Entertainment Media Crowd Funding Oscar (No, Not That One)

In 1918 there were no Academy Awards. But there was another Oscar! Oscar Micheaux, who taught us something about financing media and entertainment projects – perhaps the first crowd funding entrepreneur in the publishing and motion picture industry.

If you would like to know more about crowd funding and what’s new and what’s next (and about Oscar), you can read about it in Volume 25, Issue 3 of the Entertainment Law Review, where an article about crowd funding, authored by Joseph I. Rosenbaum, was first published by Sweet and Maxwell in London (a Thomson Reuters (Professional) UK Limited company.

You can read Joe’s entire article or download the PDF for your own personal use (i.e., not for redistribution) right here: Crowd Funding – A Funny Thing Happened on the Way to the Investment Bank. [PDF]

As always, if you want to know more about Crowd Funding (or any other matter requiring legal representation, counsel or guidance, please contact me, Joe Rosenbaum, or the Rimon attorney with whom you regularly work.

Crowd Funding. Apologies, William Wordsworth

“I wandered lonely as a cloud
That floats on high o’er vales and hills,
When all at once I saw a crowd,”

. . . and so begins the beautiful and timeless poem by William Wordsworth. Although Wordsworth’s crowd was a host of golden daffodils, the crowds most of us have been hearing about lately are either crowd sourcing (check out When Online Games, Health & Life Sciences and Crowd Sourcing Combine) or crowd funding – the subject of this post.

In today’s world, according to the Wikipedia definition, “crowd funding” refers to the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations.”

There remains some confusion in the marketplace as to the mechanisms by which the crowds’ funds are made available to business ventures, film promotion and production, worthy causes, and civic organizations. Contrary to what many may believe, it is currently not legal to solicit, offer or otherwise make available any form of securities or equity investment (I’m over-simplifying, but that is the net effect) through online, crowd or other web-based funding schemes. In other words, you can’t raise equity or solicit investments through crowd funding that provide the expectation of profit or the risk of loss of capital investment – in much the same way the traditional stock markets function when they allow individuals to purchase and sell securities.

It is true that the U.S. Securities Exchange Commission has been talking about promulgating regulations aimed at legitimizing, with regulation and oversight, the use of crowd funding as an investment opportunity (and the SEC has publicly announced that it hopes to have the regulations released for comment this fall). But until the regulators promulgate rules and enable it, you can’t “invest,” and businesses and other ventures can’t “raise capital,” through equity or securities offerings through crowd funding.

So what’s the buzz about. Well, first it combines “power to the people” with “put your money where your mouth is” in ways unheard of prior to the Internet! Second, there are still opportunities to raise capital from the public in ways that aren’t illegal and don’t involve equity or securities. Currently, there are four major categories of crowd funding activity. To wit:

I am a musician (not really, it’s just an example) and I tell you that if you pay me $1,000, I will write a song to or about you. If you pay me $5,000, I’ll not only write the song, but if I’m nominated for a major music award (e.g., Grammy, VMA, CMA), I’ll get you two tickets to the awards show. That is referred to as the ”rewards” model of crowdfunding.

Next is the ”pre-payment” model. Please send me $5 and when the song is completed, but before it’s released and available to the general public for $7, I will send you a copy. If I offer to autograph it for another $3, I’ve combined the pre-payment and rewards model.

Then there’s the cause-related model. Listen, I am talented and you love good music, but I’m starving. Please just send me $10 so I can eat, rent recording studio time, and try to publish and distribute my music. Pure online begging – there is no expectation of anything in return.

Last, but not least, the ”loan” model. Please help finance the production of my music, my tour (I’ll send you a T-shirt) and just lend me some money. I promise to pay you back when I start making money – but, WITHOUT interest. There must be no expectation that anyone who lends money will make a profit (interest) on the loan. While there may still be lending laws that apply as to how this is done, it won’t trigger the prohibitions under securities’ laws, as long as you don’t pay interest.

In conclusion, while there are some high-profile examples of projects that have raised millions through crowd funding, most do not – at least not yet. In fact, most commercial ventures raise very little through crowd funding. In the words of Wordsworth: “A poet could not but be gay, In such a jocund company. I gazed – and gazed – but little thought, What wealth the show to me had brought.”

What You Don’t Know Can Hurt You

Multiple Choice Question: What do the following have in common:

“Privacy & Data Protection: Distinctions Between Surveillance and Secrecy”

“Ethics, Process, Privilege, Discovery and Work Product in the Digital Age”

“When Worlds Collide: Old Ethics and New Media”

“Outsourcing: The Law & Technology”

“The Changing Legal Landscape: Evolution or Revolution”

“Growing Your Business Internationally – What to Know Before You Go”

“Social Media, Mobile Marketing, Clouds and Crowds: (modules)

  • Advertising & Marketing in a Digital World
  • Media & Entertainment: Digital Rights and Wrongs
  • Financial Services, Payments & E-Commerce
  • Online Gaming, Gambling & Virtual Worlds
  • Apps & M-Commerce
  • Context & Geo-Marketing: Wi-Fi, Bluetooth, SMS, RFID, QR Codes & Augmented Reality
  • Operations & Performance, Security, Compliance and Interoperability
  • Wired & Wireless: Sweepstakes, Contests, Product Placement & Branded Entertainment
  • Anti-Social? Communication & Public Relations for Companies, Employees & Investors
  • Behavioral Advertising, Endorsements, Blogs, Buzz, Viral, Street Teams & Word of Mouth
  • Labor & Employment Policies in a Networked Age: The Good, The Bad & The Ugly
  • Crowd Sourcing, Crowd Funding, Crowd Investing: Today & Tomorrow

“Privacy, Data Protection & Globalizing Technology: Digital Commerce Brings Legal Challenges”

“Comparative Advertising Issues: Multinational Brands; Global Challenges”

“Direct to Consumer: Legal Challenges in the Digital Marketplace”

“Out of Control? Challenges to Privacy & Security in a Big Data World.”

 

Answers: (a) Seminars & Presentations Given; (b) Seminars & Presentations Available; (c) Targeted at Lawyers; (d) Targeted at Commercial and Business Management; (e) Relevant to Small-to-Medium Size Business; (f) Relevant to Multinational, International & Global Companies; (g) None of the Above; or (Y) All of the Above.

If you guessed (Y), you are correct. Let us know if any of these, a combination of these or a customized version of these or any other presentations might be right for you. Hey, you never know, but what you don’t know, can hurt you. For more information, contact me, Joe Rosenbaum, or the Rimon attorney with whom you regularly work.

Videogame Advertising to Hit the $1 Billion Mark

According to a report in Media Week, advertising spending for advertising in videogames will reach about $1 billion by 2012. Advertising in video games can take a number of forms: in-game advertising, which is preformatted ads that appear within the game itself; advergames, which are games constructed around a particular brand or product in order to highlight and promote that product or brand; context-sensitive or dynamic advertising, which is similar to in-game advertising, but rather than static advertisements, can be contextually modified in a number of ways depending on when, where and how the in-game scene is viewed. Most of that growth is projected in the casual, online, web game world catering to a broader audience than hard core console gamers. The logic is that people are more willing to accept advertising in return for free game playing on the web; and absent a dynamic Internet connection with more user acceptance than is evidenced to date, console gaming provides fewer opportunities for placing context sensitive or behavioral advertising.

Video Games Become a Taxing Subject

Did you know that Louisiana offers a 20 percent tax credit against expenditures for video game developers and certain other interactive digital media companies that are based there? This digital media tax credit is not unique to Louisiana. In 2005, Atlanta began a program of providing tax incentives to digital media, and a number of other places have begun to attract development using tax incentives as well.