Ppt Valuation Legal Issues V2 Jcr 042909


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Ppt Valuation Legal Issues V2 Jcr 042909

  3. 3. GLOBALCAPITAL THE PANEL MONEY, MEDIA, ENTERTAINMENT & TECHNOLOGY SYMPOSIUM of DIGITAL HOLLYWOOD SPRING 09 Panel on Valuing Media Assets in the Global Reset. Panelists: Larry Gerbrandt (Media Valuation Partners) Seth Shapiro (New Amsterdam Media) Marty Pompadour (Caribbean International News Corp.) James C. Roberts III (Global Capital) Please note that this presentation was not given at the panel.
  4. 4. GLOBALCAPITAL TABLE OF CONTENTS Introduction & Summary Part I: Trends & Trick Questions. Part II: Legal Issues. Part III: Why They Matter in Valuations.
  5. 5. GLOBALCAPITAL INTRO: WHO WE ARE & ARE NOT. 1. Global Capital Group has two entities: – Corporate, transactional & IP: Global Capital Law Group PC – Strategic consulting: Global Capital Strategies LLC 2. We don’t have lunch with Gwyneth Paltrow. – We are not traditional entertainment lawyers: We don’t do “pure” movie deals for a percentage. – Internet technology and content and advanced technology: “Beyond the bleeding edge.”
  6. 6. GLOBALCAPITAL SUMMARY: REVENUE MODELS & RISKS. 1. Context: Global trends affecting models. 2. New revenue streams: Mobile & data—even ecommerce. 3. Hollywood’s corporate & legal culture: We own it all. 4. Legal issues affect valuation: ownership and indemnification risks—a quick guide to due diligence.
  7. 7. GLOBALCAPITAL FROM A LEGAL PERSPECTIVE: SO WHAT? 1. Look at viability of assets across new platforms: Is the market there? Are the rights there (in the agreement) to serve that market? 2. Do they have the rights for probable revenue stream: How long? How much must it be shared? 3. Do they have rights to various data streams? 4. Data streams as revenue streams.
  8. 8. GLOBALCAPITAL PART I: TRENDS--TRICK QUESTIONS. 1. When you see the word “mobile,” what do you see? Cellphone 2. When you think of mobile IP rights, what do you see? Mobile distribution of existing TV shows. 3. A mobile deal? Digital content license with a network/studio and a telco.
  9. 9. GLOBALCAPITAL TRICK ANSWERS. 1. Mobile as the “platform of choice.” Smartphones, MVD’s & Netbooks—i.e., Internet access (rather than only phone system access). 2. Hollywood culture: Long-form v. short-form major controversy but music & games biggest segment, then personal videos. 3. All kinds of mobile deals: M&A, technology, regulatory, etc.—complicated ecosystem of stakeholders. 4. Hollywood short form: What’s missing?
  10. 10. GLOBALCAPITAL ROW: THE PC IS NOT THE WEB. 2008, worldwide: • ~3,500,000,000 cellphones • ~1,400,000,000 TVs • <500,000,000 PC users (~200m HH) 3Q07: Nokia buys NavTeq for $8,100,000,000 ($8+ billion)
  11. 11. GLOBALCAPITAL OLD REVENUE SOURCES. The obvious: – Broadcast ads: national spots declining – Syndication: unclear future – Site Ads: CPMs dropping – Cable fees: mixed record
  12. 12. GLOBALCAPITAL NEW (& IMPROVED) REVENUE SOURCES. 1. The obvious: – Mobile ads: screen-size issues; splits? – Mobile video: promising (complicated dev) – Mobile search: not bad 2. The emerging: – Datastreams: of what type? – Ecommerce: Tivo & Amazon – Pre-rolls, etc.: excellent now but unpopular
  13. 13. GLOBALCAPITAL HOLLYWOOD’S DIFFERENT (LEGAL) CULTURE. • “Short Form” mania: Oral agreements OK. • Booming business for litigators: unclear as to scope, terms, etc. • Over-reliance on inapplicable forms: trying to put a round peg in a square hole. • “We own everything you ever think of for exploitation: past, present and future.” • Usually unclear language, scope problematic.
  14. 14. GLOBALCAPITAL PART II: LEGAL ISSUES--SUMMARY. 1. Scope of license: What rights? 2. Reps & warranties: Can they say they control? 3. Revenue: With whom is it shared 4. Other Terms: Indemnification, etc.
  15. 15. GLOBALCAPITAL FOR EXAMPLE . . . 1. Rights: – What is the scope of rights granted? – Are there other licenses granted that limit new platforms or territories (or languages)? – Does the chain of title support the reps & warranties? – Do they own user/audience data? – Any pre-existing (or competing) “registered” rights? Any opportunity? 2. Term: Is the term long enough to hit IRR? 3. Other Terms: Indemnification, reports, etc.
  16. 16. GLOBALCAPITAL QUICK TRICKS. 1. Scope of license: Does it cover new platforms and new forms of “engagement,” e.g., interactivity, social networking, peer-to-peer, mobile, “complete” convergence? 2. Limitations of other licenses: The “Border Effect.” Is it licensed in foreign markets (through other agreements)? 3. Who owns user/audience data? 4. Reps & warranties: Can they say they control? 5. Revenue: With whom is it shared? 6. Indemnification: Huge risk? (Claims may be brought in foreign jurisdictions)
  17. 17. GLOBALCAPITAL LEGAL RISKS: LICENSE SCOPE. Does the scope of license grant rights sufficient for commercialization (and valuation)? 1. Platforms specified? Interactivity? “Mash-ups” w/in broadcast rights (“push” v. “pull”). 2. Term (and beyond)? Use in between broadcast “day and date(s)”? 3. Right of sublicense (necessary if to Users). 4. What else is it being licensed? 5. Data/datastreams. Internet exploitation enables accumulating—and mining and monetizing—vast amounts of granular data. 6. Does the content rely upon rights in technology (often covered by different agreements)?
  18. 18. GLOBALCAPITAL LEGAL RISKS: LICENSE SCOPE. Hollywood “own it all” mentality: Everywhere & for all time… [The studio shall have . . .] the exclusive, irrevocable, right, license, privilege, and authority to exploit the Work in any manner, medium, form or language, now known or hereafter devised, whether or not reasonably contemplated as of the Effective Date, in its sole discretion, and to make copies of such exploitations and to exhibit, distribute, exploit, market, perform and make digital transmissions of the Work throughout the universe in any and all media by any and all means, whether now known of hereafter devised . . .
  19. 19. GLOBALCAPITAL SO WHAT? Traditional Approach: Push it to the audience. Does the license grant cover “Pull” or social networking, mash-ups, etc.? Lean back/lean forward? Exploit the Work: • Includes right to edit, trailers, mobisodes? Digital transmission: • Interactivity? Mobile rights? Derivative works? Universe: • Defined term?
  20. 20. GLOBALCAPITAL WHERE’S WALDO? RIGHTS. Company automatically and irrevocably shall own and be vested with, and Vendor automatically and irrevocably shall be deemed to have granted, conveyed, assigned, transferred and set over to Company, all right, title and interest in and to the Work, including without limitation any and all copyrights therein and thereto (and all renewals, extensions, restorations and resuscitations thereof) and any and all rights now known and used, under any and all such copyrights in perpetuity (but in any event for not less than the period of copyright and any and all renewals, extensions, restorations and resuscitations thereof), in any and all languages and in any and all media now known and used, now known and hereafter used, or hereafter known or devised and used for the entire universe (collectively, the "Rights"). Without limiting the generality of the foregoing, the "Rights" shall in any and all events include, without limitation, all right, title and interest in and to the following: (i) the sole and exclusive Motion Picture rights, including, without limitation, the sole and exclusive right to produce one (1) or more Motion Pictures or other derivative works (including, without limitation, sequels, prequels, remakes, musicals and/or serials) based, in whole or in part, on the Work and the right to fix, reproduce, release, distribute, exhibit, perform, transmit, broadcast, advertise, promote and otherwise exploit such Motion Pictures or other derivative works by any and all means and in any and all media whether now known and used now known and hereafter used, or hereafter known or devised and used, including, without limitation, all of the following: theatrical; non- theatrical (including airlines, ships and other carriers, military, educational, industrial and the like); pay- per-view; home video (including video-cassettes, digital videodiscs, laserdiscs, CD-ROMs, video-on- demand; near video-on-demand and all other formats); all forms of television (including pay, free, network, syndication, cable, satellite, high definition and digital): subscription-on-demand;
  21. 21. GLOBALCAPITAL WALDO (cont’d). all forms of digital or on-line exploitation, distribution and/or transmission (including, without limitation, the internet), CD-ROMs, fiber optic or other exhibition, broadcast and/or delivery systems and/or computerized or computer-assisted media; all rights of communication to the public, rights of distribution to the public, rights of making available or other forms of public or private communication and/or distribution; and all forms of dissemination, communication or distribution to one or more locations or parties, whether embodied or transmitted utilizing analog, digital or other formats; (ii) all ancillary, incidental and subsidiary rights including, without limitation, all merchandising, (e.g., games, computer, video and other electronic games, toys, comic books, so-called "making of books," apparel, food, beverages, posters, and other commodities, services or items), commercial tie-ins, co-promotions, music, music publishing, soundtrack, photonovel, novelization, screenplay publication, interactive media, multi- media, and theme park (or other "themed" or location-based attraction) rights in and to the Work; (iii) the right to make or publish excerpts, synopses or summaries of the Work for purposes of advertising, publicizing or exploiting the foregoing rights in and to the Work; (iii) the exclusive right to publish the Work or excerpts therefrom and (iv) the exclusive right to use the title or titles by which the Work may be now or hereafter known, or any components of any such title or titles (a) as the title of Motion Pictures and/or in connection with the advertising, marketing, publicity, promotion and other exploitation thereof, whether such Motion Pictures are based wholly or partially upon the Property or are independent of the Work, (b) in connection with songs, musical compositions, music or lyrics and/or phonorecords, whether or not included in any such Motion Pictures, and (c) in connection with the publication, recordation, performance, and any other use whatsoever of the foregoing items.
  22. 22. GLOBALCAPITAL SO WHAT? 1. Overreaching? – Enforceable in the EU? 2. Where is mobile mentioned? – Does that mean “not contemplated?” – No “pull,” no UGC, no alerts, no “lateral” dissemination by User? 3. Tricky application of Rule of Ejusdem Generis: – General statements apply to same class of things or only things listed. “Cars, trucks, motorcycles” = land-based vehicles so planes and boats are excluded. – The longer the list the more likely that missing items were intentionally omitted. – Courts do not limit application to statutes. 4. Agreements as guidance for non-lawyers. Can you imagine them figuring this paragraph out? This is analysis, not criticism, of the Hollywood approach: Just different.
  23. 23. GLOBALCAPITAL LEGAL RISKS: REPS & WARRANTIES. Can they represent that they control the necessary rights? (a) Ownership or Control. Licensor owns or has been licensed all rights necessary to effectuate the terms of this Agreement. Can they legitimately say this? (b) No Violation of Third Party Rights & Applicable Laws. The execution, delivery and performance of this Agreement will not violate rights granted by xxxxxxx to any third party or violate the provisions of any agreement to which it is a party or violate any applicable law or regulation, including those regarding export control; and New risks for technology based on “Open Source.”
  24. 24. GLOBALCAPITAL LEGAL RISKS: INDEMNIFICATION. Indemnification shifts future risks. • Who assumes the risks going forward? • Infringement • Third-party claims • Non-American jurisdictions may assert their authority. (EU privacy laws; jurisdiction based on “country of access”; infringement claims)
  25. 25. GLOBALCAPITAL PART III: WHY THIS MATTERS IN VALUATION: It’s the Audience. • Scope determines platforms. Platforms determine audience size. • Strength of license grant determines probability of higher value. • Territories affect potential income streams. • Liabilities (indemnification, litigation) weaken “base” value. • Term affects Discount Rate & IRR. • Terms make “comps” more accurate.
  26. 26. GLOBALCAPITAL (AUDIENCE) SIZE MATTERS. 1. Are future audiences larger audiences or larger number of (overlapping) audiences? (Hint: Mobile + IPTV). – Other technologies have “proxies” for “audience” but stronger cost-savings elements (e.g., SaaS). 2. If digital content is the asset, then future value is based on re-use—on other platforms, etc. – Subtract re-purposing & digital distribution (e.g., streaming) costs? – Risk of cannibalization? (Does Hulu hurt or help Disney, et al.?) 3. Re-use depends on rights to such use. 4. “Content Everywhere” (breaking down silos) may consolidate (and increase) audiences, but may be constrained by license constraints and, later, sunk costs. – E.g., if you invest in a standard that is later superseded.
  27. 27. GLOBALCAPITAL TWITTER COULD NOT BE PREDICTED. • MySpace. Facebook. Twitter. Who knew? • All valuation techniques are largely backward- looking: DCF, comparables, etc. Who made money how in the past? • The best numbers and agreements are still subject to the art of valuation. That’s a good thing.
  28. 28. GLOBALCAPITAL Thank You. James C. Roberts III jcrext@globalcaplaw.com globalcaplaw.com GLOBAL CAPITAL LAW GROUP pc Copyright 2009, James C. Roberts III. All rights reserved.