More on Spitzer Political Hit Job

The more I read, the more convinced I am that this was a blatant hit job, directed solely and precisely at Spitzer. Two observations:

1. The investigation is reported by BBC to have commenced against Spitzer in 2007 when banks notified the IRS of some suspicious transactions involving Spitzer's account:

The investigation began last year when banks reported irregular transfers to the Internal Revenue Service, which traced them back to Mr Spitzer and discovered they were made to a high-priced prostitution ring, an unnamed law enforcement official told the Associated Press (AP) news agency.

2. According to the NYT, Spitzer's name was allegedly discovered in court papers filed in the criminal investigation of four individuals allegedly involved with the prostitution ring:

Mr. Spitzer’s involvement with the prostitution ring came to light in court papers filed last week, the officials said, as federal prosecutors charged four people with operating the service, Emperor’s Club V.I.P. Mr. Spitzer was caught on a federal wiretap discussing payments and arranging to meet a prostitute in a Washington hotel room last month. The affidavit, which did not identify Mr. Spitzer by name, indicated that he had used the prostitution service before, although it was not clear how often.

So what was the impetus for the investigation? Did it start by the FBI's investigation into an ongoing prostitution ring, and Spitzer just happened to be swept up in it? Or did the banks' contact to the IRS cause it to begin investigating Spitzer specifically, which in turn led to the investigation of the prostitution ring?

If it began as an investigation of Spitzer, several questions must be answered. First, why is it that any banking transaction was suspect enough to warrant notifying the IRS? Surely $4,000 expenditures every now and then are not so extraordinary that the federal government must get involved. What about the transactions was suspect? Did they think that Spitzer was evading taxes? Surely not, since he's a public official and has significant disclosure requirements above and beyond the average taxpayer.

If it all began as a result of an investigation of the prostitution ring, how and when did the "suspicious" banking transactions become relevant? Did the investigators have some circumstantial evidence that Spitzer was patronizing prostitutes but needed to dig into his financial records to see if any payments confirmed those accounts? If so, wouldn't it be a bit of a twisting of facts to say that the bank brought them to the attention of the IRS, and not the other way around?

That Spitzer made so many powerful enemies cannot be disregarded when looking into this matter. The reality is that an obscene number of lawmakers make use of prostitutes' services on a regular basis, as do corporate heads - if this were not the case then there would be no such thing as $4,000 hookers, much less so-called "high class prostitution rings." That Spitzer is the lone public figure to be fingered in this investigation should speak volumes. The sketchy facts surrounding the origins of this investigation are even more telling.

Again, no defense for his actions, if the allegations are true. However, it is a private misdeed. What is more important: (1) In judging Spitzer's character, how has he conducted himself in office and what he has done to serve the public in his public capacity?; and (2) In judging the events at hand, how was the investigation brought about, how was it conducted, and what are the end results of the investigation in its entirety? The investigation and the results are a public concern because it was conducted 100% with public funds and in the public interest. Spitzer is of interest only because he is a public official and our only interest in him is his conduct in that position.

I hope Spitzer is as wise in confronting this issue as he's been in all of the other tasks before him; I hope he asks the hard questions and finds out how this came about, and defends himself - not defends his actions, but brings light to the unfathomable breach of public trust that was, no doubt, the impetus behind the investigation.

Let's face it - if Spitzer goes down, if he resigns and never again holds public office, we all lose. As common citizens, we will have lost an invaluable insider, one who was willing to stand up to the wealthy and powerful and fight for what was right. If Spitzer resigns, the bad guys will win yet again.

Wagging the Dog

Yesterday the New York Times broke the story about NY Governor Eliot Spitzer's alleged involvement with a prostitute in a Washington hotel room. From what we know, this information resulted from a federal wire tap. Spitzer, going by the name "Client 9," was recorded in a telephone call in which he allegedly ordered the girl in mid-February.

Am I the only one that finds it curious that the FBI and IRS, under the authority of a 98-year old law, are expending untold amounts of federal taxpayer money to investigate a high-class prostitution ring? Why is it that said prostitution ring just happened to count Eliot Spitzer among its clients, and why is Spitzer the first (and perhaps only?) name announced in connection with it? Given that this prostitution ring operated out of New York and apparently serviced D.C., surely there are business titans and other politicos involved. Aren't their names worthy of disclosure?

It seems rather clear to me - Spitzer pissed off a lot of wealthy, powerful people and those people wanted to make sure he paid. His crackdown on Wall Street was maverick; his pursuit of payola and the major record labels/radio stations involved was damn near suicidal. However, he did both because they were the right things to do.

I have admired Spitzer from afar for both of these matters; he seemed willing to do what no other member of the executive or legislative branch had the stomach for. He conducted himself as though he was beholden to no one other than the people. He did more good for this country on behalf of the state of New York than most people will ever know.

And now media outlets throughout the country are calling for his head, as are, of course, the Republicans. Is it any wonder that the news media so vehemently calling for his resignation also felt, directly or indirectly, the sting of his investigations in his previous life in the attorney general's office?

Something about this whole mess stinks - it's reminiscent of the Tennessee Waltz investigation in my home state a couple of years ago, where a number of Democratic state legislators were wrapped up in a bribery sting. Details are somewhat sketchy; a fake company was set up and law makers were induced into taking bribes to vote on legislation benefiting the fake company. I never learned exactly why the investigation was launched, or by whom. However, what I do know is that it was conducted by the FBI and some very prominent Democrats fell from grace as a result.

I am by no means excusing Spitzer's actions. However, I'm also realistic enough to know that politicians will be politicians. Absent being a murderer, rapist, drunk driver, Ken Lay, or other serious criminal whose actions impact the lives of others, I don't really give a damn. It sounds cliche, but what Spitzer does on his own time is his own business. While I question the circumstances and methods of Tennessee Waltz, bribery is a violation of the official's office and directly impacts the people. Having sex with a prostitute, however, is 100% personal and, in the grand scheme of things, a modest transgression; the consequences of its disclosure will do unfathomable harm to him personally and to his family. He will pay a hefty price where a price should be paid - at home.

However, how does this impact him professionally? Why is it that we're so quick to toss Spitzer out on his ear, and yet the very real criminal happenings at the White House and in other areas of the executive branch aren't even mentioned in the same breath as resignation?

Consider this US News blog posting, which identifies all the stories regarding Spitzer, most of which point to his unfitness and inability to continue to serve, and then the next story is entitled, "Democrats Sue For Bush Aides' Testimony." This article is about the Democrats trying to get at the heart of some U.S. Attorney firings. Not coincidentally, the judge set to hear the case is a Bush appointee and also heard the case brought in an attempt to reveal documents pertaining to Cheney's secret energy planning meetings (ruled in favor of the VP). Oh yeah, and this same judge is also a member of the FISA court. All three of these topics involve very, very serious breaches of the public trust, violations of law that go to the core of this country's existence, and the only head to role has been Alberto Gonzalez, and even it had to be hacked and sawed and twisted for months before it came loose.

[Speaking of FISA, I wonder if the warrant the FBI obtained to wiretap Spitzer's phone was issued as a part of the FISA process; if the FBI engaged in its dragnet form of listening in, found the goods, then asked FISA to permit its investigation going forward.]

Spitzer, a politician who actually did some measurable good in his time, will likely get swept to the side by the drumbeat of the old guard, all under the guise of restoring honor and integrity to public office; in reality, all we will have done is extinguished one of the brightest and most ardent public advocates that American politics has seen in 40 years. Like MLK, JFK and his baby brother, Bobby, we'll never know what great things this country could have accomplished.

How Do Artists Get Paid in Unconventional Delivery Services?

Bruce Houghton asks the question today: How much of the money that labels are making on deals like imeem, Spiral Frog and YouTube will ever make it to the artists? For instance:

Each service has made their own unique deals with labels and publishers for compensation. Some pay a fee per play or download. Others share a portion of ad revenue received; and rumors have a new MySpace music service trying to compensate labels with stock options.

But how much of that money will find its way to the artist and how many of these new deals conform with existing label and publishing contracts or the statutory rate legally due songwriters? I don't know of a single artist contract that mentions stock options or ad revenue as acceptable compensation.

More concerning than what the artist deals don't say is what the deals do say. Every single record deal I've ever seen has a convenient little clause, providing that regardless of how the rest of the contract could be interpreted, if the label earns money that is not specifically attributable to the artist's masters, the artist has no right to that income. Therefore, if the label licenses it's entire catalogue, or if the label agrees to get paid a flat fee or royalty payment for any and all use of the recordings it controls, then the individual artists get nothing.

This is usually one seemingly innocuous sentence in what are often 40-page contracts, though the impact could be millions of dollars. To the extent that ad-supported and other unconventional distribution methods become more prevalent, labels will profit and the artists will get nothing.

This is not a case of a new distribution method not accounted for in the old-school record deals - they have always been fairly good about describing future types of sales that aren't currently known. For instance, downloads were easy and, in fact, under a lot of older deals the artists get a huge benefit - a service offering downloads has only licensed that right from the label, and artists typically get paid 50% on a license, so some are getting nice checks from iTunes sales. This loophole has been closed and almost every label now defines downloads as a traditional sale and thus, payable at the standard record royalty. Nonetheless, a sale is a sale, and artists are getting paid.

However, there is no similar provision for ad-supported revenue. Sure, they might (and should) be considered licenses and, thus, compensable pursuant to the general license provision in the record deal. The problem is the meddling "specifically attributable" language - unless imeem provides a detailed accounting of every recording that it transmits, the artists are out of luck. Moreover, depending on the language of the record deal, even if the labels get a detailed accounting of uses, the artists may still not get paid because the label gets paid on the whole. If the dollars aren't tied to the transmission, the artist may get nothing.

Fixing this is up to the artist's attorney; this is a provision that I've focused on for a couple of years, with varying degrees of success. However, as ad-supported services become more prevalent, artists must be all the more persistent in fighting for their right to be paid on these uses.

Public Attitudes on File Sharing

Jon Healey wrote a couple days ago on a conversation he had with a professor-friend of his, who reported some findings of an informal survey of his music business students:

[T]his year's respondents said they download music regularly through file-sharing networks and other unauthorized sources, while buying music from iTunes intermittently (64% said they did so 1-4 times per month, with 5% saying more than 5 times). They were also asked to rate on a scale of 1 to 7 how nervous they were about being punished for illegal downloading, with 1 being "not concerned" and 7 being "extremely concerned." Two-thirds answered with a 1 (43%) or a 2 (24%). Only 4% put down a 5 or 6, and none went all the way to 7.

Yesterday, I was speaking with a friend of mine who is a very successful producer. We were talking about the status of the industry - the wrongheadedness of the major labels and publishers, the lack of a *real* voice for songwriters and recording artists, and what profound and irreversible damage that can be caused by seemingly well-intentioned kids like these students.

This producer and I unfortunately had come to the same conclusion without previously knowing it. If filesharing continues to go unchecked then one of two things will happen:

(1) Artists will continue to record the music that they want but will no longer be able to do it professionally, because it will no longer be economically viable to record an album (no matter how good digital technology may become, a basement tape will always sound like a basement tape).

(2) Artists will have to get their recording income from a private source, meaning that they will continue to record music, but it'll be for McDonald's, Exxon, Coca-Cola, Wal-Mart, or whatever other corporation needs a little ditty to go with its latest feel-good commercial. It was bad enough with major labels recording mediocre songs because they'd sell a lot of records. Imagine how bad it'd be if the bulk of recorded music were recorded to sell a product?

File-sharing and free media proponents might think this is crazy but I guaran-damn-tee you its so real its scary. We're already heading there - the 360 deals are just a precursor, where the creative recording process is getting mixed up with merchandising and the like. Artists are already relying more and more on alternative income streams (always did, really, just now the labels are suckling on the same tit). Recording budgets are going down and who's to say that, once labels have a solid 360 deal, they stop tying the term to album cycles and start focusing on terms of years, meaning the artist could be tied to a deal but no longer releasing albums?

Pointing to public consumption patterns, especially those of students, as an indication of the way of the future, or of what the market must have, or of what is right or of what is inevitable, can be characterized as the tail wagging the dog. It is also extremely reminiscent of the cocaine craze of the '70s. Everybody knew it was illegal; everybody knew it was a drug. They got a guilty pleasure out of it; it made them feel good; they thought it was harmless. They saw no reason why they shouldn't be able to do it. And there were a LOT of people doing it, rather openly, too.

This went on for several years before it became clear that cocaine was not harmless. It cost a lot of people their lives. For many of those who survived, it robbed them of their families, their careers, and/or their life savings. What started out as a helluva lot of fun and totally socially acceptable turned out to be devastating.

We're falling into the same trap with music, albeit on a different level and with different injuries. The act is filesharing music - just like bumping a line every now and then, it's really no big deal. However, the more music a person shares does not empty his pocket, it empties that of the artist. The long-term impact is that those who don't pay for music feel that they are entitled to get music for free. The more people who engage in this activity, the fewer there are to pay for music.

Rather than the widespread personal destruction caused by cocaine, the destruction from filesharing is social and impacts everyone. If left unchecked, filehsaring will destroy the recorded music industry and leave us with the options identified above. By that time, it will be too late.

This is also not unlike our addiction to oil and other natural resources. We use and use and use without concern for the consequences. People willingly blind themselves to the truth because it is inconvenient, because they like the way things are and don't want to change them.

Just because everybody is doing it doesn't make it right. I doubt anyone would honestly say that we should throw open the doors to all of our natural resources and exploit them until they're gone . . . while it would be convenient for all of us today, it's not right. We have a duty to protect our resources, and have a duty to come up with ways to produce cleaner, renewable energy.

I don't know the solution to the music industry woes. However, I know that the "if you can't beat 'em, join 'em" mentality is downright stupid. I also think that anyone who advocates for free recorded music is foolish and better damn-well have a brilliant idea for what we should do the day after. The problem is that so many of these people are spectators, yelling out from the sidelines with instructions on how to do things; some have risen to the level of commentators. However, none of these people must take responsibility for what happens if people follow their suggestions and things go tragically wrong. We'll all be royally and irreversibly screwed while the talking heads will have moved on to the next new thing, leaving artists holding the bag.

musicFIRST Press Release

In its entirety:

Three Days, Three Performance Right Questions

FOR IMMEDIATE RELEASE

February 25, 2008

CONTACT: Marty Machowsky

202-326-1702

martin.machowsky@edelman.com

WASHINGTON, D.C., February 25, 2008 – The musicFIRST (Fairness in Radio Starting Today) Coalition today released three questions that members of Congress should consider asking the National Association of Broadcasters (NAB) and corporate radio representatives during the industry’s three-day lobbyfest in Washington this week. Big radio’s number one priority is to defeat legislation to create a fair performance right on radio for recording artists, musicians and record labels.

“It’s time for the NAB and corporate radio to answer the tough questions about their refusal to pay artists and musicians,” said Doyle Bartlett, executive director of the musicFIRST Coalition. “AM and FM music radio stations earn $16 billion each year in advertising revenue. But not a single penny goes to the artists and musicians whose creativity, whose heart, whose soul and whose passion brings to life the music that listeners tune in to hear.”

“There are many questions that the NAB and corporate radio lobbyists can not possibly answer with a clear conscious,” Bartlett said. “Here are just three:”

1. How can you justify taking someone’s intellectual property and making $16 billion in annual advertising revenue off that property without compensating the creators and owners of the property? This runs against all basic notions of fairness and respect. You might expect this is places like Iran, North Korea and China where there also is no performance right on radio, but not in the United States.

2. Why do you deserve a competitive advantage in the music marketplace? Artists and musicians are paid when their music is broadcast on satellite radio, Internet radio and digital music services delivered through satellite and cable television. You pay them when you stream your broadcast signal online, or in the future, through Internet streaming on mobile phones. And artists and musicians are compensated in every other country that is a member of the Organisation of Economic Co-Operation and Development (OECD) – countries like the United Kingdom, Canada, Japan, France, Spain, Belgium, Austria, Germany and Greece.

3. Which of your leaders is right: David Rehr, president of NAB, or W. Russell Withers, head of the Withers Broadcasting Group and chairman of the NAB Radio Board? Mr. Rehr calls paying artists for their work product a “performance tax.” Really, the loophole in copyright law he is trying to salvage is merely an elaborate payment avoidance scheme. On the other hand, when Mr. Withers was questioned before the Senate Commerce Committee during a hearing last year, he said, “I disagree with ‘performance tax.’ It’s a performance fee.” What is wrong with paying a fee for product that makes you money?

For decades AM and FM broadcasters have enjoyed an exemption from copyright law. Senators Patrick Leahy (D-VT) and Orrin Hatch (R-UT) and Representatives Howard Berman (D-CA) and Darrell Issa (R-CA) introduced the Performance Rights Act of 2007 (S. 2500 and H.R. 4789 ). The bills will close the loophole in copyright law and ensure that no radio platform is given a competitive edge over another and that all must pay a fair performance royalty to artists.

Creation of a fair performance right would compensate the performers, background singers, studio musicians and copyright holders for their talent and hard work when their recordings are broadcast on AM and FM radio.

NAB is hosting its annual State Leadership Conference in Washington, D.C. The conference runs three days, Monday, February 25th through Wednesday, February 27th. According to the NAB web site, the conference is “an annual event where broadcasters hear from prominent federal policymakers and meet with legislators to discuss issues that affect your business. The conference provides a unique platform to impact decisions made daily in the halls of Congress that can shape the future of the broadcast business for 2008 and beyond.”

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People who love music understand that creativity, talent and hard work are required to bring it to life. The goal of the musicFIRST (Fairness in Radio Starting Today) Coalition is to ensure that aspiring performers, local musicians and well-known artists are compensated for their music when it is played both today and in the future. Of all the ways we listen to music, corporate radio is the only one that receives special treatment. Big radio has a free pass to play music – refusing to pay even a fraction of a penny to the performers that brought it to life. The musicFIRST (Fairness in Radio Starting Today) Coalition is committed to making sure everyone, from up-and-coming artists to our favorites from years-ago, is guaranteed Fair Pay for Air Play. For more information on the musicFIRST (Fairness in Radio Starting Today) Coalition please visit www.musicFIRSTcoalition.org.

Supporting organizations include: American Association of Independent Music (A2IM), American Federation of Musicians (AFM), American Federation of Television and Radio Artists (AFTRA), Christian Music Trade Association (CMTA), Music Managers Forum - USA (MMF- USA), The Latin Recording Academy, The Recording Academy, The Rhythm & Blues Foundation, Inc, Recording Artists’ Coalition (RAC), Recording Industry Association of America (RIAA), Society of Singers, SoundExchange and Vocal Group Hall of Fame.