Is Facebook Trying to Screw an Entire Music Industry?

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Image by Eric (CC by 2.0)

Facebook is pursuing an aggressive long form video strategy.  But where are the licenses?

There’s no arguing that Facebook is on top of the social media empire.  As of the third quarter of 2016, Facebook had roughly 1.79 billion users.  During the same time period, Twitter only reported 317 million.

Yet, the company isn’t off to a good 2017.  A Dallas jury recently awarded ZeniMax, a VR company, $500 million against Facebook-owned VR company Oculus Rift.  ZeniMax alleged that Oculus Rift CTO John Carmack stole the company’s trade secrets so as to produce an Oculus Rift VR headset.  Facebook wasn’t affected. But add in poor Oculus Rift holiday sales, and you have a company that has yet to deliver on Facebook’s $2 billion investment.

Not everything is bad news for the social media giant. The news of ad share revenues up 53% sent shares climbing this week.  Several days ago, the company announced that they hired a former YouTube music executive. Tamara Hrivnak will lead the company’s challenge against the music industry.

Yet, the social media giant has yet to tackle a serious problem: they haven’t secured any music licenses.

Facebook, like YouTube, currently hosts hundreds of thousands of music videos. While artists complain about poor YouTube payouts, they may not receive anything at all from Facebook.

Several months ago, Ari Herstand touched on Facebook’s problem with music licenses. Following UMG’s aggressive DMCA takedown notices on cover videos, the company willfully obliged. Many users received the following message:

“We strongly encourage you to review the content you have posted to Facebook…it is our policy to terminate the accounts of repeat infringers when appropriate.”

The social media giant receives hits by hosting music videos, artists get warned, and Facebook pockets the money.

Ari Herstand struck a nerve as the post quickly became the most highly-debated topic on Digital Music News. He followed up with yet another controversial piece. Titled “Old Music Business Is Yelling at New Music Business Again,” he outright criticized the music industry,

“They don’t care about their artists. If they did, they wouldn’t trick them into signing blanket deals that entitled them to zero streaming money. If they did, they would be completely transparent with their accounting and show their artists and songwriters where every single penny comes from. Instead, when questioned on accounting, the majors hand over thousands of sheets of (physical, unsearchable) paper in small font with millions of lines of data and say “here you go!”

Yet, right after Facebook’s impressive fourth quarter 2016 growth, Mark Zuckerberg released a statement about content on the site. Skirting around the lack of licenses, he acknowledged “the need” for content creators to “get paid” for premium content.

“We’re focusing more on shorter-form content to start… There is the type of content that people will produce socially for friends. There’s promotional content that businesses and celebrities and folks will produce.
“But there’s also a whole class of premium content. The creators need to get paid a good amount in order to support the creation of that content, and we need to be able to support that with a business model, which we’re working on through ads to fund that.”

Yet, the company has yet to propose any stable financial model to support “premium content” from content creators. So, how exactly will content creators get paid?

The company may also have to deal with a new problem this year. The site jumped thanks in large part to the 2016 elections. Yet, the site’s notoriously politically-charged rhetoric may turn off users, worrying investors. Even worse, Facebook may now filter real news stories in an attempt to curb fake news pieces. Phil Bak, CEO of ASCI funds, told CNBC,

“There are times I’ve gone on Facebook and I’ve felt like it’s my crazy uncle standing with a bullhorn screaming on a street corner. I think a lot of people share that experience.”

Bak pointed out that unless the social network giant worked to “improve user experience,” users could flee once a better alternative comes along. By filtering news stories, Facebook “runs the risk of alienating a sizable portion of its user base.”

In a warning piece to investors, The Wall Street Journal warns that Facebook may have, in fact, peaked. The article reads,

“To achieve its next leg of growth, it must win over ad dollars from TV. Facebook has been promoting its live-streaming capabilities and is testing a new video-ad format that would insert ads into the middle of live videos. The company is also developing a video-centric app for TV set-top boxes and is discussing licensing long-form TV-style programming from media companies, The Wall Street Journal reported. But Facebook faces stiff competition for content and viewing hours from traditional TV and more established video-streaming platforms.”

The Trichordist interpreted the article.

“It’s simple…in order for Facebook to justify it’s lofty stock price…it needs to get its hands on some professionally produced video from real media companies.  And generally this content has music in it…when Facebook reproduces the video content that contains music…they will need a public performance license! Unless Facebook wants to limit itself to “long form content” with low grade royalty free “library music” it will have to get music licenses. It can’t pursue a serious video strategy that gets TV ad dollars without these licenses.”

As Facebook moves forward, they have yet to figure out a plan to secure music licenses. Uploading your music video on Facebook? Don’t expect payment just yet. Or maybe, never.