The Future of Video

Legal and Business Considerations

By Simon N. Pulman

Consumption of online video continues to grow at a rapid pace. Online video ad revenue is projected to reach nearly $5 billion in 2016, while premium streaming video distributors including Netflix, Hulu Plus and Yahoo are stepping up their licensing and commissioning of original content. Most industry observers believe that online video – notably to the extent consumed through mobile devices – is an important component in the future of the internet.

In order to capitalize upon the growth in online video, media companies (both traditional and emerging) are creating dedicated divisions aimed at developing and producing a full range of video content, ranging from micro-short form clips with strong potential for sharing via social media (e.g., Vine), to original series and even feature length motion pictures. Certain companies may also break away from traditional film and television formats to experiment with new forms of video and transmedia content.

In this new ecosystem, certain fundamental principles remain. Regardless of video format or distribution platforms, all innovative business practices must be built upon a strong foundation of legal experience, necessary due diligence and robust content production and distribution expertise. Nonetheless, there are a few business and legal issues that deserve special consideration by the next-generation video content company. Here are three issues to consider with respect to the future of video:

Data:

As content and technology converge, data and sophisticated business intelligence will become increasingly important to the media and entertainment industries. Content companies that control technology platforms are well positioned to leverage data to make content development decisions and effectively market content to users. Netflix and Amazon Studios have already been using data to guide licensing and acquisition decisions, and it’s not inconceivable that a “full stack” digital media company could use user behavioral data gleaned from mobile devices, search, social platforms and social video to aid the company’s development and targeted marketing of higher budgeted serialized content and even full length feature films. This ready access to, and analysis of, user data is also potentially attractive to advertisers who can place targeted advertising across a full spectrum of premium video content and potentially seek to partner at an early stage in the development and production of content (as further discussed later in this blog post).

The evolving importance of data to video content raises several legal and dealmaking questions. Most obviously, companies leveraging data must ensure that they comply with all general laws and regulations pertaining to data collection, use and storage, including FTC and COPPA guidelines. Video content producers and distributors now have access to massive quantities of behavioral, demographic and geolocation data, and that creates sizeable risks and legal/compliance responsibilities. Further, as video becomes more social and media companies seek to make their content available across a broad swath of online properties, they would be well advised to oversee what data is being collected and shared with third party vendors and partners to ensure compliance with the Video Privacy Protection Act, which regulates the disclosure and destruction of data linking individuals with specific video content.

On the dealmaking and contract negotiation side of things, parties seeking to co-produce or co-finance video content must now address data ownership and access at the contractual level. The question of who gets to share in the insights derived from all of the data generated by next-generation content companies is likely to become a point of negotiation in certain deals, even if data regarding consumption does not ultimately filter down to individual content creators themselves.

Rights:

Integrated video content companies based upon a technology platform may have rights requirements that exceed traditional entertainment industry custom. For instance, it is a given that a company that distributes its video content online across all devices will require a broad grant of rights on a worldwide, cross-platform basis. The concept of “windowing” may therefore operate differently when dealing with an online-native company. The strong distribution capabilities of high growth online video companies give them strong leverage in negotiations, and as international reach and emerging markets become bigger drivers of revenue, it may become harder for rightsholders to exclude territories from contracts.

Derivative rights also require particular focus. Online video distributors often need to edit, modify and repurpose content in different forms and formats – and sometimes, to be able to grant the right to their users to do the same (the rise of user-generated content is a topic in itself). Distributors will also seek localization rights so that they can quickly iterate and produce tailored versions of videos and formats for local markets – often partnering with local sponsors. Accordingly, attention must be paid to rights grant provisions and also any “creative approval” provisions in distribution and talent agreements (which can prohibit scope of use and impede the nimble business practices that online companies rely on). Further, a company that develops content ranging from short-form right up to television and motion picture may consider building in an option or right of first negotiation with respect to all content it acquires or licenses, no matter the length. This permits the company to test content, ideas and characters across its various distribution platforms and target certain of these for further investment and development based upon user preference data – safe in the knowledge that it can secure the right to do so. Some more insights into negotiating digital distribution agreements can be found on our blog here.

It’s also worth noting that online video companies – especially those that have found success by creating and circulating content at a rapid clip – must ensure that they have adequate legal paperwork, have obtained all necessary clearances and have consulted with attorneys regarding any potentially problematic clearance, privacy or fair use questions (and attorneys must, by the same token, be prepared to respond at a pace befitting the rapid-fire new media age).

Brand Integration:

Premium online video content presents great opportunities for thoughtful and creative brand integration. We have already discussed the opportunities and challenges posed by “native advertising” on this blog, such as FTC disclosure requirements (see also our blog on online and mobile disclosure guidelines here) and right of publicity issues, and many of the same principles carry over into the video medium. One trend to watch out for is brands becoming long-term partners with content creators by sponsoring the initial exploitation of a concept as a “branded short” or “viral video” and potentially continuing to support the concept as financiers and co-production partners as the concept moves up the food chain to become a long-form episodic series or film. Online platforms are seeing significant success due to their ability to understand brand values and craft entertaining content that represents those values, and this trend will continue as video consumption grows. Of course, sponsorship agreements with major brands can be complex, particularly in the video space, so content platforms need to pay close attention to how sponsorship agreements interact with their other financing, production and talent agreements.

Conclusion:

The issues discussed briefly in this blog post pose some exciting business opportunities and some tricky legal and contract challenges. The most important thing to note is that online video companies – especially those with designs on moving into longer form content – must still adhere to traditional production legal fundamentals such as ensuring that the chain-of-title on intellectual property is clean, that they have adequate agreements with all cast and crew, that they have adhered to any and all guild requirements, and that there are no clearance or licensing issues that could impede their ability to distribute their content. Companies that can master these fundamentals, while simultaneously leveraging technology capabilities and digital business practices, stand to see significant business success as the media landscape continues to evolve.

Simon N. Pulman is an associate in CDAS’s New York office. He can be reached at spulman@cdas.com and followed on Twitter at @simonpulman. As with all of the content on CDAS.com, this blog post is provided for informational purposes only and does not constitute legal advice.