Negotiating Film And Television Agreements :: Laurence Kaye

NEGOTIATING FILM AND TELEVISION AGREEMENTS What to Look out For Introduction Film and television rights can be amongst the most valuable rights for the author of a successful book. Also, the film or television programme can serve as a platform for merchandising and other 'spin-off' rights. These rights may be controlled by the publisher or the author's agents, depending on the deal struck when the original publishing agreement was negotiated. In this article, we look at some of the key points to look out for when negotiating to buy or sell the film and television rights in a published work. We have used the term 'rights owner' to describe the person (whether the author, author's agent or publisher) who controls these rights. The Option It is very rare for any film or television producer to buy the film and/or television rights in a published work outright. Just because a book is a best seller there is no guarantee that the producer will be able to raise finance for the project. So rather than pay a potentially large sum that may be completely wasted if there is no interest in the project, a producer will instead take an option over the published work. An option gives the producer an exclusive right to acquire the film and/or television rights in a work at some stage in the future if the option is exercised. In an option agreement, the rights owner agrees not to sell the rights to anyone else during the option period for an agreed sum. During this period the producer is permitted to engage writers to write scripts based on the original work and to approach potential financiers and broadcasters to see if they are interested in financing a film or commissioning the production of a television programme based on the work. The rights owner will want to keep the option period as short as possible. It is usual to allow at least one year with the option to renew for a further year. The producer will of course want as long as possible – in particular it can take several years for a producer to raise finance for a film project. In many cases the producer will accept a two year option but with the ability to extend for a further period if it can be shown that real progress is made with the financing of the project. The rights owner will expect the producer to pay a fee for the grant of the option. There is no set formula for this but the sum is usually in the hundreds or thousands, rather than hundreds of thousands, of pounds. A fee is payable for each option period granted. It is normal practice for the first (but not subsequent) option fee to be set against and deducted from the agreed purchase price which is payable if the option is exercised. Even if the project does not go ahead, the options fees will not be refundable. Getting the deal straight The producer will be particularly keen to make sure that the option agreement also covers the terms on which the producer will acquire the rights if the option is exercised. Otherwise, there is a possibility that, if the producer exercises the option without terms having been agreed, the rights owner will be in a very strong bargaining position knowing that the producer will only exercise the option when third parties have committed to the project. Whilst the rights owner will not have the same concern, it is generally agreed to be better for all parties to have at least agreed in principle the main terms of the acquisition agreement. The Acquisition Agreement This is the agreement which covers all the terms on which the producer will acquire the film and/or television rights if the option is exercised. Like all rights negotiations, the rights owner will want to give as way as few

Page 2 2003 rights as possible on the most favourable terms obtainable. In contrast, the producer, as rights' acquirer, will want the broadest and most advantageous grant of rights he can get. Finding the deal is the skill of the negotiators! For example, if the producer is primarily interested in making a film, he or she may also try and include the rights show the film on television and to make television programmes or series based on the film. In contrast, the rights owner may want to hold back these rights if he believes that the film producer does not have a track record as a television producer. Let's now look at the main points to be covered in the Acquisition Agreement. 1.

What rights are being granted?

Film and television rights As we know, the producer will want to ensure that the agreement covers as wide a spectrum of rights as possible. It is therefore particularly important to cover the relationship between film and television rights. For example, if film rights are included within an acquisition agreement for television rights, the rights owner may easily lose the film rights. This can happen if, once the option is exercised, a television programme is made but no film is ever produced. The rights owner may not be able to get these rights back unless there is a provision in agreement for the reversion of these rights. There are always compromises open to the parties. One is to grant a further option to acquire the rights in question. For example, in a television agreement, the producer could be given first option to acquire film rights within a period of time usually relating back to transmission of the first television programme. Another compromise is not to include such rights within the acquistion agreement but to provide for a “holdback” or a period of time in which these rights will not be transferred to a third party. This enables the first producer a period of exclusivity in which to fully exploit its programme or film.

Ancillary rights A producer will normally negotiate for “ancillary rights”, merchandising, book publishing, soundtrack publications and, increasingly, digital media rights including CD-ROM or online games and other products. The producer may argue that these rights may be needed to help market the film or television programme or that the film or television programme will create the platform from which these rights can be exploited. Hollywood studios can sometimes make as much money from selling merchandising products from the big blockbuster movies as from the films and videos themselves. The 'Disney' stores, cable channels and theme parks are good examples of 'cross-media' exploitation. Merchandising is clearly big business and can help create the “buzz” almost always necessary to sell a film nowadays. Television is not far behind particularly in the area of children’s programming (think Teletubbies). The rights owner should approach the issue of ancillary rights with a careful assessment of its own expertise and the proven track record of the producer. Some publishers are not experienced in merchandising and other spinoff rights and it will clearly make sense to negotiate a deal under which those rights are granted to the producer to the producer or another third party on a royalty or revenue-sharing basis, less agreed third party commissions. In the case of merchandising, conflicts can arise when a producer wishes to make a film or television programme based on an existing and well known literary work – particularly on a children’s book where publishers readily appreciate the potential of merchandising. It is simply not possible in these cases to distinguish between the merchandising for the book and that produced for the film or television programme.

Page 3 2003 In these cases the publisher and the producer will have to work together to maximise marketing opportunities for both the books and the television programmes or films. The rights can be jointly owned and/or controlled. The parties can consider jointly appointing a merchandising agent to work with both parties. Alternatively if the brand is so well known that there is no commercial imperative for the publisher of rights to consider sharing control of these rights with a third party, the best the producer can expect is to be consulted over releases of products to ensure some synchronicity with release or transmission of the film or television programme. Book publishing is more straightforward. The author or publisher will not want to transfer these rights to producers. However, the producer will want to promote the books on which the film or television programme is based (by having stills from the film on the book jacket). There are two instances where the rights owner may be willing to discuss publishing rights with the producer. The first is in the case of a book about the making of the film. The second case applies really only to television series. In some long running series, whilst the original episodes may be based on published books, later episodes may not be. The author may not wish to or may no longer be alive and therefore unable to write further books based on these episodes. In some cases the publisher may therefore allow new books to be published (presumably only by that publisher!).

Electronic rights As there is no generally accepted definition of “electronic” or “interactive” rights, great care needs to be taken in precisely defining the licensed platform e.g. a computer game based on a film. With the advent of digital media, both parties should be clear on whether or not, for example, the agreement covers digital television, webcasting or other new means of programme transmission that may be introduced in the next few years. Tthe golden rule of licensing should apply: does the licencsee have proven capability in producing and distributing the product to be made under licence? 2.

Licence or Assignment?

The issue here is whether the rights owner should make an outright assignment of the film or television rights or license the producer the rights for a limited period of time? Given the rise of the popularity of remakes licensing will obviously be preferable to the rights owner. The producer will prefer the former. If a licence is granted, then it is likely to be for a relatively long period. If it is less than 10 years, the producer may may have problems in raising finance. From the rights owner’s point of view, whether the rights are licensed or assigned it is essential to include a reversion of rights clause. This will provide that if the film or television programme has not been made within the specified period, the rights will revert to the rights owner on the expiry of that period. The period of the reversion from the producer’s point of view should not be less than 5 years. For the rights owner it is better if it is not longer than 7 years. If that occurs, it is normal for the rights owner to have to repay the sum the producer paid to acquire the rights if the rights owner is then to exercise the reverted rights. 3.

Structuring of Consideration

What the rights are worth will depend mainly on the relative bargaining positions of the parties and the size of the project. A low acquisition price may be appropriate for a low budget film but not for a Hollywood financed project. Also what may start out as one may become the other during development and vice versa (a recent example of this was the film to be based on the book The Beach by Alex Garland).

Page 4 2003 The most effective way to cover all options, certainly for a film, is to tie the acquisition price into the production budget i.e. what it will cost to produce the film. The producer agrees to pay a percentage of the budget to the rights owner on exercise of the option. The percentage again will depend on the relative bargaining positions of the parties but could be as low as 2% or as high as 10%. Of course this does not happen in all cases. The rights to the Horse Whisperer were sold for a reputed $1 million before the book was published but these are Hollywood rates and not common in the U.K. For television it is possible to agree specific sums depending on what format is used. The main possibilities are: a one-off programme, a serial (one set of programmes with a defined beginning and end) or a series (which can keep coming back time and time again). Sometimes these can be mixed up – Inspector Morse is a series of one episode programmes. The acquisition price will be dependent on the length of the episodes produced and also what the budget can stand – it is no use expecting a large per episode fee for a small day time television series. The rights owner may also request and be given a share of the proceeds of exploitation of the production – video, sales to foreign distributors and ancillary rights It is extremely unlikely that at least in the UK this will be a share of gross receipts. More usually the rights owner will be entitled to a share of net profits. The definition of what constitutes “net profits” varies from agreement to agreement but the following are usually deducted from gross receipts: distribution commission and expenses; recoupment of all or part of the cost of making the film or programme, interest, and deferments (particularly common in low budget film making when there is not enough money in the budget to pay fees to cast and crew and so instead people agree to be paid from profits). The rights owner also needs to look out for how the share of net profits is expressed. There are two possibilities, either a)

5% of 100% of net profits; or

b)

20% of producer’s net profits.

The producer is rarely entitled to 100% of net profits and so the rights owner will need to work out which is better. The agreement should also provide for when net profits are to be paid and for a right of audit to ensure that if money is there, the rights owner is receiving it. 4.

Warranties

The rights owner will be expected to warrant that he/she or it is the owner of the rights and has the right to enter into the acquisition agreement. The author’s status for copyright must also be warranted. It is also usual to have a warranty that the work is original, that it does not infringe the rights of any third party and that it is not defamatory or obscene. The purchaser does not tend to give warranties but the rights owner may wish to consider imposing an obligation on the producer to use all reasonable endeavours to raise finance or obtain a commission for the project. What Can Go Wrong The rights owner will think very carefully before agreeing to sell the film and television rights in a work. Very often the film will turn out very differently from the book and the author may be left wondering exactly what relation the original book has do the film. The author may also feel very left out of the production process and resentful as a result. This situation may tempt the author (or his or her agent on the author's behalf) to request approvals of various contributors to the production such as scriptwriter (if not the author himself) director and principal cast. In

Page 5 2003 practice (unless the author is a best seller with a lot of experience in this field) the producer is unlikely to be able to grant more than consultation rights. The reason for this is that the financiers of the project will usually expect to have final say over all the production elements – they are often all putting up the money. If consultation rights are granted the author and rights owner should use them properly by exercising the rights – give comments within the agreed schedule, attend meetings, make time to meet the director/screenwriter/cast members – most of all become involved. Concluding thoughts In any rights acquisition agreement it is important to clearly define the rights being granted and those being retained – that is, after all, the purpose of the agreement. It is worth spending some time (and, yes, legal fees!) in carefully negotiating the grant of rights to avoid unpleasant surprises at a later stage. Careful thought by both parties at the outset should ensure a clear agreement which causes few problems for either the producer or the rights owner during the currency of that agreement. Laurence Kaye Laurence Kaye Solicitors © Laurence Kaye 2003 T: 01923 352 117 E: [email protected] www.laurencekaye.com http://laurencekaye.typepad.com/ This article is not intended to be exhaustive and it does not constitute or substitute legal advice, which should be sought on a case by case basis. Please feel free to copy or make available this article without modification in print or electronic form for noncommercial purposes. If you do so, please include this disclaimer and copyright wording with attribution. If you want to re-publish or make the whole or part of this article available in a commercial service or publication, please contact the author at [email protected].