Thorny legal issues that slow convergence

Hollywood’s emerging digital revolution is predicated on the idea that consumers should be able to access their favourite content wherever and whenever they please.

But as media companies seek to move those programmes to a variety of new platforms – from mobile phones to the internet – legal issues are proving as nettlesome as technical ones.

That is because the contractual arrangements that have long governed business relations between media companies and “the talent” – actors, directors, writers and other artists – never contemplated the commercial opportunities presented by the iPod, video-on-demand or other emerging media venues.

As a result, lawyers for film and TV studios have become essential, sorting out a welter of old contracts in order to ensure that material can be cleared for release on new platforms. They are also preparing to wrestle with the artists’ guilds over a contractual framework that will determine how a new generation of royalties will be divided up – negotiations that could affect billions of dollars of future revenues.

“It’s going to be giant,” said one talent agent, who predicted that the dispute could lead members of the Screen Actors Guild and the Directors Guild to go on strike when their current agreements with the studios expire late next year.

At the moment, sorting through back catalogues of films and TV programmes – many of them decades old – has consumed most of the legal community’s attention. “There are so many of these to clear, and it’s not just the US. You’re dealing with rights territory by territory,” said Aydin Caginalp, a partner at law firm Alston & Bird. “It’s a real headache.”

Music rights are often the thorniest because the studios, trying to save money, only licensed songs for their television programmes for one or two network broadcasts. Now that they want to re-release them on iTunes, DVD or the internet they have to return to the record companies to renegotiate. ”Our lawyers are spending a great deal of time going through the library and clearing rights,” said Marc Graboff, president, NBC Universal Television, West Coast.

Future programmes should be less onerous since NBC and other networks are attempting to standardise contracts so that the talent is compensated for content – such as two-minute “mobisodes” – created specifically for mobile phones and other devices.

Yet the industry’s dispute with the SAG and other guilds may not be so easy to resolve. The argument revolves around whether digital downloads from iTunes and other outlets should be treated like home video or pay-per-view sales. The studios favour the former, under which they are allowed to deduct 80 per cent of the revenues to cover the costs of shipping and manufacturing before they pay royalties to artists. The guilds argue that digital downloads do not have any physical costs, and are demanding the latter, in which they would be paid based on the total revenues.

In theory, the dispute should not be too difficult to work out because these new digital revenues remain small. However, in such a rapidly evolving industry, no one is sure what the business model will look like in five years, and no one wants to lose out. “It’s going to be very contentious,” one studio lawyer predicted.