Negotiation & Finance

Question 1

Pay-or-play provision (plus pros and cons)

Answer 1

Deal that guarantees an actor’s or director’s salary whether or not the movie gets made.
Pro: It’s a way for a producer to attract A-list talent to a film.

Con: A pay-or-play could create a situation in which it was financially beneficial to puke a crap film over the finish line to recoup some money, rather than eat the pay-or-play and call it a day. So, a crap film gets made which isn’t good for anyone but the investors.

Question 2

Types of overall development deals

Answer 2

Exclusive, First Look, and Housekeeping

Question 3

Advantages of overall development deals for studios

Answer 3

1) Can maintain a steady flow of product from producers
2) Keeps exhibitors happy w/a full pipeline
3) Allows studio to amortize fixed overhead expenses such as the cost of a marketing staff

Question 4

Advantages of overall development deals for producers

Answer 4

Essentially, an overall development deal takes the financial risk of producing off the producer’s shoulders and onto the studio’s:

1) Producer gets an office on the studio lot 2) Studio pays dev expenses, like a secretary and maybe a writer or two to develop the producer’s projects
3) Studio pays producer a fee for projects that get produced, often with an advance

Question 5

Exclusive development deal

Answer 5

Producer agrees to distribute all his projects through one studio. Can be for TV, film or both.

Question 6

First look development deal

Answer 6

Gives the studio first crack at a producer’s idea. If studio passes, producer can take project elsewhere.

Question 7

Housekeeping development deal

Answer 7

Producer receives an office and development expenses but no advance. Typically offered to novice producers: studio wants a relationship but doesn’t want to incur a lot of expense. Producer gets prestige of using studio’s letterhead & switchboard, which means agents and such call him back.

Question 8

Advantages of First Look Development Deal for producer

Answer 8

Gives producer leverage over studio, because he can threaten to take the idea elsewhere

Question 9

Turnaround Clause

Answer 9

If a project acquired by Studio A gets stuck during development, usually between 1-2 years after rights are purchased, the producer (or sometimes director) can shop the project around to other studios. Those other studios can pay Studio A it’s development costs (or a negotiated alternative) for the right to setup material at a different studio. No rights are assigned to another party until the material is setup at Studio B, and Studio B pays monies required under the turnaround agreement.

This is separate from a reversion clause in that all that is granted is the right to setup a project elsewhere for a defined period of time. With reversion, the rights revert the to assigner w/no restrictions or payment of monies.

Question 10

Difference between express or implied contracts

Answer 10

Express contracts are explicit agreements between two parties, typically consummated by shaking hands or signing a contract.

Implied contracts are implicit contracts derived from facts or from the law.

Question 11

Are ideas copyrightable?

Answer 11

NO. They are not considered an “expression of an author”.

Courts often observe “ideas are as free as the air”.

Similarly, concepts, themes and titles are NOT protected by copyright law.

Question 12

Does copyright law protect embellishments upon ideas?

Answer 12

YES. While a single word cannot be copyrighted, the manner in which a writer organizes his words – his craft or approach – is protected.

Writers are free to develop their own work based on the same topic, theme or idea, they cannot copy the “expression” of another author.

Question 13

Desny v. Wilder (1956)

Answer 13

P gives idea for movie to studio exec’s secretary over phone. Movie is based on public event. Studio produces movie without P’s knowledge or participation.

Questions:

• Can P sue for story based on public domain?
• Does it matter that P never spoke to studio exec?
• Can there be an implied contract btwn the parties?

Holding: YES. Story was a unique embellishment of a public event, since studio used P’s research, there should be an implied agreement to compensate him. Secretary is considered an agent of the studio.

Question 14

Blaustein v. Burton (1970)

Answer 14

P conceives an idea to recreate a Shakespeare play with certain actor and director talent, shares it with agent. P meets with agent, said talent, and discusses idea. Later, talent and agent produce film w/out P’s participation. P never explicitly stated he would like to participate in film.

Question: Can a contract be implied under these circumstances?

Holding: YES. Understanding is implied from fact that P is a veteran producer.

Question 15

Typical percentage price of option for a script, and length of option

Answer 15

10% of purchase price (amount is negotiable), and typical option length is 1 year

Question 16

Rights of Renewal

Answer 16

Buyer of option negotiates right to renew option at the end of initial option period upon payment of an additional sum. Must be exercised before option expires.

Question 17

Option for a Nominal Sum

Answer 17

When seller gives rights to producer for free (or for nominal sum like 10 bucks)

Question 18

When should you exercise the purchase of an option?

Answer 18

Ideally, the first day of principal photography, when you know for sure the movie will be produced.

Question 19

Applicable vs Non-Applicable Option Rights

Answer 19

Applicable means options paid count as an advance against the purchase price.

Non-applicable means options paid do not count as advance against purchase price.

Question 20

Most important part of buying an option

Answer 20

Negotiate the purchase price up front. Otherwise you’re paying for the right to haggle about the purchase price without guaranteeing both sides will agree! The seller is under no obligation to sell you ANYTHING.

Question 21

Step Deals

Answer 21

Way of taking on risk in baby steps, without paying more than what each step (or the total for each step combined) is worth. Producer can pay writer set sum to develop treatment. If producer likes it, he can pay writer to write first draft. If he likes it, producer can take additional steps for rewrites and polishes.

Writer owns all work and can discontinue at any time. Can choose to bring new writer on project at any time, as well.

Producer is obligated to pay writer for work completed regardless of whether next step is picked up.

Question 22

Completion or Guarantee Bond

Answer 22

The “strike price,” or the “production price” as it is sometimes referred, is the amount that the completion guarantor believes will be needed in order to complete and deliver the film. The strike price will generally comprise (1) the budgeted “above the line” and “below the line” production costs, including fringes and insurance costs; (2) interest and financing costs, if applicable; (3) the completion guarantor’s fee; and (4) the contingency allowance.

Question 23

What does “top of the show” mean and what is it for?

Answer 23

“Top of the show” (TOS) means whatever the studio is willing to pay, and it’s used to describe what a well-known celebrity gets paid for a cameo on a show. Usually the celeb is a friend of someone on the show and will cameo for much less. Sometimes the cell wants a whole lot more and the producer has to go to the net and ask “how much do you want this guy, and are you willing to pick up the diff?” If the celeb is big enough and promotable enough sometimes the net will give in.

Question 24

What is a “back nine”?

Answer 24

Typically, a network will order 13 episodes for a season when a pilot does well. And if the 13 eps also do well, they’ll order 9 more eps, called a “back nine”.

Question 25

What is a “negative pickup” deal?

Answer 25

A deal wherein the studio agrees to pay for a film at a given date for a fixed sum, i.e. when the film “negative” is delivered.

Depending on how much of the production cost the studio pays, the studio also obtains rights to distribute the film domestically, internationally, internationally, or some combination of those plus others.

The producer can “pre-sell” the remaining rights to help fund production and/or make a profit.

However, it’s the producer’s responsibility to fund and finish the film. If he can’t do that he either pays the difference or renegotiates his deal w/the studio.

Question 26

What are the problems w/a negative pickup deal?

Answer 26

Many times a producer w/negative pickup deal (NPD) will get a bank loan to cover his production cost, as he is borrowing (usually dollar for dollar) against guaranteed future earnings.

Studios don’t like their contracts being used as collateral for bank loans or independent investors, b/c it gives the producer creative latitude. The producer can make whatever film he wants and is only answerable to his investors, and the studio can’t really stop him.

To prevent this, studios/distributors only offer negative pickups to projects with financiers, a script and key creative personnel (namely director and star(s)) already attached.

The conundrum is that investors don’t want to get on board until US distribution is pre-sold, and studios won’t guarantee distribution until a project is financed.

This is usually solved by adding a major actor to a film, as his/her mere appearance on a movie poster is enough to guarantee box office success.

Question 27

Key rights to negotiate when purchasing a life-story

Answer 27

Remakes, sequels, TV series, merchandising, novelization, live-stage, radio

Question 28

What is “consideration?”

Answer 28

Consideration is that which is given in exchange for a benefit. It’s usually money, but it can be anything of value.

As a general principle, courts don’t review the adequacy of the consideration (i.e. if you sold your Rolls for $5K instead of $500K, the judge won’t bail you out).

Question 29

What is the “Warranties and Representations” clause?

Answer 29

It’s essentially a guarantee that the seller gives to the buyer in a life-story or other depiction agreement to not sue for an invasion of rights or for defamation–covering all 50 states and all conceivable situations–in the event the seller doesn’t like the way the buyer portrays his/her story.

Question 30

Benefits of loan-out companies

Answer 30

A loan-out company is just like setting up a corporation. You can provide pension and health benefits to your people through the company, and spread out income over two tax years to put income in lower tax brackets. It also allows the owner to deduct his/her business costs, including wages and overhead

Question 31

What is an “Inducement Agreement?”

Answer 31

Agreement between a studio and the talent that he/she will fulfill all obligations in the contract between the studio and the talent’s loan-out company. It basically gets the talent to personally guarantee the work will be done and not hide behind a business entity if something goes wrong.

Question 32

What is a “reading period?”

Answer 32

Periods of time, usually weeks, in which a producer reads material from a writer and decides whether or not to proceed to the next step of a Step Deal.

During this time the writer can’t accept other projects that would prevent him/her from completing the final steps in the agreement.

Question 33

How much compensation do establish writers generally receive?

Answer 33

Between 1% to 5% of 100% of net profits.

Typically, the studio and producer split net profits 50/50. The producer, however, must give the writer, director and star a piece of his take.

Question 34

When does a first/second writer obtain writing credit?

Answer 34

First: when his/her contribution represents 33% of the final script.

Second: when his/her contribution is 50% or more of the completed script.

Question 35

What is a “cleaning allowance?”

Answer 35

Money paid to actor who provides his own clothes when filming a movie.

Question 36

What are the ramifications of hiring a child actor?

Answer 36

• 15% of his/her salary must go into a trust fund
• Must receive 3 hrs of schooling per day during school year
• Must not perform any act which violates public convention or subjects individual to public hatred, contempt, or ridicule

Question 37

What is the typical hiring term for an actor of a new TV series?

Answer 37

5-7 years in an exclusive agreement that binds the actor to not accept other offers that would not allow him to act on the show.

Question 38

How do revisions work?

Answer 38

When a writer writes a story for TV, the company has the right to request one revision, made within 14 days of the first submission.

When the producer pays, he/she gets two sets of revisions if requested in the same time.

The writer who sold an option on a script usually has the right of first refusal if that script needs a rewrite.

Question 39

What are “sequel payments?”

Answer 39

If a sequel is produced, the writer isn’t guaranteed to write the script, but he is entitled to a payment upon production (usually 25% of original fixed compensation).

Question 40

What is an “EAT-IN CLAUSE?”

Answer 40

It means that any production overages eat into the director’s (usually) earnings. Consequently, directors may ask that when the production runs under budget that they pocket the difference.

Question 41

What parts of music are copyright-able?

Answer 41

• Composition (composer)
• Lyrics (lyricist)
• Performance (artist)
• Recording (record label)

Question 42

What are some cheap ways to score a TV/movie

Answer 42

• Use songs from unknown songwriters/artists that are available for little or not money. The producer gets music, and the artist gets visibility and significant royalties if the movie is broadcast.
• Use public domain music (just make sure all rights are in the public domain)

Question 43

How can you use music that a record label hasn’t given you the right to use?

Answer 43

Obtain synchronization and performance licenses, and record a new version of the song to use in your movie.

Question 44

What is a Master Use License?

Answer 44

The right to put recorded pre-existing music that is not in the public domain on a soundtrack.

Question 45

What is a Public Performance Right?

Answer 45

The right to recite, sing, play dance, or broadcast a musical composition in public.

Question 46

What is a blanket license, and how do payments trickle down to artists?

Answer 46

A fee paid to agencies to allow businesses to play the music under control of that agency (includes broadcasters, bars, nightclubs, restaurants–except movie theaters in the US).

The fees are pooled by agencies, who pay their administrative costs then pay songwriters and music publishers based on the popularity of the music (determined by surveys and random samples).

Question 47

What is a Synchronication Right?

Answer 47

The right to reproduce the music on a soundtrack of the movie in synchronization with video or filmed images.

Question 48

What are Adaptation Rights?

Answer 48

Allow the producer to alter the musical composition by way of arrangement, parody, comedic use, and lyric change.

Question 49

What are Dramatic Rights?

Answer 49

Allow producer to use the title or story set forth in a song.

Question 50

How do producers earn rights to music for various applications?

Answer 50

They can negotiate the rights themselves, use an attorney, or retain an organization like the Copyright Clearinghouse to negotiate for them.