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As PRS battles SoundCloud, what does it mean for your own music?

Written by Site Update on September 18th, 2015

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PRS for Music, a UK performing rights organization, at the end of last month sued SoundCloud for copyright infringement on behalf of its members.

The action may prove a decisive moment for the Berlin-based streaming service. It represents a collision between SoundCloud’s approach and the organizations involved in administering copyright, and more broadly, between the conventional models for sharing and monetizing music and those evolving on the Internet.

I spoke to representatives from PRS and SoundCloud to try to get greater clarity. Those responses were naturally a bit guarded, as the two are actively engaged in legal action. However, there’s a lot you can read into what they’ve said, and the conflict more generally.

Even if you don’t use SoundCloud, there are some major implications for the way in which music is shared online — let alone if you are specifically licensed by PRS. (And you don’t have to live in the UK to be part of this legal action — more on that in a bit.)

First, let’s deal with the public statements made about the case, and understand what we’re talking about. When copyright laws were written, the Internet didn’t exist. This has produced a somewhat counter-intuitive distinction in the work itself (the composition — the thing you’d traditionally have written on paper), and the recording of the work. Those are licensed separately, and that’s because the legal notion is that the transmission of a recording is both a “performance” of the work itself, and a use of the recording material. That is already somewhat confusing in the United States, and then when you stream on the Internet, you’re subject to separate laws in every single separate provinciality abroad.

When we’re talking about PRS, we’re talking about performing rights. These produce royalties that are administered to members representing songwriters and publishers; if you self-released, you’re effectively both. If you’re a member of ASCAP, BMI, SESAC, GEMA, or one of another organizations, PRS is actually also collecting royalties for your music in the UK.

That means it’s very possible you, the reader, are in principle named in this suit. Here’s where things get a bit weird. Let’s say you’ve got a song you recorded, and you’re an ASCAP member in Texas. And let’s say you — or your label — uploaded that music to SoundCloud, which you very likely have the right to do (it’s your music). Now, technically, your own upload just infringed your own copyright, if PRS claims that it needed a performing royalty. In fact, theoretically, if you uploaded your music to your own site — not SoundCloud’s — you would still be owed a performing license, one paid by yourself through PRS and back to you again. It’s just unlikely that if it were your own site, or your label’s site, anyone would show up trying to enforce the copyright. SoundCloud is different.

By the way, even SoundCloud explains that it is possible to infringe your own copyright. (It’s possible to do this even on your own site — which is why I think not joining a performing rights organization may become a compelling possibility to consider in the digital world, depending on your particular use case). From their copyright case:

Can you answer “no” to all of the following questions?

Were you signed to a record label when you recorded the track?
Do you have a publishing deal?
Are you a member of a performing rights organization or collecting society?
Have you licensed your track to anyone else?
Does the track contain the entirety or any part of someone else’s song(s) Is it based on someone else’s song(s)?

Now, more broadly, SoundCloud also clearly has a lot of music that wasn’t uploaded directly by creators. Apart from the frequent use of DJ mixes, there’s some content that is simply straight out infringing. But to be clear, this lawsuit doesn’t differentiate between those cases: it’s claiming royalties for all three.

PRS sent a letter to its members (now, this wasn’t addressed to the many more overseas artists it represents, but just those who are directly registered with PRS):

Dear Member,

PRS for Music begins legal action against SoundCloud

After careful consideration, and following five years of unsuccessful negotiations, we now find ourselves in a situation where we have no alternative but to commence legal proceedings against the online music service SoundCloud.

When a writer or publisher becomes a member of the Performing Right Society, they assign certain rights to their works over for us to administer, so it’s our job to ensure we collect and distribute royalties due to them. SoundCloud actively promotes and shares music. Launched in 2008, the service now has more than 175m unique listeners per month. Unfortunately, the organisation continues to deny it needs a PRS for Music licence for its existing service available in the UK and Europe, meaning it is not remunerating our members when their music is streamed by the SoundCloud platform.

Our aim is always to license services when they use our members’ music. It has been a difficult decision to begin legal action against SoundCloud but one we firmly believe is in the best, long-term interests of our membership. This is because it is important we establish the principle that a licence is required when services make available music to users. We have asked SoundCloud numerous times to recognise their responsibilities to take a licence to stop the infringement of our members’ copyrights but so far our requests have not been met. Therefore we now have no choice but to pursue the issue through the courts.

We understand SoundCloud has taken down some of our members’ works from their service. With our letter of claim, we sent SoundCloud a list of 4,500 musical works which are being made available on the service, as a sample of our repertoire being used, so that they understood the scale of our members’ repertoire and its use on the service. We asked them to take a licence to cover the use of all our members’ repertoire or otherwise stop infringing.

SoundCloud decided to respond to our claim by informing us that it had removed 250 posts. Unfortunately, we have no visibility or clarity on SoundCloud’s approach to removing works, so it is not currently clear why these particular posts have been selected by them given the wider issue of infringement that is occurring. Ultimately, it is SoundCloud’s decision as to whether it starts paying for the ongoing use of our members’ music or stops using these works entirely.

If the streaming market is to reach its true potential and offer a fair return for our members, organisations such as SoundCloud must pay for their use of our members’ music. We launched our Streamfair campaign in June to raise awareness of this issue and highlight how music creators need to be properly remunerated from streaming. We believe that all digital services should obtain a licence which grants them permission to use our members’ music and repertoire, in this case the works of songwriters, publishers and composers.

The streaming market cannot fairly develop unless this happens. We have always been pro-licensing and pro-actively work with organisations in order to propose an appropriate licensing solution for the use of our members’ works.

We remain hopeful that this matter can be resolved without the need for extended litigation. Members will appreciate that this is now a legal matter and our ability to communicate around it is therefore limited by the legal process. However, we will try to share information and updates whenever we can.

Emphasis mine. There are already several points here to digest:

First, this has been ongoing for five years — a point that’s likely to come up in legal proceedings.

It’s also telling that SoundCloud believes it doesn’t need a license for UK and European streaming. Now, that may sound really strange, but remember that this doesn’t mean the music would be entirely un-licensed or even un-monetized.

And this sheds some light on take-down notices — or, at least, it makes it clear that we’re still in the dark. PRS is expressing the same frustration with SoundCloud that a lot of SoundCloud users have: the service simply isn’t explaining how it decides to take content down. And it seems to be fairly random: the 4500 works listed by PRS here are presumably a small fraction of everything it could have sent, and then SoundCloud removed a small fraction of that (if PRS’ statement is accurate).

But it’s also historical here that PRS continues to rigorously defend the need for licensing. And I wonder, actually, why that isn’t a matter for open debate. The traditional music stakeholders — even the ones that may represent you — continue to argue for licensing as the panacea for streaming. But as I said, the entire licensing model is complex. It’s also weighted heavily toward bigger labels and publishers, because they can sign deals with artists that ensure them a big piece of the pie, and then aggregate a lot of different content so the royalties add up.

That is, there are two points with which you might disagree. If you’re a lawyer, you can argue the details of whether SoundCloud is genuinely liable for this specific license (not to play music for free, but to pay for the PRS license in Europe). And if you’re an artist, entirely independent of that, you might ask whether PRS’ licensing scheme is best suited to making you any money on the Internet. If you believe the answer is no, you shouldn’t join a performing rights organization. Performing rights organizations would like you to believe the answer is yes.

What’s unclear is what PRS is suing for. There’s an implication here that by arguing with SoundCloud’s Safe Harbor status, PRS could sue SoundCloud not just for royalties now, but for all back royalties over the course of half a decade. I think that would almost certainly shutter the entire site overnight, which could have a devastating impact on artists and labels.

I asked PRS explicitly what their goal was, though, and it’s clear that they remain primarily interested in the site operating with a license in place. The thing is, if PRS did shut down SoundCloud, while it would prove a point, it would both anger members who use the service and by definition would eliminate royalties on hundreds of millions of future plays.

For some really good analysis of this statement and that quote in particular, see Music Business World this week
PRS VS. SOUNDCLOUD: 5 KEY TALKING POINTS TO CONSIDER

I think the key is, PRS and the labels really need SoundCloud as a big entity for licensing to work at all. See also their deal with Spotify. This sort of homogenization of streaming makes the job of licensing far easier.

SoundCloud wouldn’t comment directly on this case to CDM (PRS did), but instead a spokesperson for the company pointed me to their existing statement:

It is regrettable that PRS appears to be following this course of action in the midst of an active commercial negotiation with SoundCloud. We believe this approach does not serve the best interests of any of the parties involved, in particular the members of the PRS, many of whom are active users of our platform and who rely on it to share their work and communicate with their fanbase.

SoundCloud is a platform by creators, for creators. No one in the world is doing more to enable creators to build and connect with their audience while protecting the rights of creators, including PRS members. We are working hard to create a platform where all creators can be paid for their work, and already have deals in place with thousands of copyright owners, including record labels, publishers and independent artists.

There’s not much here that answers PRS’ claims; we actually know more about SoundCloud’s likely position from the PRS statement than the SoundCloud statement. But note that the deals they have in place don’t mention performing rights organizations — and remember, there are two kinds of licenses we’re describing here.

PRS did clarify their position a bit for CDM. Here’s that exchange:

CDM: Whose works does this suit cover? I know there is a representative list, but is the case built around all PRS-represented music? I assume it includes, for instance, partners like ASCAP (when played in European territories)?

PRS: Our legal action covers all PRS for Music member repertoire.

PRS recently announced a multi-territory deal with Spotify Europe. How are those royalties calculated? This is some sort of fixed statutory rate per play?

PRS: There is no statutory licensing rate in the UK, although the Copyright Tribunal was established to adjudicate licensing disputes in the UK between copyright owners (incl. collecting societies) and businesses using copyright music on the issue of the reasonableness of rates, amongst other things. In relation to Spotify, this is a bespoke negotiated licence and as such the terms are confidential.

Ed.: Okay, here my question shows a bit of ignorance — I’m referring to the kind of statutory licensing set in the United States, where the federal government fixes rates. I’ll be the first to admit that while I’m definitely not an expert on US IP law, I’m even less familiar with the law in the United Kingdom.

But notice — PRS want you to believe that licensing is the way to go. But the deals on which you depend are completely confidential. So you’ve got a choice: SoundCloud not telling you why they’re removing your music, or PRS not telling you how their licensing deals work. Transparency isn’t really coming from any of these players here. And the entire system at this point depends on one-by-one, independent negotiations.

Next, I dealt with the scenario above — creators registering their works who then upload music to a service in a way that infringes not someone else’s copyright, but their own.

For many of our readers — and again, many of them themselves members of PRS (or other performing rights organizations) — the material on SoundCloud is work they’ve uploaded with the intention of sharing. What would you say to those artists when they find that this use on SoundCloud is being targeted by PRS? Isn’t there some conflict of interest when, for instance, SoundCloud asks them to take down music they uploaded themselves, in response to a complaint by a performing rights organization? Or do you believe those artists are not acting in their own self-interest when they upload music in this way?

PRS: When a writer or publisher becomes a member of the Performing Right Society, they assign certain rights to their works over for us to administer. This means we are then able to efficiently and effectively license organisations for their use of our members’ work, then collect and distribute royalties back to the members. Licensing protects the interests of all of our members, very many of whom are having their content used by SoundCloud without their permission, expressed or otherwise. Our members all agree that they should be paid to have their content used by third parties and sometimes the achievement of this goal means having to make difficult decisions for the collective good. We understand that many of our members use and appreciate the service provided by SoundCloud. At PRS for Music we can also see the value that a service like SoundCloud could add to the market if it were operating with proper licensing. But as things stand, our members receive nothing for their content being consumed on SoundCloud.

There are a couple of important points they make in response. One, as I said, if this were just creators uploading their own music, it would be one thing. But as was the case with YouTube, as long as these sites have mixes and so on, it’s another story.

Two, though, note that PRS also recognizes their own members are SoundCloud users. That makes me wonder if they won’t try to use this legal action to find a deal — which is what I ask next.

What’s the end game here? You say you hope not to have extended litigation, but do you believe SoundCloud owes back royalties for the five years during which you’ve been in negotiation?

PRS: The primary aim is to move SoundCloud towards having a fully licensed service that fairly pays our members when their music is used on the service.

That’s important, as this means the goal is a settlement in which SoundCloud keeps operating.

Now, it also made sense to talk to SoundCloud. The only way that company — billion-dollar valuation or no — can work with stakeholders is if it’s actually bringing in money as it’s promised. Eric Wahlforss, who also spoke on a panel I hosted this summer, responded to those issues.

CDM: Am I correct in understanding that monetization — and presumably, revenue that would impact licensing music — is going to be based on some combination of subscription and advertising revenue?

Eric: On SoundCloud enables our Premier Partners to monetise their content through advertising, and to earn a share of the resulting revenue. This will also include a share of revenue from our subscription products once they’re launched.

We’re now over a year into the On SoundCloud program. Are there advertisers onboard that you can talk about? That is, I’ve seen some of the publishers; how is the monetization picture? Earlier this year you mentioned $ 1 million in advertising payments, is there a new number?

Eric: Since the launch of On SoundCloud we’ve paired brands like Jaguar, Sonos, Microsoft, Taco Bell, Asics and Axe with SoundCloud creators like Sizzlebird, ILoveMakonnen, Metro Boomin, Viceroy and Big Data. These partnerships have helped artists shine an additional spotlight on their work, while getting paid in the process.

Our native offering, ‘promoted tracks’ puts branded content at the top of every SoundCloud users stream to drive engagement: plays, likes, reposts, shares. For example, HBO has worked with SoundCloud to launch their shows including ‘Catch the Throne’, which was used to promote this year’s series of Game of Thrones.

We’re yet to release new payment figures but the number is obviously growing month on month.

Ed.: the absence of payment figures here is a bit frustrating, actually — cue Dr. Evil quote about “one millllllion dollars.” Then again, remember YouTube faltering early on in ad revenue. It’s tough. The one ace in SoundCloud’s hole is, at least they have creators willing to pay for subscriptions. That makes them very different from services like Spotify, which are really mostly about consumption.

Is there any updated timeline as far as rolling out On SoundCloud to more users?

Eric: On SoundCloud remains invite only at the moment and we’re still adding new partners as fast as we can. We started with 20 select partners representing 2,000 labels at launch, and have now grown to over 600, representing over 25,000 labels, many of whom are independents. These include Merlin and Warner Music Group, as well as a landmark partnership with the National Music Publishers Association in the US. Our goal remains to provide monetization opportunities for all creators on the platform.

The addition of labels is the important one, even if some big players still aren’t onboard. And that also shows some overlap between the stakes of labels and performing rights organizations.

Is providing paid listener subscriptions still on the table? (Am I correct in understanding that’s an option?)

Eric: We will be launching listener subscriptions in the future. Our subscription philosophy is about delivering subscribers additional functionality, and the free tier will continue to be a core part of our platform for creators and listeners in a way that is complementary to our subscription services.

Conclusions

Let me be perfectly frank: I think as creators, we want this to work out. First, PRS has a point. Without getting into the fine points about which licenses work in which localities internationally, SoundCloud simply has to do a better job licensing the music on its site — like, licensing it at all, in most cases. I think we should have a debate about what sort of copyright framework makes sense, and whether licensing is really a model that works for artists. I know the people who believe that it does work are often very open to talking about that, so this can be a vigorous and valuable debate.

But we can only have that discussion if the basis of copyright law remains enforceable and (while this may seem near-impossible) enforceable internationally. Even those of us who are advocates of open source licensing or Creative Commons licensing depend on copyright law as a foundation. (That’s why you have so many lawyers involved in those issues.)

At the same time, whatever high-minded argument PRS wants to make about licenses, it’s ugly if we imagine a world without SoundCloud. Labels depend on streams as a window to actually selling music direct; artists rely on data from listeners and exposure and the ability to promote events and sell tickets. These activities very often far outweigh royalty checks in terms of actual monetary value. If you break SoundCloud, you may well break a lot of the way music is working for artists right now.

This is one to watch. I think it will remain important to see how the SoundCloud case unfolds, because it has implications far beyond the service. And we should also talk about alternatives to SoundCloud that do have licensing in place, for no other reason that I think no single service can serve everyone. YouTube dwarfs Vimeo, on the video side, but a lot of very specific creative niches find Vimeo invaluable. Yet there isn’t yet a “Vimeo for sound,” even as SoundCloud is clearly “YouTube for sound.”

Hey, that was fun! Let’s go listen to some music.

Previously:
Native Instruments CEO, SoundCloud CTO talk music’s future direction

The post As PRS battles SoundCloud, what does it mean for your own music? appeared first on Create Digital Music.


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