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  • 1. ENTERTAINMENT LAW (Management 446) October 4, 2011 Chap. 7 – Contract Formation and Duration October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 2. Chapter 7 Outline
    • Basics and Formality
    • Definiteness
    • Consideration and Mutuality
    • Minors
    • Duration
    • Bankruptcy
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 3. Basics and Formality
    • A Contract is an agreement to exchange property or services that is legally enforceable in a court of law
    • Elements Necessary for a Contract
      • Mutual Assent
        • Agreement: one party makes an offer and the other party accepts; Objective standard = must be an outward indication of assent; Can be express (oral or written) or implied by actions
      • Consideration
        • A Legal Detriment to the party; Cash, Property, Performance, Giving up a right. Not pre-existing obligations
      • Capacity
        • Intoxication, Mental Illness, Minority can disaffirm until majority but not for necessities.
      • Legality
        • Committing a crime (gambling, usurious, violating a licensing statute); Exculpatory contracts, Unconscionable contracts, Restraint of trade
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 4. Basics and Formality
    • Hollywood Contracts
      • Risky business – unpredictability of success; art v. commerce
      • Average movie 2005 cost $59M to produce and $26M to promote
    • Negotiating oral agreement
    • Hollywood Deal Memos, letter of intent, often never signed
    • Kim Basinger – Main Line Productions dispute
      • Boxing Helena script – Kim loved it and said she would do it, but some nudity involved.
      • Deal Memo fairly detailed with her loan out co. but she never signed
      • Main Line financed based on deal, but she withdrew over nudity
      • Trial jury found oral contract; $8.9M verdict. Nudity an excuse since did Playboy pics; also in 7/10 recent films she never signed a contract
      • She filed bankruptcy and paid $3.8M in subsequent settlement
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 5. Formality
    • Statute of Frauds requires that personal service contracts that are not performable within one year of the contract being made must be in writing to be enforceable
    • MGM v. Scheider (NY 1976) parties agreed in Sep. 1971 that Roy would star in a TV series with five one year options. Then he refused to report for filming in June 1972.
      • MGM sued. Roy asserted Statute of Frauds defense.
      • Court rejected SOF since performance (on first year) could have been competed by Sep. 1972.
      • MGM awarded $120K damages (difference it had to pay Robert Conrad to star)
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 6. Formality
    • Promissory Estoppel – a promise which the promissory should reasonably expect to induce the promissee’s action or forbearance and which does induce this action or forbearance is binding if injustice can only be avoided by the enforcement of the promise.
    • Elvin Assoc. v. Aretha Franklin (SDNY 1990) Aretha said she would perform in a Broadway musical so the producer began preparation activities, including booking cities. Aretha said she had a fear of flying but she said many times she would overcome it. The parties continued exchanging drafts of a letter agreement during which Aretha was aware of the producer’s continuing work. Then she didn’t show for rehearsal saying she would not fly. Producer sued.
      • Court held it was unconscionable for her to deny her promise upon which producer had detrimentally relied. Should have traveled. Awarded $209K.
    • Gold Seal v. RKO Radio Pictures (CA 1955) Shook hands and said “We have a deal” to make a movie with or without Gregory Peck. Sent a deal memo referring to an earlier contract but subject to execution of a written contract. Peck declined, so RKO cancelled and was sued.
      • RKO claimed deal was ambiguous., so there was no contract
      • Court found an oral contract whose basic terms (story, star. money) were outlined in the deal memo , along with reference to earlier contract for additional detailed terms.
      • Satisfied Statute of Frauds.
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 7. Definiteness
    • Pinnacle Books v. Harlequin Enterprises (SDNY 1981) Executioner book series author signed with Pinnacle which included a clause that the author would use “best efforts” to agree on renewal terms before offering his book rights to another. After negotiations failed the author then signed with Harlequin. Pinnacle sued Harlequin for interference with contractual relations, so Pinnacle needed to show contract to renew.
      • “ Best efforts” agreement to agree not enforceable if terms too vague.
      • Here the parties agreed only to negotiate with no standards by which to be measured so indefinite (e.g., production and distribution of a motion picture).
      • No enforceable contract, so no interference.
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 8. Consideration and Mutuality
    • Need consideration to form a contract.
    • Bonner v. Westbound (Ill 1979) Ohio Players musical group were signed a 5-year recording contract and given an advance of $59K to cover recording costs, $22K to settle litigation, and $4K advance on royalties. WB not obligated to make a single recording, although they made several including gold album. Ohio Players signed a better deal with another label. WB sued but trial court found WB contract invalid due to lack of consideration. Appealed.
      • $4K not mentioned in contract, but since contract was silent as to consideration existence can be established through parol evidence.
      • Even contracts without mutuality of consideration can be cured by performance.
      • Court found cash advances were consideration. Also found contract could be upheld under promissory estoppel. Reversed and remanded.
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 9. Minors
    • 1930’s-40’s child actor Shirley Temple. Studios had 7 year contracts, including children at $150/week, and rented her out at $1500/week. Nothing left.
    • California’s Section 6750-53 Family Code allowed 7 year contracts but required court approval of minors contracts, requiring setting aside income into a trust until 18.
    • Home Alone earned $500 million, Cullen received $100K. For Home Alone II which grossed $350 million he received $5 million plus 5% gross.
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 10. Duration
    • Music recording contracts can have options for up to 8-10 albums which can each take 18-20 months, so musician may have a one-way commitment of up to 20 years!
    • California Labor Code 2855 placed limit on permissible duration of employment contracts (not music): 2 years (1872); 5 years (1919); 7 years (1931) current law in CA.
    • De Haviland v. Warner Bros. Pictures (CA 1944) In 1936 Olivia signed a 1 year contract (Gone With the Wind) with options of up to 6 more years. Suspended without pay for refusing some roles which extended the time beyond 7 years.
      • 7 year anniversary date is fixed whether working or not.
      • De Haviland wins.
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 11. Bankruptcy
    • Bankruptcy Code application to personal service contracts
      • Chapter 7 Liquidation
      • Chapter 11 Reorganization Plan
      • Chapter 13 Personal Payback Plan
      • Rejection of “executory” contracts. Chapter 7 automatic rejection; Chapter 11 rejection with court approval.
    • Noonan v. Willie Nile (SDNY 1982) Willie wanted to avoid his extended recording contract so he filed Chap. 11 to reject it. Creditors objected so he converted to Chap. 7. Noonan then moved to force him into a Chapter 11 plan.
      • Court considered bankruptcy fresh start policy.
      • Forcing Chap. 11 reorganization plan is involuntary servitude
      • Chapter 13 for individuals applies to artists, so must be voluntary. Cannot force an individual (as opposed to a business) into a repayment plan.
      • Motion to convert denied. Allows fresh start.
    October 4, 2011 Mgmt 446 – Ent. Law (c) 2010, 2011 DJH
  • 12. ENTERTAINMENT LAW (Management 446) October 18, 2011 Chap. 8 – Contract Obligations October 18, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 13. Chapter 8 Outline
    • Performer Author Obligations
    • Studio-Publisher Obligations
    • Royalties and Profits
    October 18, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 14. Performer/Author Obligations
    • Issues of Breach Creative Control
    • Material Breach. 4 factors
      • Extent non-breaching party being deprived of benefit
      • Whether a damage award will adequately compensate
      • Degree of partial performance
      • Willfulness of the breach
    • California Labor Code
      • 2924 Employer can fire employee for willful breach or habitual neglect or incapacity to perform
      • 2925 Employee can quit at any time for employer’s willful breach
    • Goudal v. Cecil B. DeMille Pictures (CA 1931)
      • Actress Jetta Goudal’s contract was terminated for failing to perform her parts as requested. Court agreed with her that her objections and artistic suggestions were not willful misconduct but were made in good faith.
    Mgmt 446 – Ent. Law (c) 2010-11 DJH October 18, 2011
  • 15. Performer/Author Obligations
    • Morals Clause
      • Performer agrees not to do or commit any act or thing that would to degrade or bring performer into public hatred, contempt, scorn or ridicule, or that would tend to shock, insult or offend the community, or ridicule the public morals or decency, or prejudice the producer, the motion picture, theatrical or radio industry
    • Lowe’s, Inc. v. Cole (9 th Cir.1950)
      • MGM writer Cole went before the House Un-American Activities Committee and refused to answer whether he was a Communist so he was found in contempt. MGM fired him under morals clause.
      • MGM first gave a notice of suspension and requested that he purge himself of contempt.
      • Cole did not and argued freedom of speech.
      • The Court found that Cole’s notorious refusal to answer made the public suspect him and this a liability so MGM was justified in terminating his contract.
    Mgmt 446 – Ent. Law (c) 2010 DJH Mgmt 446 – Ent. Law (c) 2010-11 DJH October 18, 2011
  • 16. Performer/Author Obligations
    • Non-competition Clauses
    • Harlequin Enterprises v. Warner Books (SDNY 1986) Executioner action series author had a non-competition clause in his contract with his former publisher Harlequin. Author began writing another series for Warner about a supernatural detective. Harlequin sued author and Warner for breach of non-competition clause.
      • Based on the expert testimony of publishing experts, the Court determined the two series would not appeal to similar readerships, action/adventure v. supernatural, so it found there was no violation of the contract restriction. Author should be free to write other fiction.
    Mgmt 446 – Ent. Law (c) 2010 DJH Mgmt 446 – Ent. Law (c) 2010-11 DJH October 18, 2011
  • 17. Studio-Publisher Obligations
    • Book Publisher Contracts
      • Advance (3-4 stages) to cover expected return.
      • Author royalties based on retail sales: 10% first 5K, 12.5% next 5K, 15% thereafter. Paperbacks are 7.5%-10%.
    • Harcourt Brace Jovanovich v. Barry Goldwater (SDNY 1982) HBJ sued for return of advance after rejecting the manuscript under contract clause to deliver manuscript “satisfactory to the publisher in form and content.” HBJ simply rejected it saying it was flat writing. Goldwater attempted to fix but still rejected. Released Goldwater who went with another publisher who edited it and book was a success.
      • While contract did not explicitly provide for editing, there was testimony that it was a custom of the trade for publisher to engage in editorial work with the author.
      • Court found that there was an implied obligation to do so, and concluded HBJ breached by willfully failing to engage in any rudimentary editorial effort.
    Mgmt 446 – Ent. Law (c) 2010 DJH October 18, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 18. Studio-Publisher Obligations “Satisfactory”
    • DoubleDay v. Tony Curtis (2 nd Cir. 1985) Tony Curtis wrote a successful novel for DD with DD’s editorial help. He received a $50K advance and wrote another novel but when submitted a DD executive said it was “junk pure and simple” not capable of being edited or rewritten into shape. DD editor offered Curtis the opportunity to send it to a “novel doctor” but Curtis refused. DD rejected second novel under contract since it was not “satisfactory to Publisher in content and form.”
      • Court noted that publisher had a duty to perform in good faith.
      • DD had no bad faith since it had offered to help fix it.
      • If Curtis wanted more editorial help from a specific editor he should have reserved it in the contract.
      • Court found DD acted in editorial good faith, so Curtis must repay the advance.
    Mgmt 446 – Ent. Law (c) 2010 DJH Mgmt 446 – Ent. Law (c) 2010-11 DJH October 18, 2011
  • 19. Studio-Publisher Obligations “Best Efforts”
    • Zilg v. Prentice-Hall (2 nd Cir. 1983) Author Zilg was awarded $25K based on trial court’s ruling that PH violated its good faith obligation to extend “best efforts” to promote author’s book when it reduced the number of copies and lowered ad budget. Contract stated it would be published by PH in a style “it deems best suited to the sale of the work.” Received some good reviews in NYT but mostly bad reviews and BOMC who refused to sell it.
      • Court noted that the contract had no specific “best efforts” clause to promote, but promise to publish implies good faith effort
      • Contract provision allowed good faith discretion. All that is required here is good faith business judgment
      • Need to allow publisher business discretion to reduce copies and ad budget, provided no bad faith. BOMC info reasonable.
      • Reversed trial court.
    Mgmt 446 – Ent. Law (c) 2010 DJH Mgmt 446 – Ent. Law (c) 2010-11 DJH October 18, 2011
  • 20. Royalties and Profits Film
    • Art Buchwald v. Paramount Pictures (CA Sup. 1990) Buchwald sued Paramount for breach of contract for the movie Coming to America by failing to pay $265K advance and at least 19% of “net profits”. He movie earned $350M so Buchwald sought to have the “not profits” formula in the industry’s standard form contract to be declared unconscionable.
      • Contract of adhesion is a standardized contract drafted by the party with superior bargaining position. In this case compensation was negotiated but boilerplate language of the Deal Memo was on a take it or leave it basis. Only a few with clout could negotiate it. Standard in the film industry. Contract of adhesion but enforceable unless unconscionable.
      • Unconscionable if unduly oppressive and substantively unreasonable
      • Paramount argued its net profit formula needed to stay in business to cover the flops. Court appointed its own accounting expert and then Paramount promptly dropped this argument.
      • Court found seven of 17 net profit provisions to be unconscionable (pg.770-771)
      • Paramount appealed, and then settled for $1M
    • Recent lawsuit on Hollywood accounting
    Mgmt 446 – Ent. Law (c) 2010 DJH Mgmt 446 – Ent. Law (c) 2010-11 DJH October 18, 2011
  • 21. Royalties and Profits - Music
    • Music business concept of recoupment. Record company collects all of its costs.
    • Business model
      • Advance, plus royalty of 11%-13% of suggested retail price of all records
      • Deductions
        • Actual production costs for recordings
        • Producer’s 3% cut
        • 25% reduction for packaging cost
        • 15% reduction for free goods/promotional records
        • 10% reduction for breakage
        • 35% held back for a year for reserves for product returns
        • 15%-25% to personal manager
      • TLC song generated $50M profit to label/distributor, but artists only received $1.2M
    • Songwriter royalties under compulsory licensing of 6.6 cents per record up to 5 minutes, then additional
    • Public performance license fees from BMI and ASCAP - music police
    Mgmt 446 – Ent. Law (c) 2010 DJH Mgmt 446 – Ent. Law (c) 2010-11 DJH October 18, 2011
  • 22. Royalties and Profits - Music
    • Entitlement to payments - Happy Birthday Song
    • In re Waterson, Berlin & Snyder Co. (2 nd Cir. 1931) Music publisher went bankrupt and bankruptcy trustee wanted to sell publisher’s copyrights.
      • Does trustee have right to sell, and would new owners be free from royalty obligations under agreements with composers.
      • Court held trustee can sell copyrights, but they are subject to the right of the composers to be paid royalties for the songs use
    Mgmt 446 – Ent. Law (c) 2010 DJH Mgmt 446 – Ent. Law (c) 2010-11 DJH October 18, 2011
  • 23. ENTERTAINMENT LAW (Management 446) October 24, 2011 Chap. 9 – Entertainment Contract Remedies Mgmt 446 – End. Law (c) 2010 DJH
  • 24. Chapter 9 Outline
    • Injunctive Enforcement of Personal Service Contracts
    • Damages for Contract Breach
    Mgmt 446 – End. Law (c) 2010 DJH
  • 25. Injunctive Enforcement
    • Equitable remedy – contracts to perform personal services are not to be specifically enforced. Reason – difficult to force someone to perform, and against 13 th Amendment ban on involuntary servitude.
    • Lumley v. Wagner (British case 1852) Johanna Wagner, opera singer niece of famous composer Richard Wagner, violated exclusive agreement not to perform anywhere else.
      • Court did not compel Johanna to perform.
      • Court did enjoin her negative promise not to perform anywhere else.
      • Established principle that injunction is proper.
    • Preliminary Injunction requirements
      • Irreparable harm
      • Likelihood of success on merits
    Mgmt 446 – End. Law (c) 2010 DJH
  • 26. Injunctive Enforcement
    • Harry Rogers Theatrical Enterprises v. Comstock (S Ct NY 1928) Rogers sued under its long-term contract with performer Comstock for an injunction to block performer Comstock from performing for Shubert.
      • Court held that where the services are unique such that damage to plaintiff will be irreparable and unascertainable, even if there is no negative promise not to appear elsewhere, the performer may be enjoined as well as third parties, citing Lumley .
    Mgmt 446 – End. Law (c) 2010 DJH
  • 27. Injunctive Enforcement - California
    • CA Civil Code Section 3423 – Injunction against performers requires a contract that
      • Is in writing
      • Is for unique services
      • Guarantees minimum compensation per the Statute
    • Motown Record Corp. v. Tina Marie (S Ct CA 1984) Tina had an exclusive recording contract, with an option clause allowing Motown to pay Tina the statutory minimum compensation ($6K since 1919). Trial court enjoined her.
      • Appeals court held the option clause did not meet the statutory minimum guarantee requirement since it did not meet the fundamental fairness concept of the statute since option did not guarantee compensation.
      • Also found no consideration given for the option modification. Reversed.
    • 1994 Update – CA Civil Code 3423 – $9K Plus provision
      • Must guarantee $9K Yr 1, $12K Yr 2, $15K Yrs 3-7
      • Plus $15K Yrs 4,5 $30K Yrs 6,7
    Mgmt 446 – End. Law (c) 2010 DJH
  • 28. Damages for Contract Breach Performers v. Producers
    • Quinn v. Straus Broadcasting Group (SDNY 1970) Straus fired radio talk show staff announcer Quinn and offered to pay him the balance owed on his contract. Instead Quinn sued for $500K damages for wrongful termination, $500K damage to reputation, and $500K for subjecting him to public ridicule.
      • Under NY law contract damages are limited to unpaid salary less amount by which he should have mitigated his damages.
    Mgmt 446 – End. Law (c) 2010 DJH
  • 29. Damages for Contract Breach Performers v. Producers
    • Vanessa Redgrave v. Boston Symphony Orchestra (1 st Cir. 1988) Redgrave publically supported the PLO, so her performance was cancelled. BSO offered her full salary but she sued and a jury awarded $100K for consequential damages from loss of future opportunities.
      • Rule – no damages for harm to reputation
      • Hadley v. Baxendale rule that contract damages limited to those that naturally arise that are reasonably contemplated by the parties. Need proof of rational basis. And must be ascertainable
      • Evidence only supported ascertainable amount of $12K loss
    • Examples - Katzenberg v. Disney; obtained revenue share of $250M.
    Mgmt 446 – End. Law (c) 2010 DJH
  • 30. Damages for Contract Breach Performers v. Producers
    • Parker v. 20 th Century Fox (S Ct CA 1970) Actress Parker had a contract to play lead in a musical movie for $750K. Producer decided not to produce the movie but offered her the same compensation to play the lead in a western movie. Court found producer liable for $750K.
      • Rule – recovery is amount of salary less mitigation from substantially similar employment.
      • Affirmed - Here the court held a western is not comparable to a musical.
      • Dissent – acting job as lead in another movie is substantially similar
    Mgmt 446 – End. Law (c) 2010 DJH
  • 31. Damages for Contract Breach Performers v. Producers
    • Raquel Welch v. MGM (Cal App 1988) MGM decided to cut over budget costs on the movie Cannery Row so it replaced RW with less expensive actress. RW sued and jury awarded her $2M in compensatory and $8M in punitive damages.
      • Subsequent Foley case change the rules and held no tort damages for breach of implied covenant of good faith and fair dealing in employment contracts. RW award reduced to $5.3M.
      • MGM should have exercised its “pay or play” provision for $194K.
    Mgmt 446 – End. Law (c) 2010 DJH
  • 32. Damages for Contract Breach Authors v. Publishers
    • Freund v. Washington Square Press (Ct App 1974) Author a college teacher had a contract with publisher under which he was to be paid an advance and 10% royalties. He delivered his modern drama manuscript and was paid his $2K advance, but after a merger the publisher ceased publication. He sued for breach of contract damages.
      • Breach of contract damages are measured by the benefit of the bargain to the extent foreseeable and ascertainable .
      • Expectation here was (i) his advance which was paid, and (ii) 10% royalties which were “wholly speculative” and not proved. Nominal.
    Mgmt 446 – End. Law (c) 2010 DJH
  • 33. Damages for Contract Breach Authors v. Publishers
    • Contemporary Mission v. Famous Music (2 nd Cir. 1977) Famous agreed to record and produce CM’s rock opera using “reasonable efforts” to promote and distribute the records. Famous was sold to ABC who did nothing. CM sued and jury awarded $200K for Famous’ failure to promote.
      • Famous appealed that the award was too speculative under Freund
      • Court found that excluded lost royalties evidence comprising a statistical analysis should have been considered. Affects the weight of the evidence.
    Mgmt 446 – End. Law (c) 2010 DJH
  • 34. ENTERTAINMENT LAW (Management 446) November 1, 2011 Chap. 10 – Entertainment Representation and Regulation Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 35. Chapter 10 Outline
    • State Regulation of Entertainer Representatives
    • Conflict of Interest in Entertainer Representation
    • Union Regulation of Entertainer representation
    Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 36. State Regulation of Entertainer Representatives
    • Entertainer Representation
      • Talent agent - 10% procures employment (William Morris Endeavor Agency [ WME ], International Creative Management, Creative Artists Agency)
      • Personal manager – 15%-25% develops career
      • Business manager – 5% handles finances
      • Entertainment lawyer – 5% or hourly for legal advice
    Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 37. State Regulation of Entertainer Representatives
    • California Talent Agencies Act (Cal. Labor Code 1700-1700.47)
      • Talent agency is a person or corporation who engages in the occupation of procuring, offering, promising, or attempting to procure employment or engagements for an artist or artists [excepting such activities for recording contracts.] Talent agencies may in addition counsel or direct artists in the development of their professional careers.
      • An unlicensed agent or manager may act in conjunction with and at the request of a licensed agency to negotiate an employment contract.
    • Enforcement of Act by CA Labor Commissioner
    Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 38. State Regulation of Entertainer Representatives
    • Raden v. Laurie (Cal Ct App. 1953)
      • Raden had a contract to act as personal manager for child actor Piper Laurie for 10% commission on engagements he arranged. Under the contract he was not required nor authorized to seek employment but was required to counsel her. Raden was terminated but not paid commission on several engagements because he allegedly promised to find employment w/o license.
      • Raden took Laurie to several employment locations; to obtain employment v. advance her general development
      • No evidence that Raden procured, offered, promised, or attempted to procure employment per the statute. Employed only to counsel. Not acting as talent agency.
    Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 39. State Regulation of Entertainer Representatives
    • Wachs v. Curry (Cal Ct App. 1993)
      • Arsenio Hall entered into a personal management agreement with X Management. The agreement recited that X was not retained as an employment agent or talent agent, and that it had not offered or promised to obtain employment. In fact X did secure a number of contracts whose 15% commissions amounted to $2.67M. The relationship broke down and Hall instituted a proceeding with the Labor Commissioner who found they had been procuring employment without a license and ordered reimbursement of $2.12M. Commissioner rejected waiver and estoppel arguments based on Hall’s awareness. X appealed claiming that the law was void for vagueness.
      • Court found term “occupation” means principal business. Found “procure” means to obtain. Different from counseling. Law not void.
    • Baker v. BNB (Labor Commissioner 1997) Found responding to outside requests for client’s services was more than a conduit for offers, since there were negotiations that exploited employment offers which therefore constituted solicitation under the Act.
    Mgmt 446 – End. Law (c) 2010 DJH Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 40. Conflict of Interest in Entertainer Representation
    • California Talent Agent law bars agents from referring their clients to firms in which they have financial interest
    • Lawyer agents - Rules on lawyer conflicts governed by state laws and ABA Model Rules of Professional Responsibility.
      • Rule 1.7 – Lawyer shall not represent a client if the representation is directly adverse to another client, unless the lawyer reasonably believes it will not adversely affect the relationship with the other client, and each client consents after consultation.
      • California rules permit potential conflicts if written consent
    Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 41. Conflict of Interest in Entertainer Representation
    • Croce v. Kurnit (SDNY 1982) Kurnit was an attorney and a partner in the record company with whom musician Jim Croce had signed a recording contract. Kurnit was later also the Croce’s entertainment attorney which earned $6.9M from the contract. Jim Croce’s widow later sued Kurnit for breach of fiduciary duty as an attorney.
      • Court found that Kurnit breached his fiduciary duty to Croce’s by not advising them to obtain separate counsel before they signed the contract.
      • Court found such breach was not so fundamental so as to rescind the contract, but did find Kurnit liable for costs and attorney’s fees spent by Croce to bring such claims.
    Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 42. Conflict of Interest in Entertainer Representation
    • ABKCO Music v. Harrisongs Music (2 nd Cir. 1983) Bright Tunes, owner of song “He’s So Fine” brought copyright infringement suit against George Harrison for “My Sweet Lord.” After the court ruled for Bright tunes, Klein President of ABKCO bought copyright for $587K and then offered to sell it to Harrison for $700K. Klein was Harrison’s former business manager.
      • Court found Klein used Harrison’s confidential financial info he learned while manager and thus breached fiduciary duty owed by agent Klein to principal Harrison.
      • Court awarded constructive trust on the “fruits” of the acquisition.
    Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 43. Union Regulation of Entertainer Representation
    • CA Talent Agencies Act requires agents to file their fee schedules.
    • CA agent commissions capped at 10% by Unions,
    • Unions control standards by requiring all union members not to use any agent who has not been franchised by the union.
    • Unions: Screen Actors Guild; Writers Guild; Directors Guild; American Federation of Television and Radio Artists; American Federation of Musicians; Actors Equity for theaters.
    • Such a performer agreement to boycott non-complying agents could be a conspiracy in violation of section 1 of the Sherman Act antitrust laws, except that Congress and the courts have granted a labor exemption to unions.
    Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 44. Union Regulation of Entertainer Representation
    • H.A. Artists v. Actors’ Equity Ass’n (USSC 1981) Equity a national union for stage actors since 1920’s and had collective bargaining agreements with all major theatrical producers. In 1977 after a dispute the producers’ trade association Theatrical Artists representatives Associates (TARA) agreed to abide with Equity’s regulations. However a group of agents including H.A. Artists refused to abide and sued contending Equity’s regulations violated the antitrust laws as a combination in restraint of trade.
      • Congress earlier had passed Clayton Act and Norris-LaGuardia Act to immunize labor unions from antitrust laws because labor unions were lawful combinations needed to protect workers. Exemption does not apply however if the combination involves non-labor group. TARA not a union.
      • TARA was an association of agents whose fees needed to be regulated to control actor wages, so it was a “labor group”
      • The exemption was found to apply so the combination held lawful.
    Ent. Law - Mgmt 446 (c) DJH 2010,11
  • 45. ENTERTAINMENT LAW (Management 446) November 15, 2011 Chap. 11– Performer Organizations November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 46. Chapter 11 Outline
    • Entertainment Labor Market
    • Labor Law in the Entertainment World
    • Labor Solidarity and Entertainment Hyphenates
    • Judicial Control of Entertainment Labor Power
    • Contingent Workers: Employees or Contractors
    • Performing Rights Societies
    • Antitrust Challenges
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 47. A. Entertainment Labor Market
    • “ Above-the-line ” talent heavily unionized
      • Actors Equity ( AE ) since 1913 has 36K members in live theater
      • Screen Actors Guild ( SAG ) since 1933 has 85K members in film
      • American Federation of Television and Radio Artists (AFTRA) since 1937 has 75K members in broadcasting
      • Writers Guild of America ( WGA ) since 1954 has 11K members
      • Directors Guild of America ( DGA ) has 12K members directing films in movies and TV
      • American Guild of Musical Artists (AGMA), American Guild of Variety Artists (AGVA), each have 5K member singers/dancers
      • American Federation of Musicians ( AFM ) has 135K member musicians in movies, broadcasts, recording, orchestras, nightclubs
      • Authors Guild has 6500 book writers
      • Songwriters Guild has 4500 composers
      • American Society of Composers, Authors, and Publishers ( ASCAP .com) since 1914 has 55K members
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 48. Entertainment Labor Market
    • Golden Age of Hollywood (1920’s-1950’s)
      • Vertically integrated. Long term employment (7 years)
      • Motion Picture Association of America, ( MPAA ) originally the Motion Pictures Producers and Distributors Association (MPPDA) formed in 1922
      • National Labor Relations Act 1935 authorized private sector employees the right to independent union representation
      • 1937 MPPA signed labor agreements with SAG and DGA
      • Unions provide working conditions and minimum scale. Members are free to negotiate their own deals, subject to minimum scale.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 49. B. Labor Law in Entertainment World
    • Residuals – compensation to talent for reuse of a film product in other settings.
    • Alliance of Motion Picture Television Producers ( AMPTP ) negotiation with unions on behalf of producers
      • Vertically integrated. Long term employment (7 years)
      • Motion Picture Producers Association (MPPA) 1919 ( MPAA )
      • National Labor Relations Act 1935 authorized private sector employees the right to independent union representation
      • 1937 MPPA signed labor agreements with SAG and DGA
      • Unions provide working conditions and minimum scale. Members are free to negotiate their own deals, subject to minimum scale.
    • Marino v. WGA, Coppola (9 th Cir. 1993)
      • Marino appealed WGA arbitration of screenwriting credits given to Coppola for Godfather II. Anonymous process held to be fair.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 50. C. Labor Solidarity - Entertainment Hyphenates
    • Union solidarity arises from members contractual commitment not to cross picket lines during a strike
    • Hyphenates: writer-director; writer-producer; director-producer.
    • Producers and directors supervise others, and under the National Labor Relations Act (NLRA) supervisors and managers are excluded from the scope of its statutory protections.
    • ABC v. WGA (US S Ct 1978) held discipline of hyphenates for crossing picket line during a strike. Employer’s economic rights dominate.
    • Pattern Maker’s League v. NLRB (US S Ct 1985) Union contractual restriction on union resignation a violation of an employee’s statutory rights. Case used to invalidate WGA limits on member resignation during big 1988 strike.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 51. D. Judicial Control of Entertainment Labor Power
    • Graham v. Scissor-Tail, Inc. (S Ct CA 1981)
      • Bill Graham hired AFM member Scissor-Tail for two concerts and used AFM Form B contract where he agreed to pay the greater of AFM scale or 85% of gross receipts less expenses. Graham made $98K on one and lost $63K on the other so he wanted to net it out. Graham sued and the court sent it to AFM for arbitration. AFM referee awarded $53K.
      • Supreme Court held it was an adhesive contract (take it or leave it; must adhere).
      • Adhesion still may be enforceable, unless Unconscionable.
      • Arbitration provision in form contract mandated that a party to the contract, AFM, was the arbitrator. This is not fair and unconscionable.
      • Reversed and remanded.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 52. Judicial Control of Entertainment Labor Power
    • AFM v. Carroll (US S Ct 1968)
      • Carroll, a band leader and member of AFM, sued for antitrust violation because he thought the AFM rules were too burdensome, including Price List. Caroll argued leaders should not be within the labor exemption from per se price fixing violation of Sherman Act.
      • Supreme Court held union regulation as a justified means of preserving the scale or worker musicians (sidemen and subleaders) and related to labor.
      • Orchestra leaders such as Carroll were found to be a labor group, and therefore since it was a labor dispute, per the Norris-LaGuardia Act, it is outside the reach of the Sherman Act.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 53. E. Contingent Workers: Employees or Contractors
    • Distinction between employee or independent contractor status is important since federal labor laws and antitrust exemptions apply only to employees, not to independent contractors.
    • Employee if hiring party has “right to control.”
    • Employee test. Factors:
      • skill level;
      • source of tools;
      • location of work;
      • duration of relationship;
      • right to assign additional work;
      • work hours;
      • method of payment;
      • whether work is regular business of hiring party;
      • provision of employee benefits;
      • tax treatment of the hired party.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 54. Contingent Workers: Employees or Contractors
    • HBO v. DGA (SDNY 1982) DGA was negotiating with HBO and asking for percentage of gross revenues. DGA disciplined directors who worked for HBO through their loan-out companies. HBO sued for antitrust violations, and DGA asserted directors were employees so as to be subject to labor laws and enjoy antitrust immunity.
      • Held freelance directors were employees
      • Held loan-out company was functionally identical to directors
      • Held producer-directors independent contractors, but of a less independent class that competed with Guild directors and that assumed no business ownership risks, so subject to labor laws.
      • Held director-packagers assumed business ownership risks and packagers were therefore not a labor group, but when working as a director they were a labor group.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 55. F. Performing Rights Societies
    • American Society of Composers, Authors, and Publishers ( ASCAP )
      • ASCAP is a membership association of more than 390,000 U.S. composers, songwriters, lyricists, and music publishers of every kind of music. Through agreements with affiliated international societies, ASCAP also represents hundreds of thousands of music creators worldwide. ASCAP is the only U.S. performing rights organization created and controlled by composers, songwriters and music publishers, with a Board of Directors elected by and from the membership. ASCAP protects the rights of its members by licensing and distributing royalties for the non-dramatic public performances of their copyrighted works.
    • Broadcast Music Inc. ( BMI )
      • BMI collects license fees on behalf of songwriters, composers and music publishers and distributes them as royalties to those members whose works have been performed. BMI was founded in 1939 by radio executives to provide competition in the field of performing rights, to assure royalty payments to writers and publishers of music not represented by the existing performing right organization and to provide an alternative source of licensing for all music users.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 56. G. Antitrust Challenges
    • Antitrust – Sherman Act 1890
      • Section 1 – makes unlawful every contract, combination, or conspiracy in restraint of trade
      • Section 2 – prohibits monopolizing, attempting to monopolize, or conspiring to monopolize
      • Enforced by Justice Department, states, and private parties
      • Remedies include criminal penalties, equitable relief, and up to treble damages and attorneys fees
      • Most antitrust challenges of ASCAP and BMI are under Section 1
      • Analysis
        • Per se illegal (price fixing, group boycotts, market divisions)
        • Rule of reason test – balance anticompetitive effects
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 57. Antitrust Challenges
    • US Department of Justice (DOJ)
      • ASCAP, BMI exclusive licensing and pooling created excessive prices. DOJ challenged and they settled.
      • Blanket licensing also alleged to be anticompetitive since customers who want to license some materials are required to take a license to all material whether they want it or not
      • DOJ allowed blanket licensing if nondiscriminatory. Copyright owners must be allowed to offer direct licensing to customers
      • Members must be allowed to terminate membership
    • Television Networks
      • CBS v. ASCAP (US Ct 1980) CBA alleged pooling of copyrights avoided price competition and amounted to price fixing for performance rights.
        • Supreme Court observed many customers preferred blanket licensing for performance rights since it was convenient
        • Supreme Court held since CBS failed to prove direct licensing was not feasible, therefore blanket licensing not shown to be an unreasonable restraint of trade.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 58. Antitrust Challenges
    • Local Television Networks
      • Buffalo Broadcasting v. ASCAP (2 nd Cir. 1984) Blanket licensing for local TV stations not an unreasonable restraint on the market for performing rights to musical compositions
      • Court observed local stations never attempted to license performance rights to a song directly from the composer or publisher
    • Cable Companies
      • Courts held blanket licensing to cable companies did not violate antitrust laws because of availability of alternate forms of licensing.
    • Judicial Arbitration of Performance Rights Fees
      • ASCAP’s consent decree with DOJ requires it to set reasonable fees for licensing of compositions, and establishes SD NY as the “rate court” for disputed licenses. Over 40 rate proceedings have been filed but all have settled prior to trial.
    November 15, 2011 Mgmt 446 – End. Law (c) 2010,11 DJH
  • 59. ENTERTAINMENT LAW (Management 446) November 29, 2011 Chap. 12– Entertainment Conglomerates Mgmt 446 – Ent. Law (c) 2010 DJH
  • 60. Chapter 12 Outline
    • Paramount and Corporate Takeover Law
    • Antitrust Law Reshapes the Movie Business
    • Post-Paramount Motion Pictures Practices
    • Movie Industry Integration Revisited
    Mgmt 446 – Ent. Law (c) 2010 DJH
  • 61. A. Paramount and Corporate Takeover Law
    • “ Horizontal” integration of movie business
    • “ Vertical” integration of movie business
    • Example – 1989 $15B merger of Time, Inc. (Time, Life, People, Sports Illustrated magazines; HBO; cable distribution) and Warner Communications (Warner Bros. , Warner Music)
      • Paramount Communications v. Time (Del. 1989) Paramount and aggrieved shareholders sued Time to force its board to conduct an open auction for its shares, based upon Revlon v. MacAndrews & Forbes ruling that in certain circumstances the directors’ role changed from defenders of the corporate bastion to auctioneers charged with getting the best price. Court acknowledged two situations, (i) when a corporation initiates an active bidding process seeking to sell itself , and (ii) where in response to a bidder’s offer a target seeks an alternative transaction involving the breakup of the company. Here the court concluded there was a long range plan with basically the same shareholdings so the court would not order a takeover auction to maximize value now.
    • Example – 1993 $8B Paramount Viacom merger
    Mgmt 446 – Ent. Law (c) 2010 DJH
  • 62. A. Paramount and Corporate Takeover Law
    • “ Horizontal” integration of movie business
    • “ Vertical” integration of movie business
    • Example – 1993 $8B merger deal of Paramount (movie studio) and Viacom (Showtime, MTV cable). Challenged by QVC.
      • Paramount Communications v. QVC Network the court distinguished Time-Warner merger and held the Viacom-Paramount merger was actually a sale because control would be transferred from the public to Viacom. Therefore if the is a breakup or a change in control as here, the board had a duty to seek the best value for the shares.
      • In the subsequent bidding war, Viacom outbid QVC for $10B
    • Example – 1996 $19B merger of Disney and ABC.
    • Example – 2000 $110B AOL (Internet) and Time Warner merger. Stock market decline of 2000 lost $98B. AOL had fraudulently inflated its revenues and paid $510M in fines. 2006 AOL Time Warner split up and AOL dropped from name.
  • 63. B. Antitrust Law Reshapes the Movie Business
    • 1920’s Woodrow Wilson’s Justice Department brought antitrust litigation against the Motion Picture Patent Trust that had been created in New Jersey by Thomas Edison and fellow inventors of movie technology. Prohibited patent holders from using patent monopoly to “tie-in” restraints on use of licensed products.
    • 1920’s 5 major studios (Paramount, MGM, RKO, Warner, and Fox) had acquired theater chains in response to chains refusing to exhibit films.
    • 1938 Roosevelt’s Justice Department began litigation against the 5 major studios for violation of Sections 1 and 2 of the Sherman Act. After 10 years of litigation they agreed to consent decrees with US government that enjoined certain practices such as block booking and approval of acquisitions of theaters.
    • District Court under consent decree established competitive bidding for movies which was appealed to US Supreme Court.
  • 64. B. Antitrust Law Reshapes the Movie Business
    • Review Sherman Antitrust Act of 1890
      • Section 1 prohibits any contract, combination or conspiracy in restraint of trade
      • Section 2 prohibits any effort to monopolize trade
    • Populist school – antitrust laws should promote distributional equity and protection of viable, small, locally owned businesses.
    • Chicago school – antitrust law should allow the market to maximize the total value of economic output, not who should enjoy its fruits. Recognizes some restrictive practices actually may have pro-competitive effects so legal intervention not necessary.
    • While horizontal integration poses significant antitrust problems, vertical integration may not since there is still competition.
    • Monopoly power determined in view of relevant market.
    • Rule of reason balancing of pro and anti competitive effects.
  • 65. B. Antitrust Law Reshapes the Movie Business
    • US v. Paramount Pictures (US S. Ct. 1948) appeal of antitrust case regarding integration of production, distribution, and exhibition of films. It was against 5 major film producers/distributors who owned their own exhibition theaters, namely Paramount, MGM, Radio-Keith-Orpheum [RKO], Warner Bros, and 20 th Century Fox; Columbia Pictures and Universal which produced and distributed films, and United Artists which distributed films.
    • I. Restraint of Trade
    • Price Fixing.
      • Film’s are not sold to exhibitors; the right to exhibit under copyright is licensed. The District Court found that the licenses they issued fixed minimum admission prices. under a horizontal conspiracy between all Studios and a vertical conspiracy between the studios and their licensees. No express agreement needed; enough if a concert of action is contemplated and the defendants conformed to the arrangement. Same minimum pricing pattern found in all licensing agreements.
      • Cited patent case law allowing licensors to fix resale price of items licensed under patent monopoly; argued it should be the same under copyright. Court acknowledged this, but patentees are still not permitted to form a price-fixing conspiracy. Therefore not Ok for copyrights either. Applies to both horizontal and vertical arrangements.
    • Clearances and Runs.
      • Studios’ standard contract with exhibitors specified when and where first runs must occur and time clearances between runs. Terms were fixed without regard to special circumstances. Found conspiracy to retrain trade by imposing unreasonable clearances.
  • 66. B. Antitrust Law Reshapes the Movie Business
    • 4. Formula Deals, Master Agreements, Franchises.
      • Master agreements from the studio gave long term master franchises to theater chains with formula deals giving the studio a percentage of the national gross.
      • Court found the agreements eliminated bidding for films between theaters and a misuse of monopoly power that was a restraint of trade and a monopolistic practice.
    • 5. Block-Booking.
      • Practice of licensing a group or block of films on condition that the exhibitor would also take a license for other less desirable films released by the distributors during a certain period found to be illegal.
      • Reasoning that it does not support pecuniary reward for the quality of the creator’s efforts if some are conditioned on accepting others. Note that the problem is not the blocks, it is the conditional requirement.
  • 67. B. Antitrust Law Reshapes the Movie Business
    • 6. Discrimination.
      • Court found preferential features in large theater contracts not found in smaller theater contracts, e.g., pre-general release showings, amounting to antitrust violations.
    • II. Competitive Bidding.
      • The District Court concluded that the only way to introduce competition to theater exhibition was to implement competitive bidding for films. The US Supreme Court eliminated this portion.
    • III. Monopoly, Expansion of Theater Holdings, Divestiture
      • The Court found a monopoly of exhibition of first run exhibition business. The 5 majors owners 3,137 (17%) of nation’s 18K theaters that accounted for 45% of box office receipts. Their conspiracy was to strengthen their hold on the exhibition field.
      • The Court found that to undo the conspiracy, rather than competitive bidding there was need for divestiture.
      • Affirmed in part, reversed in part, and remanded.
  • 68. B. Antitrust Law Reshapes the Movie Business
    • Major movie studios and distributors entered into a series of consent decrees.
        • Proscription of block-booking
        • Allowing exhibitors to set their own admission prices without minimums
        • No pooling agreements with other theaters
        • Elimination of runs and clearances
        • Requirement to license on a picture-by-picture basis
        • Complete divestiture of motion picture exhibition from production and distribution, and bars franchise agreements.
    • Revolutionary. Studios dismantled large teams and went to production project model. Number of movies released per year dropped from 300 in 1940 to 100 in 1980’s up to 200 in 1990’s.
    • Costs increased on MPAA movies averaged $59M and additional $27M on advertising and distribution. Superstars increased to make $20M+ per movie.
    • Requires large investment with unpredictable results.
  • 69. C. Post-Paramount Motion Pictures Practices - Antitrust
    • Price Fixing per se illegal if “horizontal” price-fixing among competitors since it involves power to control the market and to fix arbitrary and unreasonable prices.
    • Different result possible if by non-competitors, e.g., between suppler and buyer in a “vertical” supply chain. Potential pro-competitive result if it prevents free-riding that is ultimately harmful to consumers, such as certain services like demonstrations and explanations that benefit consumers.
    • Resale price maintenance between supplier and reseller have been held illegal, but in some arrangements affecting resale price at least indirectly may be OK such as in minimum advertised pricing policies.
  • 70. C. Post-Paramount Motion Pictures Practices - Antitrust
    • Consciously Parallel Behavior Sherman Act Section 1 requires a “contract, combination, or conspiracy”, i.e., an agreement. Need not be express, can be shown by circumstantial evidence to infer and agreement from evidence that firms have been consciously behaving in a parallel, interdependent, and non competitive manner.
    • Courts look at special channels of communication, such as trade associations
    • Interstate Circuit v. US (US S. Ct 1939) Interstate owned several large first run theaters. Interstate announced it would no longer deal with distributors that dealt with Interstate competitors unless the distributor required such competitors to adhere to Interstate’s higher admission pricing policies.
      • While there was no direct evidence of a conspiracy, Court found concerted action by the 8 distributors who all new their cooperation was essential and participated in the scheme. All exhibited consciously parallel behavior by acting in the same fashion resulting in restraint of commerce.
    • Theater Enterprises v. Paramount (US S. Ct 1954) Plaintiff accused Paramount and several distributors in downtown Baltimore of parallel behavior constituting a conspiracy to restrict first run movies to downtown and exclude suburbs. Paramount offered business justification that bigger returns needed on first runs and that downtown public transportation supported larger audiences required. No conspiracy to restrain trade found.
  • 71. C. Post-Paramount Motion Pictures Practices - Antitrust
    • Block Booking and Blind Bidding Requiring the exhibitor to take a block of films constituted a “tying arrangement”. This is an agreement by a party to sell one product but only on condition that the buyer also purchases a different (tied) product as well.
    • To be a violation the tying product must have some market power that forces the buyer to purchase the tied product. Restraint on trade is that other sellers of the tied product do not have a fair chance to compete.
    • Some pro-competitive aspects are cost savings in marketing, packaging, and if not enough product market power it may be OK.
    • US v. Loew’s (US S Ct 1962) Loew’s and other producers of movies packaged groups of movies together for TV. (For example, to obtain quality films Casa Blanca and Treasure of Sierra Madre you had to also purchase Tug Boat Annie Sails Again and Tear Gas Squad) Tying? Need economic power from tying product due to its desirability or uniqueness. Such power is presumed when the tying product is patented or copyrighted. Argument that TV is different since it can show items other than movies. Court did not buy such argument and found illegal tying in restraint of trade.
  • 72. D. Movie Industry Integration Revisited
    • US v. Syufy Enterprises (9 th Cir. 1990) Syufy invested in luxury 6-screen theater and drove competitors out of business, which he then bought. DOJ sued for monopolistic practices.
      • Power to Exclude Competition. Just because number of competitors is reduced does mean there is antitrust problem. There must be power to exclude competition. Here there are no structural barriers to entry into the market such as government regulation or licensing, or huge investment required.
      • Court distinguished unlawful monopoly power from growth as a consequence of a superior product. Court found lawsuit by DOJ to be a form of regulation.
      • Personal initiative, not government control, is fountainhead of progress in a capitalist economy. Court found that success due to market forces and not monopolistic practices.
  • 73. D. Movie Industry Integration Revisited
    • The number of US theater screens has grown from 14K in 1970 to 37K in 2005, more and more of which were owned by big chains such as United Artists, Lowe's, General Cinema. In 1994 top 10 chains owned 50% market. Also most movies now released nationwide rather than first run, second run, etc.
    • DOJ Consent Decree still in play for some studios, but not most.
    • US v. Loew’s, et al. (2 nd Circuit 1989) Warner sought unrestricted 50% ownership with Paramount of the Cinamerica Theater chain. Warner argued aftermarkets such as television and video lessened market concentration and many fewer barriers to entry.
      • Issue whether 50% ownership was likely to unreasonably restrain competition in either the motion picture distribution or exhibition industries.
      • Court found such ownership unlikely to foreclose competition among exhibitors or distributors, since Cinamerica owns only 2% of US screens.
      • The consent decree remained in effect so if studios returned to their previously held evil ways, the Attorney General or competitors could sue.
  • 74. D. Movie Industry Integration Revisited
    • Cable industry mergers and FCC
    • FCC approved 2002 merger of AT&T and Comcast for $47B serving one-third 69M homes with cable. Invested in fiber-optic technology.
    • FCC rejected merger of No. 1 DirecTV and No.2 Echostar satellite networks, since it would have resulted in 96% (16.7M) of satellite subscribers, e.g., de facto monopoly.
    • Current landscape is that huge entertainment conglomerates with levels of horizontal and vertical integration that dwarfs paramount Pictures case. However more avenues of content exploitation since technology now different so more competition available in each market.
    • Same company can publish a book, release the movie through theaters, cable, television, Internet, music video, video games, and a TV series that forms the base of a new network (e.g., Star Trek by Paramount.)
  • 75. ENTERTAINMENT LAW (Management 446) December 6, 2011 Chap. 13– Entertainment in a New Telecom World December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 76. Chapter 12 Outline
    • Financial Interest and Syndication Rules
    • Broadcast Speech, Cable Distribution, and “Must Carry”
    • Diversity in the Broadcast Industry
    • New Spectrum for this New Millennium
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 77. A. Financial Interest and Syndication Rules
    • Communications Act of 1934 had renamed Federal Radio Commission as Federal Communications Commission (FCC) to regulate telephone as well as radio services.
    • Telecommunications Reform Act of 1996
      • Purpose to open up competition among telephone, cable services
      • Ban against indecent material on the Internet
      • V-chip technology for filtering TV violence
    • Entertainment spending
      • $9B theaters; $24B home video rentals and sales. Updated .
      • $40B TV advertising; Updated $45B cable subscription. Updated .
    • NBC v. US (US S. Ct 1943) held FCC conditions on licenses to use radio was not an abridgement of freedom of speech because a condition of license granted to limited public airwaves
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 78. A. Financial Interest and Syndication Rules
    • Red Lion Broadcasting v. FCC (US S. Ct. 1969) upheld FCC’s fairness doctrine requiring stations that took a position on one side of a public controversy to give the other side an opportunity to state its views on air.
    • Miami Herald Pub. Co. v. Tornillo (US S. Ct. 1974) struck down fairness doctrine state law that applied to newspapers.
    • Special treatment for broadcasters who have been entrusted by the government with exclusive right to one of a limited number of frequencies.
    • FCC v. Pacifica Foundation (US S. Ct. 1978) upheld ban on indecent public broadcast programming, while same words on a jacket in a courthouse could not be banned since freedom of speech.
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 79. A. Financial Interest and Syndication Rules
    • Financial interest and syndication rules by FCC in 1970 banned networks from securing financial and syndication rights in the programming they broadcast.
    • The three major networks (ABC, NBC, CBS) accounted for 90% of TV viewers.
    • FCC said the rules were necessary to preclude networks from expanding their distribution monopoly power into a production monopoly as well.
    • Rules included limited restraints on foreign syndication, network could contract for a financial interest after waiting 30 days, network negotiations for syndication rights had to be by an independent body, FCC relaxed rules but still only permitted the networks to do upto40%of their own prime time production. Broadcast industry appealed to 7 th Circuit.
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 80. A. Financial Interest and Syndication Rules
    • Schurz Communications v. FCC (7 th Cir. 1992) syndicated programs are reruns broadcast by independent stations 5 days per week after first shown on a network. Concern that without the rules the networks would dominate TV production.
      • Court noted since rules originally adopted, the TV industry had changed. In 1970 the 3 networks had 90% of prime time audience. Since then the networks had lost ground to 62% of prime time audience, primarily as a result of expansion of cable TV to 60% of homes and video players to 70%.
      • Commission did not recognize that networks may have lost so much of their power so as to no longer pose a threat. The FCC’s stated reason of diversity of sources and outlets for TV shows was without any reasoning.
      • Court found FCC decision was unreasoned and unreasonable and thus arbitrary and capricious and therefore vacated and remanded.
    • New FCC Chair under in 1994 declared an end to Fin/Syn regs.
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 81. B. Broadcast Speech, Cable Distribution, and “Must Carry”
    • 1975 National Association of Broadcasters (NAB) adopted “family viewing hour” policy from 8:00-9:00 pm in fear of losing their FCC licenses. Norman Lear producer of All in the Family TV show convinced WGA to sue FCC and the district judge held that the family viewing policy infringed their First Amendment Free Speech rights.
    • Rather than appeal, NAB revoked its policy, but networks still loosely followed it until late 1980’s. Then new Fox network started showing sexual and violent content shows at 8:00 pm such as Beverly Hills 90210 and Melrose Place.
    • Alternate solution such as V-chip technology in TV manufacturing to allow parents to control violence in programming.
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 82. B. Broadcast Speech, Cable Distribution, and “Must Carry”
    • Fairness Doctrine policy adopted by the FCC in 1949 that required licensed broadcast stations to offer a “balanced presentation of opposing viewpoints” about “controversial issues of public importance” and also to give a right to reply to any individual whose “honesty, character, integrity, or like personal qualities” had been attacked on that station.
    • Red Lion Broadcasting v. FCC (US S. Ct.1969) Author of a book critical of Republican candidate Barry Goldwater was attacked on a conservative radio program as someone who worked for a “communist-affiliated publication. FCC directed that the station had to give the author the right to reply. Red Lion sued.
      • Court upheld the constitutionality of the FCC directive, finding there is nothing in the First Amendment which prevents the Government from requiring a licensee to share his frequency with others, and as a fiduciary to have obligations to present views of the community on the airwaves.
    • Office of Communication of United Church of Christ v. FCC (DC Cir 1969) upheld removal of license of segregationist TV station, illustrating special constitutional status of broadcasting which uses public airwaves.
    • “ Fairness doctrine” abolished by FCC in 1987.
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 83. B. Broadcast Speech, Cable Distribution, and “Must Carry”
    • 1992 Cable Television Consumer Protection and Competition Act
      • Cable companies “must carry” locally-licensed TV stations so they can stay in business and continue broadcasting free on local public airwaves.
    • Turner Broadcasting Systems v. FCC (US S. Ct. 1994) Court found cable subscription in over 60% households, and that cable companies had sufficient market power to harm broadcast competitors. Also found increased vertical integration in the cable industry making it harder for broadcasters to secure carriage on cable systems.
      • Cable programmers are entitled to protection of free speech. However, Court found the rationale that broadcasters are entitled to a less rigorous First Amendment standard does not apply to cable regulation. There is no scarcity of cable stations like there is of broadcast frequencies.
      • Must carry rules are content neutral so no free speech violation.
      • Preventing cable operators from refusing carriage ensures broadcast stations can continue operation for public benefit for free.
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 84. B. Broadcast Speech, Cable Distribution, and “Must Carry”
    • 1999 Satellite Television Home Viewer Act removed a ban on satellite dishes carrying local stations
      • Gave a choice; could either carry all local metro channels or none. Carry all or none””
    • Satellite Broadcasting and Communications Association v. FCC (4 th Cir. 2001) Court found “carry all or none” rule to be a constitutionally legitimate restraint on satellite free speech, similar to cable regulation.
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 85. C. Pursuing Diversity in the Broadcast Industry
    • 1934 Communications Law bans foreign ownership of US broadcast stations (does not apply to cable).
    • Rupert Murdoch, native Australian, in mid 1980’s was becoming a US citizen and purchased US stations to form Fox Network. NAACP filed complaint. FCC found a violation, but granted him a waiver since his new network enhanced broadcast competition and improved the diversity and quality of programming in the US.
    • 1996 relaxed foreign restrictions.
    • Compare studio ownership:
      • Fox (owned by NewsCorp - Australian)
      • Columbia Pictures (owned by Sony – Japanese)
      • MCA-Universal (part owned by Vivendi –French, along with GE)
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 86. D. A New Spectrum for the Millennium
    • HDTV – high definition TV, analog to digital
    • Digital TV
    • Digital spectrum auction
    • TV viewing
    December 6, 2011 Mgmt 446 – Ent. Law (c) 2010-11 DJH
  • 87.