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Major Legal and Commercial Implications
The outbreak of coronavirus is significantly impacting industries across India, with the music and entertainment industry being no exception. With the implementation of lockdowns across all states as a way of containing the spread of the virus, public gatherings have been prohibited and theatres, cinemas, music festivals, shows and concerts have been closed or cancelled indefinitely. The Bollywood industry was hit almost immediately as movie theatres across the country were closed and major releases were delayed. Even after the lockdowns are lifted, the call for social distancing might become a norm and the ripple effects will have serious implications for the people in the entertainment industry who survive on production and distribution of music and movies and the allied live events. Consequences of the pandemic on these industries could range from lowered attendance at film festivals and music concerts, disruptions in film distribution to delayed or cancelled movie releases and curtailed on-location film shoots. Financial ramifications will likely be felt by production houses, music labels, filmmakers, artists, theatre owners among others for months or even years. The major legal issues are listed below:
- Contracts
The Film industry functions on a line of agreements between content owners, production houses, artists, investors, sponsors, promoters, distributors, vendors, production companies, broadcasters, ticketing agencies, theatres, licensors etc.
With the disruptive impact of a global pandemic resulting in the standing down of workforces, closure of borders, and enforced work from home arrangements, the risk of non-performance, poor performance, delay and non-payment is heightened. Execution of physical agreements is posing to be a challenge. Cancellation of movie releases, premieres and events result in a plethora of practical issues, such as potential refunds, exchanges, and contractual obligations, particularly in relation to interested parties like sponsors, broadcasters, and ticketholders who may have committed significant amounts of money now subject to uncertainty and losses. Some contracts address these issues expressly in their terms, in other cases, contractual principles like frustration will govern the parties’ respective rights.
Way Forward: At such a time, the parties should review the agreements for clauses such as termination, force majeure and analyse whether the timelines and obligations can be revised mutually. The parties need to assess whether production schedules and release dates can be delayed keeping in mind the restrictions on crew members and the inability of audiences to come to the theatres.
For the execution of future agreements, it is advisable to move towards e-agreements and e-stamping due to the suspension of movement and prolonged social distancing measures. E-agreements being valid agreements are also liable for stamp duty on execution. However, the same levy will be as per the respective state laws. Some states like Maharashtra and the National Capital Territory of Delhi provide specific provisions for e-stamping. In such cases, both the parties can digitally sign the document and get it stamped electronically on the same day. For instance, Maharashtra E-Registration and E-Filing Rules, 2013 facilitates online payment of stamp duty and registration fees. The Government of Delhi has introduced e-stamping with effect from April 1, 2008 and the work is carried out by M/S Stock Holding Corporation of India, a public sector undertaking. Whereas, some states are yet to recognize the importance and validity of e-agreements and e-stamping. It is looked forward on the part of the state as well as central government to make specific provisions for e-agreements and e-stamping to provide ease for doing business.
- Consumer Issues
Cancellation of live events may result in potential claims relating to consumer protection rights. Companies may face the challenge of refunding monies to ticketholders which would put immense strain on the already slow economy in the industry.
In view of the same, the Central Board of Indirect Taxes and Customs (CBIC) has allowed for claiming of refunds of Goods and Services Tax (GST) paid on advances that entities got for events or bookings that have since been cancelled. This move by the government is expected to aid the entertainment industry as the additional flow of funds will help ease the liquidity position of the companies which may be used to keep the economy in check and help people keep their jobs in place.
Way Forward: It is recommended that stakeholders in live entertainment events review ticket terms and conditions, their policies and their obligations in relation to providing services under the applicable consumer laws to understand their position regarding event cancellations and refunds.
- Insurance
Business Interruption Coverage: The companies need to assess if their insurance policies would cover them against the losses resulting due to the prolonged suspension of businesses owing to the pandemic. The extent of insurance cover available to a company will depend on the specific terms of each policy.
While companies do buy insurance to protect themselves against business interruption, such policies don’t necessarily cover a pandemic such as Covid-19. According to insurers, the business interruption coverage triggers only if the insured property suffers physical damage due to a covered peril such as fire or earthquake and would not cover losses caused due to a pandemic like COVID 19. Companies now want the Insurance Regulatory and Development Authority of India (IRDA) to extend the scope of business interruption insurance to the losses caused by the pandemic.
Health Insurance for Employees: A recent circular issued by the Insurance Regulatory and Development Authority of India (IRDAI) states that “Reference is invited to Order No. 40-3/2020-DM-I (A) dated 15th April 2020 issued as part of the Consolidated Revised Guidelines by Ministry of Home Affairs (MHA), GOI. As per the said order, inter alia; the following are stipulated: All industrial and commercial establishments, workplaces, offices etc. shall put in place arrangements for the implementation of Standard Operating Procedure (SOP) before starting their functioning. As per clause no. 5 of Annexure – II of the said SOP for social distancing for offices, workplace, factories and establishments, medical insurance for the workers to be made mandatory”.
In the circular, the regulator has advised insurers to offer comprehensive health insurance policies to individuals or groups to enable the above-mentioned organisations to comply with the government’s directions. The regulator has also advised the insurers to devise these comprehensive health insurance products with simple wordings and conditions and at an affordable cost for the stated organisations. The government has made it mandatory for all employers which resume functioning as the lockdown gets over, to provide medical insurance to their employees.
Way Forward: As all insurance policies are not the same, it is important to consider that each policy will turn on its wording, in particular, the exclusions and individual endorsements need to be considered in detail.
A number of insurers are launching exclusive policies in relation to the coronavirus or enabling customisation of existing policies especially to provide cover against the treatment of the illness in case of affected persons and employers may review these for their employees, customers or members.
Providing health insurance cover is a great gesture by a company towards its employees. Companies should strive towards providing health insurance cover to their employees. Group health insurance covers to the employees is a good option as they are not very expensive and can be purchased with ease by large and small-scale companies.
- Employment/Workplace Issues
The entertainment industry workforce is largely comprised of casual workers or contractors who aren’t entitled to paid leaves and hence stand the risk of losing their means of livelihood. Since production and distribution streams are virtually at a standstill, companies, sooner than later, will look at cutting costs which will consequently result in pay cuts and lay-offs for reasons beyond the employer’s control. However, these are difficult decisions that affect people’s very livelihood and can involve careful consideration of factual circumstances to determine the true nature of an employment relationship.
Another vital issue at hand is managing the workplace environment and ensuring the safety of its employees as and when they begin heading back to their workplaces. Current workplace trends have evolved over the years. Enclosed offices gave way to cubicles, which gave way to open concepts without walls and social distancing at workplaces wasn’t exactly a norm prior to the pandemic. More often than not the employees show up at work even if their health is compromised and this could lead to further spread of the virus.
Way Forward: Despite the pandemic, the usual rules of procedural fairness in the employment relationship should continue to apply. To avoid legal claims, companies are advised to exercise caution before suspending staff payments, giving stand-down orders or terminating employment arrangements. Companies are advised to encourage employees and staff to work from home till the risk of the communicable virus is relatively lower and grant sick leaves/paid leaves to affected persons. After the lockdown restrictions are relaxed, the companies would be under an obligation to ensure a safe and healthy working environment for their employees and implement the guidelines issued by WHO, the central government, the Ministry of Health and Family Welfare and the respective state governments. Offices may have to be redesigned, prioritising additional space and sanitation. Companies will have to be flexible with regards to the employees functioning from home and office on a semi-regular basis. Companies will need to look at changes such as better air filtration, monitoring temperatures at entry points, and desks spaced to follow social distancing. Employees should be asked to fill health questionnaires which would aid in assessing their current health status. The companies should also have requisite waivers and disclaimers in place to reduce the risk of any liability with regard to the employees’ health.
With the lockdown being relaxed all across the country, the film industry is also looking at resuming production. The issue that the industry is grappling with is a struggle between a desire to commence the business and a need to protect the health and safety of its workforce. A set of industry standards will have to be put in place to ensure that the on-site and off-site shooting locations, studios, vanity vans etc are free of the coronavirus. Some important considerations that may be looked into are as follows:
- checkpoints for taking body temperature of the cast and crew members;
- mandating that all employees stay in hotels or assigned housing and isolate themselves from friends and family for the duration of a shoot;
- providing crew members with masks and gloves;
- instituting extra cleaning shifts;
- ensuring that makeup artists and hairdressers have a “one-time use” policy for all their tools including makeup kits, brushes, etc.;
- keep the employees informed about any outbreaks;
- limiting the number of people on set at any given time;
- speeding up the process of filming and wrapping up the production;
- filming within the country and avoid unnecessary outdoor locations which would ensure safety and also help reduce costs
Overseeing a production carefully, following all the health guidelines and social distancing measures will help reduce the risk of potential liability, however, there is no guaranteeing that there will be zero-risk. Insurances with higher premiums may have to be looked into by the companies.
The Silver Lining
Even though dark clouds seem to be looming over the future of the entertainment industry, there seems to be a silver lining with the digital OTT platforms, music streaming platforms and radio seeing a steady growth in their business models. As per a KPMG report, with people confined to their houses, the consumption of content on these platforms has seen a surge both in terms of hours spent and newer audiences. With limited sources of entertainment due to the risk of contracting the contagious virus, people are bound to turn to the in-home entertainment options such as digital, TV and gaming and experts believe that this would eventually result in habit formation.
Major productions are now looking at digital releases of movies on OTT platforms as box office revenues will no doubt shrink due to the strong likelihood of people avoiding crowding facilities for a while.
The Irrfan Khan starrer Angrezi Medium which bombed at the box office due to sudden announcement of stringent lockdown across various states was re-released on Hotstar to cater to the audiences within the confines of their homes. The much-awaited Amitabh Bacchan and Ayushmaan Khurrana starrer “Gulaabo Sitaabo” decided to entirely skip its theatrical release and announced its official digital release on Amazon Prime Video with many such big banners following the suit.
Dubai has facilitated for its moviegoers a drive-in movie theatre at the rooftop of one of its malls to ensure the social distancing norms. The innovative way forward would be the prerequisite to survive this pandemic.
The world also seems to be tuning into the radio and people’s desire to stay informed is also reflected by digital radio’s performance during the coronavirus outbreak. According to the BBC, it saw its radio properties boast a streaming increase of 18%. In accordance with the reports, in a time of heightened uncertainty and disrupted routines, consumers are turning to radio as a trusted source of information and community connection.
With all the cancellation and postponements of festivals – such as Glastonbury Festival (UK), Coachella (US), Burning Man (US) – live concerts and tours – artists have had to think of innovative ways to interact with their fans in the global down period. Musicians are hosting their own concerts from the confines of their studios through social media platforms such as Instagram, Twitter, Facebook to name a few.
Irrespective of the pandemic and the lockdown, music is still being streamed and performed on various platforms and the music continues generating royalties. When the income in other areas has decreased, royalty income can be of great help to the artists. It is advisable for artists to get themselves registered with the various copyright collections societies at the earliest to avoid missing out on royalties. The major copyright societies in India are The Indian Performing Right Society Limited [IPRS] (for composers and publishers), Indian Reprographic Right Organisation [IRRO] (for literary organisations) and Indian Singers Rights Association [ISRA] (for performers).
More and more artists and companies are looking at having their content/music licensed to the digital platforms as it would help generate revenue. It is important that easy and structured licensing schemes and royalty rates are set in place by the government so that new content can easily be made available for public use and artists are not deprived of a chance to receive their fair share of royalties.
The coronavirus pandemic is forcing people all over the world to adjust to new daily practices and routines to ensure public health and safety. The pause on live events and productions has caused uncertainty and worry among many in the entertainment and music industry. However, there is still business to do – it might just require a more creative approach.
Media & Entertainment Lawyers During the Times of Corona
With the entertainment industry being faced with a myriad of novel legal issues and being forced to reinvent operating procedures, the demand for delivering effective legal services is going to be heightened.
The legal industry is itself found in the midst of battling with the harsh effects of the pandemic such as office and court closures, social distancing and dealing with a virtual workforce. However, the well-fortified walls of resistance have been breached with breath-taking speed. The legal fraternity was quick to understand the urgency to alter the status quo and adapt a must-do mindset to provide the much needed legal aid to its clientele in times of crisis.
As the sustained effects of the coronavirus continue, it seems like it will turbocharge legal industry transformation. With the Supreme Court of India and various other High Courts all set to take court proceedings through video conferencing and rapidly setting systems in place for online filings, it is seemingly evident that the pandemic will propel law into the digital age and reshape its landscape.
Various industries and sectors have undergone a digital transformation over the years, however, the Indian legal industry had scarcely taken notice and digital usage was more of an exception than the norm. The coronavirus is changing that. It is acting as a swift, comprehensive, top-to-bottom reimagination of the legal sector. The potential of technology and its ability to support new models of systems and processes are already on display. It is advisable that we constantly upskill and keep our minds open to adapting to the new paradigm shifts in our working environments. Let’s be ready to welcome the reimagined Digital Legal Era.
This Article has been co-authored by Ms. Ravina Grewal Rajpal (Partner) and Ms. Nishat Ali (Senior Associate) of Singh&Singh | Malhotra&Hegde. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views and opinions of Singh&Singh | Malhotra&Hegde.