Wednesday, June 18, 2014

What YouTube's Ultimatum Means for Content Providers

YouTube announced that in a matter of days it may begin blocking the videos of some independent record label artists who have refused to sign licensing terms for the platform’s new service. Moreover, indie labels and other content creators who do not sign up to the paid tier will be kicked out of YouTube's ad-supported monetization scheme. In other words, YouTube will no longer pay unless you accept their new payment terms. The move by YouTube will not only affect small, unknown artists but popular musicians such as Adele and the Arctic Monkeys who could have thousands of videos on YouTube blocked if a deal is not reached. The new service, which is expected to launch later this summer, would allow users to watch videos or listen to music without advertisements on any device – even when it’s not connected to the internet – for a fee. Another downside of the new policy is that YouTube will not use its copyright algorithms to blacklist infringing content leaving content creators to hunt through the massive site and issue takedown requests on their own. Finally, it seems YouTube is offering unfavorable and non-negotiable terms which undercut the fees paid by Spotify, Rdio and other streaming services as well as being less generous than the money paid to the major labels Sony, Universal and Warners. Seems like another David v. Goliath battle facing the artists in the entertainment community.

Richard Bengloff, the president of the American Association of Independent Music (A2IM), has stated that “the music licensing system is broken” and he illustrates by invoking none other than Justin Bieber: “Who said that if Koko Taylor, who is an eight-time nominated Grammy artist, and Justin Bieber release a song, that they should get paid differently?” A2IM, he says, is in favor of a compulsory statutory license that treats every copyright the same, not a free market solution as was often mentioned in recent congressional hearing. So far 2014 has been the year that licensing became a hot topic on Capitol Hill. The House Judiciary Committee held hearings, the Copyright Office is considering consent decrees and the FTC is fielding complaints from independents on how YouTube is allegedly treating them inequitably. “We filed our paper with the copyright office two weeks ago and we got a lot of reactions from that. I filed papers against YouTube with the FTC a week ago” says Bengloff.

Many artists, songwriters and other content creators would most likely agree that the monetary rewards for use and exploitation of their music have greatly diminished over the past decade while the actual access and use of music by the public has become more expansive and pervasive. Certainly, the compensation to creators has not kept pace with the extent of digital exploitation by services like YouTube, Spotify and others. This is particularly true in the streaming arena where these companies depend entirely on the music content (not unlike music and terrestrial radio from decades past, and still now into the present).

YouTube executives say that nearly 90% of the music industry, including large record labels such as Universal Music Group, Sony Music Entertainment and Warner Music, have signed the new service terms. YouTube has not revealed the specifics of the new licensing agreements. However, as part of their business model the major labels tend to endeavor to make the per-stream rate as low as possible so they can give the artist as little money as possible. It has also been alleged that there is something called a “listener hour guarantee” provision in these deals which the major labels know is going to up their compensation by about 40% because it is calculated per listener hour, not per track. Since it is not attributable to a specific track the artist will not be accounted to for any royalty for those uses. Finally, these major label deals often have a minimum annual guarantee or “advance” built in to them. This way, if the majors expect that a particular service might not reach a level of business sufficient to recoup, the labels will still benefit financially. This is known as “digital breakage” and the majors also do not share any of that money with their artists.

The most serious problem facing the artist community is that, at some point, it becomes economically unfeasible to pursue a career as an artist, songwriter or musician. Of course, as has been the case for many decades, most musicians barely survived without the dreaded day job. However, this extreme downward pressure on the creators of original audio and audio/visual content may force matters to a breaking point the likes of which the creative community has never seen.

One of the most valuable assets in the US economy is the intellectual property rights created by its citizens whether they work alone or as part of big companies. It is only fair that the laws respect the creative works of singers, songwriters and musicians as much as the laws protect the intellectual property rights of the computer giants, communications conglomerates and other tech companies.  The bottom line is that artists, songwriters and other music content creators are getting a smaller and smaller slice of the monetary pie even as it appears that music is becoming more and more accessible and available and going into more and more devices for public consumption. The artist community needs to stand together and make sure that whatever deal is ultimately struck between the relevant parties it is sufficient to sustain artists and other content creators alongside the communications and tech giants that have built their business models on the backs of the artists.
WALLACE COLLINS is a New York lawyer specializing in entertainment and intellectual property law.  He was a recording artist for Epic Records before attending Fordham Law School. T: (212) 661 3656;

Thursday, June 5, 2014

Contracts With Minors: Protecting Your Child's Talent Assets

If your son or daughter is an aspiring entertainer, computer code writer, app designer or video game whiz kid, this article might be of interest. With media giants like Disney and Viacom/Nickelodeon creating shows featuring younger and younger performers for the adolescent and ‘tween demographic, and YouTube, Spotify and other online companies hosting content by eager young creators, child stars and teenage creators are in ever-increasing demand. Moreover, technology companies often employ young teenage whiz kids to write code and develop video games and mobile apps. All of this raises the predicament of dealing with a contract which involves a contracting party under the age of eighteen.

The dilemma for these companies is that a minor may disaffirm a contract at any time during minority or upon reaching contractual majority (at the age of 18). The mere exercise of having the parent of the minor co-sign, approve or “guarantee” the contract does not resolve the problem. The minor may still repudiate the contract on the ground of infancy, asserting that the parent or guardian lacked authority to make the contract. Although many tech companies may rely on the fact that they believe the minor is an employee creating intellectual property for the company, this may not be sufficient to transfer rights to the company as a “work made for hire” under U.S. Copyright law, or otherwise.

For this reason, the people and companies that your children deal with may seek court approval of the employment arrangement. States such as California, New York and Tennessee have laws which establish procedures regarding the judicial approval of contracts with minors. Companies working with minors will probably seek to employ this process at some point because once the Court judicially approves the contract the minor will be held to a standard of adult responsibility for its contractual obligations – and this procedure assures the company that it will get what it bargained for.

The legal procedure is nothing to be afraid of for parents although in most cases you will want to retain a lawyer to guide you through the process – probably the same lawyer that you use to negotiate the contract itself. A proceeding for judicial approval of a minor's contract is usually commenced by the company or employer filing a petition with the Court. Along with the petition there will be affidavits or statements from the parents of the minor consenting to the arrangement.

An order granting judicial approval of a contract for the services of a minor will not usually be granted on the papers alone. A hearing will be commenced in which the minor, the parents and the various other interested parties may appear before the assigned Judge. In the course of the proceeding, the court will decide what portion of the net earnings of the minor, if any, are to be set aside in a trust. In fixing the amount to be set aside, the court will take into consideration the financial circumstances of the parents entitled to the minor's earnings, the needs of the parents' other children and the needs of the minor's spouse, if married. Such amounts as are set aside are to be saved for the minor under guardianship until the minor becomes 18 years old.

Once the court does grant approval, an order will be issued which will, in effect, declare the minor an adult for purposes of fulfilling his or her contractual obligations. This will assure that the company gets what it bargained for and that your child is adequately and fairly compensated for his work.

One final warning: some companies try to avoid the cost of the court proceeding and, instead, seek to have the parent or guardian of the child sign a guaranty. Parents are well-advised to be very careful about what they sign. As mentioned earlier, the parent cannot bind the child to the contract no matter what they sign. The child, as a minor, can legally walk away from the contractual arrangement. However, if the parent has signed some document that states that the parent is liable for amounts due to the company from the child or for damages if they child disavows the contract, that contract may be enforceable against the parent and the parent could be on the hook for much more than they anticipated. A parent can sign something that consents to the child working with the company but should be wary of signing any document that goes any further.
WALLACE E.J. COLLINS III, ESQ. is a leading industry authority on contracts with minors practicing primarily in the areas of entertainment, technology and intellectual property law.; Direct Tel: 212-661-3656