copyrights Archives - Product Management Confabulation

June 6, 2019

Is there potential for blockchain in copyright and licensing applications?

Dave Davis Contributor

Dave Davis joined Copyright Clearance Center in 1994 and currently serves as a research analyst. He previously held directorships in both public libraries and corporate libraries and earned joint master’s degrees in Library and Information Sciences and Medieval European History from Catholic University of America.

What are blockchains, and why should I care?

What is a blockchain? Why are so many startups and techno-pundits going on and on about it? What sort of problems can it solve, and who has these problems? And, more importantly, what is it good for (in the sense of being useful)?

Simply and practically put, in this context a block is a unique number, derived mathematically through computing. This number is applied for a single use, which typically would be as the root identifier for a digital work of any sort. Examples of a work protected by such a blockchain would include a document (PDF) or the source code for a program, or a digital image, or anything in a fixed form represented in ones and zeroes.

Once established as the root identifier, any changes to the digital work are written — more numbers — into the blockchain, which is then distributed, through a network, to all the parties participating in this block, at each of whose “locations” third parties (including but not limited to “others involved with the work”) can see the applicable updated information. This distribution of updates explains why blockchains are categorized as “distributed digital ledgers,” such that the entire transaction history of any item provided with a blockchain is, in theory, always updated and available to inspection.

For the purposes of this article, any time I say “blockchain” I intend to refer to a distributed digital ledger technology, whether one that already exists, or is invented in the near future. I don’t mean any particular implementation. And, although the recent spate of articles talking about blockchain is probably a direct result of its association with cryptocurrencies, such as the well-known and controversial Bitcoin (although Ethereum and later implementations seem to represent an improvement on the original concept), I think it important to note that tradeable currency of any sort is not a necessary part of blockchain implementations.

Rather, as at the amusement park or in collecting comics, while it is always possible to use unique tokens to trade, it is not a required and inevitable result of using the technology. Rather, cryptocurrencies introduce an additional element to the theory and practice of blockchain — the token — which is an element of no concern to our focus here.

As with any promising and potentially disruptive technology, it will stand or fall on the usefulness it demonstrates in addressing real-world problems.

Of course, there are many applications for which blockchains simply aren’t suitable. A critical reader can easily find as many papers criticizing the hype around blockchain as a new “snake oil” as those suggesting that the technology holds promise.

For now, let’s assume that these limitations can and will be overcome in the next 3-5 years. Where might we be then — in terms of the potential for practical implementation of this technology — in addressing important problems surrounding licensing in copyright and perhaps other IP?

For one, copyright registrars or similar entities could create a blockchain to serve as a global registry, and then invite significant rightsholders and consumers in as nodes — this would meet the “no-personal-trust-required” mindset of blockchain enthusiasts. I’d see this as supplementary to existing systems and relatively fast to implement.

A blockchain-derived content identifier, when used in the service of creators and their works, could become one of many unique identifiers already in place, such as ISBN, ORCID, DOI, ISNI, ISRC and so forth. The International Standard Content Code (ISCC) is an experiment in exactly this vein.

The simplest and easiest fix to a copyright problem a simple blockchain might bring is the old (and nearly useless) “poor man’s copyright,” which boils down to creating a simple timestamp for your work by snail-mailing yourself a copy via the USPS. The folks over at Rightschain are seeking to take that old hack up a notch, although problems of cost-at-scale may limit broader feasibility.

Note, too, that blockchains are unlikely to be of much use in mitigating run-of-the-mill infringements; it is still just too easy to crop or screen-scrape or dumb-down the high-quality version of record and create a “good enough to pirate” version. And this is likely to remain true for some time.

Although I can foresee significant difficulties with the grayer areas of custom licensing, and may even be unhelpful when it comes to legitimate fair uses, blockchains might serve as a natural fit for storing the sale and terms of more routine licenses. For example, producing and distributing e-books. Self-executing contracts — ones that are limited to entries in the ledger — might be quite useful in such a context. Essentially, the license contract could include (or exclude) resale of the rights and the ledger could enforce it.

In the rarefied domain of copyright recordation, terminations and transfers, I can envision a blockchain that is quite useful in providing access to the public about updates in the reversion of rights back to a creator, or transfer to a new agent, or other recorded rights transactions of that sort.

As with any promising and potentially disruptive technology, it will stand or fall on the usefulness it demonstrates in addressing real-world problems to which answers are sought by real people. If there are costs — and there inevitably are costs — those who will bear them need to be convinced by clear creation of new value.

Not persuaded? I, too, remain skeptical. But on balance, I do wonder if, given the real-world content and rights issues that the industries that depend on copyright and licensing already have to deal with on a daily basis, a critical look a few steps ahead into a promising technology is warranted.

What do you think?

Disclosures: I own no cryptocurrencies, have never owned any and don’t expect to own any. I have no financial stake in any of the companies I have mentioned.

April 12, 2019

China’s largest stock photo provider draws fire over use of black hole image

While the world marvels at the first black hole image ever taken, a Chinese photo-sharing community is setting off a huge public outcry over its use of the landmark photo and a wider debate over copyrights practices in China.

As soon as the European Southern Observatory released the black hole photo on April 10, Visual China Group (VCG), China’s leading stock image provider that’s compared to Getty Images and owns Flikr’s one-time rival 500px, made the image available for sale in its library without attribution to the Event Horizon Telescope Collaboration (EHT), an array of radio telescopes that captured the image of the black hole.

“This is an editorial image. Please call 400-818-2525 or consult our customer service representative for commercial use,” said a note for the black hole image on VCG’s website.

Internet users took to social media slamming VCG for monetizing a photo intended for free distribution among the human race. Most of images on ESO are, according to the organization, under the Creative Commons license.

Unless specifically noted, the images, videos, and music distributed on the public ESO website, along with the texts of press releases, announcements, pictures of the week, blog posts and captions, are licensed under a Creative Commons Attribution 4.0 International License, and may on a non-exclusive basis be reproduced without fee provided the credit is clear and visible.

VCG swiftly revised the note to say the black hole photo should not be used for commercial purposes, but Pandora’s box was already open. The incident sparked a plethora of comments on Weibo, China’s equivalent of Twitter, condemning VCG’s opportunist business practice. The site is said to often play the role of the victim to obtain financial compensation, and it does so by seeking damages from users who inadvertently use a public domain photo that VCG has preemptively copyrighted.

Shares of VCG plummeted 10 percent Friday morning in Shanghai, giving it a market cap of 17.66 billion yuan ($2.63 billion).

Assets of VCG’s massive content library range from logos of large tech companies like Baidu, all the way to the Chinese national flag.

“Does your company also own copyrights to the national flag and national emblem?” remarked the Chinese Communist Youth League on its official Weibo account in a snarky response to VCG’s unscrupulous licensing practice.

The price tag of the national emblem image is, lo and behold, no less than 150 yuan ($22) for use in a newspaper article and at least 1,500 yuan ($220) on a magazine cover.

Screenshot: The image of the Chinese national emblem was for sale on VCG at 150 yuan to 1500 yuan

“Copyrights protection should definitely be promoted. The question is, why is VCG allowed to price photos of the black hole and the likes out of the market? Why is it able to exploit loopholes?” Du Yu, a Beijing-based freelance technology journalist, said to TechCrunch.

TechCrunch has reached out to ESO for comments and will update the story once we hear back.

Government intervention soon followed on the heels of online criticisms. On April 11, the cyberspace watchdog of Tianjin, where VCG’s parent company is based, ordered the photo site to end its “illegal, rule-breaking practices.”

VCG apologized on April 12 in a company statement, admitting the lack of oversight over its contracted contributors who allegedly uploaded the images in question. “We have taken down all non-compliant photos and closed down the site voluntarily for a revamp in accordance with related laws,” said VCG.

Here’s the first image of a black hole

December 31, 2018

Are rightsholders ready for public domain day?

Dave Davis Contributor

What’s a “term” in the context of copyright?

The duration, or term, of U.S. copyright is set by Congress, and has gradually crept up over time from the original 14 years (plus 14 more if the author was still alive and renewed the copyright) — in Thomas Jefferson’s time — to a whopping “life of the author plus 70 years,” as set by the 1998 “Copyright Term Extension Act” (CTEA, which extended it from life plus 50).

For works first published between 1909 and 1978, the maximum term was finally set by Congress at 95 years (assuming the author complied with a whole lot of rules, alluded to below). And for post-1978 works, in instances where the author/creator is not a human being (such as a business commissioning a “work made for hire” under rules developed in the case-law) or the work was published under a pseudonym for an unknown person, the term can be as long as 120 years! The copyright in a work, duly registered at the time that registration was required (pre-1978), may never have been renewed, and so its protection may have quietly lapsed some time ago; for many more obscure works, it’s hard to know.

Fun fact: This Copyright Term Extension Act is also known as the Sonny Bono Copyright Term Extension Act. Congress named it in memory of the composer of “I’ve Got You, Babe,” who, as a member of Congress from Southern California, was among the authors of the bill; he unfortunately happened to die while it was being worked on in committee. Prior to 1978, the term of U.S. copyrights was determined by fixed terms of years, subject to publication, registration and notice requirements. Here are more details on that.

How do works pass into the public domain?

Currently, works pass into the public domain according to a complex schedule, combining (sometimes awkwardly) the rules of various laws implemented over the past century.

Bear in mind, however, that many works have passed (or “fallen” or “lapsed,” as the older phrases had it) into the public domain in the U.S. for reasons other than term expiry, even during the 20 years of the CTEA extension. According to the law in effect prior to 1978, if the work was published but never registered in the U.S. Copyright Office, it did not receive protection under copyright law; a work might also not be protected by U.S. copyright law if it lacked proper notice — the © symbol and the proper wording — or if the work’s registration was not renewed after its first 28-year term expired. Or if, as a work of the federal government, it never enjoyed copyright protection in the first place.

Qui Bono? (get it?)

As it turns out, it is not just re-publishers of “classic” texts, such as Dover Thrift Editions, which benefit when new works become available. Textbook and educational publishers frequently re-use old short stories and essays in larger collections, and a work of marginal utility might become more attractive as a potential addition to these collections once the cost of clearing the rights is reduced.

For example, a few years ago a 1922 story by F. Scott Fitzgerald, “The Curious Case of Benjamin Button,” (whose U.S. copyright had lapsed) was adapted into a feature film. To me, the lesson to be gleaned is that many works of the early 20th century still appear to bear some cultural cachet (or at least continuing value to society) — such that more no-cost access to these works (by their passing from copyright protection to the public domain) should have the overall effect of helping them find new audiences.

Note: Bear in mind, all of these examples are simply illustrative — without a full and careful copyright search, it is difficult to be certain of the copyright status of almost any work. On that, more below.

New works coming into the U.S. public domain also will have the effect of giving researchers new texts to run Text and Data Mining (TDM) algorithms across. It also may add to the richness of film and cultural studies.

Mark Twain proves this isn’t so easy

Unfortunately, determining when a work has in fact “fallen” into the public domain due to the term of its copyright having expired is not always as simple as one might hope.

For example, one might think that everything ever laid down by the pen of Mark Twain (S.L. Clemens, d. 1910) would be in the public domain by now. But, since he left a treasure trove of unpublished works, their copyright protection has extended for many years after his death, because, under pre-1978 law, those works’ copyright protection would not start until the works were published. The distinction between published and unpublished works has been discarded under post-1978 law, but won’t be fully effective for another 30 years. So, some items in the microfilm edition of Twain’s letters and manuscripts (their first publication) are still considered to be under copyright. He’s also enjoyed considerable success recently with the full and final publication of his autobiography.

Twain, a student of intellectual property, steadfastly argued for a perpetual copyright, but he came to realize that this was not permitted under the copyright clause of the U.S. Constitution, which refers to “securing [protection] for limited times.” But, in an age when copyright only protected works for which registrations had been obtained, he did point out that most books wouldn’t be affected by a longer term at all — for the vast bulk of them had no commercial life remaining to them a very few years after their initial publication:

One author per year produces a book which can outlive the forty-two-year limit; that’s all. This nation can’t produce two authors a year that can do it; the thing is demonstrably impossible. All that the limited copyright can do is to take the bread out of the mouths of the children of that one author per year.

I made an estimate some years ago, when I appeared before a committee of the House of Lords, that we had published in this country since the Declaration of Independence 220,000 books. They have all gone. They had all perished before they were ten years old. It is only one book in 1000 that can outlive the forty-two-year limit. Therefore, why put a limit at all? You might as well limit the family to twenty-two children.

– S.L. Clemens, in testimony to Congress, concerning proposed copyright legislation (1906)

“Forever minus a day,” another idea which has been occasionally bruited about (particularly by Congressman Bono and his widow, who was later elected seven times in her own right to Congress), would not constitute much of an effective limit, and so would, I believe, violate the Constitutional limitation; 95 years (an estimated average of the “Life plus 70” term) seems closer to a natural lifespan for a copyright — to me at least. If you and your heirs somehow can’t get the commercial value out of your work before nearly a century is out, I think there’s a takeaway lesson there.

On the other hand…

… some works do have cultural lifespans exceeding the term of copyright. The estates of certain literary, film and musical creators may stand to lose when the copyright in some of the works in their respective repertories lose copyright protection due to the lapse of their terms. For some examples of works entering the public domain on January 1, 2019, that may still have financial value to the author/creator’s heirs: Hemingway’s “Three Stories and 10 Poems” was first published in 1923; it was also the year of release for “Safety Last!” a silent film from Hal Roach Studios, starring Harold Lloyd, which many people remember. The same year saw the first publication (of the sheet music) for “Who’s Sorry Now?” which was a hit recording for Connie Francis in 1958.

But, on balance, “Nothing gold can stay,” as Robert Frost observed in a poem slated — I’m pretty sure — to enter the public domain on January 1st.* The reading, listening, and viewing public should expect to be the main beneficiary of these works entering the public domain. Indeed, 95 years is a good run for the commercial exploitation of a work. Now it’s everybody else’s turn to benefit.

*If it hasn’t already. Copyright searches, on the detail level, can be quite difficult and time-consuming. See: https://www.copyright.gov/rrc/. For any proposed commercial republication, it is certainly the course of wisdom to consult with an attorney and have a full copyright search done.

September 30, 2018

The war over music copyrights

VC firms haven’t been the only ones raising hundreds of millions of dollars to invest in a booming market. After 15+ years of being the last industry anyone wanted to invest in, the music industry is coming back, and money is flooding in to buy up the rights to popular songs.

As paid streaming subscriptions get mainstream adoption, the big music streaming services – namely Spotify, Apple Music, and Tencent Music, but also Pandora, Amazon Music, YouTube Music, Deezer, and others – have entered their prime. There are now over 51 million paid subscription accounts among music streaming services in the US. The music industry grew 8% last year globally to $17.3 billion, driven by a 41% increase in streaming revenue and 45% increase in paid streaming revenue.

The surge in music streaming means a surge in income for those who own the copyrights to songs, and the growth of entertainment in emerging markets, growing use in digital videos, and potential use of music in new content formats like VR only expand this further. Unsurprisingly, private equity firms, family offices, corporates, and pension funds want a piece of the action.

There are two general types of copyrights for a song: the publishing rights and the master rights. The musical composition of a song – the lyrics, melodies, etc. – comes from songwriters who own the publishing right (though generally they sign a publishing deal and their publisher gets ownership of it in addition to half the royalties). Meanwhile, the version of a song being performed comes from the recording artist who owns the master right (though usually they sign a record deal and the record label gets ownership of the masters and most of the royalties).

Popular songs are valuable to own because of all the royalties they collect: whenever the song is played on a streaming service, downloaded from iTunes, or covered on YouTube (a mechanical license), played over radio or in a grocery store (a performance license), played as soundtrack over a movie or TV show (a sync license), and for other uses. More royalty income from a song goes to the master owner since they took on more financial risk marketing it, but publishers collect royalties from some channels that master owners don’t (like radio play, for instance).

For a songwriter behind popular songs, these royalties form a predictable revenue stream that can amount to tens of thousands, hundreds of thousands, or even millions of dollars per year. Of course, most songs that are written or recorded don’t make any money: creating a track that breaks out in a crowded industry is hard. This scarcity – there are only so many thousands of popular musicians and a limited number of legendary artists whose music stays relevant for decades – means copyrights for successful musicians command a premium when they or their publisher decide to sell them.

Investing in streaming economics

In 2017, revenue from streaming services accounted for 38% of worldwide music industry revenue, finally overtaking revenue from traditional album sales and song downloads. Subscription streaming services hit a pivot point in gaining mainstream adoption, but they still have far to go. Goldman Sachs media sector analyst Lisa Yang predicted that by 2030, the global music industry will reach $41 billion in market size as the global streaming market multiplies in size to $34 billion (nearly all of it from paid subscriptions).

Merck Mercuriadis is seen on the left. (Photo by KMazur/WireImage for Conde Nast media group)

Earlier this week, I spoke with Merck Mercuriadis who has managed icons like Elton John, Guns N’ Roses, and Beyoncé and raised £200 million ($260 million) on the London Stock Exchange in June for an investment vehicle (Hipgnosis Songs) to acquire the catalogues of top songwriters. His plan is to raise and invest £1 billion over the next three to five years, arguing that the shift to passive consumers paying for music will take the industry to heights it has never seen before.

Indeed, streaming music is a paradigm shift from the past. With all the world’s music available in one interface for free (with ads) or for an affordable subscription (without ads), consumers no longer have to actively choose which specific songs to buy (or even which to download illegally).

With it all in front of them and all included in the price, people are listening to a broader range of music: they’re exploring more genres, discovering more musicians who aren’t stars on traditional radio, and going back to music from past decades. Consumers who weren’t previously buying a lot of music are now subscribing for $120 per year and spreading it across more artists.

Retail businesses are doing the same: through streaming offerings like Soundtrack Your Brand (which spun out of Spotify), they’re using commercial licenses – which are more expensive – to stream a broader array of music in stores rather than putting on the radio or playing the same few CDs.

Much of the music industry’s market growth is happening in China, India, Latin America, and emerging markets like Nigeria where subscription apps are replacing widespread music piracy or non-consumption. Tencent Music Entertainment, whose three streaming services have roughly 75% market share in China (a music market that expanded by 34% last year), is preparing for an IPO that could give it roughly the same $29 billion valuation Spotify received in its IPO in April. Meanwhile, music industry revenue from Latin America grew 18% last year.

Western music is infused in pop culture worldwide, so as these countries enter the streaming era they are monetizing hundreds of millions of additional listeners, through ad revenue at a minimum but increasingly through paid subscriptions as well.

At the talent management, publishing, and production firm Primary Wave, founder Larry Mestel is seeing emerging markets drive more revenue to his clients (like Smokey Robinson, Alice Cooper, Melissa Etheridge, and the estate of Bob Marley) as new fan bases engage with their music online. He raised a new $300 million fund (backed by Blackrock and other institutions) in 2016 to acquire rights in music catalogues amid a market he says has improved substantially due to growth opportunities stemming from the streaming model.

It’s not just streaming music platforms that are driving growth either. Streaming video has exploded, whether it’s from short YouTube videos or the growing number of shows on platforms like Hulu and Amazon Prime Video, and with that comes growing sync licensing of songs for their soundtracks; global sync licensing revenue was up 10% year-over-year in 2017 alone. Over the last year, Facebook signed licenses with every large publisher to cover use of song clips by its users in Instagram Stories and Facebook videos as well.

The inflating valuations of songs catalogues

Catalogues are commonly valued based on the “net publisher’s share,” which is the average amount of annual royalty money left over after paying out any percentages owed to others (like a partial stake in the royalties still held by the artist).

When Round Hill Music acquired Carlin for $245 million in January to gain ownership in the catalogues of Elvis Presley, James Brown, AC/DC, and others, it paid a 16x multiple on net publisher share, which is high but not uncommon in the current market when trading catalogues of legendary artists. Just three years ago, multiples anchored in the 10-12 range (or less for newer or smaller artists whose music has not yet shown the same longevity).

Avid Larizadeh Duggan left her role as a general partner at GV to become Chief Strategy & Business Officer of Kobalt

Kobalt, which raised $205 million from VC firms like GV and Balderton Capital to become a technology-centric publisher and label services powerhouse, has also become an active player in the space. Aside from its core operating business (where it stands out from traditional publishers and labels for not taking control of clients’ copyrights), it has raised two funds ($600M for the most recent one) to help institutional investors like the Railpen pension fund in the UK gain exposure to music copyrights as an asset class. In December, their fund acquired the catalogue of publisher SONGS Music Publishing for a reported $160M in a sale process against 13 other bidders looking to buy ownership in songs by Lorde, The Weeknd, and other young pop and hip-hop artists.

Too high a price?

The natural question to ask when there’s a rapid surge of money (and a corresponding surge in prices) in an asset class is whether there’s a bubble. After all, last year’s industry revenues were still only 68% of those in 1999 and the rate of growth will inevitably slow once streaming has captured the early majority of consumers.

But the fundamentals driving this capital are in line with a secular shift – it’s evident that music streaming still has a lot of room to grow in a few short years, especially as a large portion of the human population is just coming online (and doing so over mobile first). Plus as new content formats like augmented and virtual reality come to fruition, new categories of music sync licensing will inevitably accompany them for their soundtracks.

Each catalogue is its own case, of course. As Shamrock Capital managing director Jason Sklar emphasized to me, the rising tide isn’t lifting all boats equally. The streaming revolution appears to be disproportionately benefiting hip-hop, rap, and pop given the youth skew of streaming service users and the digital-native social media engagement of the artists in those genres.

Beyond the purchase price, the critical variable for evaluating a deal in this market is also the operational value a potential buyer can provide to the catalogue: their ability to actively promote songs from the past by pitching them to new TV shows, ad campaigns, and any number of other projects that will keep them culturally relevant. This is where strategic investors have an advantage over purely financial investors in publishing rights, especially when it comes to the longer tail of middle-tier artist’s whose music doesn’t naturally get the inbound demand that the Beatles or Prince catalogues do.

With strong long-term market growth and a wide range of possible niches and strategies, music copyrights are an asset class where we’ll see a number of major new players develop.