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The Entertainment Industry in 2020: Four Legal and Business Issues For Consideration

By Simon Pulman and Briana Hill

1. AB5 Brings Uncertainty: The new California Assembly Bill 5 (AB5) became effective on January 1, 2020. Originally created to codify the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903 (Dynamex), and to address the increase of misclassification of workers as independent contractors, the drafting of AB5 is so broad that it greatly expands the definition of “employee” in a way that potentially reclassifies most independent contractors as employees. This has huge potential repercussions for many companies doing business in California, including those in the entertainment industry (which has traditionally been extremely reliant on independent contractors), as companies may now need to provide full employment benefits to individuals previously characterized as independent contractors.

While there are certain statutory exemptions, the exemptions do not cover traditional entertainment job categories.  There is currently very little guidance as to how the law will be interpreted and enforced, and how it will interact with guild rules. It is incumbent on all studios, producers, networks, and other entertainment companies to watch developments closely, and to consult with knowledgeable counsel when in doubt.

2. Continued Evolution in Streaming: The rise of streaming platforms has dominated the film and episodic programming business over the past few years. 2020 is poised to bring the most significant year of change yet, as new platforms such as HBO Max, Quibi and Peacock will join the recently launched Apple TV+ and Disney+, and incumbents such as Netflix, Hulu, and Amazon. Each of these platforms is targeting a slightly different position in the marketplace, and the economics for content producers vary on a platform-by-platform basis based on the rights and territories that each discrete platform is presently seeking to acquire.

From a deal-making perspective, it is possible that the increased competition will put pressure on platforms to offer greater transparency into the performance of their content and potentially more meaningful participation for creators in the upside of successful series and movies. Additionally, it will be interesting to see if Netflix blinks with respect to its (to date) steadfast insistence on dropping all series on an all-at-once “binge” model, given the plaudits and positive buzz that Disney+ has received for releasing episodes of The Mandolorian on a weekly basis. Finally, Quibi is a truly interesting new entrant that is planning some fascinating creative experiments with short form and interactive content, in addition to providing producers with a business model that is arguably more favorable than some of its competitors.

3. Exclusivity Reigns in Podcasting: 2019 was a year of huge growth and continued maturation for the podcast industry. Mainstream coverage of the industry expanded significantly, many major celebrity names launched podcasts for the first time, and a number of big media conglomerates entered the space or materially increased investments in their podcast divisions. The maturing of the podcast industry has had notable effects on the business side of this burgeoning medium. Participants at all levels in the value chain have started to stake a claim to ownership of, or participation in, podcast rights and revenues. Moreover, the deal-making has become much more sophisticated. Prior to 2019, the dominant podcast distribution model was very simple – make your podcast available on as many ad-supported platforms as possible, and split revenues between stakeholders (usually the creator and the production company or network) (often in a straight 50/50 configuration). This began to change during 2019 as certain companies grew and engaged more experienced representation, and entrants such as Spotify and Luminary started to lock down exclusive rights to content.

Expect the podcast content arms race to heat up in 2020, as high-profile shows and creators commit exclusively to platforms in exchange for sizeable minimum guarantees. However, platforms that offer podcasts in combination with music (such as Spotify, Apple, iHeart, and Pandora) would appear to be best positioned in the market versus pureplay podcast subscription outlets because of their existing subscriber bases and the value proposition of bundling music with podcast (and, indeed, expect 2020 to be the year of the “music podcast”).

4. Gaming Grows: As Netflix Chairman and CEO Reed Hastings famously opined, Netflix is primarily competing with Fortnite rather than with other SVOD platforms. Expect 2020 to be a huge year for gaming, with the release of several big titles (such as Cyberpunk 2077 and The Last of Us 2) being followed by the impending launch of much-anticipated new consoles Playstation 5 and Xbox Series X in the fall.

The continued growth of gaming will fuel a corresponding growth in esports and “game-adjacent content culture” – the creation, consumption and interactive fan participation in content around the culture of videogames, via platforms such as Twitch, Mixer, YouTube and Instagram. All of the next-generation gaming platforms will include built in recording and streaming capabilities allowing gamers to easily create media and engage with other users. While this arguably implicates copyright issues for rightsholders, many of the game companies have taken a permissive stance regarding streaming (and other activities, such as creating derivative works), believing it to be helpful to their business – although distributors must also be cognizant of other issues such as right of publicity.

Additionally, as discussed in a previous blog, expect a flurry of announcements during 2020 and beyond with respect to entertainment extensions of videogame properties – most notably film and TV adaptations, but also podcasts and graphic novels. A significant portion of these will probably involve the original game developers and/or publishers in a meaningful way, as rightsholders understand the importance of maintaining a strong and consistent brand across platforms.

Other sectors of the entertainment business should ignore gaming at their peril. For more, we recommend reading “7 Reasons Why Video Gaming Will Take Over” by Matthew Ball.