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Non-Fungible Tokens (NFTs) Meet Hollywood

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    The latest fad to sweep the investment world is the sale of non-fungible tokens (NFTs), which are visual or audio-visual digital assets that are issued in “authenticated” limited editions and for which ownership is evidenced on blockchain in the same manner as cryptocurrency. This ability to identify the owner of the NFT and to validate its authenticity allows NFTs to be bought and sold, and there are auction sites that have created a highly liquid market for NFTs. Think of them as the equivalent of collectible Beanie Babies or rare baseball cards, but on digital steroids.

    The most successful example to date is the sale of one NFT by an artist known as Beeple for $69 million. Another example is NBA Top Shots, which involves the issuance of NBA “authorized” limited edition brief clips of basketball plays. Even though the games themselves are available on YouTube, the price of these clips started in hundreds of dollars, and secondary trading is already in the hundreds of thousands of dollars. The sale of all NFTs was $180 million in February alone and is rapidly accelerating. One quirk turbo-charging this market is that NFTs should not be treated as securities, so they are not subject to the administrative burden of the securities laws.

    So, guess what industry might be interested in millions of dollars by converting audio-visual clips to NFTs? (Hint: rhymes with hazel wood.) Following in the footsteps of NBA Top Shots, one logical and endless supply of content for NFTs would be clips from successful films. Given the booming market in NFTs, someone might pay dearly to own one of perhaps fifty authorized clips of “I’m shocked, shocked!” from “Casablanca” or “Frankly, my dear, I don’t give a damn” from “Gone With the Wind.”

    hollywood sign

    Critically, the owner of the NFT does not own any rights to the audio-visual content that is represented by the NFT (such as copyrights or trademark rights), just as the owner of a DVD is not permitted sell copies of it. The use of the content on an NFT is generally constrained to the limits of “fair use” under the Copyright Act, although such use may be expanded or limited by a contract that is binding on the owner of the NFT. It is possible to impose binding terms and conditions on the original buyer by making them click “accept” after showing the provisions, but it less obvious how to impose these provisions on subsequent buyers. It is possible to code the provisions into the NFT itself, and hopefully downstream buyers will be bound by those provisions if they have the opportunity to open and read them when they view the NFT for sale (even if they don’t read them). In a perfect world, the buyer would have to click “accept” to the provisions in order to buy the NFT.

    A number of issues will need to be resolved in order to convert film clips to NFTs. The first issue is whether the studio owns clip rights; i.e., did it own them to start with or have they already been licensed to a third party? The next issue will be whether the consent of actors appearing in the clips is needed to waive their right of publicity, and this will depend on the scope of rights in their acting agreements. Unless the actor’s contract granted clip rights, it will be necessary to obtain the actor’s express consent and to pay a minimum reuse fee set by SAG. In addition, minimum reuse fees will be owed to the director and the writer under the DGA and WGA Basic Agreements. If the clip includes music, it may be necessary to obtain the permission of the owners of the copyright to both the written and recorded music unless they granted synch rights for film clips. The payment to the studio itself from the sale of NFTs or the license of NFT rights may trigger participations owed to any talent that share in the profits from the film if clip right fees are included in accountable gross receipts.

    So while there is a bit of a legal maze to work through in order to convert film clips to NFTs, the pot of gold at the end of the rainbow makes it worth it.

    Repost from: https://www.forbes.com/sites/schuylermoore/2021/03/18/non-fungible-tokens-nfts-meet-hollywood/

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