10 Practical Considerations For Film Production Contracts

TEN PRACTICAL CONSIDERATIONS FOR PRODUCTION COMPANY IN FILM CONTRACTS Brian M. Rowland, Esq. ,-- www.brianrowland.com 1.

CLEARANCE. a. Distribution rights -- worldwide and in all formats known or yet invented. b. Publicity rights of actors should be secured and be unconditional; perpetual and worldwide. Must comply with unions. If adult film, must have sufficient proof that actors are 18 or over and comply with any other applicable laws. Use of guild and union personnel tends to insure a certain quality and level of knowledge, use of such personnel may impose additional expense on the production company with a resulting higher budget. Budgets for low budget independently produced pictures are tight and may prevent employment of guild and union personnel. The question facing the independent production company then is whether the quality of the picture will suffer as a result of the use of non-guild personnel. c. Location rights (actual names, products, and locations from the appropriate property owners). d. Underlying materials; must secure rights in any material which is a contribution to the film; e.g. music, art, trademarks, etc.

2.

DIRECTOR AGREEMENT. a. Secure services and quality level through cooperation, production schedule, exclusive provision of services. b. Work for hire and grant of rights in work product to Production Company, price paid is price total and no additional fees or royalties to come due; should outline payment schedules and any profit sharing (separate and distinct from royalties). c. Indemnification from director for claims brought based on director. conduct, negligence, failure to secure third party rights, etc. d. Director to support promotional activities.

3.

WRITER AGREEMENT. a. Specifies how many drafts required. b. Transfer of writer copyrights. c. Credits to be given writer.

4.

PRODUCER AGREEMENT. a. Who actually produces. b. Who receives credit. c. Payment schedules for production. d. Penalties if over budget or not delivered on time. e. Indemnification from producer for claims brought based on its conduct, negligence, failure to secure third party rights, delay damages, lost profits, etc. f. Technical Specs of Film: requirements for film stock, videotape format, other photographic needs. Editing requirements. Etc.

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5.

FILM WEB SITE. a. Secure the name as soon as possible to avoid those who learn of the project “cyber-squatting” on the film name. Domains are cheap, pick up the .net, .us, .org., .biz., etc, as well as the .com and prevent others from doing so. b. Web site development agreement. Many development factors to consider, primary issue to consider: work made for hire agreement to retain all rights in artwork and other copyright material the web designer creates for the site.

6.

FILM FINANCING. a. Securities concerns: (1) the raising of funds wherein the investing (or lending) party expects a return from the labors of another, is a security; (2) securities must be either registered or exempt from registration; and (3) whether registered or exempt, all offerings must comply with anti-fraud statutes. Securities are governed by state and federal law. Violation of certain provisions of Florida’s blue sky laws (Chapter 517, Fla. Stat.) is a felony. Investors have certain rescission rights. Obtain competent legal counsel before raising any funds for a film project! A securities offering is a serious task and preparation of offering materials can cost between $10,000 and upwards to $30,000 or more. b. Financier control – ideally, none. However, it may be a fact of life that a financier wishes to oversee the project. This should be dealt with in writing. Considerations may include whether financier has control or merely the right to criticize and give input.

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PRE-PRODUCTION AGREEMENT. Issues may include, “(1) creation of a production schedule, including not only the period for principal photography, but also the period prior to production (pre-production) -- and in some instances even the period prior to preproduction (which is termed pre-pre-production) in order to avoid triggering various obligations which may arise on the official start of pre-production -- and the period following completion of principal photography (post-production) when the picture takes its final shape through editing and the addition of elements such as soundtrack, music and special effects; (2) the creation and analysis of a budget for the picture; (3) the application for, and procurement of, a completion bond which insures against the risk of the picture being produced at a cost exceeding the budget; (4) general insurance requirements for the picture, covering not only general liability and property damage, but also errors and omissions insurance which covers the risks derived from the literary material on which the picture is based; (5) clearance of the use of actual names, products, and locations from the appropriate property owners; (6) the negotiation of an agreement, if needed, for the use of production facilities; (7) any contracts required for physical components to be used in the production of the film, such as lighting, wardrobe, and props; and (8) once the film is completed, the copyrighting of the picture and any of its elements such as music.”1

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ATTORNEY/CLIENT ISSUES.

Introduction to Motion Picture Contracts, KENOFF AND ROSENBURG, 1.01, 2007 Matthew Bender & Co.

a. Payment. The types of attorney-client arrangements range from payment on an

hourly basis to a percentage participation in the client's fixed and contingent compensation from the production. Sometimes, a flat fee arrangement is worked out. This often occurs when the attorneys' fees become a fixed line item in the budget of the film. At the other end of the payment spectrum is profit participation by the attorney. This is risky for the attorney, especially if the production is never completed, or if completed, not distributed, the profit participation may also result in the greatest remuneration in the case of a highly successful picture. Flat fee arrangements are risky if the amount of services required on an hourly basis greatly exceeds the amount of the flat fee. In order to reduce this risk, some attorneys seek a hybrid agreement which combines a lower flat fee with a small percentage (1%-2%) of contingent compensation from the film. He lower the fee, the higher the “points” (percentage of revenue paid to the attorney). b. Ethical Issues. i. Malpractice. Inexperienced attorney should be wary of malpractice as this is a highly complex and multifaceted area of practice requiring both considerable legal experience and industry experience; ii. Excessive Fees. A new attorney may be charging an excessive fee if they charge “industry standard” rates and have little or no experience; iii. Conflicts of interest. Conflict Risk is greatest when the client expects the attorney to represent the client in the transaction itself or when the attorney’s financial interest otherwise poses a significant risk that the attorney’s representation of the client will be materially limited by the attorney’s financial interest in the transaction. 1. An attorney representing a party and taking a contingency fee may be serving two masters. Contingency fee per se is not a conflict, but it can create conflict if attorney is unable to properly consult client due to greed. 2. Attorneys who represent actors or other artists have conflict issues when (if) serving as agent and attorney. Difficult for attorney to advise “client” as to propriety of an agreement or course of action if attorney also earns a percentage as agent off of the client’s proposed agreement or activity. 3. As agent, attorney may arguably be in business with the client (depends on terms of agent agreement and duties of attorney) – or at least, attorney has a financial interest. In entering such agreements mere waiver of conflict of interest by client may not be enough. Rule 4-1.8 of the Rules Regulating the Florida Bar, provides that if the client is not represented by independent counsel, the transaction and terms on which the lawyer acquires the interest must be fair and reasonable to the client and must be fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client. Comments to the Rule provide that not only should the client be

informed in writing of the need for independent counsel, the client should be informed as to why independent counsel is desirable. 4. Other conflicts may arise when attorney represents corporation but answers to individuals as officers, directors or managers of the corporation. Film industry is big money, ego charged industry and it is easy to forget who the actual client is.

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EXPLOITATION. a. Generally … a film is comprised of a variety of rights that may be exploited in a variety of media, including theatrical, non-theatrical, network television, pay television, syndicated television, home video, and foreign distribution. Certain other rights, such as merchandising, may be separately exploited. Sometimes, a single distributor is used to distribute the picture worldwide in all media. However, careful consideration must be given to whether it is appropriate for the same distributor or distributors should handle all media and all territories. b. Merchandising. Consideration should be given to all the merchandising possibilities of the characters and other elements in the film. Product placements and commercial tie-ups may generate revenue. Another area of exploitation is “novelization” of the screenplay, so an agreement with a publisher should also be considered.

10.

AUDIT RIGHTS. All contracts wherein one party entrusts another to account for revenue and pay according to royalty rates or commissions must have audit rights for the party expecting payment. Audit rights should last a number of years after completion and should be written so that the party with audit rights may conduct an audit on a reasonably frequent basis. Tip: If an audit shows an underpayment of a certain amount (e.g. $5,000), then the cost of the audit shifts to the party being audited. Audit rights should be specifically set forth in writing.