The four tests of fair use are:
1. The purpose and character of the new work that is created (commercial, nonprofit, educational purposes, parody, news, etc.);
2. The nature of the underlying copyrighted work, or footage (movie/music video vs. stock image/video);
3. The amount and substance of the portion used in relation to the underlying copyrighted work as a whole;
4. The effect of the use upon the potential market for, or value of, the copyrighted work or underlying footage.
Indeed, multiple cases have concluded that commercial use does not nullify fair use, provided you are creating new transformative works and score well on the four tests.
Limitations of Fair Use in Commercial Cases
Granted, there are certainly limitations to commercial uses. I am not talking about an advertisement that uses a song or image without permission, or a video game based on the NFL. I'm also not talking about stock images or videos. Frankly, the decision to fully license is based on those projects' risk/return profile.
In this article, I'm talking about using small portions of long-form works, in a manner that doesn't reduce the value of, or replace, the underlying work, in an editorial context, while retaining the right to sell ads against that content (within limits, although what those limits are shall remain for an upcoming piece).
Even the biggest claimants (media companies) profit from fair use. For example, NBC News wouldn't exist without fair use; but its NBC Universal unit frowns when new works use their Hollywood archives. News is but one valid use, parody and reference/education are others. The line between educational and entertainment is increasingly blurry. In fact, the Motion Picture Association of America argued: "Many historical subjects cannot be discussed effectively without the use of copyrighted material. It would be difficult, for example, to make an effective biography of an actor without including audiovisual clips depicting his work, in order, for example, to illustrate a point about his career and impact, or to create a comprehensive study of surrealist art without including works by Salvador Dali, to accompany the author’s commentary."
Effectively, the MPAA is arguing that trademarks should also fall under fair use, inadvertently helping fair use proponents.
If you create new works via fair use, it's imperative to represent that you only own the finished content -- the transformative work -- and not the underlying works, while stressing that you have either 1) created and own, 2) licensed or 3) obtained through some other legal mean (i.e. fair use) the underlying works.
YouTube has emerged as the battleground for all things video. It survived by relying on the four safe harbors of the DMCA. However, with regards to fair use, it initially tended to side with big media in copyright disputes at the expense of the new producers. Last year, YouTube changed takedown policies to level the playing field and become more neutral.
Irony of Damages
New works need not pass all four tests, but they need to pass a "majority," so to speak. Ultimately, the new works need to be transformative.
Convincing a judge that fair use does not apply is half the battle; a plaintiff must prove that the new work caused a detrimental impact to the value of the underlying, copyrighted work. This is why the nature of the underlying work is key: “3 minutes of a Beyonce song might potentially hurt an entire album of Beyonce, but two minutes of ‘CSI' might be the greatest thing that could ever to the 44 minutes of ‘CSI’ that we put out weeknight on [CBS] or our affiliate partners,” admitted Quincy Smith, then a CBS executive.
However, if a claimant unfairly issues multiple takedowns and these adversely affect the new producers' ability to earn revenues from their new creations, it's quite easy for new producers to quantify the damages against the claimant using YouTube's tools. Again, it's not illegal to generate revenue via fair use. It's not how much money you make, it's how.
Double-edged sword of setting a precedent
Rightsholders are most concerned with piracy of full-length works (granted, some recognize the benefits). However, by pursuing legitimate commercial cases involving fair use, they risk creating additional precedents.
Turning the Tables
Ideally, you should build distribution and brand and only promote the works of rightsholders' who give you their blessing, and eventually, pay you: MTV got music videos for free; Machinima is now getting paid to promote XBOX.
Ultimately, fair use is black and white. Whether or not it makes sense for you depends on your risk profile and how much you like debating these intricacies.
Doubt me? The precedents speak for themselves