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Has Google gone too far? Indie labels say it's crunch time for The New Economy

The Man 2.0 is far worse than The Man 1.0

Internet Security Threat Report 2014

Indie music labels say today's tech giants are behaving more badly than the old record industry at its worst.

At a press conference in London yesterday, the labels' reps explained why they're seeking emergency action against Google from Europe's anti-competition authorities: Google is negotiating music-streaming royalties with the indies, and they compared the internet giant's tactics to those of Amazon, which is in a dispute with publisher Hachette.

"What we’re witnessing is the collapse of a marketplace which has plurality, which has multiple choice, into individual companies being 'the market'," said Alison Wenham, chief exec of the Association of Independent Music (AIM).

"It’s quite clear that with Amazon, with Google, they are the market. They can dictate the supply chain terms to their hearts' content.

"I don't think at the dawn of the internet we ever thought we'd be looking down the wrong end of a telescope that way."

The indies say Google is trying to force labels to sign unfair terms for a forthcoming, and as yet unnamed, audio streaming service. The labels were approached individually, rather than through their collective licensing agency Merlin, and YouTube threatened to block them from its web service if they refused to sign the new deals, we're told.

Indie labels are typically cottage businesses employing anywhere from one to a handful of people – yet together employ 80 per cent of all workers in the music industry.

"Every sector of the music industry is behind this action,” one independent music publisher said. “Publishers are just as frightened. One of my copyright people was told by YouTube was told there’s no point in continuing this discussion as a publisher because my stuff would be taken down. They don’t know half of my repertoire is on Universal."

"It's a service we can ill afford to be removed from," said Mark Chung, formerly of German industrial band Einstürzende Neubauten and now a music publisher.

"I can not think of a more obvious abuse of a market dominating position that we have here."

What's happened?

Google-owned YouTube is developing a new streaming audio service, reportedly similar to Spotify and Deezer. This requires Google negotiating new deals for the master recordings rights and publishing rights. Labels allege:
  • YouTube signed deals with the Big Three record labels that included huge cash transfers, wrapping up minimum guarantees, advances, breakages and a per stream rate lower than Spotify.
  • Instead of negotiating with the indie labels' licensing body, Merlin, which represents and negotiates collectively on behalf of the indie labels - YouTube instead sent out non-negotiable contracts to hundreds of labels individually.
  • This non-negotiable contract contained no cash advance nor a minimum guarantee, just a per-stream rate. And it threatened to "block" the label's material from YouTube's video service if the label refused.

Independent music groups including UK trade body AIM, global trade body WIN, Brussels-based IMPALA, and the Featured Artists Coalition, said they will write to the European Commission's Directorate-General for Competition within the next ten days to seek emergency measures.

It called for the directorate-general to investigate the market leverage.

"We want the European Commission to come out and say that while we’re investigating, we want YouTube not to issue any more threats, not to carry out threats in the contracts, or abide by the agreements in those contracts that were signed under threat," said IMPALA executive chairwoman Helen Smith.

Independents have had some success with European authorities before, by blocking mergers and forcing more equitable terms when giants have merged. Universal was obliged to divest significant parts of EMI before it swallowed the major UK label. UMG-EMI was also obliged to allow its digital music contracts to be examined for the next ten years.

"Google is a company that makes more money than the entire music industry combined," said Helienne Lindvall, a songwriter. "It almost makes artists long for the days when they were only being abused by major labels. At least then, artists got some investment.”

Her point was echoed by musician Billy Bragg:

I can’t believe the majors aren’t complicit in this, in some way. We should look behind the curtain of the record industry and see how it really works… and how those multinational corporations like Apple and Google are acting.

YouTube was compared to Amazon, which has been using its dominant status in retail, technically a monopsony, to force new terms on its supply chain. Amazon sells 50 per cent of books sold in the US, and offered new contracts for ebooks that one publisher Hachette refused to sign. Amazon retaliated by removing the ability to pre-order Hachette titles, and – at least according to the French publisher – slowing delivery from one to two days to two to three weeks. Hachette saw its Amazon sales hit. And in the book business, Hachette is a "major label", owning Time Warner Book Group and Hyperion.

"Amazon is the Goliath here," best-selling Hachette author Malcolm Gladwell told an interviewer. "I don’t think anyone is under any illusions it stops with Hachette.

Yesterday in London, music publisher Chung shed light on the dark side of the streaming negotiations. He said music groups resent Google's inability to promote licensed music and demote unlicensed music, and say this depresses royalty rates.

"Songwriters are negotiating with a gun to their heads. The gun is piracy," musician David Lowery wrote last year. Yesterday, Chung claimed Google was "the biggest enabler and profiteer from piracy".

Chung said it was reasonable to expect technology giants to seek a monopoly position, but said whether or not they get away with it is a test for a civilised society.

"You should probably be trying to dominate whatever market, and break any rule you can get away with breaking. It's the job of regulators and the Courts to stop that,” he said.

"If the Directorate-General for Competition do not succeed in rectifying this problem, then clearly competition law in online markets is not functioning. Which means we have to review competition law.”  ®

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