Chris Castle is an attorney with Christian L. Castle Attorneys specializing in issues surrounding the traditional music industry, content-based technology and public policy. With offices in L.A. and San Francisco, he represents artists, producers, songwriters, record labels, music publishers, film studios and technology companies. He got his start in the music industry as a professional musician, working and playing with artists including Long John Baldry, Yvonne Elliman and Jesse Winchester and many others. Chris is an MBA/JD of the Anderson Graduate School of Management and the UCLA School of Law and is a magna cum laude graduate of UCLA with a B.A. in Political Science. Prior to founding his own firm in 2004, he was of counsel to Mitchell, Silberberg & Knupp in L.A. and to Wilson, Sonsini, Goodrich & Rosati in Palo Alto. He has also held several senior business affairs positions in the music industry.
I recently had the opportunity to sit down with Chris and talk about some important, current music-related legislation and how it will affect the music industry as well as some advice he has for DIY artists that want to get involved in managing their own rights.
Thanks so much for taking some time to talk to me, Chris. From the perspective of someone that knows digital distribution, music supervision and record deals as they relate to legal policy, which items are currently pending that you think will have the greatest impact on musicians going forward?
In the last year or so, the penny has kind of dropped in the U.S., the UK and France, though what is happening in U.S. Congress is most relevant for this conversation. There are certain things they need to do about regulating some of the bad actions that are going on online. And I don’t mean going after individual users, because all the laws you need to go after individual users are already in place. I’m talking about going after the people who make the big money from piracy online and have very involved structures by which to do that, also known as “rogue sites.” That includes search engines that don’t filter obvious piracy sources and sell advertising that supports pirate sites.
In the last Congress, Senators Leahy and Hatch introduced the first rogue sites bill (the Combating Online Infringements and Counterfeits Act) that passed the Senate Judiciary Committee on a unanimous vote with all members present late in the session. Chairman Leahy introduced a successor to that bill called the Protect IP Act, which has been passed out of the Senate Judiciary Committee and is about to be introduced in the House.
The legislation is bitterly opposed by Google and Google is bringing its full lobbying weight to bear on stopping it, no doubt due to the financial losses staring them in the face. Because it’s hard to come right out and say they want to support theft and that they don’t care about musicians, film makers, songwriters, actors, grips and directors, Google attacks the solution that Congress is endorsing—of course, there is no effective solution that Google does like.
You can argue about unintended consequences when it comes to these rogue sites bills. But what these bills do is recognize that there are some real structural problems with the Internet that encourages piracy and inhibits a true market from developing. You have a lot of incentives for people to do really bad things. I think that realization on the part of the Congress has been a big step forward toward establishing market rules online that will help artists be successful.
The other realization that goes along with the recognizing the structural problems online is that we’re not seeing pirates in the historical sense of what we’re used to.
I’ve been in the business for a long time, and so have you. Online piracy is not some guy with a duplication plant in Santa Ana who deals a little coke on the side. Now it’s companies like Google. Google is very much involved with selling advertising on these rogue sites and splitting the profits with the pirates (made evident in the April House IP subcommittee hearing). And it’s like that great line in The Untouchables: “Everybody knows where the booze is, Mr. Ness.” It’s not a question of whether people at Google know what they’re doing, because they clearly do know. There are at least five cyberlockers with Google advertising that consistently are in the top 100 websites in the world. It’s just that they’re making so much money at it that they don’t want to give it up.
On a more positive note, I think we are finally seeing a real upswing in companies like Topspin, etc. There’s a site called Patronism.com, which is a cross between Facebook and Kickstarter for artists. And of course then there’s Kickstarter, where artists are able to go out and raise money – crowd funding that actually does work. You’re starting to see resources appear online where artists can get a pretty long way down the path without having to get into 360 deals, etc. early on in their careers. I think that’s encouraging.
And then the next problem after that, which nobody has really cracked yet is the lock on radio that major labels have. I don’t if anybody is ever going to solve that. But there are a lot of ways to get to the fan now that don’t involve telecommunications-related mass media.
What is your assessment of the class action lawsuit that has been brought against the major labels for digital payment issues?
The class action is a follow on to what’s referred to as the “Eminem Case” even though Eminem isn’t really a part of it himself. It’s the case where people are saying that the royalties for digital have been miscalculated under specific contracts and industry practice, and that it should’ve been a 50-50 split vs. a royalty rate.
First of all, I don’t think the class actions are necessarily going to be the best vehicle for addressing this issue because mostly because of what class action lawsuits require in order to go forward; you have to have common facts, common interests and a bona fide class representative, etc.
It’s also important for artists to understand that if a class is certified in one of these cases (like the one against Universal) then unless artists expressly opt out of the class, they are bound by the decision. Which is nice if the class wins, but not so nice if the class loses and you never not your day in court.
I think it is going to be very hard to certify a meaningful class because, not because of anything nefarious, but because the artist deals are not the same. For example, with Eminem, it was really a production deal, not an direct artist deal. So, if they had tried to bring that as a class action – and I wouldn’t be surprised if they had thought about that – I don’t know how it would’ve worked out, because there are relatively few production deals compared to direct artist deals.
I would also point out that there’s a bit of tree-ring aging that goes along with analyzing the relevant contracts for the class. I used to work at A&M, and I can tell you from having gone through many years of looking through old contracts in the file room that there were distinct points in time when the way things were addressed changed on many of the forms. And I think that’s not just true at A&M; it applies to all labels that have been around for a while.
If you’re talking about contracts that were entered into after about 2000 or so – when the labels started clearing large quantities of their catalogues for digital – most of the time business affairs people went through an amendment process that was very similar to what they went through with CDs. In fact, some people may have used the CD amendments as something of a model for digital.
If you were an artist they wanted to put on iTunes or through Pressplay or MusicNet/MediaNet and your contract was messy on the digital exploitation rights, they would go to you as an artist and offer you a more or less favored nations deal. Artists would have to sign those amendments or they didn’t get on iTunes. Most of those deals were fairly generous from a label point of view, usually something like paying the album rate for digital single tracks with no packaging and no new media deductions as the standard. Over time, the demand for back catalog on digital services was so intense that people may have gotten sloppy with getting these amendments, and that’s who the class action lawyers will be looking for.
The artists who are going to have the most play in this kind of litigation are probably going to be the people who signed before about 1990. That’s a pretty deep catalog. Those guys might be able to piece together a class that can get certified. But I really think it’s going to be tough.
This is not to say that a significant catalog artist shouldn’t pick up the phone and call their old label to see about renegotiating their old deals for digital. This is the kind of thing that works well when combined with an audit claim or a 35-year termination.
While I’m going over current topics, what do you think will be the ultimate impact of the publishers settling with YouTube?
That’s a very interesting piece. I will tell you that there are a lot of stakeholders in that situation that read about it for the first time in the newspaper. They were somewhat surprised and are unclear as to what the basis of that decision is.
If you read the press release from the Harry Fox Agency (HFA) – and that’s the only thing written I’ve seen so far – it looks as if the National Music Publishers Association (NMPA) and a handful of publishers were party to the class action lawsuit brought by the Premier League and others against Google that is a companion case to the Viacom litigation. It appears that these publishers released their claims. Viacom is still litigating their case and the class action is going forward, apparently without the NMPA and these publishers.
The short answer is, I can’t really tell what was dismissed and the settlement agreement has not been posted. But it looks to me is that the NMPA, which doesn’t own any copyrights, dismissed their claim against Google, whatever it was, as did the specific publishers mentioned in the HFA press release. But that’s only four or five publishers. So, I’m not really sure what it all means. And then the HFA is also offering a license on undisclosed terms that looks like a standard HFA opt-in structure. So, it says, “If you want to grant a license to YouTube prospectively, let us know.” HFA haven’t posted the terms but would have to tell any HFA publisher principal who wanted to participate.
I have heard that YouTube has what I would call a close to pathological level of secrecy about the terms of their deals. Like anyone in the music business can keep a secret. That’s kind of funny.
I guess it just doesn’t surprise me that the specifics of the deal have not been made public. But in this country, I don’t see how that’s going to stay quiet for very long, because that will have to go out with all the opt-ins. They will likely not say, “Opt into this deal, but we’re not going to tell you what the terms are” however much Google would like that.
Plus, HFA acts as an agent for their publisher principals, so they’ll have to disclose the terms.
What appears to have happened is that the publishers just walked away from the lawsuit, let the past go uncompensated and agreed to a deal prospectively for the future. I don’t really think that’s so great, personally. I don’t think it’s a good idea to sue somebody and then drop your case for no compensation. If you’re going to go to the trouble of suing someone, you should stay in.
Google seems to like its class actions as anyone who has followed Google Books or Google Buzz will know. Google likes to get rid of liability through what appears to be a “prepackaged class action” that limits the amount Google has to pay and gives Google a prospective license. That angle failed miserably in the Google Books case because they tried to make a prospective license part of the class action settlement. (Class actions are designed to deal with retrospective harm, not prospective licenses.) But what they failed to do by settlement they maybe can accomplish by prospective contract.
Does this mean that a large number of publishers have walked away from potential performance royalties? I don’t know whether or not ASCAP or BMI had deals in place, but it seems there would be performance royalties out there somewhere that haven’t yet been claimed.
This situation is really about sync licenses, not performances.
It’s interesting, because I interviewed an artist named David Choi, who has 95 million upload views on YouTube. And he said he never got a single check as a result from his PRO.
And that doesn’t surprise me. The YouTube people are interesting, because they are sending checks. When I talk to label people, I hear that the YouTube checks have gotten a lot bigger if you’re a major. But paying off people who can sue them is the way Google has approached many aspects of their business, including the recent payment to the U.S. Government over Google’s sale of advertising for illegal drugs.
Frankly, until iTunes had been around for a couple years, iTunes approached it similarly; if you were an independent, you got a reduced rate on your wholesale price. That didn’t last very long and iTunes has been great with independents ever since. But YouTube and Google have approached their business model the same way.
I was at a NARM panel a few months ago in L.A. where Sami Valkonen, who is now the international music licensing person for Google Music (whatever that is, because no one knows what that program is yet) confirmed that Google approaches it that way in front of a room full of indies. He said, “All I have to do is go out there and get a few of the big guys. If I get two or three of those, the rest will fall in line.” The indies in the room had a good laugh about that later.
But that’s the way Google thinks of it. So, as far as Google is concerned, if you’re an independent artist that doesn’t have a big label supporting you or someone to whom they’ve paid a lot of money for a license, they’re not that interested in negotiating with you and want you to take what is often called the “hillbilly deal.”
There is also a kind of unholy alliance that goes on in this kind of situation that could explain why an artist wouldn’t get a check: When YouTube makes a deal with a major, there’s an assumption that they will account. So, they’ll pay the major label. And I think the early checks were relatively pretty large – in the $30-$50 million range. Part of that was a settlement, and part was an advance on the catalog. If you are a major, it won’t take you that long – even at the absurdly low rate that YouTube seems to be paying – to recoup that advance at the label level.
So when the advance is recouped Google have to actually start paying checks again. Also, along the way, they have to render statements to the label that show the activity, because the label then is supposed to credit that portion of the advance attributable to the artist’s share of those performances to the artist.
And I’m sure that hazy accounting gets very interesting there, because you wonder if they are really cutting checks for seven cents.
And that’s the thing. YouTube has an incentive to send just enough not to get in trouble. And the labels don’t really want to deal with accounting that is too good, because the worse the accounting, the less money they actually have to pay out to third parties, like artists. And those third parties include producers too. I guess there might be some video directors that would get a percentage too, though not many.
Hazy accounting is nothing new in the record business. Because this YouTube lawsuit is not about performance royalties, rather about synchronization fees, does this mean that people walked away from all the synchronization fees they were owed prior to this settlement and then struck a deal going forward?
It looks that way. But if you read that HFA press release, it’s not clear whether or not there is any money being paid. And if I’m Google, I don’t think I’d want to pay those guys a penny, because as far as I’m concerned, I won the case and this appeal business is just periphery. Google even tells governments throughout the world, “Oh no, we won the YouTube case.” Even though it’s on appeal.
So, for them to pay money to anyone who is still in on the appeal to knock them out is probably not something they want to do, because they don’t want to set the precedent. So, I would doubt whether any money actually changed hands at all. And the license is prospective.
That’s amazing. As much as all this policy interesting, it doesn’t trickle down to the DIY artists, because they’re not necessarily getting paid now, and it doesn’t look like they’ll be paid then either.
That’s right (unless you get your little share of advertising that Google sells on your You Tube “partner” page). And here’s the dynamic that’s also at work out there that’s the counter balance to the good news: they try to turn artists against their record companies, music publishers, and unions. The reason? Google would much prefer dealing with artists who were not able to strike back and as much as artists may have a bone to pick with labels, publishers and unions, that’s a bone better picked in private. Does anyone really believe that Google has their best interests at heart, or is it more likely that Google would prefer their artists served up alone, powerless and broke?
What do all these artist organizations have in common? They are places where artists come together to bargain collectively, because it gives them greater leverage. And of course, these companies don’t like that. Lawrence Lessig, the academic who has had a huge influence on Google and its executive team, has a real problem with the societies.
When largely non-union companies like Google who have no experience with collective bargaining at all try to undermine the artists and go around their representatives and natural allies, they undermine the one last bastion artists and creators have to stand up to people.
So, Google would like to avoid anything that doesn’t scale, and they would love to avoid the labels, the publishers and the societies. And it should not be overlooked that Google no doubt sees itself as occupying the space of these “intermediaries” because Google wants to organize the world’s information whether the world likes it or not.
Which organizations does that include, specifically?
ASCAP, BMI, AFM, AFTRA, etc. To further illustrate my previous point, something came up the other day. Sirius is going around trying to make deals with indie labels to pay them their artists’ share and union share of money that would otherwise go to SoundExchange, which is another organization that is viewed as a middle man. Well, that completely screws the artist and completely screws the unions. And these unions have a side deal with the majors that even if the majors did do a direct license for works that would otherwise be licensed through SoundExchange, the majors will not take that money and apply it against un-recouped balances.
The reason these companies are going to the indies is because they can’t get any traction with the major labels, because the major labels already have agreements in place not to enter into these types of deals. So, how is SiriusXM your friend at that point above your union or your label? They aren’t. That’s not to say you don’t ever have problems with your unions or your label, but that’s your business. What Sirius, etc. is trying to do is turn the labels against the artists and the artists against the labels. And it’s a constant push and pull that really just ends up with huge companies like Sirius and Google making more money by reducing what the creators get.
My problem with YouTube is that when the day comes when they only have content that they’re authorized to have and when they’ve paid for everything that’s already on there, then we can talk about how great it is for artists. There’s a reason why there are no music deals for the Google Music service: No one trusts them. That’s the bottom line, and they’re really trying to come back from that.
Once this Protect IP Act starts in the House, I think it’s going to be a real eye opener in terms of just how deep this goes.
And what’s at the crux of the Protect IP Act?
Are you familiar with cyber locker sites like RapidShare?
Yes. You can basically Google anything.rar and you get it. Megaupload is another one.
Correct. The way those guys make money is they charge for faster access but also publish advertising served by third parties like Google. So, if you have an account with Megaupload and set up a mirror site as an individual, Megaupload will reward you for the number of uploads and downloads with points that actually become money at some point that come through your account: Web 2.0 for pirates.
I never understood why people were so willing to upload on there when there wasn’t any take. I didn’t realize there was an incentive.
Megaupload actually writes a check. And this is all on the Megaupload site. If you look at the memberships, it’s all laid out there. It’s pretty sanitized, so they never tell you what you’re being paid to do, except download from your account or upload to them. They have a direct commercial relationship with their user.
But then, in addition to that – and this is where the real money is – if you have a mirror site, they give you a link back to the locker that has the content in it. What you’re hosting on the mirror site is just the link; you don’t host the file itself. The file is on Megaupload. When a user goes to the mirror site and clicks on that link that takes you to the Megaupload site, a popup will come up. It usually comes up twice, and a user can dismiss it to get directly to the site. If you look at that popup, it has ads on it. And those ads are very often served by Google AdSense. If you want to learn more about this, go to popuppirates.com, which is a site that’s written by a friend of mine named Ellen Seidler, who is an independent filmmaker. Ellen has researched this system into the ground, and she even has videos about it. I didn’t fully understand the concept myself until I saw Ellen’s site.
But, Google then splits the money with the pirate. And Google will tell you, “Oh no. We verify all these accounts.” They do, but they allow you to change the URL once it’s approved. This same kind of functionality is what got the attention of the U.S. Attorney in the ongoing Google drugs case and resulted in a $500 million fine and now a shareholder derivative lawsuit for a very narrow category of their Adsense business.
So when the cyberlocker asks for an account, Google Adsense has a human check out the URL where Google is told the advertising will be served (which is not the ultimate URL that the cyberlocker intends to use), make sure that the fake site complies with their supposed rules, all a bit nod nod wink wink if you read the Google drugs plea agreement. They give the cyberlocker a code, so Google knows who to pay the ad revenue on this site, they know who he is and know who to pay based on what happens, whether it’s a click-through or an impression. Up to this point, they are just like all the other ad serving companies.
The difference is that once the cyberlocker gets the account set up, with most of the other companies, the cyberlocker change the URL without going through the same process over again. That would catch any shenanigans.
With AdSense, you can change the URL after you have been approved, and they typically don’t check the new URL. So, if I’m Megaupload and set up a website “Dimitri’s Kittens and Sunshine,” I get my AdSense account and then the next day, I can change it to Megaupload. And nobody at Google will say, “My goodness. There sure are a lot of kittens and sunshine on Dimitri’s account.” They just serve the ads and make the money.
And it’s a lot of money. They’re in pretty deep trouble right now for selling ads. They were selling ads for illegal drugs that were being sold online – like Canadian drugs, etc. – and the DOJ just announced that Google paid the biggest forfeiture in US history–$500 million. So, if just that little narrow slice of the advertising pie is $500 million, imagine what they make from copyright infringement. It’s really a lot of money. And everyone gets paid except the creator. And that’s what Protect IP is really about.
Is there anything the little guy can do?
The thing the little guy can do with all this legislation going on, that’s really more important than anyone might think, is call their congressman, particularly if their congressman has a leadership opposition (like Ohio, which is where Boehner is from) or you live someplace that people don’t associate with the music business, i.e., outside the centers.
Congressmen need to hear about it from everybody because it’s a jobs issue. The fundamental question is why should we treat bad behavior differently online than offline? No one would question an artist’s right to call 911 if their car was being stolen, but some people would like to keep the artist from being able to call 911 if their life’s work is being stolen. That distinction will not stand.
There’s an impression in the Congress, which is validly obtained but not actually valid. People think that if they don’t have a big entertainment center in their district, they don’t have to listen. But that’s not true. Members like Lamar Smith (Austin congressman who is chair of House Judiciary) understands this very well and has been a great champion of artist rights even though he’s not from New York.
We had some artists from Austin who did a video about what has happened to them, and the voices could literally have been from any part of our country. Members need to hear from their constituents about why this legislation is important to them. That’s not going to make you any money in the short run, but it definitely does help the cause.
On a certain level, we’re all in the same boat, from the big studios, to the little filmmakers, to the major record company, to the independent label, artist or songwriter. There is one copyright law for everyone and it is not being respected.
It’s not like the big guys are suddenly going to get rich if this bill passes. It’s going to start the process of establishing market rules online. The Brits have done it, the French have done it; more and more countries are doing this kind of thing.
The other thing people can do is do things like what Ellen Seidler did and keep track of their experiences with the DMCA. Eventually there will come a time when people are going to say that the DMCA just doesn’t work. There are two pieces to Ellen’s site. One is her analysis of how this advertising thing works. The other is a discussion about her experiences with sending out DMCA notices, particularly to Google, and the singular non-responsiveness of these people.
Also, go to SoundExchange and make sure you’re registered. If you’re a songwriter, make sure you’re with ASCAP and BMI and keeping track yourself of where your music is used. And be respectful of other people’s rights, so when the time comes for you to step up, you can say you tried to do it the right way.
Finally, only let people post your music on licensed sites. The individual artist has to take some responsibility for this too. If the purpose of DIY is to start controlling more and more of your world, what goes along with that is enforcing your rights. And when people start enforcing rights on their own, lawmakers need to understand that going up against the power of the Internet mob is really, really hard to do alone.
People of good will can never let the mob win.
To learn more about Chris Castle and the services he provides to the music community, check out the Christian L. Castle Attorneys website.