by Irene Rajagopal, attorney at PAPER Law Office PLLC
(This blog post is initially published on February 26, 2016)
The ecosystem of media industry is similar with any other industry -- products (creative works) are manufactured in factories (production companies or studios), distributed by wholesaler to retailer (media companies), and eventually reach to end consumers (audience).
The pipeline in the media industry's ecosystem is the licensing of copyrighted creative works from upper stream to lower stream. This blog post is written based on my cross-border experience and research in media industries. It will discuss about the trends in both US and China, and give the readers some practical tips in cross border media licensing.
1. Trends in US Media Licensing
In the United States, media technologies reshape the landscape of whole television industry. About a decade ago, traditional television companies had lucrative business from double sources of revenue: the payments from advertisement companies in exchange for the commercial time slots and the retransmission fee from the cable network or satellite TV in exchange for the distribution of TV channels. However, Internet media platform, like Netflex and Amazon, are attracting more and more users from TV screen.This is bad news for the television companies, because less audience means less revenue from both ads and the retransmission fees.
As a result, traditional television networks use copyright lawsuits to block away the new competitors. One famous case was Aereo case. The plaintiffs, the television companies (ABC, CBS), sued an Internet company (Aereo) who transmitted the free over-the-air TV signal to Internet users for a low monthly fee. The plaintiffs claimed that the unauthorized transmission infringed the public performance rights of the copyrighted television programs. The defendant, in alliance with west-coast advocates of technologies, argued that overprotection of the copyright will create a barrier for the new player in the media industry and will hinder the development of the communication technologies, and eventually impair the public interest to obtain information. The case had caused controversy in the society and split decisions among the circuit courts. It is a case on the hot spot of transition of traditional media to new media and a test on how to balance the competing interests of copyright and new technologies. The U.S. Supreme Court’s majority opinion supported the plaintiff’s position. However, the U.S. copyright law is far from settled. The trend in U.S. media industry is the fluid interpretation of copyright law in court decisions and even the judges are struggling with the understanding of new media technologies.
2. Trends in China Media Industry
In China, public policies can highly affect the market situation of media industry. Recent trends happen in the areas of film and sports industries.
There is a rapidly growth in China's film industry. The box office revenue reached to 6.7 billion U.S. dollars in 2015 according to Bloomberg's report. Behind the strong market performance, a draft of Film Industry Development Law （《电影产业促进法》） promises to give tax incentive to movie companies, and encourages the capital in China to outflow to oversea film production and distribution. The private equity funds are active in film production and distribution.
A new public policy in sports industry issued by the Secretary of State （《国务院关于加快体育产业发展促进体育消费的若干意见》） has created similar excitement in the market. The government explicitly encourages the foreign and local private capital to participate in sports business. The sports media rights are no longer controlled by a handful television companies but open for public bidding. Just a few months ago, China Super League, which is China’s major soccer league, sold its five year (2016-2020) media rights to China Sports Media, a company backed by a dominant equity fund in media industry, for approximate 1.2 billion U.S. dollars. This price was 20 times more than the same media rights in 2015.
3 Media Rights Licensing in US
a. US Copyright Act of 1976
Licensing of media products is full of legal works. So it is necessary to make a brief introduction of copyright law. A copyright provides its owner with a bundle of exclusive rights in a protected work for the copyright's duration.
Under 17 U.S.C. 106, there are six types of exclusive rights:
“(1) to reproduce the copyrighted work in copies or phonorecords;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;
(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and
(6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.”
Each of these rights can be assigned or licensed separately. Therefore, it is critical to identify which exclusive rights are going to be licensed.
b. Due Diligence
The first step of media rights licensing is due diligence and rights clearance.
First, to identify all the owners of the copyright. We shall pay attention to work-for-hire issue. If an independent contractor is hired by a client to take wedding photos, the copyright of these photos is belong to the independent contractor, not the client who pays the money for the photos, unless there is an written assignment agreement that the independent contractor assigns the copyright to the client. Therefore, closely review of all the related legal documents is a major part of due diligence work.
Second, to identify what kind of licenses are required. For example, to stream a Beatles song over Apple music store may require both the license from the original music composer and the license from the album company (or any copyright owner of the song records).
Third, to identify other rights in the works. Here is an example of pre-existing work. If a China media company wants to broadcast a Hollywood movie, and this movie was adapted from a New York Times bestseller book. The China media company not only needs to buy a license from the movie studio, but also probably needs a license from the author of that book.
The due diligence work will further review if the creative work depicts a trademark or has used the likeness of a living person’s voice or image. Trademark and celebrity rights, another kinds of IP rights, may involve in a media licensing.
The due diligence will clear the picture of the licensing before two parties sit down to negotiate the details of the transaction.
c. Major Provisions in Licensing Agreement
A licensing agreement will define the scope of the license, including the duration, the licensed territory, which exclusive rights to be licensed, and whether new works can be created. The agreement will also define the type of media platform.
The territory is an important provision. Licensors will usually require licensees to promise that the use of the licensed work will not reach beyond the licensed territory. In many Internet licensing agreements, a licensee is required to place anti-spill technologies. The business model of content distribution is to license a country by a country, a region by a region, so that the content owner can generate license fees from different areas of the world.
4. Media Rights Licensing in China
When a U.S. media company accesses to China market and attempts to license out a US movie or television programs in China, the US company shall be ready to shift the gear and bear at least the following two points in the mind.
Firstly, China’s copyright law is different from U.S. Copyright Act. (Or maybe we should say U.S. Copyright Act is quite different from the rest of the world.) At a fundamental level, U.S. Copyright Act treats copyrights as economic rights that can be traded for economic value, while China copyright law treats copyright as both personal rights and economical rights. Moral rights, a typical form of personal rights, are noneconomical interest for the authors to control the use of the creative works, including the attribution right, which is the right to be identified as the author; and integrity right, which is the right to control the modification. In China, every author can enjoy the moral rights. On the contrary, the moral rights under U.S. law is only available for visual artists in a limited way. You may ask why only for visual artists? Well, this odd law was actually a compromise this country made to meet the bare requirements of Berne Convention, an international copyright treaty.
The categorization of exclusive rights under China copyright law differs from the counterpart under U.S. Copyright Act. There are 17 types of exclusive rights of copyright in China. When a cross border licensing is structured under China law, the terminologies of licensed rights shall be drafted in line with these 17 types of exclusive rights. For example, the “public performance right” under U.S. law may be defined as "distribution rights" or "broadcasting rights" in China.
Secondly, a US media company needs to accept the reality that the media industry in China is heavily regulated. First Amendment is the foundation of US media industry, where the government is refrained from direct or indirect regulation over the content or the manner of speech. But the censorship in China creates complex governmental approvals and permits, that any movies or television programs cannot be distributed without pre-approval. The media platform, either a traditional TV channel or an Internet company who stream any video, shall get special permits. Yes, it could be astonishing. But it is the reality.
Therefore, when dealing a cross border licensing, understanding of both sides of laws will avoid lots of bumpers down to the road.
5. Takeaway
Below are a few tips of cross border media licensing:
- Understand and tailor the media products to the local market.
- Do good due diligence work.
- Understand the local laws and regulations.
- Don’t use US standard licensing agreement in an international transaction without any modification.
For any further questions, please contact Irene Rajagopal. Email: irene@irenerajlaw.com
Disclaimer and Copyright Notice: This blog post does not constitute any kind of legal advice. The author and PAPER Law Office PLLC will not guarantee the accuracy of the content. Please consult with your lawyer for any legal questions. The copyright of this blog post is exclusively owned by PAPER Law Office PLLC. Please do not reproduce or publish whole or part of this post without advance written consent from the right holder.