By Mark Hiraide, who is a partner at Mitchell Silberberg & Knupp LLP. He defends directors and officers in securities litigation and counsels companies in corporate financing transactions.
The final tremor of a monumental shift in federal securities laws took place in May 2016, and when the shaking stopped, entrepreneurs had gained unprecedented access to capital. For the first time in the history of federal securities regulation in the United States, emerging businesses may raise capital from the general public without registering a securities offering with the Securities and Exchange Commission. This expansion of the funding universe is the heart and soul of the Jumpstart Our Business Startups (JOBS) Act of 2012. The JOBS Act removed restrictions making it easier for entrepreneurial clients to fund their ventures using OPM (other people’s money).
The JOBS Act legalized equity crowdfunding, fostered private peer-to-peer lending, created a new regime for regulating “mini-IPOs,” and paved the way for the SEC to create new sources of liquidity for early-stage investors through secondary “venture markets.” The law already has spawned new and innovative financial intermediaries dispensing capital to startup and growing businesses. It has been heralded as “democratizing” access to capital by “disintermediating” Wall Street from the process of selling securities. Many hail the JOBS Act, in particular its provisions for equity crowdfunding, as allowing everyday people to invest in an asset class previously reserved for venture capitalists—crowds of small investors now may directly fund startup businesses that pique their interest. Yet others are skeptical. There is concern that the new regime for raising capital from unsophisticated investors lacks sufficient investor protections.
Prior to the JOBS Act, companies could not publicly solicit any investor unless they registered and subjected the offering to scrutiny by the SEC and/or state securities regulators. The JOBS Act’s elimination of the regulatory burdens on private offerings, and the associated reduction in cost, will make public capital markets attractive to many. No longer will early-stage financing be reserved for those few with the resources to attract and engage Wall Street investment bankers and lawyers. This “uberization” of capital markets will make capital more readily accessible to every budding entrepreneur.
The strict federal securities laws that regulate raising investment capital—well-intentioned in the aftermath of The Stock Market Crash of 1929 and the Great Depression—made the ambition of successfully raising capital for startups unattainable for most people. It relegated entrepreneurs to raising seed capital from friends and family and others with whom the entrepreneur had the requisite relationship.
Title III of the JOBS Act: Regulation CF – Equity Crowdfunding
The term “crowdfunding” generally describes campaigns that accept relatively small amounts of money from large numbers of people. Modern crowdfunding started with campaigns soliciting donations for social causes or new business ventures; in exchange for a donation, individuals typically received a token of appreciation for their donation, a t-shirt, a first opportunity to purchase a product, or a movie-production credit. A stark example of the difference between non-equity and equity crowdfunding is illustrated by the crowdfunding campaign of virtual-reality pioneer Oculus VR. Many of the 9,522 people who contributed to Oculus’s non-equity crowdfunding campaign on Kickstarter may have been surprised to learn that they would not share in Oculus’ gains two years later when Facebook announced in March 2014 that it was acquiring Oculus for $2 billion.
Promulgated under Title III of the JOBS Act is the new Regulation CF, commonly known as the “equity crowdfunding” exemption. Effective last May 26, this regulation enables entrepreneurs to raise up to $1 million during any 12-month period from anyone who wants to invest, subject to certain dollar limits on the amount of the individual investment. There is no requirement that the investor be accredited or sophisticated. If the investor’s net worth or income is below $100,000, he or she is subject to an investment cap of the greater of $2,000 or 5 percent of the lesser of the investor’s annual income or net worth. If both net worth and annual income are at least $100,000, the investment cap is 10 percent of the lesser of the investor’s annual income or net worth, not to exceed an amount sold of $100,000. These caps reflect the aggregate amount an investor may invest in all offerings under Regulation CF in a 12-month period across all issuers.
An offering statement is required, which must include general information about the issuer, officers and directors and significant shareholders, the intended use of proceeds, the company’s ownership and capital structure and financial statements for the two most recently completed fiscal years. If the offering amount is greater than $100,000 but less than $500,000, the financial statements must be reviewed by an independent accountant. If the offering amount is greater than $500,000, the financial statements must be audited, unless the company is conducting its first Regulation CF offering, in which case the financial statements need only be reviewed. For offerings less than $100,000, the financial statements need only be certified by the issuer’s principal officer. The offering statement must be filed with the SEC, but it is not reviewed by the agency. Once the offering statement is filed with the SEC, the offering may immediately commence and the company may accept investor subscriptions. The issuer is required to set forth a minimum or target offering amount, and proceeds must be deposited in a third-party escrow account until the minimum is reached.
A significant limitation under Regulation CF is that all offerings must be conducted through a single Internet portal, which must either be registered with the SEC as a broker-dealer or as a new form of regulated entity, a “financing portal.” There are limits to advertising an offering and, given the potential liabilities, consultation with good legal counsel is a must.
In theory, Regulation CF enables anyone to reach out to capital sources and raise seed levels of money. No doubt, without the benefit of professional financial intermediaries, such as investment bankers, entrepreneurs on their own will face challenges raising capital. What the JOBS Act offers, however, is a pathway for companies to access capital previously available only to the most privileged few. Fasten your seatbelts, it’s going to be a bumpy night.
Orly Ravid February 2nd, 2017
by Jessica Rosner (Media Consultant) and Orly Ravid (Founder, The Film Collaborative and Attorney, Mitchell Silberberg & Knupp LLP)
This month’s blog is co-written by Jessica Rosner, who has been a film booker in the theatrical, nontheatrical and educational markets since the days of 16mm. Recent titles include Jafar Panahi’s THIS IS NOT A FILM and John Boorman’s QUEEN AND COUNTRY.
One area of film revenue that is both increasing exponentially but often neglected by rights holders is the educational streaming market, which basically allows institutions to stream films to students for classes. Old models of showing films during classes or having students watch copies in the library are being largely overtaken by instructors wanting students to watch films wherever they are from a dorm room to a Starbucks. Unfortunately, while tens of thousands of films, both feature and educational, are being legally streamed, there are others that are being illegally streamed and many thousands that rights holders are not making available. In both cases revenue is being lost. Major rights holders represented by the MPAA have been overreaching by attempting to prevent academic use of clips from DVDs. And, they are ineffectual by refusing to directly challenge claims by some academic institutions and organizations, including the American Library Association, that they can stream an entire film without a license.
Films ranging from shorts produced for the educational market to feature films from studios have been used in classes for decades, first largely in 16mm (rented or purchased from rights holders) and then in a variety of video and digital formats. When videos started in the 1970s a special provision of the copyright law known as the “face-to-face” teaching exemption was enacted that allowed any legally produced video (and later DVD) to be shown to students in physical classrooms supervised by an instructor. (U.S.C. § 110 “Limitations on exclusive rights: Exemption of certain performances and displays”). Few instructors now want to use class time to show films and few students want to go to the library to view or check out physical copy of a film so streaming has become the most popular way to use films for classes. There are many platforms and companies which are servicing this growing market, notably Swank, which handles many of the major studios, and a few that handle independent films, such as Kanopy, Alexander Street Press, Films Media Group, and, for documentaries, Docuseek2. While the vast majority of streaming films done legally through licensed platforms or contracts, there is a segment of the academic community including many influential institutions and organizations which have asserted that under “fair use” they can stream entire films without paying right holders. “Fair use”1 is a long established part of American copyright law which allows portions of copyrighted works to be used in a variety of contexts including education, satire and creating new works. (U.S.C. § 107 “Limitations on exclusive rights: Fair use.”)
In 2010, UCLA (Regents of the University of California) was caught streaming thousands of films from studio features to documentaries, they used in classes without any payment or license to rights holders. When sued by Ambrose Video Publishing (an educational video producer) and the Association for Information Media and Equipment (a consortium of educational media companies) for unlawful copying and reformatting DVDs of BBC productions Shakespeare’s plays and putting them online for students (on UCLA’s own system), the case was initially dismissed due to issues involving lack of standing (Ambrose was not the rights holder) and sovereign immunity. UCLA’s claim that streaming an entire film was acceptable under “fair use” was never actually fully litigated. See Ass’n for Info. Media & Equip. v. Regents of the Univ. of California, No. CV 10-9378 CBM MANX, 2011 WL 7447148, at *1 (C.D. Cal. Oct. 3, 2011); Ass’n for Info. Media & Equip. v. Regents of the Univ. of California, No. 2:10-CV-09378-CBM, 2012 WL 7683452, at *11 (C.D. Cal. Nov. 20, 2012). UCLA also had streamed hundreds of major studio films not included in the lawsuit. The court noted in 2012 that “no Court has considered whether steaming videos only to students enrolled in classes constitutes fair use, which reinforces the ambiguity of the law in this area.” Although no precedent was set by this case because it was dismissed, the failure of other rights holders to challenge this has left their films vulnerable to the claim that streaming an entire feature film for a class is “fair use.”
However recent decisions involving publishers rejected the legal claim that putting an entire work online for a class is “fair use.” In both the Google Books and Georgia State cases, Federal courts ruled that only portions from “snippets” to chapters could be posted online for academic use not an entire book.2
On October 27 the Library of Congress issued an update to Digital Millennium Copyright Act which is the key law on copyrights of digital materials. It allowed far broader access by the academic and non-profit community to numerous digital formats for a variety of “fair use” activities over the strong of objections of the MPAA which had not wanted to allow the breaking up encryption even for legitimate “fair use” such as clips. However, the Library of Congress flatly and clearly rejected the request of representatives of the educational community to be allowed to access entire works stating it was “declined due to lack of legal and factual support for exemption. ”
Despite the recent court rulings and the new DMCA rules, various educational institutions and organizations continue to assert that entire films can be streamed without permission or payment to rights holders. One of the more novel claims is that since feature films were made for “entertainment” and they are now being solely used for “education,” thus transforming their use to qualify as “fair use.” The latter claim is without precedent and directly contradicts numerous precedents in copyright cases that creative works are given a higher level of fair use protection than factual works. E.g. Cambridge Univ. Press, supra, 769 F.3d at1268; Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 497, 104 S. Ct. 774, 816, 78 L. Ed. 2d 574 (1984). Moreover, such a claim would then justify scanning and streaming online a swath of modern fiction books used for courses.
It is crucial for distributors and filmmakers to engage the academic community to protect their rights. It is equally important that they make their films available for legal streaming. Many colleges are frustrated because they are trying to pay and legally license the material only to find that, while a title is available on DVD and some digital platforms, they can’t license that same title for use by students in classes via streaming. Most schools would prefer to license a title directly to ensure availability and not force students pay for Netflix, Amazon, and Hulu memberships even if film is available on those services. Some substantial libraries from Sony Pictures Classics, HBO and a variety of small distributors and individual filmmakers have not allowed their films to be available for streaming by universities. Not being able to access Leviathan, Still Alice, 4 Little Girls, etc. via direct streaming is a major problem for educational institutions. While the license for an individual film to one school might only be $100-$200, there thousands of potential institutions for a wide variety of films. Streaming of feature films for educational use is only going to keep growing.
The film community, from distributors to producers, needs to work with the academic community to make sure all films are directly available to students via their school in the highest quality streaming formats, while also ensuring that rights holders are fairly compensated.
1The U.S. Copyright Office has now launched its “fair use” index—a (free) searchable database of U.S. court opinions on copyright fair use dating back to Folsom v. Marsh (1841)…
Here is their description of the database:
Welcome to the U.S. Copyright Office Fair Use Index. This Fair Use Index is a project undertaken by the Office of the Register in support of the 2013 Joint Strategic Plan on Intellectual Property Enforcement of the Office of the Intellectual Property Enforcement Coordinator (IPEC). Fair use is a longstanding and vital aspect of American copyright law. The goal of the Index is to make the principles and application of fair use more accessible and understandable to the public by presenting a searchable database of court opinions, including by category and type of use (e.g., music, internet/digitization, parody).
Here is the link to the Fair Use Home Page.
And here is the actual link to the Searchable Case Database—you can filter it by federal circuits and/or by types of works (literary works, films etc.).
2 See Authors Guild v. Google, Inc., No. 13-4829-CV, 2015 WL 6079426, at *20 (2d Cir. Oct. 16, 2015) (Second Circuit affirming the finding of fair use as to Google’s unauthorized digitizing of copyrighted works, creation of a search functionality and “display of snippets” because the “purpose of the copying is highly transformative, the public display of text is limited, and the revelations do not provide a significant market substitute for the protected aspects of the originals” and that Google is providing digitized copies to libraries that had the books with the understanding that the libraries will follow copyright law.) See also Cambridge Univ. Press v. Patton, 769 F.3d 1232, 1283 (11th Cir. 2014) (three publishers sued Georgia State University for scanning and posting portions of books and journals for students to access via the university’s e-reserves; Eleventh Circuit reversed and remanded, instructing the lower court to apply the fair use factors more holistically and give more weight to the threat of market substitution). The case (still partly on appeal) is important because it maintains that only a portion of a work may be digitized for fair use.
Orly Ravid June 1st, 2016
Posted In: Legal
by Orly Ravid, Founder, The Film Collaborative
Orly Ravid is an entertainment attorney at Mitchell Silberberg & Knupp (MSK) and the founder of The Film Collaborative with 15-years of film industry experience in acquisitions, festival programming, sales, distribution/business affairs, and blogging and advising. She also contributed to the Sundance Artist Services initiative.
Filmmakers usually think selling their film to distributors means that they will handle the whole release including theatrical, home video, and of course now digital/VOD. One category of distribution that is often overlooked, or not fully understood, however, is educational distribution. It can be a critical class of distribution for certain films, both in terms of reaching wider audiences and making additional revenue. For a certain type of film, educational distribution can be the biggest source of distribution revenue.
What is it?
When a film screens in a classroom, for campus instruction, or for any educational purpose in schools (K-university), for organizations (civic, religious, etc.), at museums or science centers or other institutions which are usually non-profits but they can be corporations too.
This is different from streaming a film via Netflix or Amazon or renting or buying a commercial DVD. Any film used for classes / campus instruction / educational purposes is a part of educational distribution and must be licensed legally. Simply exhibiting an entire film off of a consumer DVD or streaming it all from a Netflix or Amazon account to a class or group is not lawful without the licensor’s permission unless it meets certain criteria under the Copyright Act.
Initially, this was done via 16mm films, then various forms of video, and now streaming. These days, it can be selling the DVD (physical copy) to the institution/organization to keep in its library/collection, selling the streaming in perpetuity, renting out the film via DVD or streaming for a one-time screening, or exposing the content to view and at some point (certain number of views) it is deemed purchased (a/k/a the “Patron Acquisition Model”).
What type of films do well on the educational market?
In general, best selling films for educational distribution cover topics most relevant to contemporary campus life or evergreen issues such as: multiculturalism, black history, Hispanic studies, race issues, LGBTQ, World War II, women’s studies, sexual assault, and gun violence; in general films that cover social and political issues (international and national); health and disability (e.g. autism); and cinema and the arts. A great title with strong community appeal and solid perception of need in the academic community will do best (and the academic needs are different from typical consumer/commercial tastes).
At The Film Collaborative, we often notice that the films that do the best in this space sometimes do less well via commercial DVD and VOD. This is true of films with a more historic and academic and less commercial bent. Of course, sometimes films break out and do great across the board. Overall, the more exposure via film festivals, theatrical, and/or social media, the better potential for educational bookings though a film speaking directly to particular issues may also do very well in fulfilling academic needs.
Across the board the companies doing educational distribution get their content from film festivals but also simply direct from the producers. Passion River and Kanopy, for example, note that film festival exhibition, awards, and theatrical help raise awareness of the film so films doing well on that front will generally perform better and faster but that does not mean that films that do not have a good festival run won’t perform well over time. Services such as Kanopy, Alexander Press, and Films Media Group collect libraries and get their films from all rights distributors and those with more of an educational distribution focus as well as direct from producers. These services have created their own platforms allowing librarians etc. to access content directly.
Windowing & Revenue
There are about 4,000 colleges in the US and about 132,000 schools, just to give you a sense of the breadth of outlets but one is also competing with huge libraries of films. Educational distributors such as ro*co films has a database of 30,000 buyers that have acquired at least one film and ro*co reached beyond its 30,000 base for organizations, institutions, and professors that might be aligned with a film. All rights distributors often take these rights and handle them either directly, through certain educational distribution services such as Alexander Press (publisher and distributor of multimedia content to the libraries worldwide), Films Media Group / Info Base (academic streaming service), or Kanopy (a global on-demand streaming video service for educational institutions), or a combination of both. There are also companies that focus on and are particularly known for educational distribution (even if they in some cases also handle other distribution) such as: Bullfrog Films (with focus on environmental), California Newsreel (African American / Social Justice), Frameline Distribution (LGBTQ), New Day Films (a filmmaker collective), Passion River (range of independent film/documentaries and it also handles consumer VOD and some DVD), roc*co films (educational distributor of several Sundance / high profile documentaries), Third World Newsreel (people of color / social justice), Women Make Movies (cinema by and about women and also covers consumer distribution), and Swank (doing educational/non-theatrical distribution for studios and other larger film distributors). Cinema Guild, First Run Features, Kino Lober, Strand, and Zeitgeist are a few all rights distributors who also focus on educational distribution.
Not every film has the same revenue potential from the same classes of distribution (i.e. some films are bound to do better on Cable VOD (documentaries usually do not do great that way). Some films are likely to do more consumer business via sales than rentals. Some do well theatrically and some not. So it is no surprise that distributors’ windowing decisions are based on where the film’s strongest revenue potential per distribution categories. Sometimes an educational distribution window becomes long and sales in that division will determine the film’s course of marketing. But if a film has a theatrical release, distributors have certain time restrictions relative to digital opportunities, so that often determines the windowing strategy, including how soon the film goes to home video.
The film being commercially available will limit the potential for educational distribution, and at the same time, the SVOD services may pay less for those rights if too much time goes by since the premiere. Hence it is critical to properly evaluate a film’s potential for each rights category.
Revenue ranges widely. On the one hand, some films may make just $1,000 a year or just $10,000 total from the services such as Kanopy and Alexander Street. On the other hand, Kanopy notes that a good film with a lot of awareness and relevance would be offered to stream to over 1,500 institutions in the US alone (totaling over 2,500 globally), retailing at $150/year per institution, over a 3-year period, and that film should be triggering about 25% – 50% of the 1,500 institutions. Licensors get 55% of that revenue. On average, a documentary with a smaller profile and more niche would trigger about 5-10% of the institutions over 3 years.
More extreme in the range, ro*co notes that its highest grossing film reached $1,000,000, but on average ro*co aims to sell about 500 educational licenses.
If the film has global appeal then it will do additional business outside the U.S. All rights and educational distributors comment that on average, good revenue is in the 5-figures range and tops out at $100,000 +/- over the life of the film for the most successful titles. The Film Collaborative, for example, can generate lower to mid 5-figures of revenue through universities as well (not including film festival or theatrical distribution). Bullfrog notes that these days $35,000 in royalties to licensors is the higher end, going down to $10,000 and as low as $3,000. For those with volume content, Alexander Street noted that a library of 100-125 titles could earn $750,000 in 3 years with most of the revenue being attributable to 20% of the content in that library. Tugg (non-theatrical (single screenings) & educational distribution) estimates $0-$10,000 on the low end, $10,000 – $75,000 in the mid-range, and $75,000 and above (can reach and exceed $100,000) on the high end. Factors that help get to the higher end include current topicality, mounting public awareness of the film or its subject(s), and speaking to already existing academic questions and interest. Tugg emphasizes the need for windowing noting the need for at least a 6-month window if exclusivity before the digital / home video release. First Run Features (an all-rights distributor that also handles educational distribution both directly and by licensing to services) had similar revenue estimates with low at below $5,000, mid-range being $25,000 – $50,000, and high also above $75,000.
Back to windowing and its impact on revenue—Bullfrog notes it used to not worry so much about Netflix and iTunes because they “didn’t think that conscientious librarians would consider Netflix a substitute for collection building, or that instructors would require their students to buy Netflix subscriptions, but [they] have been proved wrong. Some films are just so popular that they can withstand that kind of competition, but for many others it can kill the educational market pretty much stone dead.” Yet, theatrical release is usually not a problem, rather a benefit because of the publicity and awareness it generates.
Passion River explains that filmmakers should not be blinded by the sex appeal of VOD / digital distribution—those platforms (Amazon, Hulu, iTunes, Netflix) can and will wait for hotter films on their radar. An example Passion River offers is Race to Nowhere which sold to over 6,000 educational institutions by staying out of the consumer market for at least 3 years. This type of success in the educational space requires having the right contacts lists and doing the marketing. But I would say, consider the film, its revenue potential per rights category, the offers on-hand, and then decide accordingly.
Stay tuned for Parts 2 & 3, which will go into the nitty gritty details of educational distribution.
The legal information provided in this publication is general in nature and should not be construed as advice applicable to any particular individual, entity or situation. Except as otherwise noted, the views expressed in this publication are those of the author(s). This alert may be considered a solicitation for certain purposes.
Orly Ravid February 18th, 2016
Tags: Alexander Press, Amazon, Bullfrog Films, California Newsreel, Cinema Guild, classroom films, educational distribution for films, educational market for films, film distribution, film library, Films Media Group, First Run Features, Frameline Distribution, Kanopy, Kino Lorber, Netflix, New Day Films, Orly Ravid, Passion River, ro*co, Strand Releasing, The Film Collaborative, Third World Newsreel, Women Make Movies, Zeitgeist Films
The Face-to-Face Teaching Exemption and Fair Use in Education Distribution: Clearing up some misconceptions
Written by Orly Ravid and Guest co-Author Jessica Rosner, who has been a booker in the educational, nontheatrical and theatrical markets since the days of 16mm. Recent projects include Jafar Panahi’s This Is Not a Film and John Boorman’s Queen and Country.
A recent blog by Orly Ravid covered just a little bit about educational rights and distribution. This blog is intended to develop that in response to a comment about the “Face-to-Face” teaching exception. This exception defines what films can be shown for no license or permission by the producers or rights holders.
The Copyright Act provides for an exception to needing a copyright holder’s permission to exhibit a copyrighted such as a film. That exception, however, is only for “face-to-face teaching” activities of a nonprofit educational institution, in a classroom. That’s why it’s called the “face-to-face” exemption.
I emphasized the key words to clarify that this exception does NOT apply to social club or recreational screenings of films or any exhibition that is not in “classroom” or “similar space devoted to instruction” where there is face-to-face instruction between teacher and student and where the exhibition relates to the educational instruction. Second, not all institutions or places of learning are non-profits. All this to say, the “face-to-face” exemption is not a carte blanche free-for-all to show any copyrighted work in any context as long as there are books around within a mile radius. This is important because educators and distributors are often unclear about what can and cannot be done under this exception to proper permission to distribute or exhibit a film without permission (which often includes a fee).
Below is some key information about the state of educational distribution in 2015 and can be done lawfully without the licensor’s permission (under the Copyright Act):
Viable options for educational distribution that involves either selling physical copies, download, or licensing streaming rights or other rights and type of rights or sales, including price points, terms, limitations, etc.
It’s important to understand that “educational sales & use” is not legal term and that educational institutions have the right to purchase any film that is available from a lawful source and use it in an actual physical class under the “face-to-face” teaching section of copyright law (discussed above). Also okay is for them to keep a copy in the library and circulate as they choose.
However, if as increasingly the case, they wish to make films available via streaming or to exhibit them outside of a class they must purchase those rights. A filmmaker or distributor can charge a higher price to an institution to purchase a DVD if they control all sales but that would be a contract situation and mean the film basically has no sales to individuals. This is done but mostly with non-feature films or ones whose market is intended to be only institutions and libraries.
Streaming rights offer a real opportunity for income for filmmaker provided they are willing to sell rights to institutions in “perpetuity” (meaning, forever). They will make more money and the institution is far more willing to purchase. Many if not most universities now want to have streaming rights on films that are going to be used in classes.
Exhibition of film at universities or educational institutions that is NOT paid for (not licensed or bought from copyright holder) – when is it legitimate (lawful) and when is it not so?
It is legal to show the film in the classroom provided it is legal copy (not duped, bought from pirate site, or taped off television). Any public showings outside the classroom are illegal. Streaming entire feature films is also illegal but streaming clips of films is not.
What is the reason or rationale for the non-lawful use?
If it is a public showing (exhibition) they (and this is usually either a student group or professor, not administration) claim “they are not charging admission” and/or that “it being on a campus” makes it “educational and in extreme cases they claim that it actually IS a class. Illegal streaming is far more insidious and involves everything from claiming streaming a 2-hour film is “fair use,” (which would justify showing it without permission) or, that somehow a dorm room or the local Starbucks is really a classroom. Bottom line: not all use of film can be defended as “fair use.” Exhibiting not just clips but a whole film is usually not lawful unless the “face-to-face” teaching exemption requirements (discussed above) are met.
There is a disconnect for these educational institutions between how they treat literature vs. cinema:
All the parties involved in streaming (legal and illegal) librarians, instructors, tech people, administrators know that if they scanned an entire copyrighted book and posted on campus system for students to access it would be illegal but some of the same people claim it is “fair use” to do with a film. I actually point blank asked one of the leading proponents of this at the annual American Library Association Conference if it was legal to stream CITIZEN KANE without getting permission or license and he said yes it was “fair use” when I followed up and asked if a school could scan and post CATCHER IN THE RYE for a class he replied “that is an interesting question.” It is important to note that “fair use” has never been accepted as a justification for using an entire unaltered work of any significant length and recent cases involving printed material and universities state unequivocally that streaming an entire copyrighted book was illegal.
Remedies to unlawful exhibition of copyrighted works for distributors or licensors:
Independent filmmakers need to make their voices heard. When Ambrose Media a small educational company found out that UCLA was streaming their collection of BBC Shakespeare plays and took UCLA to court supported by many, other educational film companies, academics reacted with fury and threatened to boycott those companies (sadly the case was dismissed on technical grounds involving standing & sovereign immunity and to this day UCLA is steaming films including many independent ones without payment to filmmakers). For decades the educational community were strong supporters of independent films but financial pressures and changing technology have made this less so. (Jessica Rosner’s personal suggestion is that when instructors protest that they should not have to pay to stream a film for a class, they should be told that their class will be filmed and next year that will be streamed so their services will no longer be needed). Orly Ravid gives this a ‘thumbs up’.
Of course remedies in the courts are costly and even policing any of this is burdensome and difficult. Some films have so much educational distribution potential that a distribution plan that at first only makes a more costly copy of the film/work available would prevent any unauthorized use of a less expensive copy or getting a screener for free etc. But not all films have a big enough educational market potential that merits putting everything else on hold. And once the DVD or digital copies are out there, the use of that home entertainment copy in a more public / group audience setting arises. As discussed above, sometimes it’s lawful, and sometimes, it’s not but rationalized anyway. It is NEVER legal to show a film to a public group without rights holder’s permission. Another viable option for certain works, for example documentaries, is to offer an enhanced educational copy that comes with commentary, extra content, or just offer the filmmaker or subject to speak as a companion piece to the exhibition. This is added value that inspires purchase. Some documentary filmmakers succeed this way. It is extremely important to make sure your films are available for streaming at a reasonable price.
Parting thoughts about educational distribution and revenue:
Overall, we believe most schools do want to do the right thing but they are often stymied when they either can’t find the rights or they are not available so get the word out.
Streaming rights should be a good source of income for independent filmmakers but they need to get actively involved in challenging illegal streaming while at the same time making sure that their works are easily available at a reasonable price. It can range from $100 to allow a school to stream a film for a semester to $500 to stream in “perpetuity” (forever) (all schools use password protected systems and no downloading is allowed). TFC rents films for a range of prices but often for $300. You may choose to vary prices by the size of the institution but this can get messy. Be flexible and work with a school on their specific needs and draw up an agreement that protects your rights without being too burdensome.
Orly & Jessica
Orly Ravid August 20th, 2015
This article was originally posted on Indiewire on July 6, 2015.
From life rights to fair use, here’s what you need to know about legal issues before you make your documentary.
Over the course of my career, as both the founder of The Film Collaborative and an attorney in private practice at Early Sullivan, I have noticed a lack of understanding by filmmakers regarding the law and documentary film distribution. I hope to provide some clarity in the following blog post. But keep in mind that this post does not replace legal advice tailored to a specific film, filmmaker and distribution options/deals. Feel free to contact me with specific inquiries (contact info at the end of this post).
1. Life rights
Recently at the Edinburgh Pitch / Film Festival a filmmaker asked me a very interesting question about “life rights.” He asked whether he could prevent a media outlet from covering a story about a person or persons in a way that competed with his forthcoming documentary. He wanted to know if his having life rights to a person’s or persons’ story would make a difference. The short answer is “no;” there really is no legal protection of “life rights.”
A life rights agreement obligates the subject selling his/her life rights to cooperate with the buyer. The subject/seller is committing to helping the buyer obtain information about the subject’s life and releasing the buyer from any claims by the subject against the eventual filmmaker, and ideally also to promoting the project. These agreements, however, cannot stop a third-party from taking an interest in the story facts and covering them.
Factual information is not copyrightable. That is not to say there are no copyright theories to protect a documentary from being overtly copied. But there is no legal way to prevent a third-party from using the same true facts and expressing those facts in another work. So, one might want to keep exposure of the story under wraps, if possible, until the documentary is out, and proceed with making an excellent documentary that demands to be seen and won’t be trumped by news segments or other content.
If this issue is coming up for you and you have a concern about being overtly copied beyond the facts, then you may want to discuss with an attorney. Chances are the other party will not copy too much beyond the non-copyrightable facts for there to be legal recourse. And many jurisdictions are not so copyright-friendly to begin with. This would be especially true for documentaries where the content is non-fiction and akin to journalism.
2. Worldwide rights deals
This issue combines legal and business issues I have encountered as both an executive and an attorney. These days, with platforms such as Netflix providing international opportunities to documentary filmmakers, one should be wary of committing to international sales agents to make the “worldwide” deal. An adept U.S. sales agent or lawyer could procure and handle a great worldwide Netflix or CNN deal. A U.S. agent or lawyer might have a better shot at the worldwide deal, hence it makes sense to exhaust that option before committing to an international sales strategy. This may be of interest because often the U.S. agents’ and lawyers’ commissions and recoupable expenses are sometimes lower than an international sales companies’ (and there is often good reason for that given the breadth of territories and markets to cover on the international front).
In my experience, many American documentaries do not do well overseas and, even when they sell, they sell small. Of course there are exceptions. Point being; evaluate the potential of one big U.S. deal with lower commissions versus using international sales agents, who typically charge more. Have an experienced lawyer or producer help you carve out rights based on these possibilities (if applicable) or perhaps to help you know if and when it is appropriate to bring an international sales agent on board. Being realistic about your film’s potential based on market conditions and appropriate comparisons is critical to effective distribution and the avoidance of mistakes.
3. Educational rights vs. digital distribution
At The Film Collaborative we often notice that the more successful a film is via educational distribution and festival/non-theatrical distribution the less successful it is via traditional television and digital distribution. In short, certain less-commercial content is appealing to film festival programmers, universities, museums and other educational/non-theatrical outlets. There are, of course, exceptions to that rule and some documentaries do well across all rights and categories of distribution. These days, educational distribution involves streaming (in addition to digital master exhibition or DVD sales) but for a higher price-point than retail streaming.
Some education institutions are savvy enough not to use commercial retail copies of your film for a classroom or campus exhibition, but some do, without realizing there is a potential legal issue. If your film could do especially well on the festival circuit and through educational distribution, then you might want to delay your regular home entertainment digital and television distribution. It is also true that many film festivals will not show your film if it’s commercially available via consumer-facing platforms such as iTunes and Netflix. Most all-rights distributors do not handle educational rights either at all or as well as certain specializing educational rights distributors. Therefore, you might want to save those rights for a company specializing in “exploiting” them. The key will then be coordinating rights and windows between distributors in any given territory. Note that splitting rights is generally not an option with the majors but it is with many others and I have personally done as many as seven deals in a single territory.
4. Rights for the future
Protecting your rights for the future while satisfying the licensee (buyer/distributor) for the term of an ongoing deal can be challenging. Most deals of the past didn’t anticipate the digital age, including the Internet and streaming. There have been scores of legal battles over contracts that didn’t explicitly address digital distribution, causing parties to a deal to fight over digital rights (for example squabbling over what is included in “all technologies now known or hereinafter invented,” home video or “videogram” rights). Another even more common battle would be over whether digital rights falls into the video (VHS and then DVD) royalty or TV/broadcast.
The reason for the fight was, of course, the fact that the royalty to licensor (producers/filmmakers) or distribution percentages to distributor differ based on rights category (classification of rights). I think the degree to which one raises this as an issue should be based on the overall potential of the film in the present and the degree to which it may be evergreen or experience an uptick based on cast name recognition or genre. I like to do deals that are not only rights class/category-oriented (e.g. broadcast rights, theatrical rights), but that are broken down by revenue, and anticipate the future. You may not always have leverage to do this but if you do, it’s worth analyzing so that you do not risk having a category of rights or type of distribution that you once took for granted all of a sudden emerges as very significant and the terms are simply not in your favor and now you are locked in for 20 years. Also, you would have other protections for such a long license term if it cannot be avoided.
5. Fair use
A quick note to enlighten filmmakers about the doctrine of Fair Use, which affords one an exception to copyright protection for content used that would otherwise be protected by copyright, but only if certain factors are met. Factors include an analysis of how much of the copyrighted content at issue is used in the work; the nature and purpose of the work (for e.g. is it educational); and the effect of the use of the copyrighted work on the marketplace (e.g. will its use likely effect the potential market for the copyrighted work). This comes into play in documentaries all the time. Documentaries use new footage, photography, movie clips, archival content, etc. Fair Use is a copyright principle that allows certain otherwise copyright protected content to be used for commentary, criticism and educational purposes.
Fair Use is a legal theory and an exception to copyright that one can use a defense. It is not a license. This means that the holder of the copyright may still sue you even if you have a fair use letter from the attorney who helped you to obtain E&O insurance. So, for example, you and your attorney may believe that your use of 15-minutes of “Magic Mike XXL” in your documentary about contemporary feminism in the least expected place is “fair use,” but Warner Brothers might think otherwise. Or, maybe they’ll love it and even offer you a distribution deal. But if the copyright owner of the content perceives they lost money because of your work or is offended by how your work portrayed their work, you may be more at risk.
Of course, my example is a tad silly but the point is that when you use someone else’s copyrighted content, the degree to which you can is not always crystal clear at the outset as a matter of law. All this to say, just remember that fair use opinions are just that, opinions. A copyright holder can still sue your distributor and/or the production company entity that made the film if they feel their content has been infringed. [This assumes that you know better than to make a film under your own personal name that could expose you to significant risk of legal liability risk.] Be sure to consult an attorney BEFORE you edit your film to final cut so that you can minimize your risk of including content that might trigger a lawsuit. Lawsuits are costly and can impede distribution.
6. Price lock for licensing rights not actually licensed ahead of premiering
Well before your premiere, resolve the price for any music, footage, etc. that you are not licensing for worldwide rights in perpetuity. For example, your production budget may not allow for worldwide licensing in all rights and you may never have good reason to pay for that. So at first you license more limitedly. But it is best practice to resolve the price for any remaining rights (and for any remaining territories) so you don’t have to worry about the price being higher once the film is finished and distribution is underway. The price most often would only go up based on any success you have, and it’s better to have your licensing details resolved before you show the film and prepare it for distribution, whether DIY or via distributors.
7. Contracts are for honest people
This one is for ALL filmmakers, not just documentaries. I have seen countless disputes between people who verbally agreed to or thought they agreed to something and then argued about the agreement. It is also much more difficult to enforce an agreement not on paper. Contracts help people clarify and establish on paper what they mean (note that I have seen many convoluted contracts seemingly designed to confuse). With proper thinking, planning and good lawyering, contracts can help clarify exactly what people intend and mean by certain terms or phrases.
Contracts help force parties to think things through. Unfortunately, people fear entering into a contract or bringing up the idea of a formal agreement because they think it’s insulting or offensive. “What, you don’t think I’m honest?” Yet if one establishes from the outset that contracts are for honest people, then the other party will likely not be offended. A clear and well-drafted contract will help avoid litigation, not create it. I have seen way too many people wronged by trusting things will work out. Friends turn to frenemies over credit, money and vision issues that weren’t explicitly laid out on paper. Someone worth having on your team will not object to having a formal, non-onerous agreement. If they do, you want to analyze why.
8. Lawyer who knows distribution
Do not have your uncle, friend or family attorney who knows nothing about distribution do your legal work for your film. That is irresponsible and will harm you in the long run. Handling distribution and film licensing contracts requires a strong knowledge of the business and supporting law. Even issues around how to enforce rights via international deals and whether or not to have an arbitration provision are specific and require industry knowledge, specifically distribution knowledge. Of course, this is especially true for rights issues.
I have been asked other questions pertaining to chain-of-title, project control, financing, etc. that are beyond the scope of this post. Please feel free to reach out if you would like me to address something specifically.
Disclaimer: This article does not constitute legal advice and you should consult a lawyer about your specific situation. Also note that the images which accompany the story represent examples of films that TFC is handling for festival distribution. They are not involved in the legal concerns mentioned in the article.
Orly Ravid July 9th, 2015
Posted In: Legal