Filmmakers and profit participants often lament about distributors engaging in creative bookkeeping. This is one area where filmmakers concede that studios are sufficiently imaginative in their thinking. A frequent complaint is that the studios continually devise new and ingenious ways to interpret a contract so that all the money stays in their pockets. The general consensus among filmmakers is that net profits are illusory. Rarely does a share of net profits generate hard cash.
No doubt, there are numerous instances where producers or distributors have cooked the books to avoid paying back-end compensation to those entitled to it. Expenses incurred on one movie might be charged to another. Phony invoices can be used to document expenses that were never incurred. Some ruses are subtler, and not readily apparent to the uninitiated.
The major studios determine profits for participants using their own special accounting rules as set forth in their net profit defi¬nitions. The accounting profession has generally agreed-upon rules called Generally Accepted Accounting Principles (GAAP). There are special guidelines for the motion picture industry called Financial Accounting Standards Bulletin 53 (FASB 53). These rules provide, among other things, for the accrual method of account¬ing. Under this method, revenues are recognized when earned, and expenses are recognized when incurred. But distributors do not necessarily follow these rules. They may use GAAP and FASB 53 when accounting to their shareholders, or reporting to their bankers, but they often resort to their own Alice in Wonderland-type rules when they calculate net profits for participants. They may recognize revenue only when it is actually received, while taking expenses when incurred. So if the distributor licenses a film to NBC, the distributor may not count the license fee as revenue until they actually receive it. Even when they receive a non-refundable advance, they might not count it as income until the time of the broadcast. Meanwhile, they count expenses as soon as they are incurred, even if they have not paid them. This mismatching of revenues and expenses allows the distributor to delay payment to participants. It also allows distributors to charge producers interest for a longer time on the outstanding “loan” extended to the producer to make the film.
The Art Buchwald case illuminates some of the devices Paramount used to deny payment to net profit participants. The trial judge found many of these practices to be unconscionable and therefore refused to enforce them. Paramount appealed, and the case was settled before the Court of Appeals could rule on the issue.
If Buchwald had won the appeal, the precedent would have caused severe repercussions for all the major studios. That is because Paramount’s “net profit” definition was virtually identical to the definitions found throughout the industry. If Buchwald’s contract was invalid because it was unconscionable, then many other contracts could be contested.
In my opinion, Buchwald may well have lost the appeal had the case been decided. The trial court judge in Buchwald used the doctrine of unconscionability to invalidate a contract that Buchwald was trying to enforce. Courts have traditionally embraced this doctrine only when it was used as a defense, or shield, against enforcement of an unfair contract, rather than as a sword to enforce the terms of a contract against another. Courts have typically relied on the doctrine to protect uneducated people who have been taken advantage of. If an unscrupulous door-to-door salesman sells a refrigerator for an exorbitant price to a poor, illiterate consumer on an installment plan using a boilerplate contract not open to negotiation, the judge might refuse to enforce the contract because it “shocks the conscience of the court.”
Buchwald, however, was hardly a poor, defenseless victim. He was an intelligent, wealthy, and acclaimed writer represented by the William Morris Agency. If a judge was willing to rewrite his contract because it was unfair, then why not rewrite thousands of other writer contracts? Indeed, why not rewrite any unfair contract? Where does one draw the line? If any contract can be contested simply because it is unfair, then how can anyone safely rely upon the terms of a contract? How can you conduct business if you cannot be sure your contracts will be enforceable?
Under long-established precedent, courts refuse to invalidate contracts simply because they are unfair. Law students are taught the principle that even a peppercorn—something worth less than a penny—can be valid consideration. This means that if you are foolish enough to sign a contract to sell your $200 bike for a dime, do not expect a court to bail you out of a bad deal. Absent fraud, duress, or some other acceptable ground to invalidate a contract, courts do not second-guess the wisdom of what the parties agreed to.
While the trial judge in the Buchwald case thought the doctrine of unconscionability could be invoked to invalidate a net profit definition, it bears noting that another Los Angeles Superior Court came to a different conclusion. In reviewing the accounting practices of Warner Bros. in the Batman case, the judge found that the plaintiffs had failed to prove that the studio’s net profits definition was unconscionable.
Regardless of whether the Buchwald decision would have been upheld on appeal, the dispute has had an impact on the industry. The major studios have rewritten their contracts, replacing the phrase “net profits” with such terms as “net proceeds.” They want to avoid any implication that the back-end compensation promised participants has anything to do with the concept of profitability.
As a result of many highly publicized creative-accounting disputes, anyone who has clout insists on receiving either large up-front payments or a share of gross revenue. Distributors have consequently lost the ability to share risk with talent. Budgets have escalated to accommodate large up-front fees, with major stars now demanding $20 million per picture. Moreover, stars and directors have little incentive to minimize production expenses, since it doesn’t affect their earnings.
Not all complaints about creative accounting concern accounting errors. Many grievances reflect the inequality of the deal itself. The studio uses its leverage and superior bargaining position to pressure talent to agree to a bad deal. The distributor then accounts in accordance with the terms of the contract and can avoid paying out any revenue to participants because of how net profits are defined. The contract may be unfair, but the studio has lived up to its terms. It is only after the picture becomes a hit that the actor bothers to read the fine print of his employment agreement. This is not creative accounting. This is an example of a studio negotiating favorable terms for itself.
Keep in mind that there is no law requiring distributors to share their profits with anyone. Indeed, in most industries, workers do not share in their employer’s profits. Moreover, when a major studio releases a flop, losses are not shared; they are borne by the studio alone.
Excerpt taken from Mark Litwak’s Risky Business, 3nd edition, 2010.
Wednesday, October 06, 2010
Friday, September 10, 2010
Filmmaker Battles Chevron
A three-judge panel of the United States Court of Appeals for the Second Circuit in Manhattan issued an order on July 15th in the case of documentary filmmaker Joe Berlinger (Brother’s Keeper 1992) after hearing arguments from attorneys for both the filmmaker and for Chevron. Berlinger had been ordered by the lower trial court to turn over 600 hours from his documentary Crude to Chevron. The documentary chronicles the legal struggle by 30,000 Ecuadorian rainforest residents over Chevron’s illegal dumping of more than 18 billion gallons of toxic water into the Amazon. At least 345 million gallons was crude oil, and Chevron admitted to the dumping in order to save $1-3 per barrel of oil. The suit concerned whether or not a journalist could be compelled to turn over such materials.
The Court of Appeals order was a partial win for each side. The panel concluded that Mr. Berlinger must turn over to Chevron all footage that does not appear in publicly released versions of the movie that depict the lawyers for the Ecuadorean plaintiffs, experts or current or former government officials. However, the many hours of footage that Berlinger gathered alone with the plaintiffs and their families, friends, and neighbor does not need to be disclosed and the court restricted Chevron use of the footage to the legal dispute.
In August Berlinger claimed that Chevron violated the court’s order by making “false and misleading” statements about his outtakes. Several days ago a federal judge in Manhattan ruled Berlinger must submit to depositions in the case and writing that the oil company’s original request to see the filmmaker’s raw documentary footage was not a fishing expedition. Chevron has been continuously fighting the filmmaker and its legal tactics have been criticized by many prominent figures and groups including Robert Redford, Bill Moyers, Michael Moore, the Director's Guild of America, the Writer's Guild of America, the NY Times, LA Times, NBC and HBO.
The Court of Appeals order was a partial win for each side. The panel concluded that Mr. Berlinger must turn over to Chevron all footage that does not appear in publicly released versions of the movie that depict the lawyers for the Ecuadorean plaintiffs, experts or current or former government officials. However, the many hours of footage that Berlinger gathered alone with the plaintiffs and their families, friends, and neighbor does not need to be disclosed and the court restricted Chevron use of the footage to the legal dispute.
In August Berlinger claimed that Chevron violated the court’s order by making “false and misleading” statements about his outtakes. Several days ago a federal judge in Manhattan ruled Berlinger must submit to depositions in the case and writing that the oil company’s original request to see the filmmaker’s raw documentary footage was not a fishing expedition. Chevron has been continuously fighting the filmmaker and its legal tactics have been criticized by many prominent figures and groups including Robert Redford, Bill Moyers, Michael Moore, the Director's Guild of America, the Writer's Guild of America, the NY Times, LA Times, NBC and HBO.
NEW EDWARD KENNEDY BOOK PUBLISHED
Congratulations to our client historian and journalist Burton Hersh whose new book EDWARD KENNEDY: An Intimate Biography has just been published. In this groundbreaking biography, Hersh combines extensive critical research with more than fifty years of never-before-told anecdotes and observations from his lifelong acquaintance with Edward Kennedy to create an indelible portrait of one of the finest legislators and most influential senators in American history.
The author provides the first full report of the vendetta that developed between Kennedy and Richard Nixon, describing the behind-the-scenes manipulations that Kennedy employed to eventually drive Nixon from office during the Watergate scandal.
Burton Hersh has long been regarded as Edward Kennedy’s principal biographer and is the author of such widely respected nonfiction as Bobby and J. Edgar, The Shadow President, The Old Boys: The American Elite and the Origins of the CIA, and The Mellon Family. A veteran journalist, he has contributed to such publications as Esquire, The Washingtonian, and The New York Times.
The author provides the first full report of the vendetta that developed between Kennedy and Richard Nixon, describing the behind-the-scenes manipulations that Kennedy employed to eventually drive Nixon from office during the Watergate scandal.
Burton Hersh has long been regarded as Edward Kennedy’s principal biographer and is the author of such widely respected nonfiction as Bobby and J. Edgar, The Shadow President, The Old Boys: The American Elite and the Origins of the CIA, and The Mellon Family. A veteran journalist, he has contributed to such publications as Esquire, The Washingtonian, and The New York Times.
Tuesday, July 06, 2010
WHEN A DISTRIBUTOR DEFAULTS
Many years ago I represented a filmmaker who entered into an agreement with a small home-video distributor. The company had a decent reputation, and since there were no other offers for this $80,000 movie, a deal was struck. The filmmaker was promised a $40,000 advance for U.S. home video rights. The advance was payable in four installments over the course of a year. After the second installment was received, the distributor was acquired.
The new owners stopped making payments to my client. There was no question that the company owed another $20,000, and that my client had fulfilled all of his contractual obligations. The only excuse offered was that the company was experiencing “financial difficulties.” We suggested small monthly payments to retire the balance due. Payments were promised but never made. We initiated arbitration, quickly won an award, confirmed it in court, and obtained a writ of execution directing the sheriff to seize the company’s film library. Miraculously, the distributor’s cash-flow problems immediately disappeared, and full payment was received. But that was not the end of the matter. When I negotiated the agreement, I included a clause enabling my client to demand accelerated payments on default, interest on late payments, and reversion of all distribution rights. So the distributor not only had to pay the balance due with interest, but it forfeited its right to distribute the film. We re-licensed the picture to another home video distributor and received another $40,000 advance, thereby enabling the filmmaker to repay his investors. The film is an example of a picture that performed poorly in exhibition but did great in litigation. Ironically, if the first distributor had not defaulted, the filmmaker would not have been able to re-license the film and repay his investors.
There are honest distributors, but there are also a fair number of disreputable distributors who will look for any real or imagined excuse to avoid paying a filmmaker his share of revenue. Distributors know that the relatively small amounts at stake may not be enough to justify legal proceedings. Most independent filmmakers have limited financial resources, and most, if not all, of that will be spent to complete the film. Attorneys are not inclined to take on such cases on a contingency fee basis (i.e., the attorney gets a percentage of the recovery rather than being paid an hourly rate). That’s why it is often wise to provide for arbitration. With arbitration, disputes can be settled without the expense and delays typical of litigation. The arbitration clause should provide that the prevailing party be reimbursed attorneys’ fees and costs.
Filmmakers need to exercise great caution when negotiating distribution agreements. Even if the filmmaker thoroughly trusts the executives at a distribution company, the contract is signed with a company, and companies can be sold. Your friend who manages the company today could be gone tomorrow. Therefore, filmmakers need ironclad protections no matter which individuals may be running the company.
One of my recent cases concerned a dispute with a home video distributor. The filmmaker made an oral agreement with the distributor and delivered his film. The distributor began to advertise and promote the picture. Six weeks later, before any paperwork had been signed, the company reneged on the deal and pressured the filmmaker to renegotiate its terms.
To protect yourself from such tactics, make sure all promises are in writing. Do not deliver any materials until you have received a fully executed copy of the contract. Always retain possession of your film negative and master elements by providing a lab access letter instead of the actual master elements.
SELECTING A DISTRIBUTOR
Filmmakers may not have the luxury of choosing a distributor to their liking. In many instances, only one or a handful of distributors express interest. The terms may range from bad to worse. But assuming one has a choice, here are some factors to consider:
1. Media: Which media (e.g., theatrical, television, home video) does the distributor serve? Is the distributor an unnecessary middleman, or does it provide valuable resources and expertise? Any company can call itself a distributor. What services does this entity provide? To what extent does it use subdistributors? If subdistributors are used, do they take an additional commission?
2. Territory: What geographical area does the distributor serve? American independent filmmakers often use multiple distributors: a foreign sales company for international sales and a domestic distributor(s) for release in North America.
3. Reputation: Has the distributor left a trail of unhappy filmmakers in its wake? Is the distributor known for distributing films of a similar genre, budget, and stature? Does the distributor have a good reputation among its licensees or exhibitors?
4. Advance/Minimum Guarantees: What is the amount of any advance? When is it payable, and what conditions need to be satisfied? When are minimum guarantees payable? Will the distributor pay this guarantee if the film is not successful?
5. Division of Proceeds: How will revenues be shared? How much does the distributor take in fees or commission? Can the distributor recoup any of its overhead or staff expenses? Are there caps on marketing and distribution expenses?
6. Marketing: Is there a guaranteed marketing commitment? What is the minimum amount the distributor will spend to advertise the film? On how many screens in how many venues will the picture open? What is the marketing strategy? What kind of audience does the distributor think will be attracted to the film? What grass¬roots promotion efforts are planned? Will the film be entered into festivals?
7. Consultation Rights/Final Cut: Does the producer have any input or approval over artwork? Can the title be changed or the film re-edited without the filmmaker’s approval?
8. Financial Health: Is the company in any danger of becoming insolvent or going bankrupt? How long has the company been in existence? How well capitalized is it?
9. Cross-collateralization: Are expenses from one media or territory cross-collateralized with other media or territories?
10. Accounting: How often does the distributor issue producer reports? How detailed are the reports? Will the distributor provide receipts to document its expenses and revenues? Is interest paid on late payments? What kind of audit rights does the filmmaker have?
11. Ability to Collect: How much leverage does the distributor have with exhibitors/licensees to collect revenue?
12. Conflicts of Interest: Does the distributor handle any competing films? Does the distributor produce its own films that might receive preferential treatment?
13. Term: For how long will the distributor have the right to distribute the film? What is the maximum license term that the distributor can grant to others? Are there performance milestones that must be met before the term is extended? Does the producer have the right to regain distribution rights if the distributor per¬forms poorly or breaches the agreement?
14. Personal Chemistry: Does the filmmaker have a good rapport with distribution executives?
Excerpt taken from Mark Litwak’s Risky Business, 2nd edition, 2009.
The new owners stopped making payments to my client. There was no question that the company owed another $20,000, and that my client had fulfilled all of his contractual obligations. The only excuse offered was that the company was experiencing “financial difficulties.” We suggested small monthly payments to retire the balance due. Payments were promised but never made. We initiated arbitration, quickly won an award, confirmed it in court, and obtained a writ of execution directing the sheriff to seize the company’s film library. Miraculously, the distributor’s cash-flow problems immediately disappeared, and full payment was received. But that was not the end of the matter. When I negotiated the agreement, I included a clause enabling my client to demand accelerated payments on default, interest on late payments, and reversion of all distribution rights. So the distributor not only had to pay the balance due with interest, but it forfeited its right to distribute the film. We re-licensed the picture to another home video distributor and received another $40,000 advance, thereby enabling the filmmaker to repay his investors. The film is an example of a picture that performed poorly in exhibition but did great in litigation. Ironically, if the first distributor had not defaulted, the filmmaker would not have been able to re-license the film and repay his investors.
There are honest distributors, but there are also a fair number of disreputable distributors who will look for any real or imagined excuse to avoid paying a filmmaker his share of revenue. Distributors know that the relatively small amounts at stake may not be enough to justify legal proceedings. Most independent filmmakers have limited financial resources, and most, if not all, of that will be spent to complete the film. Attorneys are not inclined to take on such cases on a contingency fee basis (i.e., the attorney gets a percentage of the recovery rather than being paid an hourly rate). That’s why it is often wise to provide for arbitration. With arbitration, disputes can be settled without the expense and delays typical of litigation. The arbitration clause should provide that the prevailing party be reimbursed attorneys’ fees and costs.
Filmmakers need to exercise great caution when negotiating distribution agreements. Even if the filmmaker thoroughly trusts the executives at a distribution company, the contract is signed with a company, and companies can be sold. Your friend who manages the company today could be gone tomorrow. Therefore, filmmakers need ironclad protections no matter which individuals may be running the company.
One of my recent cases concerned a dispute with a home video distributor. The filmmaker made an oral agreement with the distributor and delivered his film. The distributor began to advertise and promote the picture. Six weeks later, before any paperwork had been signed, the company reneged on the deal and pressured the filmmaker to renegotiate its terms.
To protect yourself from such tactics, make sure all promises are in writing. Do not deliver any materials until you have received a fully executed copy of the contract. Always retain possession of your film negative and master elements by providing a lab access letter instead of the actual master elements.
SELECTING A DISTRIBUTOR
Filmmakers may not have the luxury of choosing a distributor to their liking. In many instances, only one or a handful of distributors express interest. The terms may range from bad to worse. But assuming one has a choice, here are some factors to consider:
1. Media: Which media (e.g., theatrical, television, home video) does the distributor serve? Is the distributor an unnecessary middleman, or does it provide valuable resources and expertise? Any company can call itself a distributor. What services does this entity provide? To what extent does it use subdistributors? If subdistributors are used, do they take an additional commission?
2. Territory: What geographical area does the distributor serve? American independent filmmakers often use multiple distributors: a foreign sales company for international sales and a domestic distributor(s) for release in North America.
3. Reputation: Has the distributor left a trail of unhappy filmmakers in its wake? Is the distributor known for distributing films of a similar genre, budget, and stature? Does the distributor have a good reputation among its licensees or exhibitors?
4. Advance/Minimum Guarantees: What is the amount of any advance? When is it payable, and what conditions need to be satisfied? When are minimum guarantees payable? Will the distributor pay this guarantee if the film is not successful?
5. Division of Proceeds: How will revenues be shared? How much does the distributor take in fees or commission? Can the distributor recoup any of its overhead or staff expenses? Are there caps on marketing and distribution expenses?
6. Marketing: Is there a guaranteed marketing commitment? What is the minimum amount the distributor will spend to advertise the film? On how many screens in how many venues will the picture open? What is the marketing strategy? What kind of audience does the distributor think will be attracted to the film? What grass¬roots promotion efforts are planned? Will the film be entered into festivals?
7. Consultation Rights/Final Cut: Does the producer have any input or approval over artwork? Can the title be changed or the film re-edited without the filmmaker’s approval?
8. Financial Health: Is the company in any danger of becoming insolvent or going bankrupt? How long has the company been in existence? How well capitalized is it?
9. Cross-collateralization: Are expenses from one media or territory cross-collateralized with other media or territories?
10. Accounting: How often does the distributor issue producer reports? How detailed are the reports? Will the distributor provide receipts to document its expenses and revenues? Is interest paid on late payments? What kind of audit rights does the filmmaker have?
11. Ability to Collect: How much leverage does the distributor have with exhibitors/licensees to collect revenue?
12. Conflicts of Interest: Does the distributor handle any competing films? Does the distributor produce its own films that might receive preferential treatment?
13. Term: For how long will the distributor have the right to distribute the film? What is the maximum license term that the distributor can grant to others? Are there performance milestones that must be met before the term is extended? Does the producer have the right to regain distribution rights if the distributor per¬forms poorly or breaches the agreement?
14. Personal Chemistry: Does the filmmaker have a good rapport with distribution executives?
Excerpt taken from Mark Litwak’s Risky Business, 2nd edition, 2009.
Friday, July 02, 2010
Google's You Tube Prevails Against Viacom
In March 2007 Viacom filed a $1 billion copyright action against Google's You Tube website for contributory copyright infringement. Viacom wanted You Tube to be responsible for infringements committed by You Tube users uploading content they did not own. Viacom cited more than 100,000 instances of its copyrighted works being posted on YouTube and claimed You Tube knew its works were being infringed. It claimed the “safe harbor” provisions of the Digital Millennium Copyright Act (DMCA) did not apply. Citing the Grokster case, Viacom contended that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.” Grokster, 545 U.S. at 919.
However, the United States District Court for the Southern District of New York rejected Viacom's claim that Google's site was liable for copyright infringement. Instead, the court granted Google's motion for summary judgment and found that YouTube qualified for the “safe harbor” protections of the DMCA.
Under the DMCA, online service providers can avoid liability for copyright infringement by appointing an agent to receive “takedown” notices from rights holders and then acting promptly to remove infringing materials. In order to qualify for this safe harbor, the service provider must not have actual knowledge that the material is infringing or, not be aware of facts or circumstances from which infringing activity is apparent.
“The present case shows that the DMCA notification regime works efficiently,” the court concluded, noting that “when Viacom over a period of months accumulated some 100,000 videos and then sent one mass take-down notice on February 2, 2007. By the next business day YouTube had removed virtually all of them.”
There is no doubt that congress passed the DMCA to reduce legal uncertainty facing online service providers, encouraging the growth of the internet and e-commerce. The ruling is the latest in a series of rulings upholding the safe harbor provisions against the attacks by various entertainment companies trying to restrict uploading of their content without their permission. In this case, Viacom contended that because YouTube had general knowledge that infringing videos were available on its service, it should be denied the safe harbor protections. If the court had agreed with Viacom, the safe harbors would not offer much protection. The court held that “General knowledge that infringement is ‘ubiquitous’ does not impose a duty on the service provider to monitor or search its service for infringements.” Only if the service provider receives specific notice from the owner, must the provider promptly remove the infringing material.”
Viacom announced that it will appeal the ruling.
Viacom International, Inc., v. YouTube, Inc., 2010 WL 2532404 (SDNY June 23, 2010)
However, the United States District Court for the Southern District of New York rejected Viacom's claim that Google's site was liable for copyright infringement. Instead, the court granted Google's motion for summary judgment and found that YouTube qualified for the “safe harbor” protections of the DMCA.
Under the DMCA, online service providers can avoid liability for copyright infringement by appointing an agent to receive “takedown” notices from rights holders and then acting promptly to remove infringing materials. In order to qualify for this safe harbor, the service provider must not have actual knowledge that the material is infringing or, not be aware of facts or circumstances from which infringing activity is apparent.
“The present case shows that the DMCA notification regime works efficiently,” the court concluded, noting that “when Viacom over a period of months accumulated some 100,000 videos and then sent one mass take-down notice on February 2, 2007. By the next business day YouTube had removed virtually all of them.”
There is no doubt that congress passed the DMCA to reduce legal uncertainty facing online service providers, encouraging the growth of the internet and e-commerce. The ruling is the latest in a series of rulings upholding the safe harbor provisions against the attacks by various entertainment companies trying to restrict uploading of their content without their permission. In this case, Viacom contended that because YouTube had general knowledge that infringing videos were available on its service, it should be denied the safe harbor protections. If the court had agreed with Viacom, the safe harbors would not offer much protection. The court held that “General knowledge that infringement is ‘ubiquitous’ does not impose a duty on the service provider to monitor or search its service for infringements.” Only if the service provider receives specific notice from the owner, must the provider promptly remove the infringing material.”
Viacom announced that it will appeal the ruling.
Viacom International, Inc., v. YouTube, Inc., 2010 WL 2532404 (SDNY June 23, 2010)
Saturday, June 19, 2010
ATTRACTING INVESTORS
Many filmmakers begin their careers by persuading private investors to back them. Indeed, unless you are a star like Kevin Costner or Barbra Streisand, it is rare for a major studio to fi¬nance a beginning filmmaker. Banks will not lend money without substantial collateral. Loans based on pre-sales are difficult to obtain because territory buyers want packages with name actors from an experienced director. That leaves most film¬makers looking to Mom, Dad, and whatever they can scrape up from friends, relatives, and MasterCard. While such resources have financed many films, distributor’s expectations have risen over the years. With a glut of independent motion pictures available, many distributors are not interested in acquiring a feature unless it 1) is shot with name actors; or 2) wins an important film festival.
Thus, filmmakers are forced to raise increasingly large sums of money to produce more ambitious movies if they hope to secure distribution. As digitally shot motion pictures gain greater acceptance, some production costs may decline. Nevertheless, numerous producers are chasing a small number of name actors. This competition has driven up the price of talent, even for low-budget indie films.
As a result, the ability to woo investors has become a critical skill—one that is not taught in film school. Perhaps the best preparation for an aspiring filmmaker would be to enroll in business school and learn the intricacies of high finance. Even if you didn’t learn much, you would graduate with a class of MBAs who would eventually earn large incomes and become good prospects to invest in your films. Better yet, go to dental school.
Most filmmakers have an aversion to fundraising. Like other “artists,” they would prefer that someone else deal with the unsavory task of raising money. But filmmakers without personal wealth or a rich uncle may have no choice but to beat the bushes for cash. Most underestimate the difficulty of raising funds. Joel and Ethan Coen spent a year raising the budget for Blood Simple. First they produced a slick trailer. Then they contacted everyone they knew who could potentially invest. Many of their friends who promised to back them didn’t come through. But the Coen brothers were shrewd networkers. Those prospects who were unable or unwilling to invest were asked to suggest other candi¬dates. Whenever they found an interested investor, they would visit them and show their trailer.
The Coen brothers discovered that the motive for people to invest in film has little to do with its financial merits. There are no special tax breaks. As will be discussed later, film is a risky investment. Yet there are many reasons people invest in film. The primary motivation is usually based on their attraction to the glamor of the movie business. Perhaps they think movie¬making will be exciting and fun. They may be turned on by the enthusiasm and passion of the filmmaker. They might want to rub shoulders with the “stars.” They may have a special interest in a topic. They may seek to impress their friends by inviting them to a screening of “their” film. They may desire an “executive producer” credit, a role for their niece, or a role for themselves.
Prime prospects are middle-class professionals: doctors, lawyers, and dentists. Most working-class folks can’t afford to invest in a movie. Wealthy individuals are difficult to approach unless you have a pre-existing relationship with them. They have investment advisors who tend to be financially conservative people immune to stardust. They analyze investments according to financial cri¬teria, under which movie proposals fare poorly.
The ideal investor is a doctor who makes several hundred thousand dollars a year and has substantial assets. He can lose his entire investment and the loss will not affect his lifestyle. This year instead of going to Las Vegas for a week and blowing ten grand, he is going to invest in a film in the hope that the experience will be more entertaining—it certainly won’t be less of a gamble. Investors who will suffer if they lose their investment should always be avoided.
Film investments have a bad reputation, and deservedly so. There are instances where investors were cheated and lost everything. Consequently, investors who have been burned or have heard of such horror stories may be unwilling to consider film-related investments. A filmmaker needs to be persuasive and have done his research if he hopes to raise funds. One needs to convince a prospect that film can be an intelligent investment for a small portion of the potential investor’s portfolio. While film investments are risky, the potential return from a hit can be enormous. Not only can the film earn revenue from box office receipts, but there are also ancillary sources of income. These sources include revenue from television, home video, merchandising, music publishing, soundtrack albums, sequels, and remakes.
Excerpt taken from Mark Litwak’s Risky Business, 2nd edition, 2009.
Thus, filmmakers are forced to raise increasingly large sums of money to produce more ambitious movies if they hope to secure distribution. As digitally shot motion pictures gain greater acceptance, some production costs may decline. Nevertheless, numerous producers are chasing a small number of name actors. This competition has driven up the price of talent, even for low-budget indie films.
As a result, the ability to woo investors has become a critical skill—one that is not taught in film school. Perhaps the best preparation for an aspiring filmmaker would be to enroll in business school and learn the intricacies of high finance. Even if you didn’t learn much, you would graduate with a class of MBAs who would eventually earn large incomes and become good prospects to invest in your films. Better yet, go to dental school.
Most filmmakers have an aversion to fundraising. Like other “artists,” they would prefer that someone else deal with the unsavory task of raising money. But filmmakers without personal wealth or a rich uncle may have no choice but to beat the bushes for cash. Most underestimate the difficulty of raising funds. Joel and Ethan Coen spent a year raising the budget for Blood Simple. First they produced a slick trailer. Then they contacted everyone they knew who could potentially invest. Many of their friends who promised to back them didn’t come through. But the Coen brothers were shrewd networkers. Those prospects who were unable or unwilling to invest were asked to suggest other candi¬dates. Whenever they found an interested investor, they would visit them and show their trailer.
The Coen brothers discovered that the motive for people to invest in film has little to do with its financial merits. There are no special tax breaks. As will be discussed later, film is a risky investment. Yet there are many reasons people invest in film. The primary motivation is usually based on their attraction to the glamor of the movie business. Perhaps they think movie¬making will be exciting and fun. They may be turned on by the enthusiasm and passion of the filmmaker. They might want to rub shoulders with the “stars.” They may have a special interest in a topic. They may seek to impress their friends by inviting them to a screening of “their” film. They may desire an “executive producer” credit, a role for their niece, or a role for themselves.
Prime prospects are middle-class professionals: doctors, lawyers, and dentists. Most working-class folks can’t afford to invest in a movie. Wealthy individuals are difficult to approach unless you have a pre-existing relationship with them. They have investment advisors who tend to be financially conservative people immune to stardust. They analyze investments according to financial cri¬teria, under which movie proposals fare poorly.
The ideal investor is a doctor who makes several hundred thousand dollars a year and has substantial assets. He can lose his entire investment and the loss will not affect his lifestyle. This year instead of going to Las Vegas for a week and blowing ten grand, he is going to invest in a film in the hope that the experience will be more entertaining—it certainly won’t be less of a gamble. Investors who will suffer if they lose their investment should always be avoided.
Film investments have a bad reputation, and deservedly so. There are instances where investors were cheated and lost everything. Consequently, investors who have been burned or have heard of such horror stories may be unwilling to consider film-related investments. A filmmaker needs to be persuasive and have done his research if he hopes to raise funds. One needs to convince a prospect that film can be an intelligent investment for a small portion of the potential investor’s portfolio. While film investments are risky, the potential return from a hit can be enormous. Not only can the film earn revenue from box office receipts, but there are also ancillary sources of income. These sources include revenue from television, home video, merchandising, music publishing, soundtrack albums, sequels, and remakes.
Excerpt taken from Mark Litwak’s Risky Business, 2nd edition, 2009.
Thursday, May 27, 2010
ALAN LADD PREVAILS AGAINST STUDIO PACKAGING PRACTICE
When a package of movies is licensed, a frequent issue is how to allocate the license fee among the pictures in the package. If all the pictures are of the same commercial worth, a simple division among the films would appear to be fair. But movies are not fungible commodities like jelly beans, and their value can vary greatly. Moreover, the worth of a movie can be subjective.
Producer Alan Ladd claimed that Warner Brothers undervalued and underpaid the license fees attributable to Blade Runner, Body Heat, Night Shift, Tequila Sunrise, Outland, Chariots of Fire, and the Police Academy franchise, consisting of the original and sequels 2, 3, 4, 5 and 6. Ladd was entitled to profit participation from the films.
Warner licensed packages of movies to broadcast television and cable networks. In a practice known as "straight-lining," Warner allocated the same share of the licensing fee to every movie in a package, regardless of its value to the licensee. The gravamen of Ladd's action against Warner is that by allocating the same portion of the licensing fee to every movie in a package without regard to the true value of each movie, Warner deprived Ladd of a fair allocation of the licensing fees to which Ladd was entitled as a profit participant. The complaint included causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and negligent misrepresentation.
Ladd's expert testified that in treating every movie as though it had the same value, "the studio was not doing its expert work, as a provider or distributor of content, in weighing the value of each of these titles." Ladd was entitled to 5 percent of gross revenues on all films once Warner recouped its costs, except for Chariots of Fire, on which he was entitled to 2.5 percent. Thus, on the $97 million in under allocated licensing fees, Ladd's profit participation should have been $3,190,625.
In its opinion the California Court of Appeals held that Warner owed a duty to allocate license fees fairly to Ladd's movies. It mentioned that every contract in California contains an implied covenant of good faith and fair dealing that "neither party will do anything which will injure the right of the other to receive the benefits of the agreement." (Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400.) The implied covenant "finds particular application in situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith." (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 372.)
In evaluating its movies, Warner internally assigned each movie a grade of A, B or C. All of Ladd's films were rated either A or B. The problem was that Warner allocated the same proportion of the license fee to each title in the package, irrespective of the letter grade.
The court noted that movies rated C were filler material, which is why they are bundled in a package together with A and B movies. Leslie Cohen, director of film acquisitions at HBO, testified that in one licensing deal, Warner added a group of old Tarzan movies to a licensing package at no cost. Warner then allocated a license fee of $40,000 to each of the Tarzan movies, thereby reducing other movies' allocations in the package.
Ladd's expert also testified that in non-straight lined film packages, movies that were less valuable than Ladd's received greater value. For example, there were times when Daffy Duck and Bugs Bunny animated films were allocated double the money that was allocated to Chariots of Fire, a valuable feature film which won multiple Academy Awards, including Best Picture. Those animated films were wholly owned by Warner, which means Warner kept every dollar generated by licensing fees on those films. Ladd's expert determined that Warner was over allocating license fees to movies that were studio owned or that did not have profit participants.
Warner Bros had appealed a judgment on a jury verdict awarding plaintiffs $3,190,625 in damages. Most aspects of the judgment were affirmed and Ladd was granted recovery of costs on the appeal. Ladd v. Warner Bros. Entertainment, Inc. B204015. Court of Appeals of California, Second District, Division Three. Filed May 25, 2010.
Producer Alan Ladd claimed that Warner Brothers undervalued and underpaid the license fees attributable to Blade Runner, Body Heat, Night Shift, Tequila Sunrise, Outland, Chariots of Fire, and the Police Academy franchise, consisting of the original and sequels 2, 3, 4, 5 and 6. Ladd was entitled to profit participation from the films.
Warner licensed packages of movies to broadcast television and cable networks. In a practice known as "straight-lining," Warner allocated the same share of the licensing fee to every movie in a package, regardless of its value to the licensee. The gravamen of Ladd's action against Warner is that by allocating the same portion of the licensing fee to every movie in a package without regard to the true value of each movie, Warner deprived Ladd of a fair allocation of the licensing fees to which Ladd was entitled as a profit participant. The complaint included causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and negligent misrepresentation.
Ladd's expert testified that in treating every movie as though it had the same value, "the studio was not doing its expert work, as a provider or distributor of content, in weighing the value of each of these titles." Ladd was entitled to 5 percent of gross revenues on all films once Warner recouped its costs, except for Chariots of Fire, on which he was entitled to 2.5 percent. Thus, on the $97 million in under allocated licensing fees, Ladd's profit participation should have been $3,190,625.
In its opinion the California Court of Appeals held that Warner owed a duty to allocate license fees fairly to Ladd's movies. It mentioned that every contract in California contains an implied covenant of good faith and fair dealing that "neither party will do anything which will injure the right of the other to receive the benefits of the agreement." (Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400.) The implied covenant "finds particular application in situations where one party is invested with a discretionary power affecting the rights of another. Such power must be exercised in good faith." (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 372.)
In evaluating its movies, Warner internally assigned each movie a grade of A, B or C. All of Ladd's films were rated either A or B. The problem was that Warner allocated the same proportion of the license fee to each title in the package, irrespective of the letter grade.
The court noted that movies rated C were filler material, which is why they are bundled in a package together with A and B movies. Leslie Cohen, director of film acquisitions at HBO, testified that in one licensing deal, Warner added a group of old Tarzan movies to a licensing package at no cost. Warner then allocated a license fee of $40,000 to each of the Tarzan movies, thereby reducing other movies' allocations in the package.
Ladd's expert also testified that in non-straight lined film packages, movies that were less valuable than Ladd's received greater value. For example, there were times when Daffy Duck and Bugs Bunny animated films were allocated double the money that was allocated to Chariots of Fire, a valuable feature film which won multiple Academy Awards, including Best Picture. Those animated films were wholly owned by Warner, which means Warner kept every dollar generated by licensing fees on those films. Ladd's expert determined that Warner was over allocating license fees to movies that were studio owned or that did not have profit participants.
Warner Bros had appealed a judgment on a jury verdict awarding plaintiffs $3,190,625 in damages. Most aspects of the judgment were affirmed and Ladd was granted recovery of costs on the appeal. Ladd v. Warner Bros. Entertainment, Inc. B204015. Court of Appeals of California, Second District, Division Three. Filed May 25, 2010.
Monday, April 05, 2010
Self Defense Checklist
Here is a summary of some of the most important ways film¬makers can protect their interests:
1. OBTAIN ALL PROMISES IN WRITING. Don’t accept oral assurances from a producer or studio executive. If they promise to spend $50,000 to promote your film, put that promise in writing. If there is not enough time to draft a long-form contract, insist on a letter agreement spelling out the essential terms.
2. REGISTER ALL WORKS WITH THE COPYRIGHT OFFICE. Before you pitch a story, write it out and register it with the U.S. Copyright Office for maximum protection.
3. OBTAIN AN ARBITRATION CLAUSE: Make sure contractual disputes are subject to binding arbitration where the prevailing party is entitled to reimbursement of legal fees and costs. Arbitration is less costly than litigation, and going to court is not much of a remedy if you can’t afford it.
4. WATER DOWN THE WARRANTIES: Warranties are promises. For example, when you sell a script, the buyer will want you to promise that you have not plagiarized another writer’s work or defamed someone. If you make an absolute warranty, you will be liable, even if you made a good-faith mistake and honestly believed that you had secured all the rights. Therefore, it is best to make your warranties “to the best of your knowledge and belief,” rather than making them absolute.
5. RETAIN POSSESSION OF YOUR MASTER ELEMENTS: Independent filmmakers should not relinquish possession of their master materials. Instead, give the distributor a lab access letter permitting it to order copies of your originals held in your lab under your name. This way, if the distributor ever breaches your contract or goes bankrupt, at least it will not possess your masters. You should also retain control of your original still photos and any artwork.
6. OBTAIN INSURANCE COVERAGE: Typically the producer purchases insurance, including Errors and Omissions (E&O) insurance, which protects the producer if he inadvertently infringes another’s rights (e.g., defames somebody, infringes their copyrighted material). It is best to purchase the E&O policy early so that coverage begins during preproduction. If you be¬gin production and a claim is made, insurance companies may decline to issue a policy or insist that the policy exclude the pre-existing claim. E&O insurance will pay (minus a deductible) for your defense and any damages that may arise from liability for inadvertently defaming someone or infringing their rights.
7. CHECK REFERENCES: The most airtight contract in the world offers limited protection against a scoundrel who ignores its terms. Carefully investigate any party with whom you contemplate do¬ing business. For distributors, confer with other filmmakers who have had dealings with a distributor over the course of several years. Check with the Filmmaker’s Clearinghouse on my website (www.marklitwak.com) to see how indie filmmakers rate various distributors. Usually, people who have lousy reputations have earned them.
8. TERMINATION CLAUSE: If the other party defaults, it is best if you have the right to terminate the contract and regain all rights to your film in addition to monetary damages. Writers should insist on a reversion clause so that if a script is bought and not produced within a reasonable amount of time (e.g., five years), all rights revert to the writer.
9. INVESTOR MONEY: Never make any “offers” to investors or accept any investor money without fully complying with all ap¬plicable state and federal securities laws. These laws apply when you offer investments to “passive” investors, which are investors who provide financing but are not actively involved in making the movie. Have an entertainment attorney with experience in securities prepare appropriate disclosure documents (e.g., a Private Placement Memorandum).
10. SAVE COPIES: Retain copies of all correspondence, contracts, and drafts of your screenplay. When you make a story sugges¬tion or enter into an oral agreement, follow up with a letter documenting the extent of your contribution.
11. DEFINE ADVERTISING EXPENSES: Distribution contracts should specify in writing the minimum amount the distributor will spend to advertise and promote a film. It is wise to cap ex¬penses as well. Obtain a detailed definition of which advertising, promotional, and marketing expenses are recoupable, thereby precluding the distributor from reimbursing itself for overhead and any inappropriate or undocumented expenses.
12. INDEMNITY: The filmmaker should be indemnified (reimbursed) for any losses incurred as a result of the distributor’s breach of contract, and for any liability arising from material added to the script/film by the distributor.
13. RIGHT TO INSPECT BOOKS AND RECORDS: The distributor should be required to maintain complete books and records with regard to all sales and rentals of the motion picture. The film¬maker should receive quarterly producer reports with a detailed accounting statement along with any payment due. In the event the filmmaker wants to examine the distributor’s books and records, he should be permitted to do so with reasonable notice. If an audit discloses a significant underpayment (e.g., $5,000), the distributor should reimburse the filmmaker the cost of the audit.
14. LATE PAYMENTS/LIENS: All monies due and payable to the filmmaker should be held in trust by the distributor. In addition, the filmmaker should have a lien on the filmmaker’s share of the gross receipts derived from the film. The distributor should be required to pay the filmmaker interest on any late payments.
15. REMEDIES: A filmmaker should be given at least three years from receipt of a financial statement, or from discovery of an accounting error, to object.
16. ASSIGNMENT: No assignment (transfer) of rights by the distributor should relieve it of its contractual obligations to the filmmaker unless the filmmaker consents to the assignment.
17. FILMMAKER DEFAULT: A distributor should give the filmmaker at least 10 days’ written notice of any alleged filmmaker default (breach of agreement) before taking any action to enforce its rights.
1. OBTAIN ALL PROMISES IN WRITING. Don’t accept oral assurances from a producer or studio executive. If they promise to spend $50,000 to promote your film, put that promise in writing. If there is not enough time to draft a long-form contract, insist on a letter agreement spelling out the essential terms.
2. REGISTER ALL WORKS WITH THE COPYRIGHT OFFICE. Before you pitch a story, write it out and register it with the U.S. Copyright Office for maximum protection.
3. OBTAIN AN ARBITRATION CLAUSE: Make sure contractual disputes are subject to binding arbitration where the prevailing party is entitled to reimbursement of legal fees and costs. Arbitration is less costly than litigation, and going to court is not much of a remedy if you can’t afford it.
4. WATER DOWN THE WARRANTIES: Warranties are promises. For example, when you sell a script, the buyer will want you to promise that you have not plagiarized another writer’s work or defamed someone. If you make an absolute warranty, you will be liable, even if you made a good-faith mistake and honestly believed that you had secured all the rights. Therefore, it is best to make your warranties “to the best of your knowledge and belief,” rather than making them absolute.
5. RETAIN POSSESSION OF YOUR MASTER ELEMENTS: Independent filmmakers should not relinquish possession of their master materials. Instead, give the distributor a lab access letter permitting it to order copies of your originals held in your lab under your name. This way, if the distributor ever breaches your contract or goes bankrupt, at least it will not possess your masters. You should also retain control of your original still photos and any artwork.
6. OBTAIN INSURANCE COVERAGE: Typically the producer purchases insurance, including Errors and Omissions (E&O) insurance, which protects the producer if he inadvertently infringes another’s rights (e.g., defames somebody, infringes their copyrighted material). It is best to purchase the E&O policy early so that coverage begins during preproduction. If you be¬gin production and a claim is made, insurance companies may decline to issue a policy or insist that the policy exclude the pre-existing claim. E&O insurance will pay (minus a deductible) for your defense and any damages that may arise from liability for inadvertently defaming someone or infringing their rights.
7. CHECK REFERENCES: The most airtight contract in the world offers limited protection against a scoundrel who ignores its terms. Carefully investigate any party with whom you contemplate do¬ing business. For distributors, confer with other filmmakers who have had dealings with a distributor over the course of several years. Check with the Filmmaker’s Clearinghouse on my website (www.marklitwak.com) to see how indie filmmakers rate various distributors. Usually, people who have lousy reputations have earned them.
8. TERMINATION CLAUSE: If the other party defaults, it is best if you have the right to terminate the contract and regain all rights to your film in addition to monetary damages. Writers should insist on a reversion clause so that if a script is bought and not produced within a reasonable amount of time (e.g., five years), all rights revert to the writer.
9. INVESTOR MONEY: Never make any “offers” to investors or accept any investor money without fully complying with all ap¬plicable state and federal securities laws. These laws apply when you offer investments to “passive” investors, which are investors who provide financing but are not actively involved in making the movie. Have an entertainment attorney with experience in securities prepare appropriate disclosure documents (e.g., a Private Placement Memorandum).
10. SAVE COPIES: Retain copies of all correspondence, contracts, and drafts of your screenplay. When you make a story sugges¬tion or enter into an oral agreement, follow up with a letter documenting the extent of your contribution.
11. DEFINE ADVERTISING EXPENSES: Distribution contracts should specify in writing the minimum amount the distributor will spend to advertise and promote a film. It is wise to cap ex¬penses as well. Obtain a detailed definition of which advertising, promotional, and marketing expenses are recoupable, thereby precluding the distributor from reimbursing itself for overhead and any inappropriate or undocumented expenses.
12. INDEMNITY: The filmmaker should be indemnified (reimbursed) for any losses incurred as a result of the distributor’s breach of contract, and for any liability arising from material added to the script/film by the distributor.
13. RIGHT TO INSPECT BOOKS AND RECORDS: The distributor should be required to maintain complete books and records with regard to all sales and rentals of the motion picture. The film¬maker should receive quarterly producer reports with a detailed accounting statement along with any payment due. In the event the filmmaker wants to examine the distributor’s books and records, he should be permitted to do so with reasonable notice. If an audit discloses a significant underpayment (e.g., $5,000), the distributor should reimburse the filmmaker the cost of the audit.
14. LATE PAYMENTS/LIENS: All monies due and payable to the filmmaker should be held in trust by the distributor. In addition, the filmmaker should have a lien on the filmmaker’s share of the gross receipts derived from the film. The distributor should be required to pay the filmmaker interest on any late payments.
15. REMEDIES: A filmmaker should be given at least three years from receipt of a financial statement, or from discovery of an accounting error, to object.
16. ASSIGNMENT: No assignment (transfer) of rights by the distributor should relieve it of its contractual obligations to the filmmaker unless the filmmaker consents to the assignment.
17. FILMMAKER DEFAULT: A distributor should give the filmmaker at least 10 days’ written notice of any alleged filmmaker default (breach of agreement) before taking any action to enforce its rights.
Saturday, February 13, 2010
Distributing Your Indie Film
Filmmakers expend so much effort to produce their film that they often don’t give much thought to distribution until the movie is complete. Many filmmakers believe that if they just make a good film, distribution will take care of itself. However, securing distribution is often more challenging than raising financing and producing the movie.
One’s leverage in negotiating a distribution deal depends on whether distributors perceive the film as desirable. Of course, films cannot be appraised like real estate, as every picture is unique and there are no sure-fire criteria to determine a film’s commercial worth. I don’t know of a single industry executive who could have predicted the success of Slumdog Millionaire or Precious. The major studios, despite all their market research and expertise, frequently release big budget flops. While no one can accurately predict the commercial worth of a film, there are techniques and strategies that can be employed to improve one’s prospects. Even filmmakers with low-budget pictures with limited commercial appeal can usually improve upon the initial offer if they are savvy. An experienced negotiator can obtain many concessions just by knowing what to ask for.
In a typical deal, the distributor secures the right to distribute the movie in one or more media (e.g., theatrical, home video, television). The distributor pays for all distribution, advertising and marketing costs. Both parties share revenue derived from the film.
Competition improves terms. Giving one distributor an early peek at your film is usually a bad idea. If the distributor passes on the film, word gets around and other acquisition executives may not bother to view your film. On the other hand, if the distributor likes the film, a pre-emptive bid is likely, and you may only have a day or two to decide whether to accept the offer. If you decline, you may be rejecting the best deal you will ever receive. If you accept, you foreclose the possibility of a better deal tomorrow. Thus, you will be forced to make a decision without knowing where you stand in the marketplace and what other companies might offer. That is why it is important to orchestrate the release of your film to potential buyers so as to create maximum competition and enhance your leverage. Here are some guidelines:
1) NO SNEAK PREVIEWS: It is best not to screen your film for distributors until it is complete. Executives may beg to see a rough cut. They may assure you, "Don’t worry. We are professionals. We can imagine what the film will look like with sound and titles." Don’t believe them. Most people cannot extrapolate. They will view your unfinished film and perceive it as amateurish. First impressions last.
2) SCREEN IT BEFORE A CROWD: It is usually better to invite executives to a screening than to send them DVD. If you send a DVD to a busy executive, he will pop it in his machine and hit the pause button as soon as the phone rings. Then he will watch another few minutes until his secretary interrupts. After numerous distractions, he passes on your film because it is "too choppy."
You want an executive to view your film in a dark room, away from distractions, surrounded by a live audience--hopefully one that loves your film. So rent a screening room at a convenient location, invite all the acquisition executives you think appropriate, and pack the rest of the theater with your friends and relatives, especially Uncle Bob with his infectious laugh. Perhaps the best venue for exhibiting a picture is at a film festival. If the film is warmly received, your bargaining position will be strengthened. If an executive views your film surrounded by an appreciative audience, it may affect his perception of the film.
Moreover, festivals can generate favorable publicity. Most publications only review films about to be released theatrically in their community. Thus films seeking distribution are not reviewed. But entertainment trade papers and selected publications will review pictures exhibited at major festivals.
When arranging a screening, book a theater large enough to hold everyone expected to attend but not so spacious that your viewers are sitting in a sea of empty seats. Filling out the audience with cast, crew and friends may be a good idea as these people are likely to respond positively. At the screening, have someone at the door collecting business cards or taking names of those attending. That way you can determine which companies have seen the film and which have not.
3) DO NOT GIVE AWAY YOUR FESTIVAL PREMIERE LIGHTLY: Carefully plan a festival strategy. I have seen filmmakers give their premiere to minor festivals and thereby disqualify themselves from participating in more significant ones. You can participate in lesser festivals later. If you are turned down by an important festival, the worse that happens is that you incur a small delay in seeking distribution. No one knows which festivals passed on your film unless you tell them.
4) TIMING IS EVERYTHING: You should sell your film when buyers are hungry for product. Distributors that acquire films for international distribution plan their activities around a market calendar. The major film markets are 1) AFM in the fall in Santa Monica, California, 2) Berlin in February in Germany, 3) Cannes in May in Cannes, France. There are also television markets including NATPE in the U.S.A., and MIP and MIP-COM in France.
Distributors are hungriest for product when a market is rapidly approaching and they do not have enough fresh inventory. A distributor may spend $90,000 or more to attend Cannes, and if it appears the company will have nothing new to sell, the executives panic. This is the best time to approach a distributor. Give your distributor enough time to include your film in their marketing efforts. A movie acquired at the last moment will often receive rushed and slipshod treatment. As a result, the film may sell poorly at the first market, which is the most critical market for a picture. At subsequent markets, the film is no longer new product. The best time to approach a distributor is 60-90 days before a market. Assuming a distributor wants to acquire rights to your film, it may take a month or longer to negotiate a deal.
One’s leverage in negotiating a distribution deal depends on whether distributors perceive the film as desirable. Of course, films cannot be appraised like real estate, as every picture is unique and there are no sure-fire criteria to determine a film’s commercial worth. I don’t know of a single industry executive who could have predicted the success of Slumdog Millionaire or Precious. The major studios, despite all their market research and expertise, frequently release big budget flops. While no one can accurately predict the commercial worth of a film, there are techniques and strategies that can be employed to improve one’s prospects. Even filmmakers with low-budget pictures with limited commercial appeal can usually improve upon the initial offer if they are savvy. An experienced negotiator can obtain many concessions just by knowing what to ask for.
In a typical deal, the distributor secures the right to distribute the movie in one or more media (e.g., theatrical, home video, television). The distributor pays for all distribution, advertising and marketing costs. Both parties share revenue derived from the film.
Competition improves terms. Giving one distributor an early peek at your film is usually a bad idea. If the distributor passes on the film, word gets around and other acquisition executives may not bother to view your film. On the other hand, if the distributor likes the film, a pre-emptive bid is likely, and you may only have a day or two to decide whether to accept the offer. If you decline, you may be rejecting the best deal you will ever receive. If you accept, you foreclose the possibility of a better deal tomorrow. Thus, you will be forced to make a decision without knowing where you stand in the marketplace and what other companies might offer. That is why it is important to orchestrate the release of your film to potential buyers so as to create maximum competition and enhance your leverage. Here are some guidelines:
1) NO SNEAK PREVIEWS: It is best not to screen your film for distributors until it is complete. Executives may beg to see a rough cut. They may assure you, "Don’t worry. We are professionals. We can imagine what the film will look like with sound and titles." Don’t believe them. Most people cannot extrapolate. They will view your unfinished film and perceive it as amateurish. First impressions last.
2) SCREEN IT BEFORE A CROWD: It is usually better to invite executives to a screening than to send them DVD. If you send a DVD to a busy executive, he will pop it in his machine and hit the pause button as soon as the phone rings. Then he will watch another few minutes until his secretary interrupts. After numerous distractions, he passes on your film because it is "too choppy."
You want an executive to view your film in a dark room, away from distractions, surrounded by a live audience--hopefully one that loves your film. So rent a screening room at a convenient location, invite all the acquisition executives you think appropriate, and pack the rest of the theater with your friends and relatives, especially Uncle Bob with his infectious laugh. Perhaps the best venue for exhibiting a picture is at a film festival. If the film is warmly received, your bargaining position will be strengthened. If an executive views your film surrounded by an appreciative audience, it may affect his perception of the film.
Moreover, festivals can generate favorable publicity. Most publications only review films about to be released theatrically in their community. Thus films seeking distribution are not reviewed. But entertainment trade papers and selected publications will review pictures exhibited at major festivals.
When arranging a screening, book a theater large enough to hold everyone expected to attend but not so spacious that your viewers are sitting in a sea of empty seats. Filling out the audience with cast, crew and friends may be a good idea as these people are likely to respond positively. At the screening, have someone at the door collecting business cards or taking names of those attending. That way you can determine which companies have seen the film and which have not.
3) DO NOT GIVE AWAY YOUR FESTIVAL PREMIERE LIGHTLY: Carefully plan a festival strategy. I have seen filmmakers give their premiere to minor festivals and thereby disqualify themselves from participating in more significant ones. You can participate in lesser festivals later. If you are turned down by an important festival, the worse that happens is that you incur a small delay in seeking distribution. No one knows which festivals passed on your film unless you tell them.
4) TIMING IS EVERYTHING: You should sell your film when buyers are hungry for product. Distributors that acquire films for international distribution plan their activities around a market calendar. The major film markets are 1) AFM in the fall in Santa Monica, California, 2) Berlin in February in Germany, 3) Cannes in May in Cannes, France. There are also television markets including NATPE in the U.S.A., and MIP and MIP-COM in France.
Distributors are hungriest for product when a market is rapidly approaching and they do not have enough fresh inventory. A distributor may spend $90,000 or more to attend Cannes, and if it appears the company will have nothing new to sell, the executives panic. This is the best time to approach a distributor. Give your distributor enough time to include your film in their marketing efforts. A movie acquired at the last moment will often receive rushed and slipshod treatment. As a result, the film may sell poorly at the first market, which is the most critical market for a picture. At subsequent markets, the film is no longer new product. The best time to approach a distributor is 60-90 days before a market. Assuming a distributor wants to acquire rights to your film, it may take a month or longer to negotiate a deal.
Monday, December 28, 2009
Purchasing Life Story Rights
Before you decide to purchase the rights to a person’s life story, it is worth considering what you are buying. When you buy the rights to portray someone in film or television, you are buying a bundle of rights. These rights include protection from suits based on defamation, invasion of privacy and the right to publicity. You may also be buying the cooperation of the subject and his family or heirs. Perhaps you want access to diaries and letters that are not otherwise available to you.
If the subject of the life story is deceased, much of the rationale for buying these rights disappears, since defamation and invasion of privacy actions protect personal rights that do not descend to the estate. In other words, people can spread lies and falsehoods about the dead, reveal their innermost secrets, and their heirs cannot sue for defamation or invasion of privacy on behalf of the deceased person. A writer could publish a revisionist history of George Washington, portraying our first President as a child molester and a thief, and his heirs would have no remedy. So when a subject is deceased, a producer has less need for a depiction release. The right of publicity may or may not descend to one’s heirs, depending on state law.
It is also important to consider whether the subject of your film is a private individual or a public official or public figure. Public officials and figures have opened more of their lives to public scrutiny, and consequently more of their lives can be portrayed without invading their privacy. Moreover, public officials and figures must meet a much higher burden of proof in order to establish defamation or invasion of privacy. They must prove that a defamer intentionally spread a falsehood or acted with reckless disregard of the truth.
One should also consider the possibility of fictionalizing a true story. If you change the names of the individuals involved, change the location and make other alterations so that the real-life people are not recognizable to the public, you could avoid the necessity of a depiction release.
Keep in mind, however, that the story’s appeal may be predicated on the fact that it is a true story. In such a case, fictionalization is not a good alternative. Suppose you wanted to do the Jessica McClure story, describing how a Texas community rallied to the rescue of a young girl who fell down a well-hole. Here you would want to bill the movie as The Jessica McClure Story. That is why viewers would tune in.
Terms of the Agreement
In negotiating for life-story rights, there are a number of important issues that need to be resolved. At the outset, the parties must determine the extent of the rights granted. Does the grant include remakes, sequels, television series, merchandising, novelization, live-stage rights and radio rights? Are the rights worldwide? Buyers will usually want as broad a grant as possible. The seller may insist on retaining certain rights.
The buyer must also consider other releases that may be needed. What about the subject’s spouse, children, friends and relatives? Will these people consent to be portrayed? Will the subject ask his friends and relatives to cooperate? Can these secondary characters be fictionalized? If the producer is planning an ensemble piece about a basketball team, it makes no sense to sign up players one by one, hoping to get them all. A smart producer will gather the team in a room and purchase all of the rights or none.
Another issue is whether the rights can be assigned to a studio or production company. If the buyer is a producer, she will often need to assign such rights to a studio or network later as part of a financing/distribution agreement.
The purchase of life-story rights can be structured as either an option/purchase deal or as an outright sale, often with a reversion clause. A reversion clause provides that in the event the rights are not exploited within a certain number of years (i.e., the movie is not made), then all rights would revert to the subject. This provision protects the subject if he has sold rights to his life story to a producer who never uses them, and some time later another producer is interested in making such a film.
The agreement should recite the consideration exchanged. Consideration is a legal term of art. Consideration is that which is given in exchange for a benefit received. It is a necessary element for the existence of a contract. A contract is only binding with consideration. It is what distinguishes a contract from a gift, which may be revocable.
Consideration is usually money, but it can be anything of value. As a general principle, courts do not review the adequacy of consideration. In other words, should you be foolish enough to agree to sell your brand-new car, worth $15,000, for only $5,000, don’t expect a judge to rescue you from the results of your poor judgment. Unless there was some sort of fraud or duress involved, the contract will be enforced, although it may be unfair to one party.
To ensure that a contract is binding, agreements often recite: “For ten dollars and other valuable consideration.” This clause establishes that there has been an exchange of value, even if it is nominal consideration. Make sure the consideration is actually paid. It is wise to pay by check so that you will have the cancelled check as proof of payment.
Mutually exchanged promises can be adequate consideration. For example, a producer’s efforts to develop a project could be deemed adequate consideration for an option. But to be sure their contracts are enforceable; producers may want to pay some money for the option. There are some exceptional circumstances when courts will throw out a contract if the terms of the contract are unconscionable.
There are other ways to compensate a subject of a life story besides a flat fixed fee. You could give the subject points (percentage of net profits), consulting fees and/or bonuses to be paid when the film is exploited in ancillary markets.
An important part of any depiction agreement is the “Warranties and Representations” clause. A warranty is a promise. The buyer will want the seller to promise never to sue for an invasion of his rights of publicity and privacy, or for defamation, even if the buyer takes some creative liberties in telling the story. The warranties must cover all conceivable situations. No one wants to buy a lawsuit.
There will also be a provision that gives the buyer the right to embellish, fictionalize, dramatize and adapt the life story in any way he chooses. This is a frequent sticking point in negotiations. The subject is delighted to be asked to have her story told on the silver screen, but when you present her with a depiction release, she becomes concerned. She asks, “This document says you can change my story any way you like and I can’t sue for defamation. How do I know you won’t portray me as a monster?”
A producer may reply: “Trust me, trust me.” Sometimes that will work. But the subject may respond: “I have no intention of trusting any of you charming Hollywood types. I want script approval. Write your script, and if I like it, I’ll sign the release.”
Can a producer give a subject script approval? No sane producer would. No producer is going to expend a lot of time and money developing a script only to find that the subject has changed her mind or is unreasonably withholding approval.
If the subject refuses to give the producer carte blanche, are any compromises possible? Yes. The subject could have approval over the treatment or selection of the writer. Perhaps the subject will figure that if she approves only a classy writer, her portrayal will be acceptable.
Alternatively, the producer could offer to make the subject a creative or technical consultant to the production. “You’ll be right there by the director’s side,” says the producer, “giving him advice and suggestions to ensure that everything is authentic.” The producer may not mention that the director doesn’t want the subject on the set and is not required to accept her suggestions.
Another possible compromise could limit the subject matter and period portrayed. Perhaps the subject is primarily concerned that an embarrassing incident in her life not be re-enacted in Panavision. The release could say that certain incidents (e.g., a divorce) are not included in the release. Or the release could cover limited periods of the subject’s life (e.g., only those incidents that occurred before 1947).
Finally, the subject might have the right to determine screen notice. She could decide if the film will be billed as a true story or a dramatized account. Alternatively, she could decide whether real names are used for the characters.
Excerpt from Dealmaking in the Film and Television Industry, 3rd Edition, by Mark Litwak.
If the subject of the life story is deceased, much of the rationale for buying these rights disappears, since defamation and invasion of privacy actions protect personal rights that do not descend to the estate. In other words, people can spread lies and falsehoods about the dead, reveal their innermost secrets, and their heirs cannot sue for defamation or invasion of privacy on behalf of the deceased person. A writer could publish a revisionist history of George Washington, portraying our first President as a child molester and a thief, and his heirs would have no remedy. So when a subject is deceased, a producer has less need for a depiction release. The right of publicity may or may not descend to one’s heirs, depending on state law.
It is also important to consider whether the subject of your film is a private individual or a public official or public figure. Public officials and figures have opened more of their lives to public scrutiny, and consequently more of their lives can be portrayed without invading their privacy. Moreover, public officials and figures must meet a much higher burden of proof in order to establish defamation or invasion of privacy. They must prove that a defamer intentionally spread a falsehood or acted with reckless disregard of the truth.
One should also consider the possibility of fictionalizing a true story. If you change the names of the individuals involved, change the location and make other alterations so that the real-life people are not recognizable to the public, you could avoid the necessity of a depiction release.
Keep in mind, however, that the story’s appeal may be predicated on the fact that it is a true story. In such a case, fictionalization is not a good alternative. Suppose you wanted to do the Jessica McClure story, describing how a Texas community rallied to the rescue of a young girl who fell down a well-hole. Here you would want to bill the movie as The Jessica McClure Story. That is why viewers would tune in.
Terms of the Agreement
In negotiating for life-story rights, there are a number of important issues that need to be resolved. At the outset, the parties must determine the extent of the rights granted. Does the grant include remakes, sequels, television series, merchandising, novelization, live-stage rights and radio rights? Are the rights worldwide? Buyers will usually want as broad a grant as possible. The seller may insist on retaining certain rights.
The buyer must also consider other releases that may be needed. What about the subject’s spouse, children, friends and relatives? Will these people consent to be portrayed? Will the subject ask his friends and relatives to cooperate? Can these secondary characters be fictionalized? If the producer is planning an ensemble piece about a basketball team, it makes no sense to sign up players one by one, hoping to get them all. A smart producer will gather the team in a room and purchase all of the rights or none.
Another issue is whether the rights can be assigned to a studio or production company. If the buyer is a producer, she will often need to assign such rights to a studio or network later as part of a financing/distribution agreement.
The purchase of life-story rights can be structured as either an option/purchase deal or as an outright sale, often with a reversion clause. A reversion clause provides that in the event the rights are not exploited within a certain number of years (i.e., the movie is not made), then all rights would revert to the subject. This provision protects the subject if he has sold rights to his life story to a producer who never uses them, and some time later another producer is interested in making such a film.
The agreement should recite the consideration exchanged. Consideration is a legal term of art. Consideration is that which is given in exchange for a benefit received. It is a necessary element for the existence of a contract. A contract is only binding with consideration. It is what distinguishes a contract from a gift, which may be revocable.
Consideration is usually money, but it can be anything of value. As a general principle, courts do not review the adequacy of consideration. In other words, should you be foolish enough to agree to sell your brand-new car, worth $15,000, for only $5,000, don’t expect a judge to rescue you from the results of your poor judgment. Unless there was some sort of fraud or duress involved, the contract will be enforced, although it may be unfair to one party.
To ensure that a contract is binding, agreements often recite: “For ten dollars and other valuable consideration.” This clause establishes that there has been an exchange of value, even if it is nominal consideration. Make sure the consideration is actually paid. It is wise to pay by check so that you will have the cancelled check as proof of payment.
Mutually exchanged promises can be adequate consideration. For example, a producer’s efforts to develop a project could be deemed adequate consideration for an option. But to be sure their contracts are enforceable; producers may want to pay some money for the option. There are some exceptional circumstances when courts will throw out a contract if the terms of the contract are unconscionable.
There are other ways to compensate a subject of a life story besides a flat fixed fee. You could give the subject points (percentage of net profits), consulting fees and/or bonuses to be paid when the film is exploited in ancillary markets.
An important part of any depiction agreement is the “Warranties and Representations” clause. A warranty is a promise. The buyer will want the seller to promise never to sue for an invasion of his rights of publicity and privacy, or for defamation, even if the buyer takes some creative liberties in telling the story. The warranties must cover all conceivable situations. No one wants to buy a lawsuit.
There will also be a provision that gives the buyer the right to embellish, fictionalize, dramatize and adapt the life story in any way he chooses. This is a frequent sticking point in negotiations. The subject is delighted to be asked to have her story told on the silver screen, but when you present her with a depiction release, she becomes concerned. She asks, “This document says you can change my story any way you like and I can’t sue for defamation. How do I know you won’t portray me as a monster?”
A producer may reply: “Trust me, trust me.” Sometimes that will work. But the subject may respond: “I have no intention of trusting any of you charming Hollywood types. I want script approval. Write your script, and if I like it, I’ll sign the release.”
Can a producer give a subject script approval? No sane producer would. No producer is going to expend a lot of time and money developing a script only to find that the subject has changed her mind or is unreasonably withholding approval.
If the subject refuses to give the producer carte blanche, are any compromises possible? Yes. The subject could have approval over the treatment or selection of the writer. Perhaps the subject will figure that if she approves only a classy writer, her portrayal will be acceptable.
Alternatively, the producer could offer to make the subject a creative or technical consultant to the production. “You’ll be right there by the director’s side,” says the producer, “giving him advice and suggestions to ensure that everything is authentic.” The producer may not mention that the director doesn’t want the subject on the set and is not required to accept her suggestions.
Another possible compromise could limit the subject matter and period portrayed. Perhaps the subject is primarily concerned that an embarrassing incident in her life not be re-enacted in Panavision. The release could say that certain incidents (e.g., a divorce) are not included in the release. Or the release could cover limited periods of the subject’s life (e.g., only those incidents that occurred before 1947).
Finally, the subject might have the right to determine screen notice. She could decide if the film will be billed as a true story or a dramatized account. Alternatively, she could decide whether real names are used for the characters.
Excerpt from Dealmaking in the Film and Television Industry, 3rd Edition, by Mark Litwak.
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