eaters and free ice-cream, you must anyway send out invites for guests to turn up. For music, this is the work of labels, publishers, managers, agents and such. For other types of content – movies, books, games, TV etc – similar roles exist with different names. The point is that besides the storefronts, the creator needs commercial partners who take financial risk by putting up money up front and help develop the quality of the content and its delivery. Ergo, the communication model for music is more like: artist – risk-taking partners – channel – listener.

New Forms of Licensing

In order to bridge the value gap, it would be tempting to resort to a one-size-fits-all solution. The easiest would likely be to rely on collective rights management organizations to make agreements with the platforms on behalf of creators. There is definitely a role for the collecting societies in the digital era. It is likely to be more important than in the analog world, looking for example at how technology can be used for more granular licensing. But the main focus of the collecting societies is to look after the financial rights for the creative work in its pure form, rather than the refined end product which is the result of investment by the risk-taking partners. That is called collective licensing (a radio station does not need to get license from all song-writers, but only a collective license from the collecting society). The other part of the value chain is licensing agreements: the creator licenses or assigns the work to a label, the label licenses it to storefronts. This is necessary to make the up-front investment possible. The label is like a bank: investing money, collecting some rewards, distributing risk (in theory, an artist could borrow money from a regular bank, but show me that bank!). Also, the collective rights management system is most developed for music, so the one-size-does-not-fit-all argument goes for other types of content, perhaps even more.

The Dog Ate My Homework

With the unauthorized distribution of copyright content on internet platforms and the legal loophole of “safe harbor”, Youtube et al found a way to reverse the content licensing system. In all other circumstances, you have to ask first, before you post. Now, it’s post first and let the creators patrol the platforms and prompt them with cease & desist-notices to take down unauthorized content. Post first and ask permission only after you get caught. It’s “the dog ate my homework” on an industrial scale. In fact, Youtube’s “content first, copyright later” approach has been the foundation of its vast success.

The Answer

The answer is two-sided. First, platforms must be responsible not only for take-down of unauthorised content, but also for making sure it doesn’t reappear. Second, internet platforms must make licence agreements for the content they monetize. The creators or their commercial partners should be free to make the choice whether to license the content or to have it removed. The onus should be on the platform to make certain it has the approval of the creators. That may look complicated, but it’s nothing compared to serving personalized ads to Billions of users. Technology will find a way.

The book I wrote belongs to me and not the public. I can do what I like with it: put it in a drawer. Put it online for free. Sell the rights to a publisher. It’s for me to decide. This is the beauty of intellectual property. It’s an economic right and a moral right. I have the freedom to make arrangements as I wish with what I created. (And of course the public is free to love my work or ignore it!)

Dear European policy-maker, when you make policy for the value gap, please protect the creators’ freedom to do what they want with their work. Thank you.