AEREO SHAKES TELEVISION BROADCASTERS.
This month (April 2014) the Supreme Court will hear a case that could threaten the standard model of broadcast television. The case is American Broadcasting Companies, Inc. v. Aero, 13-461.
The case deals with the issue of whether Aereo’s service violates the “public performance” right of a copyright holder. Aereo gathers the public transmissions of the television broadcasters and then stores it for individual use by its subscribers. Each subscriber gets an individual antenna, through which the individual subscriber can access the signals of the various broadcasters.
The broadcasters argue that this violates their public performance right. Aereo, using the case of Cablevision Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) ("Cablevision"), says it does not. Cablevision established that a DVR device did not violate the public performance right because it constituted a private performance.
The Second Circuit sided with Aereo, citing Cablevision as explicitly on point. The Court felt bound by Cablevision and found in favor of Aereo when ABC and other broadcasters asked for a preliminary injunction stopping Aereo from offering their service.
The broadcasters are already on record as saying they will shut down operations and move everything to a fee basis, similar to cable. I will definitely follow this closely and give updates as events develop.
 Am. Broad. Cos. v. Aereo, Inc., 874 F.Supp.2d 373 (S.D.N.Y., 2012).
 Amy Schatz, Broadcasters Threaten Dire Consequences if Aereo Wins, Re/Code, February 24, 2014, 2:10 PM PST, recode.net/2014/02/24/broadcasters-threaten-dire-consequences-if-aereo-wins/.
PANDORA SUES TO
LEVEL ROYALTY PLAYING FIELD.
In late February of 2014, closing arguments were heard in In re Petition of Pandora Media, Inc. in the federal district court of the Southern District of New York. The case concerns Pandora, an internet streaming service, and its attempt to reduce the royalty it has to pay to ASCAP and BMI, known as performance rights organizations (PRO’s).
A little background is in order. ASCAP and BMI have been operating under a Consent Decree from the Justice Department since 1941. The decree was needed to insure that ASCAP and BMI received fair royalties from those using the music (movies, television, radio stations, even restaurants and stores), and in turn, paid fair royalties to those who created and administered the songs (songwriters and music publishers). The most recent version of the consent decree was issued in 2001 and is known as the Second Amended Final Judgment (“AFJ2”). See United States v. Am. Soc’y of Composers, Authors & Publishers, Civ. No. 41-CV-1395, 2001 WL 1589999 (S.D.N.Y. June 11, 2001).
With the advent of the digital transmission of music, services such as Spotify and Pandora were created. Pandora describes itself as a “free personalized internet radio,” which allows a person to “create up to 100 unique "stations." The key term is “radio” – Pandora is arguing that it is merely radio delivered over the internet. If so, Pandora argues, then it should be pay rates similar to radio.
Pandora pays 1.85% of its revenue to ASCAP, set in an interim agreement. That rate is a bit higher than the 1.7% paid to ASCAP by AM/FM radio stations. ASCAP wants up to 3.0% of revenue and for Pandora to be classified a “music service” similar to Spotify.
 Hill, Brad, “Pandora closes ASCAP trial arguments on high note; financial firm predicts victory”; posted on February 11, 2014 by Brad Hill, http://rainnews.com/pandora-closes-ascap-trial-arguments-on-high-note-financial-firm-predicts-victory/.
 Peterson, Josh, ASCAP, “Pandora await verdict in court battle over digital music rights,” February 17, 2014, http://watchdog.org/128843/pandora-ascap/.
OFF THE LIGHTS!
Well, schadenfruede reigns on Broadway.
“Spider-Man: Turn Off The Dark,” the $75 million Broadway musical, will turn off the lights on January 4, 2014. The most expensive musical in Broadway history will cost its investors close to $60 million dollars!
Despite such high-profile players as Tony Award winner director, Julie Taymor, and the rock stars Bono and The Edge from U2, the musical was star-crossed from the start. Battles between the creative team finally devolved into back stabbing and opposing camps, while debating the direction of the show. With the highly publicized firing of Ms. Taymor, a new level of negativity attached itself to the show, and generated the first of a variety of lawsuits that have been filed against the producers. Ms. Taymor’s case was recently settled but no terms of the settlement were disclosed.
The other high profile players, Bono and the Edge, were no help. The score for the musical is generally considered second-rate and did not generate any significant cast albums sales. And then there was a truly serious event – a performer was injured while performing the show, Daniel Curry, who is now considering legal action.
The producers plan to take a re-worked version of the production to Las Vegas. But, no matter the place and frequency of any further productions, it will take decades for the investors to see any return on their money.
So, “Spider-Man” – out of the dark and into the red.
 David Rooney, “’Spider-Man' to End Broadway Run”, Hollywood Report, 11:49 PM PST, November 18, 2013, http://www.hollywoodreporter.com/news/spider-man-end-broadway-run-57390?
 Patrick Healey, “Spider-Man to Close on Broadway”, New York Times, November 18, 2013 at B1, http://www.nytimes.com/2013/11/19/nyregion/spider-man-to-shut-on-broadway.html.
 Jordan Zakarin, “Julie Taymor and 'Spider-Man: Turn Off the Dark' Producers Finally Reach Settlement”, 10:01 AM PDT April 10, 2013, http://www.hollywoodreporter.com/news/julie-taymor-spider-man-turn-436846.
 Patrick Healey, “Spider-Man to Close on Broadway”, New York Times, November 18, 2013 at B1, http://www.nytimes.com/2013/11/19/nyregion/spider-man-to-shut-on-broadway.html.
HERE BE MONSTERS!
This newsletter is a bit longer than usual but the subject of “crowdfunding” is so important that it demands a bit more discussion.
In April of 2012, President Obama signed the Jumpstart Our Business Startups (JOBS) Act (H.R. 3606) (the “JOBS Act”, or alternatively, the “Act”). Under Title III of the Act, the SEC loosened the restrictions on soliciting securities through the internet, i.e., “crowdfunding - a term used to describe an evolving method of raising money through the Internet.”
However - do not rush headlong in these water - here be monsters!
On October 23, 2013, the SEC released the proposed rules regulating such transactions. The rules would allow a producer to solicit investment through the internet subject to the following rules:
1. A company would be able to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period;
2. Investors, over the course of a 12-month period, would be permitted to invest up to:
(a) $2,000 or 5 percent of their annual income or net worth, whichever is greater, if both their annual income and net worth are less than $100,000; or
(b) 10 percent of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or more than $100,000.
3. During the 12-month period, these investors would not be able to purchase more than $100,000 of securities through crowdfunding.
The rules contain mandatory disclosure requirements. Among other the things, the company would be required to disclose:
1. Information about officers and directors as well as owners of 20 percent or more of the company;
2. A description of the company’s business and the use of proceeds from the offering;
3. The price to the public of the securities being offered, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;
4. Certain related-party transactions;
5. A description of the financial condition of the company and
6. Financial statements of the company that, depending on the amount offered and sold during a 12-month period, would have to be accompanied by a copy of the company’s tax returns or reviewed or audited by an independent public accountant or auditor. 
Restrictions on the Portals:
The SEC is also imposing rules on the internet portals through which the solicitation is made. The SEC demands that “the ‘crowdfunding transaction take place through a SEC-registered intermediary, either a broker-dealer or a funding portal”
The proposed rules would require these intermediaries to:
1. Provide investors with educational materials;
2.Take measures to reduce the risk of fraud;
3. Make available information about the issuer and the offering;
4. Provide communication channels to permit discussions about offerings on the platform; and
5. Facilitate the offer and sale of crowdfunded securities.
Furthermore, the rules would prohibit funding portals (the portal itself) from:
1. Offering investment advice or making recommendations;
2. Soliciting purchases, sales or offers to buy securities offered or displayed on its website;
3. Imposing certain restrictions on compensating people for solicitations; and
4. Holding, possessing, or handling investor funds or securities.
As the title of this newzine indicates, be very careful when utilizing these exemptions. One wrong step and the SEC could come calling. Also, be aware that the IRS will be looking very closely at these transaction – it will want to determine if any taxable is being received.
Give the Firm a call before you attempt to do a crowdfunding campaign – it could save you tens of thousands of dollars!
 Robb Mandelbaum, ‘Crowdfunding’ Rules Are Unlikely to Meet Deadline, New York Times, December 27, 2012 at B1.
 SEC Issues Proposal on Crowdfunding; SEC Press Release, Washington D.C., Oct. 23, 2013.
LIFE AFTER DEATH:
Even after Death a Performer’s
Estate Generates Revenues!
In this edition I am going to comment on some events that illustrate how the intellectual property of an artist, even long after death of the artist or the breakup of the band, can continue to generate significant revenue.
The first is the recent release of another album of studio material from Jimi Hendrix. The new album, “People, Hell and Angels”, is being announced as the last of over a dozen posthumous albums of studio material. However, Hendrix fans should not mourn for too long – the controllers of the Hendrix material, Jimi’s sister, Janie Hendrix, and the two (2) producers, Ed Kramer and John McDermott, have other material to mine. “There is plenty of material left . . . a wonderful selection of live material.” Hendrix lives on!
Another development highlights the value of a source of revenue that is often overlooked or forgotten – memorabilia. The Beach Boys recently won a court case regarding a collection of Beach Boys memorabilia including handwritten scores, photos, letters and other curiosities. There were over 2,000 items and the collection was valued between $6 million and $8 million. However, it was a bittersweet victory because the items were then turned over to “investors, lawyers and corporate entities.” Moral of the story – photos are more than just memories.
If it regards life after death in the music arena, there is no entity more “alive” than the Beatles. Anything connected with the Beatles brand is an automatic money maker. The Beatles last released an album in 1970 (“Let It Be”, although it was recorded before “Abbey Road”) and, yet, the Beatles, collectively and individually, consistently remain among the top ten (if not top five) of revenue generating entities. Now, the Beatles will return to Broadway – a “concert show” called “Let it Be” will be coming to Broadway in July, 2013. It is the second time that the Beatles were on Broadway – “Rain: A Tribute to the Beatles on Broadway” ran on Broadway from 2010 into 2011.
The moral of all of these little tidbits? The band plays on!
 James C. McKinley Jr., Exhuming the Last of Hendrix’s Studio Sessions, New York Times, March 4, 2013 at C-4.
 James C. McKinley Jr., Beach Boys Win Fight, And Lose It, New York Times, April 27, 2013 at C-1.
 Dave Istkoff, Arts Briefly – Beatles Concert Show Coming to Broadway, New York Times, May 9, 2013 at C-3.
Digital Downloads & Streaming Services.
Section 106(6) created a performance right in musical that is delivered from a digital platform. It is a new revenue stream that resulted from technology expanding the types of delivery systems through which music could be delivered. Over the last two (2) decades, digital technology, the internet, and new playing devices, have resulted in the death knell for the classic “album” and cd sales. Most people now purchase their music from one (1) of two (2) sources: (i) downloads from services such as iTunes; and (ii) listening to streaming services such as Spotify or Pandora. Ben Sisario reported in the New York Times, “A decade after Apple revolutionized the music world with its iTunes store, the music industry is undergoing another, even more radical, digital transformation as listeners begin to move from CDs and downloads to streaming services like Spotify, Pandora and YouTube.”[i]
These royalties are collected by SoundExchange, a not-for-profit entity entrusted by The U.S. Library of Congress to collect and distribute these digital performance royalties from: (i) satellite radio (such as SIRIUS XM); (ii) internet radio; (iii) cable TV music channels; and (iv) streaming sound recordings. By the end of 2012, SoundExchange had passed the $1 Billion mark in royalties paid to recording artists and record companies since its inception in 2000.[ii]
However, these revenue streams still have a ways to go before they become very profitable for the artist. Spotify and Pandora are becoming billion dollar businesses, but the artists are receiving literally pennies. The New York Times reported on the example of Zoe Keating, an independent musician from Northern California.[iii] The numbers painted a stark picture of what it is like to be a working musician these days. After her songs had been played more than 1.5 million times on Pandora over six months, she earned $1,652.74. On Spotify, 131,000 plays last year netted just $547.71, or an average of 0.42 cent a play.[iv]
[i] “As Music Streaming Grows, Artists’ Royalties Slow to a Trickle”, Ben Sisario, New York Times, A-1, 1/29/2013.
[ii] “Royalties From Digital Radio Start to Carry Some Weight”, Ben Sisario, New York Times, B-1, June 18, 2012.
[iii] “As Music Streaming Grows, Artists’ Royalties Slow to a Trickle”, Ben Sisario, New York Times, A-1, January 29, 2013.
Wishing everyone a
wonderful, rich, and peaceful
I have commented in the past on the battle for performers to get some type of royalty when a song is played on terrestrial radio that they performed.
For example, every time that Sinatra’s version of “New York, New York” is played on the radio, the writers of that song receive a royalty. Under the old business model, Sinatra and the record company would make money selling more records. However, record sales are not what they used to be and performers and record companies are suffering. It is no accident that Sinatra’s daughters are leading the fight.
A recent deal between Taylor Swift’s record company, Big Machine, and Clear Channel Communications (“CCC”) might signal a significant turning point. In the deal, CCC will pay a performer’s royalty to Big Machine every time that a song that Swift performs is played.
The battle arises from the fact that when a song is played on terrestrial radio (satellite and internet broadcasters already pay a “performer’s” royalty to the record companies) the songwriter receives a “performance” royalty. The royalty arises from the fact that the owner of the copyright (generally the songwriter) has a “performance” right – he/she is the only person that may perform the song in any type of medium, live or recorded. In contrast, the performer of the song does not receive any royalty when the song is played on the radio.
Previously, there was a symbiotic relationship between the radio station, the record company (and the performer), and advertisers. The record company would provide records to the radio station for free. The radio station would play the records, increasing sales for the record company. The radio station would get listeners and be able to sell advertising.
So, the songwriter made money from the “performance” royalty. The performer of the song made money from his royalty on selling records. The record company made money from increased record sales. The radio station made money from advertisers. And, finally, advertisers made money from increased sales of their product.
That beautiful system came crashing down with the advent of competitive mediums to terrestrial radio, e.g., downloads and satellite radio. The wink link became the record company. Record companies have been facing eroding relevance for going on two (2) decade and record sales have fallen dramatically.
The Big Machine-CCC deal may signal a break in the dike of this royalty stream for recording companies and performers.
UPDATE ON EMI SALE
I have commented on the saga of the break-up and sale of the EMI Group (“EMI”) in prior e-zines. A major milestone has occurred with the approval of the sale by United States and European agencies that oversee competition and anti-trust matters.
As an initial point, it is important to remember that the sale of EMI had two components: (i) the sale of the music recording division of EMI (“EMI Music”); and (ii) the sale of the music publishing division of EMI Music Publishing (“EMI Publishing”). Each component was sold to a different owner: (i) EMI Music went to Universal Music Group (“Universal”) for $1.9 billion; and (ii) EMI Publishing went to the Sony Group (“Sony”) for $2.2 billion.
Each of the new owners had obstacles to overcome. Sony’s were of a contractual nature: because of the various pre-sale publishing agreements in place, most notably with the estate of Michael Jackson, the deal is a complicated one with EMI Publishing being administered by Sony/ATV, the joint venture between Sony and Jackson.
Universal’s problems came from concerns of anti-trust and anti-competition. The deal would have given Universal, already the largest of the Big 4 (now Big 3) labels, 40% of the market. Both the European Commission (the “EC”) and the Federal Trade Commission (the “FTC”) reviewed the terms of the sale very carefully.
Recently, both the EC and the FTC approved the sales. But, Universal had to make a huge concession: it must sell almost third of EMI Music’s assets. That includes the crown jewel of EMI Music – Parlophone – and the rights to other artists such as Coldplay and Pink Floyd.
However, even with those concessions, many are not happy. Universal has got even bigger. And, one more major label has bit the dust. Also, many remained concerned about the final home of the assets to be sold.
The ramifications of the sale and the subsequent battle over the assets of EMI provide a fascinating case study of the state of the music industry. I will continue to provide updates as events unfold.
I am proud to announce that I will be participating in an Entertainment Law Seminar on January 22, 2013 in Phoenix, Arizona. The Seminar is sponsored by the National Business Institute and CLE credit will be available.
The Seminar will cover a variety of topics including copyright, trademark, nuances of entertainment contracts, and the pitfalls of entertainment financing. The Seminar will go from 9:00 a.m. to 4:30 p.m., with small breaks in the morning and afternoon and a break for lunch.
The Musical Instrument Museum (see photo below) in Phoenix, Arizona will host the Seminar. The Museum is located at 4725 E. Mayo Boulevard, Phoenix, AZ 85050 and the phone is 480.478.6000. Special tickets are offered for students.
Check out this link on the Museum:
Hope to see you there!