London entertainment law firm Crefovi is delighted to bring you this music and entertainment law blog, to provide you with forward-thinking and insightful information on hot business and legal issues in the music and entertainment sectors
London entertainment and media law firm for the creative industries Crefovi advises, in particular, the fashion and luxury goods sectors, the music sector, film sector, art sector & high tech sector.
We support our clients, who all work in the creative industries, in London, Paris and globally, in finding the best solutions to their various legal issues relating to business law, either on contentious or non-contentious matters.
Annabelle Gauberti, founding partner of London entertainment and media law firm for the creative industries Crefovi, is also the president of the International association of lawyers for creative industries (ialci). This association is instrumental in providing very high quality seminars, webinars & brainstorming sessions on legal & business issues to which the creative industries are confronted.
Crefovi has a roster of music clients, ranging from music artists to record labels, and is a regular attendee of, and speaker at, entertainment business events, such as MIDEM, SXSW, Comic Con, The Cannes Film Festival & seminars organised by AIM, BPI, MPA and SACEM.
London entertainment law firm Crefovi believes that, due to exponential streaming of entertainment content, the music and film industries have radically and irrevocably changed in the last five years and that it is time for the entertainment sector to take stock and foster mutually beneficial partnerships between the music and film world, high tech companies and famous brands making their mark in the consumer goods & retail arena. Crefovi is there to support its entertainment clients in achieving this delicate balance in a fast-evolving environment.
Crefovi partners up with Les Echos Formation to present cutting-edge one-day training on the law of luxury and fashion marketing: how to secure your practices
This ground-breaking training day will provide a complete view on the legal aspects to pay attention to, when planning and organising marketing and advertising campaigns, as well as catwalk shows.
From image rights, publicity rights to brand ambassador deals, endorsement deals, as well as managing the brand’s relationships with agencies (modelling agencies, advertising agencies, music supervisors, etc), no stones will be left unturned by Crefovi during this seminar.
Dates of this training day:
- Tuesday 25 April 2017
- Thursday 30 November 2017
Goals of this training:
- master the essential aspects of a win-win negotiation with stars and models, their agents, as well as advertising agencies, sync agents and music supervisors
- Understand who are the stakeholders, their positions and differents roles in the decision taking process, in relation to the choice of brand ambassadors and endorsers, music tracks which will feature during the catwalk show or the advertising campaign, fashion models
- Compare the various strategies and negotiation tactics, in order to obtain the maximum investment in the advertising campaign or the partnership, from the brand ambassador or celebrity endorser, while fully complying with image rights and publicity rights
- Maximise the “marketing” potential of social media while minimising legal risks, in particular copyright infringement risks
- Use anti-counterfeiting campaigns as a marketing strategy of luxury wares
Outline for the daily programme:
09:30 – 11:30: the advertising campaign – a breeding ground for legal issues
- Relationships between the luxury brand and advertising agencies: how to ensure that the “brief” written by the luxury house is well understood?
- The deal with the celebrity: manage the agents, talent agencies and the contractual relationship with the start
- Synchronising music in the advertisement: a marked path
- Relationships with the media, image rights and intellectual property: written press, TV, streaming sites (YouTube, Vimeo)
- Social media and law: how to maximise the potential of digital while keeping legal risks down
11:45 – 13:30 – the fashion show each season – an important legal challenge!
- Agreements with models and other service providers: an important stake
- Photographers and catwalk shows: image rights, counterfeiting and royalties
- Music in fashion shows: how it works, from a legal standpoint?
Witness talk: a general counsel from a top luxury house shares his experience on negotiating and structuring various partnership agreements with brand ambassadors. He will detail the existing legal challenges during such negotiations
14:30 – 15:30 – case study
- Rihanna v Topshop.
- Catherine Zeta-Jones v Caudalie
- Why complying with image rights and publicity rights is paramount in the luxury and fashion sectors
15:45-17:15 – Fight against counterfeiting as a marketing and advertising tool
- Status of the fight against counterfeiting in the luxury and fashion sectors
- New tools to fight against counterfeiting – legal and non-legal
- Lobbying actions against counterfeiting with ECCIA, the Walpole, Comité Colbert, etc
17:15-18:00 – Final summary
Final summary of key points and takeaways, in order to best structure marketing and promotional campaigns for a luxury and fashion brand, while complying with existing laws and regulations
Annabelle Gauberti is a solicitor of England & Wales as well as a French “avocat” with the Paris bar. She focuses her practice on providing legal advice, either contentious or not contentious, to companies and individuals working in the creative industries in general, and the luxury and fashion sectors, as well as the music, film, TV and digital industries, in particular.
Ms Gauberti has more than thirteen years of experience in practicing the law of luxury goods and fashion. Since 2003, she has written numerous articles about this legal field.
Ms Gauberti is at the forefront of the expansion and development of the law of luxury goods and fashion, in particular by providing courses and seminars to luxury professionals at the Institut de la Recherche de la Propriété Intellectuelle (IRPI) and to MBA students in Luxury Brand Management, around the world.
Below are a few links to the seminars that Ms Gauberti organised and to which she participated as a speaker:
Les Echos Formation
Since 2003, Les Echos Formation works alongside large companies and public servants in developing their managerial capabilities with training sessions and conferences. Les Echos Formation is a content publisher (online and offline), aggregator and animator of customised and tailored training sessions focused on the needs of managerial teams, while leveraging its many resources and networks.
Tel: +44 20 3318 9603
London media and entertainment law firm Crefovi, hot on the heels of becoming an arbitrator on the arbitration panel of the Independent Film & Television Alliance (IFTA), will network, do deals and mingle at the 2017 Berlinale and European Film Market
London media and entertainment law firm Crefovi is taking an increasingly targeted approach to developing and strengthening its films and motion pictures practice. Further to a scouting trip to Los Angeles in January 2015, to joining the Beverly Hills Bar Association in March 2015, to attending the Cannes Film Festival 3 years in a row, London media and entertainment law firm Crefovi has received its professional accreditation to attend the Berlinale and European Film Market (EFM) from 13 to 19 February 2017. Crefovi’s expertise in advising clients on motion picture and films matters, such as film finance, production agreements and day-to-day management of the legal aspects of a film production, has also taken a new turn earlier this year when it became admitted to the panel of arbitrators of the Independent Film & Television Alliance (IFTA) in Los Angeles, California. London media and entertainment law firm Crefovi offers both contentious and non-contentious legal advice with respect to motion picture and film deals.
We will be there!
Its presence at the Berlinale and European Film Market is paramount, in order to catch up with Crefovi’s clients, network with prospects, other professionals working for the film industry and the organisers of the festival. Indeed, the European Film Market and Berlinale are among the most prestigious annual motion pictures and films tradeshows in the world. They have remained faithful to their founding purpose: to draw attention to and raise the profile of films with the aim of contributing towards the development of cinema, boosting the film industry worldwide and celebrating cinema at an international level. Many top talent, management and professionals from the film industry congregate in Berlin, every year, to talk shop and have fun.
Crefovi at 2017 Berlinale and European Film Market
Annabelle Gauberti, founding partner of Crefovi, will be attending the Berlinale and European Film Market and their events. We have long seen the European Film Market and Berlinale as one of the key international events in the film industry calendar so it’s a real privilege to be accredited to attend this. As well as talks, discussions, workshops and amble networking opportunities at the Film Market, the Berlinale also has an interesting line up of features films and short films to showcase. With a diverse mix of genres we are particularly looking forward to discovering Django, with Reda Kateb and Cecile de France, and Richard Gere and Steve Coogan in The Dinner. If this all sounds like too good an opportunity to miss, you can book your accreditation and see the full official selection of the Berlinale, on the European Film Market website. One of the USPs of the Berlinale and European Film Market events is the focus on creating a real dialogue between attendees and speakers, so if you happen to attend the discussion Annabelle is participating in please don’t hesitate to ask her a question! You can also catch her afterwards if you have anything specific you would like to discuss. See you there!
Tel: +44 20 3318 9603
While at the Cannes Film Festival in May 2016, we could not help noticing that one of the hottest topics discussed by all film professionals in attendance was film finance, or lack thereof. Also, Crefovi film clients regularly ask for our input on this touchy subject. How does one finance film productions nowadays? What are the best strategies to get your film funded and produced, in this day and age?
Well, here is the lowdown: it’s not easy. You will have to work hard and in an efficient and professional manner to secure the trust and hard-won cash of all those stakeholders who can finance your film project or, at least, allow you to save money while producing your film.
What do you need film financing for exactly?
The cost items for a film project are vast, both in numbers and sizes, and can be divided according to the various stages of film making, as follows.
1.1. The idea
All films start with a moment of inspiration. Good ideas and story concepts are the foundation of any solid film project. Screenwriters usually have the initial idea or story but producers, who are in charge of raising money for a film project, frequently come up with ideas as well.
Ideas for films can be original or adapted from plays, novels or real-life events, which make up approximatively half of all Hollywood films.
Ideas cannot be protected by copyright – or any other intellectual property right for that matter – because copyright subsists only in the tangible expression of ideas. In America, this is referred to as the idea/expression dichotomy.
Therefore, film makers must take all adequate measures to protect their ideas and stories, by only divulging them after having taken some prior protective measures (such as having the recipient of the information relating to the idea sign a non-disclosure and confidentiality agreement) and/or by even subscribing to producer errors and omissions insurance and multimedia risk insurance which cover legal liability and defence for the film production company against lawsuits alleging unauthorised uses, plagiarism or copying of titles, formats, ideas, characters, plots, as well as unfair competition or breach of privacy or contract.
1.2. Development finance
The next stage in the development of a film project is to turn a rough idea or story into a final script ready for production.
Development money is the financial sum that you need to invest in your idea, until it is in a form suitable for presenting to investors and capable of attracting production financing. Development money is used, for example, to pay the writer, while the script is being written or re-written, as well as the producer’s travel expenses to film markets to arrange pre-sales financing from investors, as well as location scouting and camera tests. It also covers the cost of administration and overheads until the film is officially in pre-production.
Producers typically pitch to secure the money for the development of the script, or, if they can afford it, put up development money themselves.
Indeed, development finance is the most expensive and financiers who put up development money typically expect a 50% bonus plus 5% from the producer’s fees. Bonus payment is usually scheduled to be paid on the first day of principal photography (i.e. the shoot or production), along with the 5% of the producer’s profits as the film starts to recoup.
1.3. Script development
Once development finance is secured, and once a story idea is firmly in place, the negotiation process between the screenwriter and the producer (or production company or film studio) begins.
The writer hires an agent who represents him and plays a critical role in ensuring that the writer’s interests are represented in the negotiation process. The agent also ensures that the writer is paid appropriately in accordance with what the writer’s intellectual property rights may be worth in the future.
The producer has an alternative, in order to move the film project forward on the script development front: either he can buy the rights to the story idea or the material (a novel or play) from which the script was adapted outright, or he can buy an option of the film rights. The first transaction is an assignment of copyright. Buying an option of the film rights means that the producer owns the right to develop the film but only for a certain amount of time, it is therefore an exclusive licence of copyright.
In either cases, the producer is the only person allowed to develop the film idea into a screenplay. He pays the writer in smaller, agreed-upon instalments throughout this period, and may also agree to pay such writer a significant higher amount for all film rights once shooting begins. After the terms are negotiated, the writer can finally start working on the screenplay.
The scriptwriter then enters into action and, if needed, may first write a screenplay synopsis, also called “concept”. Unlike a “treatment”, which is a narrative of everything that happens in a screenplay, a synopsis includes only the most important or interesting parts of the story. A synopsis is a short summary of the basic elements in your story. It describes the dramatic engine that will drive the story in no more than a few sentences.
If the producer likes the synopsis, then the writer will proceed onto drafting the treatment, which, as mentioned above, is a prose description of the plot, written in present tense, as the film will unfold for the audience, scene by scene. A treatment is a story draft where the writer can hammer out the basis actions and plot structure of the story before going into the complexities of realising fully developed scenes with dialogue, precise actions, and setting descriptions. The treatment is the equivalent of a painter’s sketch that can be worked and reworked before committing to the actual painting. It’s much easier to cut, add, and rearrange scenes in this form, than in a fully detailed screenplay.
The author’s draft is the first complete version of the narrative in proper screenplay format. The emphasis of the author’s draft is on the story, the development of characters, and the conflict, actions, settings and dialogue. The author’s draft goes through a number of rewrites and revisions on its way to becoming a final draft, which is the last version of the author’s draft before being turned into a shooting script. The aim of an author’s draft is to remain streamlined, flexible and “readable”. Therefore, technical information (such as detailed camera angles, performance cues, blocking, or detailed set description) is kept to an absolute minimum. It is important not to attempt to direct the entire film, shot-for-shot, in the author’s draft. The detailed visualisation and interpretation of the screenplay occur during later preproduction and production stages.
Once you have completed your rewrites and arrived at a final draft, you will be ready to take that script into production by transforming it into a shooting script. The shooting script is the version of the screenplay you take into production, meaning the script from which your creative team (cinematographer, production designer, etc.) will work and from which the film will be shot. A shooting script communicates, in specific terms, the director’s visual approach to the film. All the scenes are numbered on a shooting script to facilitate breaking down the script and organising the production of the film. This version also includes specific technical information about the visualisation of the movie, like camera angles, shot sizes, camera moves, etc.
Once the script is completed, the producer sends it to film directors to gauge their interest and find the appropriate director for his film project.
The director and the producer then decide how they want to film the movie and who they will employ to support them in achieving this result.
One common way to make the film project more commercial is to attach well-known stars to the script.
In order to turn the film into a proper business proposition, the producer must know how much the film will actually cost to be made.
Potential investors would want to know how the producer plans to raise the money and how the producer plans to pay them back.
Agents and agencies are the lifeblood of the film business. They structure the deals, they hold the keys to each and every gate and often make or break projects. Having strong relationships in this space, for a film producer, is as important as having a strong story on which to base your project.
Agency packaging refers to the fact that an agency will assist in one/all of the following: talent packaging, financing, sales and international representation. Keep in mind that agencies earn their revenue based on a 10 to 15 percent commission of their client’s fees (not only talent, but also writers, producers, directors, etc) and therefore having an agency package an entire project as opposed to having them simply have a single member of their roster involved, will go a long way.
The underlying principle to remember is that agents are looking at each opportunity as a business transaction: regardless of the project, it still boils down to a decision based on the bottom line. As such, finding the right agency (the big agencies are not always the right fit for smaller projects) and incentivising agents by offering full packaging capacities will yield the best results both financially and strategically.
Filmmaking is an expensive business, and the producer must secure enough funding to make the film at the highest possible standards.
To obtain the investment needed to make the film, the producer must travel to, and meet with, potential investors and successfully pitch his project.
The producer’s lawyer will then draw up contracts to seal financing deals between the producer and investors or financiers. Indeed, there are departments of banks that specialise in film finance and offer film production loans.
The producer can also make money from pre-sales, selling the rights to the film before it has even been made. For example, during the Cannes film festival and market 2016, motion picture and television studio STX landed the big prize by plunking down roughly USD50m for international rights to Martin Scorsese’s next film project, “The Irishman”.
Once the financing is in place, the production company hires the full cast and crew and detailed preparation for the shoot begins.
A distinction is made between above-the-line personnel (such as the director, the screenwriter and the producers) who began their involvement during the film project’s development stage, and the below-the-line “technical” crew involved only with the production stage.
It is worth noting that, in France, most film directors do not only direct but also produce, co-produce and almost always write the screenplays for their films. Therefore, their income is made up of a salary, as director-technician, to which is added a minimum guarantee as director and another minimum guarantee as screenwriter of the film, with or without additional screenwriters.
All heads of department are hired, such as the location manager, director of photography, casting director, script supervisor, gaffer, production sound mixer, production designer, art director, set decorator, construction coordinator, property master, costume designer, key make-up artist, special effects supervisor, stunt coordinator, post-production supervisor, film editor, visual effects producer, sound designer. The shooting script is circulated to all of them as pre-production begins.
The casting director, director and producer begin to identify and cast the actors.
Storyboards are made, out of the final script. They are used as blueprints for the film where every shot is planned in advance by the director and director of photography. They have a sequence of graphic illustrations of shots visualising a video production. Most high budget films will have a very detailed storyboard. Those storyboards can really smooth out the post-production process too, when it is time for editing.
The production designer plans every aspect of how the film will look and hires people to design and build each part.
All other heads of department also go through this planning process and hiring process, for their respective department.
Effect shots are planned in much more detail than normal shots and could potentially take months to design and build.
1.7. The shoot or production
Filmmakers and producers must take a careful approach to green lighting the film project and moving forward with production, by requiring unanimous consent from producers, sales agents and board of directors of the film specially-incorporated company, before proceeding.
Shooting starts and funding is released, which is a key stage in film making.
A large film production can involve hundreds of people, and it is a constant struggle to keep up with the shooting schedule and budget. Film productions are ran with strict precision. Production schedules are typically between 9 to 30 days, and you usually spend 12 to 14 hours on set, shooting from dawn to dusk. If film productions fall behind schedule, financiers and insurers may step in.
A 90 page script produced on a 24 day shooting schedule allows the director proper time on set, while keeping overall costs minimum – averaging under 4 pages per day.
The camera department is responsible for getting all the footage that the director and editor need, to tell the story.
Once lighting and sound are set up, and hair and make up have been checked, the shoot can begin.
Every special effect is carefully constructed and must be filmed with minimum risk of injury to cast and crew.
Production is a very intense and stressful process, especially for the producers and film director.
Post production usually starts during the shoot, as soon as the first “rushes” – raw footage – and sound are available. As the processed footage comes in, the editor turns it into scenes and assembles it together, into a narrative sequence for the film.
The editor will read your script and storyboards, and look at the rushes, and from this information, cut the film according to their opinion of what makes the story better.
There are two ways of doing post-production:
- the old way, i.e. celluloid film way. Shoot film and edit, or splice film on film editing equipment. There are few filmmakers who edit this way today;
- the new way is the digital way. You get all your rushes digitised (if shot on film, you will need them telecined, or scanned to a digital format).
The normal schedule for editing a feature is 8 to 10 weeks. During this time, your editor will create different drafts of your film. The first is called the “rough cut”, and last is the “answer print”.
There are two conclusions to an edit, the first when you are happy with the visual images (locking picture) and the second when you are happy with the sound (sound lock).
Once the picture is “locked”, the sound department works on the audio track laying, creating and editing every sound.
Digital effects are added by specialist effects professionals and titles and credits are added.
The final stage of the picture edit is to adjust the colour and establish the final aesthetic of the film.
During that post-production phase, it is also usual to get:
- a digital cinema package – a hard drive which contains the final copy of your film encoded so it can play in cinemas;
- a dialogue script, so that foreign territories can dub or subtitle your film, which has the precise time code for each piece of dialogue so the subtitler or dubbing artist knows exactly where to place their dialogue;
- a campaign image (with titles and credits), which is the first thing a prospective distributor or festival programmer will see of your film and which should let the viewer know exactly what your film is about;
- a 90 to 120 second trailer that conveys the mood and atmosphere of your film, knowing that programming and distribution decisions will be often be based on the strength of your trailer.
While the film is still in post-production, the producer will try to sell it to distributors (if he has not already sold the rights at the financing stage).
Filmmakers and producers must have a pre-sales distribution and market strategy in place, that optimises back end profitability of the film. Targeting major film markets – Cannes, Berlin, Toronto, Sundance, Tribeca, Venice and emerging South by South West – is key to a successful B-to-B marketing strategy, while the same sales agent who packaged the film oversees the final sale.
The film sales world is split up as the domestic market and international market and there are specific sales companies for both specific markets.
Producers tend to work without sales assistance on the domestic deals as it is in the best interest of the producer to form these relationships and close the deal personally, to have an open door for future projects that will need similar distribution.
To help sell the film internationally to distributors, the producer secures the services of a sales agent and markets his film by sending it to film festivals. High profile screenings at top film festivals can be great to generate “clout” for the film.
The trailer is used to show buyers the most marketable aspects of the film.
Distributors are fickle in many senses. The business has changed (think of the recent growth of video on demand streaming services) and international versus domestic deals are becoming challenging. Indeed, being a distributor is still a risky business: if the film is a success, distributors only earn their commissions; while if it is a failure, they loose their minimum guarantees, prints and advertising expenses (P&A). This is why the best way to be a successful distributor, nowadays, is to be also the producer, or at least co-producer because you then earn money on the much higher residuals and international rights, compared to domestic theatrical rights only.
Finding the right distributor takes time. Example of boutique distributors are HBO, IFC, Magnolia, Focus Features or Miramax for broadcast, VOD and content streaming. The search process of the most appropriate distributor for your film project,will give you practice pitching it, as well as the ability to review many different sellers to gauge style, ability and creative fit.
Just as the agencies are self-motivated, so too are sales agents (international film brokers) and distributors (buyers and exhibitors) motivated by the bottom line economics of the deal. Yes, there are buyers and sellers who specialise in content-focused for the art-house driven markets, but they are becoming fewer and fewer.
As the finishing touches are being made to the film, the distributors plan their marketing strategy to “sell” the movie to the public.
Knowing the audience is essential and the marketing team runs test screenings to see how the film is received.
Press kits, posters and other advertising materials are published, and the film is advertised and promoted. A b-roll clip may be released to the press, based on raw footage shot for a “making of” documentary, which may include making-of clips as well as on-set interviews.
Cinema expedition, also called theatrical release, is still the primary channel for films to reach their audiences.
Indeed, box office success equals financial success.
Film distributors usually release a film with a launch party, a red-carpet premiere, press releases, interviews with the press, press preview screenings, and film festival screenings.
Most films are also promoted with their own special website separate from those of the production company or distributor.
For major films, key personnel are often contractually required to participate in promotional tours in which they appear at premieres and festivals, and sit for interviews with many TV, print and online journalists.
The largest productions may require more than one promotional tour, in order to rejuvenate audience demand at each release window.
1.12. Other windows
A successful run in cinemas makes the film a sought-after product, which can be sold through other more lucrative channels such as DVDs and games.
Since the advent of home video in the early 1980s, most major films have followed a pattern of having several distinct release windows. A film may first be released to a few select cinemas (limited theatrical), or if it tests well enough, may go directly into wide release.
A popular option, to develop the domestic sales potential of a film, is to have a first phase initial release on a limited theatrical platform, paired with a joint digital download release on iTunes and Amazon – sales are driven by major market theatre visits and digital downloads in smaller markets. The second phase release via VOD and pay cablers such as HBO, Showtime and potentially Hulu – sales are then driven by word of mouth built from first phase. This is often followed by a third phase, which pairs Netflix and Amazon Prime streaming with a wide DVD release to drive streaming view and build DVD purchases. Finally, in its fourth phase, the film builds upon steady sales and word of mouth audience reception, to gain network television sales and eventual syndication. In broadcasting parlance, syndication is the licensing of the right to broadcast television programs by multiple TV stations, without going through a broadcast network.
Next, the film is released, normally at different times several weeks (or months) apart, into different market segments like rental, retail, pay-per-view, in-flight entertainment, cable, satellite, or free-to-air broadcast television. Indeed, the film may be released in cinemas or, occasionally, directly to consumer media (DVD, VCD, VHS, Blu-ray) or direct download from a digital media provider. Hospitality sales for hotel channels and in-flight entertainment can bring in millions of additional revenues.
Indeed, today, residuals, or neighbouring rights, as those additional revenues are called, bring in most of the profit for the film, not theatrical rights. Those residuals are collected by collection agents, such as Fintage House and RightBack, which adds transparency to the process of collecting revenues generated by the film.
The distributor rights for the film are usually sold for worldwide distribution.
The distributors and the production company then share profits.
As a film producer, you should “trust the shuffler but cut the deck”, by ensuring that you have an audit clause inserted in the distribution agreement, which will allow you to audit the accounts of the distributor in order to check that all collected revenues, from all sources, are indeed included in the residuals statements that you received from such distributor.
It is worth noting that, in at least 10 countries from the European Union, including France, Germany, Spain, Belgium, distributors of pay-TV services and/or operators of VOD services are required by law to contribute to the funding of production, either through contributions to support funds or by means of direct investments in production. The arrangements are generally complimentary to and extend tax law provisions requiring contributions from exhibitors, broadcasters and video distributors: all distribution activities must contribute to the funding of production.
2. How do you finance a film nowadays?
First things first: have you made a business plan? Creating a business plan is almost as important as finding a terrific script. You need to prepare a plan of attack to get the money to shoot your film. Indeed, as a producer or filmmaker, you need to make creating a viable and realistic business plan your first priority. Many filmmakers create an outline business plan first, and then find a script that matches what they think they can raise.
2.1. The studio model
The strategy, here, is to get 3 to 5 films together of a similar genre, and approach investors with a slate of similar films. If one of these films is successful, it will pay off for itself and the other 2 to 4 other film projects on the slate.
While this strategy consisting in hedging your risks by having more than one egg in your basket sounds great, a reality check is necessary: do you really think that you can get more than one project together? You may want to collaborate with some like-minded filmmakers with similar projects.
2.2. Government funding
Many nations now have attractive tax and investment incentives for filmmakers. Individual state and country legislation unable producers to subsidise spent costs for production.
For example, Europe’s MEDIA programme has twenty-odd programmes for media and filmmakers. You need to apply for the funding and lobby decisions makers until you get your soft money.
Many European filmmakers design a business plan around the rules and regulations surrounding the MEDIA money. The same applies for soft money from other countries as well.
Another example is the UK government, which pumps tens of millions of pound sterling into British film every year (using National Lottery funds!). Following the heavily criticised demise of the UK Film Council, UK public money is now distributed by the British Film Institute (BFI). Film London has also put in place a Production Finance Market (PFM), its annual two-day film financing event, run in association with the BFI London Film Festival. PFM encourages new business relationships, between UK filmmakers, producers and investors, attaching international sales companies and securing various forms of investments in companies and film projects.
As soft public money funds are always heavily over-subscribed and lobbied for by competing filmmakers and producers, you should not be over-reliant on getting government funding. In addition, those funds will impose restrictions, that could easily compromise your creative integrity.
Hard cash investments made to your film project by a single investor, a group of investors and personal investments from colleagues, friends and family.
Equity investments require that investors own a stake in the film (i.e. the operating structure, special purpose vehicle incorporated for that particular film project). They also must be paid back (typically on their principal investment plus 20 percent) before profit is seen on the side of the filmmakers and producers.
2.4. Tax finance
It’s all about de-risking your film package.
Through its Enterprise Investment Scheme (EIS) and (Small Enterprise Investment Scheme (SEIS), the UK government has created one of the world’s best environments for de-leveraging the risk of investments made in small businesses up to 98 percent (depending on the investors profile). EIS is designed to support smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.
Film projects are qualifying business for EIS and SEIS, however we heard that the European Commission has audited the UK EIS and SEIS schemes and only wants long-term UK small businesses to benefit from such schemes, ruling out special purpose vehicles incorporated for each film project. With a Brexit in the works though, it is likely that EIS and SEIS will still be used to finance UK film projects, in the future.
To get all EIS or SEIS up and running, you need to get a strong business plan together with a budget and schedule. Fill in a few online tax forms and get your UK limited company registered for EIS. If you get stuck, phone a really nice lady in Wales who will make sure your secure the paperwork.
While investing in a film is seen as “sexy” by many private investors, the recent economic downturn, Brexit and the competitiveness of securing EIS and SEIS among filmmakers and producers, make investors shy and cautious. It may be worth speaking to UK film financiers, such as the Fyzz Facility (now merged with Tea Shop), who have a pool of private investors who are ready to invest, via gap funding (as this term is defined below in paragraph 2.6 (Gap financing)), through EIS and SEIS.
In France, Sociétés de financement de l’industrie cinématographique et de l’audiovisuel (SOFICAS) are the equivalent tax-wrappers to EIS and SEIS. They are equity funds financed with tax-related money and are allowed to invest in both films and TV productions, on a selective basis. Their money comes from banks which are allowed to collect, from French tax resident private investors who want to pay less income tax in France. As SOFICAS want their money back, they tend to do mostly gap funding (as this term is defined below at paragraph 2.6), providing producers with the last (and most expensive) money. SOFICAS generally stand behind the distributors in the recoupment order. Only part of the SOFICAS money is invested in independent film productions. Each SOFICA can invest 20 percent of its money in foreign-speaking (qualified) co-productions, as long as the film’s language matches the foreign co-producer’s country’s language. In 2015, SOFICAS invested Euros37m in 112 movies, 11 of which were majority foreign co-productions, mostly from British or Belgian producers. A top manager of SOFICAS for the media and entertainment sector in France, is Back-up Media.
Tax incentives require a producer to hire a certain number of local crew employees, rent from local vendors and run payroll through local services. Tax credits are based on an application process and are often lengthy (12 to 18 months) and difficult (as they may involve a substantial amount of tedious paperwork) to procure.
For example, UK film tax relief ensures that, for film spending GBP20m or less, production companies can claim a cash rebate of up to 25 percent of qualifying expenditure. For films spending more than GBP20m, production companies can claim a cash rebate of up to 20 percent of qualifying expenditure. The UK film tax relief is largely responsible for the recent influx of international blockbuster movies into the UK: “Star Wars: the force awakens” (LucasFilm), “Avengers: age of Ultron” (Marvel Studios) and the latest James Bond film “Spectre” (EON) have all been shot in the UK, mostly out of Pinewood Studios.
In France, the Tax Rebate for International Productions (TRIP) concerns projects wholly or partly made in France and initiated by a non-French film production company. It it selectively granted by the French national centre for cinema, CNC, to a French production services company. TRIP amount up to 30 percent of the qualifying expenditures incurred in France: it can total a maximum of Euros30m per project. The French government refunds the applicant company, which must have its registered office in France. “Thor” (Marvel Studios), “Despicable Me” and “the Minions” (Universal Animation Studios) and “Inception” (Warner Bros) have benefited from TRIP.
For French film productions, the Credit d’impot cinema et audiovisuel (CICA) benefits French producers for expenses incurred in France for the production of films or TV programmes. The CICA tax credit is equal to 20 percent of eligible expenses – increased to 30 percent for films for which the production budget is less than Euros4m.
Certain tax credits are sellable, transferable and even trade-able based on the local legislation. US states such as New Mexico, North Carolina, Georgia, New York and Michigan offer the strongest solutions here.
It is really worth for film producers to organise a “competition” between various countries and territories as well, based on available tax rebates and government funding, before deciding in which country to produce and post-produce a film. Indeed, the UK and France are always in rivalry, Film France CEO Valerie Lepine-Karnik noting that “last year (in 2014), American blockbusters spent more than Euros1.6bn in the UK, which is half a million more than the total amount of money invested in French domestic film production in 2014″.
2.5. Pre sales and co-productions
The strategy, here, is to sell your film cheap up front (pre-sales) and hook up with producers in other countries to secure soft public money in other territories. Indeed, by co-producing, you can take advantage of soft money otherwise not normally accessible to your film production.
Pre-sales agreements are pre-arranged and executed contracts made with distributors before the film is produced. These agreements are based on the strength of the project’s marketability and sales potential in each given territory. A distributor will generate a value for your film project, given the scrip, the attached talent and crew, as well as the marketing approach, and then enable you to take out a bank loan using the pre-sales deal as collateral. Pre-sales can also result in direct payment (at a discounted rate) from the buyer themselves. Pre-sales investments require that the producer pay back the bank its loaned capital before profiting on their respective upside.
Both the UK and France have bilateral co-production treaties in place with certain countries such as:
- Australia, Canada, China, India, Israel, France, Jamaica, Morocco, New Zealand, Occupied Palestinian Territories and South Africa, for the UK;
- and Algeria, Argentina, Australia, Austria, Belgium, Bosnia-Herzegovina, Brazil, Bulgaria, Burkina Faso, Cambodia, Cameroon, Canada, Chile, China, Colombia, Croatia, Czech Republic, Denmark, Egypt, Finland, Georgia, Germany, Greece, Guinea, Holland, Hungary, Iceland, India, Israel, Italy, Ivory Coast, South-Korea, Lebanon, Luxemburg, Morocco, Mexico, New Zealand, Poland, Portugal, Palestinian Territories, Romania, Russia, Senegal, Serbia, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Tunisia, Turkey, Ukraine, United Kingdom, Venezuela, for France.
For example, Ken Loach’s films, mainly produced in the UK, benefit from French funds through French production company Why Not since “Looking for Eric” in 2009. “Mr Turner” by Mike Leigh was co-produced by Diaphana.
Moreover, the European Convention on cinematographic co-productions applies for now, in both countries, although this will cease to be the case for the UK after Brexit.
While co-production can work, it can be difficult to set up co-productions and you will now have financial partners in various territories who will probably all want to exercise creative control. Also, you, the producer, will have to share any revenues generated by your film not only with the distributors, but also with your co-producers scattered in various countries.
2.6. Gap financing
With partial equity raised, you are then able to procure a loan from a bank or a private lender on the unsold territories of the film (and additional elements of collateral, such as the intellectual property or corporate guarantees).
Gap financing is only available when other elements have been assembled and there is adequate security for the investor to “bridge” against.
2.7. Product placement
The strategy is to team up with brands and get cash for including their products on set.
For example, Heineken reportedly paid a third of “Skyfall” ‘s USD150mn budget to turn Daniel Craig’s James Bond into a lager drinker!
Not only do you get some of your film funding through product placement, but the product exposure the brand enjoys may have a far greater value than the cost of the product placement and is generally seen to be cheaper than comparative advertising on TV or print.
However, having a product placement in a film means that you will always be under the scrutiny of brand managers, which may hamper the film creative process. Moreover, few independent filmmakers have the polling power of James Bond! Brands will always want to know what the marketing strategy of your film is, before they invest in, or even allow their products to be used.
Crowdfunding (Kickstarter, IndieGoGo, Ulule, Kiss Kiss Bank Bank, etc.) is now a serious contender to raising finance for your film projects. It enables a contributions-based model for capital to be raised without selling equity.
For example, the “Veronica Mars” Movie project and Spike Lee’s latest film project “Da sweet blood of Jesus”, were all financed through Kickstarter in 2013. Spike Lee raised USD1.4m for his horror flick on contemporary vampires, not a negligible amount by any means.
The strategy is that you get some rewards (such as DVDs, t-shirts, sharing dinner with the famous film director) together and offer them to friends, family and fools, as well as to the crowd, hoping to entice them into making a contribution to your film project. The idea, here, is to build a community who adheres to your story.
Even the studio biggies are using crowdfunding nowadays: Charlie Kaufman, an American screenwriter, producer, director famous for writing “Being John Malkovich” and “Eternal sunshine of the spotless mind”, raised over USD400k for his new project Anomalisa.
This is crowding the pitch and makes it even tougher to get enough noise directed your way. Therefore, you need a really good business plan in order to successfully approach crowd funding.
The strategy is to get everybody to work and be paid later, out of profits if any. Indeed, producers are able to avoid nearly all costs on a project if they are able to negotiate a deferred deal.
Convince everyone that in order to get the film made now, you cannot wait for investment. In exchange, you offer up a percentage of the share of profit, meaning that everyone’s salary could potentially increase depending on the success of the film.
Deferred agreements basically state that crew, cast, vendors, locations and services are all rendered upfront at no cost, until the film generates money upon release.
Deferrals may work but are reliant on the trust the producer has with his team. Often, deferrees are unpaid, even though the film goes on to commercial success. There is also the temptation to overstate the value of the deferment which can lead to bitter arguments if the box office returns do not meet expectations. Moreover, deferred financing is difficult because experienced cast and crew are unwilling to work under these types of structures.
2.10. Self-financed film projects
Self-financed movies mean you do not have to deal with investors. It also does mean that you have to be very careful with the money, which is yours.
For example, Tangerine’s director, Sean Baker, shot his feature film entirely on 2 iPhones and went on to become one of the most hyped film directors in 2015, as Tangerine was reviewed by many critics as one the the best films of 2015. In an interview with Bret Easton Ellis in 2015, 45 years old Sean Baker confessed to still be heavily in debt and reliant on the goodwill and empathy of his parents, to make ends meet.
While getting your film done immediately with your own resources is an enticing prospect and very achievable in today’s digital world, it is worth noting that most of these thousands of self-financed movies fail, mostly due to the fact that their scripts are not good enough. By going the self-financed indie route, filmmakers have side stepped the development cycle and no one has told them that their script sucks.
3. How do you make your film project stand out to financiers?
As mentioned in our introduction, it is tough to get films financed in today’s market. Of course, a strong script, a great team with experience and a game plan for success are pre-requisites, but that’s not enough. The key factor to equity investors and debt lenders, is to remove risk, financial exposure and speculation – meaning, when are they going to start earning a return or their money back, and can you guarantee that? The more risk and speculation you remove, by utilising the steps below, the better chance you will have of securing capital in “hard money”.
As mentioned above in paragraph 1.4. (Packaging) above, talent agencies are a difficult nut to crack. They are well-guarded, highly established and protected entities. They are the gatekeepers of taste, talent and possibility – and more than anything they are the lifeblood of the independent producer seeking to put projects together with financing.
Once you have a suitable piece of material, get an agent/agency excited about the project as well. The way forward is approaching the major five talent agencies – William Morris Endeavor, United Talent Agency, Creative Artists Agency, The Gersh Agency and International Creative Management – for the packaging of quality source material – script, paired with proven name talent – actors and directors, under the representation of a successful in-house sales agent.
As with most of the entertainment business, agents think in numbers – how much will my firm/I make from this deal? Incentivize the agency by offering them the ability to package the project – place multiple roles with their roster rather than just one or two roles – which gives them the ability to earn 10 to 15 percent of multiple deals across the board.
Furthermore, offer them the ability to have a first look opportunity for domestic sales representation – again, finding ways to incentivise. By packaging these elements early on, you will be able to bring strong talent to the project and gear up to be more ready to approach equity players.
3.2. Strength of team and experience
A first time producer/director/star is a tough sell for many in the film business. Sales teams are unable to project value (pre-sell), agents are unable to place large name talent (packaging) and financiers are unable to gauge project return on investment (ROI).
Therefore, your best bet is to find a director who has carried a project before, find an agency who is interested in packaging and will keep you/your project in the stratosphere of content that matters and you will be in a great starting position.
The team must bring a wealth of knowledge, experience and relationships to the production phase, in order to properly execute feature film’s full production schedule. All the while, the producers and filmmaker must mindfully nurture the creative necessity, without neglecting the overall commercial nature of the film’s back end.
If you have to utilise unknown talents to make your project, then surround them with experience on all fronts. An unknown star with a strong director, director of photography, producer and writer is a reasonable recipe.
3.3. Soft money options
With your packaged talent signed on, a strong team on board, and a well-developed script, you can now approach “soft money” options, i.e. tax incentives/pre-sales/debt financings.
Tax incentives offer a percentage of the in-state or in-country spend back in rebate form. This means that you can bankroll/cash-flow this piece of financing to offset your investors’ risk.
Pre-sales offer projections of value based on the elements you have brought together. This, in turn, also implies that you can bankroll/cash-flow this piece of financing to offset your investors’ risk.
The same goes for debt options.
As a filmmaker or producer, you need to find ways to cover 50 cent or pence of every euro or pound your investor is putting up before the cameras even turn on.
Shoot in tax incentive rich states, with a strong pre-sold package, and with a great sales team onboard to execute. You can then reduce the level of speculation and guarantee a return of X percent, based on Y investment in a tangible timeline.
3.4. Plan of execution
With these elements onboard, make your investment proposal personable, professional and tailored to your investors specifics. Do not pitch high level equity film financing to first-time entertainment investors. Keep it simple, honest, and remind equity investors that while smoke and mirrors often run throughout the business, you are putting together a basic structure returning X percent on Y investment over Z timeline.
Lastly, look into completion/guarantor insurance guarantees, as a way to assure your equity investors that the project will be completed on time, schedule and budget, and with the elements they have agreed to finance. The liability is now removed via an insurance company and investors’ return is partially guaranteed via tax incentives and additional soft-money.
Pitch smart, often and confidently knowing that you have done your homework and that the investment is well-structured for a return.
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On 23 June 2016, during an epic day of flooding in London and South East England, which did not deter a record 72.2 percent of voters to turn out, Little Britain decided to terminate its 43-year membership with the European Union (EU). What are the Brexit legal implications that creative industries need to know about?
Now, the United Kingdom (UK) – or possibly, only England and Wales if Northern Ireland and Scotland successfully each hold a referendum to stay in the EU in the near future – will join the ranks of the nine other European countries which are not part of the EU, i.e. Norway, Iceland, Liechtenstein, Albania, Switzerland, Turkey, Russia, Macedonia and Montenegro. Of these, two countries, Russia and Turkey, straddle Europe and Asia.
What are the short-term and long-term consequences, from a legal and business standpoint, for the creative industries based in the UK or in commercial relationships with UK creatives?
The two main treaties of the European Union, which are a set of international treaties between the EU member states and which sets out the EU’s constitutional basis, are the Treaty on European Union (TEU, signed in Maastricht in 1992) and the Treaty on the Functioning of the European Union (TFEU, signed in Rome in 1958 to establish the European Economic Community).
The TFEU in particular sets out some important policies which guide the EU, such as:
- Citizenship of the EU;
- The internal market;
- Free movement of people, services and capital;
- Free movement of goods, including the customs union;
- Area of freedom, justice and security, including police and justice co-operation;
- Economic and monetary policy;
- EU foreign policy, etc.
How is the ending of those policies, in the UK, going to change and affect UK creative professionals and companies, as well as foreign citizens and companies doing business in the UK?
1. Removal of EU citizenship for UK citizens and of freedom of movement of people coming in and out of the UK
Citizenship of the EU was introduced by the TEU and has been in force since 1993.
EU citizenship is subsidiary to national citizenship and affords rights such as the right to vote in European elections, the right to free movement, settlement and employment across the EU, and the right to consular protection by other EU states’ embassies when a person’s country of citizenship does not maintain an embassy or a consulate in the country in which they require protection.
By voting out of the EU, Little Britain has made it difficult for EU citizens to come to the UK, as a visa or work permit may be required in the future, depending on the agreement that the UK will strike with the EU. However, it will also be much more difficult for UK citizens to travel to EU member states, for work, studies or leisure.
Probably, the majority of people in the UK who voted out of the EU do not travel much out of the UK, either for work or leisure, so there was definitely a class battle going on there, during that Brexit referendum, as high flyers and Londoners (who have to be quite wealthy to live in such an expensive city) wanted to remain in the EU, while the working class population and English & Welsh regions were firmly on the Leave side. That’s democracy for you: one individual, one vote and the majority of votes always has the upper hand!
If we look at the example set by some of the other nine European states which are not part of the EU, we see that several options are available. Although Norway, Iceland and Liechtenstein are not members of the EU, they have bilateral agreements with the EU that allow their citizens to live and work in EU-member countries without work permits, and vice versa. Switzerland has a similar bilateral agreement, though its agreement is slightly more limited. At the other end of the spectrum, the decision about whether to permit Turkish citizens to live and work within member countries of the EU is left to the individual member nations, and vice versa.
So what’s it going to be like, for the UK?
Time will tell but as we now know that David Cameron, a relatively “mild” member of the conservative party, will step down as the UK prime minister in October 2016, we are under the impression that his leadership will be replaced with an atypical and highly-strung right-wing and nationalistic team, probably led by hard-core conservatives such as Boris Johnson. Mr Johnson not being renowned for his subtlety and impeccable political flair, we think that negotiations for new bilateral agreements between the UK and EU as well as non-EU countries will be a difficult, protracted and ego-tripped process which may take years to finalise.
The UK will try to reduce immigration from the EU, probably with a points-based system such as the one in place in Australia. It means giving priority to high-skilled workers and blocking entry to low-skilled ones. But first, the UK will have to clarify the status of the nearly 2.2 million EU workers living in the UK. The rules for family reunions may get tougher. Also, 2 million UK nationals also live abroad in EU countries – so any British measures targeting EU workers could trigger retaliation against UK nationals abroad.
This, of course, may have an extremely negative impact on the freedom of movement of people, in and out of the UK, which may have a catastrophic impact on trade, human rights and political relationships with other states, for the UK.
Article 50 of the Lisbon Treaty, another treaty from the set of international treaties between the EU member states and which sets out the EU’s constitutional basis, relates to the rules for exit from the EU and provides that:
“1. Any Member State may decide to withdraw from the EU in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the EU shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the EU. That agreement shall be negotiated in accordance with Article 218(3) of the TFEU. It shall be concluded on behalf of the EU by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it. A qualified majority shall be defined in accordance with Article 238(3)(b) of the TFEU.
5. If a State which has withdrawn from the EU asks to rejoin, its request shall be subject to the procedure referred to in Article 49″.
Therefore, the UK nows needs to notify its intention to withdraw from the EU to the European Council. We understand that such notification will be handed over by the new prime minister in the UK, therefore after October 2016.
The UK will have, at the latest, a period of two years from such notification date to negotiate and conclude with the EU an agreement setting out the arrangements for its withdrawal, taking out of the framework for its future relationship with the EU. After this period of two years or, if earlier, the date of entry into force of the withdrawal agreement, the EU Treaties will cease to apply to the UK.
Let’s hope that the new UK government will have the ability and gravitas to strike a withdrawal agreement with the EU, in particular in relation to free movement of people coming in and out of the UK, which will be balanced and ensure fluid and constructive relationships with its fellow neighbours and main import partners.
Companies which have – or plan to have – employees in the UK, or which staff often travels to the UK for business reasons, should monitor the negotiation of the bilateral agreements relating to the freedom of movement of people, between the UK and EU member-states, as well as non-EU countries, very closely, as costs, energy and time to secure visas and work permits could become a significant burden to doing business in and with the UK, in the next two years.
2. Removal of free movement of goods, services and capital?
The EU’s internal market, or single market, is a single market that seeks to guarantee the free movement of goods, capital, services and people – the “four freedoms” – between the EU’s 28 member states.
The internal market is intended to be conducive to increased competition, increased specialisation, larger economies of scale, allowing goods and factors of production to move to the area where they are most valued, thus improving the efficiency of the allocation of resources.
It is also intended to drive economic integration whereby the once separate economies of the member states become integrated within a single EU wide economy. Half of the trade in goods within the EU is covered by legislation harmonised by the EU.
Clearly, the internal market and its wider repercussions have gone totally over the head of Little Britain, who wiped out 43 years of hard-won progress towards economic integration in 12 hours on 23 June 2016! “Put Britain first”, which was what the mentally ill racist and right-wing extremist shouted when he murdered Jo Cox, a Labour politician and campaigner for the rights of refugees, a week and a half ago, summarises what Little Britain had in mind, when they voted out of the EU.
Having said that, it is possible that the internal market remains in place, between the UK and the EU, as such market has been extended to Iceland, Liechtenstein and Norway through the agreement on the European Economic Area (EEA) and to Switzerland through bilateral treaties.
Indeed, the EEA is the area in which the agreement on the EEA provides for the free movement of persons, goods, services and capital within the internal market of the EU. The EEA was established on 1 January 1994 upon entry into force of the EEA Agreement.
The EEA Agreement specifies that membership is open to member states of either the EU or European Free Trade Association (EFTA). EFTA states, i.e. Iceland, Liechtenstein and Norway, which are party to the EEA Agreement participate in the EU’s internal market. One EFTA state, Switzerland, has not joined the EEA, but has a series of bilateral agreements with the EU which allow it to participate in the internal market. The EEA Agreement in respect of these states, and the EU-Swiss treaties have exceptions, notably on agriculture and fisheries.
2.1. Free movement of goods?
Thanks to the internal market, there is a guarantee to free movement of goods.
If the UK decides, during its withdrawal negotiations with the EU, to become a party to the EEA Agreement, then such freedom of movement of goods will be guaranteed.
If the UK decides, during its withdrawal negotiations with the EU, to put in place a series of bilateral agreements with the EU, then such freedom of movement of goods may be guaranteed.
Otherwise, there will be no freedom of movement of goods, between the UK and the EU, and non-EU countries, which would be an extremely perilous commercial situation for the UK. The EU is also a customs union. This means that member-states have removed customs barriers between themselves and introduced a common customs policy towards other countries. The overall purpose of the duties is “to ensure normal conditions of competition and to remove all restrictions of a fiscal nature capable of hindering the free movement of goods within the Common Market“.
Article 30 TFEU prohibits EU member-states from levying any duties on goods crossing a border, both goods produced within the EU and those produced outside. Once a good has been imported into the EU from a third country and the appropriate customs duty paid, Article 29 TFEU dictates that it shall then be considered to be in free circulation between the EU member-states.
Neither the purpose of the charge, nor its name in domestic law, is relevant.
Since the Single European Act, there can be no systematic customs controls at the borders of EU member-states. The emphasis is on post-import audit controls and risk analysis. Physical controls of imports and exports now occur at traders’ premises, rather than at the territorial borders.
Again, if the UK becomes a party to the EEA Agreement, or signs appropriate bilateral agreements with the EU and other countries party to the internal market, customs duties will be prohibited between the UK, the EU, the EEA states and Switzerland. Otherwise, customs duties will be re-instated between the UK and all other European countries, including the EU, which would be again a very disadvantageous situation for UK businesses as the cost of trading goods with foreign countries will substantially increase.
The same goes for taxation of goods and products which will be reinstated if the UK does not manage to become a party to the EEA Agreement or to sign appropriate bilateral agreements with the EU.
This is going to become a major headache for the UK’s new leadership: goods exports of the EU, not including the UK, to the rest of the world, including the UK, are about 1,800bn euros; to the UK, about 295bn euros, or a little under 16 percent. So, in 2015, the UK accounted for 16 percent of the EU’s exports, while the US and China accounted for 15 percent and 8 percent respectively.
The UK would, indeed, become the EU’s single largest trading partner for trade in goods. However, this would probably not be the case for trade overall. Including services would probably reduce the UK’s share somewhat (the EU ex UK exports over 600bn euros in services, while the UK imports only about 40-45bn euros in services from the rest of the EU). Moreover, the US will very probably overtake the UK as the EU ex UK’s largest single export market.
What does this tell us about the UK’s bargaining power with the EU after a Brexit?
It certainly confirms that the UK would become one of the EU’s largest export markets, even if not necessarily the largest. But the UK would still be far less important to the EU than they are to the UK – the EU still takes about 45 percent of UK’s exports, down from 55 percent at the turn of the century. And, if you treat the EU as one country, as this analysis does, “exports” become considerably less important overall (intra-EU trade is far more important to almost all EU countries). Indeed, as this Eurostat table shows, only for Ireland and Cyprus does the UK represent more than 10 percent of total (including intra-EU) exports. So how important will exporting to the UK be to the EU economy after Brexit? EU exports to the UK would represent about 3 percent of EU GDP; not negligible by any means, but equally perhaps not as dramatic as one might think. The EU, and even more so the UK, would certainly have a strong incentive to negotiate a sensible trading arrangement post-Brexit. But no-one should imagine the UK holds all the cards here.
Bearing in mind that the EEA Agreement and EU-Swiss bilateral agreements are both viewed by most as very asymmetric (Norway, Iceland and Liechtenstein are essentially obliged to accept the internal single market rules without having much if any say in what they are, while Switzerland does not have full or automatic access but still has free movement of workers), we strongly doubt that currently feisty UK and its dubious future leadership (wasn’t Boris Johnson lambasted for being a womanising buffoon by both the press and members of the public until recently?) are cut from the right cloth to pull off a constructive, seamless and peaceful exit from the EU.
Creative companies headquartered in the UK, which export goods and products, such as fashion and design companies, should monitor the UK negotiations of the withdrawal agreement with the EU extremely closely and, if need be, relocate their operations to the EU within the next 2 years, should new customs duties and taxation of goods and products become inevitable, due to a lack of successful negotiations with the EU.
The alternative would be to face high prices both inside the UK (as UK retailers and end-consumers will have to pay customs duties and taxes on all imported products) and while exporting from the UK (as buyers of UK manufacturers’ goods will have to pay customs duties and taxes on all exported products). Moreover, the UK will face non-tariff barriers, in the same way that China and the US trade with the EU. UK services – accounting for eighty percent of the UK economy – would lose their preferential access to the EU single market.
While an inevitably weaker pound sterling may set off some of the financial burden represented by these customs duties and taxes, it may still very much be necessary to relocate operations to another country member of the EU or EEA, to balance out the effect of the Brexit, and its aftermath, for creative businesses which produce goods and products and export the vast majority of their productions.
Fashion and luxury businesses, in particular, are at risk, since they export more than seventy percent of their production overseas. Analysts think that the most important consequence of Brexit is “a dent to global GDP prospects and damage to confidence. This is likely to develop on the back of downward asset markets adjustments. Hence, more than ever, the fashion industry will have to work on moderating costs and capital expenditures“.
2.2. Free movement of services and capital?
The free movement of services and of establishment allows self-employed persons to move between member-states in order to provide services on a temporary or permanent basis. While services account for between sixty and seventy percent of GDP, legislation in the area is not as developed as in other areas.
There are no customs duties and taxation on services therefore UK creative industries which mainly provide services (such as the tech and internet sector, marketing, PR and communication services, etc) are less at risk of being detrimentally impacted by the potentially disastrous effects of unsuccessful negotiations between the EU and the UK, during the withdrawal period.
Free movement of capital is intended to permit movement of investments such as property purchases and buying of shares between countries. Capital within the EU may be transferred in any amount from one country to another (except that Greece currently has capital controls restricting outflows) and all intra-EU transfers in euro are considered as domestic payments and bear the corresponding domestic transfer costs. This includes all member-states of the EU, even those outside the eurozone providing the transactions are carried out in euro. Credit/debit card charging and ATM withdrawals within the Eurozone are also charged as domestic.
Since the UK has always kept the pound sterling during its 43 years’ stint in the EU, absolutely refusing to ditch it for the euro, transfer costs on capital movements – from euros to pound sterling and vice versa – have always been fairly high in the UK anyway.
Should the withdrawal negotiations between the EU and the UK not be successful, in the next two years, it is possible that such transfer costs, as well as some new controls on capital movements, be put in place when creative businesses and professionals want to transfer money across European territories.
It is advisable for creative companies to open business bank accounts, in euros, in strategic EU countries for them, in order to avoid being narrowly limited to their UK pound sterling denominated bank accounts and being tributary to the whims of politicians and bureaucrats attempting to negotiate new trade agreements on freedom of capital movements between the UK and the EU.
To conclude, we think that it is going to be difficult for creative businesses to do fruitful and high growth business in the UK and from the UK for at least the next two years, as UK politicians and bureaucrats now have to not only negotiate their way out of the EU through a withdrawal agreement, but also to negotiate bilateral free trade deals that the EU negotiated on behalf of its 28 member-states with 53 countries, including Canada, Singapore, South Korea. Moreover, it would require highly-skilled, seasoned, non-emotional and consensual UK leadership to pull off successful trade negotiations with the EU and, in view of the populist campaign lead by a now victorious significant majority of conservative politicians in the UK up to Brexit, we think that such exceptional and innovative UK leaders are either not yet identified or not in existence, at this point in time. The pains and travails of the UK economy may last far longer than just two years and, for now, there is no foreseeable light at the end of the tunnel that all this fuss will be worth it, from a business and trade standpoint. Did Little Britain think about all that, when it went out to vote on 23 June 2016? We certainly do not think so.
Annabelle Gauberti, founding partner of London music law firm Crefovi, was a guest speaker at MaMa’s workshop on finding your neighbouring rights abroad. Neighbouring rights at MaMa: insightful!
Emmanuel Legrand, star moderator and Music Week journalist, invited the founding partner of London music law firm Crefovi, Annabelle Gauberti, to be a guest speaker on neighbouring rights at MaMa this year.
MaMa is a three days’ annual conference for professionals in the music industry. It was held between 14 and 16 October 2015 in Paris. MaMa is at the forefront of creative thinking and innovation, for the music industry.
This workshop on neighbouring rights at MaMa focused on the international neighbouring rights market with experts in the field who explained how to optimize the collection of these rights outside of France. It was organised thanks to French neighbouring rights collecting society SPPF.
Emmanuel and Annabelle, as well as Emmanuel de Buretel, CEO of the Because Group, Jerome Roger, Director of SPPF and Gregoire Corman, Founder of RightBack, presented a workshop on how to collect your neighbouring rights internationally, when you are a record producer, a performer or a non-featured musician, based in France and registered with French collecting societies. Annabelle is an expert on neighbouring rights in the music industry and in the digital era. She spoke, with other guests invited by Emmanuel and French collecting society SPPF, on neighbouring rights at MaMa on Wednesday 14 October 2015.
Tel: +44 20 3318 9603
Why sound recording producers, sound recording artists and performers as well as digital service providers have everything to win in finding a consensus on neighbouring rights in the digital era
As we detailed in our previous article on our take on Midem 2015, the music industry’s digital revenues grew by 6.9% to USD6.9 billion in 2014 and are now on a par with the physical sector.
Indeed, globally, like physical format sales, digital revenues – which comprise incomes from both digital downloads and streaming – now account for 46% of total music industry revenues. In 4 of the world’s top 10 markets, digital channels (streaming and downloads) account for the majority of revenues (i.e. 71% of total 2014 industry revenue in the US; 58% of total 2014 industry revenue in South Korea; 56% of total 2014 industry revenue in Australia and 45% of total 2014 industry revenue in the UK).
In particular, streaming is going from strength to strength, with music digital subscription services – including free-to-consumer and paid-for tiers – growing by 39% in 2014, while downloading sales declined by 8% but remained nonetheless a key revenue stream as they still account for more than half of digital revenues (52%).
Global brands providing music streaming subscription services, referred to here as “digital service providers” or “DSPs”, such as Deezer and Spotify, continued to reap the benefits of geographical expansion. There were some notable new entrants into the streaming area: YouTube launched its subscription service Music Key in late 2014, while Apple launched its own streaming service roll out in July 2015 further to its USD3 billion acquisition of Beats, and Jay Z and other top artists re-launched talent-managed streaming service Tidal earlier this year.
Streaming subscription revenues predictably offset declining downloading sales to drive overall digital revenues, pushing subscription at the heart of the music industry’s portfolio of businesses, representing 23% of the digital market and generating USD1.6 billion in trade revenues.
Music industry analyst Mark Mulligan predicts that streaming and subscriptions will grow by 238% from the 2013 levels, to reach USD8 billion in 2019, with download revenue declining by 39%. He concludes that streaming and subscriptions will represent 70% of all digital revenue by 2019.
While this evolution towards more music streaming is very customer-friendly (who does not want to have the option to select and potentially hear millions of tracks, anywhere in the world, on a device no bigger than the size of a jean’s pocket?), new legal and business issues have arisen as a result.
In particular, right owners of musical content (i.e. right owners in the musical composition – typically, songwriters, composers and music publishers or collective licensing organisations – on the one hand, and right owners in the recorded performance of that composition – typically, the record label, the recording artist-performer and non-featured musicians and vocalists – on the other hand) repeatedly ask themselves how they are financially benefiting from this surge in streaming consumption and income. How do they get paid?
Also, more and more digital service providers want to know how they can access high-quality musical content and obtain the right to stream the widest musical catalogues on their platforms, at a reasonable price. Since scaling up is the key to success for any technology company, DSPs also want to have the right to stream such musical content all over the world.
Finally, as the surge in musical digital consumption and income is becoming a factual evidence, certain categories of income streams are developing and taking more of a preponderant role. For example, sound recording performance rights, or “neighbouring rights”, are a growing source of global revenue for recording artists and record labels. While recorded music sales of physical products have declined 66% since their high in 1999, revenues from overall neighbouring rights have increased dramatically, reaching Euros2.034 billion globally in 2013.
Musical rights represent around 90% of the royalties collected in relation to neighbouring rights. Audio-visual rights are worth around Euros200 million, benefiting mainly to performers, while the rest of these royalties (around Euros1.834 billion) relate to musical neighbouring rights. Where are these musical neighbouring rights going? How are they collected then distributed?
This article focuses on how deals are done with digital service providers, in the musical streaming arena, in relation to sound recording performance rights. We will, in a future article, look at the licensing aspects of mechanical rights and performance rights for right owners in the musical composition, in the digital era. Here, we focus only on neighbouring rights and the situation of right owners in the recorded performance of a musical composition – typically, the record label, the recording artist-performer and non-featured musicians and vocalists.
1. Getting to grips with neighbouring rights in the digital era
Neighbouring rights, also called “related rights”, were consecrated by law, step by step, in order to ensure that people who are “auxiliaries” to the creation and/or production of content (artists, performers, music producers, film producers, non-featured musicians and vocalists, etc) can have more control over their creative endeavours.
There is no single definition of neighbouring rights, which vary much more widely in scope between different countries than authors’ rights or copyright.
However, the rights of performers, phonogram producers and broadcasting organisations are certainly covered by related rights, and are internationally protected by the Rome Convention for the protection of performers, producers of phonograms and broadcasting organisations, signed in 1961.
Aside from the Rome Convention, another international treaty addresses the protection of neighbouring rights in the musical sector: the WIPO performances and phonograms treaty (WPPT) signed in 1996.
At the European Union level, three directives have been instrumental in developing a harmonised legal framework relating to neighbouring rights: the directive of 27 September 1993, relating to the coordination of certain rules on author’s rights and neighbouring rights applicable to satellite broadcasting; the directive of 29 October 1993 – replaced by the directive n. 2006/116/EC of 12 December 2006 – on the term of protection of copyright and certain related rights; the directive n. 2001/29/EC of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society.
As mentioned above, sound recording performance rights represent the bulk of all neighbouring rights collected worldwide, and they are a growing source of global revenue for recording artists and record labels.
For example, in the US, SoundExchange, the organisation responsible for collecting and distributing sound recording performance royalties, distributed USD590 million in 2013, a dramatic increase from the USD3 million the organisation distributed in 2003. In the decade since SoundExchange’s inception, the organisation has generated USD2 billion in royalties to artists and record companies.
Out of a total of Euros2.034 billion of neighbouring rights collected in 2013, 48.9% originate from Europe (Euros1.101 billion), 30% from North America (Euros681 million), 11.9% from South America (Euros268 million) and 8.6% from Australasia (Euros192 million).
With a 28% share of worldwide royalties, the US is the main market for neighbouring rights, even though the collection of such rights is limited to the public performance of sound recordings on digital medium only (such as online radio like Pandora, satellite broadcasting like Sirius/XM and also online streaming of terrestrial radio transmission like iHeartRadio). Unlike most of the world, the US does not apply sound recordings performance rights to broadcast radio, terrestrial radio and performance of sound recordings in bars, restaurants or other public places.
The market of neighbouring rights is mainly concentrated in 10 countries, which control 82% of worldwide royalties, with a strong concentration in Europe. Apart from the US, the United Kingdom (12%), France (11%), Japan (7%), Brazil (7%), Germany (7%), Argentina (3%), the Netherlands (3%), Canada (2%) and Norway (2%), are the top 10 worldwide markets. Outside the US, sound recordings enjoy broader performance rights for broadcast (including terrestrial radio), public performance and so-called communication to the public.
Globally, sound recording performance rights are administered by music licensing companies or collecting societies. These organisations are responsible for negotiating rates and terms with users of sound recordings (e.g. broadcasters, public establishments, digital service providers) collecting royalties and distributing those royalties to performers and sound recording copyright owners.
There are around 60 collecting societies around the world focused on sound recording performance royalties.
2. Collecting societies and neighbouring rights: the future is bright for right owners
2.1. How are neighbouring rights protected and collected on a territorial-basis?
While it could appear that neighbouring rights are protected and remunerated in a very homogenous way around the world, thanks to the structured international and European legal framework described above, in fact these related rights and the business practices of collecting societies are very different and vary from territory to territory.
Each of the 60 collecting societies operates in a territory which recognises performances in slightly different ways and has a specific business practice.
For example, the US Copyright act grants owners of sound recordings an exclusive right to “perform the copyrighted work publicly by means of a digital audio transmission“. This right is limited by a statutory license for so-called “non-interactive digital audio transmissions“. Therefore, services which comply with the statutory license may stream sound recordings without permission of the copyright owner, subject only to remitting data and payment to SoundExchange. The US Copyright act specifies how SoundExchange divides and distributes the royalties: 50% go to the sound recording copyright owner; 45% is distributed to the featured recording artist; and 5% is sent to an independent administrator which further distributes those royalties to non-featured musicians and vocalists.
In the United Kingdom, the UK copyright, designs and patents act grants sound recording copyright owners exclusive performance rights in their sound recordings. In addition, the UK act gives performers on those sound recordings a right of “equitable remuneration” for a share of the licensing proceeds for uses of the sound recordings. Therefore, when a sound recording is broadcasted in the UK, the performers on those sound recordings have a right against the producer (i.e. the record company) of the recording as to a share of the producer’s revenue from that usage. From a legal standpoint, it is very different from the US statutory license regime where the featured artist’s share is as against the user of the sound recording, not the record company. As mentioned above, the UK is the second largest market for neighbouring rights globally. According to the 2014 financial results of UK collecting society PPL, it collected a total of £187.1 million total licence fee income (from broadcast, online, public performance and international revenue sources).
In Germany, the Law on copyright and neighbouring rights similarly grants performers and producers rights to remuneration for the performance of their sound recordings. While this German law grants performers rights of equitable remuneration for the broadcast of communication to the public of their fixed performances (i.e. sound recordings), it grants producers a share of the performer’s proceeds from the licensing of broadcast and communication to the public rights. Therefore, the producers’ revenue from such activity is as against the performer, not the user of the sound recording. This is the exact opposite to the UK regime, and nothing like the US system.
In France, the Intellectual property code also grants sound recording copyright owners exclusive performance rights in their sound recordings, through a statutory license. Like in the US, digital service providers which comply with the statutory license may stream sound recordings without permission of the copyright owners, subject only to remitting data and payment to SCPP (when the record producer is a major), SPPF (when the record producer is an independent label), ADAMI (for performers) and SPEDIDAM (for non-featured musicians and vocalists). The Intellectual property code provides that 50% of the royalties go to the sound recording copyright owner, while the other 50% go to the performers and non-featured musicians and vocalists.
2.2. How are neighbouring rights protected and collected on a cross-border basis?
One of the recurring questions that artists and labels ask themselves is how they are protected from one territory to the other. Indeed, music is a global business, especially in the digital era: artists successful in one territory often are successful in others.
Worldwide success implies that the sound recordings of artists are going to be performed publicly in other territories than where they reside. How, then, can performers and producers collect sound recording performance royalties in territories where they are not nationals and may not have direct agreements with the relevant societies?
The answers are complex and derive from the application of the provisions set out in the Rome Convention and the WPPT above-mentioned.
Article 2 of the Rome Convention details the level of protection that it grants nationals of contracting states in each others’ territories. In short, contracting states owe nationals of other territories the same level of protection they recognise for their own nationals. This concept of “National Treatment” is key to international copyright treaties and works to ensure that members do not unfairly discriminate against nationals of other contracting states.
Articles 4 and 5 of the Rome Convention specify that sound recordings made by nationals of contracting states, first recorded in contracting states, or first published in contracting states, are eligible for National Treatment. Similarly, a performer’s performance will be granted National Treatment if it was rendered in a contracting state, incorporated in a protected sound recording, or if not recorded, broadcast from a contracting state.
Article 12 of the Rome Convention sets out the equitable remuneration for performers, producers (or both) for secondary uses of their sound recordings (e.g. broadcasting, communication to the public). The US is not a signatory to the Rome Convention because, in 1961, this country did not recognise sound recordings as copyrightable subject matter (only in 1995 were sound recordings granted a limited digital public performance right in the US).
Article 4 of the WPPT sets out the treaty’s national treatment requirements. Contracting parties must grant nationals of other contracting parties the same level of protection they grant to their own nationals. Article 3 of the WPPT imports the qualification criteria for performers and producers from the Rome Convention (articles 4 and 5). Thus, performers and producers who would be entitled to National Treatment under articles 4 and 5 of the Rome Convention are entitled to National Treatment under article 3 of the WPPT, as if all members of the WPPT were Rome Convention members. This ensures that US performers and producers eligibility is analysed in the same way, even though the US is not a Rome Convention signatory.
Article 15 of the WPPT details the equitable remuneration right of performers and producers and largely follows the provisions of article 12 of the Rome convention. A contracting party may recognise an equitable remuneration right for secondary uses of sound recordings (e.g. broadcast, communication to the public) for performers, producers or both, or may choose not to recognise such a right at all. Contracting parties may choose to limit their application of article 15 by depositing a notification detailing the scope of its limitation. Such notifications may have implications for the level of national treatment member states owe each other’s nationals under article 4.
Article 4 of the WPPT requires contracting parties to provide full national treatment to each others’ nationals. However, article 4(2) states that contracting parties may limit the scope of national treatment to the extent another contracting party has availed itself of a reservation under article 15. For example, because the US does not recognise a terrestrial broadcast right for its own nationals or those of any other country, most WPPT members choose not to grant terrestrial broadcast rights to US nationals, even though they are recognised for their own nationals. This concept of “like-for-like” treatment is often referred to as “reciprocity” and is distinct from “national treatment”.
When seeking to maximise the amount of royalties one collects for artists and record companies abroad, these concepts of “national treatment” and “reciprocity” are critical to keep in mind. Understanding what qualifies for full national treatment and what qualifies for limited reciprocity can have an impact on the amount of neighbouring rights revenue an artist or label realises.
For example, a US performer recording in Europe would be qualified for performer royalties (or a European performer recording in the US).
Eligibility for royalties is often a fact-based, case-by-case analysis focused on the nationality of performers and producers, where recordings took place, and where they were first published. Knowing these important facts is crucial to ensuring that artists and labels receive what they are owed.
Collecting societies play an important role here: not only do they collect fees from users in their own territories and distribute those to their domestic royalty recipients, but they often act on behalf of their member artists and labels to collect undistributed royalties abroad.
In particular, PPL in the UK, and SAMI, in Sweden, have a share of international royalties above 20% in their respective total amount of royalties collected. This is explained by the fact that both UK and Swedish music are great exports around the world. Consequently, PPL has identified international income as a growing source of revenue and has set up a very dynamic policy of royalties collection abroad, signing dozens of reciprocity agreements with sister collecting societies.
3. Sound recording owners and digital service providers: how to get the streaming deal done?
In its latest report on neighbouring rights in the digital era, French collecting society ADAMI highlighted that the worldwide market of neighbouring rights in collective management should grow exponentially in the next few years.
However, the report noted that the share of sound recording public performance royalties attributed to digital is still quite low, apart in the US where related rights in collective management only come from digital sources (i.e. streaming). As more and more consumers use streaming – as opposed to music downloadings and physical formats -, ADAMI forecasts that the share of sound recording public performance royalties deriving from streaming will become an essential part of the income paid to performers and record producers.
For now, most of the sound recording public performance royalties collected by collective management societies originates from equitable remuneration, which is in part linked to advertising revenues of commercial radio and TV.
Digital service providers regularly get a lot of flak from performers and independent record producers, for the low share of sound recording public performance royalties attributable to streaming, that these right owners get back.
In particular, top talent such as Taylor Swift and Radiohead left Spotify with fracas, in 2014 and 2013 respectively, complaining that end-consumers don’t pay enough to access their catalogues on Spotify. It is true that as artists earn on average less than one cent per play, between USD0.006 and USD0.0084 according to Spotify Artists, it may seem that DSPs are not pulling their weight here.
Having said that, what digital service providers are interested in is to have access to top-quality musical content, worldwide, that they can offer on their streaming platforms to end-consumers at a reasonable price.
To achieve that, they must define a commercial strategy in relation to the type of musical content they want to offer and in which territories. Such commercial strategy, which explains the service description and consumer offering as well as the economic model backing that up – should be set out in the DSP’s business plan and then in its term sheet of a licensing agreement.
Depending on such business strategy, the size and gravitas of the DSP, as well as its budget to secure the rights to the public performance of sound recordings, the digital service provider may decide to obtain either “statutory licenses” from collecting societies, as described above, and/or negotiate bespoke licenses.
Indeed, it is important to note that the statutory license does not apply where there is a direct deal between the digital service provider and the phonogram producer. This has happened with the deals struck between Clear Channel and phonogram producers such as Glassnote (the label for Mumford and Sons) and Big Machine (the label for Taylor Swift).
For example, Merlin is a global digital rights agency for the independent label sector, which offers the attractive option of globally licensing, via a single deal, the world’s most important and commercially successful independent music labels. Among the DSPs that Merlin license, feature Soundcloud, Vevo, Google play, Deezer, YouTube and Spotify. Recently, Merlin has entered into a direct deal with Pandora, giving that digital service provider its first arrangement outside the statutory system.
In Europe too, many customised streaming services are licensed directly (rather than collectively). Some phonogram producers tend to keep their “making available” rights, rather than mandating collecting societies to license them on their behalf.
Snowite is another recorded music rights licensing organisation that negotiates bespoke licensing deals, on behalf of DSPs such as Fnac Jukebox and Reglo Musique, with majors, indie labels and collecting societies.
Another important contributor to the success of getting a deal done between DSPs and owners of sound recordings, is the music lawyer: it is essential to reach out to a lawyer who understands how to translate the vision of the digital service provider into a deal that can get done. Such lawyer should also guide the DSP in implementing its licensing strategy with sound recording owners, in particular by favouring introductions and referrals to key decision-makers within major and independent record labels.
To make the most of the financial opportunities offered by neighbouring rights in the digital era, and by streaming in particular, performers, recording artists and their record labels should actively seek attractive opportunities to license their sound recordings to top digital service providers, while ensuring that consistent and accurate reporting of their licensing partnerships are in place, notably through the exercise of royalty audit rights. Digital service providers will get access to all the music catalogues they want for their streaming platforms, as long as they understand and accept the (financial) needs of sound recording owners.
Annabelle Gauberti, founding partner of music law firm Crefovi, which specialises in advising the creative industries, out of Paris and London. Having worked with creative clients for more than thirteen years, Annabelle is an avid believer in the importance and value of looking forward, and planning ahead, to thrive in the current music industry and its new paradigm. The work undertaken by her regularly includes advising songwriters and composers on publishing deals; producers and performers on record deals and all of the latter on streaming deals and sync transactions; as well as intellectual property registration and protection, intellectual property and commercial litigation, negotiating merchandise deals and partnerships between brands and bands.
Annabelle thanks her peer members from the International association of entertainment lawyers (IAEL) and, in particular, her co-authors of the books “The Streaming revolution in the entertainment industry” and “Licensing of music – from BC to AD (before the change / after digital)” for the extremely valuable content that they wrote, and that she used in part, on a fair use basis, to draft the above article.
Tel: +44 20 3318 9603
Crefovi’s take on Midem 2015: wider income streams, that transparency issue and levelling the playing fieldCrefovi : 09/06/2015 7:56 am : Articles, Consumer goods & retail, Copyright litigation, Entertainment & media, Events, Fashion law, gaming, Hospitality, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Law of luxury goods, leisure, Litigation & dispute resolution, Media coverage, Music law, Private equity & private equity finance, Technology transactions, Trademark litigation
Midem 2015 ended yesterday and here are below the three key issues which were discussed and debated during this whirlwind of a music trade show
1. Diversification of income streams: a good way to hedge your bets
Firstly, all stakeholders in the music industry agreed, during Midem 2015, that revenue streams and provenance are increasingly diversifying.
While physical format sales hold steady in key territories such as the UK (still 41% of total industry revenue nationwide in 2014!), Germany, Japan and France, the industry’s digital revenues grew by 6.9% in 2014 to US$6.9 billion and are now on a par with the physical sector.
Indeed, globally, like physical format sales, digital revenues now account for 46% of total industry revenues worldwide. In 4 of the world’s top 10 markets, digital channels account for the majority of revenues (i.e. 71% of total 2014 industry revenue in the US; 58% of total 2014 industry revenue in South Korea; 56% of total 2014 industry revenue in Australia and 45% of total 2014 industry revenue in the UK).
Digital subscription services, which are part of an increasingly diverse mix of industry revenue streams, are going from strength to strength. Revenues from music subscription services — including free-to-consumer and paid-for tiers — grew by 39% in 2014 and are growing consistently across all major markets.
Global brands, such as Deezer and Spotify, continued to reap the benefits of geographical expansion and there were some notable new entrants into the streaming market: YouTube launched its subscription service Music Key in late 2014, Apple made its US$3billion acquisition of Beats in preparation for its own streaming service roll out, while Jay Z and a raft of other music stars re-launched talent-managed streaming service Tidal.
The subscription model is leading to more payment for music by consumers, many of whom appear to be shifting from pirate services to a licensed music environment that pays artists and rights holders. The number of paying subscribers to subscription services rose to 41 million in 2014, up from just eight million in 2010, representing a rise of 46.4%.
Subscription revenues predictably offset declining downloading sales (-8%) to drive overall digital revenues, pushing subscription at the heart of the music industry’s portfolio of businesses, representing 23% of the digital market and generating US$1.6billion in trade revenues.
However, digital downloads remain a key revenue stream as they still account for more than half of digital revenues (52%) and are helping to propel digital growth in some developing markets such as South Africa, Venezuela, the Philippines and Slovakia.
Revenues from advertising-supported streaming services, such as YouTube and Vevo, are also growing — up 38.6% in 2014.
Revenue from performance rights – generated from broadcast, personalised streaming services and venues – saw strong growth. Performance rights income was up 8.3% to just under US$1billion, representing 6% of the total 2014 music world sales.
Revenues from synchronisation deals — the use of music in TV adverts, films, video games and brand partnerships — was up 8.4% in 2014 and now accounts for 2% of total industry revenue. The UK, Germany and France all saw better than average performances in this sector improving 6.4%, 30.4% and 46.4% respectively.
While this diversification of income streams hedges the economic risks borne by music right owners, as music stakeholders are guaranteed to monetise their intellectual property rights and therefore “collect the cash” one way or the other, such diversification also highlights the complexity and “tyranny of choices” that characterise the music industry today.
Indeed, retail consumers are lost when faced by the cascade of choices that they have to make, in order to select the best musical providers and formats in this creative industry which is furiously moving ahead at an ever-increasing pace, under the impulse of technology behemoths such as Apple and Google.
What musical format to choose from? Should I listen to my favourite music tracks on a physical, digital, download format?
If digital, which streaming provider should I use or subscribe to? YouTube, Tidal, Deezer, Spotify or Apple on the subscription side? DailyMotion, Vevo or YouTube on the ad-supported streaming side?
We predict that music streaming providers are going to enter a fight to the death, as both the music and tech sectors are built around the “winner-take-all” economic model. In the next five years or even less, only one or two streaming providers are going to rise above all others, through consolidation, mergers and acquisitions or – simply – bankruptcy of their competitors.
While end-consumers are still struggling to “bet on the right horses” (and we suspect that these lucky horses will be music streaming services backed by monopolistic and cash-rich giants such as Google and Apple), music right owners, their collecting societies, publishers and managers also balk at the prospect of having to collect and audit income revenues from so many sources and in so many different shapes and forms.
2. Transparency: much room for improvement
While the music industry breathes a huge sigh of relief as revenues generated by various income streams are – finally – either relatively stable (physical, downloads) or growing (streaming, sync, performance rights, live acts), music stakeholders feel powerless when faced with the task of efficiently collecting the cash and managing their rights worldwide in a digital age.
It seems that no one wants to take on the role of claiming, on behalf of the songwriters and performers, the cash from streaming sites such as YouTube and Vevo, and of reviewing and auditing those income statements sent by the likes of YouTube, Spotify, Deezer, etc!
Publishers and record labels each refuse to accept that it is their role to check all of these – extremely-complex – digital stream income statements, relying on collecting societies to do the bulk of the work, while managers and agents merely rumble that talent is not paid enough per stream play.
It is true that, with royalty rates per stream play varying between US$0.00012 (for AmazonCloud) and US$0.07411 (for Nokia), while YouTube pays US$0.00175 and Spotify pays US$0.00521, one wonders how performers and songwriters can return a profit out of licensing their catalogues to streaming providers, no matter how many times their tracks are played on these.
Top talent such as Taylor Swift decided to check out from streaming sites such as Spotify, in November 2014, unimpressed by the argument made by Spotify that they had paid out over US$2billion to artists since 2008, and was on track to pay Swift around US$6million for the year.
Another very secretive area of this streaming business, which is slowly and reluctantly becoming less opaque, revolves around the exact terms agreed between top streaming providers and major record labels. Indeed, in May 2015, the agreement entered into in January 2011 by Spotify and Sony, the major record label that owns music by Michael Jackson, Bruce Springsteen, Mariah Carey and One Direction, was leaked to the press. It turns out that the money is really good…for labels. Sony received US$25million in advance payments in the first two years of its contract, then another US$17.5million from an optional third year. The label likely did not share these payments with its artists. “The whole streaming business has been a ridiculous system of not paying independent labels and artists” commented Allen Kovac, manager of Motley Crue and Blondie.
In this context, a raft of tech start-ups are appearing in the music ecosystem, in order to provide some research and auditing tools to music stakeholders, so that they can track what songs are played, where such music is played, by whom and when. Often, these tech start-ups are snatched up by tech behemoths such as Apple (which bought British startup behind music analytics service Musicmetric in January 2015, a company supporting record labels track digital sales, streams and social stats, which could become part of Beats Music relaunch).
Transparency is therefore still very much of an issue in the context of music streaming, even though music streaming websites, who all have a battle to the death to win, are competing with each other in order to offer the best tracking tools possible to their record labels’ and talent partners.
3. Levelling the playing field: EU is winning
Finally, the IAEL legal summit during MIDEM 2015 was critical to fully size the challenge facing US and EU policymakers and lobbyists, in allowing and improving the collection of performance rights on a pan-territorial basis.
Indeed, among the top 10 international music markets in 2014, the US is the only one that does not generate any sound recording public performance rights for its artists and producers (the revenues collected by SoundExchange being now reported under the “Digital” category, as they relate only to digital sound recording performance royalties). In other words, artists and producers, in the US, do not receive public performance royalties when their recordings are played on terrestrial radio.
Unsurprisingly, because of the many conflicts of interests and conflicting agenda priorities that US congress has to contend with, lobbyists representing the US music industry are feeling a little discouraged, while their copyright reform bills, such as the Songwriter Equity Act, the Allocation for Music Producers Act and the Fair Play Fair Pay Act, slowly progress through the meanders of the House of Representatives.
We think that there is a high probability that these US bills remain wishful thinking, as, for example, US radio broadcasters and other stakeholders fiercely push back on any introduction of a sound recording public performance royalty for AM/FM radio. Denying the receipt of public performance royalties from terrestrial radio plays, both domestically and on foreign territories, costs the US up to US$100million in foreign revenues alone each year. Indeed, since the US does not pay sound recording public performance royalties for terrestrial radio play to foreign artists and producers, foreign countries do not pay these royalties to US artists and producers either.
This lack of harmonisation, by the US, of its inefficient and damage-inducing legal framework with the way more talent-friendly European-wide legal framework, may cause great harm to the US music industry in the long-term, with US artists, producers and managers not hesitating to work from abroad in order to benefit from wider sources of income and, in particular, sound recording public performance royalties.
In the European Union, it is full steam ahead: further to the entry into force in February 2014 of the EU directive on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, fairer competition – as well as sound collaboration – have at last arisen between all EU-based collecting societies. Cross-border licensing of online rights in musical works, across the 28 European member-states, is now a given, making the European Union the world champion for protecting content-creators’ rights worldwide.
All in all, it was a very enjoyable, leads-generating and content-packed MIDEM 2015 for us and we will be back next year, especially if another mega party at the Carlton is in the works!
Annabelle Gauberti, founding partner of music law firm Crefovi, which specialises in advising the creative industries, out of Paris and London. Having worked with creative clients for more than thirteen years, Annabelle is an avid believer in the importance and value of looking forward, and planning ahead, to thrive in the current music industry and its new paradigm. The work undertaken by her regularly includes advising songwriters and composers on publishing deals; producers and performers on record deals and all of the latter on streaming deals and sync transactions; as well as intellectual property registration and protection, intellectual property and commercial litigation, negotiating merchandise deals and partnerships between brands and bands.
Tel: +44 20 3318 9603
Annabelle Gauberti, founding partner of London music law firm Crefovi, co-presented a masterclass on sync licenses at Midem 2015: Check it out here!
Based in Cannes, MIDEM is THE music trade show of the year, where talent, collecting societies, tech companies, majors, independent record labels, publishers … and music lawyers congregate, mingle, network, do deals and chilax!
London music law firm Crefovi is a regular at MIDEM and attends each year.
Annabelle Gauberti, founding partner of London music law firm Crefovi, co-presented a masterclass on sync licenses, with co-presenters Tom Foster, Head of Film & TV Licensing, Universal Music Publishing, and Bernard Resnick as well as Massimo Travestino, two fellow members of IAEL.
While MIDEM 2015 took place between 5 to 8 June 2015, the sync masterclass was presented on Saturday 6 June, at 12.00pm, in the Training Room, Palais – 1.
The business of sync – placing music within ads, films, TV and games – is a hugely important business for labels, artists, brands and the creators of those other media. In this session, expert speakers guided participants through the main legal and commercial factors when negotiating a sync license deal.
Annabelle Gauberti, founding partner of Crefovi, was part of the panel discussion talking about how songwriters, publishers and performers can get paid in the sync market in case their music gets copied and plagiarised, without any sync license in place. We have long seen MIDEM as one of the key international events in the music industry calendar so it’s a real privilege to be invited to speak at this Cannes conference.
As well as talks, discussions, workshops and amble networking opportunities, MIDEM also has an interesting line up of artists taking part in the night-time showcases. With a diverse mix of genres we are particularly looking forward to catching Ibrahim Maalouf, who headline the first day’s showcase.
If this all sounds like too good an opportunity to miss, you can book your ticket and see the full agenda for MIDEM (5-8 June 15), on the MIDEM website.
One of the USPs of MIDEM events is the focus on creating a real dialogue between attendees and speakers, so if you happen to attend the discussion Annabelle is participating in please don’t hesitate to ask her a question! You can also catch her afterwards if you have anything specific you would like to discuss. See you there!
Tel: +44 20 3318 9603
Annabelle Gauberti, from London entertainment law firm Crefovi, becomes arbitrator for the Films, Media and Entertainment section of the Arbitration and Mediation Center of WIPO – World Intellectual Property OfficeCrefovi : 13/04/2015 8:00 am : Copyright litigation, Entertainment & media, Events, Fashion law, Intellectual property & IP litigation, Internet & digital media, Litigation & dispute resolution, Music law, Trademark litigation
Annabelle Gauberti, founding partner of London entertainment law firm Crefovi, is now a neutral for the Films, Entertainment and Media section of the WIPO Arbitration and Mediation Center
Based in Geneva, the WIPO Arbitration and Mediation Center was established in 1994 to offer alternative dispute resolution (ADR) options for the resolution of international commercial disputes between private parties. Developed by leading experts in cross-border dispute settlement, the arbitration, mediation and expert determination procedures offered by the Center are widely recognised as particularly appropriate for technology, entertainment and other disputes involving intellectual property.
To date, the WIPO Arbitration and Mediation Center has administered some 400 mediation, arbitration and expert determination cases. Most of these cases have been filed in recent years. 33% of the mediations and (expedited) arbitration cases filed with the WIPO Center included an escalation clause providing for WIPO mediation followed by WIPO (expedited) arbitration.
The subject matter of the mediation and arbitration cases so far administered by the WIPO Center includes artistic production finance agreements, art marketing agreements, consultancy and engineering disputes, copyright issues, distribution agreements for pharmaceutical products, Information Technology agreements including software licenses, joint venture agreements, patent infringements, patent licenses, research and development agreements, technology transfer agreements, telecommunications related agreements, trademark issues (including trademark coexistence agreements), TV distribution rights, as well as cases arising out of agreements in settlement of prior court litigation.
Amounts in dispute in WIPO mediations and arbitrations have varied from USD 20,000 to several hundred million USD. The remedies claimed in arbitration proceedings have included damages, infringement declarations and specific performance, such as a declaration of non-performance of contractual obligations, or of infringement of rights, further safeguards for the preservation of confidentiality of evidence, the provision of a security, the production of data, the delivery of goods or the conclusion of new contracts.
On 13 April 2015, Annabelle Gauberti was notified by the WIPO Center that she had been admitted as a mediator and arbitrator on the Film and Media Panel, for the jurisdictions of France and the UK. She looks forward to working on future mediation and arbitration cases as an mediator and arbitrator of the WIPO Center.
The WIPO Mediation and Expedited Arbitration Rules for Film and Media have been specifically tailored to resolve disputes in the film and media sectors, without the need for court litigation.
Potential users of the WIPO Mediation and Expedited Arbitration Rules for Film and Media include film makers, directors, actors, performers, guild and industry associations, producers, authors, screenwriters, creators, investors, financiers, film funds, performance bond companies, insurers, sales agents, entertainment, media and IP lawyers consultants and accountants, distributors, broadcasters, exhibitors, publishing houses, trade federations, collecting societies, users of creative material.
Tel: +44 20 3318 9603
2015 Legal 500 recommends Crefovi in the “Intellectual property – boutiques” category | London IP law firm CrefoviCrefovi : 08/04/2015 8:00 am : Art law, Consumer goods & retail, Copyright litigation, Entertainment & media, Fashion law, Fashion lawyers, gaming, Hospitality, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Law of luxury goods, leisure, Life sciences, Litigation & dispute resolution, Media coverage, Music law, Technology transactions, Trademark litigation
London IP law firm Crefovi recommended by Legal 500 in the practice area “Intellectual property – boutique”. Awesome!
The Legal 500 Europe, Middle East & Africa 2015 has recommended London IP law firm Crefovi in the following practice area: “France – Intellectual property – Boutiques – Other recommended firms”.
Since Crefovi was founded three years ago, we are super proud to already be ranked in prestigious guide Legal 500.
This important recognition, coming from such a prominent legal guide, is a testament to the pioneering work and proprietary research that London IP law firm Crefovi has always strived to accomplish since its foundation, in particular in the growing legal field of the law of luxury goods and fashion.
Crefovi’s founding partner Annabelle Gauberti has acquired extensive knowledge and experience in the legal field, as it applies to the fashion and luxury industries, either in litigation related or non-litigation related matters.
She is delighted that her legal and sectorial expertise, as well as the quality of the services provided by London IP law firm Crefovi, are recognised as being outstanding.
London IP law firm Crefovi has an ambitious programme of seminars, entitled the “law of fashion and luxury goods series” which it is rolling out from 2014 to 2016, in partnership with the international association of lawyers for the creative industries (ialci), which it sponsors.
The third seminar to this programme of the law of fashion and luxury goods series is going to be announced soon, so stay tuned to snap up your attendance ticket to this high-profile event for the fashion and luxury industries, to be hosted in London.
Tel: +44 20 3318 9603
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