Happy New Year. The 2010s, among other things, were a decade of profound, rapid and often gob-smacking change in the media industries and their intersection with other industries, particularly technology and the internet. So, as we look ahead to a new year and a new decade, what should we expect?
Some consolidation of gains, still more turmoil, and additional smacking of gobs would be my guess. Without venturing any hard predictions that would no doubt quickly be proved wrong, here are some trends and topics we think will be making news in the year(s) ahead:
THE COPYRIGHT STATUS of works created in whole or in part by artificial intelligence systems will be a hot topic in 2020. In the U.S. the Patent & Trademark Office has set a deadline of Jan. 10 to submit public comments on a series of questions regarding intellectual property protection of A.I. innovation, including whether a work produced by A.I. “without the involvement of a natural person contributing expression” should be protectable under U.S. copyright law. The World Intellectual Property Organization, meanwhile, has launched its own public consultation on the same topics and plans to begin developing formal policy recommendations at a meeting in Geneva in May. Those initiatives won’t result in immediate, concrete changes to copyright law. But with works of art produced by algorithms selling for hundreds of thousands of dollars, and A.I.-composed music increasingly turning up in commercial contexts, they will serve to focus a conversation that grows more urgent by the day.
FUNDING FOR BLOCKCHAIN- and crypto-focused startups fell sharply in 2019 from its peak two years earlier, as the realization set in among investors that the technology is not yet mature enough to support many of the use-cases proposed for it, and is ill-suited to many of those tasks. Nowhere is that more so than in the media and entertainment industries, where visions of re-inventing the distribution of music and other digital content on a blockchain have collided with the reality of technical limitations, conflicting incentives and inertia. One media sector where crypto is finding traction and still attracting capital, however, is gaming, where its ability to generate unique and discrete digital assets is well-suited to support established consumer behavior and publisher monetization strategies. In Dec. 2019 chip giant AMD joined the Blockchain Gaming Alliance to help promote the development of blockchain-based game platforms, while crypto trading platforms like WAX continue to accelerate the growth of the in-game virtual goods economy. If you’re looking for real-world consumer adoption of blockchain in 2020, look to the games industry.
Not So Safe Harbors
THE COPYRIGHT SAFE HARBORS outlined in the WIPO Copyright Treaty of 1996, implemented in the U.S. by the Digital Millennium Copyright Act, have defined the rules of engagement between rights owners and online platforms for more than two decades. For nearly as long, rights owners have sought to roll those rules back as platforms like YouTube grew into global behemoths harboring hundreds of millions of unlicensed uses of copyrighted content. Those efforts have mostly been unsuccessful, but in 2019 the tide began to turn. The European Union adopted its Directive on Copyright in the Digital Single Market, which, among other things, imposes a legal burden on YouTube and its ilk to proactively police their platforms for infringing content and prevent its upload, rather than waiting to be notified by the rights owner. So far, only France has formally enacted the directive, but several other EU countries are expected to act in 2020, ahead of the deadline of 2021. In the U.S., the Copyright Office is expected to issue its long-awaited review of the safe harbors early in 2020, which most anticipate will recommend changes to the current law. Meanwhile, Senate Judiciary chairman Thom Tillis his vowing to launch a “major new initiative” to revisit the DMCA safe harbors. Making changes to the law would be huge legislative lift, but for the first time in two decades rights owners have the wind at their back.
THE MASSIVE CHANGES to how movies, music, TV and books are distributed over the past decade has also changed how they’re produced. With more avenues to market than ever, new, original works can and do come from anywhere, often bypassing traditional gatekeepers who historically controlled access to the primary distribution channels. Those traditional gatekeepers, however — movie studios, record labels, TV networks, publishers — were traditionally also the primary source of capital to fund new production. With the waning of their influence, new sources of capital are needed. Music artists can build a career without a label deal, through social media and a la carte distribution and marketing services, but recording still takes money. And, with no label there is no advance to fund it. Netflix will buy independent films, but generally not if the producer has already sold off territorial and other downstream rights to fund production. But with no backend it can be difficult to finance the frontend. Investors are slowly coming around to viewing rights as a new type of asset class, particularly in music, where streaming has introduced recurring, predictable revenue streams. A few independent operators like Hipgnosis Songs Fund and Ithaca Holdings have begun tapping capital markets to invest in music publishing catalogs, but those are finished works already in commercial release. Some entrepreneurs see token offers via blockchain as a potential source of capital for film and TV production. But the infrastructure for putting investors and their capital together with creators is still very nascent. Building that infrastructure will be one of the main challenges to tackle over the next several years.
Clash of the Titans
IN NOV. 2019, DISNEY launched Disney+, its “Netflix-killer” streaming service and racked up an impressive 15 million subscribers within its first five days. Netflix, meanwhile, has seen its domestic subscriber growth slow sharply (although its international growth remains strong). Netflix will face still more competition in 2020 with the launches of WarnerMedia’s HBO Plus, NBCUniversal’s Peacock, and a possible Viacom/CBS thrust, to say nothing of Amazon Prime, Apple TV+ and Disney-owned Hulu. But the competition is not a one-way street. Netflix released 60 original feature films in 2019, more than any other studio, and is a leading contender for an Oscar with Martin Scorsese’s “The Irishman.” The movie-theater business, meanwhile, is consolidating, with Regal Cinema’s acquisition of Cineplex and AMC’s acquisitions of the Odeon and UCI Cinemas chains. That leaves smaller, regional chains ripe for a roll up, and it’s not out of the question that Netflix could be a buyer, giving it more leverage to gain day-and-date theatrical releases for its feature films, especially as the U.S. Justice Dept. is poised to drop the consent decrees preventing movie studios from owning movie theaters. While the “streaming wars” are currently grabbing most of the headlines, the next decade is likely to see all of the major content houses invade each others’ businesses, just as the major technology companies have done in theirs, blurring any distinctions among movie studios, TV networks and streaming services.
THE ELIMINATION of the Paramount consent decrees, which since 1949 have prevented the major studios from owning theater chains, won’t be the only anti-trust action in 2020 or the decade ahead. The DOJ is also reviewing the ASCAP and BMI consent decrees, which since 1941, have governed how the two leading music performing rights organizations license their repertoires to radio and TV stations, concert venues, restaurants, bars and streaming services. The two PROs argue the decrees prevent them from innovating in the face of rapid and massive changes in how music compositions are used in public, even as their for-profit competitors like SESAC and GMR, which are not covered by the decrees, are free to experiment. Though many agree that the Paramount and PRO decrees are outdated in light of changes in how movies and music are distributed, the same sort of vertical integration of production and distribution they were meant to prevent is still alive and well, particularly in movies and video, where the studios are launching direct-to-consumer streaming services and streaming services are becoming major content producers. At the same time, news media publishers are pushing DOJ for an anti-trust exemption that would allow them to negotiate collectively with Facebook and Google over how their content is used online and at what price. Facebook and Google themselves, meanwhile, are facing growing anti-trust scrutiny in the U.S. and Europe, which could impact how content gets onto their platforms. One way or another, anti-trust regulators will play a major role over the next few years in shaping how content is licensed and distributed online. And that will mean a lot of legal and legislative pushing and shoving.
PODCASTING BEGAN largely as a digital twist on mixtapes (or radio without an FCC license), as early pioneers compiled idiosyncratic music playlists for download onto Apple iPods. But with the success in 2014 of the multi-episode investigative journalism project “Serial,” podcasts came into their own as a vehicle for original, spoken-word audio content. Since then, podcasts have proliferated rapidly and grown in ambition, spawning dozens of distribution outlets and apps for creating them, and starting to attract advertising. They have also emerged as a major strategic priority for audio streamers like Spotify, who see podcasts as a way to diversify their cost base away from music and the margin-crushing licensing fees it comes with. But figuring out where podcasts will sit within the overall digital media firmament is still a work in progress. Licensing third-party content for podcasts, such as music, is still difficult, with few industry norms and disagreement as to which exclusive rights are actually implicated when including music in a podcast. Podcasts are also evolving into sources of potentially licensable IP in their own right, although how those deals should be structured is anyone’s guess. Lots still to be figured out, but the bigger podcasting gets the more urgent those questions will grow.
THE MUSIC MODERNIZATION ACT, which passed both the House and Senate unanimously in Oct. 2018, was a monumental legislative achievement, and one that potentially could go a long way toward resolving one of the music industry’s messiest problems: mapping music compositions to the sound recordings they appear in so that publishing royalties can be timely and accurately paid. The law created a new licensing agency charged with administering a new blanket license for mechanical rights and collecting and distributing those royalties. The law also mandates the compiling of a comprehensive, publicly accessible database “containing information relating to musical works (and shares of such works) and, to the extent known, the identity and location of the copyright owners of such works and the sound recordings in which the musical works are embodied.” That task will be monumental enough, having defied previous industry efforts to tackle it. But the project is already showing signs of getting bogged down in ancillary disputes. Broadcasters and streaming services, the latter of which are paying the operating costs of the new mechanical licensing agency, want to see the database expanded further to include information about performance rights, which would add layers of complexity to the job. There are also questions about which technology platform the database will be built on. And it’s all supposed to be done by Jan. 2021. That should make for a lively 2020.
THE EUROPEAN UNION adopted its General Data Protection Regulation (GDPR) in 2018 forcing major changes to how online services like Google, Facebook, Amazon and Apple collect and manage data from their users. The directive set off repercussions around the world, including in the U.S., where service providers adjusted how they collect data from domestic users as well, rather than operate separate systems for Europe and the U.S. The U.S. Congress is now taking a hard look at U.S. privacy laws, and California recently passed its own privacy bill. While most of those efforts are aimed primarily at technology companies, content providers have also been affected. The first to feel the impact were news publishers, including U.S. publishers, who were forced to block Europeans from accessing their websites until they could be brought into compliance with GDPR rules, hurting readership. But streaming services are not escaping regulators’ scrutiny. The new California law makes no exceptions for content providers who collect data on their users and have more than $25 million in annual revenue. According to a study by Berkeley Economic Advising and Research, 300 companies in the arts, entertainment and recreation meet that revenue threshold and another 12,000 – 18,000 companies could be implicated under other standards in the law. Given that companies like Disney and WarnerMedia are launching direct-to-consumer streaming services in large part to be able to collect data from their users, new privacy laws could be a major fly in their ointment.