From pirates to privateers: a musician’s take on the digital market

April 2016

By Bendik Hofseth, Musician

The evolution of the digital marketplace is continuing apace. It affects us all on many levels. We all experience the benefits of being connected. It is easier now than ever before to keep in touch with family and friends wherever we or they may be, or to reach out to people on the other side of the world for a business meeting or information gathering. It is easier than ever to find and purchase items to meet our every desire, to make virtual visits to far away regions and experience uncharted terrain. And online distribution means huge cost savings for businesses and significant environmental dividends.

A global network built on more than technology

Static fiber-optic cables are forming a new, global neural network that circulates human impulses made up not only of bits and bytes but also messages sent from heart to heart. Our ability to link together through the Internet makes us feel safer, freer, and more comfortable and open.

While technology underpins this global neural network, technology alone cannot create the social and cultural heartbeats that bring it alive. Softer and more universal devices are needed for us to be and stay attracted to the network. International brands and celebrities help – they have become an integral part of our common narrative. But the creative forms of expression and artworks that humans have developed over millennia to communicate with each other and spark our imaginations are the lifeblood of the network.

Bendik Hofseth (above) argues that there is a “value-generation gap” between what online platforms pay artists and the profits they generate. (photo: Odd Geir Sœtner).

Music has the power to surpass the confines of language and to break down cultural barriers by stimulating a shared fascination with rhythms and sounds. A picture can convey meaning in a playful and quirky way that goes directly to the heart of the viewer. A poem or a piece of literature can capture a moment in a way that allows each reader to interpret it in line with their own individual experience. These artistic creations have proven invaluable in establishing bonds, opening minds and hearts and building trust and confidence among different social and cultural groups across time.

Established arrangements are under pressure

But as the digital transition progresses established arrangements that for many years have allowed artists and creators to receive payment for their work are increasingly under attack. The current relationship between the arts, copyright law and platform services illustrates this very clearly.

Platform services typically include search engines, social networks and other types of content aggregators. They are sometimes also called technical intermediaries and include companies such as Facebook, Twitter, SoundCloud, TuneIn and others. At present, these entities either underpay or do not pay those who generate the cultural content that they have made it their role to distribute.

The value-generation gap

A simple comparison of the amounts these platforms pay to rights holders and the profits they generate points to a distinct “value-generation gap”. How much of what these platform services do – and how much of the money they make – is actually related to giving access to art and other works that are protected by copyright? Identifying these percentages, for example on the basis of the way these platforms generate income through advertising, would make it possible to get an idea of what a “reasonable” licensing fee might be.

Licensed digital distributors such as Spotify or Netflix typically spend around 70 percent of their turnover on content acquisition. This is as it should be when 100 percent of a company’s value and revenue is based on distributed cultural content.

But other platform services such as Facebook do not operate along these lines. In many countries around 60 percent of a Facebook user's scrolled news feed is made up of cultural content and over 50 percent of its native advertising revenue is directly related to cultural content. Yet none of the revenues derived from using this content are returned to the creative community.

A recent report by GESAC, which represents around a million creators and rights holders in Europe, estimates that in 2014 in Europe, 23 percent of the revenue generated by platform services – a staggering EUR5 billion – was directly related to cultural content. And 62 percent of revenues generated by platform services are either directly or indirectly related to cultural content.

Based on these estimates, the report suggests that the search engine Google should have returned around EUR3 billion to the creative community in 2014 in Europe alone. Given Google’s 2015 performance – it recently reported 13 percent year-on-year growth and global profits of USD23.42 billion – the sums involved for 2015 would be much higher.

Artists contribute significant value

Artists like me contribute huge social, moral and cultural value to the operations of technical intermediaries. We deliver the “sex appeal” of social media; our works give these platforms allure; we are the stars of the search engines. The creative effort of the artistic community is the glue that convinces users to stick with the platform services, allowing them to develop successful and predictable business models.

Bendik Hofseth equates what is happening today in the rapidly evolving digital economy, where one sector is being given free rein to grow at the expense of others, with the free license governments of the past gave privateers during wartime to attack foreign vessels and take them as prizes. (photo: Brey).

Surely Facebook is as much a gigantic repository of artworks and their metadata as a technical service provider? Surely it is not just Google’s engineering and wiring that constitutes its EUR23 billion profit? Surely the ethical argument is clear and self-evident? No one should be able to put billions of Euros worth of other people’s value creation into their own pockets.

What can I do about this as a composer? Can I prevent my songs and compositions from being circulated? This isn’t really an option, especially on a global scale when moral rights are so disputed and national copyright frameworks vary so much from one country to another.

The tables have turned

At the moment, if someone records one of my songs from a live show and releases it on YouTube, I have to ask YouTube to take it down. It seems to me that they should be the ones to ask me for permission to upload it in the first place. I am doing all the work – they are taking all the profit. Can I appeal to Facebook and Google to do the decent thing and share a proportion of their revenue with their creative partners? We authors have done so on several occasions, but so far our appeals have met with stony silence. Can I ask my performing rights society to negotiate a license with these services? Yes, we can and we have tried to do so, but the intermediaries simply claim they do not need a license because what they are doing is not illegal.

Some commentators suggest that the creative community should be happy to have access to a distribution platform that allows its works to be disseminated with or without the consent of rights holders.

But this viewpoint devalues the contribution made by artists, and fails to recognize that it is not only the creators who have a problem when there is no longer an economic incentive to create, it is society as a whole.

Do technical intermediaries have an unfair advantage?

Today, the legal landscape is such that any entity that defines itself as a technical intermediary can include copyrighted material on its platform without having to pay a license fee. Other business, such as start-ups, that do include licensing in their business models, are thus put at a disadvantage and find it hard to compete. Politicians who allow platform services to grow into monopolistic economic giants are not only sanctioning the looting of artworks and unfair treatment of artists, they are also distorting the market and impeding competition.

What went wrong?

The double standard that exists between legally licensed companies such as Spotify and unlicensed platform services stems in Europe from an ambiguity in the application of the safe harbor provisions on copyright-relevant acts of platform services outlined in the European E-Commerce Directive (2000/31/EC), which introduced notice-and-takedown procedures. Safe harbor provisions were introduced in the US with the implementation of the 1998 Digital Millennium Copyright Act (DCMA). These measures effectively shield intermediaries from liability for unwitting copyright infringement provided they remove infringing content once they receive a complaint from a rights holder. When the DCMA and the Directive were adopted no one could have foreseen the broad uptake in use of platform services or their dominance.

In part, platform services have very astutely capitalized on the failure of policymakers to resolve the issue of intermediary liability: How far should intermediaries be held responsible for the content they distribute? This thorny issue remains the subject of hot debate.

In practice, however, the sheer volume of notice-and-takedown requests received by a rights user as big as Google, means there are delays in removing infringing content. In fact, all too often, infringing material is taken down only to promptly reappear on the same site. So in practice, notice-and-takedown procedures have not fully served the interests of right holders.

Reversing the copyright proposition

The size and dominance of large technology companies like Google has, in some instances, also effectively brought about a reversal of the fundamental copyright proposition – whereby the user is required to ask permission of the author prior to using a protected work – and the exclusive rights it encompasses (see box).

We saw this most clearly in the Google Library Project. The project sought to scan and put online as many books as possible, but without first seeking permission from rights holders. Instead, Google offered copyright owners mechanisms to opt out or have their works removed. Although the project fizzled, the obvious utility of such an endeavor suggests that the issues it raises will resurface in the future.

Steps to improve the landscape

In 2015 Google received 554 million takedown notices. That is a lot of effort by creators and their representatives to stop people doing things; effort and cost that should be better spent on authorized distribution and use of creative content. The current landscape could have been so different if:

  • Safe harbor had been denied to certain kinds of intermediaries – particularly those monetizing access to information and content.
  • The content providers had set up effective registries and look-up facilities for protected works.
  • Intermediaries without safe harbor protection had been obligated to check the copyright status of content before facilitating access to it (with unauthorized access to content being dealt with as contributory infringement).

The music industry has a long and checkered history of fighting piracy and has often received an unjustifiably bad press. But what is happening today in the new digital landscape has historical parallels.

Internet Freedom: a modern day veil of legitimacy

In the past, privateers superseded pirates. A privateer was a private person or ship authorized and licensed by a government to attack foreign vessels during wartime and take them as prizes. A similar scenario is occurring today within the rapidly evolving digital economy where one sector of the economy is being given free rein to grow at the expense of others.

It is true that the distinction between a privateer and a pirate has always been blurred. At times, pirates sought dubious government sanction to operate under a veil of legitimacy, but both pirates and privateers sailed under false flags to create confusion and mayhem.

The “contract” that currently exists between platform services and the public was originally built on freedom of speech, transparency and openness. In practice, however, other criteria, namely profit and market dominance, have been more compelling prizes. The false flag under which they sail today is one that the creative community originally believed would work in the online space but which we now know to be hollow and meaningless. The flag they now sail under is the most unreliable and deceitful of them all – that of Internet Freedom.

About copyright

Copyright encompasses two types of rights, namely:

  • Economic rights, which allow the rights owner to derive financial reward from the use of their work by others. The copyright laws of most countries state that the rights owner has the economic right to authorize or prevent certain uses in relation to a work or, in some cases, to receive remuneration for the use of their work (such as through collective management). The person who owns the economic rights in a work can prohibit or authorize:
    • its reproduction in various forms, such as printed publication or sound recording;
    • its public performance, such as in a play or musical work;
    • its recording, for example, in the form of compact discs or DVDs;
    • its broadcasting, by radio, cable or satellite;
    • its translation into other languages; and
    • its adaptation, for example, from a novel into a film screenplay.
  • Moral rights, which protect the non-economic interests of the author. Examples of widely recognized moral rights include the right to claim authorship of a work and the right to oppose changes to a work that could harm the creator's reputation.

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