The metaverse, and web3 in general, have opened a new can of legal issues. Here, Jeff Liebenson is President of the International Association of Entertainment Lawyers (IAEL), and Principal of Liebenson Law in New York City, takes a look at the key points that rights holders must make sure to take care of.

New York-based Liebenson, who is a regular speaker at industry conventions, has negotiated a number of metaverse music agreements including for virtual concerts on Roblox by Lil Nas X, Royal Blood and Twenty One Pilots and album launch parties for Ava Max, Why Don’t We, KSI and Zara Larssen.

The metaverse is an exciting new digital realm where activities can occur beyond the possibilities of the “real world.” The metaverse enables albums to be launched in virtual worlds and artists to perform in virtual concerts before huge audiences. How should metaverse platforms, artists and other rights holders negotiate agreements as they seize these opportunities in the metaverse?

Everyone seems to have a different definition of the metaverse. There are different metaverse offerings from games companies to brands to tech platforms, so it is important to be specific in defining the intended use in each case. But generally, the metaverse is a digital realm that individuals can enter into in the form of avatars to meet and interact with others, have virtual experiences, enjoy entertainment and transact to acquire digital merchandise.

The metaverse holds great promise for the music industry. Virtual concerts in which an artist performs as an avatar in the metaverse already have attracted tens of millions of users. These users have had incredible experiences, not only listening to the artist’s performance but having unprecedented opportunities to move about and interact with the artist, even joining the artist on stage, and they can do so even if they cannot afford to buy a ticket to a traditional physical concert or do not live near where physical concerts are staged.

In planning and negotiating appropriate contracts for these events, the lawyer should have a thorough discussion with his or her client of the business, creative and technological goals and challenges of the event. This background will enable the lawyer to negotiate and draft provisions relating to many inter-related issues including production, exploitation windows, artist consent issues, digital merchandise, IP, technology and accounting issues.

Here are some of the key issues to consider in metaverse music agreements:

> Production:

Does the artist need to agree to be personally available for motion capture sessions used to develop his or her avatar? When and where shall they be scheduled, and what is the budget for them? Who is responsible to develop the digital concert venue and what technological issues need to be addressed to ensure the developed venue will function on the appropriate platform? What is the development budget? Who pays the development costs, and who owns the digital concert venue? What level of creative control does the artist have?

> Rights:

The artist should provide name and likeness rights for his or her avatar and for all uses in the virtual concert. If the artist is signed to a record label, then its consent also may be required. The music must be licensed — this can include the rights to any sound recordings that are used and to the underlying musical compositions embodied in those sound recordings. These rights may need to be licensed from various record labels, music publishers and collection societies. Various music rights need to be considered and licensed — performance or communication to the public, reproduction, synchronization, etc. depending on the intended uses of the virtual concert.

> Exploitation:

Who owns the virtual concert? How many times may the virtual concert be performed on the platform, and over what period of time? Thereafter, what promotional or other uses of the virtual concert may be made by the platform. What off-platform exploitation rights including on social media may be available to the artist or record label. Will there be revenue sharing opportunities arising from these various exploitations?

> Merchandise:

Digital merchandise to be sold at the virtual concert often is the main source of revenue. Who develops this merchandise? Which merchandise items will be created and how many of them shall there be? Does the artist have any creative controls? Does the platform have any rights to approve the digital merchandise?

> Merchandise Sales:

Merchandise typically would be purchased using the platform’s virtual currency. Does the artist (or record label) accept payment in virtual currency, or is it converted to dollars? How are currency conversion issues addressed? Where can the merchandise be sold, and for how long? When is the artist or label paid, and how much? Various accounting and audit provisions must be negotiated.

> Marketing:

Does the platform commit to a marketing spend or to provide in-kind promotional exposure? What commitments does the artist make to market the event? Is the artist required to appear for meet and greets with users, press interviews, etc.? Will influencers be used, under whose control will they be and who pays for them? What other marketing techniques will be employed?

In addition to these key issues, representations and warranties, indemnifications, privacy, security, international issues, choice of law, etc. also should be addressed.

New issues will arise as the music industry continues to innovate and as music events in the metaverse evolve. As a result, these deals are not yet standardized which makes working in this area, and negotiating metaverse music agreements, such an engaging process.

By Jeff Liebenson