Thursday, February 19, 2015

When An Option Agreement Expires

Entertainment Lawyer Question and Answer Forum:

Welcome to this week's Entertainment Lawyer Q&A, published by The Film & Television Law Quarterly and the entertainment law firm of BLAKE & WANG P.A. Each week an entertainment lawyer will respond to reader questions and publish the best discussions.

Have a question for an entertainment lawyer? Post it on our website at blakewang.com and get the answers you need.

Question:

I had an option agreement on a book, did the script. The option expired, but the writer of the book and myself entered into a co-producer agreement on the project. Will we need to do another option agreement once we get funding for the project?

Answer by Brandon Blake - Entertainment Lawyer:

Figuring out what happens to an option agreement after it expires is always a difficult question for producers. Of course the terms of the actual option agreement that you signed with the writer will govern, but I will give you some ideas about what usually is included in an option agreement.

First, it is important to remember what an “option agreement” really is, because for many producers and writers it becomes a short hand for a “rights acquisition agreement”, but in fact it is only half of an actual rights acquisition agreement.

Originally option agreements were not supposed to transfer any rights at all to the producer. Instead, the producer is buying time, or an “option”, to actually purchase the story rights at a later time.

However, over time I have seen that gradually the producers are acquiring more than just time when they purchase an option on a book or a screenplay. Typically independent producers what to get their money’s worth, so as soon as the work is optioned the producer will either write a script based on the property, or if the property is already a script, will produce development materials such as business plans, websites, posters, storyboards, teaser trailers and for animation, will develop characters and produce whole animated sequences.

The problem is that the option only lasts for 12 to 18 months typically. So what happens to the rights in these materials once the option expires?

That question really depends entirely on how the option was drafted, but typically at the end of the option all of the material produced based on the underlying work will be unusable. Although there is an independent copyright in the work that was produced, it is all characterized as derivative work, work based on another copyrightable work. So without exercising the option, those subsequent development materials and scripts are not usable.

However, I have also seen independent producers begin to try to make claims to these materials in the options, which is a big problem for the writer. The writer is agreeing to a small or sometimes no fee to give the producer a chance to develop the work. But generally a writer would not knowingly allow permanent rights to be granted through the option agreement. However, it can happen depending on how the option is drafted.

In specific answer to this question above, the ownership of the rights should be determined by the co-production agreement. If the co-production agreement did not deal with the underlying rights, then a new acquisition agreement will need to be signed before anything else can be done with the project.

As with any legal matter, please do not make a decision about complex matters without consulting an experienced entertainment attorney first. I have been representing feature film projects and television series for more than 14 years. Please feel free to contact my office about a quote.

- By Brandon Blake, Entertainment Lawyer

About the Editor:

Brandon A. Blake is an entertainment lawyer and producer who works with Academy Award winning actors, directors and filmmakers. A complete biography is available online.

About the Entertainment Lawyer Q&A: The Entertainment Lawyer Q&A does not create an attorney-client relationship, nor is the information treated as confidential. Responses to selected questions will be made public and shared with our subscribers. All entertainment law information is informational in nature and is not intended to be acted on without entertainment lawyer counsel.

Friday, January 9, 2015

Submitting Projects to Studios

Entertainment Lawyer Question and Answer Forum:

Question:

Why do television networks and film studios require film producers and television producers to submit projects through either agents or an entertainment lawyer?

Answer by Brandon Blake - Entertainment Lawyer:

There are a number of different rationales for why entertainment companies of all kinds require film producers and television producers to submit new projects through an agent or entertainment lawyer, which range from the practical to the obstructionist.

For practical purposes, entertainment companies have a legitimate concern about liability. Copyright infringement suits are common, and once an entertainment company has received a pitch for a television series or film production it is going to be potentially more liable for a copyright infringement lawsuit. In order to reduce this risk, entertainment companies want a trusted third-party to have documented the pitch. If the film producer or television producer has a well-known agency or an entertainment lawyer submit the project, there is going to be a record of exactly what was submitted, by whom, and when. If a lawsuit ever materializes, there will be a third-party with evidence as to what happened. That is also beneficial for the film producer or television producer.

From a convenience stand point, television networks and film studios have another motive. This rationale is based on understanding what it is like to receive 10 to 20 thousand submissions per year from film producers or television producers, looking to get an entertainment project made. It is a daunting task to review so much material, so television networks and film studios want the agent or entertainment lawyer to do some of the work for them. By requiring submission through an agent or entertainment lawyer, the television network or film studio is making the producer do part of the work, having an experienced entertainment representative review the material and quite probably make suggestions and changes before the materials is submitted.

Finally, the requirement to submit through an agent or entertainment lawyer creates another hurdle to surmount before the material gets reviewed. This reduces the number of submissions as some percentage of television producers and film producers will lack the time and financial resources to obtain an entertainment representative to submit the project.

Rightly or wrongly, agent or entertainment lawyer representation has become a necessity when dealing with the large, bureaucratic media companies today.

How to Set Up a Record Label

Entertainment Lawyer Question and Answer Forum:

Question:

How do I set up a record label? How do I sell my music?

Answer by Brandon Blake - Entertainment Lawyer:

I represent a lot of record labels as an entertainment lawyer and this is one of the most common questions I get when helping to organize a record label for clients. This is a multi-part question, but I will start with what an entertainment lawyer does in setting up a record label company, and then address music representation and sales.

Over the past few years the dominance of music delivered over the Internet, versus through retail stores or music clubs, has opened up access to the music business to both recording artists and clients seeking to start their own record labels. Most simply a record label signs recording artists who record music, which the record label then sells.

Sounds easy. But looking at it from a business standpoint the first thing that makes a record label is a record label company, which might be filed as a music corporation or music LLC (limited liability company). Besides hiring an entertainment lawyer to set up the company, the record label should consider whether music investors are going to be a potential. Many of my record label clients are organized to raise a certain amount of investor money, and there are many music investors looking for opportunities to get involved in a record label. So when the entertainment lawyer sets up the record label company, consider the possibilities for music investors.

Once the record label company has been filed, it is time to consider contracts with the people that are going to make music with the record label. The different parties involved will be music producers, the music studio, sound engineers, recording artists, musicians, as well as songwriters and others. Each of these parties will need a different contract prepared by the entertainment lawyer. If these parties want to participate in the sales of the album or tracks then a music royalty or music percentage will need to be worked out as well.

The most critical music contract will be the recording artist contract. This deal might take on several different shapes. A “360 Deal” is when a record label decides to manage all parts of a recording artist’s career. A 360 Deal would include music management, music publishing and recording, allowing the record label to position the recording artist’s career for success. However, that is also a tremendous amount of work for the record label and the record label should remember not to stretch its manpower to thin.

Once the music has been recorded and mastered it is time for the record label to address music sales and marketing. While many record labels want to sign artists to major labels, it is now mandatory to show verifiable sales of a substantial level before approaching major labels. There are many music distributors available to work with record labels to get music out both online and also into retail stores. Of course sales and marketing online is critical and working with the right partners will ensure the success of the label and the career of the recording artist. Finally an entertainment lawyer can represent a record label and help set up the necessary connections.

Crowdfunding and the JOBS Act

Entertainment Lawyer Question and Answer Forum:

Question:

How do I set up a PPM for my film? What is the JOBS Act? Can I raise investment money from crowdfunding sites?

Answer by Brandon Blake - Entertainment Lawyer:

There is no doubt that private equity investment is a major source of financing for independent feature films. In fact, investors in Rule 506 offerings invested $895 billion dollars last year alone. Yes, almost a trillion dollars was raised in 2011 under Rule 506 for all different investment types. That is more than five times the $169.9 billion that was raised in IPOs globally for 2011. So the money is out there, the question is how to bring that funding to feature film budgets.

Our law firm has been setting up Rule 506 offerings, as well as other offering types, for feature film producers for more than 12 years. We expect the next 12 months to be the best period we have ever seen for producers raising private equity financing.

The Jumpstart Our Business Startups (JOBS) Act was passed in April of 2012, and is being implemented now by the SEC. The JOBS Act was designed to make raising money easier for small businesses, including feature film producers. The best feature of the JOBS Act is Title II, which will allow start ups and film producers to advertise their investments to the general public for the first time, provided the offering only allows “accredited investors” to invest.

This new provision will overcome the only real disadvantage to exempt offerings, which was the restriction on general advertising. By providing for general advertising of film investment opportunities, the SEC is going to exponentially increase the success rate of private investor financing, unlocking groups of investors who have probably never been approached about feature film investing.

While the SEC seems to be doing everything right on the JOBS Act, Title II, it has disappointed many micro-financing entrepreneurs with the failure to fully implement the JOBS Act, Title III, which was supposed to allow for crowdfunding sites like Kickstarter.com and others to raise investor money, not just donations.

The SEC has greatly complicated that process, among other things requiring any crowdfunding website to be a member of FINRA, the same securities regulator that major brokerages and investment banks have to join. The regulatory and reporting requirements are so steep that there would be no way to profit from running a crowdfunding site in the United States. The SEC has also stepped up enforcement of crowdfunding sites, making them risky for both the owners and the users.

So the SEC is both giving and taking this Holiday season, but there is a good chance that with the new JOBS Act Title II in effect in the coming months, startups and film producers could more than double last years haul from Rule 506 offerings, which will make a great Holiday gift for the film industry.

Screenplay Option and Acquisition Price

Entertainment Lawyer Question and Answer Forum:

Question:

For an unpublished screenplay writer what should one expect as a rule of thumb if a major studio wants to option the screenplay and the total cost of the film, if produced, might exceed $20 million?

Answer by Brandon Blake - Entertainment Lawyer:

The question of the proper screenplay writers’ fee or screenwriter salary is always difficult because it varies so much from project to project. The question above was very specific about the budget level of the project so I will respond regarding a high budget project. I have had more than 15 years of experience negotiating on behalf of screenwriters and producers so I have seen just about every offer that can be made.

One of my clients worked with a well-known production company that will go nameless here. That production company pays first-time screenwriters $50,000.00, regardless of the budget of the intended film. It was the producer’s opinion that packaging the director and actors was where the value was added to the project, so he stubbornly refused to pay any more. You will find that sometimes the larger the production company and the more famous the producers and directors working for that company, the less they will pay, at least for first-time screenwriters. And by “first-time” I mean a screenwriter who has never had a screenplay produced by a studio.

Fortunately, there are a few rules of thumb that can help when negotiating with a production company. The first common one is that a screenplay should be sold for 2% to 3% of the budget. Of course this is referring to a “spec script sale” and usually writers are hired to write bigger budget scripts and assigned the material, rather than bringing in a finished script. In actually negotiating this percentage you might find a number of problems. The first being that nobody can agree on or even knows what the budget is going to be before a feature film is shot. I even had a producer suggest that no writer fee would be paid until the end of principal photography because that was when the final budget would be known. Typically there will also be a floor and ceiling with this method.

Alternatively, it often makes sense to refer to the Writers Guild of America minimums in order to figure out how much a writer should be paid. The WGA Basic Agreement is only binding on WGA signatory production companies and eligible writers, but if the budget is $20 million then most likely the production company is a WGA signatory.

As of the date of this article the WGA minimum for an original screenplay on a high budget project would be $89,417.00. However, the WGA actually discourages “spec script sales” and the real substance of the negotiations typically involve what else the writer may be providing, or might have provided before. Is there a treatment or a first draft? Are there going to be subsequent drafts, rewrites, revisions or polishes? Will the writer stay involved with script consulting or get a producer credit? These all bring in different fee structures. And of course this is a minimum, meaning that writers will try to be paid more than these figures.

From the producer’s perspective, always miles away from the writer’s point of view, there is the “no-money option.” As the name suggests, this is about $89,000 less than the WGA minimum. Producers tend to desire to option projects, versus purchasing them, for little or no money for the purpose of attaching a director and A-list talent. Clearly before entering into this relationship you want to know the experience level of the Producer and you should still negotiate the purchase price before starting work with the Producer.

Finally, any writer or producer will benefit from having an experienced entertainment lawyer help to negotiate their side of the deal. I have been personally negotiating both independent and studio writing deals for more than 15 years and have seen just about every different offer that can be made. With experienced counsel, a writer or producer can get a good deal, regardless of whether this is your first or tenth feature film.

As with any legal matter, please do not make a decision about complex matters without consulting an experienced entertainment attorney first. Please feel free to contact my office about a quote.

- By Brandon Blake, Entertainment Lawyer

How to "Package" a Project

Entertainment Lawyer Question and Answer Forum:

Question:

What does it mean to “package” a project? Do big studios only look at packaged projects?

Answer by Brandon Blake - Entertainment Lawyer:

Most simply put a packaged project is a feature film project or a television series in development that has one or more well-known performs attached to the project and possibly also a famous director. A packaged project is in between the script stage and the pre-production stage. As an entertainment lawyer I have been helping filmmakers and producers package projects for many years.

While many screenwriters feel that a really great script will sell itself to a production company or studio, the truth is that the vast majority of projects that a studio or major production company will look at are already packaged projects. This is done for multiple reasons on the studio side, some of which actually make a lot of business sense.

Studios and television networks realize that getting a-list performers attached to a project takes time. Actors and actresses are looking for different things in projects. In general a-list performers want to play heroic parts, or at least parts that the audience will empathize with in the story. They usually want to be portrayed as attractive and they want a good story. If there is little money in the role, such as with an independent film, the actor or actress will want to be associated with a film that has potential for good reviews and a strong festival run. Then there are idiosyncratic traits. I once submitted a project to an actor that had recently decided he only wanted to star in a western. The agent loved our project but there was no convincing the actor otherwise.

Studios and television networks also often want to see that somebody “important” likes the script or concept before they get involved. A studio development executive might be nervous about bringing a script to his or her boss, because maybe the studio president will not like the idea. So if an a-list actor or major director is attached nobody can be blamed if the project fails.

The documentation of the attachment will vary depending on whether you are producing a feature film or television series. When it comes to television development, especially reality television, the attachment of the performer or celebrity host is even more important and is often the most important single factor. Therefore a contract may need to be signed with the host to protect the producer’s place in the television development process before going to the network.

While agents and managers are often blamed for getting in the way of the development of scripts and television series, I have found in my own practice that the opposite is true. Often agents and managers are quite excited about a variety of projects, and it is actually the talent who really makes the decisions.

When approaching agencies and management companies, most will require that the producer be represented by an agent or an entertainment lawyer, and our firm has represented many producers who have successfully packaged film and television projects.

Film Distributor Breach of Contract

Entertainment Lawyer Question and Answer Forum:

Question:

Just finished my first feature film and got it picked up for world DVD distribution. When it was sold to the UK the distributors released it with an incorrectly transferred music track causing it to sound like a jumping dirty CD throughout the entire movie. Many customers have complained about this and returned the disc. The UK distributor has warned me not to bring up the problem publicly and refused to fix it. Being a first time director what can I do? It's now affecting my second feature as my film’s quality is now being called into question.

Answer by Brandon Blake - Entertainment Lawyer:

Great question. Having worked with feature film distributors for more than 13 years, representing filmmakers and working to get the best deal possible for both independent and studio projects, this is certainly not the first time I have heard of similar problems with distributors. Once the distribution agreement has been signed there is not much that can be done unless there is some provision in the contract that guarantees some level of performance from the distributor. In order to fully address this question, I will go through some ways to prevent this type of problem from occurring and then I will discuss some ideas for how to address it after the contract is signed.

Although it seems obvious, the easiest way to deal with a problem like this is to work with a reputable film distributor. Most distributors do not like returns any more than the filmmaker and will work to make sure that the sound and video quality are as good as possible before release. In fact, I often have clients complain about having to remaster their audio tracks as part of the delivery requirements, which ends up being quite expensive. One of the things that a good entertainment lawyer should do for a client is to know the reputation of a distributor before starting negotiations. I have worked with most of the film distributors worldwide so I can generally warn a client about problems like these before even beginning to negotiate the deal.

The second thing that can be done is to make sure that the distributor duties are specified in the distribution agreement. Often at first there is little or nothing in the agreement that specifies that the distributor must do anything other than pay royalties. I worked with a major studio last year that did not even specify they had a duty to release the film! Fortunately I pointed out the issue to the business affairs person and he was happy to correct the problem, but I wonder whether he ever changed the template or just our deal. I have found that distributors are generally very amenable to making changes to agreements, but only if the problems are brought up before the deal is signed. After signing it is typically hard to get anyone to even return a call.

Finally, once the contract has been signed and the film has been released, go over the agreement carefully and see whether there are any provisions dealing with distributor duties. There should at least be an obligation to distribute the film, and you may have negotiated for the distributor to complete certain delivery items. What you will not find is any right to stop the distribution of the film, because in any commercial distribution agreement one of the most important provisions from the distributor side is what is called a “waiver of equitable relief,” meaning the filmmaker is waiving any right to get an “injunction” or to stop the distribution of the film for any reason.