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Esports 2021: Business and Legal Issues to Watch

By: Robert Auritt

2020 was the year of the pandemic and the year that thrust esports into the limelight at a time when almost all traditional sports were ground to a halt. As such, the world of esports experienced unprecedented growth last year, but even the esports industry, which was largely able to shift its events online, still took a major hit from the virus. While still surprising to many people, the real bread and butter of the esports industry are in-person live tournaments and games.

Being in person is not just about building a fan base, ticket sales, merch, and food & beverage revenues. The fact is that being in the same room, on the same local area network (LAN) is the only way to ensure that there is fairness in esports competitions. Regardless, in 2020 that line of revenue dried up for the esports world just as quickly as it did in the traditional sports world, with the primary difference being that many esports ecosystems were able to almost immediately shift to online gameplay. This flexibility allowed some revenue to start flowing again, but with reduced volume and excitement and increased questions about the integrity of games due to server issues, it is clear that the esports business is just as anxious to return to the brick-and-mortar world as the traditional sports business is to welcome fans back into its stadiums and arenas. So, what are the big business and legal issues to watch for in the esports world for 2021?

Players and Talent

One area where esports and traditional sports diverge a bit is with respect to the utilization of talent. In the traditional sports world, until now, an athlete had basically one job – to play the game to the best of his or her ability. In esports, where in addition to competing professionally athletes are expected to stream and create content for themselves or their organizations against which lucrative sponsorship deals can be sold, players are esports organizations are increasingly coming into conflict on control of exclusive sponsorship categories.

Also, in esports, it is common for organizations to enter into contractual relationships with esports-related content creators who don’t actually play on the organization’s teams, but who focus entirely on producing game related content that is a kind of fusion between competitive gameplay and pure entertainment and which functions as a highly effective marketing platform for organizations that latch themselves to these popular personalities. Some of the top content creators, with millions of followers and hundreds of millions of stream views, are capable of commanding very hefty salaries and generating their own sponsorship and endorsement deals.

“Gone are the days of esports organizations being able to fully dictate terms to their talent.”

One trend that will almost certainly continue to gather steam into 2021 and beyond is the increased reliance by athletes and content creators on professionals like agents and attorneys to assist them in their negotiations with esports organizations. Gone are the days of esports organizations being able to fully dictate terms to their talent. Now contract negotiations between esports athletes and content creators and the organizations that hire them very much resemble traditional sports contract negotiations, so the need for both sides to engage experienced counsel has never been higher.

Intellectual Property

Will 2021 finally be the year when game publishers begin to aggressively assert their intellectual property rights? Up until now the evolution of the esports ecosystem has had at least the tacit support of the video game publishers. For context, in traditional sports, nobody owns the intellectual property rights in the underlying games, which is to say that anyone with the resources to do so could start their own professional baseball, football, or basketball league using the same basic rules that already exist for any of those games and there would be nothing that MLB, the NFL or the NBA could do, at least from an intellectual property perspective, to stop it. This is not necessarily the case in the world of esports, where the intellectual property rights to the games like Overwatch, Valorant, CS:GO, and Call of Duty are respectively owned by Blizzard Entertainment, Riot Games, Valve/ Hidden Path, and Activision the companies who publish the video games.

At this point, it is common for the organizations who sponsor esports tournaments to enter into licensing arrangements with the publishers to secure the necessary rights to use the games to do everything necessary to run a tournament, such as broadcast, display, and stream the games online.

At the same time, players and content creators typically use game footage in their Twitch streams for creating on-demand videos on platforms such as YouTube. The use of this footage, if not explicitly authorized by game developers in their terms and conditions, has at least been tolerated by them on the theory that such uses have generally been good for promoting the ecosystem. But just because things have been tolerated until now does not mean that will always be the case.

Enter Game+, one of many relatively new apps out for mobile gaming on the Android iOS app stores. Game+ allows users to challenge one another to play popular video game titles like Call of Duty, Fortnite, and Madden, for money. Or what sounds a lot like gambling (but which the app developers insist on calling a “skills-based competition app”). Recent media reports suggest that not only did the app developers not get licenses from the game developers to allow them to use their copyrighted and trademarked intellectual property on the Game+ platform, but the game publishers are not at all pleased with being potentially associated with gambling. This unauthorized use of the publisher’s IP looks as if it is sure to draw the publisher’s legal fire. On the other hand, in light of the recent liberalization of sports betting regulations, might the publishers be tempted to grant licenses to Game+ in exchange for a piece of the action? Stay tuned.

Image source: Newzoo

College Esports

2021 will see the continued expansion of collegiate esports activities not only in connection with competitive play and the development of academic, degree-based esports programs but in the race to exploit esports for potential sponsorship dollars the way traditional college athletic programs are able to exploit their multi-media rights for profit.

The move from clubs to sanctioned competitive play at the college level is on, but the rules of the road are still being written. Schools are still struggling with how to treat esports. Some schools treat esports like a club sport, while others see them belonging in the athletic department. How a school deals with esports have implications for each school’s compliance with Title IX of the Education Amendments of 1972 – the federal law that protects against gender discrimination in schools that receive federal money.

There are questions about whether the NCAA or other esports-specific organizations such as the NACE (National Association of Collegiate Esports) will emerge as the de facto governing body of competitive collegiate esports, but in addition to navigating potentially thorny Title IX issues, any such body will need to grapple with the game publisher’s intellectual property rights discussed above, in order to sanction competitive tournaments.

As esports grows as a part of campus life and schools begin to feel pressure to attract students with new high tech esports facilities and venues, the need to fund this infrastructure is pushing colleges to explore opportunities that will allow them to sell naming and branding rights around esports in a manner similar to the opportunities that are exploited by schools in connection with big-time college sports. Multimedia rights management organizations are in a rapid competition to sign deals with universities that will enable the schools to sell various esports related rights such as naming rights for esports arenas and tournaments.

In addition, with the emergence of esports as a billion-dollar industry, the proliferation of schools starting to offer academically rigorous esports and esports industry management degree programs seems likely to continue in 2021. These programs suggest that the esports industry ecosystem will continue to professionalize as capital continues to flow in and esports become an increasingly normal part of the US sports scene at both the collegiate and professional levels.

While much remains unclear with respect to the development of esports, as the pandemic eventually comes to an end, 2021 is poised to be a significant year in the evolution of esports.

woman with question marks around her head

Should Independent Contractors Form Loan-Out Companies, or Not?

By: Steven Masur and Danika Johnson

Recently, we wrote an article about Loan-Out companies in which we discussed the advantages for established and early-stage artists alike. However, our clients are reporting trouble getting gigs and getting paid through their loan-out companies. It seems some agencies now want them to be employees — the same agencies that had previously required them to form loan-outs. Why the sudden change? The reasons include: 1) the fact that IRS requires employers to pay back withholding taxes for individuals they believe should have been classified as employees, 2) the growing argument regarding who is an employee and who is an independent contractor, and 3) new tax rules that may reclassify who should pay employment taxes. Loan-out company owners are getting whipsawed by their clients, and are struggling to work out how best to get paid.

The IRS Cracks Down

As we discussed in our previous article, agencies and other employers had encouraged the idea of paying their workers through loan-out companies as independent contractors. Employers believed that by hiring people as independent contractors, they could avoid paying their share of social security and medical taxes, overtime pay, and other employee benefits such as vacation and sick pay, as well as avoiding workers’ compensation insurance and unemployment compensation taxes. The 2017 Tax Cuts and Jobs Act provided many advantages to classifying workers as independent contractors – it cut labor costs, made the workers’ checks look bigger because no taxes withheld, and even gave the workers a slew of pass-through deductions on their own taxes, for everything from equipment and supplies needed for work, to home offices, travel and entertainment costs, and even car repairs. Many employers looking to avoid paying employment taxes got wind of these advantages and began labeling workers as independent contractors. The IRS saw both situations that amounted to potential tax fraud, and an opportunity to collect more taxes so it began to crack down on and re-classifying the same workers as employees, enabling it to collect the back taxes and levy fines and interest for the misclassification of these workers. Facing these potential liabilities, many employers rushed to reclassify their workers as employees rather than independent contractors in order to avoid repercussions.

Health Insurance

Because of the change, loan-out company owners are finding it more difficult to get new gigs, get paid by long term clients through their loan-out company, and are now encountering problems with their health insurance. If they accept a gig as an employee, the loan-out company owner may no longer be able to use their loan-out company’s insurance, and instead, have to rely on the agency for which they now work to provide medical insurance (if they even qualify). Furthermore, the benefits are often not as good, and to add insult to injury, these expenses may no longer be deductible. If the worker does not work enough union hours in the entertainment industry through their loan-out company, they can claim COBRA benefits. However, if they work for an agency that classifies them as employee, they will not qualify for COBRA.

Other Problems

Deductions are also withheld differently, drastically affecting creative workers’ income. If the creative worker has multiple clients, they are stuck in a situation where they have to file a W-2 for some clients, and a 1099 for others, making it very difficult to accurately keep track of which expenses can be deducted, and which cannot. This could also trigger an IRS audit. Even without the audit, this leads to increased accounting costs, as the owner will need a good accountant to keep track of the various nuances.

Uber, Amazon, and the Studios

The state of California has been very vocal about employee rights. In its fight with Uber, California has shown an interest in classifying Uber drivers as employees instead of independent contractors. If Uber is ultimately required to classify its drivers as employees, Uber will be subject to health care, pension, workers compensation, and unemployment insurance obligations.

Here we see a situation where drivers can set their own hours and use their own car, but in order to classify as an independent contractor, they must pass the ABC test in Assembly Bill 5 (a simplified version of the 20 part IRS test qualifying a worker as an independent contractor or an employee): A) the worker is free from the control and direction of the company in connection with performing the work, both in reality and under the terms of the contract; B) the worker performs work that is outside the usual course of the company’s business; and C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work being performed for the company.

It is likely that in California, the studios, as well as such companies as Amazon, or Disney may be scrutinized by tax authorities to evaluate where their workers are employees, or independent contractors.

Conclusion

So what’s our advice if you are a creative worker? We believe that if you have multiple clients in a single year, it is best to insist that a client pay you through your loan-out company unless the client makes clear that they will not hire you unless you become their employee. If they do insist that you become their employee, do your best to document that they insisted it, so you can defend yourself if the IRS or state tax officials raise any questions. Ultimately, it is you being caught in the middle, and it is an instance in which you really should push the problem to the people responsible.

Epic Games vs. Apple: A Battle for Control of a New Space

By: Robert Auritt and Ilana Faibish

It would be an error to view Apple’s current fight with Epic Games as a mere dust-up about commission rates or antitrust issues, though it is also surely both of those things. This is a fight about who will be able to control, and of course profit from, new virtual spaces where an increasing amount of online activity is taking place as we move deeper into the 21st century. In addition to offering gaming activity of various kinds (simulating war, upgrading your house, and building stuff, for example) game titles like Fortnite, Animal Crossing, and Minecraft are increasingly using their virtual shared geographies as places for users to meet, socialize, watch movies, attend concerts, attend professional conferences and of course, make additional “in-world” purchases.

One of the great promises of the early days of the open internet was that anyone could publish anything, anyone could build a website and have a voice. With the advent of the iPhone and the “appification” of the internet, Apple (and Google) became the main gatekeepers of online content, building the virtual highway through which most of the mobile internet flows, and charging a hefty toll to those who seek to profit from their app store infrastructure. Now, companies like Epic Games and Mojang Studios are building entirely new worlds that can be accessed through their mobile apps (among other access points). From a certain point of view, these worlds can be seen as another layer of the internet in that all the various kinds of commercial activities that take place in the real world, or online, can take place in these collective virtual spaces. The builders of these worlds increasingly want to be able to profit from the commercial activity taking place in them without paying the toll to Apple.

On August 13, 2020, in what clearly seems to have been a premeditated maneuver, while updating its hit game Fortnite, Epic Games attempted to circumvent Apple’s 30% commission rule for in-app payments. Within hours, as Epic surely knew would happen, Apple removed Fortnite from the App Store for violating the guidelines provided in Apple’s “Developer Program License Agreement” (“PLA”). Almost immediately Epic filed a federal lawsuit against Apple, accusing the company of violating antitrust laws by forcing developers to implement Apple’s payment systems. In the complaint, Epic described Apple’s removal of Fortnite as yet another example of Apple flexing its monopoly power over the market for in-app payments on Apple devices. At almost the exact same time, Epic released Nineteen Eighty-Fortnite, a commercial that savagely mocks Apple by spoofing the very same imagery used by Apple in its groundbreaking 1984 commercial for the Macintosh.

In retaliation, Apple threatened to revoke Epic’s access to developer tools and iOS support for the Unreal Engine, a game engine developed by Epic Games that provides a suite of creation tools for game development and other real-time applications. Epic describes Apple’s retaliation as overreaching and unnecessarily punitive, and Judge Yvonne Gonzalez Rogers of the United States District Court of the Northern District of California agreed. Judge Rogers stated that the ban on Unreal Engine “looks retaliatory,” but let the App Store ban on Fortnite stand. While it makes sense for Apple to impose a reasonable commission for purchases made for and within applications in the App Store, the breadth of Apple’s attempted retaliation certainly raises some serious antitrust concerns. In a world where most developers and consumers are reliant on the App Store, developers feel they are being strong-armed into forfeiting a seemingly excessive and non-negotiable 30% commission to Apple, and are often left with no choice other than to inflate game prices and in-app fees to offset the difference

Apple urged the court to deny Epic’s motion, arguing that when developers find ways to avoid its digital checkout, as Epic did, “it is the same as if a customer leaves an Apple retail store without paying for a shoplifted product: Apple does not get paid.” Tim Cook, the chief executive of Apple, argues that Apple is actually doing developers a favor. Cook suggested to Congress last month that when software was still sold in brick-and-mortar stores, 50% to 70% of the retail price went to intermediaries. For perspective, PayPal, Square, and other electronic payment companies manage to charge merchants a more modest 3% fee, as do credit card companies like MasterCard and Visa. When tech giants such as Apple and Google, which are together worth more than $3 trillion, also make the software that backs virtually all of the world’s smartphones, and those smartphones provide businesses access to reach millions of people, those businesses are left to ask: “does Apple really need one-third of my sales?” The question is, is Apple abusing its dominance?

Epic is not alone in this battle, and nor is the fight limited to control of new virtual spaces. Recently, Facebook planned to launch a new tool in its app that lets online influencers and other businesses host paid online events as a way to recoup revenue lost during COVID-19. In an effort to maximize proceeds for small businesses, Facebook asked Apple to reduce the 30% fee that would normally be owed from in-app purchases. Apple declined. Facebook then attempted to add a disclaimer at the point of sale in an effort to inform consumers that 30% of proceeds would not actually benefit small businesses but would rather be diverted to Apple. Apple removed the disclaimer.

In another instance, WordPress let it be known that Apple had cut off its developers from making updates to the WordPress iOS app unless WordPress enabled users to buy domain names within the app. This required WordPress to integrate Apple’s payment systems for purchases, and enabled Apple to take its 30% cut for all domain names sold in-app. WordPress agreed to the change.

Similarly, Spotify complained to the EU last year that it was anticompetitive of Apple to impose the 30% fee on Spotify since Apple’s own competing Apple Music service is of course not forced to reduce its profits by 30% just to gain access to the app store.

Indeed, the Epic Games suit is not even the only antitrust action currently pending against Apple. In 2019, the Supreme Court allowed another antitrust lawsuit against Apple to proceed. That case concerns a group of iPhone users who accused Apple of driving up the price of apps by charging third-party app developers a 30% commission. However, the case is likely to end in a settlement before the district court has an opportunity to rule on whether Apple violated antitrust laws.

As for this preliminary battle between Epic and Apple for control of increasingly vital virtual spaces, we will have to wait and see. Judge Rogers seemed uncertain as to which party would prevail on the merits, noting that “this is not something that is a slam dunk for Apple or for Epic Games.” Whoever wins is likely to come out well-positioned for the future as digital life increasingly migrates into virtual worlds.

Sync Negotiations: How Much Should You Ask for Your Music?

By: Steven Masur

Synchronization rights negotiations become relevant whenever someone wishes to use your or your client’s music in combination with visuals and moving images such as in movies, television shows, video games, or YouTube videos. Many lawyers write articles about the legal issues that you are likely to encounter in a typical sync negotiation. But the truth is, there’s no such thing as “typical” when it comes to your music. What is crucial to know are the practical considerations that will drive your discussion of the scope, length, and pricing for potential licensed uses.

In doing so, get as much information as you can about the planned uses. Some of the questions you may want to ask include:

Is this for film, TV, streaming VOD, or some other use?
What’s the revenue model, subscription, ad-driven content, or something else?
Is it a music-driven script?
What other music are they thinking of using adjacent to yours?
What’s the distribution strategy? Is there an international distribution plan?
Theatrical release, indie arthouse?
If they can’t tell you their music budget, what’s the budget for the entire production?
If it’s for advertising, what’s the brand?
What’s the scale and length of the campaign?
Will there be influencers pushing it? Who do they have in mind?

It is important to keep asking questions about the scale of the opportunity, and how the music will be used. As that picture becomes more and more clear, you will be able to ascertain how real the opportunity is and come to a comfortable idea of the appropriate fee for your work.

Typically, the interested party will be paying a one-time flat fee for use of the song in their project. In most cases, this sync license fee can range from a few hundred dollars for a small artist in a small project to a few hundred thousand dollars for a major artist whose song is being used in a large budget production. Still, there are other payment arrangements available that may include royalty interests or some other calculation of fees.

After internalizing the intended use as well as the typical payment that similar works garner in similar projects, you should have a solid idea of how much you should be asking for your music. You ought to be skeptical of “test” deals, where entities attempt to get limited usage rights for a test to see how your music reacts against a market, or “just for social media.” As soon as your music is being exposed to actual customers for their product, it is no longer a test – it is then a use. Also, it’s unlikely they will be coming back for more.

You should also pay close attention to what the stated scope and scale of the usage of the music is and explicitly have outlined in the agreement that authorized usage by the license. Often, though the main purpose of the licensing is for use in a production like a motion picture, the licensee will plan to use the work in advertising or social media posts as noted above.

It is important to remember that having your music in circulation in any context is great promotion for future uses, or for the rest of your songs, and could even get your act touring. Still, it is easy to fall victim to receiving payment for your sync license that is well below the value of your work given the scope and scale of its use. Exposure and passive income are great but receiving an undervalued fee for your music can sometimes outweigh those benefits.

Smart Creatives Use Loan-Out Companies

By: Steve Masur and Danika Johnson

Artists, performers, celebrities, and freelancers in the know use loan-out companies. A loan-out company is a personal LLC or corporation formed to do business on your behalf. Instead of signing agreements yourself and risking getting sued personally, the loan-out company signs, and “loans out” your services.

Advantages

As the saying goes, if you want your life to be a certain way, live as if it were. Just like an animal developing plumage to make itself look more intimidating, a loan-out company can make you look more professional, better organized, and more important. It is a subtle indication that you have a lot going on, that you are probably well represented by lawyers and accountants, and that you want real money for your services. In other words, that you’re one of the real players of what you do, and that you probably won’t accept being low-balled on your fees. Also, for many well-paying gigs, the hiring companies require that you have your own company for their own liability protection, and so they can pay you as an independent contractor instead of as an employee. So for certain opportunities, you need the loan-out company to even be considered for the role.

A loan-out company also makes it contractually easier for you to delegate work to third parties. You can engage agents, managers, lawyers, accountants, roadies, and social media managers to get more done more quickly in order to build your creative business faster. Engaging these people allows you to focus on your core product; you and your creative output. A loan-out company allows you to take advantage of itemized tax deductions, protects your personal assets against third-party lawsuits as well as lawsuits brought against you by your own employees or agents. Finally, having a loan-out company allows you or your agents to sue others who owe you money without fear that you might be sued back, or brought in personally through counterclaims. A loan-out company can pay you a regular salary exempt from self-employment tax, which allows you to pay a regular rent or mortgage and your living expenses, and write your business expenses off against your total income, while the rest of your money is wisely invested.

How it Works

Since the loan-out company enters into any contracts for income or services on your behalf, the loan-out company receives payment and/or gives payment to those that are due. If an issue arises with any third party, the loan-out company’s assets are on the line, but your personal assets are protected from liability. Still, it is important to look out for inducement agreements. These provisions, strategically placed in contracts for your services, state that if anything happens to the loan-out company, you must still provide the services agreed in the contract. But if you have enough leverage under the circumstances, you can negotiate around these provisions.

Disadvantages

All good things come with responsibilities. There are costs required, sometimes substantial, in order to set up a well-organized loan-out company, and annual costs thereafter to keep it in good standing with the state of incorporation. You also have to file tax returns for it every year, so you might find yourself getting an accountant to do it for you. As a result, it makes sense to wait until your career is generating good money before setting up a loan-out company. Also, after you have delegated as many of the ancillary roles for your career as you can afford, it is important for you to demand good reporting, and to maintain oversight and ultimate control over what the loan-out company does. It is literally your career on the line, and almost everyone has heard the stories of artists who lost control of the money, and their career. But if you maintain good oversight of your agents and employees, and you are not afraid to let go of dishonest, controlling, or unreliable people, this will not happen to you.

Other Things to Keep in Mind

Recently, the New York District Court decided that loan-out companies are not authors of an artists’ work and therefore cannot exercise termination rights in accordance with Section 203 of the U.S. Copyright Act. Under Section 203, only the actual artist may terminate the rights that the artist themselves granted. Therefore, a loan-out company must take caution when determining which legal entity, whether the artist or the loan-out company, will be signing agreements granting rights to third parties.

You should also consider purchasing worker’s compensation insurance and medical coverage. If something happens to you, the loan-out corporation needs to be able to cover the costs, not only of your injuries but also the costs related to unwinding any gigs to which the loan-out company contractually committed. The loan-out company must also play by the rules of any other company and pay quarterly payroll taxes, and other costs related to any employees. As a result, if you form one, you should seek assistance from a good tax advisor. The more successful you are, the more likely you will be audited. If the IRS believes that the loan-out company is a sham set up solely to avoid taxes, it may attempt to reallocate income between owners and those controlling the corporation, charge the higher personal tax rate, and hit you with fees and penalties related to years of nonpayment. Luckily, you can engage a PEO (professional employer organization) like TriNet, ADP, or Paychex to manage all of this for you.

With proper preparation and continued diligence, a loan-out company can provide you with liability protection, peace of mind, and substantial tax write-offs, as well as credibility that will strike directly to your bottom line. If you are interested in setting one up, let us know, and we’ll help you get it done!

CES Digital Hollywood 2020

By: Steve Masur

Join us on January 6th at the Aria Resort & Casino (9:00 AM PST) for Digital Hollywood CES 2020 to discuss the Top Technology and Entertainment Companies in AR/VR/XR.

9-10 AM January 6

Aria Resort and Casino, Level 3, Juniper 4

About the Panel:

The AR/VR/XR industries might be understood as V/X on all Platforms: Social Media – Smartphone – Computing, TV/Movies, and Live Experiences. From visual communications, advertising, news, retail data and vertical specialties to cinematic experiences, this is the world that surrounds us.

Kristina Serafim, Director, Verizon Ventures
Marcie Jastrow, SVP of Immersive Media, Technicolor Experience Center
Sarah Vick, Head of Business Development, Intel Studios
Neil Parris, AR / VR, Entertainment Partnerships Lead, Google
Steven Masur, Moderator

About the Speakers:

Steven Masur has over 24 years of experience advising emerging and established businesses on new opportunities and business challenges. He focuses his practice on corporate finance, M&A, intellectual property, entertainment, emerging businesses, and strategic guidance. Steve has extensive experience in angel and venture capital finance, mergers and acquisitions, joint ventures and cross-border transactions in Europe and Asia. He is passionate about helping new businesses plan a path to success, and helping older businesses bridge the gap to new markets. Steve brings a unique mix of legal, business, and strategic experience to bear on client matters. He has counseled enterprise level clients including Shazam, Virgin Mobile, Liberty Media, Yamaha, Nielsen Buzzmetrics, Bob Vila and Conde Nast Publications in corporate, digital media, and new business matters. He has also helped emerging businesses in a wide variety of sectors, and is especially knowledgeable in media, entertainment, cannabis, blockchain advertising, consumer products, technology, including mobile, games, digital music, social media, augmented and virtual reality, software and hardware. Steve has been recognized as a “Rising Star” and a “Super Lawyer” by Super Lawyers. He serves on a variety of corporate and nonprofit boards and industry associations, and lectures and writes about major issues in venture capital, emerging businesses, entertainment law, technology, and corporate strategy.
Kristina Serafim joined Verizon Ventures from Verizon’s Big Data and Artificial Intelligence product team. Prior to Verizon, Kristina was a Director at Intellectual Ventures, where she led investments in machine learning, media, advertising, and gaming technologies. Kristina’s entrepreneurial experience includes co-founding and leading two software companies, from their inception to acquisition. Kristina also spent several years on the strategy and corporate development teams at IBM and at NAGRA Innovations. She received an electrical and mechanical engineering degree from Kettering University and an MBA from Harvard University. Verizon Ventures invests in key areas leading the future of connectivity, with one focus being on immersive entertainment, as demonstrated by its recent investment in holographic display startup Light Field Labs and consumer VR platform The VOID and hologram platform 8i. Kristina can elaborate on the immersive experiences available to consumers today, the importance of seeing AR/VR/MR technologies as an additional advancement of human vision and even how it will integrate into the enterprise.

Marcie Jastrow is an industry veteran with over 20 years in the Entertainment business. Currently the SVP of Immersive Media at Technicolor, as well as the Head of the Technicolor Experience Center (TEC), Marcie is dedicated to bringing artists, technologists, and partners together to build the future of immersive media. Since the opening of the TEC in July, 2016, Marcie has consulted on many immersive projects and has provided her insights in dozens of interviews, published articles, and speaking engagements. Focused on igniting VR, AR, and beyond, Marcie sits on several boards including the Interactive Emmys, Periscope, and BAFTA. In 2018, she was honored with the Advanced Imaging Society’s ‘Distinguished Leadership Award’, which recognizes creative, productive and forward-thinking efforts in visual technology and emerging content. Prior to her current role, Marcie was responsible for growing technology and emerging content. Prior to her current role, Marcie was responsible for growing Technicolor’s post-production sales pipeline as SVP of Sales. Before joining Technicolor, she served as EVP of Sales at Laser Pacific, which Technicolor acquired in 2011, as well as SVP of Sales at Modern Video Film for over eight years.
Sarah Vick, the Head of Business for Intel Studios, is passionate about evolving the media industry to revolutionize the way we tell stories. Her professional expertise in digital transformation, innovation, and new technology strategy enables her to lead partnership development, portfolio management, and content strategy for the leading immersive media studio. With every production, Vick and her team explore how breaking the fourth wall through volumetric capture and immersive experiences can help us create new and more impactful media experiences. Vick holds a BS in Physics from Stanford University and an MBA from the Sloan School of Management at MIT. She was also a Fulbright Scholar and a Siebel Scholar.
Neil Parris leads Google’s AR / VR content efforts across the entertainment vertical, partnering with world-class IP owners and talent to develop and distribute innovative content experiences across Google’s platforms. Before joining the Daydream team, Parris led entertainment partnerships for Google’s Consumer Apps Marketing group and oversaw major content/marketing partnerships with Disney, Warner Bros., Netflix, Fox, ABC, and others. Prior to Google, Parris worked at EQAL, an early pioneer in the YouTube/social/influencer space (later acquired by Everyday Health), Edelman (in their branded entertainment division) and 8+ years in the film business as a creative executive. Parris is a member of the TV Academy and serves on the Digital Strategy Committee. Parris holds a bachelor’s degree from University of Pennsylvania and an MFA in Film / TV Producing from the University of Southern California’s School of Cinematic Arts’ Peter Stark Program.
Michael Ludden is a technologist, futurist, evangelist and product leader who loves to operate on the bleeding edge of what’s possible and is a frequent keynote speaker at events around the world. Currently Principal Augmented Reality Evangelist at Bose, Michael was previously Director of Product at IBM’s Watson Developer Labs & AR/VR Labs, Product/Developer Marketing Manager Lead at Google, Head of Product/Developer Marketing at Samsung and Product/Developer Evangelist at HTC, among other career stops. He has also been involved at various times in development, co-founding startups, tech show hosting, and even cruise-ship singing (don’t ask). As passionate about solving complex real-world problems as he is about Immersive Technologies (AR/VR) and Machine Learning (AI), Michael is also fascinated by all things futurist, and has been continuously involved in the creation of some of the most innovative new products and use cases that exist on the bleeding edge of emerging technology today. Michael has a degree from the University of California at Los Angeles (U.C.L.A.) and is excited to share some exciting insights into the future of our increasingly augmented world.

Please Join Us at the Montauk Music Festival

By: Steve Masur

Steve Masur spoke at the Montauk Music Festival on May 17th, 2019.

The Montauk Music Festival (MMF) is a volunteer-run, grassroots live music event designed to celebrate, support, and promote the thriving Montauk music scene while showcasing and stimulating the burgeoning artistic, commercial and pedestrian activity in Montauk. The festival would not be possible without the generous support by businesses and individuals, who, like the festival organizers, are dedicated to nurturing this vital component of the area’s culture. MMF is a Montauk Sun Production.

MMF is a four-day musical celebration featuring talented up-and-coming independent artists, set against the backdrop of one of the most idyllic beach communities on the east coast – Montauk, NY. Except for the Opening Party on Thursday night at the Westlake Fish House, it is a FREE event. Over 400 artists boasting a wide variety of musical styles (from alternative, rock, folk, pop, Americana, reggae, blues, jazz, bluegrass, to flamenco, hip-hop, country, and more), will be performing for free in the spirit of sharing original music -through showcases -with audiences and fellow musicians.

For more information and tickets for the festival, please use this link.

3LD at Sundance Film Festival 2019

By: Steve Masur

3LD Art & Technology Center artists Victor Morales, Matt Romein and Peter Burr have been selected to showcase their work at Sundance Film Festival as part of the New Frontiers initiative. This curated collection of cutting-edge independent and experimental media works are by creators who are pushing artistic innovation across new mediums that include virtual and augmented reality (VR & AR). Partner, Steve Masur joined our clients at the events in Park City, Utah this year. You can view the full schedule of events at Sundance Film Festival here.

Congratulations to 3LD, Victor Morales, Matt Romein and Peter Burr!

The Music Modernization Act: Bringing Copyright Law into the Twenty-First Century

By: Steve Masur and Kristen Kennedy

On September 25, Congress unanimously passed H.R. 1551, the Orrin G. Hatch Music Modernization Act. Called “the biggest update to music legislation in the past 40 years,” the bill significantly amends the Copyright Act in several ways:

The Music Licensing Modernization Act creates a blanket license and a collective database for the administration of mechanical licensing of recordings.
The Classics Protection and Access Act guarantees that artists are compensated for the use of recordings made prior to 1972.
The Allocation for Music Producers Act improves royalty payouts for producers and engineers when their recordings are used on satellite and online radio.

President of the Recording Industry Association of America (RIAA) Mitch Glazier called H.R. 1551 “a bill that moves us toward a modern music licensing landscape better founded on fair market rates and fair pay for all.” In fact, virtually every sector of the music industry has celebrated the news of the Act’s passing and the critical updates to copyright law that it puts into place. This legislation more closely aligns music copyright law with the current industry, dominated as it is by streaming and satellite radio services, and ensures a fairer and more just licensing system that should benefit all parties.

Title I – Music Licensing Modernization

Section 102 of the Music Modernization Act radically modifies Section 115 of the Copyright Act by establishing a blanket license for digital use and prescribing the creation of a mechanical licensing database. A blanket license allows entities like radio stations, streaming services, and television networks to perform any works in the repertory of a performing rights society, such as ASCAP or BMI, during the term of the license for a negotiated or court set fee. Without blanket licensing, streaming services like Netflix and Hulu would find it difficult to operate, as this system provides easy access to a large body of sound recordings and removes the risk of inadvertent copyright infringement. By comparison, the system of mechanical licensing grants users the right to reproduce compositions in both physical and digital mediums, including compact disks, cassette tapes, downloads, and streaming services. The mechanical licensing system previously in place was particularly cumbersome for streaming services and helped to create a host of problems, including huge amounts of unpaid royalties for mechanical rights holders and massive lawsuits.

Previously, the lack of a centralized database caused problems for both songwriters and streaming services, and lead to many lawsuits against Spotify and other services. The introduction of a blanket license and a licensing collective should streamline the process by which digital streaming services pay mechanical royalties to songwriters. With this update, rightsholders gain access to a transparent, publisher-maintained database, which should guarantee that songwriters will always receive compensation for mechanical licenses when their compositions are streamed on digital and satellite services.

Section 102 also reforms the Copyright Act by ending the time- and paper-intensive Notice of Intent (NOI) process, which required artists to send physical letters of intent to all publishers, and implementing electronic licensing instead.

Title II – Classics Protection and Access

Songs recorded before 1972 were not retroactively covered when Congress created copyrights for sound recordings. Title II of the Act closes this loophole, establishing federal copyright protection for artists who recorded music prior to 1972. Digital services will now be required to give copyright owners notice of their use of any pre-1972 recordings and pay royalties for that use; if they fail to do so, they will be treated as copyright infringers. The Act also clarifies the expiration period for pre-1972 sound recordings, creating a clear timetable for their entrance into the public domain.

Title III – Allocation for Music Producers

Producers and engineers were previously not covered by copyright law, and could only earn royalties via Letters of Direction from artists who wished to share them; furthermore, copyright law failed to take royalties from satellite and online radio into account at all. The lack of an enforcement mechanism in place to force third parties to comply with Letters of Direction constrained producers’ and engineers’ ability to earn royalties. Title III changes that, putting in place a mandate that services such as Spotify and Apple Music must pay royalties to these groups and streamline their licensing processes. Producers and engineers will now be able to submit Letters of Direction to a designated non-profit collective, which will oversee the collection and distribution of royalties earned from compositions played over satellite and online radio. By expanding the scope of copyright law from traditional AM/FM radio to encompass these new forms of radio, the Act significantly modernizes the legal landscape.

Together, these provisions provide a critical update to the previous patchwork system of licensing, which was difficult to apply to the modern-day digital streaming business model. By establishing a centralized system of mechanical licensing, this legislation ensures that copyright owners will receive fair payment for the use of their works, and reduces the risk of litigation that streaming services and broadcasting companies currently face. The Act also provides much-needed protection for legacy artists, producers, and engineers. It’s an ambitious piece of legislation, and its unanimous passage speaks to the fact that the antiquated system previously in place was not effectively serving anyone. Virtually all players in the music industry stand to benefit from this dramatic modernizing of copyright law, and by creating a more transparent and just system of copyright enforcement, Congress and the recording industry have both achieved a remarkable victory. Ensuring that it is not pyrrhic will be about how its many parts move from paper to implementation.

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We would like to thank our intern Kristen Kennedy for her contribution to this article.

Influencers and Best Practices for Transparent Online Marketing

By: Jon Avidor

Social media platforms are some of advertisers’ most effective mediums for promoting their products and brands to audiences across the globe. We Are Social and Hootsuite reported as of January 2018 that, of the 7.593 billion people on this Earth, 4.021 billion are Internet users and 3.196 billion are social media users. Facebook’s 2.167 billion active users, YouTube’s 1.500 billion active users, Instagram’s 800 million active users, and Twitter’s 300 million active users, coupled with each of those network’s extensive analytics suites and cost-effective and easy-to-use content promotion tools, creates ripe market conditions for advertiser’s to leverage the instantly-accessible and dynamic nature of social media to get their content in front of the eyeballs of brand loyalists and engage potential purchasers who have been demographically honed with the help of the platform. Another facet is paid promotion by celebrities and social media influencers, which involves brands leveraging the goodwill of public or semi-public figures and their target-rich followings, as well as by micro-influencers who have smaller followings but focus on a specific marketing vertical that would allow brands to tap into an even more engaged audience. Anyone can be a social media influencer with enough reach. To this, journalist Emily Nussbaum says, “In essence, every young person in America has become, in the literal sense, a public figure. And so they have adopted skills that celebrities learn in order not to go crazy: enjoying the attention instead of fighting it—and doing their own publicity before somebody does it for them.” Everyone knows that brands pay for television commercials or full-page magazine ads but, if done seamlessly, it’s often less clear to consumers whether products or services promoted on social media have been featured by a public figure because of their genuine affinity for the product or because it was a paid endorsement, which creates a novel problem from a consumer protection standpoint where truth in advertising is not as obvious.

To prevent consumer-confusion between sponsored content and an influencer’s legitimate and independent endorsement of a product or brand, the Federal Trade Commission (FTC), the government regulatory agency primarily concerned with prohibiting “unfair or deceptive acts or practices in or affecting commerce,” published guidelines for how brands and social media users should disclose sponsored content on social media. The FTC’s Policy Statement on Deception states that “a representation, omission, or practice is deceptive if it is likely to mislead consumers acting reasonably under the circumstances and is material to consumers – that is, it would likely affect the consumer’s conduct or decisions with regard to a product or service.” The main requirement for all advertising, whether native or online, is that the ad meets the FTC Act’s “clear and conspicuous” requirement, which directs advertisers to disclose truthful and necessary information about their products or brands to consumers in such a way that consumers can “actually perceive and understand the disclosure within the context of the entire ad.”

FTC Best Practices For Disclosure on Popular Social Media Platforms

YouTube
Do – Include a video overlay at the beginning of the video with disclosure of sponsored content – Verbal disclosure is also recommended – Include sponsorship information above “show more button	Don’t – Be unclear in disclosure. For example, a simple “thank you” to the sponsoring brand is not enough to let viewers know that the content is sponsored or that the onscreen talent has been compensated either financially or via product – Only use paid promotional tools
Instagram
Do – Place the disclosure at the beginning of the description and before the “more” button – Use hashtags #paid, #sponsored or #ad to disclose the partnership – Use phrase “sponsored by” and tag the sponsoring brand in the description – Include disclosures on Instagram Stories as well as photos	Don’t – Only use ambiguous hashtags like #collab #ambasador #thanks[brand] – Include disclosure in a comment instead of in the post description – Use paid partnership tag only
Facebook
Do – Use hashtags #paid, #sponsored or #ad to disclose the partnership – Use phrase “sponsored by” and tag the sponsoring brand in the description – If sponsored content is a video, include an overlay at the beginning that clearly discloses the sponsorship in addition to a verbal mention – Include proper disclosure when using the built-in branded content	Don’t – Only use ambiguous hashtags like #collab #ambasador #thanks[brand] – Only rely on built-in sponsorship indicator tools
Twitter
Do – Include #ad or #paid hashtags – Tag sponsoring brand when applicable	Don’t – Place disclosure at the end of a sponsored tweet

A comprehensive list which includes other platforms and mediums such as blogging can be found here.

There is one big problem with these guidelines: endorsers are not following them. One source estimates that 32 of the top 50 celebrities followed on Instagram featured a sponsored post over a four-week period in May 2017, and of those posts, 93% did not meet the FTC guidelines. In April 2017, the FTC issued a warning letter to 90 celebrities, brands, and other online influencers for failing to properly disclose endorsements on their Instagram posts. In these instances, many of the violations centered on improper citing, such as not including tags in photos, lack of disclosures, and misplacement of hashtags denoting that the post is either paid for or an ad. The FTC is prepared to bring even individual representatives to court, which indicates that ignorance of their guidelines will no longer be a viable excuse. Instead, celebrities and influencers are widely cautioned to comport with their guidelines before posting any sponsored content. The FTC has teeth and has shown it’s prepared to enforce its guidelines on brands and influencers:

In 2015, the FTC settled a case with Machinima in connection with Xbox One videos in which the company paid two YouTubers $15,000 and $30,000 for producing videos that generated 250,000 and 730,000 views, respectively, and paid a larger group of influencers $1 for every thousand video views, for up to a total of $25,000, in all instances not requiring disclosure of the paid endorsement.
In 2016, the FTC settled a case with Lord & Taylor for failing to disclose that it paid for native advertising and provided 50 online fashion influencers with a dress from its Design Lab collection worth thousands of dollars in exchange for posting Instgaram pictures of themselves wearing the dress.

At what point in a highly publicized marketing campaign do the FTC’s requried disclosures become redundant or unnecessary because the press attention or marketing clearly and conspicuously acknowledge a brand-celebrity collaboration? For example, in mid-August, it was reported that Serena Williams struck a deal with designer Virgil Abloh of Louis Vuitton and Off-White to collaborate on a Williams-inspired collection for Nike, which was highly publicized in the press. While Serena did tag @Nike, @nikewomen, @Nikecourt, and @virgilabloh in a Twitter post promoting the collaboration, she did not hashtag #ad or #paid. I would argue that Serena’s tweet was not deceptive or misleading to consumers given the extensive publicity surrounding the collaboration and her tagging the brand and collaborators, even if she failed to provide the proper hashtags indicating what was likely sponsored content.

Undoubtedly, celebrities have assistants or publicists who manage their online presence so their non-compliance isn’t out of laziness. Online influencers and micro-influencers may or may not have similar resources but social media marketing is their business so it’s unlikely they are ignorant to these advertising rules. So what’s causing the non-compliance? Perhaps these public figures fear that by constantly hashtagging #ad or #paid or otherwise alluding to sponsored content will give their followers the “clear and conspicuous” that their opinions, and they themselves, are bought and sold. Would their fans rather their timelines and feeds appear genuine or spammy, regardless of the origin of the content? That said, until the FTC reevaluates its requirements in light of brand development considerations, it’s clear that the FTC is intent on enforcing its guidelines in order to promote truth and transparency in consumer advertising.