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July 2010 Archives

July 8, 2010

EASL Legislation in Albany

By Bennett Liebman

With the legislature leaving for the time-being this week, here’s where we are the major pieces of EASL legislation:

1. Dead Celebrities Rights Legislation – S. 6790 was not acted on by either house. No companion bill was even introduced in the Assembly

2. Resale of Tickets – S. 8340- A was passed by both houses. Since this legislation was a program bill of Governor Paterson’s, it is virtually certain to be signed by him. The bill permits the resale of tickets (what used to be known as scalping) until May 15, 2011.

3. The film credit legislation, which was part of the overall revenue bill in the Budget ( A. 9710-D, S. 6610-C), passed only the Assembly. The full revenue package is supposed to be the subject of future negotiation between the Governor and the two houses of the legislature. Again, there is no disagreement among any of the participants in the budget negotiations about the size of the film credit, which is supposed to be $420 million per year for the next five years.

Message from Judith B. Prowda, EASL Chair

I am pleased to announce the appointment of Kimberly Ayers Shariff, Esq. as Chair of EASL's newly formed In-House Counsel Committee. Kim is the Deputy General Counsel of Lincoln Center for the Performing Arts.

The mission of this Committee is to create a forum where members can share information and best practices, as well as address the unique opportunities, challenges and substantive issues that face attorneys practicing in-house in the entertainment, arts and sports law fields. One of the Committee's specific goals is to form an "open source" information bank where in-house attorneys can seek (as well as contribute) advice and substantive guidance akin to the attorney-to-attorney exchange of information that occurs in a law firm environment but less frequently in-house. To facilitate these goals, Kim is already planning programs of great interest to in-house and outside counsel in the entertainment, arts and sports law fields, in both the for-profit and not-for-profit arenas. Stay tuned for exciting events organized for the members of this new dynamic EASL committee!

If you are interested in joining this Committee, please contact Leslie Scully at lscully@nysba.org. You must be a member of the New York State Bar Association and the EASL Section in order to join any of the EASL committees. Please visit our website at http://www.nysba.org/.

Please join me in congratulating Kim and wishing her good luck in her Bar leadership!

July 13, 2010

Message from EASL Chair, Judith B. Prowda

By Judith B. Prowda

I am pleased to announce the appointments of Kathy Kim and Stephanie Vaidya as Co-Chairs of EASL's Young Entertainment Lawyers Committee. Kathy will also continue as Steering Committee Member of the Pro Bono Committee. Kathy, a trained dancer and singer, is an aspiring entertainment lawyer and theatrical producer. Currently, she is working with the producers of a Broadway-bound musical. Stephanie is an Associate at Withers Bergman LLP, where she works on a variety of projects involving art law.

EASL also welcomes two liaisons from the Young Lawyers Section - Jason Aylesworth and Ezgi Kaya. Jason is an Associate at Sendroff & Baruch, LLP, where he practices transactional entertainment and intellectual property law in the areas of theatre, music, film and television. Ezgi is an Assistant Vice President and Counsel in the Legal Department at Deutsche Bank AG. Previously, Ezgi was a Credit Associate at Davis Polk & Wardwell LLP.

Congrats to Kathy, Stephanie, Jason and Ezgi! We look forward to interesting and valuable programs for our members in the months ahead.

Reselling Tickets in New York: 2010

By Bennett Liebman

The ticket reselling saga in New York State reached a measure of temporary closure two weeks ago with the signing by Governor Paterson on July 2, 2010 of legislation (Ch. 151, Laws of 2010; Glenn Bain and Kenneth Lovett, " Gov Paterson Kos Bruce Springsteen's and Other Rocker's Bid to Make Tickets Paperless," New York Daily News, July 3, 2010) which largely reinstated the provisions authorizing the free market in the reselling of tickets. This capped a month and a half period where the laws authorizing the free market in ticket reselling lapsed, triggering the reinstitution of New York State's traditional strict limits on the scalping of tickets.

From 1922 -2007, New York State had a rigorous law limiting the price for which tickets for entertainment events could be resold. (Michael H. Samuels, "New York's Ticket Resale Law Leaves Industry in Limbo," Long Island Business, May 28, 2010. Arts and Cultural Affairs Law, §, 25.30 .1.(c)) There was limited and inconsistent enforcement, and with the advent of the Internet, these strict anti-scalping laws had become antiquated. The anti-scalping law was replaced in 2007 by legislation which established a free market for the resale of tickets coupled with a system under which ticket brokers were regulated by the New York State Department of State. (See. Ch. 61, Laws of 2007 and Ch. 374, Laws of 2007)

The 2007 legislation was set to expire in 2009, and was renewed by the legislature in 2009 until May 15, 2010. (Ch. 68, Laws of 2009) The 2009 renewal renewed the free market in included a requirement that the Secretary of State report on the overall effectiveness of the 2007 deregulation scheme. The Secretary of State reported that the legislation should be renewed. In reviewing the issue of paperless ticketing, she also found that paperless ticketing "arguably cuts down on ticket speculation insofar as the actual purchaser has to be present in order to gain access to the concert venue." (Samuels, note 2 supra)

Nonetheless, the 2010 renewal was hardly easy. The 2010 battle largely involved the issue of the use of paperless tickets. Paperless tickets are tickets issues for an event without any paper whatsoever. They are not e-tickets which can be printed out at home; they are closer to what would be considered electronic personal seat reservations. (Paul Fahri, 'Paperless Ticketing' Aims to Thwart Scalping at Concerts, Sports Events," Washington Post, July 5, 2010) The buyer uses a credit card to purchase the ticket. "The buyer must then go to the venue with the same credit card and a photo ID to gain admittance. A swipe of the credit card at the gate produces a slip confirming the location of the reserved seat." (Id)

This was largely a battle between the primary ticket sellers (Think Live Nation/Ticketmaster which overwhelmingly dominates this market) joined by venue operators and certain artists against the larger ticket resellers (Think StubHub and Razorgator). Over the past few years, a number of artists such as Miley Cyrus and Bruce Springsteen have insisted on a paperless system under which the artist's fans would have direct access to the primary tickets since the paperless system would largely prevent purchasers from selling their tickets on sites such as StubHub. This arguably means "that tickets end up in the hands of fans, not speculators, ... and at the prices established by the performer." (http://www.ticketnews.com/view/TopPrimarySellers) The proponents of the paperless system also believe that it thwarts counterfeiting and the problem of lost tickets. (Id) They suggest that there is no reason to regulate paperless tickets while the technology is evolving and where technology may resolve these issues.

The difficulty is what happens when the purchaser wants to give a gift of the paperless tickets to his or her friends or relatives. Also, what happens to the would be attendees if the person who purchased the tickets fails to make it to the event? Do the parents of the children who want to attend the Miley Cyrus concert have to actually show up at the venue site to swipe their credit card? Perhaps more significantly, the battle is one between the primary ticket sellers and the secondary ticket sellers. Under a paperless system, the ticket buyer would need to go through the primary ticket seller or its agent to transfer a ticket. The secondary ticket vendors see paperless tickets as "a way for Ticketmaster and other companies to control, and potentially eliminate, that secondary market."(Ben Sisario, "Scalping 2.0: Naming the Ticket's Master," New York Times, June 6, 2010)

On the political side, the fight was largely fought between Governor Paterson (with the State Assembly as an ally) against State Senator Craig Johnson. Governor Paterson supported a requirement that purchasers have a right to a paper ticket (Governor Paterson issued a statement to the press saying, "Specifically, the bill would make it illegal for venues and ticketing companies to prohibit ticket holders from transferring tickets on their own. In many cases, these entities require that ticket holders charge minimum prices and pay substantial service charges just to get rid of tickets that they can no longer use. This important consumer protection will ensure that consumers can give tickets as gifts, and transfer or sell tickets that they cannot use to other people without having to go through the entity from which they originally purchased the tickets. May 18 Statement from Governor David A. Paterson, http://www.state.ny.us/governor/press/051810_StatmntGovDavidAPaterson.html), while Senator Johnson wanted no restrictions on paperless ticketing. The Assembly initially passed the Governor's program bill (Assembly Bill No. 11108) which required "require that consumers be provided with the option of a transferable ticket at the time of first public sale." (New York State Assembly Memorandum in Support of Legislation, Assembly Bill No. 11108) The Senate, however, only passed legislation extending the existing legislation one month until June 15, 2010. (Senate Bill No. 7835)

With the impasse between the Senate and the Assembly, the free market in ticket resales came to an end on May 15, 2010, and the old anti-scalping laws went back into force. (Kenneth Lovett, "Gov Reenacts Tough Ticket Scalping Law," New York Daily News, May 21, 2010)

Meanwhile, the war of words between Senator Johnson and the Governor became more heated. Senator Johnson at a public hearing on June 2 stated, "For reasons I have yet to get a satisfactory answer on, Governor Paterson has chosen to ignore his own secretary of state, and a pre-existing agreement that let her report govern any extension of the secondary ticket market, and insist that the paperless system be altered in any final legislation."(Ryan Hogan, "New York Lawmakers Still Debating Paperless Ticketing Legislation," http://www.authoritytickets.com/?p=214. The video of the hearing held by the Senate Committee on Investigations and Government Operations can be seen at http://www.nysenate.gov/event/2010/jun/02/paperless-ticket-transferability) Senator Johnson cited a New York Daily News editorial which stated, "From start to finish, this is craziness. Paterson and the Legislature should simply reauthorize the law as it existed and let arenas expand into paperless ticketing without government interference. Albany should butt out of private business until a problem arises, if one ever does."("Ticket Blitzed," New York Daily News, May 24, 2010)

Nonetheless, with considerable confusion occurring due to the reversion to the pre-2007 anti-scalping provisions, Senator Johnson eventually largely acceded to the demands of the Governor Paterson on paperless tickets. The Governor resubmitted a program bill (Senate Bill No. 8340-A, same as Assembly Bill No. 11536-A) ,and it was passed at the conclusion of the legislative session in 2010. It was quickly signed into legislation by Governor Paterson. (Ch. 151, Laws of 2010, signed on July 2, 2010)

The basic provision on paperless tickets in the enacted bill requires that an operator of a place of entertainment may not "employ a paperless ticketing system unless the consumer is given an option to purchase paperless tickets that the consumer can transfer at any price, and at any time, and without additional fees, independent of the operator or operator's agent.

Notwithstanding the foregoing, an operator or operator's agent may employ a paperless ticketing system that does not allow for independent transferability of paperless tickets only if the consumer is offered an option at the time of initial sale to purchase the same tickets in some other form that is transferrable independent of the operator or operator's agent including, but not limited to, paper tickets or e-tickets." (Id., §8; Arts and Cultural Affairs Law, § 25.30 .1.(c)) Thus, consumers are entitled to the option to purchase a transferrable ticket at the time of the first purchase.

The language of the enacted bill seems somewhat less restrictive of the right of the operator of a place to entertainment or restrict resale of promotional tickets. In the first Governor's program bill, the only tickets that could not be resold were promotional tickets for people with disabilities.(See Assembly Bill No. 11108 note 13 supra ) In the enacted bill, the operator may restrict the" resale of tickets to a far larger community. Resales can be restricted "that are offered as part of a targeted promotion, at a discounted price, or for free, to specific membership in, a specific community or group, including, but not limited to, persons with disabilities, students, religious or civic organizations, or persons demonstrating economic hardship." (Arts and Cultural Affairs Law, §25.30.2)

Other provisions of Ch. 151 were far less controversial. Automated ticket purchasing software to purchase tickets was made illegal by the legislation. (Arts and Cultural Affairs Law, §25.24) The free market in resale of tickets is extended until May 15, 2011. (Ch 151, Laws of 2010, §5) Certain penalties for violating the ticket reselling provisions of the law are increased(Id., §9, Arts and Cultural Affairs Law, §25.35.7), and service charges in association with tickets sold shall be reasonable. (Id. §7, Arts and Cultural Affairs Law, §25.29.1) Additionally, "operators and their agents would be prohibited from charging differing face value prices on any given ticket based on its form or transferability" (New York State Senate Introducer's Memorandum in Support for S. 8340 -A. Arts and Cultural Affairs Law, §, 25.30 .1.(c)), and obstructed view seats must be disclosed." (Ch. 151, Laws of 2010 §8, Arts and Cultural Affairs Law §25.30.4)

Finally, the legislation would provide for a new reporting requirement for ticket brokers. (Id. §6, Arts and Cultural Affairs Law §25.25.2) This "would enable the State to better determine the impact of the resale marketplace on consumers, as well as to study the purchasing trends of consumers." (Introducer's memorandum, note 28 supra )

In the absence of a crystal ball that can accurately foresee developments in ticket technology, it remains to be seen what happens next. Will certain performers not hold concerts in New York due to the limits imposed on paperless tickets? Will the law de facto stop paperless tickets in New York, or will primary ticket vendors be able to figure out a way to work within the law to establish a system under which the overwhelming majority of customers will opt for paperless tickets? Will other states follow New York State's lead on paperless tickets? Will technology provide a solution for the easy transferability of paperless tickets? Will anyone venture to explore the tax consequences occasioned by the resale of tickets for the all the parties involved in a transaction? In short, can we expect a similar battle to reoccur in the legislature in May of 2011? We are likely to need to log in next year to find out what will happen.

July 17, 2010

Judge Reduces Constitutionally Excessive Damages in Infringement Case

By Elizabeth Gonsiorowski

On July 9, 2010, in Sony BMG Music Entertainment v. Tenenbaum, Judge Nancy Gertner of the United States District Court for the District of Massachusetts held that a jury award of $675,000 was unconstitutionally excessive. Though the award was within the statutory range, Judge Gertner reduced it by 90% and found that it was "far greater than necessary to serve the government's legitimate interests in compensating copyright owners and deterring infringement," and that it bore, "no meaningful relationship to those objectives." Ultimately, this decision (available at: http://pacer.mad.uscourts.gov/dc/cgibin/recentops.pl?filename=gertner/pdf/tenenbaummotnewtrialjuly9th2010.pdf) may mark a shift in the way courts perceive damages for copyright infringement in the digital age, and it highlights the issues that arise when large-scale copyright holders seek damages from individuals.

In 2003, the Recording Industry Association of America (RIAA) embarked on a campaign to curb online piracy, and ended up filing proceedings against about 35,000 people. Not surprisingly, its strategy generated bad press when record companies filed proceedings against a dead person, a 13-year-old girl, and several single mothers. By 2008, the RIAA decided that the proceedings were not an effective deterrent and decided to work directly with ISPs. ("Music Industry To Abandon Mass Suits", available at: http://online.wsj.com/article/SB122966038836021137.html) Though they stopped initiating proceedings, the record companies continued to pursue suits that had already been filed.

One such suit was Joel Tenenbaum's. Unlike the defendants in the cases that proved to be public relations disasters for the recording industry, Tenenbaum doesn't garner much sympathy. His file sharing history stretches back to when kids ripped Britney Spears' (first) single off of Napster in 1999 --and continued even after the plaintiffs sent him a cease and desist letter in 2007. No matter how willful his infringement may have been, the recording companies suffered "minimal harm," and Tenenbaum did not obtain any financial gains as a result of downloading the 30 songs in question. Ultimately, the court found the jury award to be "arbitrary and grossly excessive"--with good reason.

Judge Gertner considered the fact that Congress hasn't addressed the relevant damages provisions since the Digital Theft and Copyright Damages Improvement Act of 1999, which bumped statutory damages up to their current levels ($750 to $150,000 per work for willful infringement).( 17 U.S.C. 504(c)) In deciding not to defer to Congress's statutory damages with respect to Tenenbaum's infringement, she reasoned that, "the timing of the Act suggests that legislators did not have in mind the problem of consumers sharing music through peer- to-peer networks when the Act was drafted." Though Napster was in its infancy, the legislative history did not suggest that Congress had file-sharing in mind while drafting the Act.

The court also compared the $22,500 per song jury award to the damages that recording companies have generally accepted; most cases have resulted in default judgments or settlements where the recording companies requested that the court impose the $750 minimum. Notably, in the widely publicized Thomas-Rasset case (Capitol Records v. Thomas, 579 F. Supp 2d 1210 (D. Minn. 2008)), the plaintiffs rejected a remitted award of $2,250 per song. Here, the court offered the same remitted award, and the plaintiffs (four of which were plaintiffs in Thomas- Rasset) made it clear they would not accept. "To put it mildly," Judge Gertner wrote, they "were going for broke."

If the recording industry set out to prove a point, it may have done more harm than good. If the recording companies were primarily interested in monetary compensation, the remitted award should have been more than enough -- Judge Gertner went so far as to say that the reduced award of $67,500 "is still severe, even harsh." Instead of deterring copyright infringement, as the recording industry presumably intended, this decision demonstrates the issues related to practical application of copyright laws in the 21st century, and with respect to digital piracy, it calls the foundation of statutory damages into question.

Are File-Sharing Willful Infringers Now a Judicially Protected Class?

By Andrew Berger

On July 9, Judge Nancy Gertner in Sony BMG v. Tenenbaum did what no court has ever done before. The court held unconstitutional an award of statutory damages within the statutory range set by Congress. This ruling, if affirmed on appeal, will change the shape of copyright litigation for years to come.

In finding the verdict of $675,000 for defendant's willful infringement of 30 songs "unconstitutionally excessive," Tenenbaum applied the three "guideposts" established in BMW of North America, Inc. v. Gore, 517 U.S. (1996). The Gore framework assesses an award of punitive damages based on the (1) degree of reprehensibility of the defendant's misconduct; (2) disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and civil penalties authorized or imposed in comparable cases.

Judge Gertner's opinion is clear and well written. But I respectfully suggest the court got it wrong. I agree with the plaintiffs (their post-trial brief is located at: http://www.ipinbrief.com/wp-content/uploads/2010/07/Sonys-post-trial-brief-in-Tenenbaum.pdf) and the government (its post-trial brief is located at: http://www.ipinbrief.com/wp-content/uploads/2010/07/us-post-trial-memo-tannenbaum.pdf) that the standard for assessing the constitutionality of a statutory damages award is better tested by applying St. Louis, I.M. & S. Ry. Co. Williams, 251 U.S. 63 (1919).

Because this is a long post, let me explain what's below. I first discuss why Gore's guideposts are inapplicable, then indicate why Williams applies, and end with the adverse consequences Tenenbaum creates.

Why the Gore Guidelines Make No Sense Here

The Supreme Court has never indicated that the Gore analysis applies to a statutory damages case. Further, the Gore guidelines are an ill fit for the following reasons:

A. Gore dealt with punitive damages which are designed to punish in amounts that are usually unrestrained. But statutory damages are different. They are not only intended to punish, but also to compensate, impose appropriate damages on wrongdoers, deter future infringements and promote the creation of intellectual property.

B. Gore's guideposts derive from the need to give a defendant notice of the severity of the penalty that may be imposed. But the statutory damages scheme already gives notice. Congress has established and periodically adjusted the range of statutory damages and a verdict within that range is entitled to substantial deference.

C. The second Gore guidepost weighs the relationship between the punitive award and the actual harm. But this guidepost has no application to statutory damages which may be awarded without any showing of harm.

D. The third Gore guidepost judges the propriety of the award by focusing on its relationship with the applicable civil penalty. But this guidepost makes no sense here because the award is by definition the applicable civil penalty.

The Court Creates a Safe Harbor for File Sharers

Tenenbaum attempted to avoid the identity between the award and the penalty by deciding that Congress did not intend to apply the statutory damages scheme to "noncommercial infringers sharing and downloading music through peer-to peer networks." The court reached this extraordinary conclusion by a "careful review" of the "legislative history" of the Digital Theft Deterrence Act of 1999. But the history the court credited consisted of off-hand comments made by Senators Hatch and Leahy at hearings held after Congress passed that statue.

In fact, the legislative history demonstrates the opposite--that the aptly-named Digital Theft Deterrence Act sought to address the growing online theft of intellectual property by all infringers. Congress expressed the need for this legislation in words that echo Tenenbaum's conduct:

By the turn of the century ... the development of new technology will create additional
incentives for copyright thieves to steal protected works. Many computer users ...
simply believe that they will not be caught or prosecuted for their internet conduct. Also
many infringers do not consider the current copyright infringement penalties a real
threat and continue infringing even after a copyright owner puts them on notice.

The text of the 1999 amendment does not distinguish between classes of infringers nor immunize file sharers from statutory damages. Instead the statute applies the same damage scheme to all. Because the statutory language was plain, there was no need for the court to examine congressional intent, much less rely on post hoc comments from two Senators.

In light of the above, it is not surprising that Tenenbaum is the first to apply the Gore guideposts in a due process review of a statutory damages award. Other courts have opted for the more deferential standard in Williams (holding that a statutory damages award of $75, for a violation that resulted in actual damages of 66 cents, was within the statutorily-authorized range of $50 to $300 and thus was constitutional).

The Williams Standard is Applicable

Applying the Williams standard makes more sense here because that case also reviewed the constitutionality of an award that fell within a statutorily authorized damage range. Williams examined such an award as "so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable" giving "due regard for the interests of the public, the numberless opportunities for committing the offense, and the need for securing uniform adherence to [the law]." The Court expressly rejected the defendant's attempt to test the constitutionality of the "large" penalty by comparing it with the actual damage, stating that statutory remedies for "public wrongs" are not required to "be confined or proportioned to [plaintiff's] loss or damages."

The jury's verdict in Tenenbaum appears to fit within the Williams framework. The award was 15% of the maximum of $4.5 million the jury could have been assessed and therefore seems not "obviously unreasonable" or "oppressive" considering that Tenenbaum's conduct defines willfulness.

Tenenbaum's Adverse Impact on Copyright Enforcement

What is especially troubling about Tenenbaum is the negative impact it will have on copyright enforcement if affirmed.

The requirement in Tenenbaum that a plaintiff obtains statutory damages only by first demonstrating actual damage from the infringement means that many copyright cases will never be brought.

That's because a copyright owner may be unable to prove actual damages for a few reasons. First, the value of a copyright is, by its nature, difficult to establish. How much is an unpublished novel worth? Second, in cases involving public performances, the only direct loss is the lost license fee; as the Copyright Office recognized years ago, an award in such amount is an invitation to infringe with no risk of loss to the infringer. Third, actual damages are often less than the cost of detecting, investigation and, for sure, litigating. So why bother. Finally, an infringer may have made little or no lost profits or may have destroyed or never kept records making any profit calculation impossible.

Hopefully the First Circuit will be less willing to make illegal behavior affordable.

A version of this blog comment may be found at http://www.ipinbrief.com/are/

July 21, 2010

EASL In-House Committee Breakfast Panel Series

Please join the NYSBA EASL Lawyers in Transition and In-House Committees for a Breakfast Panel

Friday, August 6, 2010
8:30-9:30 a.m.

Frankfurt Kurnit Klein and Selz, PC
488 Madison Avneue--10th FL
Between 51st and 52nd
New York, NY
(518) 487-5583

Continuing the EASL LIT breakfast panel series, the NYSBA EASL Lawyers in Transition (LIT) Committee and the newly-founded NYSBA EASL In-House Committee present a breakfast panel on the transition to in-house careers. In-house jobs are in high demand and, among other topics, this panel will discuss how to get an in-house position, how to best prepare, and what you can expect as in-house counsel.

Join us for a breakfast panel led by EASL In-House Committee Chair, Kimberly Ayers Shariff, Deputy General Counsel at Lincoln Center, along with EASL LIT Co-Chair, Saryn Leibowitz. Panelists will be announced, but will include Tracey Knuckles, General Counsel, New York City, Department of Cultural Affairs and Meg Louis, Director of Legal Affairs/Senior Counsel for NYC Media

The panel will be held Friday August 6, 2010, from 8:30 a.m.—9:30 a.m., at Frankfurt Kurnit Klein and Selz, PC, located at 488 Madison Avenue (between 51st and 52nd Street), 10th Floor. The session is free, but registration is required. Please register by August 5th. This is a non-CLE event.

LIMITED SEATING—PLEASE REGISTER EARLY at http://www.nysba.org/AM/Template.cfm?Section=Events1&Template=/Conference/ConferenceDescByRegClass.cfm&ConferenceID=4286

New Music Seminar Report

By Monica Pa, with Eva Dickerman's assistance

The first New Music Seminar occurred in New York in 1984. The director of the conference, Tom Silverman, of Tommy Boy Entertainment opened the current conference at Webster Hall with an interesting point: The music industry still faces many of the same concerns today that it did in 1984, namely the challenges of new technology and the evolving habits of the consuming public.

This conference was intended to be an informative and affordable program devoted to the future of music. It sought to give labels, website operators, artists and their representatives information about the music business, a forum to discuss changes in music and technology, and an opportunity to network with others in the industry. The conference organizers scheduled panel discussions, short talks and performances. There were also informal areas for exhibitors and networking. My sense was that the conference was geared towards artists rather than seasoned industry professionals. This was not necessarily a bad approach. For example, the NMS Guidebook contained an extremely helpful “do’s and don’ts” section, and included tips from industry experts about artist management, digital distribution, touring, marketing and merchandising, web strategy and music licensing.

There were three closed-door industry summits: The NMS Brand Summit, The NMS Tech Summit and The NMS Business Summit. These were unfortunately closed to press and reporting. I understand that the purpose of each summit was to provide a forum for dialogue about the music industry, and the panelists discussed legal issues, such as the new music deal and economic models. The legal panel (of which EASL was a sponsor) included Tom Silverman, Adam Ritholz, Jim Cooperman and venture capitalist David Pakman.

I was able to report on the marketing and branding panel in the morning, which focused on “how to cultivate fans and how to harvest them.” This discussion on marketing strategy and band branding offered information that is relevant to any entertainment lawyer.

The panel included Ariel Hyatt from Ariel Publicity and Cyber PR; Jay Frank from CMT; Gwen Lipsky from Sound Thinking; Eric Garland from Big Champagne; and Mike Doernberg from Reverb Nation.

The panelists began by pointing out that there exists a fundamental tension inherent in marketing music. On the one hand, music should be spontaneous and creative; on the other hand, marketing should be systematic and scientific. Musicians need to understand that their music is a product, and that they are not just creating music, but also creating a brand. Artists are often skilled at communicating their art but deficient at communicating from a business perspective.

The panelists emphasized the financial importance of a fan base. Historically, although fan relationships were important, these relationships were disconnected from the core music business, which was the creation and distribution of music by labels. Today, as the music industry has become more decentralized, fan relationships are increasingly important. To illustrate this point, the panelists discussed the “Theory of a Thousand True Fans.” The theory is that if an artist can have 1000 fans, and each fan contributes $100 a year, the artist could earn $100,000 a year, which should be a sustainable living. Not all fans, however, are created alike. The deeper the fan relationship, the more value that relationship contributes to the band as a brand. The more you understand about your fans and the more direct contact that exists between artist and fan, the more value that fan relationship has. Every artist, at least in his or her early stage, needs to develop and nurture a fan base to support the music and brand.

The classic marketing rule is that fans will result in a 20/80 profit split: 20% of the fans will account for 80% of the artist’s revenue. In terms of music, the split is even more pronounced (perhaps more like 10/90). So if there are 1,000 fans, the artist needs to focus on gaining the attention of the 1 in 10 fans that will be dedicated enough to purchase music, tickets, shirts, merchandise, etc.

Typically, musicians market online by having MySpace and Facebook pages, and perhaps by sending out sporadic communications through a general newsletter. They then tour and ask fans for money (e.g., purchasing tickets to a show) but this occurs before they have built any value as a commercial product. Artists need to be precise and goal-oriented in their communications with fans. Expert marketers focus on controlling the message that gets out. Smart marketers don’t just rely upon general social media platforms, but rather use analytics to understand the relevant fan base, in order to better create a compelling product and brand.

The panel discussed three stages for a band:

(1) Create: Bands are usually well-equipped at how to approach this initial stage. The band should make a compelling product, but also develop itself as a brand. In this early stage, the band members should create social media profiles, digitally distribute music, and give away free music in exchange for fans signing up to an email mailing list.

(2) Grow: Once the artist has established his or her product and brand, then it’s about maintaining and growing the fan base. Artists need to be able to understand the existing fan base (e.g., perfect their music and performance quality, play lots of gigs and get feedback, nurture fan relationships).

(3) Develop the Band’s Fan Base (see above): Artists should revise their marketing strategy on a daily basis and continually shift their engagement (in other words, keep assessing what the fans want and accommodate these demands). Musicians should pay attention to their audience and constantly refine the marketing strategy. Social media takes a while to get traction, so do not quickly abandon these platforms – it takes patience to develop successful strategies.

What constitutes a real fan (e.g., a “valuable” fan)? An audience member is someone who has listened to your music; a fan is someone who has a sustained relationship with you. You should have a two way relationship with your fans, and that relationship should be growing and exponential.

One panelist noted an interesting tidbit: an email “friend” is 8 times more valuable than a “friend” on a social networking website (e.g., a Facebook friend). Mailing lists are therefore more valuable then merely having passive Facebook friends. The ideal trajectory for fan development is to convert a social network friend to an email friend to a devoted fan.

There are two models for monetizing a fan base: breadth and depth. “Breadth” refers to the general awareness of the artist. For example, Lady Gaga is incredibly well-known, so there is a lot of fan awareness of her product. Depth refers to the engagement of fans. An artist with a million views on YouTube has wide awareness, but to transform this awareness into “engagement,” viewers need to purchase the music after viewing the video. An artist can survive with a low awareness base if there is substantial fan engagement. If each fan will buy the t-shirt, go to the concert, tell his or her friends, and create long‑term sustained interest, then the artist will have a continuous stream of revenue. An artist with high awareness but low engagement will not survive as a business. It's crucial to use marketing data to figure out ways to move fans along the continuum of involvement, from awareness to engagement.

When an artist engages a listener, the artist wants to do it quickly and then effectively capitalize on it. When a person hears a song and decides to buy it; that is a rare and valuable opportunity. To create the most opportunities for engagement, the song needs to be widely available and distributed everywhere. One panel member discussed how he had become interested in a song that had already been released for three weeks. He couldn’t purchase the song though because the record label had not made it available for digital sales. This squandered a valuable opportunity. Moreover, since that song was not available, the website suggested that he listen to a similar artist name Boy Wonderbread. The panelist liked Wonderbread’s music and ended up purchasing a few songs. As a result, the label lost the $1 that the listener was going to spend on the original artist, and he ended up spending $10 on Boy Wonderbread.

Ariel Hyatt made an interesting point that few people purchase their own music on iTunes and Amazon. But, she said, this is like making dinner for 10,000 people without tasting the food before it leaves the kitchen. It is also key to make sure that listeners can easily purchase the artist’s music. Hyatt provided an interesting “Clicks to Content” slide, which showed how many “clicks” it takes to purchase a song on a website. For example, if a listener goes on iTunes to purchase a song she just heard, it takes up to 14 clicks to actually purchase it if she does not have an account. Google Onebox stream takes 3 clicks to get to the music. It takes one click to hear the song on a promoted stream on a music blog, on a YouTube video, on a video or audio stream from Facebook, on an artist’s MySpace page, etc. Anything above 2 clicks and the consumer will likely lose interest. Bear in mind that, for the average consumer, when faced with too many choices, the consumer will end up choosing nothing. The decrease of music sales may be related to there being TOO much available music.

Jay Frank said that, regardless of all this marketing information, the music should be great, identifiable and have an immediate impact, which means artists need to impress listeners fast. The top 25 selling downloads in 2010 had an average intro length of 6.6 seconds, and 2/3 of the top selling downloads have an intro of 7 seconds (“don’t bore us, get to the chorus!”). People are giving music about 6 seconds before deciding whether the song is worth purchasing.

About July 2010

This page contains all entries posted to The Entertainment, Arts and Sports Law Blog in July 2010. They are listed from oldest to newest.

June 2010 is the previous archive.

August 2010 is the next archive.

Many more can be found on the main index page or by looking through the archives.