Audit Notes: the free model, Coulson and Brooks, another DOJ stunt

A musician writes a compelling business argument against Pandora

The free model isn’t just a failure for newspapers. It doesn’t work in music either, as this terrific Pitchfork piece by former Galaxie 500 co-founder Damon Krukowski shows.

Krukowski discloses some of his band’s royalty payments from Pandora and Spotify. For one song, played 7,800 times on Pandora in the first three months of the year, the band got 21 cents. The 6,000 plays on Spotify netted them $1.05. And Pandora is fighting in Congress to dramatically lower royalty payments to artists.

This leads Krukowski to a smart read of how the economics of Silicon Valley are at odds with the people who actually make the stuff that makes the technologists their millions:

When I started making records, the model of economic exchange was exceedingly simple: make something, price it for more than it costs to manufacture, and sell it if you can. It was industrial capitalism, on a 7” scale. The model now seems closer to financial speculation. Pandora and Spotify are not selling goods; they are selling access, a piece of the action. Sign on, and we’ll all benefit. (I’m struck by the way that even crowd-sourcing mimics this “investment” model of contemporary capitalism: You buy in to what doesn’t yet exist.)…

Leaving aside why these companies are bothering to chisel hundredths of a cent from already ridiculously low “royalties,” or paying lobbyists to work a bill through Congress that would lower those rates even further— let’s instead ask a question they themselves might consider relevant: Why are they in business at all?

The answer is capital, which is what Pandora and Spotify have and what they generate. These aren’t record companies— they don’t make records, or anything else; apparently not even income. They exist to attract speculative capital. And for those who have a claim to ownership of that capital, they are earning millions— in 2012, Pandora’s executives sold $63 million of personal stock in the company. Or as Spotify’s CEO Daniel Ek has put it, “The question of when we’ll be profitable actually feels irrelevant. Our focus is all on growth. That is priority one, two, three, four and five.”

— The woes keep coming for Andy Coulson and Rebekah Brooks, News Corp.’s hacking leaders with close ties to prime minister David Cameron. They’ll both face criminal charges for bribing government officials. This is both disgraced editors’ third set of criminal conspiracy charges.

The Guardian reports that the new charges raise the odds that News Corp. will face criminal charges in the U.S. under the Foreign Corrupt Practices Act:

Mike Koehler, professor of law at Southern Illinois school of law and author of the blog, said the charges “would be hard for the Department of Justice and the Securities and Exchange Commission to ignore. We have been hearing allegations for a year and a half now, now we clearly have charges against high ranking officials at a foreign subsidiary,” he said.

The paper slags this story by The New York Times, writing this:

The developments also bring to a crashing halt the recent perception in America that News Corporation had begun to recover its confidence after months on the defensive as a result of the phone-hacking scandal. Only on Monday, the New York Times ran an article headlined Clouds Lifting Over Murdoch, He’s Out to Buy Again…

But the new charges will increase pressure on the company. Koehler said US authorities would be looking to see how high up the chain of command the bribery scandal reached. “The question will be what did James know and when did he know it,” he said.

— Bloomberg’s Jonathan Weil scorches the Obama administration for yet another financial-prosecutions stunt, writing that the Department of Justice’s latest numbers are bogus.

Just how bogus is impossible to tell, because Eric Holder’s DOJ won’t even release a list of the prosecutions:

Holder said the multiagency initiative, led by the Federal Bureau of Investigation, ran from Oct. 1, 2011, through Sept. 30 and resulted in 285 indictments and complaints against 530 criminal defendants “for allegedly victimizing more than 73,000 American homeowners.” He also credited the program with 110 civil complaints against more than 150 defendants.
It took two days to discredit the figures. On Oct. 11, Bloomberg News reported that the numbers for the criminal cases included fraud charges against a Chicago lawyer that were filed in October 2006, two years before Obama was elected. The lawyer, Norton Helton, was sentenced in January to 15 years in prison.

The Justice Department at the time declined to release a complete list of defendants’ names. Bloomberg identified the George W. Bush-era charges from a sample list of eight cases that the department did provide. In 10 more cases that individual U.S. attorneys’ offices publicized in news releases as being part of the initiative, Bloomberg found that six of them were filed in 2009 and 2010, before the initiative began.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,