Music & entertainment law blog

Music & entertainment law blog

London entertainment law firm Crefovi is delighted to bring you this music & entertainment law blog, to provide you with forward-thinking and insightful information on hot business and legal issues in the music and entertainment sectors.

This music & entertainment law blog provides regular news and updates, and features summaries of recent news reports, on legal issues facing the global media and entertainment community, in particular in the United Kingdom and France. This music & entertainment law blog also provides timely updates and commentary on legal issues in the cinema, book publishing and music sectors. It is curated by the entertainment lawyers of our law firm, who specialise in advising our media & entertainment clients in London, Paris and internationally on all their legal issues.

London entertainment & media law firm advises, in particular, the fashion and luxury goods sectors, the music sector, film sector, art sector & high tech sector. Crefovi writes and curates this music & entertainment law blog to guide its clients through the complexities of media law.

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.

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, MaMa, SXSW, Comic Con, the Berlinale and EFM, 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.

Moreover, Crefovi has industry teams, built by experienced lawyers with a wide range of practice and geographic backgrounds. These industry teams apply their extensive industry expertise to best serve clients’ business needs. One of these industry teams is the Media & entertainment department, which curate this music & entertainment law blog below, for you.

Annabelle Gauberti, founding and managing 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 regularly updates its social media channels, such as Linkedin, Twitter, Instagram, YouTube and Facebook. Check our latest news there!

WGA authorisation to strike: why writers are defensive, in the streaming era

Crefovi : 25/04/2023 1:54 pm : Antitrust & competition, Articles, Copyright litigation, Employment, compensation & benefits, Entertainment & media, Intellectual property & IP litigation, Litigation & dispute resolution, News, Webcasts & Podcasts

Writers are absolutely essential to the supply chain of creation of enjoyable and diverse content, in the movie and TV industries. Yet, some of them are very much disgruntled, at the moment, in particular in the United States. And their concerns seem to stem from the disruptions imposed on their working conditions, in particular by streaming platforms, which now produce their own content (via either feature films or series) and therefore use the services of writers. Let’s dive into this issue, the changes that caused it, and what may happen next.

1. The role of writers in motion pictures and TV

1.1. Development versus production

1.1.1. Underlying rights

At the inception of every motion picture lay underlying rights of one sort or another. These rights may be manifested in the form of a published novel (The godfather) or autobiography (Raging bull), an unpublished stage play (Casablanca), a pre-existing film (Ocean’s eleven) or television series (Mission impossible), a person’s life story (Gandhi), a song (Frosty the snowman), a graphic novel (Batman), a toy (The lego movie), a board game (Clue), a video game (Tomb raider and, more recently, The last of us) or even a mobile phone app (The angry birds movie).

Other films are based on the rarest of all forms of underlying rights: an original idea! Of course, that original idea may be set within the context of historical events, either loosely (Singin’ in the rain) or more directly (Chinatown), and might also be inspired by actual people from history (Citizen Kane).

In broad strokes, the underlying rights being acquired as the basis of a motion picture could be founded in copyright, trademark, personal rights (i.e. US law rights of privacy and publicity) or implied contract. A combination of all of these rights may arise, on certain film projects.

These underlying rights need being acquired, via assignments, in order to become part of the chain of title.

1.1.2. Chain of title

Chain of title review should be a component of any acquisition of underlying rights. At its essence, this means identifying the genesis of the idea upon which the motion picture is based, then tracing each link in the chain of ownership to ensure that the rights were properly transferred and are not subject to any restrictions or encumbrances that would impair the film producers’ ability to produce and exploit the motion picture.

The first step is identifying the source of the project: where did the idea come from?

It could be a completely original concept dreamed up by a producer or pitched by a writer, or it might be an original take on a published work of media, art or entertainment. Either way, it would be advisable to enter into an agreement with the originator of the idea, and, if the project is based on preexisting intellectual property, then permission will also need to be obtained from the owner of that intellectual property.

In addition, if the preexisting intellectual property is based on the lives of real people, then, to the extent those people are going to be depicted in the motion picture, a signed release will need to be obtained from them, in compliance with their rights of privacy and publicity.

It is of paramount importance to build a solid chain of title throughout development.

1.1.3. Securing underlying rights: the motion picture literary rights option/purchase agreement

Once the necessary chain of title analysis is conducted, and the determination of which rights need to be acquired done, the film producers and their legal team will need to construct a deal to acquire those rights.

The most typical structure is the motion picture literary rights option/purchase agreement.

At its essence, an option is a grant of an exclusive right to purchase specified rights from the seller for a specified period of time, on specified terms. For example, a producer may pay a book author USD5,000 for an eighteen-month exclusive window wherein the producer may purchase all motion picture and television rights in the book by paying the author an amount equal to 2.5 percent of the budget of the picture, less the option fee already paid.

At the time the initial deal is being negotiated, it would be advisable to negotiate for the right to extend the initial option period once, or even twice, for an additional payment for each such extension. Typically, this extension period would run for an additional twelve to eighteen months.

1.1.4. Development

Acquiring the underlying rights and clearing chain of title is merely the beginning of a project’s development process. The film producers will next want to create a screenplay that has creative merit and is feasible to produce within the target budget.

Typically, the first step will be to hire a writer to create an original screenplay (or rewrite the existing screenplay, if the underlying material includes a screenplay that the film producer wants to use as a starting point).

As with the initial chain of title clearance, it is crucial to ensure that all rights and material generated during development can, and will, pass to the production. Therefore, anyone who provides services during this development phase, including writers and anyone who is supervising and giving notes to the writers (e.g. producers and directors) should all have signed agreements before they begin providing services. This is extremely important, especially once the project proceeds to production.

One of these agreements, to keep the chain of title clear, is the writer agreement: the core topic of this thought leadership article!

1.1.5. Motion picture writer agreements

The first question to ask, when the film producers are hiring a writer, is whether such writer is a member of the Writers Guild of America (‟WGA”). If not, then the production team and the writer are free to negotiate any kind of arrangement they would like (although the WGA rules, in particular the WGA minimum fees, often serve as a guide during negotiations, even with a non-guild member). If the production wants to hire a writer who is a WGA member, then they will be required to become a signatory to the WGA Minimum Basic Agreement (‟MBA”), and both sides will be governed by WGA rules.

While it is possible to hire writers on a weekly basis under WGA rules, it is much more common in the theatrical feature world for writers to be hired on a ‟step” basis, where they are paid for each pass of writing they make on a script. The WGA has divided those steps into the following forms: a treatment, first draft screenplay, final draft screenplay, rewrite and polish.

The WGA has also set minimum ‟scale” amounts that its members must be paid for each of these forms, which varies depending on whether the step is guaranteed or is at the producer’s option, and also depending on the budget of the project.

Once the production team has determined the number and form of the steps they want the writer to perform, the fixed compensation for each step (and amount of time given for the writer to complete each step) needs to be negotiated.

In addition to the fixed compensation for each step, the writer will try to negotiate for some kind of bonus based on credit. The typical structure provides for a fixed amount to be paid if the writer receives sole credit on the picture, reducible by all prior amounts paid to the writer (i.e. the fixed compensation for each writing step actually paid), plus a backend participation equal to 5 percent of the net profits of the picture.

The writer will likely ask for the first opportunity to render writing services on sequels, remakes and other derivative works, and for the right to receive passive royalties if they are not engaged to provide services on such derivative productions.

1.2. Motion picture versus scripted TV

So far, we have described the writer’s contractual arrangements, as they apply to the motion picture development and production cycle.

Let’s now turn our focus away from the theatrical feature film industry, and towards scripted television as a medium.

There are two key consistent characteristics of scripted television programming, which are essential to understanding the web of deal structures that bind the scripted television industry together.

First, television is a writer-driven medium. Let’s compare the role of the writer in television, to that of the writer in the theatrical feature film industry. In TV, in the vast majority of cases, the lead creative force behind a series (a ‟showrunner”) is a writer. This is in contrast to feature films, where the director is typically the ‟auteur” creative force behind a production. So, in television, most of the credited producers of a series are writers, who shepherd the project throughout its life-cycle. Successful showrunners include Ryan Murphy, Shonda Rhimes, Jill/Joey Soloway and Lena Dunham. In motion pictures, on the other hand, the writer’s role is generally performed entirely during the pre-production phase, and writers have little to no ongoing role in the actual production of their scripts. In TV, a pilot – and sometimes even a series – is typically greenlit to production on the strength of a pilot script and the reliability of the writers and producers, with actors and directors being hired after the threshold decision to proceed to production has been made. This is also a major difference from feature films, where the attachment of one or more key actors (and typically a director, as well) is virtually always the necessary component that pushes a film project from development into production. The dominant role played by writers in the television industry manifests itself in the process, and the deals, that bring a series to life. Because television is a writer-driven medium, the writer-producer agreement is often the most significant deal in the development process. But the staffing writer agreements, entered into with each one of the writers and writer/producers (other than the creator/showrunner) who will populate the ‟writers’ room” for the series, are also minutiously negotiated, in the scripted TV business.

Second, TV is a serialised medium. From a production perspective, a successful television series is always an ongoing project, which requires creative and production continuity over a period of years, months or weeks (as distinct from a theatrical feature film, in which cast and crew come together once, usually over a continuous or semi-continuous period of time, to produce a single closed-ended project watched in 1 to 3 hours maximum). Consequently, the dealmaking framework of television protects the ability of parties to maintain continuity of production and distribution over a period of weeks, months or years.

Now that streamers have successfully entered the space of scripted television, by producing more and more of their own series, in particular to meet the mandatory European-produced film quotas imposed by the European Union (‟EU”), the likes of Netflix, Apple TV and Amazon Prime are intensifying competition among studios and networks, for the best scripts, stories, talent and content. Also, streaming companies are moving the tectonic plates of how remuneration of writers work, in the film industry, but particularly in the scripted television sector, much to the chagrin of the WGA and its members.

2. Unionised writers: how the Writers Guild of America pulls the strings to improve writers’ fate

2.1. The deadline: WGA 2020 theatrical and TV minimum basic agreement expires on 1 May 2023

Every three years, the above-mentioned WGA’s MBA, which currently stands at a hefty 755 pages’ long, gets renegotiated and amended, by the members of the WGA’s negotiating committee, and the members of the negotiating committee of the Alliance of Motion Picture and Television Producers (‟AMPTP”).

The expiry deadline of the 2020 MBA is 1 May 2023, which is round the corner. However, the WGA-AMPTP contractual negotiations appear to have stalled.

Indeed, the WGA announced a two-week break in negotiations, starting 1 April 2023. Negotiations were slated to pick up again the week starting 17 April 2023.

Interestingly, the WGA-AMPTP negotiation is the first of three contract negotiations with entertainment unions. The Directors Guild of America (‟DGA”) will start negotiations on 10 May 2023, ahead of their contract expiration on 30 June 2023. The Screen Actors Guild (‟SAG-AFTRA”) contract with AMPTP will also expire on 30 June 2023.

2.2. Authorisation of strike to be ordered by WGA has now been granted

The WGA and its members have grievances. And anger has been boiling for a while now.

Already, in late 2007 until beginning of 2008, i.e. during the last worldwide financial crisis and collapse, a writers’ strike took place for 100 days in the United States (‟US”), bringing Hollywood production to a screeching halt.

Then, four years ago, on 22 April 2019, more than 7,000 WGA members fired their agents en masse – in a display of solidarity at the start of the WGA’s historic two-year campaign to reshape the talent agency business that still is playing out today, emboldening the guild in its ongoing negotiations with the studios and streamers for a new film and television MBA. Five days before the mass firings, the WGA filed a lawsuit against the big four talent agencies of the time (CAA, WME, UTA and ICM Partners) that sought to establish that packagings – in which the major talent agencies were paid fees by production companies to package the creative elements of their projects – were illegal under California and federal law.

Three of the eight named plaintiffs in the case – Meredith Stiehm, Ashley Gable and Derek Hughes – now serve as members of the WGA’s contract negotiating committee, with Ms Stiehm being elected president of the WGA West, six months after the last of the major agencies finally agreed to give up packaging fees in February 2021.

So, why are the WGA and its members angry?

On 14 March 2023, the WGA released a statement, complaining that, driven in large part by the shift to streaming, writers are finding their work devalued in every part of the business. According to the WGA, ‟while company profits have remained high and spending on content has grown, writers are falling behind. The companies have used the transition to streaming to cut writer pay and separate writing from production, worsening working conditions for series writers at all levels. On TV staffs, more writers are working at minimum regardless of experience, often for fewer weeks, or in mini-rooms, while showrunners are left without a writing staff to complete the season. And while series budgets have soared over the past decade, median writer-producer pay has fallen.

In comedy-variety, writers working for streaming services – which are now the primary platforms for entertainment content – lack the most basic protection of MBA minimums.

For screenwriters, compensation has also stagnated over the past four years. Their pay is often stretched out over many months and can be held hostage by producers’ demands for free work. Particularly for screenwriters working at or near MBA minimum, these conditions are untenable”.

So, streaming studios have reshuffled the cards, disturbing the old set ways of the TV business, by giving short orders to writers (for usually 8 to 9 episodes, rather than 22 to 23 as is customary in linear TV), separating writing from production and not relying on any season calendar (which, in the television series’ cycle, runs from September of each year to August of the following year).

To conclude, the WGA and its members want more money (elegantly described as ‟writer compensation and residuals from features in theaters or on streaming platforms” in the WGA statement) and more job security, as well as an end to the ‟mini-rooms” (i.e. smaller number or writers in the writers’ room). Other demands relate to increasing contributions to writers’ pension and health funds, as well as getting ahead of burgeoning technologies like artificial intelligence that are perceived as threatening writers’ jobs.

On 17 April 2023, the results of the WGA strike authorisation vote were in, with 9,020 (97.85 percent) of WGA members voting for such authorisation. Therefore, if no deal is in place by 1 May 2023, there is a very high probability that the WGA would start a strike, and all its members with it.

Let’s watch the space and see whether the writers’ ire has a ripple effect on the DGA/AMPTP and SAG-AFTRA/AMPTP upcoming contract negotiations!

3. The other side of the pond

3.1. United Kingdom and its writers: risk of inflammation in the horizon?

The Writers’ Guild of Great Britain (‟WGGB”) is the trade union representing professional writers in TV, film, theatre, radio, books, comedy, poetry, animation and videogames. So it is the equivalent of the WGA, but for the United Kingdom (‟UK”).

Like the WGA in the US, the WGGB negotiates rates and agreements, on behalf of its members. Such rates and agreements cover TV, theatre, audio and some areas of (theatrical feature) film. These national agreements cover key industry bodies, including the BBC, ITV, National Theatre, Royal Court and Royal Shakespeare Company.

The WGGB lobbies and campaigns on behalf of writers, to ensure their voices are heard in a rapidly changing digital landscape.

Therefore, the WGGB swiftly displayed some solidarity towards the WGA and its members, in their contract negotiations efforts, releasing a statement setting out that ‟in light of the WGA’s ongoing contract negotiations, including the recent announcement of a Strike Authorization Vote from 11-17 April 2023, the WGGB’s executive council has supported the following motion. The WGGB advises its members not to work on projects within the jurisdiction of the WGA for the duration of the strike”.

Some commentators are even musing over UK writers following the footpath of their US colleagues, and contemplating labour action on their own. However, this is pure speculation, at this point in time.

3.2. France and its writers: all quiet on the Western front

Meanwhile, the French are mainly concerned about the fact that a WGA and writers’ strike may impact indie production and sales – at the upcoming 2023 Cannes film festival!

French writers are represented by the ‟Société des Auteurs et Compositeurs Dramatiques” (‟SACD”). And the French being VERY attached to their rights, privileges and perks, the SACD is doing a very efficient job to ensure that its members are well protected, well paid (via royalties, wages and residuals) and cannot be bossed around by film producers or showrunners/TV producers.

In November 20222, the SACD has even obtained that the French audiovisual authority, Arcom (which rules all French TV and cable networks as well as streamers which offer content in France), has a right to check the provisions of writers’ agreements with their producers, in order to assess whether these clauses are compliant with French copyright law!

With French theatrical numbers on the mend and up, post-COVID, French writers make the most of the protective context in which they evolve, where mandatory EU content quotas for SVOD platforms (imposing that 30 percent of all content on streaming services must be European-made) guarantee demand for original, home-grown films and series which most streamers will be unable to fill on their own.
Crefovi’s live webinar: WGA authorisation to strike – why writers are defensive – 28 April 2023

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    Pharrell Williams & Louis Vuitton: the era of entertainment stars appointed as creative directors has begun

    Crefovi : 28/03/2023 12:10 pm : Articles, Consumer goods & retail, Employment, compensation & benefits, Entertainment & media, Fashion law, Fashion lawyers, Law of luxury goods, Music law, News, Webcasts & Podcasts

    Pharrell Williams & Louis Vuitton are getting into bed together. This is exciting as it is the first time a fully-fledged entertainment star takes the helm at one of the most prestigious luxury brands worldwide, as its creative director. While musician Kanye West had already broken ground, at sportswear firm Adidas, in his role as artistic director of the uber-successful Yeezy brand, no luxury conglomerate had had the balls to appoint a celebrity as creative director of one of its crown’s jewels. Well, ‟Monsieur Arnault”, eternally the groundbreaker, has reached new ground, by doing exactly that at Louis Vuitton, with Pharrell Williams. How does this strategy fit into the inverted pyramid structure of the luxury ‟maison”? Are celebrities at running and maintaining their fashion brands and companies, long term? How are luxury brands tying creative directors to them, exactly, via their super-secretive contracts?

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    AI & copyright protection: lawmakers must swiftly adapt to save their creative industries

    Crefovi : 21/03/2023 10:41 am : Antitrust & competition, Art law, Articles, Copyright litigation, Entertainment & media, Gaming, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Life sciences, Litigation & dispute resolution, Music law, News, Sports & esports, Webcasts & Podcasts

    Artificial intelligence (‟AI”) technologies, which developed exponentially in the last 5 years, are here to stay and thrive. Most legal frameworks, in particular the French and US ones, are not ready for these technological advances. Indeed, most courts still refuse to grant copyright protection and ownership, to AI-generated works, worldwide. This situation is not sustainable, as AI-generating tools and platforms will replace traditional methods of generating content, in a very short timeframe. Legal frameworks must therefore adapt and yield, in order to ensure that their national creative industries remain competitive and at the top of the class. How can this be achieved?

    1. The AI revolution: making AI the new normal

    1.1. AI technological advances

    AI technologies have exponentially developed, in 2022, making it possible to generate various creative outputs, in the literary field, music sector, art and illustration sectors, the film industry, the graphic novels’ sphere and the video gaming industry.

    For example, ChatGPT is a language model developed by OpenAI, a research organisation that specialises in developing cutting-edge AI technologies, founded in 2015. ChatGPT is based on the Generative Pre-trained Transformer (‟GPT”) architecture. Its self-described purpose is to ‟provide conversational assistance and answer a wide range of questions on various topics, from factual information to subjective opinions and advice”. It can be used as a powerful research tool, writing extremely coherent and detailed research reports, which may then be inserted verbatim in any article, research paper or blog.

    AI writing tools have become commonplace, and now assist humans in a variety of ways, in order to write better emails, blogs, articles and novels, to curate email newsletter content, to generate ready-to-write SEO outlines, to generate articles that are SEO friendly, etc.

    In the graphic design sphere, AI tools can produce outstanding illustrations and drawings just by merely giving written instructions to AI tools such as Dall-E 2 (also created by OpenAI), Midjourney, and The results are outstanding, as Midjourney’s community showcase demonstrates.

    These illustrations and drawings can, in turn, be used to create graphic novels, such as ‟Zarya of the Dawn” by Kristina Kashtanova (generated with Midjourney), video games, magazines’ covers, such as The Economist’s cover and Cosmopolitan’s cover for its AI issue, or films, such as ‟The Crow”, a short film generated with OpenAI’s CLIP, and which won the 2022 Jury Award at the Cannes Short Film Festival!

    In the music field, AI-generated music is become more prevalent, with AI music composition tools such as MusicLM, a model generating high-fidelity music from text descriptions from Google Research lab, Riffusion, an AI that composes music by visualizing it, Dance Diffusion, Google’s previous project AudioLM and OpenAI’s Jukebox. Soundful, a human aided AI music platform, aims at fulfilling the demand for music within the creator community and content-creator economy. At the click of a few buttons, you can have the tune you need for your project.

    1.2. Who are the main players in the AI field?

    As mentioned above, OpenAI, is at the forefront of AI innovation, with multiple AI tools created to be exploited on various creative medium such as:

    • the spoken word, via ChatGPT;

    • films, with CLIP;

    • illustrations, via Dall-E 2, and

    • music with Jukebox.

    OpenAI was founded in 2015 by a group of prominent tech industry figures, including Elon Musk, Sam Altman, Reid Hoffman, Ilya Sutskever, Peter Thiel, John Schulman, and Wojciech Zaremba. It is an American AI research laboratory consisting of the non-profit OpenAI Incorporated (OpenAI Inc.) and its for-profit subsidiary corporation OpenAI Limited Partnership (OpenAI LP). The goal of OpenAI is to create safe and beneficial AI ‟that can help to address some of the world’s most pressing challenges” (sic). OpenAI is an independent organization, and its research is funded by a mix of philanthropic contributions, corporate partnerships, and government grants. The organization is ‟dedicated to advancing AI technology while also promoting transparency, collaboration, and ethical considerations in the development and deployment of AI”.

    In 2023, OpenAI announced a partnership with Microsoft. On 23 January 2023, Microsoft announced a new multi-year, multi-billion dollar (reported to be USD10 billion) investment in OpenAI. Then, on 7 February 2023, Microsoft announced that it is building AI technology based on the same foundation as ChatGPT into its web search engine Bing, its web browser Edge, its productivity software Microsoft 365 and other products.

    Google is also prominent in the AI-tools’ manufacturing sector, in particular with its above-mentioned music-generating AI tools, MusicLM and AudioLM. On 6 February 2023, Google announced an AI application similar to ChatGPT (Bard, a conversational AI chatbot powered by Google’s Language Model for Dialogue Applications), after ChatGPT was launched, fearing that ChatGPT could threaten Google’s place as a go-to source for information. Google also launched Imagen, a ‟text-to-image diffusion model with an unprecedented degree of photorealism and a deep level of language understanding” (sic), to compete with Dall-E.

    For now, the media’s general impression is that Google fell behind in AI, in particular compared to Microsoft and OpenAI.

    2. AI’s legal challenges

    2.1. Do AI users have rights to the outputs?

    The question of AI authorship is particular important, especially if actors from the content-creator economy embrace it.

    The first port of call is to review the terms and conditions of the AI-generating tool, in order to clarify who owns what, as far as the AI-generated output is concerned.

    For example, in order to use OpenAI’s platforms, such as Dall-E 2, Jukebox or ChatGPT, the user must first agree to OpenAI’s terms of use. In the version dated 14 March 2023 of these T&Cs, it is set out that OpenAI assigns to the user all its right, title and interest in and to the output generated and returned by the OpenAI services based on the user’s input. This means the user can use the Content (defined as the input and the output together) for any purpose, including commercial purposes such as sale or publication, if the user complies with OpenAI’s terms. OpenAI may use the Content to provide and maintain its services, comply with applicable law, and enforce its policies. The user is responsible for the Content, including for ensuring that it does not violate any applicable law or OpenAI’s terms of use.

    This is an improvement on the OpenAI’s terms of use which were in force before 14 March 2023. These terms used to state that users assigned any ownership they had in any output created by the OpenAI’s system and services, and, in turn, the users had an exclusive licence to use the generated output for any purpose. Other AI platforms which can generate output, such as Soundful, still have similar contractual copyright and licensing arrangements.

    2.2. Who is the author of the AI-generated output?

    Was it the person who input the text prompt? Was it the AI? Was it the developer of the AI or the company that owns the AI?

    Most jurisdictions require a human to be the author, and a work is only capable of being protected by copyright if it shows intellectual effort, creativity, and reflects the author’s personality.

    As AI creative systems become more widespread, can we consider that a text prompt, such as ‟a cat wearing a turban gazing at the city landscape at night, from a window, in the style of Van Gogh”, constitutes enough human input and individuality, and is sufficiently creative and reflective of the human author’s personality to allow the resulting image to be protected by copyright?

    For example, UK law permits copyright protection of computer-generated works, with the author being the person who made the ‟necessary arrangements” for the creation of the work pursuant to section 9(3) of the Copyright, designs and patents act 1988. Other rare jurisdictions expressly provide for copyright in computer-generated works, such as Hong Kong, India, Ireland, New Zealand and South Africa.

    However, most countries, such as France, refuse to acknowledge copyright protection if the work is generated by anyone other than a human. Indeed, pursuant to article L. 112-1 of the French intellectual property code, ‟any work of the mind, regardless of its kind, form of expression, merit or purpose”, is eligible for copyright protection. French courts acknowledge the originality of a creation as soon as the said creation is endowed by the personality of their author. While the threshold of the originality requirement is low, the author of a work must be a natural person according to a well-established case-law. It cannot be a legal person, an animal or a software. The rationale behind this position is that French law only protects works of the mind and the creations at issue must bear the imprint of the personality of their author(s); legal persons, animals and AIs neither have a conscience nor have a personality that may come out of the works created by them.

    Time and time again, the United States Copyright Office (”USCO”) which is in charge of registering works for copyright protection in the USA, refused to grant copyright protection to AI-generated content, such as:

    • the above-mentioned graphic novel ‟Zarya of the Dawn”, because the images generated by Midjourney, contained within the work, are ‟not original works of authorship protected by copyright” (sic) and since ‟text prompts” are insufficient to qualify as ‟human authorship”.

    Since copyright protection is automatically granted in France, unlike in the USA where copyright protection is granted solely upon the USCO’s registration, no such case law exists in France or other European countries. We will have to wait a few more years, before copyright infringement litigation, relating to AI-generated content, lands in the European courts’ dockets (with the notable exception of the claim filed by stock image supplier Getty Images, against, for copyright infringement, with the High Court in London, UK).

    Considering the absence of a work of the mind and the lack of originality of an output resulting exclusively from an AI, such creations are thus today in the public domain and not intellectual property right is attached to them (with the notable exception, above-mentioned, of the regime applicable in the UK, Hong Kong, Ireland, India, New Zealand and South Africa, which permits copyright protection of computer-generated works, with the author being the person who made the ‟necessary arrangements” for the creation of the work).

    2.3. How can the law adequately address AI, in order to make it beneficial for the creative industries?

    In France, the ‟Conseil Supérieur de la Propriété Littéraire et Artistique”, an independent advisory body advising the French ministry of culture and communication in the field of literary and artistic property, provided recommendations in a report dated 27 january 2020. It suggests that a ‟sui generis” right could be created to the benefit of the one bearing the risks of the investment, like the specific regime benefiting to database producers.

    The European Parliament, from the European Union (‟EU”) also suggested that a legal personality be acknowledged to IA, so that copyright protection be granted to AI-generated works.

    For the time being, none of the above recommendations have been taken up by the French and/or European legislators.

    The European Commission (‟EC”) has proposed a four-step test in order to assess whether AI-generated output can qualify as protected work under the current EU copyright framework, as follows:

    • step one: the AI-generated output must be a production in the literary, scientific or artistic domain (article 2(1) of the Berne Convention for the Protection of Literary and Artistic Works);

    • step two: the AI-generated output must be the result of human intellectual effort (i.e. some sort of human intervention such as, for example, development of software, editing or gathering or choice of training data);

    • step three: the AI-generated output must be original, and

    • step four: the work needs to be identifiable with sufficient precision and objectivity (i.e. the generated output will fall within the creator’s general authorial intent).

    It is blatant that the current disparities in the various legal systems and frameworks, where one set of national legal frameworks strongly pushes back against granting copyright protection to AI-generated content, while the other set of national legal frameworks fully embraces AI-generated content and grants it full copyright protection, will create substantial inequalities of treatment for content creators worldwide.

    Indeed, content creators based in the UK or Ireland or India are incentivised to speed up their work flow, by fully embracing time-saving AI-generator tools and programmes, the output of which these creators will be able to claim copyright ownership and protection on. Meanwhile, creatives based in France or the USA will seriously struggle to enforce any type of copyright protection and rights over AI-generated content. Therefore, French and US content creators will prefer to stick to the ‟old methods” of work creation, refusing to use AI platforms which output will automatically fall into the public domain.

    This situation cannot perdure, and since AI is here to stay – big time – stubborn law makers and enforcers, such as the USCO which recently issued some narrow-minded guidance on copyright registrations involving AI, will inevitably have to yield and reform, in order to grant copyright protection to AI-generated works.

    Of course, lobbies and organisations representing music and other creative disciplines will try to delay the inevitable, by setting up mindless campaigns and lobbying plots, such as the ‟Human Artistry Campaign”, to prevent copyright offices and courts from finding that AI-generated works are protected by copyright.

    But the floodgates are now open. And there is no way back: the technological advances and jumps that AI-generating tools and platforms provide are so important and ground-breaking, that the creative content economy and stakeholders at large will fully embrace them in the next few months, never looking back.

    Lawmakers must adapt fast, in order to keep their creative economies and actors at the forefront of competition.
    Crefovi’s live webinar: AI & copyright protection – lawmakers to adapt to save creative industries – 24 March 2023

    Crefovi regularly updates its social media channels, such as LinkedinTwitterInstagramYouTube and Facebook. Check our latest news there!

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      CMA merger inquiry into Sony acquisition of Kobalt’s AWAL & KNR

      Crefovi : 07/03/2023 1:52 pm : Antitrust & competition, Articles, Entertainment & media, Hostile takeovers, Information technology - hardware, software & services, Internet & digital media, Mergers & acquisitions, Music law, News, Private equity & private equity finance, Restructuring, Unsolicited bids, Webcasts & Podcasts

      The Competition and Markets Authority (‟CMA”)did a stellar job, with the information and data it was provided with, during the phase 1 and phase 2 investigations of Sony’s acquisition of Kobalt’s assets, AWAL and Kobalt Neighbouring Rights. Why is this merger inquiry important, for the music industry? How did it come about? Was the merger inquiry’s outcome fair and appropriate, to preserve healthy competition in the music distribution and rights management sectors?

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      Freedom of speech in the creative industries: how did it all go so wrong?

      Crefovi : 09/02/2023 11:34 am : Art law, Articles, Copyright litigation, Employment, compensation & benefits, Entertainment & media, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Litigation & dispute resolution, Music law, News, Webcasts & Podcasts

      While cancel culture and culture wars are attacks on freedom of speech and freedom of expression which come from the bottom, the virulence of the latest onslaught on freedom of the press and creative expression now comes from the top. States, government structures, public and private companies, oligarchs as well as other plutocrats are using all the legal tools in the box, and more, to silence, intimidate and neuter anyone who may as much as mouth a criticism about them, their behaviours, their actions and their track records. The creative industries are particularly targeted by these authoritarian top-down approaches and legal tactics to bland their creative outputs and works, despite the legal protections offered by copyright.

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      Private equity goes to Hollywood: when investing in media content production became hype

      Crefovi : 28/12/2022 8:00 am : Articles, Banking & finance, Capital markets, Emerging companies, Entertainment & media, Information technology - hardware, software & services, Internet & digital media, Mergers & acquisitions, News, Private equity & private equity finance, Real estate, Sports & esports, Webcasts & Podcasts

      Even in a downturn, private equity money picks Hollywood as a smart bet. Investment firms now view star-driven production banners (and major soundstages) as a long-term play in a crowded content marketplace. How did this happen? Why the sudden change of heart, since finance people had previously always viewed investing in media content production a very risky bet, at best? Is this ‟all in” investment strategy in media content production, implemented by private equity funds, financially sound?

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      Loot boxes in video games: self-regulation or legislation, that is the question

      Crefovi : 30/11/2022 2:25 pm : Antitrust & competition, Articles, Entertainment & media, Gaming, Information technology - hardware, software & services, Internet & digital media, News, Sports & esports, Webcasts & Podcasts

      On the back of the Star Wars Battlefront 2 debacle in 2017, many European regulators, including the UK and French ones, have started to take an increasingly scrutinising and judging stance, on loot boxes offered for purchase to children and young persons who play video games. Why are loot boxes potentially dangerous? What are the UK and French regulators – and other governments in the world – doing, to protect vulnerable players from these random reward mechanisms?

      1. What are loot boxes?

      1.1. Definition

      Loot boxes are a relatively recent phenomenon, entering discourse around 2006. There is evidence that the use of the term ‟loot box” developed from the more general phenomenon of ‟Random Reward Mechanisms” (‟RRMs”) that have been used in games since the early 1990s. RRMs operate similarly to other forms of chance, such as collectible cards and Kinder eggs, and can be traced back to 19th-century cigarette cards.

      RRMs are based on the principle of desirable ‟free” products contained within another product which is sold and the nature of ‟the game” relies on blind purchases of random items. Using collectible cards as an example, buyers continue to pay for cards in the hope of finding the particular cards they want. The market for these goods operates with information asymmetry: sellers control availability, do not publish probability statistics and capitalise on buyers’ desires.

      While these antecedents of loot boxes are established and accept randomness as an element of play in physical and virtual games of chance, research indicates that ‟video games have been putting random items in treasure chests for decades”.

      Therefore, the randomness of reward is the key distinguishing feature of loot boxes around which all definitions agree.

      In terms of distinguishing and classifying loot boxes, the division centres on the mechanism of reward. Key distinguishing factors in definitions are:

      • type: cosmetic (customisation, eg. looks of the player’s character or avatar) versus integral/game improvement (eg. tools, weapons, maps, ‟super powers”);

      • currencies used: virtual versus real-world money (with the cost of loot boxes varying from a few Euros (1 to 2 Euros) to up to 100 Euros or more);

      • ubiquity: popular versus niche;

      • access: reward for playing the game well or a reward for sustained gameplaying (with the cost of loot boxes ranging from some gameplay – such as finishing a level, for example – to heavy – several hours – and often repetitive gameplay – so-called grinding), and

      • exclusiveness: the player has no other way of acquiring items other than spending money.

      RRMs have been conceptualised in four types, depending on the Resources players tender versus the potential Reward. These may be either (I) Isolated from, or (E) Embedded in the real-world economy. This leads to four types of loot boxes:

      • I-I non-purchasable and non-sellable, RRMs in single-player games (eg. Diablo I);

      • I-E non-purchasable but sellable, RRMs that can be traded (e.g. Diablo III);

      • E-I purchasable but non-sellable, RRMs that can be bought but not traded (eg. Overwatch);

      While some researchers consider that only E-E type loot boxes can be considered gambling, others, like Leon Xiao, have argued against that position, pointing towards the case. In this case, a third-party website meant that game currencies and rewards that were Isolated by design, could in fact be traded (making them effectively Embedded in this case).

      So loot boxes are a form of microtransactions where they are available as an in-game purchase. However, loot boxes are only one part of the in-game purchase market. Their unique element is the change mechanism. For other forms of in-game purchases, players will know what item they will receive in advance of purchase.

      1.2. Scale and scope of the market for loot boxes and microtransactions

      In 2021, there were 2.96 billion gamers globally, generating 2020 revenues of USD189.3 billion from the top five companies (Tencent, Sony, Microsoft, Apple and Activision Blizzard), accounting for 43 percent of global games revenues. Video games is one of the fastest-growing entertainment sectors, with predictions of a compound annual growth rate of around 10 percent, over 2022-2030.

      In this context, loot boxes and microtransactions are highly lucrative. Revenues generated from loot boxes used in video games will exceed USD20 billion in 2025, up from an estimated USD15 billion in 2020.

      No wonder large studios (eg. Activision Blizzard and Electronic Arts) have patented their loot box mechanisms to combat imitation!

      As explained in our article on Microsoft’s acquisition of Activision Blizzard, gamers access video games three ways:

      • they can purchase the game for a set price (that premium purchase price model is the most traditional business model, still used for the Grand Theft Auto V and Assassin’s Creed franchises);

      • they can subscribe, on a monthly (sometimes yearly) basis for access to a game (Blizzard Entertainment’s World of Warcraft is perhaps the most successful game that utilises this subscription model); or

      • they download games which are free to play, but may have to execute microtransactions in order to obtain discrete pieces of content (for example, a player may spend a dollar on a new sword for a character, or on a vanity item such as changing the color of their character’s hair, like in the most popular PC game in the world – Riot Games’ League of Legends – which sells a variety of items that can customise the base game, which, itself, is given away for free).

      It is in the third and last scenario, the freemium model of distribution, built round microtransactions as a revenue stream, that loot boxes thrive. The game is downloaded from digital platforms such as the App Store, Google Play or Steam, with most players spending no money at all to play the game. Loot boxes are inserted into freemium games as a mechanism for in-app purchases. Even if players do not wish to access loot boxes, they cannot avoid exposure to these features of the game: they will constantly be reminded of the opportunity to avail themselves of the random rewards contained in loot boxes.

      1.3. Are loot boxes included in the definition of ‟gambling‟ under the UK gambling act 2015 and French law dated 12 May 2010?

      No, loot boxes are not legally considered gambling in the United Kingdom (‟UK”) and France.

      Concerns have been raised about whether the purchase of loot boxes is like a ‟game of chance” and therefore a form of gambling. Particular concerns have been raised about loot boxes within video games targeted at children or young people.

      In 2016, the UK Gambling Commission identified loot boxes as a potential risk to children, as part of a wider review of gaming and gambling. The Gambling Commission subsequently stated that whether it has powers to intervene in the loot box market is based on a judgment of whether a particular activity is considered a game of chance played for ‟money or money’s worth” under relevant provisions of the UK gambling act 2005. The commission said that ‟where in-game items obtained via loot boxes are confined for use within the game, and cannot be cashed out, it is unlikely to be caught as a licensable gambling activity. In those cases, our legal powers would not allow us to step in”.

      The same conclusion was reached by French Autorité de régulation des jeux en ligne” (‟ARJEL”), in its 2017-2018 activity report, concluding that loot boxes (except E-E type loot boxes, such as in games PlayerUnknown’s Battlegrounds, Team Fortress 2 and Counter-Strike: Global Offensive, which had been investigated already, and largely resolved by ARJEL, other regulators and the game industry) were outside the scope of French law of 12 May 2010 relating to the opening of competition and regulation in the sector of online money and chance games.

      So, for French and UK gambling regulators, the games that are most commonly mentioned in the debate on loot boxes (Overwatch, Star Wars Battlefront 2 and FIFA Ultimate Team) belong to the E-I type (purchasable but non-sellable RRMs) and thus do not meet the legal definition of gambling.

      Not every European country has taken this route, though, with Belgium and the Netherlands ruling that the sale of loot boxes in certain circumstances is a form of gambling under their national gambling legislation. Slovakia also considers loot boxes to be gambling under its national legal definition but has yet to take regulatory action. More recently, Spain has committed to introduce new legislation to restrict the sale of loot boxes.

      Interestingly, the European Union (‟EU”) institutions, and, in particular, the European Commission, declined to take any significant targeted action to address the topic of loot boxes because the EU has little competence in the area of gambling, as this competence mainly lies with EU member-states.

      So, in France, the UK, but also Denmark, Finland, Sweden, and the other EU member-states (except Belgium, The Netherlands, Slovakia and Spain) loot boxes are regulated by general national legislation on contracts and consumer protection.

      2. Why are loot boxes an issue, as it stands?

      A scandal erupted in November 2017, when game studio EA suspended microtransactions in Star Wars Battlefront 2 following a furore over loot boxes, hours before the game’s launch. While other game developers and publishers had been embroiled in the controversy over loot boxes, EA took the brunt due to the imbalance potentially caused by randomised loot, in this competitive multiplayer shooter game.

      This is when more and more national gambling authorities and governments started to take the issues potentially caused by loot boxes really seriously, and launched investigations.

      Moreover, a study published in 2020 surveyed the 100 top-grossing games on the Google Play store and App Store. It found that 58 percent of the Google games, and 59 percent of the iPhone games, contained loot boxes. Of those that contained loot boxes, 93 percent of the Google games, and 95 percent of the iPhone games were available to children aged 12 and over. So, loot boxes are an extremely common occurrence, in freemium games.

      Also, loot boxes are becoming even more appealing to players because premium fashion brands and luxury labels, such as Gucci, Burberry and Nike – are partnering up with video games publishers to provide even more attractive and hype cosmetic and avatar-customisation options to players. So this makes it even more difficult to resist, for fashion conscious youth, opportunities to purchase loot boxes containing fashion designers’ items, on their favourite game.

      In September 2019, the UK House of Commons Digital, Culture, Media and Sport Committee (‟DCMS”) published its report ‟Immersive and addictive technologies”. The report detailed financial harms associated with online gaming, including gambling-like behaviours which can affect some users, especially those in vulnerable age groups like children and young people. DCMS heard evidence that there were ‟structural and psychological similarities between loot boxes and gambling”. The report recommended that loot boxes that contain the element of chance should not be sold to children playing games, and instead in-game credits should be earned through rewards won through playing the games.

      3. What are the UK and France doing to limit the damage caused by loot boxes?

      This prompted the UK government to launch a call for evidence in September 2020, and the wider review of the gambling act 2005 in December 2020. The consultation outcome of the call for evidence was released in July 2022 with the main message conveyed by the UK government to the games industry being that it must self-regulate and take action on loot boxes, or risk future legislation. In a typical Tories’ move, the conclusion of the consultation was that improved industry-led protections were the best approach, over regulation under an amended version of the gambling act 2005 (which would classify loot boxes as gambling) and other statutory consumer protections. Under these improved industry-led protections, industry trade body Ukie and its members must go further, and more should be done across game platforms and publishers to mitigate the risk of harm from loot boxes, while purchases of loot boxes should be unavailable to all children and young people unless and until they are enabled by a parent or guardian.

      So the view of the DCMS, set out in its July 2022 conclusion to the call for evidence, is that it would be premature to pursue legislation with regards to loot boxes without first pursuing enhanced industry-led protections. And convene a technical working group to pursue these enhanced industry-led measures to mitigate the risk of harms from loot boxes in video games. The technical working group would include representatives of games companies and platforms, government departments and regulatory bodies.

      Among the members of this technical working group is above-mentioned Leon Xiao, a PhD fellow focusing on loot boxes and video game law.

      In a seminal piece, L. Xiao criticises Belgium’s loot box ban as ineffective, because, even though Belgium technically ‟banned‟ loot boxes using its gambling law in 2018, 82 percent of the highest-grossing iPhone games on the Belgian App Store continued to monetise using loot boxes in 2022. This is because the Belgium regulator has not actively enforced the law due to a lack of resources and enforcement power. Therefore, any self-regulatory framework should be supported by effective enforcement mechanisms, with an independent body set up to review compliance actions by game publishers and hand down penalties (such as fines and financial penalties) in case of non-compliance. Funding for this enforcement task could be obtained through a mandatory levy on the gaming industry.

      L. Xiao also suggests that the UK loot box self-regulation involve the creation of a ”code of conduct” within the meaning of Regulation 2(1) of the Consumer Protection from Unfair Trading Regulations 2008. This would imply that any failure to comply with verifiable self-regulatory commitments, explicitly set out in such code of conduct, by a signatory company, may be subject to legal proceedings. This combination of flexibility, industry commitment to self-regulation, and enforcement powers thanks to UK statutory regulations, would be ideal, according to L. Xiao.

      Another tool to enhance self-regulation would be to require mandatory loot box probability disclosures, such as the ones required in China. Indeed, China has required video games platforms to disclose the probabilities of obtaining randomised items from loot boxes since 2017. Only 64 percent of games containing loot boxes disclose probabilities on the UK App Store, compared to 95.6 percent on the Chinese store. While Apple has some App Store Review Guidelines which set out that loot box probability disclosures must be made, it has not actively enforced this self-regulatory probability disclosure requirement. This should change according to L. Xiao and failing to disclose probabilities should cause the games to be removed from the store. Also, these probability disclosures should be sufficiently prominent and easily accessible to players, and the UK self-regulation measures should encompass industry-wide minimal standards that all companies must meet in this respect.

      One self-regulatory measure that has been uniformly applied is PEGI’s ‟Includes paid random items” label. European video game content rating system provider PEGI would attach this to any games containing loot boxes to ‟provide additional information” to players and parents. But PEGI label seems ineffective because it does not inform players and parents as to exactly how the loot box mechanic can be identified so as to allow players and parents to avoid engaging with it. Therefore, an improvement would be to specifically describe the loot box mechanic in the game, and provide a choice in the options’ menu to turn the ability to purchase loot boxes on or off (potentially even with the default option set to off).

      While the UK is attempting to find the best way to force the video games’ industry to self-regulate on loot boxes and microtransactions, and France has lost the plot on the subject entirely, Australia has filed a loot box bill on 28 November 2022, with its proposed legislation requiring games with loot boxes to be rated R18+ and carry warnings for parents, in order to keep children from purchasing and playing games with loot boxes.

      This is a stark warning to video game companies that they must change their ways, quickly, in order to work with governments and, in particular, the UK government, to implement effective and strictly enforced self-regulating measures to avoid any further children’s and young persons’ psychological and financial exploitation via loot boxes. I am hopeful that game publishers have got the message since many large studios, such as Activision Blizzard, Electronic Arts, Ubisoft and First Touch Games, as well as trade association representing the UK’s game industry TIGA, submitted evidence to the above-mentioned 2020 call for evidence. Let’s watch the space and see whether video game companies are up to the challenge, and can come up with decisive self-regulatory measures, which will be enforced industry-wide, in the UK and beyond.

      Crefovi’s live webinar: Loot boxes in video games – self-regulation or legislation? – 2 December 2022

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        Penguin Random House’s acquisition of Simon & Schuster blocked on antitrust grounds: the rise – and rise – of interventionism in global M&As

        Crefovi : 22/11/2022 8:00 am : Antitrust & competition, Articles, Consumer goods & retail, Copyright litigation, Entertainment & media, Hostile takeovers, Intellectual property & IP litigation, Litigation & dispute resolution, Mergers & acquisitions, News, Restructuring, Unsolicited bids, Webcasts & Podcasts

        Back in 2020, Penguin Random House’s acquisition of Simon & Schuster seemed a given, to all insiders from the book publishing industry. Well, they changed their tune in November 2021, when the US department of justice filed a lawsuit to block the deal. And won. Why did the Penguin Random House’s acquisition of Simon & Schuster fall through? What does it say about current M&A antitrust enforcement policy, in the US, but also globally?

        1. Penguin Random House’s acquisition of Simon & Schuster: the facts

        Simon & Schuster is an American publishing company founded in New York City on 2 January 1924 by Richard Simon and Max Schuster (‟S&S”). Its initial commercial break came from publishing crossword puzzles, after Richard Simon’s aunt, a crossword puzzle enthusiast, asked whether there was a book of New York World crossword puzzles out there, to buy as a gift. Since there was none, and sensing an opportunity, R. Simon and M. Schuster started a publishing house that published crossword puzzles. At the end of 2005, S&S was part of American multinational media conglomerate CBS Corporation. In 2019, CBS and Viacom reunited to form ViacomCBS. As a result, S&S became part of the newly formed ViacomCBS, which has since rebranded as ‟Paramount Global” in 2022 (as this American multinational mass media and entertainment conglomerate owns the Paramount Pictures film and television studio, among other entities). In March 2020, ViacomCBS CEO, Bob Bakish, announced his intention to sell the S&S division, as it ‟does not have significant connection for our broader business”.

        Several contenders came knocking at the door, among them German media group Bertelsmann (which owns Penguin Random House), French mass media holding company Vivendi (which owns French publisher Editis) and American mass media and publishing company News Corp (which owns HarperCollins). ViacomCBS expected the bids to be placed before 26 November 2020.

        On 25 November 2020, ViacomCBS announced it would sell S&S to Bertelsmann’s subsidiary, Penguin Random House LLC (‟PRH”) for USD2.175 billion in cash.

        The transaction was expected to close in 2021, subject to customary closing conditions, including regulatory approvals.

        It is unclear, but likely, whether PRH made some filings with, and required some clearances from, the United States (‟US”) department of justice (‟DOJ”) or the Federal Trade Commission (‟FTC”), under the Hart-Scott-Rodino Act.

        However, and since the horizontal acquisition – between competitors – of S&S by PRH (the ‟Acquisition”) would have created a publishing company that controlled roughly one-third of the worldwide publishing business, the DOJ filed a civil antitrust lawsuit on 2 November 2021 to block it under Section 7 of the Clayton Act, and ‟ensure fair competition in the US publishing industry” (sic). The DOJ’s complaint is available here.

        The lawsuit went to trial in August 2022, with the DOJ’s star witness, author Stephen King, whose works are published by S&S, testifying in the US district court for the district of Columbia, in Washington DC. Other industry luminaries, among them powerful literary agents and other best-selling authors, also testified. Even executives from other major publishing houses, among them the heads of Hachette and HarperCollins (more on these publishing companies below), also testified against the Acquisition.

        After a thirteen-day trial in Washington DC which lasted until 19 August 2022, US district court judge Florence Pan made a final verdict on 31 October 2022, deciding that the Acquisition should be blocked via a permanent injunction.

        While the full order is temporarily sealed to allow the parties to review for confidentiality, a brief two-page document was released by the district court for the district of Columbia, stating that ‟upon review of the extensive record and careful consideration of the parties’ arguments, the court finds that the US has shown that the ‟effect of the [proposed merger] may be to substantially lessen competition” in the market for the US publishing rights to anticipated top-selling books”.

        While that was a blow for the Acquisition, PRH said that it was planning to appeal the permanent injunction, through the release of the following statement: ‟We strongly disagree with today’s decision, which is an unfortunate setback for readers and authors, and we will immediately request an expedited appeal. As we demonstrated throughout the trial, the [DOJ]’s focus on advances to the world’s best paid authors instead of consumers or the intense competitiveness in the publishing sector runs contrary to its mission to ensure fair competition. We believe this [Acquisition] will be pro-competitive, and we will continue to work closely with Paramount and [S&S] on next steps”.

        However, PRH could only appeal the decision if Paramount Global, S&S’s parent company, agreed to extend the Acquisition, which purchase agreement was due to expire on 22 November 2022. Paramount Global decided to let the purchase agreement for the Acquisition expire, which triggered a USD200 million termination fee for PRH to pay to Paramount Global.

        Paramount Global decided not to proceed with the Penguin Random House’s acquisition of Simon & Schuster, concluding that it was not worth challenging the DOJ in court.

        2. Overconsolidation would further narrow down the oligopoly that already exists in the book publishing market

        The book publishing industry is structured in such a way that five publishers, called ‟The Big Five”, dominate US and United Kingdom publishing. For example, they make up 90 percent of the market for anticipated top-selling books. They hold the lion’s share in the book manufacturing and selling industry and, with so many resources at their disposal, they have the ability to make or break a book release. Despite churning out an innumerable number of releases each year, many writers find it difficult to make connections with the ‟Big Five”, resulting in more and more authors deciding to self-publish instead.

        Among those ‟Big Five” are:

        • PRH (the world’s largest book publisher, PRH was formed from the 2013 merger of Penguin and Random House, which were founded in 1935 and 1927 respectively. It now has more than 300 brands and independent imprints across the world under its umbrella. It has locations in North America, Europe, Australia, New Zealand, South America, Asia and Africa. PRH has more than 90 US imprints, across seven publishing groups. It publishes over 2,000 new titles every year in the US. In addition to publishing, PRH sells distribution services to third-party publishers. In 2020, PRH earned over USD2.4 billion in US publishing revenues);

        • Hachette (founded in 1826, Hachette is a French publishing house that has acquired a number of well-known imprints, such as Little, Brown and Company, Mulholland Books and Grand Central Publishing. Though Hachette has locations all over the globe, they mainly operate in French, English and Spanish language books and audiobooks);

        • HarperCollins (first established in 1817, HarperCollins cemented itself as a major publishing player after a number of mergers in the late 1980s and early 1990s. It is now one of the most prolific English language publishers, perhaps most well-known for its romance genre imprints, Harlequin and Avon Books, as well as its divisions for children and teenagers);

        • S&S (the fourth-largest US book publisher, it has 30 US imprints across three publishing groups and publishes over 1,000 new titles annually in the US. In 2020, S&S earned over USD760 million in US publishing revenues), and

        • Macmillan (last on the list of the ‟Big Five”, Macmillan was founded in 1843 and strengthened in 2015 after a number of mergers. With imprints such as Farrar, Straus, Giroux, St. Martin’s Press and Tor, Macmillan releases books in every genre).

        Since both S&S and PRH are part of the ‟Big Five”, the DOJ contended, in the lawsuit, that number 1 PRH, and number 4 S&S, by total sales, compete fiercely to acquire the rights to publish the anticipated hottest-selling books. Indeed, the two New-York based publishers have impressive stables of blockbuster authors, who have sold multiple millions of copies and have scored multimillion-dollar deals: within PRH’s constellation are Barack and Michelle Obama, whose package deal for their memoirs totaled an estimated USD65 million; Bill Clinton, who received USD15 million for his memoir; Toni Morrison; John Grisham and Dan Brown. S&S counts Hillary Clinton, who received USD8 million for her memoir, Stephen King, Bob Woodward and Walter Isaacson.

        If competitors PRH and S&S had been allowed to merge, the combined company would control nearly 50 percent of the market for the acquisition of publishing rights to anticipated top-selling books, hurting competition by reducing advances paid to authors and diminishing output, quantity and variety of books published. Post-merger, the two largest publishers would collectively control more than two-thirds of this market, leaving hundreds of authors with fewer alternatives and less leverage.

        In evaluating a potential acquisition of S&S, a Bertelsmann board presentation characterised the US publishing industry as an ‟oligopoly” of PRH and ‟only four further large publishers”. The Acquisition would have made this oligopoly even smaller.

        Because Bertelsmann knew that the Acquisition posed a greater ‟antitrust risk”, than any other potential buyer of S&S, it understood that it would have to pay a significant premium over other bidders to acquire S&S.

        PRH’s defense was focused on stating that the Acquisition would provide a ‟counterweight” to Amazon’s buying power. The DOJ dismissed this argument, highlighting, in its complaint, that several PRH executives had made statements that the Acquisition was consistent with their ‟goal” to be an ‟exceptional partner for Amazon”. US district court Judge Pan agreed with the DOJ on this one, too.

        When S&S announced it was up for sale in March 2020, its current CEO wrote to one of its best-selling authors: ‟I’m pretty sure that the DOJ wouldn’t allow PRH to buy us, but that’s assuming we still have a DOJ”.

        Well, it seems that Americans still do have a DOJ after all.

        3. More sustained interventionism in mergers & acquisition in the Biden era, consistent with the approach taken in the rest of the world

        President Joe Biden made competition a pillar of his economic policy, denouncing what he calls the outsized market power of an array of industries, and stressing the importance of robust competition to the economy, workers, consumers and small businesses. He has called on federal regulators, notably the DOJ and FTC, to give greater scrutiny to big business mergers and acquisitions.

        This is a continuation of the antitrust M&A enforcement policy applied by his predecessor, Donald Trump, which saw many big deals blocked, sued to block, or threatened to block, in a number of industry sectors, sometimes on antitrust grounds, other times on national security grounds. For example, in media, notable examples under Trump include DOJ seeking to block AT&T from buying Time Warner, Sinclair being blocked from buying Tribune Media, and the major divestiture requirements on T-Mobile’s deal for Sprint. In tech, Broadcom was blocked from buying Qualcomm, Canyon Bridge from buying Lattice Semiconductor, and DraftKings from merging with FanDuel.

        These antitrust challenges have taken place against the backdrop of an increase in global M&A activity (further accelerated by the repercussions of the economic crisis provoked by the management of the COVID 19 pandemic and ‟stunted growth” due to the Russian/Ukraine war).

        Subject to regulatory approval” was, in the pro-merger US, for decades, an M&A risk factor that merging companies disclosed as boilerplate. Today, however, it is rarely a foregone conclusion – and post-announcement analysis is as much about if a deal will be allowed to close, as it is about price, product, financing, layoffs or strategic coherence.

        This is consistent with the rise in power of various competition authorities around the world, and, in particular, in Europe.

        Indeed, the European Commission (‟EC”), i.e. the European Union body in charge of controlling mergers & acquisitions on antitrust grounds, has been particularly busy since 2020, with 405 concentrations notified to it in 2021, representing not only a 10.9 percent increase compared to 2020 (361 notifications) but also the second highest annual number of notifications since the introduction of the European merger control regime back in 1990. In 2021, the EC cleared 13 percent more deals at Phase 1 than in 2020, while opening seven Phase 2 investigations, one less than in 2020. Additionally, as in 2020, there was no prohibition decision in 2021. The EC, however, blocked a deal in the shipbuilding industry in January 2022. Also, in 2021, the EC cleared 11 transactions subject to remedies (seven at Phase 1 and four at Phase 2) compared to 16 in 2020, while 12 deals were withdrawn prior to a decision (nine at Phase 1 and three at Phase 2).

        To conclude, while the blocking of the Penguin Random House’s acquisition of Simon & Schuster was based mainly on the negative effects such merger would have caused to authors, as opposed to end consumers (i.e. readers), it will be interesting to see whether the FTC also applies a similar rationale during its current probe of the Microsoft’s acquisition of Activision-Blizzard (i.e. whether the acquisition of Activision-Blizzard by Microsoft should be blocked because it would lower remunerations levels among, and advances for, game developers). Watch the space!
        Crefovi’s live webinar: Penguin Random House’s acquisition of Simon & Schuster blocked on antitrust grounds – 25 November 2022


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          Film distribution media: what’s next to retain customers?

          Crefovi : 13/10/2022 11:55 am : Antitrust & competition, Articles, Copyright litigation, Entertainment & media, Hostile takeovers, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Mergers & acquisitions, News, Technology transactions, Trademark litigation, Unsolicited bids, Webcasts & Podcasts

          Film distribution remains inefficient and not user-friendly enough, despite the many disruptions caused by online piracy and the advent of film streaming. Is the outcome of the streaming wars going to bring more consolidation in film distribution? What about aggregating film streaming services together, to make them more affordable to end-users? Let’s explore.

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          Microsoft & Activision Blizzard: competition authorities move towards merger control

          Crefovi : 19/09/2022 8:00 am : Antitrust & competition, Articles, Entertainment & media, Gaming, Hostile takeovers, Information technology - hardware, software & services, Intellectual property & IP litigation, Internet & digital media, Mergers & acquisitions, News, Sports & esports, Technology transactions, Unsolicited bids, Webcasts & Podcasts

          Since Microsoft announced its acquisition of Activision Blizzard, the largest independent video games’ developer and publisher worldwide, competitors and national competition authorities alike have been busy, around the world, in assessing the potential substantial lessening of competition that such a large deal may entail. Let’s dive in, and assess where this acquisition is at, in each country in which the competition authority is investigating its impact on competition in the respective national market.

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