Whether it’s the rapid rise of streaming services or artists selling and protecting their work via non-fungible tokens, entertainment industry organizations and professionals need to understand the potential impact of current trends. Here are five main trends to keep an eye on.
Entertainers and brands are more protective of their public persona than ever before — and many are finally reaping its hard-won benefits. In 2021, after a series of lawsuits were brought against the National Collegiate Athletic Association (NCAA), student athletes gained the right to earn compensation for the use of their name, image and likeness. This victory opened the door for amateur athletes to profit from their fame, giving them the green light to earn money from endorsement deals, appearances, sponsorships, social media posts and more.
Additionally, new “right of publicity” laws in New York and California have clarified and restricted NIL usage. One such law in New York has changed the use of NILs for families of deceased celebrities so that a celebrity’s estate can be used to protect the family’s brand and monetize the celebrity’s NIL for as long as the popularity exists.
Though these policy changes ostensibly give individuals more control over the commercial use of their identities, there are still risks and responsibilities to keep in mind. For example, it’s important to remember that NIL laws vary by state, and some states lack NIL regulations altogether. As a result, tax implications may differ depending on the state and its corresponding NIL policy.
NFTs are exploding in popularity and, despite being a magnet for risk and volatility, are being embraced by many in the entertainment community. And the payoff, though unpredictable, could be huge.
VaynerMedia CEO Gary Vaynerchuk (aka GaryVee) anticipates that 95% of NFTs will end up worthless, but 5% will be life changing for the owner. It’s no different than art, wine or sports memorabilia. He cautions that these early days of NFTs may be akin to the dotcom bubble’s burst in 2000, with most flopping and causing large losses of capital, but also giving rise to behemoths like eBay and Amazon. Vaynerchuk’s conviction is so strong that he has created two entities in the last year centered around NFTs.
And Vaynerchuk isn’t alone in his confidence. Big-name celebrities including Reese Witherspoon, Paris Hilton and Shaquille O’Neal, and organizations like Ticketmaster and the National Basketball Association, have all gotten involved in the NFT game.
There are certainly reasons for the entertainment community to embrace the NFT trend. NFTs can help artists retain more autonomy over their work, connect with their fans on a deeper level and cut out intermediaries when royalty payments come into play.
Capitalizing on the current craze might seem intimidating, and it inarguably has its risks. But creating an NFT, and taking it from concept through final sale, is an attainable goal that could potentially provide great benefits. And it could be key to the indelible protection of your work.
As you might have suspected, NFTs and NILs can work in tandem and allow talent to monetize their likeness, forever. In 2021, Kings of Leon became the first band to release an NFT album. Athletes have created digital NFT trading cards. Think about it: What if NFTs had been around when Jerry Siegel and Joe Shuster created Superman or when Carolyn Davidson created the Nike logo? With the right agreement, they and their estates could have received royalty payments every time the NFT was sold in perpetuity.
It’s not all roses, though, for brands. Many NFTs currently use the Ethereum blockchain cryptocurrency, which takes a large amount of energy to produce due to massive amounts of computer “mining.” This could work against those companies, and their agencies, in future B Corp audits. Lower energy-use blockchain alternatives that use “proof of stake” exist and could address this issue, but it remains a challenge for the time being.
NFTs also don’t address usage rights — just because you own an NFT doesn’t mean you can’t prevent copies being made. You simply own the original, not the rights to the usage.
How will this work with independent contractors? Employers should have agreements in place that protect work product for anything created for the company. (There typically are more loopholes in independent contractor agreements since control is often a factor in whether someone is an employee or contractor.)
Agencies will often pass this work on to clients as “work made for hire.” Brands soon may want an NFT created as proof of ownership. Additionally, there may need to be revisions to contracts with employees, contractors and clients to specifically call out ownership of the digital assets and the rights to NFTs.
This also poses new challenges in the business valuation world. As companies invest in and own NFTs, the marketability and liquidity will need to be measured, which will take specialized expertise. Your accountants will need to know how to treat these investments on your books, and as NFTs are purchased using cryptocurrencies, there are potential tax complications that you may need to navigate.
Crypto is still largely considered the Wild West of investments. Because it can be more volatile than other non-cash investments, especially pre-ITO, it is not for the faint of heart. Even so, celebrities are continuing to embrace the crypto trend, and some are even taking it to the next level: creating their own cryptocurrency.
Tech-savvy entertainers are creating their own tokens, taking advantage of the new frontier to promote and proliferate their art. Renowned DJ and music producer Diplo, for example, took a token-based approach to his latest album, using the platform Royal to sell tokens tied to music ownership rights and his streaming royalties. The tokens, slated into three different tiers for fans looking to invest at different levels, also promise shares to future royalties, access to exclusive content and, in some cases, access to Diplo himself.
Because the crypto world is still largely unregulated, entertainers can seize opportunities to invest and innovate before the space gets crowded and regulators step in. This can be an exciting, if unpredictable, venture that may continue to help artists further their careers, at least for the foreseeable future.
Big brands have tapped into the power of influencer marketing to make a larger impact and gain wider reach with their campaigns. It’s estimated that influencer marketing earnings will be worth $16.4 billion in 2022, up from $8 billion in 2019, according to Influencer Marketing Hub’s 2022 benchmark report. As a result, influencers are more popular — and more successful — than ever.
Once largely framed as a bartering system (i.e., free products in exchange for social media promotion), the influencer marketing space today has exploded with opportunities for influencers to drive monetary gain, and even find potential for lifelong revenue streams. Influencers are increasingly receiving monetary payments from brands, up to 50% in 2021, and 68% of brand marketers are expected to increase their influencer marketing spend through 2022.
As the number of influencers continues to steadily rise, influencers are now unionizing under the Screen Actors Guild - American Federation of Television and Radio Artists (SAG-AFTRA), but union membership is limited to individuals who have an LLC or a corporation; no partnerships are allowed. Part of what has driven this change with SAG-AFTRA is that celebrities from various mediums are doing more influencer work, and previously there had been no way for their work to apply toward their pensions or be incorporated into contracts with other SAG-AFTRA work.
SAG-AFTRA did establish some guardrails as to who can join. Influencers must produce original content and must retain ownership of their intellectual property. They must also be contracted directly with the brand, not through a third party. Additionally, there are restrictions against certain types of content that might not receive a PG-13 rating.
Influencer content is also limited to a one-year usage agreement, unless otherwise negotiated and limited to the brand’s own website, YouTube channel and other social media platforms to protect other areas of the union jurisdiction.
The entertainment industry continues to benefit from an insatiable need for content.
Between the growing number of streaming services and media platforms with global distribution, individual entertainment professionals from actors and writers to directors and producers, along with broader entertainment organizations, have ample opportunity to capitalize on the considerable amount of work available.
While there is some speculation that the streaming bubble will inevitably burst — or even that it already has — the desire for content shows no signs of slowing down. According to Nielsen, the average time spent streaming video content increased by 18% in the past year alone. The number of unique program titles in the U.S. are at 817,000 and climbing, and foreign language media has become increasingly embraced by U.S. viewers, with 76% of millennials and Gen Z watching foreign language TV shows or films. And while the vast number of streaming platforms available has become overwhelming for audiences, 93% of Americans plan to either keep their current subscriptions in place or increase the number of them.
As a result, even if the success of streaming services themselves take a dip, there will likely be no shortage of jobs for those on the content and entertainment side.
As these trends unfold, you will need expertise and specialization in your legal team and your staff, including your back office. Can your current team handle the accounting and tax issues around crypto and NFTs? Does your C-suite have the knowledge to navigate these new waters?
Now is the time to start thinking about these issues. By doing so, you’ll be able to prepare and avoid being caught off guard in the not-so-distant future.
If you have any questions or need assistance, contact our entertainment industry experts.
