Column: The EU Has Changed the Game for Artists and Social Media Globally — and It's About Time
Over the last year, there has been bipartisan appetite for taking a bite out of big tech. From carve outs of §230 of the Communications Decency Act to Congressional antitrust hearings, to lawsuits and investigations from seemingly every three-lettered government agency in the District, big tech has had an especially tedious go of it recently. And 2021 does not seem to be any different.
Sometimes overlooked amid other more headline-worthy stories, one initiative has the potential of striking at the heart of platforms' business models – including both the largest social media companies we're all familiar with and any-sized platform that relies on user-generated content. The future of copyright online, which generates billions for platforms, will be up for discussion in the 117th Congress, and legislation across the Atlantic may play a major role in influencing how that discussion shakes out.
Senator Thom Tillis, a Republican from North Carolina who is also chairman of the Senate Judiciary Subcommittee on Intellectual Property, recently presented a discussion draft of a bill to restructure the Digital Millennium Copyright Act (DMCA). His bill, which is in its infancy and will surely go through many revisions and scrutiny in the upcoming Congress, signals a willingness to restructure the copyright regime that has, for decades, protected platforms from the effects of hosting infringing content.
However, before platforms worry about changes to their business model due to any changes in U.S. law, they will have to deal with the already passed and soon implemented European Union Copyright Directive (EUCD) and its well-discussed Article 17.
In 2019, the European Union adopted new legislation called the Copyright Directive, which removes the platforms' "safe harbor" protections and replaces them with an obligation to license all content from the correct rightsholder before a user publishes said content. The failure to do so would result in potential liabilities by statute and, in some European states, additional penalties. Simply put, safe harbor protections, also currently present in the DMCA, provide platforms with a liability shield when one of their millions of users shares copyrighted content without the proper license. Once the EUCD becomes active, these protections, at least when it comes to copyright infringement, will be a thing of the past and accountability will be the new norm.
The directive, which will be implemented in June of 2021, is going to affect how platforms conduct business even outside of European borders. Conventional thinking states that creating one system for use in the European market, while running a completely different system elsewhere will be too costly, and a dangerous liability. In fact, it is likely that platforms will abide by the directive even outside of the continent's borders and pay close attention to the uploads of their users before they are published. While the directive envisions a new way forward for these companies, its spirit is to ensure that rightsholders also benefit from the success of platforms, which is due in large part to their creations.
A novel legal situation will also arise when platforms inevitably follow the directive. The aforementioned safe harbor protections present in the DMCA are dependent on a platform showing that it had no knowledge of the infringing content present on their network. However, in order for a platform to abide by the EUCD, it must, by definition, have knowledge of the content on its platform – all of it. This creates an interesting situation for platforms: should they abide by the European directive, the protections provided by the DMCA may no longer be available to them when a rightsholder decides to file a lawsuit. Since the internet, and platforms, are not bound by borders, lawyers on all sides are asking themselves: "can a platform claim to have knowledge of infringing content shared in Paris, while also claiming to not have knowledge of the same content in Los Angeles?"
Of course, this question will have to be answered by American courts, likely very soon and likely in a high profile case. A major rightsholder is bound to test this theory, and depending on the outcome, it could potentially open a floodgate of liability for America's largest companies.
While many may be thinking that this will likely only affect the largest companies in the space, Facebook, Twitter, YouTube, and TikTok shouldn't be the only entities paying attention. In fact, any platform of any size that deals with user-generated content will need to fundamentally change how they manage posts on their networks. Identifying solutions to these issues will be crucial to those platforms' survival.
Changing how we think about the powerful safe harbor provisions provided to social platforms will bring forth an era where creatives will finally be able to get their equitable slice of the pie when their content is shared online. Ultimately, the EU Copyright Directive, and the upcoming DMCA discussion, should not be seen as a punishment for big tech, but rather a legislative correction that balances the scales – turning a win/lose into a more equitable win/win.
Cesar Fishman is the head of business and government affairs at Pex and a government and business affairs professional with over a decade of experience in the field. Starting his career on Capitol Hill, Fishman moved to Los Angeles to work with major entertainment companies – advising them on key policy issues affecting their businesses.
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NFTs (non-fungible tokens) are a novel form of ownership that could rejigger the financial landscape for creators. Even if the market for some of them proves frothy, this blockchain-based technology presents a unique way for artists to make money and engage their fans. With experimentation already underway, the gates are open for them to do what they do best: get creative.
Several startup founders and musicians are looking to this incipient market not just as a means of selling digital collectibles, but as a unique way to offer fans exclusive, paid experiences.
"Any new avenue of potential profit is exciting in the music industry, considering the lack thereof from streaming and [the need to rely on] touring," said Brian Spencer, one half of the L.A.-based musical duo FINKEL.
There's nothing new about creators offering fans exclusive perks. What is new is that they can now be linked to an NFT that also functions as a "key" or "passport." Many artists are hoping this linkage can stoke demand for perks, thanks to the innate human attraction to ownership.
"There's a lot of psychological evidence that owning things matters a lot to people," said Valentin Haddad, a professor at UCLA Anderson School of Management who studies how and why people make financial decisions.
He pointed to the so-called "endowment effect," which, research has suggested, makes people value things more when they own them, simply because they own them. Since NFTs are a certificate of ownership, linking them to an experience – like a backstage pass, or a producer credit – should boost the value fans see in those experiences, Haddad said.
"I think the idea of tying some experiences, tying something more special, to the object [underlying the NFT] is going to increase," he said. "We're going to see lots of creativity."
Illmind is auctioning 10 NFTs linked to audio files he created that owners can use royalty free.
Rikin Mantri's recently launched NFT-minting and -trading platform, Curio, has sold about $130,000 worth of tokens tied to graphic novel characters the company licensed, and it plans to expand soon into other IP, including music. Mantri sees the eye-popping prices capturing headlines as indicative of a bubble, but thinks NFTs have enduring potential.
"We think NFTs have a strong use case in building digital collectible collections and offering experiences around those collectibles," he said. "It's a completely new incremental revenue stream."
Kings of Leon, the Grammy-winning band, released their new album last month alongside a series of NFTs, six of which were high-end "golden ticket" versions that granted token owners lifetime front-row concert tickets. In February, 3LAU, a DJ, auctioned off a topshelf NFT that entitled one fan to creatively direct a new composition.
Rapper Post Malone is planning to sell an NFT linked to a private game of beer pong. Illmind, a Grammy-winning DJ, is auctioning 10 NFTs linked to audio files he created that owners can use royalty free. Electronic musician Aphex Twin recently turned an NFT into a digital scavenger hunt. And Logan Paul, a YouTuber, linked an NFT to the opportunity to watch him unbox rare Pokémon cards.
Other creators are taking a less experiential and more charitable approach to offering NFT products. Street-artist Shepard Fairey, best known for designing the Obama "Hope" poster, is working with East Hollywood-based Verisart to auction off a digital artwork as an NFT, and donating the proceeds to Amnesty International. Pussy Riot, a Russian feminist punk rock group led by activist Nadya Tolokonnikova, recently minted four NFTs tied to a video produced by young AR pioneer Asad Malik of La Cañada-based Jadu, some of the proceeds of which went to a shelter for domestic abuse survivors.
Meanwhile as the metaverse inches closer, the range of perks and experiences that can be tied to NFTs is growing. One sign of things to come is Decentraland, a virtual world with its own blockchain-enabled currency that has hosted digital parties that require NFT-ownership for entry.
The same technology that enables these unlockable perks, whether digital or in-person, also allows artists to retain a financial stake in all future sales of the NFTs they issue. Stipulations like sending 10% of the price paid for an NFT to a specified bank account can be executed automatically: thus the term "smart contract."
Smart contracts are one element that distinguishes the Ethereum blockchain, on which most NFTs run, from the blockchain that underpins Bitcoin and many other cryptocurrencies.
They're also what could make NFTs helpful to smaller artists in particular. Since smart contracts can theoretically automate tasks like preventing fraud and scalping, they open up new opportunities.
"It's giving artists lots of access to ways to share experiences and share things that big artists could always do [but] small artists couldn't," Haddad said. "The benefits are likely to accrue to the top, but I think it will benefit everybody by creating a better way to exchange with your fans."
Artists' NFT Concerns
One downside to NFTs is the high volume of electricity they use, which can harm the environment. That's turning some artists away from them for now.
FINKEL is unlikely to pursue NFTs until the environmental concerns can be addressed, Spencer said.
One way of doing so could be a shift in how the blockchain works. Validating who owns what on a blockchain has largely relied so far on a method called "proof-of-work," which requires intensive computation that uses an immense amount of electricity. Some observers say an alternative method, called "proof-of-stake", would require less and could be less environmentally harmful. Although proof-of-stake has not been widely adopted, Ethereum has publicly stated it wants to transition to it, in part because of its environmental benefits.
Beyond environmental concerns, some artists bridle at NFT perks because of their inherent exclusivity and transactional nature.
Rebecca Arango, aka Oddnesse, thinks the tactic could perpetuate what she views as a deeper problem underlying the tenuous financial situation that many musicians find themselves in: fans have lost the human connection they once had with the artists behind the music they love.
"It's like the music just comes and goes and it'll always be there, and if one artist goes broke and gives up, there's always another one where that came from," she said.
But she concedes she may be fighting an uphill battle.
"I'm still going to advocate for the [intrinsic] value of the songwriting and the records," said Arango. "[But] if people are really into owning these digital tokens, I'll have to get with the program."
Sam primarily covers entertainment and media for dot.LA. Previously he was Marjorie Deane Fellow at The Economist, where he wrote for the business and finance sections of the print edition. He has also worked at the XPRIZE Foundation, U.S. Government Accountability Office, KCRW, and MLB Advanced Media (now Disney Streaming Services). He holds an MBA from UCLA Anderson, an MPP from UCLA Luskin and a BA in History from University of Michigan. Email him at samblake@dot.LA and find him on Twitter @hisamblake
College was not Chris Webb's thing, so at 18 he took an internship at Oppenheimer and launched his career in finance.
While working Wall Street at investment bank Bear Stearns and then Lehman Brothers, he continually found himself drawn to the tech sector.
Eventually, the New York high life was getting him down, and Chris returned home to Los Angeles where his mom had invested in a restaurant that's now a successful chain, Tender Greens.
Chris learned about the pain points the restaurant was experiencing. Inspired, he combined his knowledge of tech to help restaurants avoid the onerous fees required of services offered by the likes of GrubHub.
Chris and his co-founder, Eric Jaffe, built ChowNow, an app and online ordering system for restaurants, in 2011.
Now, the L.A.-based company has 450 employees with investments from Upfront and 3L. Incidentally, I'm a limited partner in both those funds, so that makes me an investor in ChowNow.
Chris Webb is the co-founder and CEO of ChowNow. Previously, he had a career on Wall Street at investment bank Bear Stearns and Lehman Brothers.
dot.LA Sr. Podcast Producer & Editor Laurel Moglen contributed to this post.
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Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 75 companies and is incubating several more.