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During midem 2013, conversation swirled regarding new business models and revenue streams.  Much of this conversation spawned from Tom Silverman’s industry plan, challenging everyone that a “$100 Billion Dollar Music Business” was obtainable.

I enjoy Tom’s viewpoint so much that I would like to enhance it further – the music industry can increase profits by 30% immediately.  Not only can we increase profits by 30%, we can do it without job cuts, without slashing new artist signings, and without lowering payroll.  To the contrary, we can increase music industry profits by 30% doing exactly the same thing we’re doing now – with one exception.  The music industry needs to wake and embrace international film incentives.

Ten years ago, Canada made a valid attempt to attract movie productions away from LA and NYC by offering tax rebates.  In a continuation of the trend, individual US States began drafting legislation to lure video production business within their borders. In an apparent arms race, states drafted unique legislation, often offering tax incentives, rebates and tourism packages. With increased production options for filmmakers, lower budget projects ($5 million) ventured away from LA, NYC and Canada simply due to economic efficiency.  Currently, film business has exploded on a global scale.  Nearly every country in the world offers incentives (dictated by their laws) to drive movie productions into the area, which in return, boost the local economy and tourism.

What does this have to do with the music industry? Film incentive legislation boils down to three concepts: (1) spend (2) incentive and (3) production.

Spend – Pending on the country or state, local legislation will identify the monetary amount which must be spent on “movie production” (i.e. local spend) in order to qualify for the incentives.  For example, California may have a spend amount of $15 million+, while Finland may have a spend amount of only $50,000+.  Should an applicant spend the minimal monetary amount and meet the local spending requirements, they may qualify for an incentive.

Incentives – Again, pending on the country or state, legislation will address what incentives apply based upon the local spend amount.  Many apply tax breaks, while others apply rebates. What countries and States offer has become so competitive that the incentive programmes continuously grow more attractive.  ‘Rebates’ will remain the primary focus of this article, because they often mean a cash payment based upon the amount spent.

Production – Perhaps the most important component of film legislation boils down to the definition of “production.”  Larger movie economies (e.g. in LA) may define production as a motion picture financially supported by a studio release, or a motion picture containing global distribution.  Other areas may be less stringent, defining production as any project containing a film component (i.e. music video, documentary, etc.).

If applied correctly, every dollar spent on recorded music, marketing content and/or music video production within the music industry could qualify for a film incentive.

EXAMPLE – Pending on the location of production, Warner Music Group (WMG) could spend $100 million annually in recorded music, music video production and online marketing content; and the mere inclusion of a video camera (during any project) could qualify as a “production” – therefore triggering an “incentive.” It doesn’t matter if a majority of the expenditures may be allocated towards recorded music, as the recording becomes a production expense (same as the cost of a movie set).  Additionally, think of the added content value of capturing the visuals and the advertising price tag that could be generated.

Many countries around the globe offer upwards of a 30% rebate, pending the local spend amount.  Additionally, several countries loosely define “production”, allowing any captured visual element to fulfill the legal definition.  Therefore it is plausible the music industry could increase profits by 30% by doing nothing except applying for film incentives to their business model.  Even an indie group on tour for eight months could feasibly document the experience and qualify their total tour expenditures as a “production” expense.  The film incentive doesn’t apply to only major, or only indies, it applies to everyone. The scenarios are endless!

While lecturing on this topic at midem during a closed door session for label executives, I was asked the blunt question: “Why hasn’t anyone heard about this?”

My answers:

(1) Industry executives have become fixated on the slow bleed caused by piracy, downloads, and streaming

(2) Industry executives rarely explore “the globe” for solutions, rather they remain fixed on their specific country

(3) Music industry executives don’t understand movie law, film incentives, or movie productions – nor should they be expected to

(4)  Should any applicable law exist to boost music sales, music industry executives naturally rely upon their respective in-house legal counsel to educate them on the options available. However, in-house counsel only focuses on “internal” label issues and administering contracts – therefore exploring film incentives doesn’t fit the job description.

 

Additionally, I was asked, “This sounds like a great theory, but practically speaking it can’t work – right?” Practically speaking, it does work.  We exploit these possibilities for clients (both labels and artists) all around the globe on a daily basis.  Frankly, it’s somewhat disturbing that more industry business/labels/professionals don’t capitalise on existing legislation. Global film incentive is a big business, and only now has the legal profession taken notice.  Many attorneys at our firm (myself included) will be contributing to a new publication for The American Bar Association (ABA) exploring these very topics – additionally, how it applies to music.

Make no delusion; film incentives are no easy handout. Although law(s) exist which provide these incentives, the application process is daunting, requiring experience, local contacts within film offices, detailed filings, paperwork with the relevant Department of Revenue, audits and meticulous production planning – all prior to actually making the project.

However, the payoff for the music industry as a collective unit is obtainable and awesome. Obtainable to the extent of potentially every dollar spent on recorded music, online marketing content and music video production from 2012, could generate a 30% increase (via global film incentives) in music industry profits in 2013.

What a 30% increase could do for the music industry is so transforming that it doesn’t even need to be specifically addressed here.  However, should global film incentives become more highly exploited, new possibilities will be created.  For example, many labels are now hiring “Strategic Legal Counsel” in order to explore money-saving avenues and generate strategic monetising plans. Additionally productions (e.g. recorded music, videos and marketing content) may no longer be produced out of the bigger, higher end markets. Economic efficiency will become the deciding factor based upon the incentives being offered.

Essentially, it’s similar to how recording studios took a hit when new technology became readily available to musicians, giving them a more cost-effective way to record. Big studios lost the business, smaller studios exploded.  Because of rebate incentives, it’s likely the major markets will see a massive decline in business, as small markets located in areas with more favorable legislation will grow substantially.  Remind anyone else of the fragmentation taking place with major genres turning into niche genres? How about major label artists breaking away to explore more favorable indie label or self release options? The possibilities are endless…

 

Martin F. Frascogna is an entertainment attorney who represents clients both indie and major in 23 countries spanning 6 continents.

At midem 2013, he discussed how to attract anti-360 offers as a band, how to structure mutually beneficial non-traditional deals and more. Watch his session in full here.

Frascogna’s practice, Frascogna Entertainment Law, notably specialises in advising DIY artists. Follow him on Twitter for daily tips.


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