"May You Live In Interesting Times..."

The Challenges of Deal-Making During A Digital Revolution


Clearly we live in interesting times; that's not news to anyone.  But being a lawyer, agent, executive or other deal-maker in the entertainment business over the past few years has been especially challenging. In addition to the economic downturn, many challenges are arising from the blurring of lines between the various methods of content distribution.

For instance, there used to be a clear distinction between home video rights and broadcast rights.  Making those deals was fairly easy.  Everyone understood what was being sold, and we just had to argue about the price.  The studios got two checks, and both the DVD stores and the networks made money.  Everyone was happy.

Then, along came downloads, streaming and mobile and all of the old definitions went out the window.  It's like we're all speaking some new foreign language. As a result, deal-making is not so easy, and it's harder to keep everyone happy..

Let's look at an example.  I make a movie.  I sell the home video rights to Netflix, and they stream it down consumers' cable connections onto their TV's. I also sell premium cable rights to HBO, who puts the film on its HBO On Demand service and streams it down the same cable onto the same TV's.  From the consumer's standpoint, it's the same process.  Push the button and watch the movie on your big screen from your favorite chair.  They don't really care how it gets there; they just want high-quality video and sound, delivered at the best price.

But for HBO or Netflix, this new paradigm often represents unexpected competition - especially when both options are available within a relatively short time period (or even contemporaneously).  And it doesn't help that every large Internet player is suddenly in the digital distribution business.  Competition is indeed becoming fierce.

For the most part, these potential conflicts are still being managed pretty well.  Most deals are kept within distribution windows that limit head-to-head competition between similar methodologies.   However, as technology continues to advance, it is getting more difficult. The windows are getting shorter and sometimes rights are being expanded in unexpected ways.

For example, Time Warner and Cablevision both recently initiated services which allow consumers to use their iPad or other tablet as a mobile television.  The studios take the position that this is not allowed under the existing licenses.  They claim that any viewing of content on an iPad is a part of the mobile rights.  They need to maintain that stance in order to sell mobile rights as a separate window.  Who is right?  As is so often the case these days, it's unclear.  There are likely good arguments on both sides.

The bottom line is that a serious struggle of competing interests now exists.  The studios want to parse the rights into as many windows and revenue streams as possible, and exploit them all within a fairly tight time frame.  Exhibition companies want to have as much time as possible to reach as many consumers as possible without being hampered by obsolete definitions that cause their rights to lose value with each technological shift.  Consumers just want to watch the movie on whatever device suits them without paying extra.  And us lawyers are supposed to write contracts that make it all work smoothly -- even years down the road when everything has changed again.  (Have I mentioned that my work has become really challenging lately?)

The guys who might have the best idea run a new company called Big Air Studios. I heard the CEO, Michael Arrieta, speak at a lunch today.  Very sharp guy.  Big Air is a group of experienced executives and producers who are focused on distributing content by every possible means and through every possible device. Their philosophy seems to be to give consumers what they want and then figure out how to make money at it.  I like that.  I don't think anyone ever went broke making their customers happy.

These are indeed interesting times.  As challenging as it makes my work, I wouldn't have it any other way.  I love progress and change.  Honestly, I can't wait to see what happens next...