Rule2021-20621
Determination of Rates and Terms for Digital Performance of Sound Recordings and Making of Ephemeral Copies To Facilitate Those Performances (Web V)
Primary source
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Published
October 27, 2021
Effective
October 27, 2021
Issuing agencies
Library of CongressCopyright Royalty Board
Abstract
The Copyright Royalty Judges announce their final determination of the rates and terms for two statutory licenses (permitting certain digital performances of sound recordings and the making of ephemeral recordings) for the period beginning January 1, 2021, and ending on December 31, 2025.
Full Text
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[Federal Register Volume 86, Number 205 (Wednesday, October 27, 2021)]
[Rules and Regulations]
[Pages 59452-59593]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-20621]
[[Page 59451]]
Vol. 86
Wednesday,
No. 205
October 27, 2021
Part II
Library of Congress
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Copyright Royalty Board
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37 CFR Part 380
Determination of Rates and Terms for Digital Performance of Sound
Recordings and Making of Ephemeral Copies To Facilitate Those
Performances (Web V); Final Rule
Federal Register / Vol. 86, No. 205 / Wednesday, October 27, 2021 /
Rules and Regulations
[[Page 59452]]
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LIBRARY OF CONGRESS
Copyright Royalty Board
37 CFR Part 380
[Docket No. 19-CRB-0005-WR (2021-2025)]
Determination of Rates and Terms for Digital Performance of Sound
Recordings and Making of Ephemeral Copies To Facilitate Those
Performances (Web V)
AGENCY: Copyright Royalty Board, Library of Congress.
ACTION: Final rule and order.
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SUMMARY: The Copyright Royalty Judges announce their final
determination of the rates and terms for two statutory licenses
(permitting certain digital performances of sound recordings and the
making of ephemeral recordings) for the period beginning January 1,
2021, and ending on December 31, 2025.
DATES:
Effective date: October 27, 2021.
Applicability date: The regulations apply to the license period
beginning January 1, 2021, and ending December 31, 2025.
ADDRESSES: The final determination is posted in eCRB at <a href="https://app.crb.gov/">https://app.crb.gov/</a>. For access to the docket to read the final determination
and submitted background documents, go to eCRB and search for docket
number 19-CRB-0005-WR (2021-2025).
FOR FURTHER INFORMATION CONTACT: Anita Blaine, CRB Program Assistant,
(202) 707-7658, <a href="/cdn-cgi/l/email-protection#97f4e5f5d7fbf8f4b9f0f8e1"><span class="__cf_email__" data-cfemail="096a7b6b4965666a276e667f">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Final Determination
The Copyright Royalty Judges (Judges) hereby issue their written
determination of royalty rates and terms to apply from January 1, 2021,
through December 31, 2025, to digital performance of sound recordings
over the internet by nonexempt, noninteractive transmission services
and to the making of ephemeral recordings to facilitate those
performances.
The rate for commercial subscription services in 2021 is $0.0026
per performance. The rate for commercial nonsubscription services in
2021 is $0.0021 per performance. The rates for the period 2022 through
2025 for both subscription and nonsubscription services shall be
adjusted to reflect the increases or decreases, if any, in the general
price level, as measured by the change in the Consumer Price Index for
All Urban Consumers (U.S. City Average, all items) (CPI-U) from that
published by the Bureau of Labor Statistics (BLS) in November 2020, as
set forth in the regulations adopted by this determination.
The rates for noncommercial webcasters are: $1,000 annually for
each station or channel for all webcast transmissions totaling not more
than 159,140 Aggregate Tuning Hours (ATH) in a month, for each year in
the rate term. In addition, if, in any month, a noncommercial webcaster
makes total transmissions in excess of 159,140 ATH on any individual
channel or station, the noncommercial webcaster shall pay per-
performance royalty fees for the transmissions it makes on that channel
or station in excess of 159,140 ATH at the rate of $0.0021 per
performance in 2021. The rates for transmissions over 159,140 ATH per
month for the period 2022 through 2025 shall be adjusted to reflect the
increases or decreases, if any, in the general price level, as measured
by the changes in the CPI-U from that published by BLS in November
2020, as set forth in the regulations adopted by this determination.
The Judges also determine herein details relating to the rates for
each category of webcasting service, such as minimum fee and
administrative terms, in the following analysis. ``Exhibit A'' to this
determination contains the regulatory language codifying the terms of
the Judges' determination.
I. Background
A. Purpose of the Proceeding
The licenses at issue in the captioned proceeding, viz., licenses
for commercial and noncommercial noninteractive webcasting, are
compulsory. Title 17, United States Code (Copyright Act or Act),
establishes exclusive rights reserved to copyright owners, including
the right to ``perform the copyrighted work publicly by means of a
digital audio transmission.'' See 17 U.S.C. 106(6). The digital
performance right is limited, however, by section 114 of the Act, which
grants a statutory license for nonexempt noninteractive internet
transmissions of protected works. 17 U.S.C. 114(d). Eligible webcasters
are entitled to perform sound recordings without an individual license
from the copyright owner, provided they pay the statutory royalty rates
for the performance of the sound recordings and for the ephemeral copy
of the sound recording necessary to transmit it. 17 U.S.C. 114(f),
112(e). Licensee webcasters pay the royalties to a Collective, which
distributes the funds to performing artists and copyright owners. The
statutory rates and terms apply for a period of five years. The Act
requires that the Judges ``establish rates and terms that most clearly
represent the rates and terms that would have been negotiated in the
marketplace between a willing buyer and a willing seller.'' 17 U.S.C.
114(f)(2)(B). The marketplace the Judges look to is a hypothetical
marketplace, free of the influence of compulsory, statutory licenses.
Web II, 72 FR 24084, 24087 (May 1, 2007). The Judges ``shall base their
decision on economic, competitive[,] and programming information
presented by the parties . . . .'' 17 U.S.C. 114(f)(2)(B), 112(e)(4)
(emphasis added). Within these categories, the Judges' determination
shall account for (1) whether the internet service substitutes for or
promotes the copyright owner's other streams of revenue from the sound
recording and (2) the relative roles and contributions of the copyright
owner and the service, including creative, technological, and financial
contributions, and risk assumption. Id. The Judges may consider rates
and terms of comparable services and comparable circumstances under
voluntary, negotiated license agreements. Id. The rates and terms
established by the Judges ``shall distinguish'' among the types of
services and ``shall include'' a minimum fee for each type of service.
Id. (emphasis added).
B. Procedural Posture
Following the timeline prescribed by the Act, the Judges published
notice of commencement of this proceeding in the Federal Register. 84
FR 359 (Jan. 24, 2019). Twenty parties in interest filed petitions to
participate in the proceeding. Nine of those petitioners subsequently
withdrew from the proceeding, and the Judges dismissed one of the
petitioners because the Judges determined that he lacked the requisite
substantial interest in the proceeding.\1\
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\1\ The following parties filed petitions to participate: Accu
Radio LLC (withdrew), College Broadcasters Inc. (settled), David
Powell (dismissed), Educational Media Foundation (joined case of
NRBNMLC), Live365 Broadcaster LLC (withdrew), LA RAZA MEDIA GROUP
LLC (withdrew), Pandora Media LLC (Pandora), Radio Coalition LLC
(withdrew), Sirius XM Radio, National Religious Broadcasters
Noncommercial Music License Committee (NRBNMLC), National
Association of Broadcasters (NAB), Feed Media, Inc. (withdrew), Dash
Radio, Inc. (withdrew), Tunein Inc. (withdrew), National Public
Radio (settled), Radio Paradise Inc. (withdrew), SoundExchange, Inc.
(SoundExchange) (filing jointly on behalf of The American Federation
of Musicians and the United States and Canada, Screen Actors Guild/
American Federation of Television and Radio Artists, The American
Association of Independent Music, Sony Music Entertainment, UMG
Recordings, Inc., Warner Music Group Corp., and Jagjaguwar Inc.),
iHeart Media Inc., ICON Health & Fitness Inc. (withdrew), and Google
Inc.
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[[Page 59453]]
1. Negotiated Settlements
The Judges received two settlements, one between SoundExchange and
certain public broadcasters and the other between SoundExchange and
certain educational webcasters.
a. Public Broadcasters
One of the settlements, among SoundExchange, National Public Radio
(NPR), and the Corporation for Public Broadcasting (CPB), addressed
rates and terms for certain internet transmissions by public
broadcasters, NPR, American Public Media, Public Radio International,
Public Radio Exchange, and certain other unnamed public radio stations
for the period from January 1, 2021, through December 31, 2025. The
Judges published the terms of the settlement in the Federal Register on
October 29, 2019. The Judges received no comments on the proposal and
approved the settlement on February 28, 2020.\2\
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\2\ 85 FR 11857 (Feb. 28, 2020).
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b. Educational Webcasters
The other settlement, between SoundExchange and College
Broadcasters, Inc. (CBI), addressed rates and terms for certain
internet transmissions of sound recordings by college radio stations
and other noncommercial educational webcasters for the period from
January 1, 2021, through December 31, 2025. The Judges published the
terms of the settlement in the Federal Register on October 30, 2019.
The Judges received no comments on the proposal and approved the
settlement on March 4, 2020.\3\
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\3\ 85 FR 12745 (Mar. 4, 2020).
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2. The Current Proceeding To Adjudicate Rates and Terms
The Act provides that the Judges shall make their determinations
``on the basis of a written record, prior determinations and
interpretations of the Copyright Royalty Tribunal, Librarian of
Congress . . .'' and their own prior determinations to the extent those
determinations are ``not inconsistent with a decision of the Register
of Copyrights . . . .'' 17 U.S.C. 803(a). Pursuant to 17 U.S.C. 803(b),
the Judges conduct a hearing to create that ``written record.'' To that
end, non-settling parties appeared before the Judges virtually for an
evidentiary hearing. At the hearing, SoundExchange represented the
interests of licensors. Several non-settling licensees also
participated in the hearing.\4\
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\4\ The non-settling licensees were Google, iHeart Media, NAB,
NRBNMLC, Pandora, and Sirius XM.
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The hearing commenced on August 4, 2020, and concluded on September
9, 2020.\5\ The parties submitted proposed findings and conclusions
(and responses thereto) in writing, prior to their closing arguments on
November 19, 2020. During the hearing, the Judges heard oral testimony
from 33 witnesses (some of them for both direct case and rebuttal
testimony) and considered the testimony of eight witnesses on the
papers. The witnesses included 13 qualified experts. The Judges
admitted 748 exhibits into evidence, consisting of over 900,000 pages
of documents (9227 MB of electronic files in eCRB), and considered
numerous illustrative and demonstrative materials that focused on
aspects of the admitted evidence and the permitted oral testimony.
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\5\ The hearing was originally scheduled to commence on March
16, 2020, but was delayed due to the coronavirus pandemic. See Order
Granting Joint Motion for Continuance of Hearing (Mar. 12, 2020)
(delaying commencement of hearing until April 28, 2020. In
consultation with the participants, the Judges granted several
additional continuances, until ultimately scheduling a virtual
hearing employing videoconferencing technology to commence on August
4, 2020. See Order Granting Joint Motion for Second Continuance of
Hearing (Apr. 1, 2020); Order Granting Joint Motion for Third
Continuance of Hearing (May 1, 2020); Order on Hearing Schedule and
Related Pre-Hearing Matters (Jun. 10, 2020); Order Setting Virtual
Hearing and Addressing other Hearing-Related Matters (Jun. 25,
2020); Order Postponing Virtual Hearing (Jul. 14, 2020); Order
Rescheduling Virtual Hearing (Aug. 3, 2020).
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Pursuant to section 803(c)(1), the initial Determination in this
matter was due no later than December 16, 2020 (i.e., 15 days before
the expiration of the current statutory rates and terms). See 17 U.S.C.
803(c)(1). On July 6, 2020, the Acting Register of Copyrights, at the
request of the Judges, exercised her authority under 17 U.S.C. 710 to
``toll, waive, adjust, or modify'' the timing provision in section
803(c)(1) to account for the disruption and delay caused by the COVID-
19 pandemic. The Acting Register extended the Judges' deadline for
issuing an initial Determination by up to 120 days, effectively making
the deadline April 15, 2021. See Public Notice Regarding Timing
Provisions for Persons Affected by COVID-19, U.S. Copyright Office,
<a href="https://www.copyright.gov/coronavirus/">https://www.copyright.gov/coronavirus/</a> (last visited Jan. 11, 2021).
The Register of Copyrights announced an additional 60-day extension on
March 29, 2021, in the Copyright Office's NewsNet, Issue No. 889.
II. Context of the Current Proceeding: Prior Rate Determinations
Congress created the exclusive sound recordings digital performance
copyright in 1995. See Digital Performance Right in Sound Recordings
Act of 1995, Public Law 104-39, 109 Stat. 336 (1995). At the same time,
Congress limited that performance right by granting noninteractive
subscription services a statutory license to perform sound recordings
by digital audio transmission. In 1998, Congress created the ephemeral
recording license and further defined and limited the statutory license
for digital performance of sound recordings. See Digital Millennium
Copyright Act, Public Law 105-304, 112 Stat. 2860 (1998) (DMCA).
A. Web I-Web III
The Judges summarized the history of webcasting determinations from
Web I through Web III in detail in their Web IV determination. See
Determination of Royalty Rates and Terms for Ephemeral Recording and
Webcasting Digital Performance of Sound Recordings, Final rule and
order, 81 FR 26316, 26317-19 (May 2, 2016) (Web IV). The Judges hereby
incorporate that discussion by reference into this Determination.
B. Web IV Determination and Appeals
The Judges commenced the Web IV proceeding in January 2014.
SoundExchange and a pro se petitioner, George Johnson d/b/a GEO Music,
represented the interests of licensors. Seven licensees also
participated in the hearing.\6\ The Judges approved two negotiated
agreements, one for public broadcasters between SoundExchange and NPR
and CPB, and the other for educational webcasters between SoundExchange
and CBI.
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\6\ The licensees were Harvard Radio Broadcasting, Inc., IBS,
iHeartMedia, NAB, NRBNMLC, Pandora, and Sirius XM.
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The Judges concluded that ``there is continued support in the
marketplace for a different rate structure for commercial and
noncommercial webcasters.'' 81 FR 26316, 26320 (May 2016). The Judges
therefore adopted separate rate structures for noncommercial and
commercial webcasters. With respect to noncommercial webcasters, the
Judges adopted a $500 per station or channel fee for all transmissions
by noncommercial webcasters up to a threshold of 159,140 aggregate
tuning hours (ATH) for 2016 through 2020. For transmissions in excess
of 159,140 ATH, the Judges set a rate of $0.0017 per performance for
2016, which would be adjusted annually for changes to the CPI-U for the
years 2017-2020. Id. at 26396.
The Judges also identified a distinction between two different
types of copyright owners. Based on the
[[Page 59454]]
record, the Judges observed that ``in the marketplace, Services have
agreed to pay higher rates to'' major record labels (Majors) than to
so-called independent labels (Indies). Id. at 26319. To gain clarity on
whether the Judges could establish different rates based on differences
among copyright owners, the Judges referred to the Register of
Copyrights (Register) the novel question of whether the Act permits the
Judges to differentiate based on types of licensors. The Register
concluded that the Judges' question did not meet the statutory criteria
for referral and declined to answer it. Id. In the absence of an
adequate record to support such differentiation, the Judges declined to
adopt separate rates for Majors and Indies. Id.
The Judges also addressed potential distinctions between groups of
licensees. In particular, NAB argued that simulcasting is different
from other forms of commercial webcasting and therefore simulcasters
(i.e., terrestrial radio stations that simulcast over-the-air
broadcasts on the internet) should pay a lower rate than other
commercial webcasters. Id. at 26320. Based on the record in Web IV,
however, the Judges concluded that NAB did not satisfy its burden to
demonstrate that simulcasting differs in ways that would cause willing
buyers and willing sellers to agree to a lower royalty rate in the
hypothetical market. Therefore, the Judges did not adopt a different
rate structure for simulcasters than that which applied to other
commercial webcasters. Id.
SoundExchange and Pandora each proposed different greater-of rate
structures employing a per-play rate and a percentage-of-revenue rate.
All of the Services, other than Pandora, opposed such a two-pronged
approach. The Judges concluded that the record did not support a
greater-of rate structure in the rate period at issue in Web IV. Id. at
26323. Rather, the Judges found that the statutory rate should continue
to be set on a per-play basis for commercial webcasters. Id. at 26325.
The Judges set two separate rates for commercial noninteractive
webcasting. One applied to performances on subscription-based
commercial noninteractive services. A separate rate applied to
performances on nonsubscription services (i.e., advertising supported
services that are free to the listener). Id. at 26404. The Judges set
each of the rates for 2016 (the first year of the five-year statutory
license term) and then applied an inflation-based adjustment to the
rates for the remaining years of the license. The Judges looked to
separate benchmarks to establish the rates. For commercial
noninteractive subscription services, the Judges used a benchmark
developed by SoundExchange's expert, Dr. Rubinfeld, to which the Judges
applied a 12% ``steering'' reduction to reflect a lack of competition
in that particular segment of the market among the providers of the
copyright works. The Judges also credited a rate established in an
agreement between Pandora and Merlin. Those two rates formed a zone of
reasonableness, within which the Judges chose a per-performance rate of
$0.0022 for 2016. Id. at 26405.
With respect to the rate for commercial nonsubscription services,
the Judges identified two usable benchmarks. One was based on a rate in
an agreement between iHeart and Warner. The other was based on a rate
from an agreement between Pandora and Merlin. Id. at 26405. The first
represented an agreement between a service and a Major and the second
between a service and Indies. The Judges used these rates to form a
zone of reasonableness. The Judges selected a rate for 2016 of $0.0017,
which took into account a greater number of streams from Major sound
recordings as opposed to the percentage of streams from Indie sound
recordings. The rates for 2017 through 2020 would be adjusted to
account for changes in the CPI. The rate for the Section 112 license
would constitute 5% of the royalty services would pay for performances
under the Section 114 license. Id. at 26406.
SoundExchange and George Johnson appealed the Judges' determination
to the U.S. Court of Appeals for the D.C. Circuit. The court affirmed.
SoundExchange, Inc. v. Copyright Royalty Bd., 904 F.3d 41 (Sep. 18,
2018).
III. The Role of Effective Competition in Setting Webcasting Rates
A. The Concept of ``Effectively Competitive'' Rates
In Web IV, the Judges held that the Copyright Act either required
them, or permitted them, in their discretion, ``to set a rate that
reflects a market that is effectively competitive.'' Web IV, 81 FR at
2633 (emphasis added). The D.C. Circuit affirmed the Judges' conclusion
that they had the discretionary authority ``to determine rates through
the lens of an effective-competition standard'' (but held that the
Judges were not required to do so). SoundExchange, 904 F.3d at 57.
More particularly, the D.C. Circuit found reasonable the Judges'
construction of the statutory ``willing seller/willing buyer-
marketplace'' standard as calling for the establishment of rates that
would have been set in an effectively competitive market. In that
regard, the D.C. Circuit pointed to testimony and record evidence--
referenced approvingly by the Judges--stating that ``neither sellers
nor buyers can be said to be `willing' partners to an agreement if they
are coerced to agree to a price through the exercise of overwhelming
market power.'' SoundExchange, 904 F.2d at 56 (quoting Web IV, 81 FR at
26331).
Additionally, the D.C. Circuit grounded its affirmance on its
finding that the statutory willing buyer/willing seller-marketplace
standard was inherently ambiguous. Because of this ambiguity, the D.C.
Circuit held that the Judges had properly exercised their statutory
duty by considering ``the clear statutory purpose, applicable prior
decisions, and the relevant legislative history.'' SoundExchange, 904
F.3d at 55 (quoting Web IV at 26332). In particular, the D.C. Circuit
took note of the Judges' reliance on their own webcaster rate
determination that had immediately preceded Web IV:
The [Judges] relied on one of [their] prior determinations in
reasoning that, ``[b]etween the extremes of a market with
`metaphysically perfect competition' and a monopoly (or collusive
oligopoly) market devoid of competition there exists in the real
world . . . a mind-boggling array of different markets, all of which
possess varying characteristics of a `competitive marketplace.' ''
[Web IV, 81 FR at 26333 (quoting Web III Remand, 79 FR at 23114
n.37)].
SoundExchange, 904 F.3d at 57.
In fact, the D.C. Circuit not only found that the Judges acted
reasonably in this regard, but also that--when exercising their
discretion--the Judges ``must consider `competitive information'''
contained in the hearing record, in order ``to identify the relevant
characteristics of competitiveness on which to base [their]
determination of the statutory rates.'' SoundExchange, 904 F.3d at 56-
57 (emphasis added).
Consistent with the D.C. Circuit's decision affirming Web IV, the
Judges in this Web V proceeding again apply the standard that royalty
rates for noninteractive services should be set at levels that reflect
those that would be set in an effectively competitive market. Further,
the Judges note that no party in this proceeding challenges the
application of this effective competition standard, although
SoundExchange and the Services offer vastly different understandings of
how the Judges should apply the standard in this case.
In Web IV, the Judges applied the concept of ``effective
competition'' as a
[[Page 59455]]
counterweight to the ``complementary oligopoly'' power of the Majors.
Web IV, 81 FR at 26368 (identifying the ``complementary oligopoly that
exists among the Majors,'' allowing them to ``utilize their combined
market power to prevent price competition among them . . . .''). Simply
put, the Judges found that each Major is a ``Must Have'' licensor for
noninteractive services (in the hypothetical unregulated market),
meaning that each noninteractive service ``must have'' a license for
the entire repertoires of Sony, Universal and Warner, in order to
remain in business. Also, because the interactive market was proffered
as a benchmark market in Web IV (as in the present proceeding), the
Judges performed the same inquiry for that market, concluding that
interactive licensees likewise ``must have'' access to the repertoires
of each Major in order to survive commercially. Web IV, 81 FR at 26340,
26342. From a more technical economic viewpoint, the ``Must Have''
status of the three Majors rendered each a ``complementary
oligopolist.'' \7\ As explained in Web IV, this status allows each
Major to wield the individual economic power of a monopolist, but the
exercise of that power leads to royalty rates that are even greater
than those that would be set by a single monopolist. Specifically, the
Judges held:
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\7\ ``Complementary oligopolists'' supply products or, as here,
offer licenses, for access to products, that are ``perfect
complements,'' meaning that the products or licenses they offer are
essential, i.e., ``Must Haves,'' for a buyer/licensee in order to
operate its business. Such products/licenses are known in economics
as ``Cournot Complements.'' See Web IV, 81 FR at 26342-43.
`[I]f the repertoires of all [Majors] were each required by
webcasters (i.e., if the repertoires were necessary complements) . .
. each [Major] would have an incentive to charge a monopoly price to
maximize its profits . . . constitut[ing] higher monopoly costs . .
. paid by webcasters to each of the [Majors].' . . . The Judges in
this determination adopt this economic reasoning and will not allow
such complementary oligopoly power to be incorporated into the
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statutory rate.
Web IV, 81 FR at 26368 & n.142 (quoting Web III Remand, 79 FR at
23114); see also Web IV, 81 FR at 26342-43 (summarizing corroborating
economic expert testimony as (i) stating that the complementary
oligopoly structure is ``even worse than a market controlled by a
single monopoly supplier . . . [as] first identified by Antoine Cournot
in 1838''; and (ii) explaining that Universal had argued to the
Department of Justice that its merger with EMI ``would lead to lower
prices because it would remove the Cournot Complements pricing effect''
between the merging entities.).
In Web IV, the dispute regarding the ``effective competition''
standard focused essentially on the absence of horizontal price
competition between and among the Majors--and whether such horizontal
competition could be generated by noninteractive services in the
hypothetical (i.e., unregulated) market.\8\ Based on the record in that
proceeding, the Judges determined that the Services had successfully
demonstrated how effectively competitive rates had been set, (i.e., via
steering, discussed infra) even in the face of a complementary
oligopoly.\9\
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\8\ The section 114 statutory rate supplants an unregulated
market rate, so the Judges must ascertain the rates that would have
been set in such a hypothetical market. See Web IV, 81 FR at 26316,
26333. In Web IV, though, in addition to receiving evidence
regarding the hypothetical market, the Judges were presented with
actual market evidence of effectively competitive rates from the
noninteractive market. Id. at 26343 (``[T]he Judges are not left
with mere hypotheticals . . . . Rather, the Judges were presented
with hard and persuasive evidence that . . . reduced royalty rates
in the noninteractive market and would do so in the hypothetical
market as well.'').
\9\ The more particular issue was whether noninteractive
services could foment such horizontal price competition among record
companies through the services' expressed intent to ``steer'' their
algorithmically or humanly curated plays toward those licensed by
Majors who agree to royalty rates lower than those of their
competitors. Web IV, 81 FR at 26348 (``[T]he ability of
noninteractive services to steer away from higher priced recordings
and toward lower priced recordings (or threaten to do so) serves as
a buffer against the supranormal pricing that arises from the impact
of complementary oligopoly pricing . . . .'').
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The foregoing findings regarding the ``Must Have'' status of the
Majors in the interactive benchmark market are not challenged in this
proceeding. However, SoundExchange argues that, unlike in the Web IV
period, the benchmark interactive market now generates effectively
competitive rates, because the present record demonstrates that Spotify
has gained licensee-side power sufficient to offset, in whole or in
part, the Majors' ``Must Have'' status. SoundExchange's Second
Corrected Proposed Findings of Fact and Conclusions of Law ] 89 et seq.
(and record citations therein) (SX PFFCL). The Services dispute the
assertion that the record shows Spotify to have acquired such power or
that the interactive market has otherwise become effectively
competitive. Services' Joint Proposed Findings of Fact and Conclusions
of Law ] 62 et seq. (Services PFFCL). (This issue is discussed in
detail infra, section III.B.).\10\
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\10\ However, the Services dispute the assertion that all three
Majors would be ``Must Have'' licensors in the hypothetical
noninteractive market. Services PFFCL ] 195 et seq. That issue is
discussed infra, section IV.C.2.b in the Judges' consideration of
Pandora's ``Label Suppression Experiments.''
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Thus, the present record raises a new question: Have there have
been changes in bargaining power between the Majors and Spotify in the
interactive benchmark market such that the royalty rates in their
agreements are consonant with the ``effectively competitive'' standard?
In order to address this new question, the Judges find it first
necessary to consider the concept of ``effective competition'' in a
context dictated by the present record, one that did not arise in Web
IV. To put this analysis in proper economic context, it is helpful and,
indeed, necessary, to begin by identifying the aspects of the
``effective competition'' standard that were addressed and determined
in Web IV. In summary, those points are the following:
1. The Majors possess ``complementary oligopoly power'' in the
actual (unregulated) interactive market and in the hypothetical
(unregulated) noninteractive market that ``thwart[s] price competition
and [is] inconsistent with an `effectively competitive market' . . .
.'' Web IV, 81 FR at 26335.
2. Because there are a ``mind-boggling'' number of markets with
various competitive characteristics, there exists a range of rates that
may satisfy the ``effectively competitive'' standard--between the
statutorily-created de facto zero rate for terrestrial sound recordings
and the complementary oligopoly rate generated by the Majors' power as
complementary oligopolists--each of which can be seen as a ``bookend''
for the range of potential rates. Web IV, 81 FR at 26334.\11\
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\11\ To borrow from Tolstoy, perfectly competitive and perfectly
monopolist markets all gravitate toward well-understood equilibria
in the same way, but oligopolistic markets move in different ways.
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3. The ``essence of a competitive standard is that it suggests a
continuum and differences in degree rather than in kind,'' which
dovetails with the Judges' statutory charge to ``weigh competitive
information'' in order to ``decide whether the rates proposed
adequately provide for an effective level of competition.'' Web IV, 81
FR at 26334.\12\
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\12\ Economists have acknowledged the pragmatic nature of
applying the ``effective competition'' standard. See, e.g., Alfred
E. Kahn, Antitrust Policy, 67 Harv. L. Rev., 28, 35, (1953)
(``[T]here exists no generally accepted economic yardstick
appropriate to . . . determine what degree [of monopoly power] is
compatible with [effective] competition.''); J. Markham, An
Alternative Approach to the Concept of Workable Competition 349, 361
(1950) (The concepts of ``market competition are essentially
pragmatic'').
---------------------------------------------------------------------------
4. When the hearing record provides actual evidence allowing the
Judges to
[[Page 59456]]
determine whether a rate is effectively competitive, that evidence and
the adjudicatory process vitiate the theoretical absence of an a priori
``bright line'' to distinguish effectively competitive and
noncompetitive rates. Web IV. 81 FR at 26343.
In Web IV, the evidence demonstrated only one potential method for
the amelioration of the ability of the Majors, as complementary
oligopolists, to set noncompetitive rates. Specifically, Pandora and
iHeart introduced evidence of agreements with Merlin and Warner,
respectively, that incorporated ``steering'' into those agreements.
``Steering'' in this context means the presence of contract provisions
by which a licensee will increase the number of plays of the
counterparty record company above its historic market share, in
exchange for the record company's agreement to accept a lower royalty
rate than other record companies. Web IV, 81 FR at 2366 (``The Judges
find that steering in the hypothetical noninteractive market would
serve to mitigate the effect of complementary oligopoly . . . and
therefore move the market toward effective, or workable, competition''
together with ``the ever-present `threat' that competing [licensors]
will undercut each other in order to [license] more . . . .'').
But Web IV does not consider in detail whether evidence of any
other economic factors could also serve to offset or ameliorate the
complementary oligopoly power present on the licensor/record company
supply-side of the market. And further, the Judges never intimated--let
alone determined--that steering was the sole method by which the
complementary oligopoly power on the licensor side could be
ameliorated.\13\ Indeed, the Web IV Determination clearly explains that
the steering adjustment is not a sui generis device for adapting a
benchmark rate, but rather ``is of a class with any other adjustments
necessary to harmonize the benchmark rate with the statutory
requisites.'' Web IV, 81 FR at 26368.\14\
---------------------------------------------------------------------------
\13\ In fact, Web IV makes clear that the Judges found the
injection of steering into the market (actual or hypothetical) could
be ``sufficient'' to ameliorate the anticompetitive impact of
complementary oligopoly power--not that an injection of steering was
necessary to do so. See Web IV, 81 FR at 26367-68; see also id. at
26369 (Professor Shapiro noting that steering is only ``an example
of price competition at work.'').
\14\ In Web IV, the Judges did touch upon the potential for
countervailing licensee power as a potential mitigating or
offsetting factor. SoundExchange asserted that Pandora had
significant (monopsony) market power in its own right in the
noninteractive market that generated rates below effectively
competitive rates in its benchmark agreement with Merlin. But the
Judges rejected SoundExchange's argument, finding--in reliance on an
analysis presented by Pandora's economic expert witness, Professor
Shapiro--that ``Pandora's share of the Merlin Labels' [overall]
revenues is far short of the level that would be necessary for
Pandora to have undue market power in its negotiations with
Merlin.'' Web IV, 81 FR at 26371. Implicitly, the Judges there
indicated that, had Pandora possessed sufficient market power, that
fact may have weighed in the Judges' calculus in reducing the
effective competition adjustment, thereby increasing the effectively
competitive statutory rate.
---------------------------------------------------------------------------
Web IV also must be understood as limited by the fact that the
parties implicitly agreed (given the facts of that case) to apply a
particular conception of ``competition''--``price competition.'' In
fact, although the parties and the Judges discussed extensively the
meaning of ``effective competition,'' they intentionally did not
provide a rigid definition for the concept of ``competition.'' This
absence is unsurprising because the only form of competition at issue
in Web IV was price competition--a standard neoclassical variant. Web
IV, 81 FR at 26366 (``The Judges find that steering in the hypothetical
noninteractive market would serve to mitigate the effect of
complementary oligopoly on the prices paid by the noninteractive
services and therefore move the market toward effective, or workable,
competition. Steering is synonymous with price competition in this
market . . . .'') (emphasis added). But the Judges did not have cause
to examine in any detail whether, beyond price competition, it was
appropriate to consider other dimensions of competition, of which there
are several. See generally Donald J. Harris, On the Classical Theory of
Competition, 12 Cambridge J. of Econ., 139, 141, 146 (1988)
(contrasting the ``relative tranquility [of] the neoclassical
conception of competition . . . formalized in a vast array of modern
textbooks'' with ``a structure of oligopolistic firms in which price
competition is simply one component . . . of a broader process of
strategic rivalry among leading firms [and] other possible behavioural
rules on price formation.'') (emphasis added).
So, although the importance of effective price competition cannot
be disputed, the Judges must consider whether, if such competition is
lacking, other forms of market behavior either substitute for price
competition or otherwise generate prices consonant with those that
would be established through price competition in an effectively
competitive market. In fact, as discussed below, the Judges have
engaged in such analyses in prior cases.
The first case in which the Judges considered other economic
dimensions beyond price competition was the SDARS III proceeding. In
that case, the Judges again addressed the complementary oligopoly power
of the Majors, albeit in connection with a different and now superseded
statutory rate-setting standard. SDARS III, 83 FR at 65320 n.82.\15\
There, the Judges noted that the licensor-side complementary oligopoly
power could be ameliorated by the ``countervailing power'' of a
licensee (Sirius XM in that case) that possessed a large share of the
downstream market at issue (a monopoly share of the satellite radio
market in that case). SDARS III, 83 FR at 65238.\16\
---------------------------------------------------------------------------
\15\ The superseded statutory standard was set forth in 17
U.S.C. 801(b)(1). Despite the different standard, the Judges applied
the same hypothetical market approach in SDARS III, before
considering whether that hypothetical market rate should be adjusted
to account for factors set forth in the now superseded statute.
SDARS III, 83 FR. at 65237, 65253.
\16\ That countervailing power, the Judges noted, existed if the
market in which the licensee operated is not subject to meaningful
potential substitution from listening via another form of music
delivery. Id.
---------------------------------------------------------------------------
And, in the next rate-setting case, Phonorecords III, the Judges
(in the majority and in the dissent) found that the licensors--owners
of the copyrights for musical works--possessed complementary oligopoly
power. The majority Determination found that this noncompetitive effect
could be ameliorated--not only by steering or another form of price
competition--but by the application of economic game theoretic modeling
(specifically, the Shapley Value approach) that economic experts
testified would have such an effect. Phonorecords III, 84 FR at 1947,
1950 (``The Judges look to the Shapley Analyses . . . as one means of
deriving a reasonable royalty rate (or range of reasonable royalty
rates) . . . . The Judges . . . find that the Shapley Analysis . . .
eliminates the `holdout' problem that would otherwise cause a rate to
be unreasonable, in that it would fail to reflect effective (or
workable) competition.'').\17\
---------------------------------------------------------------------------
\17\ Although the D.C. Circuit vacated and remanded the
Phonorecord III Determination, the general point stands: The Judges
consider factors and methods other than price competition (via
steering or otherwise) to determine whether a rate is ``effectively
competitive'' and, more specifically, whether such other factors or
methods counterbalance the rate inflation caused by the
complementary oligopoly effect.
---------------------------------------------------------------------------
The Phonorecords III Dissent, although certainly not discounting
the value of the Shapley Value approach, asserted instead that the
complementary oligopoly power could be better ameliorated by adopting
the benchmark proposed by the interactive streaming service-licensees,
which was essentially
[[Page 59457]]
the Phonorecords II rate structure, i.e., a benchmark based on the
rates in effect in the prior rate period that had been adopted in a
settlement between industrywide trade associations, the NMPA and DiMA,
representing licensors and licensees, respectively. Phonorecords III,
84 FR at 1993 (dissent) (``settlement agreements tend to eliminate
complementary oligopoly inefficiencies, and provide guidance as to an
effectively competitive rate.''). Thus, once again, a Copyright Royalty
Judge applied a factor--countervailing power--other than the presence
of price competition, to determine an effectively competitive rate.
In this regard, it is important to note that the concepts of
``effective competition'' and ``countervailing power'' are not mutually
exclusive, but are better understood as complementary. Professor John
Kenneth Galbraith, who developed the concept of ``countervailing
power,'' defined it as follows:
[W]ith the widespread disappearance of competition in its
classic form . . . it was easy to suppose that since competition had
disappeared, all effective restraint on private power had
disappeared . . . . [However,] [i]n fact, new restraints on private
power did appear to replace competition . . . . [T]hey appeared not
on the same side of the market but on the opposite side, not with
competitors but with customers or suppliers . . . countervailing
power.
John Kenneth Galbraith, American Capitalism: The Concept of
Countervailing Power 111 (1952).
In Web IV, the Judges recognized the economist J.M. Clark as the
individual who introduced into microeconomics analysis the concept of
effective competition, which he originally described as ``workable
competition.'' Web IV, 81 FR at 26341 n.96 (citing J. M. Clark, Toward
a Concept of Workable Competition, 30 Am. Econ. Rev. 241 (1940)). Two
decades hence, Professor Clark wrote a book that served, in his words,
as an ``elaboration of [the] line of inquiry'' dating from his seminal
1940 article. John Maurice Clark, Competition as a Dynamic Process at
ix (1961). In that volume, Professor Clark took note of the
compatibility between the concept of ``countervailing power'' and his
own concept of workable/effective competition. Clark, supra at 5
(noting approvingly Professor Galbraith's view that, if competition is
found wanting, ``countervailing power'' serves as a ``rough
substitute'' that can ``deprive monopoly of its arbitrary power . . .
.'').\18\
---------------------------------------------------------------------------
\18\ In his 1961 treatise, Professor Clark expressly ``shift[s]
. . . from `workable' to `effective competition''', because ``[t]he
theory of effective competition is dynamic theory,'' going beyond
``the analysis of static equilibrium'' to ``bring[] in the . . .
interplay between aggressive and defensive forms of competition . .
. .'' Id. at ix. (emphasis added).
---------------------------------------------------------------------------
Likewise, in American Capitalism, Professor Galbraith expressly
acknowledges the interplay between Professor Clark's conception of
effective/workable competition and the principle of ``countervailing
power'':
There remains the possibility that within the structure of the
market shared by a few firms there are practical restraints on
economic power--that there is an attenuated but still workable
competition which minimizes the scope for exercise of private market
power . . . . This line of argument has emphasized results . . . .
The notion of workable competition takes cognizance of the . . .
point that over-all consequences, while in theory are deplorable,
are often in real life quite agreeable . . . . [W]hat is unworkable
in principle becomes workable in practice . . . because the active
restraint [on the exercise of market power] is provided not by
competitors but from the other side of the market by strong buyers.
Galbraith, supra at 57-58, 112 (emphasis added); see also id.158 n.912
(noting the ``originality of Professor J.M. Clark'' and crediting his
1940 article for the development of the concept of workable
competition).\19\
---------------------------------------------------------------------------
\19\ Despite Professor Galbraith's well-known progressive
leanings, his concept of ``countervailing power'' as a means for
more competitively dividing profits between input oligopolists and
oligopsonists has been well-received by ardent free market
economists as well, including a Nobel Prize winner. See, e.g.,
George J. Stigler, The Economist Plays with Blocs, 44 Am. Econ.
Rev., no.2, 7, 9, 13-14 (1954) (papers and proceedings) (agreeing
that Galbraith's concept of ``countervailing power'' describes a
context in which ``a monopsonist or a set of oligopsonists arises
and shares the gains of a previously unhampered monopolist or set of
oligopolists,'' because ``[i]t is true that as countervailers they
might share monopoly profits . . . .''). However, Professor Stigler
disagreed vehemently with the notion that the bilateral oligopolies
formed through the exercise of countervailing power ``reduce prices
to consumers'' or ``should in general eliminate, and not merely
redistribute, monopoly gains.'' Id. at 9, 13. But such downstream
effects are irrelevant to the Judges' statutory task of setting an
effectively competitive royalty rate in the upstream market.
Moreover, Professor Stigler cautioned that the presence of
``countervailing power'' in a market will not necessarily ``place
groups on a basis of equality with respect to one another . . . .''
Id. at 14 (emphasis added). Accordingly, even if Spotify has
acquired some additional bargaining power, that does not mean that
its bargaining power is equal to the complementary oligopoly of the
Majors. That is, any new bargaining power enjoyed by Spotify could
mitigate the Majors' complementary oligopoly power but not
necessarily offset it in full.
---------------------------------------------------------------------------
In sum, the inclusion of the concepts of price competition and
countervailing power into microeconomic analysis--as already applied by
the Judges in several determinations--makes it clear that the Judges
must consider record evidence regarding both of these economic concepts
in order to fulfill their statutory mandate to establish rates that
would be set between willing sellers and willing buyers in the
marketplace. The Judges discuss and apply both of these economic
concepts below.
B. Evaluation of Arguments Concerning Effective Competition
1. SoundExchange's Claim That Spotify has Downstream Pricing Power That
Mitigates or Offsets the Majors' Complementary Oligopoly Power
SoundExchange asserts several bases for its claim that the
complementary oligopoly power of the Majors has been mitigated in part,
or offset in full, by the increase in Spotify's market power, which has
manifested in the latter's ability to [REDACTED]. More particularly, in
the agreements between Spotify and the Majors that immediately preceded
their 2017 agreements,\20\ the contract rate for [REDACTED]. In all
three subsequent 2017 agreements between Spotify and the Majors,
[REDACTED]. Trial Ex. 5609 ] 24 (WDT of Aaron Harrison) (Harrison WDT);
Trial Ex. 5611 ] 10 (WDT of Reni Adadevoh) (Adadevoh WDT); Trial Ex.
5613 ] 31 (WDT of Mark Piibe) (Piibe WDT) ([REDACTED]).
---------------------------------------------------------------------------
\20\ The 2017 agreements were the most recent agreements
available for inclusion in the record in this Web V proceeding.
---------------------------------------------------------------------------
SoundExchange identifies the following three interrelated sources
for Spotify's alleged increase in pricing power in 2017 that generated
this [REDACTED]:
1. Spotify now generates [REDACTED]. SX PFFCL ] 306 et seq.
2. Spotify can now [REDACTED]. SX PFFCL ] 311 et seq.
3. Spotify now has the ability to steer a significant number of
plays on Spotify-curated playlists. SX PFFCL ] 346 et seq.
The Judges examine each of these assertions seriatim below.
a. Has Spotify's Increased Share of each Major's Revenue provided
Spotify with Leverage to Obtain [REDACTED]?
SoundExchange asserts that--between 2014 and 2017--there has been
explosive growth in the subscription on-demand format. More
specifically, SoundExchange notes that, whereas in 2013, U.S. retail
revenue from on-demand services was approximately $0.9 billion, by
2016, this revenue total had increased to approximately $2.8 billion
and, by 2017, to approximately
[[Page 59458]]
$4.2 billion. This growth has continued, with 2018 retail revenue from
on-demand services greater than $5.4 billion, and, by 2019, reaching
$6.8 billion. See Trial Ex. 5604 app. 2 (WDT of Catherine Tucker)
(Tucker WDT); Trial Ex. 4115 at 3.\21\
---------------------------------------------------------------------------
\21\ The Services do not dispute the fact of significant growth
in the subscription on-demand market over this period, but they
assert that Professor Tucker's data appear to include ad-supported
on-demand revenue as well as subscription on-demand revenue. Compare
SX PFFCL ] 306, with Tucker WDT app. 2. This specific potential
discrepancy does not alter the substance of the parties' dispute nor
the Judges' analysis of this issue.
---------------------------------------------------------------------------
Accordingly, SoundExchange maintains that the Majors have now
become increasingly reliant on income generated by all the interactive
services. Because of this changed circumstance, SoundExchange avers
that the balance of pricing power as between the Majors and Spotify has
changed, with the latter now in a position to bargain more aggressively
for favorable rates and terms. See Trial Ex. 5602 ]] 119-131 (WDT of
Jon Orszag) (Orszag WDT).
The Services assert that this is merely a re-tread of the
SoundExchange argument the Judges rejected in SDARS III. Although the
Services dispute neither the growth in music industry revenue nor the
growth of interactive streaming industry revenue from 2014 through
2017,\22\ they assert that the revenue data does not support Sound
Exchange's argument that a single service's growth--here, Spotify's
revenue growth--supports the assertion that the Majors' complementary
oligopoly power has been compromised. More specifically, the Services
maintain that the important metric is the percentage of the music
industry's total revenue generated by Spotify. In this regard, the
Services take note that Spotify accounted for [REDACTED] [REDACTED] of
the Majors' total U.S. revenue in 2017, and only [REDACTED] in 2018.
Trial Ex. 1105 ] 64 (AWRT of Steven Peterson) (Peterson WRT); Trial Ex.
4107 at 10 & n.17 (WRT of Carl Shapiro) (Shapiro WRT). Additionally,
the Services' economic expert witnesses reject the idea that the
Majors' complementary oligopoly power vis-[agrave]-vis Spotify has been
compromised because of the latter's contribution to the Majors' revenue
stream. These witnesses further aver that, because Spotify and its on-
demand service competitors offer essentially the same service at the
same downstream subscription price, if one Major's repertoire was
unavailable on Spotify, subscribers would turn to its competitors, thus
abandoning Spotify in the process. 8/25/20 Tr. 3713-14 (Peterson); 8/
19/20 Tr. 2859 (Shapiro).
---------------------------------------------------------------------------
\22\ ``The Services agree that streaming accounts for a larger
percentage of the overall revenue for recorded music, however the
industry's total revenue has increased substantially since 2013.''
Services RPFFCL ] 308.
---------------------------------------------------------------------------
The Judges agree with the Services reasoning and conclusion,
finding that the increase in revenues from the entire interactive
services sector cannot support SoundExchange's argument that Spotify's
pricing power vis-[agrave]-vis the Majors has strengthened.\23\ The
Judges find that Spotify's relative pricing power must be evaluated in
the context of Spotify's particular economic position. The Judges find
nothing in the record to demonstrate that Spotify provides an on-demand
service that is so unique to listeners as to imbue it with greater
bargaining leverage.\24\ More particularly, even acknowledging that,
ceteris paribus, a Major would prefer to avoid the loss of Spotify's
[REDACTED] to overall music revenues, the substitutability of the on-
demand subscription services indicates to the Judges that the potential
loss of Spotify's royalty payments to a Major would be quickly offset
in the form of increased royalties from Spotify's competitors, as
subscribers substituted alternative on-demand subscription services
that offered the music licensed by all the record companies. Thus,
there is no basis for the Judges to conclude that a Major would be
willing to capitulate to Spotify by [REDACTED].
---------------------------------------------------------------------------
\23\ The Services are correct in noting that the Judges rejected
the same argument when asserted by SoundExchange in a prior
proceeding. See SDARS III, 83 FR at 65238, 65245. However, each
proceeding considers the facts as presented in the record of that
pending proceeding, so the Judges are not constrained here by the
factual record as presented in SDARS III.
\24\ In the language of economics, Spotify and the other on-
demand services--such as Apple Music, Google, Amazon, and others
with a smaller market footprint--may provide somewhat differentiated
on-demand experiences inter se, but nothing in the record suggests
that whatever differences exist make them anything other than mere
``monopolistic competitors,'' rather than buyers/licensees with
enhanced pricing power. See generally Robert S. Pindyck & Daniel L.
Rubinfeld, Microeconomics 451 (8th ed. 2012) (In a
``monopolistically competitive market . . . [f]irms compete by
selling differentiated products that are highly substitutable for
one another. . . . [T]he cross-price elasticities of demand are
large but not infinite . . . [t]here is free entry and exit . . .
[and] [i]n long-run equilibrium . . . the firm earns zero profit
even though it has monopoly power [over its own brand].''). Further,
the essential products offered by interactive services, as
SoundExchange's industry witnesses all tout, are their sound
recording repertoires, which makes a listener's selection of any
particular streaming service of secondary concern compared to the
ability to access all the music. See Harrison WDT ] 5 (identifying,
as examples, 23 Universal artists who are ``some of the best known
and most popular recording artists in the world''); Piibe WDT ]] 6-7
(listing, as examples, Sony's own 23 artists who are ``superstars''
and ``legendary recording artists''); Adadevoh WDT ] 3 (listing, as
examples, 10 Warner artists who are among ``today's most popular
artists, within a roster of ``some of the most celebrated artists in
recorded music history''). These artists and their recordings are
not available only on Spotify.
The chronic lack of profits and essentially identical downstream
subscription prices persuade the Judges that the Services are
correct that the on-demand streaming services lack of market power
downstream and an absence of pricing power upstream. Further, the
meteoric growth of Apple Music in the streaming market and the
recent strong growth of Amazon and Google in the on-demand sector,
show that the on-demand streaming market has characteristics of a
competitive market. See Orszag WDT tbl.4.
---------------------------------------------------------------------------
To make this argument from a different perspective, SoundExchange
also looks at Spotify's U.S. revenue through the narrower prism of
total U.S. subscription interactive revenues--noting that Spotify was
responsible in 2016 and 2017 for a more considerable portion--almost
[REDACTED]% of such domestic royalties. Orszag WDT ] 124, tbl.11.
However, the Services aver that this [REDACTED]% figure needs to be
placed in an appropriate temporal context. Specifically, they note that
Spotify's share of U.S. gross subscription interactive revenues has
actually fallen from 2015, when it was [REDACTED]% of the total, to
2018, when it accounted for [REDACTED]% of the total. See Orszag WDT ]
124, tbl.10.
Because the specific issue under consideration is the alleged
change in Spotify's pricing power since the execution of the parties'
2013 agreements, the Judges find that the dynamic changes in
subscription revenue shares during the relevant period is a more
meaningful metric than the static [REDACTED]%-[REDACTED]% market share
measure. Because Spotify's share of domestic revenues has diminished
[REDACTED] since 2015--according to Mr. Orszag's own written
testimony--there is no basis to support SoundExchange's claim that the
Majors had become more dependent upon Spotify's revenue stream over
this period. Moreover, because the decrease in Spotify's share of
domestic on-demand subscription revenue coincided with the rapid growth
of Apple Music's entry into the market, these data further confirm the
substitutability of interactive services among the listening public,
further diminishing the Majors' dependence on any single interactive
service.
Placing Spotify's royalty revenues in the context of two Majors'
internal contract renewal discussions, SoundExchange relies on the
testimony of two witnesses, for Sony and Warner
[[Page 59459]]
respectively.\25\ First, according to the Sony witness, the [REDACTED]
9/2/20 Tr. 5228 (Piibe); Trial Ex. 5467 at 1. Moreover, Sony believed
that Spotify was [REDACTED]. 9/2/20 Tr. 5368 (Piibe).
---------------------------------------------------------------------------
\25\ The Judges discuss the separate negotiations between
Spotify and the three Majors in detail infra.
---------------------------------------------------------------------------
Second, Warner also emphasized the impact of [REDACTED]. In its
internal documents discussing negotiations with Spotify, Warner
executives expressed the importance of [REDACTED], with one executive
stating: ``[REDACTED]'' Trial Ex. 4025 at 1. However, the Services
point out that, in the very same document, Warner executives were also
emphasizing that [REDACTED] and that Warner [REDACTED] Trial Ex. 4025
at 1.\26\
---------------------------------------------------------------------------
\26\ As the Judges discuss in greater detail infra, the interest
Warner (or either of the other Majors) had in [REDACTED] is the only
economically credible rationale for [REDACTED].
---------------------------------------------------------------------------
Moreover, although the internal [REDACTED] deliberations summarized
in Trial Ex. 4025 reference the [REDACTED], the recitation of that
latter point is not economically relevant, let alone dispositive.
Internal business documents that reflect information such as historical
revenue or other accounting data but ignore crucial economic
information regarding, for example, the fluidity of market shares, the
elasticity of market demand, and the absence of barriers to entry, are
not only lacking in economic relevancy, they obscure the identification
of relevant economic evidence. See Geoffrey A. Manne & E. Marcellus
Williamson, Hot Docs vs. Cold Economics: The Use and Misuse of Business
Documents in Antitrust Enforcement and Adjudication, 47 Ariz. L. Rev.
654 (2005) (noting in the analogous area of antitrust law, ``[r]eliance
on accounting data, market characterizations, and statements of intent
by economic actors threatens to undermine the economic foundations of
antitrust jurisprudence, and thus the purpose of the antitrust
laws.''). This caution extends from comments made by negotiators in the
trenches up to discussions in corporate boardrooms. See William Inglis
& Sons Baking Co. v. ITT Cont'l Baking Co., 668 F.2d 1014, 1028 (9th
Cir. 1982) (discounting the probative value of ``boardroom
ruminations'' in antitrust cases). In fact, Mr. Orszag is in agreement
with regard to the primacy of economic testimonial analysis over such
other evidence. 8/11/20 Tr. 1338 (Orszag) (``It's well understood in
competition economics . . . that . . . economic analysis should play a
dominant role'' relative to the role of statements of the commercial
actors and internal company documents.) (emphasis added).\27\
---------------------------------------------------------------------------
\27\ In Web IV, the Judges found that the existence of
negotiations between Must Have record companies and interactive
services did not prove that the latter had pricing power, because
expert economic testimony explained that even monopolists will
negotiate in order to estimate their counterparties' willingness-to-
pay. Thus, the Judges held: ``[T]he mere existence of . . .
negotiations is uninformative as to whether the rates negotiated
between the interactive services and the Majors are competitive.''
Web IV, 81 FR at 26343. Thus, evidence of negotiations must be
examined contextually--on a case-by-case basis--to ascertain whether
that evidence in fact reflects an effectively competitive
environment.
---------------------------------------------------------------------------
In sum, the Judges find that Spotify's share of the Majors'
downstream revenue does not explain why [REDACTED].
b. Can Spotify [REDACTED]?
SoundExchange asserts that the Majors could not reasonably
[REDACTED], because [REDACTED]. SX PFFCL p. 105 et seq. First, Sony's
testifying witness, Mr. Piibe, explained that the [REDACTED]. 9/2/20
Tr. 5229-30 (Piibe). Further, according to a Warner analysis,
[REDACTED]. Trial Ex. 5077. See also Harrison WDT ] 35 (``It would take
time to [REDACTED] . . . .''). From this testimony and evidence,
SoundExchange concludes that ``[REDACTED] . . . .'' SX PFFCL ] 317 (and
record citation therein).
The Services emphasize in response that this argument again ignores
the fundamental bargaining point: That because [REDACTED]. Services'
Corrected Reply to SoundExchange's Proposed Findings of Fact and
Conclusions of Law ] 311 (and record citations therein) (Services
RPFFCL). To that end, the Services point to the testimony of a
[REDACTED] witness, who said that [REDACTED]. 9/9/20 Tr. 5932
([REDACTED]). See also 9/2/20 Tr. 5424-25 ([REDACTED]) (noting that if
[REDACTED]).
With regard to the distinction between short-run and long-run
effects, Professor Shapiro contextualizes the issue in an economic
manner. Shapiro WRT at 7 n.16 (``the economics of bargaining teaches
that bargaining power depends on the long-run impact on both parties of
failing to reach an agreement, with future impacts suitably discounted
as are all cash flows.''). That is, he considers the problem as a
weighing of present discounted values to Spotify, on the one hand, and
to a Major, on the other, over a one-year period,\28\ of a license
negotiation impasse that leaves Spotify without the Must Have Major
and, reciprocally, leaves the Major without the Spotify platform. The
Judges find his analysis highly persuasive, and thus quote it at some
length below:
---------------------------------------------------------------------------
\28\ It was agreed that [REDACTED]. Peterson WRT ] 66; 9/3/20
Tr. 5928-30 ([REDACTED]); see also 8/11/20 Tr. 1293-94 (Orszag)
(``obviously there's a longer-term effect that would occur that
would be adverse to Spotify''); Leonard WRT ] 77 (``[A] label would
have a greater ability to wait out the impasse, given that it would
continue to receive royalties from other sources, whereas the
service's entire subscription revenues would potentially be at risk
. . . .'').
[C]onsider as an example the negotiations between Spotify and
Sony. Sony is ``must-have'' for Spotify (as Mr. Orszag concedes), so
if Spotify fails to sign a license with Sony, Spotify's interactive
service will decline, fail to be commercially viable, and be forced
to close down. Unquestionably, that makes an impasse very costly for
Spotify, so Sony has a great deal of bargaining power in its
negotiations with Spotify.
Mr. Orszag['s] claim[ ] that Spotify has comparable pricing
power comparable to that of a ``must-have'' service for Sony . . .
does not withstand scrutiny. If Sony does not sign a license with
Spotify, so Spotify is forced to stop offering Sony tracks, Sony
will immediately suffer a loss of royalty income from Spotify . . .
. According to Table 13 in the Orszag WDT, Sony received [REDACTED]%
of its total revenue from Spotify in 2017.
Mr. Orszag provides no explanation of why Sony losing up to
[REDACTED]% of its revenue from recorded music is comparable, in
terms of impact and thus bargaining power, to Spotify having to shut
down its service altogether. Moreover, the [REDACTED]% figure for
Spotify's share of Sony's revenue in 2017 is far too high as a
measure of the revenue that Sony would have lost, had Sony music no
longer been available on Spotify. Crucially, the [REDACTED]% figure
represents the immediate impact on Sony, before any Spotify
subscribers respond to the absence of Sony music.
Quite soon, Sony's loss of income would be much smaller. As
emphasized repeatedly by SoundExchange--indeed as a foundational
pillar of its entire case here--a ``must-have'' record company bears
a substantial opportunity cost of licensing to a music service
because without its music listeners to that service will shift their
listening time to other forms of music listening. By definition,
that implies that when Sony does not license to Spotify, Sony will
gain substantial revenue from other licensees and other forms of
listening. As a matter of arithmetic, that means that Sony would
lose less than [REDACTED]% of its revenue.
As an illustrative example, suppose that Spotify would shut down
after one year, due to its lack of Sony's ``must-have'' repertoire,
and suppose that all of the former Spotify subscribers would replace
their Spotify subscriptions with subscriptions to other interactive
services that pay royalties comparable to those paid by Spotify. In
that case, Sony would be made entirely whole after the first year.
In that situation, Spotify would have very little pricing power in
its negotiations with Sony, far less than Sony's power as a ``must-
have'' record company.
[[Page 59460]]
Mr. Orszag and the label witnesses on which he relies emphasize
the short-term cost to a record company of not licensing to Spotify.
However, economic theory tells us that the correct measure of the
cost to Sony of not licensing to Spotify in a bargaining context is
the present discounted value of the revenue that Sony would lose in
total. The present discounted value includes short-term and long-
term effects, weighting them appropriately given the time value of
money.
This is a critical point in understanding relative bargaining
power in the upstream interactive services market. The underlying
idea is relatively simple and hopefully intuitive: When two parties
are bargaining, their bargaining power does not just depend upon how
costly an impasse would be for each of them over the first day or
week, but rather upon how costly an impasse would be over time. Mr.
Orszag's analysis is unreliable because he focuses excessively on
the short-term cost to a major record company of not licensing to
Spotify and fails to account for the long-term effects.
Shapiro WRT at 7-8 (emphasis added; footnotes omitted).
Applying an 8% annual discount factor--that Professor Shapiro found
to be a reasonable cost of capital to use for generating present
value--as well as other assumptions not challenged as unreasonable by
SoundExchange--Professor Shapiro found that not licensing to Spotify
would: (i) Cause Sony to lose only [REDACTED]% of the present
discounted value of its royalty income; and (ii) by [REDACTED]
contrast, cause Spotify to lose approximately 95% of the present
discounted value of its revenue and profits. Shapiro WRT at 9.
Accordingly, Professor Shapiro concludes that ``[c]learly, in this
situation Sony would be in the driver's seat in negotiating with
Spotify.'' Shapiro WRT at 9.
The only rejoinder by SoundExchange, through Mr. Orszag, is that
the record reflects a [REDACTED] than the weighting reflected in a
present value approach that did not incorporate this [REDACTED].
However, the record is barren of any analysis [REDACTED] The Judges
find this alternative not credible. Moreover, even if the Majors did
[REDACTED], they would surely recognize (and, indeed, do not dispute)
that [REDACTED].
Indeed, the Services emphasize that the testimony of Majors'
witnesses regarding the impact of [REDACTED] was speculative and lacked
support--particularly as it related to [REDACTED]. See 9/2/20 Tr. 5388
(Piibe) ([REDACTED]); 9/3/20 Tr. 5731-32 (Harrison) (admitting that
[REDACTED]).
Given the dearth of analysis in the record of the relative harms to
Spotify and the Majors from a prolonged blackout, and the fact that
such a consequence would spell Spotify's commercial demise, the Judges
find that SoundExchange's assertion that [REDACTED], beggars belief.
The Services also seek to diminish the evidentiary value of Trial
Ex. 5077, on which [REDACTED] relies. That document, the Services note,
is a [REDACTED]. Moreover, the Services point out that this document
[REDACTED]. Services RPFFCL ] 315 (and record citations therein).\29\
---------------------------------------------------------------------------
\29\ The Services also note that the reference to a [REDACTED]
reflects a situation that arose in Mexico and that there is no
evidence or testimony to support [REDACTED] implication that this
foreign event is representative of what would occur in the United
States. See Trial Ex. 5077; Services RPFFCL ] 317.
---------------------------------------------------------------------------
In sum, the Judges find that SoundExchange's claim that the effect
on a Major of its loss of the Spotify platform (i.e., going dark on
Spotify) has altered the power dynamic between Spotify and the Must
Have Majors to be incomplete at best, and almost certainly incorrect.
In order to demonstrate that the power complementary oligopolists bring
to the market and thus to the bargaining table had been neutralized to
any degree, [REDACTED] needed to do more than [REDACTED]. Because the
context of this analysis is to ascertain relative negotiating power,
SoundExchange needed to demonstrate that the economic impact to the
Majors of going dark on Spotify would at least approximate the impact
of such an event on Spotify. This SoundExchange decidedly did not do.
Rather, the evidence is clear--and the economic logic of maximizing the
present value of profits and minimizing the present value of losses is
compelling--that a Major going dark on Spotify would work expeditiously
to contain losses and entice Spotify subscribers to maximize their own
self-interest by moving to an interactive service that continued to
play that Major's music.
SoundExchange alternatively seeks to show that the Majors'
bargaining power has been compromised vis-[agrave]-vis Spotify because
Spotify [REDACTED]. SX PFFCL ]] 318-327 (and record citations therein).
In response, the Services note the absence of testimony from artists
themselves regarding whether they might depart from a Major who failed
to secure a license deal with Spotify. In fact, the Services point out
that testimony upon which SoundExchange does rely--[REDACTED]--
indicates [REDACTED] [REDACTED].'' 9/2/20 Tr. 5426-27 (Jennifer
Fowler). And, in terms of the legal and practicable ability of
[REDACTED]. 9/9/20 Tr. 5952-54 (Sherwood); 9/3/20 Tr. 5738 (Harrison).
The Judges find compelling the absence of the testimony from any
artists as to how they would react if the Major with which they had
contracted lost the Spotify platform because of an impasse in licensing
negotiations. In the absence of such testimony, the Judges put
particular weight on the testimony, cited above, from [REDACTED]
indicating that [REDACTED].
SoundExchange also suggests that a Major would suffer several
miscellaneous injuries if it reached an impasse with Spotify that
resulted in that Major going dark on the Spotify platform. First, the
Major would [REDACTED]. See generally Trial Ex. 5017; SX PFFCL ] 328
(and record citations therein). However, the Judges agree with the
Services that a Major's ongoing ability to obtain data from other
interactive services would reduce the impact of such a data loss,
especially as erstwhile Spotify subscribers--unhappy with the loss of a
Major's repertoire--migrated to other on-demand services. Moreover,
even the prospect of a short-term data loss is quite low, given the
futility of a Spotify strategy of actually forcing a Must Have to go
dark.
Another damage which SoundExchange posits derives from the
testimony of a Universal executive who was concerned that a [REDACTED]
could [REDACTED] Harrison WDT ] 35; 9/3/20 Tr. 5724 (Harrison). The
Judges find this testimony to constitute mere speculation, and
meritless speculation at that. The Judges find it bordering on the
absurd to contemplate that a licensing impasse between a single service
and a single Major [REDACTED]. Other interactive services that are
already competing vigorously in the market stand at the ready to
acquire Spotify's subscribers and, given the low barriers to entry for
streaming services, the concept of contestable competition means that a
new competitor could also enter and compete for a share of the market.
See Shapiro WRT at 9.\30\
---------------------------------------------------------------------------
\30\ Further, Spotify's competitors (as well as aggrieved
artists and social and mass media) would likely spread the word
publicly regarding the music missing from Spotify in the event of a
blackout of a Major, hastening the transition of Spotify customers
to other interactive services. Ironically, as discussed infra, this
is the very sort of accelerating demise that, according to
SoundExchange (in convincingly criticizing Pandora's Label
Suppression Experiments), would befall a noninteractive service that
attempted to black-out a Major. If noninteractive ad-supported
listeners--who pay nothing out-of-pocket to listen to music curated
by the service--would switch away from the service if they became
aware of the blackout of a Major, then, a fortioiri, Spotify's
interactive subscribers--who do pay out-of-pocket to listen to music
they demand--would certainly switch away from Spotify if it likewise
blacked-out a Major's entire repertoire.
---------------------------------------------------------------------------
[[Page 59461]]
Continuing with its speculation regarding miscellaneous harm,
SoundExchange argues that, upon a licensing impasse with a Major,
Spotify's subscribers would not abandon it because (i) subscribers pay
monthly or yearly for their subscriptions, (ii) Spotify delivers well-
customized recommendations, (iii) subscribers have invested time in
building their music collection, (iv) subscribers who purchased Spotify
as a part of a bundle may be less likely to cancel their subscription,
and (v) subscribers might anticipate a quick resolution to the
licensing dispute. SX PFFCL ]] 339-343 (and record citations therein).
The Judges agree though with the Services that these assertions are
little more than rank speculations. As the Services point out, because
on-demand plays account for [REDACTED]% of Spotify listening hours, the
idea that subscribers would tolerate the loss of any Majors' repertoire
because of behavioral impediments is not only unexplored, it assumes a
remarkable irrationality among subscribers with regard to their own
tastes and preferences. Further, SoundExchange's assertion of this
speculative status quo outcome is 180 degrees from its immediately
preceding speculative assertion that the entire subscription concept
and market would collapse if a single Major went dark on Spotify. While
there may be a rational argument why either outcome could occur,
neither extreme is reasonable or based on record evidence. Moreover, it
is not rational to posit that such a licensing disagreement would cause
the industry both to remain in stasis and to disappear. Indeed, by
making both arguments simultaneously without evidentiary support,
SoundExchange seems willing to engage in the evidentiary equivalent of
throwing spaghetti against the wall to see if any of it sticks.\31\
---------------------------------------------------------------------------
\31\ SoundExchange also posits that whatever injury would befall
the domestic industry would also injure the global music market. SX
PFFCL]] 337-338. However, this assertion is likewise devoid of
evidentiary support, as there is no adequate record support that
foreign agreements are affected by the existence, vel non, of
licensing agreements in U.S. interactive markets. See Services
RPFFCL ] 338. As a general rule, the Judges have eschewed reliance
on developments in foreign markets when the proofs are insufficient
to demonstrate a posited connection between foreign and U.S. market
that is relevant to these proceedings. SDARS II, 78 FR at 23058 (and
precedent cited therein).
---------------------------------------------------------------------------
In sum, the Judges find insufficient evidence to support
SoundExchange's argument that a Major going dark on Spotify would lead
to a ``parade of horribles'' befalling that Major so substantial as to
imbue in Spotify a market power sufficient to [REDACTED].
c. Does Spotify's technological ability to steer plays on spotify-
curated playlists provide it with pricing power sufficient to mitigate
or offset the Majors' complementary oligopoly power?
The bulk of Spotify's argument in support of its claim that Spotify
has a pricing power commensurate with the overall bargaining power of
the Majors is based on Spotify's technological ability to steer plays
of sound recordings toward or against a record company. This emphasis
on steering is unsurprising, because in Web IV the Judges relied on
evidence of the noninteractive services' ability to steer, and their
credible threats to do so, as ameliorating the anticompetitive effect
of the Majors' complementary oligopoly.
More particularly, SoundExchange asserts that Spotify developed a
substantial ability to influence listening on its platform subsequent
to the execution of its 2013 Agreements with the Majors. See, e.g.,
Orszag WDT ]] 138-151; 9/2/20 Tr. 5414 (Fowler); 9/2/20 Tr. 5197-98
(Piibe). Spotify's purported power to influence market share, according
to SoundExchange, flowed mainly from its alleged ability to influence
market share through economically strategic placement of sound
recordings within Spotify-controlled playlists. Orszag WDT ]] 141-
146.\32\ By way of background, in July 2015, Spotify launched playlists
personalized for its subscribers, including Discovery Weekly, to assist
subscribers in identifying new music tailored to their listening
preferences. Orszag WDT ] 62. Contemporaneously, Spotify began to
prioritize those playlists and additional Spotify-curated playlists,
for various genres, by giving them prominent and superior locations in
its search and display features. Trial Ex. 5619 ]] 15, 17 (CWDT of
Jennifer Fowler). See also SX PFFCL ]] 359-360 (and record citations
therein). From 2015 to 2017, these Spotify-curated playlists increased
as a share of listening on Spotify from less than 20% to approximately
31% of Spotify platform listening. Orszag WDT ] 142.
---------------------------------------------------------------------------
\32\ SoundExchange further notes that [REDACTED] has [REDACTED].
SX PFFCL ]] 370-71 (and record citations therein); Orszag WDT ] 148.
Less significantly, SoundExchange avers that Spotify can also
leverage its [REDACTED]. Orszag WDT ] 147.
---------------------------------------------------------------------------
According to SoundExchange, the economic value of these Spotify-
curated playlists extends beyond a subscriber's initial accessing of
songs on the playlist. Listeners also can add songs from those
playlists onto their own playlists and into their own music
collections, and, having positively experienced music curated by
Spotify, they are more likely to search for music from the same
artists, and thus from the same record company. SX PFFCL ]] 363-364,
366 (and record citations therein).
Consequently, SoundExchange avers that record companies consider
playlists to be [REDACTED], and thus they devote considerable effort
and resources to the development and implementation of playlist
strategies. SX PFFCL]] 365, 367 (and record citations therein).
Further, the [REDACTED]. See Trial Exs. 5070-5072; Harrison WDT ]] 49,
52. SoundExchange further relies on the testimony of Michael Sherwood,
a Warner Senior Vice President responsible for overseeing its Spotify
and other streaming service accounts, Trial Ex. 5620 ]] 1-2 (WDT of
Mike Sherwood), who testifies that [REDACTED]. 9/9/20 Tr. 5921-22
(Sherwood).
Moreover, SoundExchange emphasizes that Pandora's own economic
expert witness, Professor Shapiro, acknowledges that, by the time
Spotify and the Majors were negotiating their 2017 Agreements, Spotify
already possessed the ability to influence listening and record company
market share through its selection and placement of songs on Spotify-
curated playlists. 8/19/20 Tr. 2868 (Shapiro) (``Spotify has some
ability to influence listening through a service-generated playlist.
[Mr. Orszag] emphasizes that. I agree that they definitely have that
ability.'').
SoundExchange relies yet again on Professor Shapiro's testimony to
argue that, when a streaming service such as Spotify has the technical
ability to steer, its credible threat to steer against a Major during
contract negotiations can constitute sufficient leverage by which
Spotify can negotiate better terms for itself. See 8/20/20 Tr. 3067-68
(Shapiro). SoundExchange's expert is in full agreement, testifying that
in negotiations related to steering, as in negotiations generally, ``it
is often the threat that can influence outcomes . . . as long as the
threat is credible.'' 8/11/20 Tr. 1255 (Orszag) (emphasis added); see
also id. at 1211-13, 1347-48.
Continuing its attempt to build its steering argument on the back
of Professor Shapiro's own testimony, SoundExchange points out that he
admitted that a steering threat could be implicit as well as explicit.
8/20/20 Tr. 3066-67 (Shapiro). Moreover, the evidence of [REDACTED],
might be seen, Professor Shapiro recognizes, [REDACTED]. 8/20/20 Tr.
3052 (Shapiro). For these reasons,
[[Page 59462]]
SoundExchange emphasizes, in Web IV Professor Shapiro testified that
``if the services have substantial ability to steer'' then the market
can be ``workably competitive'' notwithstanding that each Major remains
a Must Have. See 8/20/20 Tr. 3036 (Shapiro).
SoundExchange does recognize that, for Spotify to be able to
transform its technological ability to engage in editorial steering
into [REDACTED], its threats must be credible to a Major, so that
actual steering is neither needed nor implemented. SX PFFCL ] 354
(citing Orszag WDT ] 149). On this score, Professor Shapiro likewise is
in full agreement. He testifies that steering threats are ``depend[ent]
on the credibility of these threats'' as well as the ``fallback''
positions of the parties in the event the threat of steering leads to a
failure of the parties to enter into a licensing agreement. 8/20/20 Tr.
3053 (emphasis added).
The Services strongly disagree with SoundExchange's steering
argument. First, they minimize the economic importance of playlist
listening--where steering might take place--notwithstanding its recent
growth. In particular, they criticize Mr. Orszag for trumpeting that
31% of all Spotify listening is to Spotify-curated playlists, when this
figure obviously means that approximately 69% of all listening remains
on-demand in nature and thus outside of Spotify's curatorial
gatekeeping capacity. Thus, the Services argue, the defining feature of
Spotify (and other interactive services) remains the offering to a
subscriber of access to a virtually complete repertoire of songs for
on-demand listening. Services RPFFCL ] 358 (and record citations
therein). Google's economic expert, Dr. Leonard, takes note of a
behavioral study of Spotify users [REDACTED] See Trial Ex. 2122 at 8.
Dr. Leonard takes from the 69%:31% split referenced above and the
[REDACTED] that ``[a] user's ability to play any song on demand remains
a defining characteristic of interactive services and a driver of user
demand for these services.'' Trial Ex. 2160 ] 73 (CWRT of Gregory
Leonard) (Leonard WRT).
Further, on a fundamental level, the Services assert that
SoundExchange misapprehends the concept of steering, untethering the
concept from its economic significance. The relevant form of
``steering'' for purposes of this proceeding, the Services maintain, is
one that generates price competition among the Majors. Services PFFCL ]
64 (citing Web IV, 81 FR at 26343 (``[s]teering is synonymous with
price competition in this market'') and SoundExchange, 904 F.3d at 52
(affirming the Judges' decision that ``the likely effect of steering in
the music industry would be to promote price competition'')).
The Services distinguish Web IV in this regard by emphasizing that
the Judges in that case had relied on two agreements that contained
explicit steering provisions designed to generate lower royalty rates
in exchange for additional plays--what the Services characterize as the
essence of steering. First, the Services point to the agreement between
Pandora and Merlin for Pandora's noninteractive service, which provided
that ``the [REDACTED]'' as set out in the agreement. Web IV, 81 FR at
26356. Second, the Services refer to the Web IV Judges' description in
that determination of an ``iHeart/Warner Agreement [that] incorporates
the same economic steering logic as the Pandora/Merlin Agreement.'' Id.
at 26375.
But, in the present case, the Services aver that the Majors had
[REDACTED]. In fact, the Services maintain, Mr. Orszag concedes this
point, testifying in response to a question from the Judges that
[REDACTED].'' 8/12/20 Tr. 1536 (Orszag); see also id. at 1711 (Orszag)
(``[REDACTED].''); Shapiro WRT at 16 (summarizing lack of evidence in
Orszag WDT and noting ``when Mr. Orszag discusses how the major record
companies have responded to the growing role of service-generated
playlists, he does not claim they have reduced their royalty rates to
encourage increased plays of their material''). In this regard,
Google's economic expert witness, Dr. Peterson, noted that [REDACTED].
Peterson WRT ] 74.
The Services also point to the hearing testimony of [REDACTED], who
acknowledged that [REDACTED]. Specifically, they note that: (1)
[REDACTED] 9/2/20 Tr. 5371-72 ([REDACTED]) (emphasis added); (2)
[REDACTED].'' 9/3/20 Tr. 5698 ([REDACTED]) (emphasis added); and (3)
[REDACTED] 9/3/20 Tr. 5531-32, 5480-81 ([REDACTED]) (emphasis added);
see also Trial Ex. 4014 at 3 (``[REDACTED].'').
Accordingly, the Services maintain that [REDACTED] present no
evidence or testimony that [REDACTED]. See 9/02/20 Tr. 5435 (Fowler);
9/09/20 Tr. 5949-50 (Sherwood). Accordingly, the Services note that,
[REDACTED], Mr. Orszag was compelled to concede that competition for
playlist slotting is not based on royalty rate discounts (or side
payments). 8/11/20 Tr. 1313 (Orszag). The Services maintain that this
testimony is powerful evidence ``undermining [the] theory that playlist
competition is an outgrowth of steering-based price competition.''
Services RPFFCL ] 359. In fact, the Services note, [REDACTED]. See
Services PFFCL ] 66 ([REDACTED]) (and record citations therein).
The Services also take issue with Spotify's claim that the 31% of
listening that occurs on Spotify-curated playlists is entirely subject
to Spotify's steering capabilities. Specifically, the Services note
that 17 percentage points of that listening (more than half of the 31%)
occurs on algorithmically-curated playlists that are personalized for
each user based on his or her listening behavior and thus outside
Spotify's control.'' See Orszag WDT ] 61. Moreover, no SoundExchange
witness provided any evidence that Spotify exerts any price-based
influence over this algorithm (or over the autoplay algorithm), such as
in the Pandora/Merlin agreement relied upon by the Judges in Web IV.
See 9/2/20 Tr. 5406 (J. Fowler); 8/11/20 Tr. 1316 (Orszag).
The Services also assert that SoundExchange is exaggerating the
importance of playlists within Spotify's entire streaming platform. It
notes [REDACTED] indicating that ``[REDACTED]'' Trial Ex. 2074. In the
same vein, the Services take note of the testimony of a [REDACTED], who
acknowledged that, for [REDACTED] 9/2/20 Tr. 5432-33, 5443
([REDACTED]). Furthermore, the Services emphasize that SoundExchange
relies essentially on supposition that playlist listening drives
listeners' subsequent on-demand streaming decisions, noting the absence
of any detailed studies that would confirm this hypothesis. Services
RPFFCL ]] 365-366 (and record citations therein).
The Services further note that, in the [REDACTED]. 9/2/20 5370-71
(Piibe); 9/3/20 Tr. 5537-39 (Adadevoh).
According to the Services, [REDACTED]. Essentially, according to
the Services, [REDACTED]t. See Services PFFCL ]] 151-156 (and record
citations therein).
To make clear the scope of the relevant [REDACTED], the Services
rely on the exact language of the 2017 agreements between the Majors
and Spotify. The Services assert that this contract language, set forth
below, [REDACTED], thus disposing of the very notion that [REDACTED]:
The Sony-Spotify Agreement
[REDACTED]
Trial Ex. 5011 at 36 (Sony-Spotify 2017 Agreement); see also Trial
Ex. 5074 at 22 ([REDACTED] in Sony-Spotify immediately prior 2013
Agreement) (emphasis added).
[[Page 59463]]
The Universal-Spotify Agreement
[REDACTED]
Trial Ex. 5037 at 45, 96 (Universal-Spotify 2017 Agreement); see
also Trial Ex. 2062 at 38 ([REDACTED] in Universal-Spotify 2013
Agreement).
The Warner-Spotify Agreement
[REDACTED]
Trial Ex. 5020 at 20, 36 (Warner-Spotify 2013 Agreement).\33\
---------------------------------------------------------------------------
\33\ [REDACTED]. See Trial Ex. 5038 at 24 (``[REDACTED]''). See
also 9/3/20 Tr. 5549-51, 5557-61 (Adadevoh) (acknowledging these
provisions were intended to [REDACTED]).
---------------------------------------------------------------------------
The Services note a consensus between SoundExchange and Services'
expert witnesses that [REDACTED]. See, e.g., 8/12/20 Tr. 1709 (Orszag);
Leonard WRT ] 66. More particularly, they point to Dr. Leonard's
testimony that [REDACTED]. Leonard WRT ]] 60-63 (reviewing [REDACTED]
provisions in the Spotify agreements); see also 8/25/20 Tr. 3716-17
(Peterson); see also Peterson WRT ]] 69-70 (noting the [REDACTED]); 8/
12/20 Tr. 1699-1701, 1704 (Orszag) (acknowledging that [REDACTED]).
SoundExchange maintains, though, that these [REDACTED] have not
been sufficient to [REDACTED], as discussed supra). Specifically,
SoundExchange argues:
1. [REDACTED]. See, e.g., 9/3/20 Tr. 5702 (Harrison). SoundExchange
notes that [REDACTED] construed the [REDACTED]. See Trial Exs. 4031 at
37 ([REDACTED]) & 5020 at 20 ([REDACTED]).
2. A service that curates its own playlist, such as Spotify, could
[REDACTED]. See 9/3/2020 Tr. 5700-01 (Harrison) (discussing the
Spotify-Universal agreement).
3. There are significant [REDACTED], including the Majors'
[REDACTED]. Orszag WDT ] 150 (``[REDACTED].''). And, even if a record
company [REDACTED]. See id. [REDACTED]). Moreover, the [REDACTED]. See
9/2/20 Tr. 5404-06, 5446-47 (J. Fowler).
4. Even [REDACTED]. 8/11/20 Tr. 1317-18 (Orszag); accord Trial Ex.
4017 at 4 (noting that [REDACTED]); Trial Ex. 2124 at 1 (``[REDACTED]);
9/2/2020 Tr. 5204 (Piibe) (``[REDACTED]).
5. Even if the [REDACTED], SoundExchange claims they would
nonetheless be left with [REDACTED]. It asserts that [REDACTED]--but
that would [REDACTED]. See, e.g., Harrison WDT ] 56; Adadevoh WDT ] 34,
38 & n.27; Piibe WDT ]] 29-30; 9/3/20 Tr. 5482 (Adadevoh).
Consequently, SoundExchange maintains, it is unsurprising that the
record contains no evidence that [REDACTED]. See, e.g., 9/3/20 Tr. 5481
(Adadevoh); accord id. at 5565 (Adadevoh) (noting that [REDACTED]).
And, when Universal asserted to Spotify that the latter was [REDACTED].
9/3/20 Tr. 5702 (Harrison).
Additionally, SoundExchange avers that, even assuming arguendo the
[REDACTED] and effectively competitive. Specifically, SoundExchange
explains that [REDACTED]. Accordingly, although Majors may want or need
to [REDACTED] such as those quoted above, [REDACTED]. Rather, according
to SoundExchange, Spotify is [REDACTED] or, importantly here, to
[REDACTED]. See 8/11/20 Tr. 1254 (Orszag).
That is, as Mr. Orszag explains, once a streaming service has
successfully used a [REDACTED], the Major may in turn seek [REDACTED].
See 8/11/20 Tr. 1331-32 (Orszag). By similar economic logic, a Major
that had entered a negotiation [REDACTED] may decide [REDACTED]. See 9/
2/20 Tr. 5203-05 (Piibe).
Thus, SoundExchange maintains, the mere presence of [REDACTED], on
which the Services rely, is hardly conclusive evidence that the market
lacks effective competition. Rather, as Professor Shapiro himself
acknowledges, in an effectively competitive market, a service might
agree to accept an [REDACTED]. 8/19/20 Tr. 3089-92 (Shapiro).
The Services respond, though, that the notion that the [REDACTED]
was contradicted by SoundExchange's own witnesses. Specifically, as the
Majors and Spotify negotiated over terms in 2016 and 2017, they
[REDACTED]. See, e.g. 9/3/20 Tr. 5551 (Adadevoh) (agreeing that
[REDACTED]''); see also 9/3/20 Tr. 5704-05 (Harrison).
Moreover, the Services aver, the terms of [REDACTED] with the
[REDACTED]. See, e.g., Peterson WRT ] 69. That is, while Spotify
negotiated [REDACTED], Spotify remained [REDACTED]. Trial Ex. 5074 at
22; Trial Ex. 5020 at 20, 36. Indeed, SoundExchange's own witness, Mr.
Orszag, concedes that throughout Spotify's presence in the United
States streaming market, [REDACTED] 8/12/20 Tr. 1703-04 (Orszag); see
also Services PFFCL ] 100 (summarizing additional evidence).
The Services also assert that there is no evidence that, as
SoundExchange maintains, the Majors negotiated for [REDACTED]. Instead,
the Services point to the Majors' imposition of [REDACTED]. See Shapiro
WRT at 22 (noting the Majors' recognition that [REDACTED]).
More particularly, the Services explain that the Majors' [REDACTED]
ensured that a [REDACTED]. That is, unless other labels [REDACTED]. 8/
20/20 Tr. 3058 (Shapiro); see also 8/13/20 Tr. 1905-06 (Orszag)
([REDACTED]''). The Services also rely on the testimony by Mr.
Harrison, the Universal executive appearing at trial, who agreed that
[REDACTED],'' and that ``[[REDACTED]'' 9/3/20 Tr. 5705-06
(Harrison).\34\
---------------------------------------------------------------------------
\34\ Because Mr. Harrison testified, without dispute, that
Universal ([REDACTED]) could only use the [REDACTED], Universal
apparently could not, for example, [REDACTED].
---------------------------------------------------------------------------
Importantly, SoundExchange's position--that the [REDACTED] in the
2017 agreements reflect a [REDACTED]--is inconsistent with
SoundExchange's argument, itemized supra, that, for ``[REDACTED]'' SX
PFFCL ] 388.
In addition to their rejoinders to SoundExchange's [REDACTED]
assertions, set forth supra, the Services take issue with each of
SoundExchange's additional arguments regarding the [REDACTED]. First,
they note that the only example SoundExchange could muster regarding
potentially [REDACTED] was related to [REDACTED] entered into between
[REDACTED]. However, there is no evidence in the record regarding how
[REDACTED] interpreted the [REDACTED] and, further, that the context
for any possible disagreement [REDACTED]. Further, there is no record
evidence indicating that Pandora had the intent to influence, or did
influence, [REDACTED]'s streams. Moreover, the Services note that there
is no sufficient proof that the [REDACTED] in the [REDACTED] agreement
are the same in all respects as those in the [REDACTED] agreement.
Services RPFFCL ]] 389-390.
The Judges find that SoundExchange's reliance on [REDACTED] is
unavailing because [REDACTED]. Moreover, although [REDACTED] is a
participant in these proceedings (represented by SoundExchange and its
counsel), no [REDACTED] witness testified that [REDACTED] sound
recordings was--to its understanding--a [REDACTED]. More broadly, the
Judges find wholly undeveloped SoundExchange's speculative assertion
that a service and a label may have [REDACTED]. Of course, they might
have (or claim to have) [REDACTED], but that possibility hardly
indicates that [REDACTED]. Moreover, the parties (services and labels)
spend substantial sums on attorneys to draft contract language
[REDACTED], the Judge are unwilling to
[[Page 59464]]
find that industrywide [REDACTED], as a class, are [REDACTED].
Second, the Services' assert as meritless SoundExchange's argument
that, even under [REDACTED], Spotify could [REDACTED]. The Services
point out that [REDACTED]--the only label SoundExchange cites for this
argument--prohibits ``any form of preferential or otherwise enhanced
positioning, placement or status'' and provides that [REDACTED] Trial
Ex. 5037 at 45, 96.
Moreover, the Services aver that the Majors do not [REDACTED]. In
fact, the Services note, in 2017, [REDACTED]. See Trial Ex. 4014; 9/3/
20 Tr. 5537-39 (Adadevoh) (reviewing Trial Ex. 4014, an internal Warner
analysis of [REDACTED] and agreeing that Warner had found
[REDACTED]'').\35\
---------------------------------------------------------------------------
\35\ The Services also note that SoundExchange separately claims
that the Majors [REDACTED]. This claim [REDACTED], belies
SoundExchange's claim that it [REDACTED] The Judges agree with the
Services.
---------------------------------------------------------------------------
The Judges find that there is insufficient evidence to support
SoundExchange's claim that it is hamstrung in attempting to [REDACTED].
Given the ostensible greater importance the Majors place in this
proceeding on [REDACTED]--see Trial Ex. 2124 at 1 (``[REDACTED]--the
Judges find that a Major would [REDACTED]. Moreover, [REDACTED].
Further in this regard, the Services disagree with SoundExchange's
claim that record companies would have ``[REDACTED].'' Rather, the
Services point to, inter alia, Trial Ex. 2108, in which [REDACTED].
Trial Ex. 2108 at 2-3. The Services assert that this [REDACTED] shows
the Majors have an available [REDACTED]. Further, the Services maintain
that the mere fact that [REDACTED] is consistent with [REDACTED] rather
than with speculation that [REDACTED]. See Services RPFFCL ] 395 (and
record citations therein).
The Judges find there is inadequate evidence to demonstrate that
the Majors [REDACTED], for the reasons given by the Services. Further,
consistent with the Judges comment regarding legal representation
supra, the Majors have at their disposal highly talented commercial,
corporate and litigation attorneys, who receive handsome fees for
[REDACTED]. Although [REDACTED], a sufficient record of [REDACTED] must
be demonstrated by a more persuasive record than exists in this
proceeding. Finally, in this regard, if the Majors [REDACTED], why does
SoundExchange argue that the [REDACTED]? If [REDACTED]? Indeed, the
fact that there is [REDACTED] in the record, as discussed supra, does
not mean that [REDACTED]; it points to the value of such [REDACTED].
The Majors' claims (1) that [REDACTED] and (2) that [REDACTED], are
blatantly inconsistent.
Accordingly, on balance the Judges find that there is insufficient
evidence to demonstrate that [REDACTED] in their stated intent. The
Judges take particular note of SoundExchange's acknowledgement,
discussed supra, that the Majors (1) had [REDACTED], (2) did not
[REDACTED], (3) found it difficult to [REDACTED], (4) asserted
[REDACTED], (5) failed to [REDACTED], and (6) agreed to [REDACTED].
Shifting from the issue of [REDACTED], the Services disagree with
SoundExchange regarding the economic importance of this issue. They
note that, pursuant to an internal Sony document, [REDACTED]
comprise[REDACTED] and that, [REDACTED], replacing those [REDACTED]
with [REDACTED] would only [REDACTED]. Trial Ex. 4017 at 4. See also 9/
03/20 Tr. 5544-45 (Adadevoh) ([REDACTED]); Trial Ex. 4014 at 3.
The Judges agree with the Services that Spotify's [REDACTED] to
suggest a sea change in Spotify's pricing power. And, there is no
evidence that Spotify could alter its business model by engaging in a
wholesale [REDACTED] with subscribers remaining indifferent to such a
fundamental change in the service. This is critical because the Judges
do not lose sight of the purpose of this particularized analysis of the
benchmark interactive service, which is to determine if Spotify has
changed in a manner that lessens or eliminates the complementary
oligopoly power of the Majors, such that an effective competition
adjustment in the target noninteractive statutory market is either
unnecessary or should be reduced. A [REDACTED] (themselves generating
but a minority of Spotify's listening) is wholly uninformative as to
this issue.\36\
---------------------------------------------------------------------------
\36\ The Judges discuss the negotiation of ``[REDACTED]'' with
Spotify later in this Determination. But, the Judges note here that
they find unavailing Mr. Orszag's attempt to de-contextualize the
impact of [REDACTED] by his noting that a [REDACTED]% loss in Sony's
market share would equate to a $[REDACTED] annual revenue loss. Mr.
Orszag reports that in 2018 Sony's digital music U.S. revenue
totaled $[REDACTED]. Orszag WDT tbl.13. Thus, the $[REDACTED] short-
term revenue loss posited by Mr. Orszag equals [REDACTED] about
[REDACTED] one percent of Sony's total annual U.S. digital music
revenue. Although $[REDACTED] is a large sum in many contexts, it is
small in the present context, especially because the purpose of the
exercise is to determine Spotify's pricing power relative to the
complementary oligopoly market power of the Majors. Clearly the
$[REDACTED] figure fails to reflect the appropriate magnitude of the
impact of Spotify's [REDACTED]. Such distorted use of monetary sums
is inappropriate. Cf. Pablo J. Barrio et al., Improving the
Comprehension of Numbers in the News, Proc. 2016 Conf. Hum. Factors
Computing 1 (Ass'n for Computing Mach. 2016) (``Unfamiliar
measurements make up much of what we read, but unfortunately carry
little or no meaning . . . as they can be difficult to interpret
without the appropriate context.'') (available on Google Scholar at
<a href="http://www.cs.columbia.edu">www.cs.columbia.edu</a> (accessed June 9, 2021).
---------------------------------------------------------------------------
d. The (Partial) Evidence and Testimony Regarding the Majors'
Negotiations With Spotify Leading to Their 2017 Agreements
In addition to its foregoing arguments, SoundExchange relies on
evidence and testimony regarding the negotiations between Spotify and
the three Majors. Sound Exchange avers that this evidence and testimony
show that in the run-up to the execution of the 2017 Agreements
[REDACTED]. Accordingly, the Judges next consider that evidence and
testimony.
Before they weigh the record in that regard, the Judges take note
of the nature and sequencing of that evidence and testimony. First,
SoundExchange proffered this information in a disjointed manner.
Multiple documents from the archives of the three Majors were
introduced--primarily email correspondence between and among various
executives within each Major--discussing the Spotify negotiations.
However, none of the individuals who actually negotiated with Spotify--
and virtually none of the authors or recipients of these internal
emails--provided oral or written testimony at the hearing. Rather,
SoundExchange proffered witnesses from the Majors who had some
knowledge of these documents and second-hand knowledge of the oral
negotiations between their employers and Spotify.\37\ The Judges would
have much preferred to hear from first-hand witnesses from the Majors'
negotiating teams, who actually bargained with Spotify, in order to
appreciate how the usual bargaining dominance of the Majors might (or
might not) have been usurped by Spotify. Further, the documents to
which the Majors' second-hand
[[Page 59465]]
witnesses testified are not always models of clarity, and these second-
hand witnesses could not go beyond the four corners of the documents to
explain, identify or provide a sufficient economic context for these
documents. See Manne & Williamson, supra at 645; see also Web IV, 81 FR
at 26352 (When ``the Judges' task is to determine . . . economic
significance . . . the contracts are but one . . . piece of evidence .
. . [and] [w]here . . . a transaction is part of a complex . . .
business relationship it is appropriate--even necessary--for the Judges
to consider other evidence and analysis to determine the true economic
value of the transaction.'') (emphasis added). And, to the extent oral
negotiations between Spotify and the Majors, or between the Majors'
negotiating teams and their superiors, were never summarized or were
summarized in writings not in evidence, the record is incomplete in the
absence of testimony from the Majors' negotiators and other direct
decision-makers.
---------------------------------------------------------------------------
\37\ The Judges admitted these documents into the record,
finding them sufficiently authenticated, and, exercising their
discretion to admit hearsay evidence, the Judges did not exclude
these documents on that basis. But the issue of admissibility does
not raise the same concerns regarding the weight to be given to
documents written or received by relevant actors who were not called
to testify to explain the context, completeness and ambiguities, if
any, relating to those documents. Further, the actual negotiators
could have been called to testify regarding oral negotiations (the
Majors are all parties in this proceeding) and to explain and
contextualize statements contained in internal emails. Thus, to the
extent the record evidence of the Spotify-Majors negotiations is
incomplete or uncertain, the Judges find that SoundExchange must
bear the consequences of such deficiencies.
---------------------------------------------------------------------------
Second, SoundExchange proffered only correspondence from the
licensor side, that is, from the Majors. The record does not contain
any documentary evidence (or testimony, for that matter) from Spotify
regarding its negotiations with the Majors. Accordingly, there is an
incomplete and one-sided record of the negotiations upon which
SoundExchange relies.\38\ SoundExchange asserts that this
incompleteness is inconsequential because what is relevant are the
Majors' understandings and perceptions of [REDACTED].
---------------------------------------------------------------------------
\38\ In previous proceedings, the Judges have considered
negotiation documents when the record contained such material from
both counterparties. That is not the case with the record here.
---------------------------------------------------------------------------
The Judges agree that the Majors' understanding of Spotify's
position [REDACTED] is the ultimate relevant factor in explaining how
and why the Majors responded as they did in negotiations. However, to
determine whether the Majors' claimed understanding is credible, and to
weigh the value of each factor, the Judges would need to know much more
about how Spotify bargained and the representations it made. The actual
negotiators would have been the best witnesses to provide that level of
detail to assist the Judges in determining whether the Majors'
[REDACTED] is factually persuasive.
This is crucial for two reasons. First, the Services offer up a
quite different explanation. They argue that the Majors were simply
utilizing their complementary oligopoly power to [REDACTED]. See
Services PFFCL ]] 138-150 (and record citations therein). SoundExchange
is making an argument that relies on facts that, if relied upon by the
Judges, would lead to a radical departure from the bargaining analysis
they identified and adopted in Web IV--one which is consistent with the
economic framework of complementary oligopoly that has an unchallenged
lineage dating back to the 19th century work of the economist A.A.
Cournot. See Web IV, 81 FR at 26342. Such a departure from the prior
bargaining framework is certainly conceivable, but the hearing record
necessary to support the task should be substantial; instead,
SoundExchange's presentation appears to the Judges to have been
stitched together and, for the reasons discussed supra, lacking a sound
basis in economics, as well as in the very principles and dynamics of
bargaining that it applies to the hypothetical noninteractive
market.\39\
---------------------------------------------------------------------------
\39\ By contrast with the problematic record relating to the
effects of Spotify's supposed new-found pricing power, and as
discussed in detail infra, the Majors' internal documents and
hearing testimony reveal [REDACTED]. As also discussed infra, the
Majors' [REDACTED].
---------------------------------------------------------------------------
The Judges keep these considerations in mind as they analyze below
the parties' arguments regarding the import of the relevant strands of
evidence and testimony regarding Spotify's negotiations with the
Majors.
i. The Universal-Spotify Negotiations
Universal and Spotify began their negotiations to replace their
2013 agreement in [REDACTED], see Trial Ex. 4027 at 1, and completed
the negotiations at [REDACTED]. See Trial Ex. 5037 at 1. Early in the
negotiations, according to an internal company document, Universal
identified [REDACTED] as an issue to be addressed. Trial Ex. 5410 at 1.
SoundExchange notes that Universal's subsequent internal communications
reflect its [REDACTED]. Trial Ex. 4016 at 1 (``[REDACTED]''); see also
Trial Exs. 4019, 5429 at 1. Further, some Universal negotiators--again,
who did not testify--expressed in internal documents their belief that
[REDACTED], Trial Ex. 5422 at 1, with the author of an internal
Universal email, adding [REDACTED]. Trial Ex. 5221 at 5.\40\
---------------------------------------------------------------------------
\40\ Because the author of the email did not testify, the
unusual placement and styling of this alleged quote (itself hearsay)
was not the subject of examination at the hearing.
---------------------------------------------------------------------------
When apprised of [REDACTED], according to an internal Universal
email, Spotify acknowledged to Universal that it [REDACTED]. Trial Ex.
5413 at 1. Consistent with [REDACTED], Universal's testifying witness,
Aaron Harrison, acknowledged that [REDACTED]. 9/3/20 Tr. 5701
(Harrison).
In an attempt to [REDACTED], Universal ultimately proposed that
[REDACTED]. Trial Ex. 5410 at 1. However, Universal's internal emails
indicated that Spotify had [REDACTED] Trial Ex. 5421 at 1. Rather,
Spotify took the position that it would be ``[REDACTED].'' Trial Ex.
5414 at 1. Ultimately, the final 2017 Agreement included [REDACTED].
See generally Trial Ex. 5037. (However, as noted above, the 2017
Agreement included [REDACTED].
In response, the Services point out, as an initial matter, that the
statements in Trial Ex. 5414 constitute double hearsay, in that they
repeat [REDACTED] (the first hearsay) to a [REDACTED], which were then
repeated in the exhibit (the second hearsay). The Services also argue
that the Judges should give no weight to Trial Ex. 5521, which also
contains double hearsay, viz., [REDACTED] [REDACTED] (the first
hearsay), repeated in an internal email (the second hearsay). In any
event, the Services maintain, no part of the [REDACTED] that would
generate price competition.
Moreover, the Services aver that these statements are flatly
inconsistent with the acknowledgement by Universal's testifying
witness, Mr. Harrison, that Universal [REDACTED], but rather Universal
sought to [REDACTED] Trial Ex. 4016 at 1. Thus, Universal's negotiating
stance, according to the Services, was to [REDACTED]. To that extent,
the Services do acknowledge that Universal [REDACTED]--see Harrison WDT
] 56; 9/3/2020 Tr. 5743-5744 (Harrison)--but Universal was [REDACTED].
Id. at 5744 (Harrison). Accordingly, Universal had to rely on the
[REDACTED]. Harrison WDT ] 56. Additionally, the Services note that the
2017 Agreement [REDACTED].
The Services also contest SoundExchange's characterization of
[REDACTED]. Specifically, the Services point to the [REDACTED], which
requires that Spotify [REDACTED] and that Spotify would ``[REDACTED]''
Trial Ex. 2062 at 53-54 (2013 Spotify-Universal Agreement).
In fact, Trial Ex. 5429 (a 2016 negotiation email cited by
SoundExchange) acknowledged that the [REDACTED] Trial Ex. 5429 at 4.
Moreover, according to the Services, Spotify's [REDACTED] rendered
dubious, unsubstantiated, and unwarranted Universal's [REDACTED].
Further, as an economic matter, the Services assert that
Universal's [REDACTED] gives away the game--
[[Page 59466]]
Universal was seeking to [REDACTED] that the Services characterize as a
``perverse conception of `price competition' to say the least.''
Services RPFFCL ]] 419-421 (and record citations therein). Moreover,
the Services aver, in any event, the presence of [REDACTED] Spotify's
agreements with the [REDACTED]. See Services RPFFCL ] 425
The Judges find that the evidence and testimony relating to these
negotiations, relied upon by SoundExchange, are insufficient to
demonstrate that Spotify had acquired any greater pricing power in
connection with the negotiation of the 2017 Agreement. The [REDACTED]
in the 2013 Agreement [REDACTED] in the 2017 Agreement, as confirmed in
Universal's own internal email. Further, as the Services point out,
Universal's testifying witness, Mr. Harrison, contradicted the key
point that SoundExchange is attempting to make with regard to these
negotiations: [REDACTED] 9/3/20 Tr. 5701 (Harrison). This broad
statement clearly undermines SoundExchange's assertion that
[REDACTED].\41\ Further, because Universal's agreement to [REDACTED],
the Judges agree with the Services that Universal's pointed attempt to
have Spotify agree to [REDACTED] demonstrates that Universal was
[REDACTED].
---------------------------------------------------------------------------
\41\ The Judges find startling, though, the Services'
dismissal--as a ``perverse conception of `price competition' ''--of
SoundExchange's more nuanced claim that [REDACTED]. This is
precisely the phenomenon that Professor Shapiro enthusiastically
endorsed in Web IV and which the Judges adopted. Web IV, 81 FR at
26366 (Professor Shapiro testifying that it was ``absolutely''
correct that ``the threat of steering . . . pushes [the record
companies] . . . towards their original [market share] percentages
to avoid being that odd man out who was the holdout for the higher
price . . . .''). In any event, Mr. Harrison's testimony that
[REDACTED] renders moot the Services' jarring attempt to repudiate
the notion of a Major agreeing to lower rates in exchange for
protection from steering. Moreover, if, hypothetically, the facts
had demonstrated [REDACTED], then [REDACTED] might have made sense
as a way for a Major to avoid the situation where it [REDACTED].
However, under SoundExchange's own theory of the case, as discussed
elsewhere in this Determination, the idea that the Majors thought
[REDACTED], would be a chimera, given that the Majors aver that
[REDACTED].
---------------------------------------------------------------------------
On a more general basis, the Judges find SoundExchange's portrayal
of Universal as essentially a ``pitiful helpless giant'' in
negotiations to be at odds with the reality of its status as a
complementary oligopolist wielding a Must Have repertoire. It did not
have to [REDACTED], but rather, ceteris paribus, could have [REDACTED].
Additionally, SoundExchange's assertion that Universal [REDACTED]
in the 2017 Agreement is problematic for two reasons. First, Universal
claimed to be [REDACTED], so why did Universal [REDACTED]? Again,
SoundExchange's characterization of this largest Must Have Major as
some sort of pitiful helpless giant (like Gulliver restrained by the
Lilliputians) is simply not credible, because, as discussed elsewhere
in this Determination, Spotify would be out of business [REDACTED]
without a Major's repertoire, whereas Universal and the other Majors
would continue in business, as Spotify's listeners would migrate to a
substitute streaming service. And, if the [REDACTED] as SoundExchange
claimed (because, as discussed supra, a Major could not [REDACTED] then
why was Universal (or any Major) [REDACTED]--especially given that
SoundExchange proffered evidence that the Majors claimed [REDACTED].
Moreover, in Web IV, SoundExchange provided substantial detail
regarding how the Majors would respond to thwart an attempt by a
service to engage in steering as a means of price competition. A Major
would threaten to black out its repertoire on that service or actually
do so (a threat that remains viable, as discussed in this
Determination). Second, a Major could demand that all royalties be paid
up front on a non-refundable basis, according to historic market
shares, making subsequent market share deviations costly (i.e., the
marginal cost of deviating toward a Major beyond its historic share
would be a positive royalty, compared to the zero marginal cost of
playing a marginal sound recording as part of a Major's historic share,
because the royalties based on historic market share had been prepaid).
Finally, in Web IV, SoundExchange noted that each Major could insist on
an MFN or similar anti-steering/anti-discrimination clause, making
deviations from historic share play a breach of contract. Web IV, 81 FR
at 26364-65.\42\
---------------------------------------------------------------------------
\42\ The very concept of licensors requiring historic shares to
be maintained appears inconsistent with effective competition. In
Web IV, the Judges noted that ``demands by the Majors to prevent
steering by insisting that a noninteractive service not deviate from
an historical (``natural'') division of market shares would be a
classic example of anticompetitive conduct.'' Web IV, 81 FR at 26373
(citing Blue Cross & Blue Shield United of Wisconsin v. Marshfield
Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995) (Posner, J.).
---------------------------------------------------------------------------
In Web IV, the Judges acknowledged the capacity of the Majors to
engage in such conduct, and the Judges characterized such conduct as
simply alternate expressions of their complementary oligopoly power
that, under the statute, the Judges were intending to mitigate, in
order to identify rates that would be set in an effectively competitive
market. Web IV, 81 FR at 26373-74. In the present proceeding,
SoundExchange has not provided a sufficient evidentiary basis to show
that Spotify would be immune from such tactics. Moreover, it would be
in each Major's long-run interest, acting alone, yet consciously aware
of the parallel incentives of the other Majors, to threaten and, if
necessary, follow through on such actions, because of each Major's
individual Must Have status (and each Major's knowledge of the other
Majors' Must Have status).\43\ Simply put, the Majors' power provides
them with multiple tactics, which, if triggered, would confront Spotify
with certain and prompt economic ruin, as its subscribers expeditiously
defected to Apple, Amazon, Google, or one of Spotify's smaller
competitors.
---------------------------------------------------------------------------
\43\ Indeed, an important point made by Professor Willig,
SoundExchange's Shapley Value and bargaining expert, regarding the
noninteractive market is fully applicable here. Each Major, as a
Must Have, would recognize its power to withhold (or threaten to
withhold) a license in order to maximize the benefit of the bargain.
See also Richard A. Posner, Oligopoly and the Antitrust Law: A
Suggested Approach, 21 Stan. L. Rev. 1067, 1081a n.39 (1969) (A
``meeting of the minds'' among oligopolists is ``illuminated by game
theorists [who note that] mutual dependence . . . demands . . .
collaboration [that is] . . . tacit if not explicit . . . .'').
There is no reason to believe that this phenomenon does not exist in
the unregulated interactive music licensing market. Kristelia A.
Garcia, Facilitating Competition by Remedial Regulation, 31 Berkeley
Tech. L.J. 183, 188 (2016) (``In an industry like music licensing .
. . parallel pricing and tacit collusion can . . . remov[e] the
threat of meaningful competition from the marketplace.'').
---------------------------------------------------------------------------
Accordingly, the Judges reject the argument that Spotify's economic
position generated a change in bargaining and market power [REDACTED].
Rather, it is apparent to the Judges that Universal must have had
[REDACTED].\44\
---------------------------------------------------------------------------
\44\ That [REDACTED] is discussed infra, section III.B.2, after
the Judges consider the evidence regarding the negotiations between
Spotify and Sony and between Spotify and Warner.
---------------------------------------------------------------------------
ii. The Warner-Spotify Negotiations
At the outset of negotiations regarding the 2017 Agreement, Spotify
represented to Warner that it had [REDACTED]. 9/3/20 Tr. 5479; 5526-27
(Adadevoh).
In response to a Spotify proposal for [REDACTED], Warner explored
with Spotify a [REDACTED]. See Trial Exs. 5264 at 4; 5265 at 2; 9/3/
2020 Tr. 5495-96 (Adadevoh). According to Warner's testifying witness,
Ms. Adadevoh--who did not participate in the negotiation sessions with
Spotify--Spotify rejected this [REDACTED] proposal, and [REDACTED]. See
Trial Exs. 5264 at 4; 5265 at 2; 9/3/2020 5495-97 (Adadevoh). According
to Warner,
[[Page 59467]]
Spotify also rejected its subsequent proposal for [REDACTED]. Trial Ex.
4020 at 1.
In February 2017, Warner alternately proposed that, in
consideration of a [REDACTED], Spotify [REDACTED]. However, Spotify
refused. Trial Exs. 5520 at 2; 5038; 9/3/20 Tr. 5505 (Adadevoh).
Ultimately, Warner agreed to [REDACTED]. According to Ms. Adadevoh,
Warner agreed to [REDACTED], motivated in part by [REDACTED].
SoundExchange avers that Warner's [REDACTED] was reasonable because
Spotify had [REDACTED]. Trial Ex. 5401 at 3. In this regard, Ms.
Adadevoh testified at the hearing that Warner's perception of Spotify's
[REDACTED] 9/3/20 Tr. 5490-91 (Adadevoh). Accordingly, she testified
that Warner [REDACTED]. 9/3/20 Tr. 5531 (Adadevoh).
During these negotiations, Warner attempted to determine whether
its speculation was justified that Spotify might have [REDACTED].
Through this analysis, Warner was [REDACTED]. Nonetheless, according to
SoundExchange, Warner's [REDACTED], but rather reflected the
[REDACTED]. SX PFFCL ] 435 (citing Trial Ex. 4014 at 1; 9/3/20 Tr.
5601-02 (Adadevoh)).
Ms. Adadevoh testified that--notwithstanding the [REDACTED] that
Spotify had [REDACTED]--Warner [REDACTED]. Trial Ex. 5612 ] 12 (WRT of
Reni Adadevoh); 9/3/20 Tr. 5530-31 (Adadevoh). The importance of
[REDACTED] was noted in an email written by Warner's lead negotiator
with Spotify, who wrote that ``[REDACTED]'' the effect on WMG's
[REDACTED] would be [REDACTED]. Trial Ex. 2124 at 1. The same email
also stated that the [REDACTED] in Warner's 2013 agreement with Spotify
did not [REDACTED]. Trial Ex. 2124 at 1; Adadevoh WDT ] 12.
To underscore Warner's purported concern that Spotify might
[REDACTED], SoundExchange also notes discussions on a Warner [REDACTED]
regarding [REDACTED]. Trial Ex. 4025 at 1.
Ultimately, Warner agreed to [REDACTED], which was included in its
2017 Agreement with Spotify. Trial Ex. 5038; Adadevoh WDT ]] 11-12.
According to Ms. Adadevoh, Warner [REDACTED] because ``[REDACTED]'' 9/
3/20 Tr. 5480.
The Services respond first by noting that SoundExchange has ignored
the import of Warner's complementary oligopoly power in connection with
the bargaining dynamics. Absent consideration of this fact, they argue
that Ms. Adadevoh's assertion that [REDACTED] is simply conclusory and
hardly credible. Additionally, the Services maintain that there is no
evidence linking [REDACTED] to either (1) a [REDACTED] or (2) a
[REDACTED].
The Services also assert that a key document on which SoundExchange
relies, Trial Ex. 4022, actually identifies [REDACTED] in its 2017
Agreement with Spotify.\45\ Among these drivers, according to the
Services' understanding of this Warner document, was [REDACTED]. See
Trial Ex. 4011 at 1 (``[REDACTED]'').
---------------------------------------------------------------------------
\45\ The Services also identify several other ``drivers'' that
led Warner to agree to the terms of the 2017 Agreement,
predominantly relating to Warner's [REDACTED]. These other points
are discussed infra.
---------------------------------------------------------------------------
The Services also note that another document on which SoundExchange
relies regarding the Warner-Spotify negotiations, Trial Ex. 5264,
consists of double hearsay--providing a second-hand report of Spotify
statements. Moreover, the Services claim the statements contained
therein cannot even unambiguously be attributed to specific sources--
making it difficult to tell whether certain text reflects a Spotify
statement, Ms. Gardner's reaction thereto, or something else entirely.
Moreover, the Services point out that the testifying Warner witness,
Ms. Adadevoh, did not claim to have personal knowledge sufficient to
provide the requisite clarity.
The Services also characterize as misleading SoundExchange's
attempt to portray [REDACTED] as an example of Spotify's market power.
Rather, they claim that an examination of Trial Ex. 5265 reveals that
Spotify was [REDACTED] in the 2017 Agreement; rather, Spotify was
making the practical observation that if a [REDACTED]. Trial Ex. 5265
at 4-5. And, the Services add, allowing a [REDACTED] noted supra in
Trial Ex. 4011.
The Services also dispute SoundExchange's assertion that Spotify's
refusal to provide Warner with [REDACTED] demonstrates Spotify's
increased bargaining or market power. They note that it was Spotify's
[REDACTED]. Moreover, the Services note that Warner made its proposal
[REDACTED] (see Trial Ex. 5520) [REDACTED], belying Ms. Adadevoh's
suggestion that [REDACTED]. Additionally, the Services point out that
Trial Ex. 5520 also reveals that Warner sought to [REDACTED]--
underscoring the degree to which Warner recognized that it, too,
[REDACTED]--and that Warner was willing to agree to [REDACTED] because
of [REDACTED]. See Trial Ex. 5520 at 3.
More broadly, the Services argue that, if it was true that Spotify
had been [REDACTED], the negotiation files would have been [REDACTED],
and yet, by contrast, the quantum of evidence on which Warner relies is
remarkably slender. Services RPFFCL ] 434 (and record citations
therein). And, with regard to the extant record evidence, the Services
characterize as insufficient and unconvincing SoundExchange's attempt
to recharacterize Warner's internal [REDACTED]. See Trial Ex. 4014.
Continuing its attack on what it describes as SoundExchange's purported
misstatement of the evidentiary record, the Services point to another
SoundExchange document, Trial Ex. 2124, which includes, [REDACTED]--
contradicting SoundExchange's argument that the [REDACTED] (as
discussed supra).
Continuing its attack on the usefulness of the evidence relied upon
by SoundExchange relating to Warner's negotiations with Spotify, the
Services note that Trial Ex. 4025, apparently describing [REDACTED] is
replete with double hearsay, in the form of a declarant's summary of
third-party statements by other declarants. The Services state that
there is no indication that any particular comment in this exhibit
reflects Warner's final or official position, or that they are not
merely the opinions of each individual. On the substance of this
exhibit, the Services point out that this document contains [REDACTED],
ignored by SoundExchange, which [REDACTED]. Services RPFFCL ] 438 (and
record citations therein).
The Judges find the Services' arguments convincing. Warner's
internal correspondence indicates it was [REDACTED]. But, when it
[REDACTED] Warner's contract with Spotify. On these facts, the Judges
cannot find support for Spotify's supposed new-found power [REDACTED].
Further, there is no persuasive evidence [REDACTED] included in
that contract. The Judges will not presume such a [REDACTED] when the
record does not reflect that this [REDACTED] occurred. Alternatively
stated, SoundExchange is asserting that the Judges should find
causation--that the [REDACTED] and vice versa--when the evidence
[REDACTED]. Here, the absence of testimony from the actual negotiators
looms large; if there had been evidence of such [REDACTED] (which is
not in the present record) in first-hand testimony from the
negotiators, the Judges could have weighed their direct and cross-
examination testimony to assist in
[[Page 59468]]
making a finding as to this issue. But, no such record exists.
Accordingly, the possibility that [REDACTED] were the consequence of
Spotify's new market power [REDACTED] is not more plausible than the
Services' position that the [REDACTED] were included, [REDACTED], to
[REDACTED], and that Warner's agreement to the [REDACTED] was
[REDACTED].
Additionally, the fact that Spotify refused to [REDACTED] Warner
does not reflect any pricing power possessed by Spotify. Rather, it
reflects the power of[REDACTED] to [REDACTED], thus undermining price
competition.
Finally, the Warner [REDACTED] document on which SoundExchange
relies is unpersuasive. Not only does it consist of double-hearsay--as
the Services note, it also fails to identify the speakers and their
business affiliations [REDACTED] (which also are not provided in
hearing testimony)--but rather, the email reflects [REDACTED] regarding
the pending Spotify-Warner 2017 Agreement. In that regard, it contains
[REDACTED], allegedly voiced by the unidentified participants. As the
Judges noted supra, corporate documents, including [REDACTED] are often
likely to fail to shed light on the economic factors relevant to a
proceeding. See William Inglis & Sons Baking, 688 F.2d at 1028.
Here, the Warner [REDACTED] document is even more problematic, as
it merely recites [REDACTED]. The problem with this document--
emblematic of the problem with all of these hearsay documents--was
highlighted in a fruitless attempt by SoundExchange's counsel to cross-
examine Professor Shapiro regarding the meaning of a double hearsay
declaration in this Warner [REDACTED] document, Trial Ex. 4025.
Presented with language in this exhibit stating: ``[REDACTED]''
Professor Shapiro responded by stating: ``I'm not sure what this
[REDACTED] means,'' and adding: ``I don't know what it means
[REDACTED].'' 8/20/20 Tr. 3076-77 (Shapiro). The witness then asks
SoundExchange's counsel: ``Could you help me out on that?,'' to which
SoundExchange's counsel then had no choice but figuratively to throw up
his hands and lament: ``Well, . . . let's just leave it since we don't
have the fact witness here.'' 8/20/20 Tr. 3077 (Shapiro) (emphasis
added). The Judges share that frustration.
iii. The Sony-Spotify Negotiations
According to Sony, at the outset of negotiations, Spotify sought
[REDACTED]. 9/2/20 Tr. 5218 (Piibe). However, Sony was [REDACTED]
particularly because Sony believed the proposed [REDACTED]. Piibe WDT ]
20; 9/2/20 Tr. 5195-96 (Piibe); Trial Ex. 4018 at 1. The Services find
this opening salvo--made about a year before the parties ultimately
executed their 2017 Agreement--to be wholly unremarkable. Professor
Shapiro characterizes this start to negotiations as merely
``[REDACTED]'' 8/20/20 Tr. 3082 (Shapiro).
When [REDACTED] appeared [REDACTED] Sony decided that,
``[REDACTED],'' \46\ it would offer to [REDACTED]. Trial Ex. 5461 at 7,
35 (offering increasing [REDACTED]); \47\ see also Trial Ex. 4026 at 1,
4 (offering a more general framework for [REDACTED]); Piibe WDT ] 22
(the thinking behind the [REDACTED] was simply that, [REDACTED]).
---------------------------------------------------------------------------
\46\ The relevancy of Spotify's ``importance'' to Sony and the
other Majors, in terms of the subscription royalty rate [REDACTED],
is discussed infra.
\47\ To put this proposal in context, Sony's market share for
interactive subscription plays in 2018 was [REDACTED]%. Orszag WDT,
tbl.2.
---------------------------------------------------------------------------
The Services' rejoinder to this assertion is consistent with their
explanation of the problem regarding the [REDACTED]: As long as Spotify
remained [REDACTED], Spotify was [REDACTED] Services RPFFCL ] 442 (and
record citations therein).
Because Sony understood that Spotify had the [REDACTED], Piibe WDT
] 25, Sony recognized that a consequence of [REDACTED]. As Mr. Piibe
explained, in [REDACTED]. Piibe WDT ] 26. Moreover, Sony asserted that
it [REDACTED]--because it believed that Spotify could [REDACTED] Piibe
WDT ] 26 (emphasis added).
More particularly, Sony asserts that it was concerned about
Spotify's [REDACTED]. See Trial Ex. 5451 at 1 (noting that Spotify
[REDACTED]); Trial Ex. 5461 at 40 (noting that [REDACTED]); Trial Ex.
5514 at 3 (noting that [REDACTED] and identifying [REDACTED]); Trial
Ex. 4017 at 4 (noting that [REDACTED]). Sony was concerned because it
believed its [REDACTED] Trial Ex. 5461 at 40; accord Trial Ex. 5514 at
3 (asserting that Sony's [REDACTED]). Trial Ex. 5468 at 2.
The Services aver that these purported [REDACTED] reflect mere
possibilities, which Sony [REDACTED] in contract negotiations. First,
regarding [REDACTED], the 2017 Agreement included a [REDACTED] More
particularly, the Services note the dynamics of the negotiations that
led to [REDACTED]. In Spotify's initial contract proposal, Trial Ex.
5461, it sought a [REDACTED] However, in the final 2017 Agreement,
Trial Ex. 5011, the [REDACTED] was [REDACTED] to Sony.
Moreover, the Services point to what they consider to be a blatant
inconsistency between Mr. Piibe's WDT regarding this [REDACTED] and Mr.
Piibe's deposition testimony in this proceeding, with which he was
confronted at the hearing, as set forth below:
[Hearing Question]: [L]et me ask you to take a look at . . . your
deposition. . . .
[Deposition Question]:
[REDACTED]?
* * * * *
[Deposition Answer]
[REDACTED].
[Hearing Question]
[W]as that answer correct at the time?
[Hearing Answer]
Yes.
9/2/20 Tr. 5339-40 (Piibe) (emphasis and bolding added).
Further, the Services note (as discussed supra) that the [REDACTED]
in the Sony-Spotify 2017 Agreement contained a [REDACTED] Trial Ex.
5011 at 36. There is no basis in the record, the Services maintain, to
conclude that this [REDACTED] would [REDACTED], two areas regarding
which Sony claimed to be concerned.
SoundExchange also finds a [REDACTED] in a statement supposedly
made by Spotify (contained in an internal Sony email), [REDACTED]
There, Mr. Piibe recounted what he heard from a Sony employee regarding
a statement allegedly made by a Spotify negotiator, to the effect that,
[REDACTED]. Trial Ex. 5469 at 1. Mr. Piibe asserts that, in response to
that and [REDACTED], Sony ``determined that [REDACTED]'' Piibe WDT ]]
24, 26.
The Services respond by noting that this [REDACTED]--of
questionable veracity given the double-hearsay nature of its
representations--[REDACTED]. Further, the Services contrast what they
characterize as [REDACTED] with what they indicate to be Mr. Orszag's
[REDACTED] characterization of the statement in his oral testimony as a
``[REDACTED]'' in which Spotify said, ``[REDACTED].'' 8/12/20 Tr. 1743
(Orszag). Ultimately, Sony determined that it was [REDACTED] that,
according to its testifying witness Mr. Piibe, caused a ``[REDACTED].''
Piibe WDT ] 23. According to Mr. Piibe, Sony, in fact, [REDACTED].
Piibe WDT ] 36. And, during the hearing, he elaborated, testifying:
[REDACTED].
9/2/20 Tr. 5228 (Piibe) (emphasis added). Moreover, on behalf of Sony,
[[Page 59469]]
Mr. Piibe speculated that Spotify was [REDACTED]. 9/2/20 Tr. 5228, 5368
(Piibe). Consequently, Sony negotiators, according to an internal Sony
email, concluded that [REDACTED]. Trial Ex. 5467 at 1.
The Judges find, for several reasons, that the evidence proffered
by SoundExchange regarding the Sony-Spotify negotiations does not
support the assertion that Spotify's supposed new pricing power was
[REDACTED]. First, Spotify's [REDACTED] was simply consistent with the
[REDACTED]. Thus, such [REDACTED] was not [REDACTED].
Next, SoundExchange's assertion that Sony alternatively sought
[REDACTED] in order to [REDACTED] was unambiguously refuted by Mr.
Piibe's deposition testimony. As noted above, in that testimony, he
admitted that [REDACTED]. His testimony in this regard also neutralizes
the claim by SoundExchange that [REDACTED].
Finally, the Judges take note of Mr. Piibe's exaggerated hearing
testimony regarding Sony's decision [REDACTED]. In that testimony, Mr.
Piibe indicated that the very [REDACTED] was ``[REDACTED]'' to the
point that he was ``stuttering'' in an attempt to ``process'' the idea.
The Judges find this over-the-top testimony not only lacking in
credibility, but also a fine example of the adage ``the lady doth
protest too much.'' \48\ Mr. Piibe was a polished witness who spoke
carefully and with fluidity. The question that he was asked that led to
his ``stuttering'' response was the following: ``[REDACTED]?'' 9/2/20
Tr. 5228 (Piibe).
---------------------------------------------------------------------------
\48\ William Shakespeare, Hamlet act III, sc. 2.
---------------------------------------------------------------------------
This question was straightforward, simple, and posed to him on
direct examination, thus unlikely to have caught him by surprise.
Moreover, the [REDACTED] is the [REDACTED]. The Judges cannot fathom
that a Major, a sophisticated corporation, would not [REDACTED] when it
is undisputed in the present record, and supported by the economic
analysis discussed in this Determination, that [REDACTED]. Indeed, a
substantial component of SoundExchange's case-in-chief (presented in
the testimony of Professor Willig) turns on the contributions each
party makes to the value of a music service and their fallback
values.\49\ What the Judges find inconceivable is Mr. Piibe's claim
that [REDACTED]. Thus, the Judges find this exaggerated testimony to
lack credibility, indicating that there must have been another reason
for [REDACTED].
---------------------------------------------------------------------------
\49\ Professor Willig refers to the opportunity cost of a Major
that is a complementary oligopolist when negotiating with a
potential licensee as the [REDACTED] opportunity cost. [REDACTED]
---------------------------------------------------------------------------
e. Other Record Evidence and Testimony Contradict SoundExchange's Claim
That Spotify's Pricing Power Had Neutralized the Majors' Complementary
Oligopoly Power
If Spotify, in fact, had become so powerful by virtue of its market
size, ability to [REDACTED] and ability to [REDACTED], as a Sony
executive wrote, to [REDACTED]. Trial Ex. 2137. However, the evidence
indicates that the Majors were [REDACTED]. The Judges find telling the
following colloquy between the bench and Michael Sherwood, a senior
Warner executive:
[THE JUDGES]
[REDACTED]?
[MR. SHERWOOD]
[REDACTED]. . . .
[THE JUDGES]
Why [REDACTED]?
[THE WITNESS]
[REDACTED].
[THE JUDGES]
Okay. Did you have an understanding as to why [REDACTED]?
[MR. SHERWOOD]
I [REDACTED].
[THE JUDGES]
When you say [REDACTED], you mean [REDACTED], so to speak?
[MR. SHERWOOD]
Correct. That was my impression of it.
[THE JUDGES]
Okay. And how did you come to that impression?
[MR. SHERWOOD]
Through conversations with our business development team at Warner
Music Group.
[THE JUDGES]
Okay. Who, in particular, do you recall, by name?
[MR. SHERWOOD]
I don't, unfortunately. That team has had some turnover since that
time.
[THE JUDGES]
I see. Who was the head of the team at the time you came to that
conclusion?
[MR. SHERWOOD]
[REDACTED].
* * * * *
[THE JUDGES]
Okay. And at a more general level, separate and apart from this
particular negotiation and [REDACTED], how would you [REDACTED]?
[MR. SHERWOOD]
Well, if that circumstance were to come to light, [REDACTED].
9/9/20 Tr. 5930-32 (Sherwood) (emphasis added).
The Judges find Mr. Sherwood's testimony, quoted at length above,
to be highly informative, and the Judges found him to be a highly
credible witness. He has been a Warner employee for 21 years, and he is
currently the Senior Vice President of Streaming and Revenue,
responsible for overseeing all of the revenue-generating commercial
accounts, which include digital service providers, including Spotify.
9/9/20 Tr. 5912-13 (Sherwood). Moreover, he was one of the few Major
employees that SoundExchange chose to testify in this proceeding, out
of the numerous individuals who had duties related to the streaming
services or who wrote or received emails regarding the issues raised in
the present proceeding.
His testimony indicates that [REDACTED] what the Services have
argued repeatedly--that Spotify [REDACTED] when it [REDACTED]. Not only
did Mr. Sherwood agree with that [REDACTED], but he also identified the
negotiating team within Warner itself as having informed him that
[REDACTED] This testimony supports the Services' characterization of
Spotify's weak pricing power and overall bargaining position, further
confirming the dubiousness of SoundExchange's claim that the Majors did
not [REDACTED] that [REDACTED] continued into the negotiations over the
2017 Agreements.
Perhaps even more importantly, Mr. Sherwood's testimony regarding
[REDACTED] speaks even more persuasively than his words. Warner was
[REDACTED], as he testified he would do if a [REDACTED].
Mr. Sherwood's testimony also underscores the problem created by
SoundExchange's decision not to call witnesses with first-hand
experience negotiating with Spotify, such as [REDACTED], who could have
shed direct light on the Majors' analysis of Spotify's [REDACTED] in
the 2016-2017 period.\50\
---------------------------------------------------------------------------
\50\ This portion of Mr. Sherwood's testimony does not contain
inadmissible hearsay, as it is in the nature of testimony regarding
an admission and/or declaration against interest by Warner.
Moreover, no objection was lodged by SoundExchange (which would have
been awkward, given that he was its own witness and the testimony
had been elicited by the Judges) and, even if the testimony
constitutes hearsay, the Judges invoke their discretion to allow
hearsay testimony pursuant to 37 CFR 351.10(a).
---------------------------------------------------------------------------
Finally, Mr. Sherwood's testimony [REDACTED] gives real-world
evidence of the substitutability and cross-elasticity of these various
downstream services addressed by the Services' economic expert
witnesses. Likewise, this testimony shows [REDACTED], consistent with
SoundExchange's direct case criticisms of Pandora's Label Suppression
Experiments for their failure to address how the industry
[[Page 59470]]
would respond to such a going-dark scenario.
One of SoundExchange's internal Major documents from an executive
who actually negotiated with Spotify took a [REDACTED] than
SoundExchange regarding Spotify's pricing power--[REDACTED] consistent
with the Judges' findings herein that Spotify had not acquired pricing
power sufficient to [REDACTED]. The document was an email written by
[REDACTED] 9/2/20 Tr. 5247 (Piibe). Mr. [REDACTED] wrote the following
in a December 13, 2016 email--REDACTED] in a response to [REDACTED]:
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED].
Trial Ex. 5467 (emphasis and bolding added).
In the succinct, colloquial, and mildly vulgar statement emphasized
above, Mr. [REDACTED] concisely summed up [REDACTED] The Judges find
Mr. [REDACTED] observation consistent with the economic analysis on
which the Judges have relied in this Determination, supporting the
finding that Spotify lacked the pricing power to mitigate or offset the
complementary oligopoly power of the Majors.
But, as the quoted document--indeed, the quoted sentence--also
reveals, Mr. [REDACTED] took note of [REDACTED], stating that he
``[REDACTED]'' Trial Ex. 5467. Thus, Mr. [REDACTED], in one sentence,
also summed up a conundrum that is at the heart of the question: Why
did three complementary oligopolists decline to exercise their market
power [REDACTED]?
The Judges consider that conundrum below.\51\
---------------------------------------------------------------------------
\51\ SoundExchange notes that Apple has [REDACTED]. Moreover, it
notes that Apple [REDACTED] [REDACTED]. 9/3/20 Tr. 5681-82
(Harrison); Harrison WDT ] 31. Subsequently, Apple also [REDACTED].
Piibe WDT ] 46. See generally 8/13/20 Tr. 1899-1900 (Orszag); 8/11/
20 Tr. 1367 (Orszag). According to SoundExchange, these facts
indicate that Apple, [REDACTED] was able to [REDACTED]. See SX PFFCL
] 468 (and record citations therein).
However, the Judges are struck by the fact that the record
regarding Apple's relationship with the Majors is barren, even in
comparison to the meager and disjointed proofs SoundExchange
proffered regarding Spotify's negotiations with the Majors. There
are no internal documents from the Majors describing their
relationship with Apple, including [REDACTED], nor is there any
evidence that Apple [REDACTED]. Accord, Services' Response to SX
PFFCL ] 466 (noting the [REDACTED] the setting and level of its
rates). Moreover, as the Services note, Mr. Orszag did not use the
Apple rate as a benchmark in this proceeding. Id. ] 465. In fact,
Mr. Orszag did not identify in the materials upon which he relied in
preparing his WDT any documents memorializing any aspect of Apple's
negotiations with any of the Majors, and he could not recall with
any certainty having reviewed such documents prior to preparing that
written testimony. 8/12/20 Tr. 1646-48 (Orszag).
The Judges also note that the fact that Apple [REDACTED] is
consistent with the Judges' understanding of the Majors' [REDACTED].
That is, the Majors negotiated [REDACTED], so to speak.
For these reasons, the Judges find that there is insufficient
evidence that Apple's [REDACTED] is supportive of SoundExchange's
argument that an interactive service's mere market share [REDACTED].
(The Judges note that this is not the first time the Judges have
declined to give weight to SoundExchange's underdeveloped record as
it related to an Apple agreement. See Web IV, 81 FR at 26352
(declining to rely on ``SoundExchange's analysis and use of [an]
Apple agreement'' because ``there is insufficient evidence in the
record'')).
---------------------------------------------------------------------------
2. The Majors' Action to [REDACTED]
a. Introduction
The record discussed supra reflects an apparent disconnect between
the facts discussed above and the relevant economic principles. The
Majors agreed to [REDACTED]. Why did that occur? The upstream benchmark
agreements at issue were consummated in a market where the licensors,
the Majors, are complementary oligopolists with ``Must Have''
repertoires, and the licensee, Spotify--despite being arguably the
largest interactive service--lacked long-term bargaining power and
pricing power sufficient to affect, let alone dictate, the terms of
trade.\52\
---------------------------------------------------------------------------
\52\ To better appreciate the Judges' discussion of this
conundrum, they note here a distinction among different types of
economic power as used in this analysis.
The Judges use the phrase ``pricing power'' to reflect the
ability of a seller or buyer (or licensor or licensee) to influence
price (royalty rates) because of its own ``market power,'' arising
from strengths, such as monopoly, monopsony, oligopoly, or
oligopsony positions, as derived from whatever source. Here, the
Majors have ``pricing power'' derived from their status as
complementary oligopolists; Spotify lacked ``pricing power,'' for
the reasons discussed supra.
The Judges use the phrase ``countervailing power,'' as discussed
supra, to reflect a contracting party's power, again from whatever
source, that offsets, in whole or in part, the pricing power of a
counterparty. (Thus, it is a power defined in relative terms
compared to the opposing commercial power.).
These two types of power collide in the negotiation process,
allowing each party to exert a measure of ``bargaining power.'' See
Orszag WDT ] 110 (and citations therein) (``Bargaining power can be
defined as the advantage one player has over another in establishing
desired terms [and] can arise from a number of sources, including
market power, better information (e.g., knowledge of the true value
of what is being negotiated), and credible threats to retaliate or
steer business away from the other player. A player with enhanced
bargaining power tends to extract greater surplus through better
terms.'').
---------------------------------------------------------------------------
The further factual record though, when analyzed through the lens
of economics, provides the answer to this facial conundrum; the Majors
were intent on surviving as powerful licensors vis-[agrave]-vis their
licensees.\53\ As discussed below, the Majors were [REDACTED], enabling
them to [REDACTED].\54\ One way the Majors could attempt to avoid this
development and survive as economically powerful licensors was to
[REDACTED] that were rapidly expanding in the interactive market.
---------------------------------------------------------------------------
\53\ See Manne & Williamson, supra at 620 (``In the end,
whatever business people think they are maximizing, whatever they do
or wish to do, survival is ultimately an economic matter.'')
(emphasis added).
\54\ Despite their complementary oligopoly power, the [REDACTED]
is a contemporary example of the literary adage: ``Uneasy lies the
head that wears a crown.'' William Shakespeare, King Henry IV, act
III, sc. 1. From the drier economic perspective, the [REDACTED].
---------------------------------------------------------------------------
Accordingly, as the record (discussed below) reveals, [REDACTED],
the Majors [REDACTED] in order to [REDACTED].\55\
---------------------------------------------------------------------------
\55\ An IPO is a process offering shares of a private
corporation to the public in a new stock issuance that allows the
corporation to raise capital from public investors. See
<a href="http://Investopedia.com">Investopedia.com</a> (search term ``Initial Public Offering'') (last
accessed May 12, 2021). Ultimately, Spotify decided to forego an IPO
and instead engaged in a ``Direct Placement'' (a/k/a ``Direct Public
Offering'' or ``Direct Listing'') by which the corporation does not
raise new capital, but rather enables its existing shareholders to
sell their stock to the public. See Spotify's Wall Street Debut is a
Success, New York Times (Apr. 3, 2018); See generally
<a href="http://Corporatefinanceinstitute.com">Corporatefinanceinstitute.com</a> (search term ``Direct Placement'')
(last accessed May 14, 2021).
---------------------------------------------------------------------------
The Judges' evidence-based analysis in this section is not the
story that SoundExchange chooses to emphasize. SoundExchange prefers
the story in which the Majors are the [REDACTED]. It is not immediately
obvious why SoundExchange prefers that story to the facts that actually
match economic theory to reality--that the Majors perceived themselves
as [REDACTED].\56\
---------------------------------------------------------------------------
\56\ It may be that SoundExchange was reluctant to emphasize a
countervailing power argument that was not based on a licensee's
pricing power because pricing power (through steering) was the
rationale applied in Web IV.
---------------------------------------------------------------------------
The forgoing analysis is also not the story told by the Services.
Although they discuss the same record facts as relied upon by the
Judges (discussed infra), they aver that these facts demonstrate merely
that the Majors were behaving as complementary oligopolists always
behave--[REDACTED], without regard for the bargaining power of their
counterparties. As explained in more detail infra, the Services'
understanding of the facts is neither supported by the record nor
relevant to the Judges' task of identifying an effectively competitive
rate.
b. The Majors' [REDACTED]
Nested within its assertions of Spotify's pricing power, discussed
supra, SoundExchange presented witness testimony and advanced
[[Page 59471]]
arguments that the [REDACTED]--in the interactive service market.\57\
Some of the most compelling testimony in this regard was provided by
Aaron Harrison, Universal's Senior Vice President, Business & Legal
Affairs, responsible for overseeing the teams that negotiate licensing
agreements with digital music services. Harrison WDT ] 1.
---------------------------------------------------------------------------
\57\ The rapid rise of the tech firms in the interactive market
is undisputed. The record reveals that [REDACTED], account for
[REDACTED] of U.S. interactive subscribers respectively, and
[REDACTED] has already [REDACTED]. Orszag WDT, tbl.4.
In his written direct testimony, Mr. Harrison emphasized the
[REDACTED]:
[S]ome on-demand services are part of companies that dwarf
[Universal] and dominate digital markets. Amazon, Apple and Google,
for example, can rely on their size to absorb any losses from their
streaming services and [REDACTED].
Id. ] 41 (emphasis added); see also Orszag WDT ] 39 n.56 (relying on a
2019 trade publication article stating that Amazon Music is reportedly
growing faster than Spotify and Apple Music).\58\ At the hearing, Mr.
Harrison elaborated on this [REDACTED]. 9/3/20 Tr. 5752 (Harrison)
(acknowledging that Universal's [REDACTED]).
---------------------------------------------------------------------------
\58\ As noted above, SoundExchange does not emphasize this
argument. In this regard, Mr. Harrison buries this [REDACTED] in a
section of his WDT entitled, ``[REDACTED],'' Harrison WDT at 12,
where he notes there are ``several reasons'' why [REDACTED]. But the
fourth (and final) reason he provides, the one addressed in the
accompanying text, see id. ] 41, pertains only [REDACTED]. Thus,
this final reason resides as something of a non sequitur within a
section explaining why Mr. Harrison believed [REDACTED].
---------------------------------------------------------------------------
The relevance of the size of the tech firms must be distinguished
from the market power of a Must Have Major. The latter has what
Professor Willig aptly describes as ``walk away'' market power, see
Trial Ex. 5600 ] 14 (CWDT of Robert Willig) (Willig WDT), in that a
service cannot operate when it lacks a license for the sound recordings
from each of the three Majors. Therein lies the power of ownership and
control over essential inputs possessed by complementary oligopolists.
The tech firms, however, possess a different type of power. Their
advantage is based on sheer size, affording them the potential to
dominate a market they decide to enter.\59\ Thus, if they were to
control the downstream interactive streaming market [REDACTED], they
would be well-positioned to threaten blacking out one (or more) Majors
and to follow through on that threat by, as Mr. Harrison testified,
[REDACTED]. See SX PFFCL ] 336 (``the music business is a rounding
error for these big-tech services.'').\60\
---------------------------------------------------------------------------
\59\ This distinction between market power and power derived
from sheer corporate size is a specific example of a broader
contemporary issue in competition law, especially with regard to
these tech firms. Compare Tim Wu, The Curse of Bigness 15, 21 (2018)
(asserting that the power of ``just a handful of giants . . .
Amazon, Google and Apple . . . transcend[s] the narrowly economic'')
with J. Wright et al., Requiem for a Paradox: The Dubious Rise and
Inevitable Fall of Hipster Antitrust, 51 Az. St. L.J. 293, 362
(2019) (criticizing the new emphasis on sheer corporate size as
``call[ing] for nothing less than the complete dismantling of the
consumer welfare standard and the consensus . . . among antitrust
practitioners, enforcers and academics . . . about how to promote
competition.'').
\60\ The ability of tech firms to dominate markets, including
music markets, and the implications of that power has been noted by
economists who have studied the issue. See Alan B. Krueger,
Rockonomics at 103, 200-201 (2019) (``Superstar firms, including
Google, Apple and Amazon, have probably benefited from . . .
deploying the technological innovations that enable them to take
advantage of enormous economies of scale [b]ut there is also a
concern that such firms use their dominant position to stifle
competition. . . . Spotify's long-run existential challenge is
exacerbated by the fact that [tech firms] can sustain losses . . .
rais[ing] the question of whether Spotify can be sustainable as a
stand-alone company.'') (emphasis added).
---------------------------------------------------------------------------
Accordingly, [REDACTED]. As Mr. Harrison further acknowledged on
cross-examination, it was his view that ``[REDACTED]'' 9/3/20 Tr. 5721
(Harrison). Moreover, Mr. Harrison agreed that the economic [REDACTED]
would not only [REDACTED], but also would ``[REDACTED].'' 9/3/20 Tr.
5721 (Harrison).
The Services do not dispute that the Majors [REDACTED]. In fact,
relying on Mr. Harrison's testimony, the Services argue that the Majors
[REDACTED]
[to] [REDACTED] . . . .
Services PFFCL ] 147.\61\ The Services argue that this testimony
reveals that ``[t]he unmistakable implication of Mr. Harrison's
testimony [is that Universal] [REDACTED] Services PFFCL ] 147.
---------------------------------------------------------------------------
\61\ The idea that [REDACTED]. In Web II, 72 FR 24084 (2007),
the Judges set rates for all noninteractive services at $0.0008 for
2006, rising annually to $0.0019 in 2010, after a hearing that
included the large tech services of that era--Yahoo, Microsoft, and
AOL. After the passage of the Webcaster Settlement Acts of 2008 and
2009, SoundExchange negotiated a substantially lower per-play
royalty rate regime for the pureplay noninteractive services--
beginning at the same $0.0008 for 2006, but then lower in every
subsequent year until reaching a 2010 rate of $0.00097, only 51% of
the Web II rate. (The pureplay rate was part of a greater-of
structure including a 25%- of-revenue prong, but that prong was not
triggered.). In addition, the pureplay settlement rates continued
through 2015 and were substantially lower than the Web III rates.
For example, in the final year of the Web III rate period (2015),
the pureplay rate was $0.0014, only 61% of the Web III rate of
$0.0023 (with similar disparities in the prior years of the Web III
rate period). The Webcaster Settlement Acts prohibited a party from
using the settlement rates as precedent or evidence in subsequent
proceedings. See generally Jeffrey A. Eisenach, The Sound Recording
Performance Right at a Crossroads: Will Market Rates Prevail?, 22
CommLaw Conspectus 1 (2014).
---------------------------------------------------------------------------
The Judges find that the Services misconstrue the import of this
aspect of Mr. Harrison's testimony. His point is [REDACTED]. (In fact,
[REDACTED] make that apparent. See Orszag WDT tbls.15 & 16.). Rather,
the point is that the [REDACTED] would [REDACTED] would [REDACTED]. For
example, [REDACTED]. See generally J. Baker & J. Farrell, Oligopoly
Coordination, Economic Analysis, and the Prophylactic Role of
Horizontal Merger Enforcement, 168 U. Pa. L. Rev. 1985 (1986). Thus,
[REDACTED].\62\
---------------------------------------------------------------------------
\62\ The Services also construe Mr. Harrison's testimony as
[REDACTED] at ``market segmentation.'' Services PFFCL ] 147.
However, market segmentation in the music streaming markets is
typically undertaken to effectuate price discrimination. There is no
sufficient evidence that is occurring here. The record does not
indicate that Apple, Amazon, Google, and Spotify compete among
themselves by each appealing principally to different segments of
the listening public based on the varying willingness-to-pay among
listeners (although each has tiers and products intended to appeal
to categories of listeners varying based on willingness-to-pay).
---------------------------------------------------------------------------
Whether [REDACTED] generates an effectively competitive rate in the
interactive benchmark market is of no consequence in this proceeding
regarding the noninteractive market.\63\ Rather, the important issue
for the present benchmarking purposes is whether the royalty rate the
Majors agree to accept from Spotify is less influenced, on balance, by
the complementary oligopoly power of the Majors [REDACTED].
---------------------------------------------------------------------------
\63\ [REDACTED]). See generally David T. Scheffman & Richard S.
Higgins, Twenty Years of Raising Rivals' Costs: History Assessment,
and Future, 12 Geo. Mason L. Rev. 371, 375 (2003). An economist who
specializes in the analysis of music markets has noted that
licensees and licensors have the power to strategically manipulate
relative streaming royalty rates. Kristelia A. Garcia, Facilitating
Competition by Remedial Regulation, 31 Berkeley Tech. L.J. 183, 221
(2016) (``the owners of popular songs . . . acting alone or in tacit
collusion with similarly situated entities [can] act
anticompetitively by . . . offering favorable rates to one service
over another.'').
---------------------------------------------------------------------------
Mr. Harrison's testimony clearly shows that [REDACTED]. This is the
economic reality that spawned Spotify's bargaining power--a reality
created by Spotify's successful 2011 entry into the U.S. market. That
is, it is a power that Spotify created, not merely a marketplace factor
that the Majors, as complementary oligopolists, chose to exploit.
Further, this particular bargaining power cannot be characterized and
explained away like SoundExchange's other attempts to explain Spotify's
bargaining power--
[[Page 59472]]
[REDACTED]. Quite the contrary: [REDACTED] \64\ [REDACTED]
---------------------------------------------------------------------------
\64\ Tech firm dominance would not necessarily be limited to the
exertion of their power in vertical negotiations with the Majors.
The tech firms could integrate upstream and develop their own record
companies and poach artists from the Majors, Such an event is not
unlikely, given that (1) Amazon has already integrated upstream to
create or purchase television and film content through Amazon
Studios, (2) Apple has already integrated upstream with original
content television shows, movies and documentaries available via
Apple TV, and 3) Google has made a similar foray, through YouTube
Originals. See generally <a href="https://www.fastcompany.com/3058507/apple-facebook-google-and-alibaba-take-hollywood">https://www.fastcompany.com/3058507/apple-facebook-google-and-alibaba-take-hollywood</a> (accessed June 2, 2021).
Further, there is historical precedent for downstream distributors
integrating upstream to compete with licensors, such as in 1939,
when the NAB, representing radio station licensees, created
Broadcast Music, Inc. (BMI) in the mid-20th century to compete with
ASCAP, the dominant musical works licensor, after the latter sought
a substantial increase in royalty payments. See, <a href="https://www.bmi.com/about/history">https://www.bmi.com/about/history</a> (accessed June 2, 2021).
---------------------------------------------------------------------------
Mr. Harrison's testimony as considered above was echoed by Mr.
Piibe, Sony's principal witness. Relying on Mr. Piibe's written
testimony, SoundExchange argues as follows:
If Spotify was out of the market, record companies would have
faced a material reduction in their relative bargaining power with
other services. . . . [REDACTED].
SX PFFCL ] 333 (quoting Piibe WDT ] 48) (emphasis added).\65\
---------------------------------------------------------------------------
\65\ [REDACTED] Mr. Piibe's testimony, repeated by
SoundExchange, [REDACTED], the Judges do not credit other portions
of that testimony. Specifically, the Judges do not agree that, in
the context of vertical negotiations involving complementary
oligopolists, [REDACTED], complementary oligopolists prefer multiple
downstream licensees whose competition, inter se, allows the
complementary oligopolists to avoid ``double marginalization''
(oligopolistic profits shared by upstream licensors and downstream
sellers) and thus to capture for themselves the entirety of the
supranormal profits generated by their market structure. See Web IV,
81 FR at 26342 & n.98 (Professor Katz testifying that ``actually,
the more intense the competition downstream, the greater the
incentive to charge a high price upstream because you don't have to
worry about so-called double marginalization) (emphasis added).
Also, Mr. Piibe oddly omits from his list of benefits arising from a
better Sony bargaining position its ability to increase its own
profits--listing only artist income and investment recoupment as the
benefits of a more advantageous bargaining environment. It is
curious when a businessman fails to identify his company's own
ability to increase profits as a worthy goal, as if acknowledging a
desire to maximize profits is somehow inappropriate, so it is better
to be disingenuous than disreputable. And, in that vein, Mr. Piibe
joins in the Orwellian language of several of the Majors' other fact
witnesses--identifying their streaming service counterparties as
their ``partners.'' Parties seeking to promote their own interests
at the expense of their counterparties is a fundament of negotiation
to be anticipated and welcomed, but the counterparties are hardly
``partners.'' (Although in the context of [REDACTED] the Judges find
it appropriate to note that the [REDACTED]).
---------------------------------------------------------------------------
SoundExchange also makes this bargaining point, in the form of a
response to Professor Shapiro's argument that the Majors should have
instead gone on offense, using their complementary oligopoly power
``[REDACTED].'' 8/20/20 Tr. 3102-04 (Shapiro). In response to this
argument, SoundExchange convincingly stated:
Had record companies leveraged their must-have status to walk
away from Spotify, as Professor Shapiro suggests they were willing
to do, Spotify's exit would have strengthen[ed] Apple Music
significantly, and also strengthen[ed] Amazon and Google.
[REDACTED].
SX PFFCL ] 335 (citing 8/11/20 Tr. 1273-75 (Orszag); Orszag WDT ] 33,
tbl.4; 9/3/20 Tr. 5733 (Harrison) (emphasis added)).
To illuminate further how Spotify's role as a bulwark against the
tech firms influenced the Majors' bargaining position with Spotify,
SoundExchange states:
Put simply, leveraging must-have status to put Spotify out of
business would risk making Apple Music dominant in the market.
[REDACTED], the result would be a material increase in their
relative bargaining power. The outcome would put the record
companies in a precarious position, given that the music business is
a rounding error for these big-tech services.
SX PFFCL ] 336 (citing 8/11/20 Tr. 1273-75 (Orszag); 9/3/20 5733
(Harrison) (emphasis added)). See also 8/11/20 Tr. 1274-75 (Orszag)
(noting that the absence of Spotify would increase the market shares of
the tech firms).\66\ SoundExchange's point is reasonable. Indeed, given
that the record makes it clear [REDACTED].
---------------------------------------------------------------------------
\66\ More precisely, using Mr. Orszag's subscriber data, if
Spotify left the market and its subscriber share was distributed
proportionately among its existing competitors, [REDACTED] See
Orszag WDT, tbl 4. Alternatively, if Spotify were to be acquired by
another large tech firm (e.g., Facebook) and no longer be
``independent,'' then adding Spotify's share to the existing tech
firm shares would place [REDACTED]% of the interactive subscription
in the hands of the large tech firms.
---------------------------------------------------------------------------
c. The Majors Demonstrated [REDACTED]
Early in the negotiations, the [REDACTED]. Mr. Harrison's further
testimony on behalf of SoundExchange and Universal, in colloquy with
the Judges, made that clear:
The Judges: [W]as it your understanding that [REDACTED]?
Mr. Harrison: [REDACTED]
9/3/20 Tr. 5748 (Harrison) (emphasis added).
The documentary evidence regarding the negotiations between Spotify
and the Majors, relied on by SoundExchange, is consistent with the
testimony considered above. More particularly, this evidence also
reveals that [REDACTED].\67\
---------------------------------------------------------------------------
\67\ [REDACTED] Spotify with a countervailing power that
generated a more level bargaining table, in contrast to the one-
sided bargaining where a ``Must Have'' Major could threaten--in
Professor Willig's terminology--to ``walk away'' from the
negotiations. This change explains why the [REDACTED] other terms
resulted in [REDACTED], as discussed infra.
---------------------------------------------------------------------------
In an email to Stefan Blom, Spotify's then Chief Strategy Officer,
dated December 7, 2016--approximately one-half year prior to the
execution of the Spotify-Sony 2017 Agreement--Sony's President, Global
Digital Business & U.S. Sales, Dennis Kooker, wrote:
[REDACTED].
Trial Ex. 4026 (emphasis added).\68\ See also SX PFFCL ] 441
(acknowledging that Trial Ex. 4026 [REDACTED].\69\ And, as testified to
by Mr. Piibe (who reported to Mr. Kooker), Spotify requested
[REDACTED]s. 9/3/20 Tr. 5323 (Piibe). Thus, from the [REDACTED] that
the former [REDACTED] through, inter alia, [REDACTED].
---------------------------------------------------------------------------
\68\ Mr. Kooker testified in Web IV. SoundExchange did not call
him as a witness in this Web V proceeding.
\69\ The Judges understand the Majors' expressed interest in a
[REDACTED] to be a specific example of how the Majors' could
[REDACTED]. It is also true, as the Services point out, the record
reflects that the [REDACTED] (and the ultimate Direct Placement
[REDACTED]. See <a href="https://seekingalpha.com/article/4408328-direct-listing-explained">https://seekingalpha.com/article/4408328-direct-listing-explained</a> (accessed June 2, 2021). However, there is no
record evidence regarding the cost (including opportunity cost)
incurred by the Majors to [REDACTED], so the Judges cannot find
sufficient evidence that the Majors' [REDACTED] was an independent
or material motive for [REDACTED]. See also Services PFFCL ] 144
(the Services acknowledging that Spotify's [REDACTED] (emphasis
added).
---------------------------------------------------------------------------
As generally acknowledged by Mr. Harrison's testimony, discussed
supra, Universal's internal documents [REDACTED]. Eight months before
the parties concluded negotiations and entered into the April 2017
Agreement, Johnathan Dworkin, Universal's Senior Vice President of
Digital Strategy and Business Development, wrote the following in an
internal email to other Universal executives dated August 27, 2016:
[REDACTED]Trial Ex. 4023. See also SX PFFCL ] 473 (SoundExchange
conceding that in Trial Ex. 4023 [REDACTED].'').
In a subsequent internal email to other Universal executives dated
September 4, 2016, Jeffrey Harleston, Esq., Universal's General Counsel
and Executive Vice President of Business & Legal Affairs, wrote the
following--still seven month prior to the execution of Universal's 2017
Agreement with Spotify:
[REDACTED].
[[Page 59473]]
Trial Ex. 5421 (emphasis added).\70\ In this exhibit, Mr. Harleston
added that the [REDACTED] Trial Ex. 5421. As discussed further infra,
the Judges find Spotify's [REDACTED] to be consistent with [REDACTED].
---------------------------------------------------------------------------
\70\ Mr. Harleston, also, testified in Web IV, but SoundExchange
did not proffer him as a witness in this proceeding.
---------------------------------------------------------------------------
Rounding out the early documentary evidence, the third Major,
Warner, in internal notes written by its chief Spotify negotiator,
Tracey Gardner, dated October 12, 2016--eight months out from the
eventual Warner-Spotify 2017 Agreement--recorded Spotify's [REDACTED] .
. . .'' Trial Ex. 4022 (emphasis added). According to these notes,
Warner conveyed [REDACTED] Trial Ex. 4022 (emphasis added). Thus,
Warner, [REDACTED], had indicated to Spotify early in the negotiations
that [REDACTED].\71\
---------------------------------------------------------------------------
\71\ As the quoted language provides, Warner indicated that
there was [REDACTED]. Although that point is self-evident and
economically rational, stating so in negotiations is obviously
strategically prudent. But the salient point here is that
[REDACTED]--thus allowing Spotify to negotiate on a more level
playing field than would otherwise exist when it lacked such
countervailing power in negotiations with a Must Have Major.
---------------------------------------------------------------------------
As negotiations proceeded, [REDACTED] remained an important element
[REDACTED]. Specifically, in a December 13, 2016 internal Universal
email, Trial Ex. 4052, written [REDACTED] of the Universal-Spotify 2017
Agreement, Universal's Michael Nash, Executive Vice President of
Digital Strategy, included a draft \72\ letter to Spotify that stated
the following:
---------------------------------------------------------------------------
\72\ Although the letter is identified in the email as a draft,
SoundExchange does not claim that correspondence containing this or
substantively similar language was not in fact transmitted to
Spotify. See SX RPFFCL (to Services) at 83 n.35 (noting the
correspondence within Trial Ex. 4052 is identified as a draft but
not denying it was sent to Spotify). Clearly, SoundExchange and
Universal could have provided documentary evidence and/or testimony
in an attempt to demonstrate the draft correspondence (or its sum
and substance) had not been transmitted to Spotify. Because
SoundExchange did not present such evidence or testimony, the Judges
find that this correspondence, or a substantively similar version,
was transmitted by Universal to Spotify.) In any event, this draft
email demonstrates Mr. Nash's state of mind regarding the importance
to Universal of [REDACTED].
---------------------------------------------------------------------------
[REDACTED].
Trial Ex. 4052 (emphasis added). This language not only re-affirms
Universal's [REDACTED], it also strongly emphasizes the importance to
Universal of [REDACTED].
In sum, the Judges find that the negotiation-related documents and
testimony \73\ show [REDACTED].\74\
---------------------------------------------------------------------------
\73\ These business documents are probative because they provide
facts relating to the parties' state of mind during negotiations
that are [REDACTED]. See Manne & Williamson, supra at 626-627
(``business documents can be useful in demonstrating `economic
realities' [that are] relevant . . . [and] it is ``permissible to .
. . consider evidence of intent, belief, or motivation to
demonstrate that the act intended did, in fact, happen.).
\74\ In an attempt to explain away the statements made by the
Major's executives contained in the documents discussed above--
[REDACTED]--SoundExchange asserts that these statements are
[REDACTED] For example, [REDACTED] testified that [REDACTED].''
[REDACTED] instead [REDACTED] 9/2/20 Tr. 5265 (Piibe);
SoundExchange's Corrected Replies to the Services' Joint Proposed
Findings of Fact and Conclusions of Law ] 145 (SX RPFFCL (to
Services)). See also SX RPFFCL (to Services) at 81 nn.30, 33, 35; SX
PFFCL at 147 n.17, ] 441 (multiple assertions by hearing witnesses
that [REDACTED]). This argument highlights the serious defect in
SoundExchange's failure to call as witnesses the negotiators and
executives identified in the Majors' documents, who are the
individuals who could testify as to their own state of mind when
making those statements. Moreover, if these declarants [REDACTED]
For these reasons, the Judges afford no weight to any testimony by
SoundExchange witnesses who offer hearsay or opinion testimony
regarding the so-called ``true meaning'' of statements made by
declarants contained in the documentary record.
---------------------------------------------------------------------------
d. The Services' Contrary Explanation of the [REDACTED] as Based Solely
on the Majors' Complementary Oligopoly Is Unavailing
The Services do not acknowledge this countervailing power argument.
Rather, they attempt to explain away Spotify's value and power--
[REDACTED]--by treating that phenomenon as purely the consequence of
the Majors' complementary oligopoly power.
In this regard, the Services assert that the [REDACTED] was merely
the [REDACTED]--telltale behavior of a complementary oligopolist rather
than a price competitor. They rely on testimony by Messrs. Harrison and
Orszag that Universal [REDACTED] not to [REDACTED], but rather
[REDACTED]. Services PFFCL ] 148 (and record citations therein). The
Services also cite testimony by Professor Shapiro in which he opines
that when licensors are [REDACTED] 8/19/20 Tr. 2881 (Shapiro) (emphasis
added). This basic principle, according to the Services, explains why
``[REDACTED]'' Services PFFCL ] 149 (citing 8/19/20 Tr. 2864, 2870,
2880 (Shapiro)) (emphasis added).
SoundExchange asserts there is a serious flaw in this reasoning,
which undermines the Services' assertion that the Majors' complementary
oligopoly status explains the sum and substance of the relative
bargaining power of the Majors and Spotify. Specifically, SoundExchange
avers that if the Majors were [REDACTED] they would have [REDACTED].
However, the record indicates that the Majors only negotiated
[REDACTED].\75\ In support of this point, SoundExchange refers to
particular testimony by Professor Shapiro in a colloquy with the
Judges. When asked by the Judges why the Majors [REDACTED]--given that
[REDACTED]--Professor Shapiro responded, [REDACTED] 8/19/20 Tr. 2880
(Shapiro) (emphasis added).
---------------------------------------------------------------------------
\75\ Apparently, [REDACTED], 9/3/2020 Tr. 5681-82 (Harrison),
but that is not the same as a Major [REDACTED] as complementary
oligopolists, in accordance with the Services' theory of the case.
The Judges address the paucity of the record relating to this
[REDACTED], supra note 51.
---------------------------------------------------------------------------
The Judges agree with SoundExchange and find Professor Shapiro's
response unpersuasive. His theory of complementary oligopoly as the
single cause of the [REDACTED] is premised on the idea that it was
[REDACTED]--at monopoly rates rather than complementary oligopoly
rates. 8/19/20 Tr. 2880-81 (Shapiro). But, if it was [REDACTED], there
would have been no need [REDACTED]; rather, in their own interest the
Majors would have [REDACTED]. Moreover, SoundExchange is persuasive in
its argument that because the Majors [REDACTED], a fact acknowledged by
Professor Shapiro, see Shapiro WRT at 23, fig. 1; 8/20/20 Tr. 3108-09
(Shapiro), the [REDACTED].
Alternatively, Professor Shapiro noted that Spotify may have
[REDACTED] because it was the ``leader'' among interactive services.
But the Judges find the record to demonstrate, as discussed above, that
Spotify's ``leader'' status was important because it was the leader
among [REDACTED]. Google's economic expert witness, Dr. Peterson,
though, did acknowledge the importance of [REDACTED], testifying that
[REDACTED] 8/25/20 Tr. 3723 (Peterson).\76\
---------------------------------------------------------------------------
\76\ By contrast, it is not clear that Professor Shapiro had
recognized, acknowledged or recalled the importance of Spotify's
[REDACTED], until the Judges brought the issue to his attention.
Compare 8/19/20 Tr. 2882 (Shapiro) (stating in response to the
Judges' inquiry that he did not recall reviewing correspondence
indicating that [REDACTED]) with 8/20/20 Tr. 3080 (Shapiro)
(Professor Shapiro testifying the next hearing day that it was his
``sense'' that because Spotify was [REDACTED]the Majors
``[REDACTED].'') and Shapiro WRT at 18 n.58 (Professor Shapiro
quoting from Sony's December 7, 2016 internal document (later marked
in evidence as Trial Ex. 4026 and discussed supra) stating that
[REDACTED] (emphasis added). Additionally, it is noteworthy that
Professor Shapiro did not specifically address the point in Harrison
WDT ] 41 where Mr. Harrison identified [REDACTED] because he
identified the Harrison WDT as a document upon which he relied in
preparing his rebuttal testimony. Shapiro WRT app. A.
---------------------------------------------------------------------------
[[Page 59474]]
Indeed, were it not for [REDACTED], its position [REDACTED] would
make it [REDACTED], because [REDACTED]. That is, the Majors, as
complementary oligopolists, would prefer to keep downstream competition
roiling to avoid a downstream extraction of monopoly profits (double
marginalization) that would reduce the Majors' revenues, as discussed
in Web IV and noted earlier in this Determination.
The Judges note that, ultimately, in their post-hearing briefing,
the Services do appear to acknowledge that the Majors [REDACTED]
Services RPFFCL ] 477 (emphasis added). The Services assert, though,
that this reflects only that Spotify has ``[REDACTED], which, they
contend, would explain why the Majors [REDACTED]. Services RPFFCL ] 477
(emphasis added). But, the Judges find this assertion to be fully
consistent with their finding that Spotify's much different
circumstances explain why it had countervailing power--generated by the
confluence of (1) [REDACTED] and (2) its own status as the
[REDACTED].\77\
---------------------------------------------------------------------------
\77\ As the Judges have explained in other circumstances,
licensors will also charge different licensees different royalties
to promote price discrimination and in recognition of a licensee's
lower willingness-to-pay (often as a function of its lower ability-
to-pay). But, a licensor will not offer a licensee a lower rate if
that licensee's presence serves to cannibalize the business of
services paying higher royalties (as Professor Willig explains well
in this proceeding). Here, after the [REDACTED] [REDACTED]. Thus,
providing [REDACTED]. There was; and that particular attribute--as
the record demonstrates--was [REDACTED].
---------------------------------------------------------------------------
Finally, according to the Services, the Majors' [REDACTED] ``does
not inform the demonstrated reasons why they [REDACTED] Services RPFFCL
] 477. The Judges partially agree: the Majors' decision [REDACTED] is
not informative--standing alone--to explain why they did [REDACTED].
However, the Services are simply in error when they say the Majors'
[REDACTED] was disconnected from [REDACTED]. As the record discussed
above reveals, the connection is clear: SoundExchange provided ample
evidence that the Majors [REDACTED]. And, to reiterate, Spotify came to
possess that power because it had developed a market-leading business
while [REDACTED].\78\
---------------------------------------------------------------------------
\78\ Additionally, the Judges reject the Services' argument as
reductive. That is, the Services treat the complementary oligopoly
structure of the licensor side of the market as wholly explanatory
of the [REDACTED]. In other words, they essentially assert that
because the licensors are complementary oligopolists any [REDACTED]
must be a matter of pure self-interest. But, that structural
explanation ignores the dynamic and strategic competitive effects
revealed by the present record: [REDACTED]; [REDACTED]; and the
interplay of those two forces that provides Spotify with a
countervailing power [REDACTED]. The Services' argument also is
inconsistent with the fundamental economic concept of ``Pareto
Optimality,'' which posits that any consensual transaction between
private actors is efficient, in the sense that it benefits each
party (or else it would not enter into the transaction). To be sure,
if a party is not a willing buyer or seller, whether because of a
counterparty's excessive market power or otherwise, this optimality
is not realized, but here the Majors and Spotify found it in their
interest, through the exercise of their countervailing power, to
enter into agreements containing [REDACTED]. Accordingly, it is
incorrect to state, as the Services do, that the negotiated
[REDACTED] cannot be in the mutual interest of Spotify and the
Majors.
---------------------------------------------------------------------------
e. There Is Agreement That Spotify's Subscription Royalty Rate Is
[REDACTED] Set Through the Exercise of Complementary Oligopoly Power
Alone
Notwithstanding the foregoing analytical disputes, Professor
Shapiro acknowledges that Spotify's subscription royalty rate equates
with a rate he identifies as set without the anticompetitive effect of
complementary oligopoly power. As SoundExchange explains--relying on
Professor Shapiro's own testimony--in the course of developing his
proposed competition adjustment, he calculates [REDACTED]'s effective
per-play interactive royalty rate at $[REDACTED]. Ex. 4094 at 40 &
tbl.10 (SCWDT of Carl Shapiro) (Shapiro WDT). Then, he characterizes
this $[REDACTED] rate as an effectively competitive rate (as a base for
comparison with other rates he identifies as not effectively
competitive). Id. at 40; 8/19/20 Tr. 2850 (Shapiro).\79\
---------------------------------------------------------------------------
\79\ Professor Shapiro reaches this opinion based on the limited
repertoire available on [REDACTED], which he understands to
demonstrate that customers ``do not expect to find all their
favorite artists and recordings on the service.'' Shapiro WDT at 40.
Thus, he opines that, for [REDACTED], no record company is a Must
Have, making the rate effectively competitive. 8/20/20 Tr. 3110-11,
3117-19 (Shapiro).
---------------------------------------------------------------------------
SoundExchange notes that, according to Professor Shapiro's own
calculations, Spotify's effective subscription per-play rate is
$[REDACTED], Shapiro WDT at 40, tbl.10, [REDACTED] to the [REDACTED]
rate he characterizes as free of the complementary oligopoly effect. 8/
20/20 Tr. 3112-13 (Shapiro); see also 8/10/20 Tr. 1170 (Orszag).
SoundExchange further notes that Professor Shapiro acknowledges, as he
must, that these two rates are [REDACTED] 8/20/20 Tr. 3113 (Shapiro).
Given this [REDACTED], Mr. Orszag opines that, at most, a competition
adjustment should measure the difference between the Spotify effective
rate ($[REDACTED]) and the [REDACTED] effective rate ($[REDACTED]).
Orszag WDT ] 114. This difference would lead to a [REDACTED]% effective
competition adjustment.\80\
---------------------------------------------------------------------------
\80\ [REDACTED]/[REDACTED] = [REDACTED]
[REDACTED]-[REDACTED] = [REDACTED]%.
---------------------------------------------------------------------------
After first conceding [REDACTED] the Services attempt to dismiss
the importance of this equivalency--in a reply, quoted below--that is
off-point and unconvincing:
In an attempted ``gotcha,'' Mr. Orszag argues that if
[REDACTED]'s per-play rate of $[REDACTED] reflects the lack of must-
have power, and if [REDACTED] pay $[REDACTED] per performances (see
Shapiro WRT at 30 fig. 3), then the record companies must not be
must-have for those services either--in which case there is no need
to adjust the Spotify rates any further for effective competition
(or to make an adjustment of only [REDACTED] \81\ ([REDACTED])).
Orszag WRT ] 114. . . . Mr. Orszag is resorting to sleight-of-hand.
Because he artificially excludes all the discounted plans from his
calculations, the effective per-play rate of Spotify plans on which
he actually relies for his benchmark is $[REDACTED], not
$[REDACTED]. Moreover, as explained at length above, he does not use
the per-play rate at all, but rather alters the Web IV methodology
by starting from Spotify's percent-of-revenue royalty. . . .
---------------------------------------------------------------------------
\81\ This [REDACTED]% calculation appears to be a computational
error, as indicated by the math in the immediately preceding
footnote.
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Were Mr. Orszag actually working from a $[REDACTED] per
performance benchmark and following the Web IV methodology [by] . .
. drop[ping] his industry-wide interactive per-play benchmark . . .
he might have a point--but he does not.
Services PFFCL ] 160.
This criticism is off-the-mark because it explains why the Services
believe that Mr. Orszag improperly ignored Spotify's $[REDACTED]
effective per-play subscription rate. But the point here is not what
Mr. Orszag did or did not do with this data point, but rather that
Professor Shapiro identified two [REDACTED] royalty rates as
simultaneously satisfying and not satisfying the effective competition
requirement (inconsistent with the principle of transitivity). The
Services' response fails to address that point.
The Judges find that the [REDACTED] is generally confirmatory of
the fact that Spotify's [REDACTED] is not--as the Services maintain--a
product solely of the Majors' complementary oligopoly power.\82\
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\82\ However, the Judges do not find that the [REDACTED] of
Spotify's effective per play rate with [REDACTED]'s per play rate
limits the effective competition adjustment to the [REDACTED] in
those rates. Rather, as discussed elsewhere in this Determination,
the Judges agree with Dr. Peterson (Google's expert economic
witness) that the 12% steering adjustment from Web IV remains
applicable here. But, as also described elsewhere herein, that 12%
downward adjustment must be offset by use of the [REDACTED]), as
applied to the segments of the Spotify market for which the
[REDACTED] applied. See Peterson WDT fig. 5 ([REDACTED]). Further,
by limiting the application of the [REDACTED]'' adjustment only to
Spotify market segments to which that rate actually applied, the
Judges have allayed a final argument by the Services, viz., that the
evidentiary value of the Spotify and [REDACTED] should not apply
beyond the subscription tier. See Services PFFCL ] 161.
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[[Page 59475]]
f. The Majors' [REDACTED] Explains the [REDACTED] of the Ongoing
Negotiations
The Majors' [REDACTED] explains the flow of the ongoing
negotiations between the Majors and Spotify. Unlike a negotiation in
which the complementary oligopolists' ``Must Have'' status allows them
to dictate terms, they [REDACTED].
In this regard the Services describe these negotiations as follows:
[W]hat is apparent from the evidentiary record is [REDACTED] . .
. par for the course in a deal negotiation . . . .
Services RPFFCL ]] 426-427 (and record citations therein).
But, the point of complementary oligopoly power is that a ``Must
Have'' supplier/licensor [REDACTED] to its buyers/licensees. And yet,
here the Services acknowledge that the Spotify-Major negotiations were
marked by a [REDACTED], as hap
[…truncated; see source link]Indexed from Federal Register on October 27, 2021.
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