Copyright is very simple as a concept yet can be quite complex when it comes to actual implementation. This is why careful negotiation of contractual terms is important for rights-holders. The objective of copyright is to incentivize creation by giving creators control over their work so they can, among other things, determine the means of economic exploitation through sale, licensing or assignment of rights. But simple as this may seem, when it comes to complex creations where multiple contributors are involved, such as in music, film or television productions, things can get a bit messy. They can get even more complicated when new forms of distribution, such as streaming content, are added to the mix because of the difficulty–if not impossibility–of determining accurately how much revenue is generated by a specific work. These complexities are best worked out among the various players involved through market-based contract negotiations that determine who gets paid, and how much, for their respective contributions to the overall production. The ability to freely negotiate terms allows performers, writers, and directors to get fair remuneration for their work while providing a necessary degree of predictability for the aggregator of the rights, the producer.
The process for determining remuneration for rights-holders who contribute to audiovisual streaming content projects is currently under review in Korea. Any change to the current well-established system in Korea needs to be approached with caution because audio-visual production is a globally competitive business. It’s important, therefore, to create the right conditions to attract and retain the kind of production that promotes diversity and expresses local culture.
Rights in Audiovisual Works
For AV works such as film and television productions, writers, directors, performers and composers may all be rightsholders. Film and television production is a high-risk, expensive, and complex undertaking requiring significant financing, and involving many players. Writing and directing are important, but no matter how good a story is, it won’t come into production without a producer. The producer manages the business and financial aspects of the production, including its intellectual property. This requires acquisition of all the relevant rights through contract negotiations with the respective rightsholders. These aggregated rights form the basis of productions which in turn may be sold to a studio for exploitation and distribution. Individual contracts with rightsholders may include upfront payments, bonus payments based on box office performance or a percentage of net or gross revenues (a form of royalty) in return for assignment of rights. In many cases, authors or performers often prefer payment through lump sums or buy-outs on the basis that “a bird in the hand is worth two in the bush”. Many films and productions don’t make money, some break even and a rare few are wildly successful.
The World Intellectual Property Organization (WIPO) has an excellent summary of the role of copyright and intellectual property in filmmaking in a short article on its website, From Script to Screen, explaining how producers establish the all-important proof of title that allows them to market the production. It is important that producers, who assume the risk, be able to acquire and retain all the rights without having to face further claims later in time for compensation from creative participants who have already been paid for assigning their rights. Without such certainty, the producer or their subsequent licensees could be faced with unquantifiable and open-ended claims for additional remuneration that could make calculating the needed return on investment for the production almost impossible.
As is well known, the Korean content industry has emerged as a major global force in terms of creativity, production values and box office success. This is particularly true with Korean dramas in Asia but also increasingly in western markets. A good example is the Korean film Parasite that won the Palme d’Or at Cannes in 2019 and the Academy Awards (the Oscars) Prize for Best Picture in 2020. The Korean series Squid Game, commissioned by Netflix, was reported to be its most watched series worldwide in 2021. It was the unexpected success of Squid Game as a global phenomenon that is largely responsible for the active debate taking place in Korea at present over performers’, writers’ and directors’ remuneration. In particular, the Directors’ Guild of Korea has been pushing for a revision to the Korean Copyright Act to allow directors and writers to claim additional compensation–to be legally required or mandated and managed by 3rd party collective management organizations, or CMOs–from streaming services on the theory that there is a “significant imbalance” between the initial remuneration paid and the profits generated. This would apply despite contract provisions that have already assigned the copyright to the producer and it raises significant questions of definition and transparency with respect to the calculations.
With streaming video, individual films and television programs become part of a much larger package being offered to consumers, whose motivations for decisions to join, leave or remain a subscriber are unknown; this makes it difficult if not impossible to assign revenue value to individual works and attribute “profits” to specific content. And is it really necessary? In the case of Squid Game, for example, the market-based contract negotiation model has worked as expected. It has been reported that Squid Game star Lee Jung-jae will earn $700,000 per episode for Season 2 (scheduled for 2024), while director Hwang Dong-hyuk’s remuneration is also expected to be boosted significantly. The same will undoubtedly apply to the writing team. The creators involved have benefited from the success of the production through freedom of contract.
If mandatory remuneration rights are enshrined in Korean copyright law, particularly if these rights must be collectively managed by 3rd party CMOs, it will add to the potential financial liability of distributors of programming, which will in turn be likely reflected in diminished returns to producers and other creative participants. This could lead to a reduction in financing for, and investment in, Korean film productions and the international licensing of Korean content, imposing a significant setback on the expansion of Korean content distribution globally. In a global market, competitive forces prevail.
International Best Practice
International best practice suggests that freedom of contract and ability to freely negotiate terms for hiring of talent, whether individually or through a guild, is a successful model. This has been proven over decades of film and television production. To impose a statutory remuneration right in copyright legislation, over and above negotiated contract terms, creates additional risks for success of the work, while undermining the value of initial contracts and potentially impacting amounts paid to performers, writers, and directors through contract negotiations. What may seem like a seductive solution to generate more revenue through “compulsory residuals” may end up undermining contractual negotiations and the benefits that arise from the give and take of the marketplace. Beware the law of unintended consequences.
Korean legislators should take a big-picture view and keep Korean copyright law and practice in line with best practices. Free contract negotiations ensure that everyone in the value chain gets fair compensation while being able to tailor production-specific packages. Contractual freedom has given the industry the necessary agility to respond rapidly to new forms of distribution and consumption of content. Maintaining this system will ensure that Korean cinema and content continues to thrive.
© Hugh Stephens 2023. All Rights Reserved.