Analysis

Why safe harbour will be the music industry’s big battle in 2016


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Never generalise about the technology and music industries being at loggerheads. Music Ally readers are thankfully well aware that it’s much more complex and nuanced than that.
In 2015 there are plenty of ‘music people’ working within technology companies, and plenty of ‘tech people’ working within music firms. Even within an individual company like Google, there are elements that have positive, collaborative relationships with music rightsholders and creators. And yes: other elements that… don’t.
Most attempts to paint a picture of music and tech as two “sides” in a battle come from a position of prejudice, yet there have been plenty such straw-man arguments down the years. Expect another one in 2016, then, when long-rumbling complaints about digital music services and European safeharbour legislation move into a new phase.
Not that these complaints aren’t already public. In fact, the heads of music industry bodies have been speaking out about safe harbour increasingly openly and at length in the past year.
“How can it be that UGC services can use safe harbour legislation to avoid the need to pay a licence and insist that they are mere conduits of content when their business models are predicated on monetising the creative works they carry?” said PRS for Music boss Robert Ashcroft at the collecting society’s AGM in May.
“Laws that were designed to exempt passive intermediaries from liability in the early days of the internet – so-called ‘safe harbours’ – should never be allowed to exempt active digital music services from having to fairly negotiate licences with rights holders,” wrote IFPI head Frances Moore in a July blog post.
“There’s a distortion in the market: a lot of the value is coming in not to the creators, but being hijacked by the tech corporations not paying the rates they should be. We need the support of government, clarifying the EU safe harbour rules behind which those tech giants hide,” said BPI chief Geoff Taylor at his body’s AGM in September.
These and other public statements are part of a wider campaign that may come to a head in 2016 with two separate but very-much related events: PRS for Music’s copyright infringement lawsuit against SoundCloud, and the results of a European Commission consultation into whether (and how) EU safeharbour legislation needs to be modernised.
Familiar to some and impenetrable to others, the arguments over safe harbour are worth breaking down, to get a sense of why music rightsholders feel so aggrieved with the current legislative framework – or more accurately, how it is being interpreted – and how they envisage it changing.
In Europe, it all stems from the 2000 directive on electronic commerce, which took its cues from the US Digital Millennium Copyright Act (DMCA) of 1998. And the relevant clause is the one explaining how online services quality for exemptions from liability for the content hosted on or passing through them:
“The exemptions from liability established in this Directive cover only cases where the activity of the information society service provider is limited to the technical process of operating and giving access to a communication network over which information made available by third parties is transmitted or temporarily stored, for the sole purpose of making the transmission more efficient; this activity is of a mere technical, automatic and passive nature, which implies that the information society service provider has neither knowledge of nor control over the information which is transmitted or stored.”
If you want one question to summarise the music industry’s big lobbying push in 2016, it’s this: does what happens with music on YouTube and SoundCloud count as “technical, automatic and passive” in its nature? Rightsholders argue that it does not, and thus that these services should not be protected by safe harbour.
“They’re pushing content, recommending content, adding all kinds of optimised features around the content. That’s not automatic and passive,” says one industry source, who characterises the attitude of the UGC services thus: “I have immunity based on the safe harbours, and if you don’t agree, sue me. But when we get big enough, we trust you’ll rather do a deal. And because we have all your music already, if we don’t like your offer, your music stays up there, and you’ll have to send us notice and takedowns.”
Expect to hear the phrase “value gap” a lot more often in the coming months. That’s the root of the complaints from the music industry: that the current interpretation of safe harbour enables some digital services to use massive consumption of music on their platforms to build value for themselves, at the expense of that music’s creators and rightsholders.
“Selectively, of course, some of them do admit knowledge if rightsholders submit a claim for their works and if they monetise the associated sound recordings, but the net result is payments that represent a mere fraction of the true value these platforms derive from music,” said Ashcroft at the PRS for Music AGM.
Even before PRS sued SoundCloud, Ashcroft had emerged as a key figurehead for the push to clarify the safeharbour rules in Europe. In 2014 he co-wrote (with Dr George Barker) a paper addressing the issue: Is Copyright Law Fit for Purpose in the Internet Era? You’ll already have guessed its conclusion.
“Business models that did not exist in the mid-90’s when the DMCA provisions were crafted, and online services that were not foreseen at the time, are claiming protection under safe harbours that were not intended to cover them,” wrote Ashcroft and Barker. “The safe harbour regime was introduced before broadband, file sharing, social media and apps, and at a time when knowledge of what was passing through the network was limited at best.”
The paper makes the case for the current application of safeharbour having nurtured a “parasitic transfer” of value that is now acting as a brake on the music industry’s growth.
“The free rider, or economic parasite, lets others incur the risks and costs of creativity, invention and discovery and simply imitates and appropriates the successful creative outputs and practices,” it claimed. “The economic parasite can then undercut market prices, thereby reducing returns for investment in creativity and innovation and creating a fundamental obstacle to market entry and competition.”
Under this theory, the growth of YouTube (acquired for $1.65bn in 2006 and now worth countless more to Google) and SoundCloud (eliciting valuations of $1.2bn in December 2014, the last time new funding was being rumoured) would be seen as parasitic, when  those valuations are compared to the money they have paid rightsholders and creators during their growth.
Both companies would have their own arguments in response. Some would be financial: YouTube said in February 2014 that it had paid out more than $1bn to the music industry, then this week said it had paid more than $3bn to date. SoundCloud has paid mere single-digit millions out through its On SoundCloud advertising initiative so far, but has the argument that it is very early days, and only rolled out in the US so far.
Both could and would also argue that they have played important roles beyond payouts in helping artists reach more fans with their music; understand the metrics behind that listening in great detail; and make money in other ways (e.g. touring) accordingly. Any argument about how much value YouTube or SoundCloud have returned to the music industry will touch on all this, and we can expect to hear regularly about the rise of Psy, Lorde, Lindsey Stirling, Drake and others too.
About that “fundamental obstacle to market entry and competition” though. This is another key plank in the rightsholders’ arguments against the current application of safe harbour in Europe: that the sheer scale of YouTube and SoundCloud is hampering the growth of the music services that do not quality for safe harbour protection – Spotify, Deezer, Apple Music and the rest.
In his AGM speech, Ashcroft drew attention to the separate debate about the merits of freemium streaming business models, pointing out that pressure on Spotify to restrict its free service must be set against the competing free services with no such restrictions.
“They have to compete with user-generated content platforms, which have all the content anyway. Even when Beyoncé made her new single “Die with You” available exclusively on Tidal it was available on YouTube within minutes,” said Ashcroft.
“Spotify can’t feed its subscription layer without bringing consumers into the ad-funded layer and they can’t get them into the ad-funded layer unless they have all the content that is available on UGC platforms. If they don’t carry Taylor Swift or Beyoncé they’re not only at a pricing disadvantage, but also at a content disadvantage. This is unfair competition.”
So what now? The PRS / SoundCloud case is going to be a crucial test of the way the current legislation is applied. No wonder that when PRS for Music announced the lawsuit, in its background document sent to journalists, it claimed that “Amongst other defences, SoundCloud is seeking to rely on the European ‘safe harbours’ for online intermediaries” to argue that its existing (free) service does not require a licence.
SoundCloud continues to negotiate licensing deals for its upcoming premium subscription service, which since it sources its music from rightsholders, is a much less problematic licensing model – even if there’s haggling to be done over the details as with any on-demand streaming service. The issue is the free, user-generated content (users including artists and labels) service.
SoundCloud’s growth behind the safe harbour has led to limited sympathy even from rightsholders who appreciate the positive role it has played in music discovery. “They have built a massive service with 175m users, with huge valuations and lots of VC money piling in, and they’ve built this without going about it in the proper way,” claims one.
Be wary of any portrayal of YouTube and SoundCloud as services that are avoiding licensing deals. In the latter’s case, it is actively seeking deals for the new subscription service, so the argument is about its attitude towards the free tier. And YouTube? It has licensing deals, but many rightsholders believe that its use of safe harbour gives it a much stronger bargaining hand at the negotiating table than rivals like Spotify.
With a European consultation on safe harbour underway, everyone concerned – tech companies and music bodies alike – is preparing their submissions and cranking up their lobbying efforts as we move into 2016. There’s a sense among the rightsholders that next year is the crucial time: to test the current application of safe harbour in court, and to encourage policymakers to clarify the legislation.
Expect to hear the word “clarify” a lot, too. Lessons have been learned from past scraps between elements of the music and tech industries, when rightsholders found themselves painted as censors trampling over the rights of internet users in their own commercial interests. The ultimately-canned SOPA legislation in the US was problematic in several ways, for example, but the ferocity of the backlash against it remains fresh in mind throughout the creative industries.
The risk in 2016 will be a repeat of that polarising campaign, and claims that the music industry are self-interested luddites trying to sweep away safe harbour entirely – blithely unaware of the havoc it would play with just about every aspect of the modern internet.
“You’ll get people saying we’re trying to remove safe harbour, and that the internet will fall apart. That’s absolutely not what we’re saying,” says one rightsholder. “We recognise that safe harbour as it was originally defined is important and valid. This is about the unintended consequences of how parties are seeking to construe safe harbour 15 years down the line.”
Music rightsholders do feel encouraged that they’ll get a fair hearing in Europe, given the current political climate around big technology companies from the US. The latest crop of EC commissioners are seen as more minded to challenge companies like Google, Facebook, Amazon and Apple on a range of subjects, from privacy and anti-competition issues through to safe harbour.
Don’t forget either that two of the leading fully-licensed streaming services – Spotify and Deezer – hail from Europe. That said, viewing this through a lens of ‘plucky European startups facing unfair competition from big bad American YouTube’ is complicated by SoundCloud (headquarters: Berlin) not to mention that certainly Spotify and probably Deezer – depending on how its IPO goes – have built more “value” from their traditional licensing deals than SoundCloud has from its use of safe harbour.
It is hard to say which way the PRS/SoundCloud lawsuit will go, if it gets to court, and it is just as hard to say which way European legislators will lean when deciding whether the safeharbour regulations need modernising. And even if both go the way of rightsholders, there will be no immediate change: instead, the new legal landscape will simply form a backdrop for more licensing negotiations.
Clarifying safe harbour may make it clear that YouTube, SoundCloud and other UGC-focused services that may follow them need licensing deals upfront. But how exactly those deals should be structured will be entirely up for negotiation. Which, based on the famously-secretive deal between PRS for Music and YouTube, will not be up for public debate.
Stuart Dredge

Read More: Analysis
One response
  • Section 512, Takedown provision of the DMCA, has had the unintended consequence of creating Safe Harbor protection for infringing websites. It has had a devastating impact on every working artist in America, stripping them of their legal right to determine who is entitled to use copyrighted work.

    Authors, filmmakers, musicians, photographers and every creator whose copyrighted work can be distributed over the internet has been negatively impacted by online piracy.

    Under Section 512 of the DMCA nearly every ‘alleged’ pirate site has been operating openly within the limits of the law since the take down provision in Section 512 was enacted in 1998.

    Take Down and Stay Down is Not SOPA.

    SOPA would have established an oversight committee to determine which infringing websites would be shut down. Take Down and Stay Down grants legal recourse to the individual copyright holder to determine who can use their copyrighted work. Take Down and Stay Down eliminates the main impediment to SOPA’s passage, the potential for censorship.

    Google and other power brokers who want an unregulated internet will have difficulty in building a case that deprives individual copyright holders of their right to determine what happens to their work.

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