Stream A Little Stream
By Jessica Stukonis
The 2012 Entertainment Business Law Seminar at CMJ Music Marathon began early Friday morning with a relevant, controversial panel cleverly titled “Stream A Little Stream.” The panel comprised five representatives from different areas in the music industry, including major record labels, performing rights associations and digital internet radio. Together, they explored the evolution of streaming media, its effect on the delivery of music to consumers and the problems faced by companies hoping to profit from the exploitation of this relatively new technology.
The panel began by discussing the disparate treatment given to digital internet radio versus its terrestrial counterpart. In particular, the panelists focused on the two types of internet radio service provider models related to consumer control. Generally, the more control the consumer exercises over the content to which he or she is listening, the higher the fee for the service provider. For example, in a noninteractive internet radio service like Pandora (where the consumer listens to a prearranged stream of music based upon an inputted musical preference), the service provider must only pay for a single blanket license for public performance. In contrast, when the internet radio service is interactive, like Spotify (where the consumer completely controls every song he or she listens to), the service provider must pay both a public performance and mechanical royalty.
In addition to increased fees, internet radio providers also encounter obstacles using typical revenue streams, such as vocal and visual advertisements. Now that internet radio can be accessed on mobile phones and smaller computing devices like tablets, it is nearly impossible to integrate visual advertisements in an effective manner as our attention is not always on the smaller screens. Additionally, vocal advertisements are deemed disruptive to the listening experience, which can turn off potential users to use another service or an illegal alternative.
Some panelists argued that internet radio providers simply need to be more innovative and redesign their business model(s) so that they can profit from streaming radio’s growing popularity. In response, other panelists said that’s easier said than done. Instead, they argued that it’s the current legal framework that needs revision. One panelist suggested that the European model, though still imperfect, might prove to be a source of inspiration for such revision. While there is no easy answer to this issue, there is no way to dispute the profound effect that the internet has had on our society and the way that we consume not just music but popular culture. While development of streaming technology has progressed rather quickly, it may take more time before a sensible monetization scheme can be devised.
Music Lending 2012
By Alicia Matusheski
The second panel of the day-long CMJ CLE seminar was Music Lending 101. I’ll admit upfront, I do not have a background in banking or finance, so when I first read the blurb in the CMJ guide and saw the words “valuations,” “asset classes” and “the underwriting process,” I was a little worried about the prospect of writing a blog on these issues. However, the intriguing panelists—moderator Wayne Wald, a partner at Akerman Senterfitt, LP; Michael Poster, Partner at Vandenberg & Feliu; Eric Longley from Prager & Fenton in the U.K.; Nari Matsuura, Partner at Massarsky Consulting, Inc.; David Innes, Senior Vice President at City National Bank; and Curtis Vega, Senior Vice President in the Media & Entertainment department of HSBC Private Bank—did a wonderful job at laying out the issues.
Although the music industry has seen its ups and downs, especially over the last 10 years, lenders are providing money for artists and the rights owners of music. One thing for borrowers to keep in mind, which Mr. Vega mentioned at the beginning of the panel and continued to come up throughout the discussion, is that lenders are going back to the basics of lending and focusing on structuring the deal in a way where the lending institution is going to be paid back. Some of the things lenders consider when determining whether to lend is a borrower’s liquidity, history and their collateral.
Mr. Poster emphasized that lenders are not going to lend on an unsecured basis and that the loan will typically be collateralized by copyrights, trademarks or other assets, and often personal guarantees will be required. Determining the value of the collateral is a complex analysis. Ms. Matsuura said that her company takes a granular approach, looking at the unique characteristics of the collateral. For example, if the collateral is a music publishing catalog, the lender may analyze: 1. The genre (ex. Pop may be more valuable than Classical); 2. The size and contents of the catalog (ex. whether there are any particular songs that generate the bulk of the catalog’s revenue); 3. Whether the borrower is a rights owner or rights creator (it is interesting to note that rights creators are often considered passive owners and not valued as highly as rights owners might be); 4. Whether the catalog is wholly owned or partly owned; 5. How the catalog is exploited domestically and internationally and the types of media in which it is exploited (ex. Radio and TV exploitation bring different revenue).
Mr. Longley pointed out that “valuation is based on what happened in the past,” which may not make sense for artists who are on the verge and may not take into account innovations in the market. Ms. Matsuura echoed this when she talked about the difficulty of valuating new revenue streams, like Pandora. She said the trick is to focus on both sides of the new revenue stream and keep an eye on the outcomes to determine valuation. Nevertheless, Mr. Longley reminded us the valuation system of looking to the past is “the best thing we’ve got.”
The panel concluded with a wise point for people who represent artists and want to borrow money: don’t forget to ask the artist, why do you need this money, what are you going to use it for and how are you going to pay it back to the lender?
Watch panelist Michael Poster discuss his panel in this clip:
Does TV Everywhere Mean Cutting The Cord, Or Getting All Tangled Up?
By Emily Gornell
“TV Everywhere” is a term coined by Comcast and TimeWarner. The definition refers to the increased distribution and consumption of digitally recorded TV programing through electronic devices and through content provider programs (e.g. Netflix and Free On Demand). The Panel discussed the impact of this revolution on copyright law and on the television industry as a whole.
The Panel focused on the recent litigation surrounding distribution of digitally recorded television programs by service providers. One panelist had represented the cable networks in their dispute against Cablevision. Cablevision has developed technology that simulates the DVR experience but eliminates the need for customers to have their own hard drive built into their television set by storing the content at the Cablevision facilities. Another panelist is currently defending Aereo in their dispute with the broadcast television entities regarding Aereo’s distribution of recorded content through individualized antenna access to the recordings. This polarity on the panel led to some fascinating discussion about the future of access to digitally recorded television programming.
In the Cablevision case, the Court Of Appeals reversed the lower court decision and determined that, although Cablevision was recording and storing the programming at its facilities, when a user at home presses the record button, the user is creating the copy, not Cablevision. Therefore, Cablevision cannot be considered a copyright infringer. The panelist who is currently representing Aereo discussed how Aereo’s service fits within this loophole in copyright law. Aereo subscribers effectively have access to their own individual antenna, as each antenna can only be access by one person at a time. This means that although Aereo is storing the programming, it is the individuals who are requesting the copy. If the court finds in favor of Aereo, we can expect Aereo and companies like it to expand greatly.
The Panel concluded with a discussion about how content providers can create revenue through the distribution of digitally recorded programming. They used HB0 GO as an example of a business model that will increase content provider revenue. Currently, HBO GO is only available to HBO Subscribers. However, HBO recently announced that they would be making the HBO GO application available to non-subscribers, increasing both their reach and revenue stream.
Ethics On The Borderline
By Emily Gornell
While all lawyers must be cognizant of their ethical duties, entertainment lawyers face unique ethical considerations. Entertainment lawyers tend not to live in a world strictly divided between their job and their personal lives. Often, entertainment lawyers build their clientele through attendance at various performances and events. They may have built strong, long-standing social relationships with their potential clients. When an entertainment lawyer agrees to represent a client, many ethical considerations arise. The Ethics On The Borderline Panel’s main focus was on the conflicts of interest that arise in entertainment law practice.
The Panel discussed the difficulty of role differentiation in entertainment law. Whether it’s differentiating between friend and client or between representing the client in a legal capacity and representing the client in a public relations capacity, it is important that the lawyer and the client are clear about the limits of the representation.
It is also important that the lawyer is clear about the representation limits when it comes to band representation. The individuals that make up the band have individual interests, which can create conflicts. The prudent entertainment lawyer will treat the band as an entity and even help them to form an LLC. This helps avoid the conflicts that would arise from the individual band member’s interests.
Because blurry lines exist in entertainment law practice, it is advantageous for the entertainment lawyer to adjust the lens to make those lines clearer to avoid conflicts of interest. An entertainment lawyer must be clear about whom they represent and the issues for which they are representing their client. This can be done simply by inquiring into the client’s goals for the representation and by being candid with the client about the representation limits.
To 1099 Or Not To 1099, That Is The Question
By Natalie Gonzalez
In the downturn of our economic market, workers and employers across the board have looked for ways to reduce costs and increase their income and benefits. In the past, it was not uncommon for workers to want to file as independent contractors when they could, in order to claim a write-off when filing taxes to keep more of their hard earned money in their pockets. A 1099 withholds a tax, while with a W-2 the employee will be paying that tax. But it certainly isn’t the good ol’ days anymore. After the economic downturn, workers have become increasingly more appreciative of the benefits they can receive as employees, especially unemployment benefits and workers’ compensation. For many, these benefits are no longer just a privilege of the American labor system but a means of getting by. Meanwhile, the U.S. Treasury Department estimates a $3-4 billion loss due to employee misclassification.
But what does that mean for the magical field of entertainment? In a field that is constantly moving and changing it can become far more difficult to determine whether a worker is an employee or an independent contractor. Throughout the entertainment industry are various workers and staffers that, for an assortment of reasons, may not always seem to fit neatly into one of the two categories. Not knowing the difference can cost both parties a lot of money. For instance, should a staffer who is hired to work on an indie piece that will be filming for only three weeks be filling out a 1099 or a W-2? The distinction is an important one for both employers and workers who want to avoid the monetary penalties that come with misclassifying workers. Those penalties can be severe when they’re coming from the IRS, your state and even your city at the same time.
According to Stephen Herbes, Esq., employee benefits and tax attorney, you need to be aware of what the IRS and state factors are in determining the status of a worker. The IRS factors closely follow the common law. Things such as behavioral control, financial control and worker relationship are considered when determining whether a worker is an employee or an independent contractor. The state factors to consider change from state to state. For example, California starts out with the presumption that a worker is an employee, even if it is a work for hire. The worker would then have to meet California’s 11-factor test to show that he or she is an independent contractor. A major factor in California is ownership of the work product. This differs greatly from New York, which has a multi-factor test that ranges from questions of whether the worker uses business cards with the company name to whether the company requires the worker to attend meetings and/or training sessions. Then there is the Department Of Labor, which has a seven-factor test, which assesses variables such as the permanency of the employer/worker relationship and the worker’s opportunities for profit or loss.
The intentional misclassification of a worker who should’ve filed a 1099 is 100 percent of the employer and worker portions of FICA, 20 percent of all wages paid to the worker, and possible additional penalties and criminal sanctions. Failure to file a W-2 or a 1099 will cost $50 per form, while failure to provide an employee with a W-2 form will also cost $50. Then there are the additional percentages of FUTA and wages that will be part of the penalties. For those who unintentionally misclassify workers it will still cost 100 percent of an employer’s share of FICA but 40 percent of a worker’s share of FICA and 3 percent of wages paid to a misclassified worker.
At this point an entertainment employee’s mind may be swimming with worry over accidentally misclassifying a worker, but fear not! If you’re unsure of your worker’s status then either the company or the worker can file Form SS-8, Determination Of Worker Status For Purposes Of Federal Employment Taxes And Income Tax Withholding, and allow the IRS to decide the status of the worker. Note, however, that the IRS determination will take at least six months.
Finally, when working with an entertainer who is a non-resident alien (NRA) there should be a Central Withholding Agreement (CWA) in place for tax purposes. You want this! It saves money; without the CWA there will a 30 percent gross loss. The CWA is between three people, no entities. Those people are the NRA entertainer, the designated withholding agent (not a U.S. company) and an IRS representative who must sign off on the CWA to make it binding. If the talent is a band and one member is American then that member would not enter into the agreement, but their personal information would still be disclosed. An alien must claim all previous U.S. taxes. Artists who have come into the country and haven’t filed tax returns can’t file a CWA, which is quite a problem. According to Richard Stoller, CPA, knowing the tax law can really save NRA entertainers money. It can be as simple as landing in the U.S. first. For example, if a touring artist flies from Europe to the U.S., then that artist gets a deduction on their taxes. An artist flying from Europe to Canada and then to the U.S. would not get that tax deduction.
In short, this panel showed why it’s helpful to have a good CPA and tax lawyer in your corner. Doing so can potentially save you or your client a lot of hard-earned income and prevent you or your client from unwittingly misclassifying workers and being slammed with penalties, or worse, criminal sanctions.
Starting Up And Rolling Out: Fostering And Financing Innovation In Entertainment
By Ashley Rose
David Mazur, digital media attorney at MasurLaw, led a discussion on the challenges facing new entertainment companies. There is no question that innovation and new technologies have changed the business over the past decade, making digital startups an attractive investment. However, budding entrepreneurs are set to face many competitors, tougher negotiations with rights holders and consumers unwilling to pay.
Since file-sharing first emerged, we have seen the major labels struggle to accept new technology. As one panelist pointed out, there is a constant contradiction between innovation and protecting intellectual property. Mark Piibe of EMI assured the audience that great ideas, ones that fascinate the consumer and have potential to change the business, will always be nurtured no matter the cost.
Still, most established media companies now want to see that even objectively genius ideas have sustainability. The old practice of recruiting users, before finding ways to monetize, is going out of fashion.
President Obama’s JOBS Act, passed in April of this year, encourages individuals to invest in startups by easing the federal regulations. Our panelists were unable to speculate whether this new legislation would be the catalyst entertainment businesses need to grow but agreed that the shift toward a “crowd-finding” model could overcome the challenge of raising capital.
Copyright Enforcement On The Edge
By Alison Cullen
Technological advances have provided new ways to authenticate ownership of digital content—fingerprinting, hashing, meta-data and watermarking have been used with varying degrees of success. But these systems require large investments of time and capital. In light of the discrepancy in size and budget of content providers, and the requirements of the Digital Millennium Copyright Act, what methods should be mandatory? And which can protect content most effectively while promoting innovation?
Moderator Eleanor Lackman, Esq., partner at Cowan, DeBaets, Abrahams & Shepphard, began with an overview of the Digital Millennium Copyright Act’s requirement of standard technical measures to prevent infringement and enable content providers to qualify for the safe harbor provision. Leonardo Lipsztein, Esq., Product Counsel for Google, noted that Google’s investment in content identification has exceeded the $30 million mark but urged that if excessively stringent requirements become standard, it will exclude new, smaller companies from entering the marketplace and prevent innovation.
Adam Sosinsky, Digital Media Technology and Operations Executive, noted that compliance under the DMCA is still vaguely defined, and clarification from the courts is needed. Jodie Griffin, Esq., Staff Attorney at Public Knowledge, in her analysis of the French HADOPI system, found that the most effective means for content identification and control are voluntary measures that are the result of cooperation between stakeholders. In a moment of levity, Stanley Pierre-Louis, Esq., Senior Vice President and Associate, General Counsel for Intellectual Property and Content Production, Viacom, discussed the recent “binders full of women” meme (from Mitt Romney’s much-lamented comment during the second presidential debate), noting that, even with his experience in digital media, he was shocked by the speed at which content was developed and disseminated.
That swiftness is precisely what makes identification and authentication of content so challenging. But the panel concluded with hopeful thoughts, that by keeping the pressure on content providers and encouraging cooperation between stakeholders, they will develop new systems to keep pace with the problem.
What Could Possibly Go Wrong! Protecting Yourself In A Wind-Down
By Natalie Gonzalez
For this panel, the panelists gave various hypotheticals while discussing an imaginary company called Hollow Stars that was in the business of promoting an artist, developing holographic technology allowing customers to experience holographic concerts in their own home and purchasing various licenses to run their businesses.
The panelists discussed scenarios in which Hollow Stars would in some form meet its end. One example was what Hollow Stars would do if it found itself facing numerous class action suits without the money to fight the case. Unless a company in that position has someone backing it with a significant amount of money to keep it in business, a likely option would be bankruptcy. In the event of a company having to file for bankruptcy it would be a good idea to ensure all licenses have a “change of control” provision, to help ensure that their assets would still be protected.
Celebrity Estates: Death Poses New Problems
By Alicia Matusheski
As a law student at St. John’s University School Of Law currently taking Trusts & Estates, I found the CMJ CLE panel Celebrity Estates: Death Poses New Problems very interesting. The panel was moderated by Gabe Wolosky, CPA at Prager and Fenton, LLP, and featured Kevin Matz, Esq., CPA, Managing Member at Kevin Matz & Associates, PLLC; Herb Nass, Esq., Principal at Herb E. Nass & Associates; and Jonathan Reichman, Esq., Partner at Kenyon & Kenyon.
This panel addressed people’s (especially celebrities) rights of publicity after that person dies. Rights of publicity vary state by state—for example in New York, there is no post-mortem right of publicity, meaning after you die you may not be able to stop someone from using your name or likeness in commercial advertisements or otherwise. In contrast, in California, where many celebrities make their homes, there is a statutory right of publicity that continues for 70 years after the person’s death. The panel pointed out that one way for New Yorkers to maintain their rights of publicity for their estates and their loved ones after they die is to brand their name and use and register it as a trademark. As long as trademarks are in use they can be maintained forever. Of course, something to keep in mind is that a trademark must be used to fully obtain and maintain such rights.
Another thing to keep in mind is that the state law that will apply is the state where the person was domiciled, which generally is where the person made their permanent residence. The panel discussed an interesting case about Marilyn Monroe’s estate. Apparently, since Monroe’s death about 40 years ago, her estate has been claiming that her domicile was New York, although she died in California. Recently, when the estate brought suit against merchandisers who were using Monroe’s image without a license, the estate flip-flopped and claimed that the domicile was California, so the estate could take advantage of California’s right of publicity laws. But the court, exercising judicial estoppel in the interest of fairness, rejected the estate’s position, and the merchandisers are free to use Monroe’s image without a license. Obviously, a person’s domicile can have lasting consequences, so artist’s representatives should always keep it in mind when advising their clients and may even want to consider establishing domiciliary in the most favorable state.
Beyond The Copyright Claim; Using All Your Ammunition
By Jessica Stukonis
The 2012 Entertainment Business Law Seminar at CMJ Music Marathon came to a close on Friday with its final panel, “Beyond The Copyright Claim: Using All Your Ammunition.” Esteemed attorney panelists Toby Butterfield, Alan Friedman, Paul LiCalsi and Brian Murphy lectured in the Rosenthal Pavilion on alternative strategies beyond the typical copyright infringement action that can be used to protect an owner’s rights in various entertainment properties. While the panel discussed myriad issues, it first focused upon avoiding possible preemption under the Copyright Act Of 1976 (“1976 Act”).
Pursuant to Section 301(a) under the 1976 Act, state law claims that would otherwise be subject to the 1976 Act are preempted by the federal statute. If there is an extra element provided under the state law claim, however, there may be an argument that the two claims are not “equivalent.” If the preemption issue can be avoided, these additional meritorious claims could have beneficial effects on your case. For example, adding these claims to a pending case may exert extra pressure upon your opponent, expand the scope of discovery and increase the available remedies or damages.
The panel specifically advocated for three claims that should be considered along with copyright infringement: breach of (implied or express) contract, trademark infringement and right of publicity. According to Mr. Friedman, a plaintiff’s breach of contract action seeking compensation for the use of their copyrighted work should not be preempted under the 1976 Act. He further stressed that there must be a tacit agreement and understanding that the plaintiff would be paid in exchange for the use of his copyrighted work. This agreement needs to come about either by the parties’ conduct or through some other business or industry practice.
Another possible claim that the panel discussed was a trademark infringement claim under the Lanham Act. Not all trademark infringement claims will resist preemption, such as when the basis of a plaintiff’s claim is that the defendant attempted to “pass off” the plaintiff’s work as his own by removing and substituting the plaintiff’s copyright notice. One claim the panel suggested might pass muster is if the work’s use suggests that the plaintiff sponsored the use or had an association with the defendant.
Mr. Murphy explained that the right to publicity claims, however, can be a little more complicated due to the fact that every state has a different standard. He also cautioned that there can be some overlap with First Amendment protection if the challenged use is noncommercial. Despite these facts, if a right to a publicity claim is based upon an unauthorized imitation or depiction of a person’s name, voice or likeness, the claim should be permitted and not preempted under the 1976 Act.
Overall, this panel was the ideal way to end the 2012 Entertainment Business Law Seminar at CMJ. This year’s panels were informative and enjoyable. We thank the panelists, organizers and volunteers for their time and dedication, and we look forward to seeing you all again in 2013.
Watch moderator Toby Butterfield discuss his panel in this clip: