One could say that art and creativity are what fuel our progressive society today. Sure, there are people needed to maintain organization and structure, but without innovation we would be in the same place that we were in the 1400’s. Today, art is rapidly created and distributed, the most controversial art form that this applies to is music. Just about everyone and their mother listens to music at one point or another. With recent advances in technology, the medium through which audio could be accessed changed from vinyl records to cassette tapes to CD’s to computers to iPods and, finally, to the internet. The internet may be the last place that music has become available but it will definitely not die there. This easy access to music has led to the numerous and rapid sharing of files in methods that range in morality from frowned upon to straight-up illegal. Music is typically produced by creators, however, one attribute of this new and advanced music sharing has been the listener’s ability to become a creator as they can download music and remix it, edit or pretty much do whatever they want with it. The only problem is that most of these songs are copyrighted and the sharing of remixes that sample said material is considered illegal. Since the inception of remixing and electronic music, countless mediums have emerged to share those remixes and promote them around the online community. The most popular of these sharing sites is called Soundcloud. Soundcloud’s story is chronicled by the ambition of its founders to create “a [music sharing] platform by creators, for creators,” (1) all the while they must adapt to surmounting pressure from record labels that want to completely control the way that music is shared. From a virtue ethics perspective, the record labels can be seen as unethical in their pursuit to dominate the music industry and to exploit all of those who oppose them.
In recent history, the evolution of file sharing has played an important role in society’s development. In 1999, Sean Parker, a motivated high school student created Napster, the world’s first free file-sharing service for music. Napster took the world by storm, users across the US downloaded all of their favorite tracks for free from the privacy of their own personal computers. It was a genius idea, but only fell short in its accordance with the law. In the years following Napster, music listeners saw the rise and fall of widespread music sharing services such as Limewire and Grooveshark. From the ashes of these illegally operating entities, rose Soundcloud.
In 2008, Founder’s Eric Wahlforss and Alexander Ljung started Soundcloud with the idea of not just giving users easy access to a huge catalog of new music, but to provide them with a tool to help them share and promote their own music. No such medium has existed before; Eric and Alexander know that it is about more than just the listener, it is about the artist. Record labels search for that one-in-a-million type of talent, while Soundcloud wants anyone, with even the slightest musical intrigue, to share their talents. This mission set the stage for millions of users to sign on, share, and discover millions of new sounds.
Fast forward a few years and Soundcloud’s user base is vastly growing; thousands of new sounds are added daily and there is a growing need to add mainstream music to the catalog in order to reach the mainstream audience and further grow. Once Soundcloud reached a certain point of popularity, many of the major record labels began to take note of its impact on the industry. Of the approximate 125 million songs listed on the site, a majority of them are remixes or sampled from other popular songs. From a copyright perspective and in the eyes of a record label, this is a huge issue. An immeasurable amount of copyrighted material is being shared through remixes and mixes created by artists other than their original creators.
Record labels became suspicious of how well Soundcloud was adhering to copyright agreements. Soundcloud argued that it was a free service so it did not have the means to pay out royalties or settle copyright infractions (2). This line of reasoning was seemingly insufficient for the record labels as they pressured Soundcloud to reshape their business model in accordance with the law, in other words, they wanted to get paid. For the first time in 2013, the public felt the effects of these disputes. Soundcloud introduced a ContentID (3) software that scanned mixes and remixes to determine if they included any copyrighted material. If the software deemed it so, then the mix or track was not allowed to be shared on the site. Furthermore, tracks that violated a copyright but were already shared on the site were removed. This frustrated many users; Soundcloud’s ideology of being a free and open music sharing medium was tarnished. Unfortunately, this was not the end of Soundcloud’s troubles. Users were further angered after a statement issued by Soundcloud in July of 2014 explained that, the world’s largest record label, Universal Music Group (UMG) had the ability to take down any material posted on the site if they deemed that it had violated a copyright agreement (4). Another outcry was triggered in 2015 when Sony was granted the same permissions and even prevented their own artists from sharing their music on Soundcloud. One of EDM’s most popular artist, Madeon, was forced to take down his entire Soundcloud page as a result of Sony’s actions. In this case, Madeon is the artist, he is sharing his own music, however, since Sony owns the copyright to distribute everything he produces under them, they can choose how they want and do not want to share his music (5).
Since Soundcloud is merely the host of user uploaded content, they cannot possibly detect every copyright infraction and they do not want to agree to pay for copyright infractions as it would deduct from the value they place in being a site for creators. In an effort to protect themselves from having to pay potentially endless copyright settlements, they negotiated with UMG, Sony and Warner Music Group to exchange an equity stake in the company for their promise to not sue Soundcloud for copyright infringements (6).
In 2010, PRS for Music (PRS), a British recording label, jumpstarted a lawsuit against Soundcloud in an attempt to receive royalty payments for its artists whose music had been posted to the site (7). In 2015, after a five years of failed negotiations and the threat of a lawsuit looming overhead, Soundcloud agreed to a settlement with PRS. The settlement promised that PRS would end legal proceedings against the company and, in exchange, Soundcloud promised to start advertising and to introduce a paid subscription service in 2016.
Aside from all of the legal trouble, Soundcloud is in some financial trouble as well. According to the chart below (displayed in Euros), the company has seen net losses growing exponentially every year since 2010. In its most recent financial release for 2014, Soundcloud revealed that it lost $44.2 million on revenues of $19.37 million. These financials in no way indicate that Soundcloud has the ability to pay royalties and copyright infringement fees to the record labels. If Soundcloud had decided not to monetize it would surely be forced into bankruptcy due to lawsuits spearheaded by major record labels, that is, on top of its inability to generate positive income. Even though Soundcloud’s monetization is a result from years of pressure from the record labels, it could have been a necessary change.
Contrary to its financial records, further analysis shows that Soundcloud’s recently introduced subscription service could potentially save the company. Much of Soundcloud’s financial distress can be attributed to the threat of a lawsuit from major record labels and the growing administrative costs that are tied to it. With 175 million users and 125+ million sounds, Soundcloud has the largest number of users and the largest database of music compared with just 11 million users on Apple Music and 75 million on Spotify (9). Revenue estimates show that with a 10% conversion rate to paid subscription from its current user base could net the company upwards of $174 million. That is an 803% increase over 2014’s revenue and is 1.81 times the aggregate net loss over 2010 to 2014. If this were the case, then Soundcloud would easily pay off its outstanding debts and still have money left over to repay record labels. Unfortunately, the conversion rate used is simply an estimate and is just the bare minimum of what they need to survive (10). Not knowing the end of this story provides an interesting perspective as the question of whether or not the pressure from record labels that led up to this point was ethical.
From the perspective of virtue ethics, it can be argued that, in this situation Soundcloud acts ethically throughout its endeavors and, contrarily, the record labels do not act in an ethical manner. This section will be organized according to the three questions asked at the beginning of this paper. How does holding a copyright give a record label power? Can that power be misused? Does the record label have an obligation to use the copyright ethically or is it the law’s fault that is wrongly distributes power? Understanding each stakeholder’s perspective could provide insight on some conflicts that arise as a result of copyright policies.
Linda K. Trevino and Katherine A. Nelson wrote a paper on business ethics, in it they attempt to explain three of the most popular ethical theories in the context of business. In their book, Managing Business Ethics: Straight Talk About How to do it Right, a virtue ethics perspective is defined as, “[considering] primarily the actor’s character, motivations and intentions. This doesn’t mean that principle, rules, or consequences aren’t considered at all, but they’re considered in the context of assessing the actor’s character and integrity.” (11) When gaging how to define the character of a business one can look to a company’s mission statement. A mission statement is defined as, “a summary describing the aims, values, and overall plan of an organization or an individual.” (12) This definition perfectly relates to the concept of a person’s character and motivations. Soundcloud’s mission statement, as mentioned previously, is to create “a platform for creators, by creators.” Soundcloud’s character is therefore defined by its ability to help artists share and discover new music as well as to connect them to like-minded individuals.
In all of Soundcloud’s efforts they are sticking to their principles. The reason that record labels were unable to reach an agreement with them was due to Soundcloud’s refusal to pay out royalties. This act in itself is illegal but for Soundcloud, they are protecting their artists interests, they are protecting their ability to openly share and create music. If Soundcloud gave in to paying all of the royalties that were owed to the record labels then they would go bankrupt. That is one reason for there actions but these actions should be seen as sticking up for what they believe in. An alternative to bankruptcy would be to agree to pay royalties but that would come at a cost to Soundcloud’s users. This would result in higher fees for uploading and sharing music, which would decrease the creator’s interest in using the site and, therefore, cause Soundcloud to discourage creators from doing exactly that.
Universal Music Group’s mission statement is, “In everything we do, we are committed to artistry, innovation and entrepreneurship.” (13) How can UMG say that they are dedicated to values when their aforementioned actions, in fact, discourage innovation and entrepreneurship. If Soundcloud agreed to pay them, Soundcloud would likely cease to exist and in that scenario they would have directly opposed entrepreneurship. UMG is not upholding its commitment to innovation either as holding a copyright acts as a limit to innovation. A song that falls under one of UMG’s copyrights could potentially be used in a remix by a third-party artist that would become the greatest song of all time, however, the copyright they hold directly prevents that artist, or any artist for that matter, from using the copyrighted material in any way. Furthermore, their actual pursuit to uphold the copyright agreement is in direct conflict with their mission. It is true that UMG is pursuing the copyright on behalf of the original artist so it is implied that any proceeds earned on that copyright will be paid to the artists. If that is UMG’s intention, then their acts can be seen as virtuous for the reason that they are defending their artist. However, it is revealed that these are not UMG’s intentions. When UMG came to a settlement agreement with Soundcloud they threw their pursuit of copyrights out the window. UMG received an equity stake in Soundcloud and while a copyright may require that some of the proceeds are paid to the original artists, the record label has no obligation to pay the artists on proceeds from their minority interest in Soundcloud. With these examples, it becomes clear that UMG has a hidden value, money. All of UMG’s efforts are blanketed by their mission statement as their actions reveal their true motives. One could argue that if their true characteristic is that of money, then UMG’s actions might be considered ethical. From a virtuous perspective, this would mean that UMG defines its character with money. The founder of virtue ethics, Aristotle, wrote in his famous text Nicomachean Ethics that,
“every skill and every inquiry, and similarly every action and rational choice, is thought to aim at some good; and so the good has been aptly described as that at which everything aims. But it is clear that there is some difference between ends: some ends are activites, while others are products which are additional to activities. In cases where there are ends additional to the actions, the products by their nature are better than the activities.” (14)
Aristotle is explaining that the goal of our actions should be to achieve some form of good. He goes on to say that our actions will always result in an end. Some of these ends are ends in themselves, meaning there is no further action that can be taken to achieve that good. While some actions lead you to an end that will position you to reach further ends. Put simply, an action or value can be an end in itself or it can be a means to an end. At the end of the quote, Aristotle states that the greatest good is achieved by choosing actions that are ends in themselves. Going back to UMG’s concept of money, money cannot be a characteristic for it is not an end in itself. Money is a means to an end, by definition, its sole purpose is to be exchanged for something else. So, with either of UMG’s values in mind, no action that they have taken would be seen as ethical from a virtuous perspective. This can be applied to nullify the ethicality of all record labels who approached Soundcloud since, aside from what their mission statements say, they are in pursuit of money through the means of a copyright. They are seeking to use a mean as a means to another mean.
Throughout the entire predicament with Soundcloud each of the record labels acted on behalf of their copyrights. Therefore, every action can be seen as a result of copyright law and policy. This raises some questions about the ethicality of current copyright standards and causes us to ask about the inherent power that they provide to their owner. A copyright, by definition, is “the exclusive legal right, given to an originator or an assignee to print, publish, perform, film, or record literary, artistic, or musical material, and to authorize others to do the same.” It was originally created to protect the content creator, however, it is clear that an effort to uphold a copyright agreement can cause a business to act unethically. When an individual artist seeks to enforce a copyright they have their best interest in mind, which is exactly what a copyright was invented to protect. However, when a large corporation is attempting to enforce a copyright, the corporation has its best interests in mind, which are not at all the same as the content creator’s. Therefore, the idea of a copyright may be ethical, but current laws fail to address how a copyright can be implemented ethically.
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