Entertainment Law

Summer 2011

Does entertainment law, really exist? It does however, it is a compilation of a number of bodies of law it doesnt exist the same way as contract law or other traditional bodies of law that are more concrete. Entertainment Law {What is the unifying factor of entertainment law idea that something whether that be a film or song (essentially a product) will reach the public to some degree or eventually. The working definition of entertainment law: the practice of entertainment law involves legal services in connection with the business bases of the industry and not other fields of law that happen to be attached to a lawyers client by future of some other cause. II. Client Centered and not Law Centered: Two important questions (1) Who are the clients {Entities Studios, networks, productions companies} & {Individuals producers, writers, actors, directors, composers, production designers, cinematographers. (2) Who are the facilitators agents, etcprofessor was too fast. Primary areas of law that come into play (Copyright Law / Intellectual Property; Law of Ideas; Law Re Right of Privacy/Publicity; Contract Law). III. Six Players*** (1) Time Warner, (2) News Corp (Rupert Murdoch), (3) Viacom (Summer Redstone), (4) Sony Pictures Entertainment, (5) NBC/Universal, (6) Walt Disney Company only major with a brand name, at least for kids entertainment -Mini-Majors (1) Lionsgate and (2) MGM. IV. Agents Major Agencies (William Morris/Endeavor); (Creative Artists Agency) a couple others didnt catch. V. Unions and Guilds entertainment industry is a very unionized industry Ex: Writers Guild of America (WGA);Screen Actors Guild/AFTRA; Directors Guild of America (DGA); Below the Line unions; IATSE VI. MPAA Motion Picture Association of America theyre important VII. The Academies (AMPAS); (ATAS); (BAFTA) different award shows etc / The Entertainment Bar (Read the Annual Hollywood Report for info). The Entertainment Bar usually refer to one another by their specialty Corporate Lawyer, Sports or Music Lawyer, Immigration Lawyer (getting foreign stars into the country) however, the transactional lawyers simply who represent the business entities and individuals involved with movie and TV development, productions and distribution (the day to day stuff) they titles themselves Entertainment Lawyers. I.

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VIII.

Jargon Translation Key Terms and their meanings Above the-line: motion picture costs that relate to the acquisition of rights and payments to Talent and the producer. Accrual Method: An accounting method whereby expenses and income are reported when incurred or accrued, rather than when paid or received. Actual Break-Even: The point in time when a motion pictures revenues reach Net Profits based on a full Distribution Fee. Compare to the definition of Cash Break Even. Also see the definition of Rolling Break-Even Adjusted Gross Receipts: means Gross Receipts minus Off-the Tops. (Some use the term to refer to Gross Receipts less all distribution costs. Advance: Advance payments for either (a) the license of motion picture rights or (b) compensation for services rendered. Ancillary Rights: Merchandising (video game rights, soundtrack, music publishing, novelization, live stage, and theme-park rights to a motion picture). Answer Print: The first positive print of the completed picture that can be seen and heard, as it combines visuals from the original negative together with the sound, music, and effects tracks. At-Source: A contractual provision requiring Royalties or Participants to be calculated based on Gross Receipts at a contractually defined link in the distribution chain, regardless of whether the licensor directly receives those Gross Receipts. Generally, At-Source Gross Receipts for various media is calculated as follows: i. Film Rentals for theatrical; ii. Wholesale price charged to retailers for video; iii. Payments by broadcasters for television; and iv. Payments by manufacturers to licensors for merchandising, Attached: talent is contractually committed to a project Back-end: Can refer to either a Royalty or Participation Below the line: Actual production costs Berne Convention: A copyright treaty among a number of nations, including the United States. Box-Office Gross: Gross Receipts collected by motion picture theaters Budget: Sometime used to mean a forward-looking estimate of Negative Cost, and sometimes used to mean a backwards-looking statement of actual Negative Cost. Cash Break-Even: The point in time when a motion pictures Gross Receipts reach Net Profits, but using a low (or no) Distribution Fee. There can be several levels of Cash Break-Even using progressively higher Distribution Fees until Actual Break-Even. Cash Method: An accounting method whereby expenses and income are reported when paid or received, rather than when incurred or accrued. Completion Bond: A contractual commitment issued by a Completion Guarantor agreeing to either (a) complete an deliver a picture on time or (b) repay the bank if timely delivery is not achieved. The Completion Bond is generally calculated as a percentage of the combined Above-the-Line and Below-the-Line costs. Co-Production: In a technical sense, a joint production between companies in two separate countries pursuant to a co-production treaty companies in two separate countries pursuant to a co-production treaty between the countries. Generally used to refer to any for of partnership or joint venture relating to production of a film. Completion Guarantor: A company issuing a Completion Bond. Cross-Collateralized: When Gross Receipts from one picture or territory are used to recoup losses from another picture or territory. Deal Memo: A term sheet or letter of intent, usually binding. Deferment: A fixed payment to Talent that is payable out of Gross Receipts, usually after reaching Cash Break-Even. Delivery. Delivery of the physical film elements for a motion picture.

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Summer 2011

Derivative Works. Any work recorded in a tangible medium that is based upon, or substantially similar to, a preceding work that is protected by copyright, However, the industry typically limits the term to refer to sequels, prequels, remakes, and television spin offs of a motion picture. DGA: Directors Guild of America. Distribution Fee: A retained share of profits by the Distributor usually charged as a percentage of Gross Receipts, and confusingly referred to as a fee. DVD: Digital Video Disk. Distributor: The owner or licensee of motion picture rights that licenses such rights to third parties. Compare to Sales Agent. Domestic Territory: The U.S. and Canada. This is also often confusingly called U.S. and North America. Droit Morae: Moral rights of authors and directors, typically respected in Europe, but not the U.S. E & O Insurance: Errors and omission insurance. Insures against claims by third parties relating to exploitation of a motion picture. Exhibitor: Owner of a movie theater. Exploit: To use a motion picture in any manner that generates Gross Receipts. Film Rentals: The portion of Box-Office Gross paid by the theatrical Exhibitor to the Distributor. Final Cut: The final edited version of a motion picture. First Dollar Gross: A participation that is calculated as a percentage of all Adjeusted Gross Receipts, although it is almost always offset against any up-front compensation paid. First Look: Either a right of first negotiation or an option to purchase motion picture rights. Foreign Territory: The world excluding the Domestic Territory, Gap: The excess of the Budget over all fixed payments from Distributors, such as Pre-Slaes. Green Light: A motion picture is approved for production. Gross Participant: Someone who is entitled to a share of Adjusted Gross Receipts, either First Dollar Gross or after a pre-defined point, such as after Actual Break-Even. Gross Receipts: All gross revenues from a motion picture at a specified link in the distribution chin, such as either At-Source or received by the Distributor. Hard Floor: Typically, a producers own Participation is reduced by the Participations paid to Talent, and a Hard Floor is a contractually defined point at which all further Participations are borne by the Distributor. For example, a producer may be entitle to a Participation equal to 50% of Net Profits, reduced by all other Participations, subject to a Hard-Floor of 10% of Net Profits. Home Video: Refers to any type of exploitation of a film by the sale or rental of tangible personal property, such as a cassette, DVD, chip, or USB flash drive. Home Video Royalty: Typically, a contractual provision whereby only a percentage, typically 20% of home video royalties are included in Gross Receipts, and the balance is retained by the Distributor. Hold-Back: A contractual provision prohibiting a Distributor from Exploiting a motion picture until a specified time. IATSE: International Alliance of Theatrical and Stage Employees, which is the union for the Below-the Linecrew. Loan-Out Company: A corporation that loans out the services of its sole shareholder to third parties. Typically, Loan-Out Companies are used by Talent. Long-Form Contract: A full agreement containing all contractual provisions, including all boilerplate. Main Titles: Opening credits on a motion picture. Merchandising Rights: The right to sell tangible property embodying either trademarks or copyrights from a motion picture (games, T-shirts, etc.)

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Summer 2011

Negative Cost: The cost of producing a motion picture, including Above-the-Line and Below-the-Line costs and certain miscellaneous costs, which include financing costs, the Completion Bond fee, and a contingency reserve-generally 10% of the Above-the-line and Below-the-Line costs. Negative Pick-Up: An agreement whereby a studio acquires substantial rights in a motion picture in consideration for a fixed payment due upon Delivery plus Royalties. Net Profits: Gross Receipts minus all imaginable costs relating to the motion picture, including the Negative Costs, Distribution Fees, Residuals, Distribution Costs, and typically, Participations. Non-Theatrical: Exploitation of a motion picture on small-venue screens, such as schools, churches, airlines, campuses, and military installations. Non- Theatrical does not mean any media other than theatrical. Off-the-Tops: Specific deductions taken from Gross Receipts in calculating Adjusted Gross, namely checking, collection, currency conversion, trade dues, taxes, and Residuals. Output Deal: A contract requiring one party to acquire all motion pictures produced by the other party. Overages. Can refer to either a Participation or a Royalty. Overhead: An arbitrary mark-up (such as by 15%) that is added to either Negative Cost or Distribution Expenses in calculating Participations and Overages. Participations: Contingent payments to Talent based on a percentage of Gross Receipts or Net Profits from a motion picture. P&A: Prints and Advertising. Pay or Play: A contractual provision providing that if Talent is not used in a motion picture for any reason, they will be paid their full compensation (other than a Participation). Pre-Production: The preparatory work that goes on during the three months prior to commencement of principal photography. Pre-Sale: A sale of particular motion picture rights for a fixed payment upon Delivery plus Overages, which sale is entered into prior to completion of production for the motion picture. Prints & Advertising: The cost of film prints and advertising expenses: one type of Distribution Expense. Project: Usually refers to the status of a film prior to commencement of principle photography. Recoupment: The right of a Distributor to recoup any Advance prior to paying Overages. Release Print: The positive film print used by Exhibitors. Residuals: Contingent payments owed to Talent and unions pursuant to the provisions of the collective bargaining agreements entered into with the unions. Rolling (Actual or Cash) Break-Even: A reference to rolling: means that Actual or Cash Break-Even is re-calculated from time to time based on cumulative expenses, rather than being based on the initial occurrence of Actual or Cash Break0Even. For example, 100% of Gross Receipts after Rolling Actual Break-Even is the same as Net Profits. Royalty: Contingent payments based on a percentage of Gross Receipts or Net Profits paid by a Distributor to the licensor in consideration for a license of a motion picture rights, SAG: Screen Actors Guild. Sales Agent: A party that acts as agent for the owner of the rights in arranging for distribution or Exploitation of a motion picture. Contrast to Distributor. Soft Floor: Like a Hard Floor, except that additional Participations come off the top, and are thus partially borne by the producer, as opposed to being borne exclusively by the studio. Sub-distributor: A party licensed by a Distributor to Exploit a motion picture. Studio: Generally one of the major U.S. film distributors. Talent: Generally refers to writers directors, and actors. Trades: Variety and the Hollywood Reporter. VOD: Refers to Video on Demand, which generally includes streaming, download to own, download to rent, subscription video on demand, and other digital transmission that is initiated at a time of the consumers choosing.

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Summer 2011

IX. Money: pgs. 17 20 Moore {Author broke down the money basis of motion picture films into three categories (1) money in; (2) money out; (3) Control} others idea that many transaction never fit into a standard paradigm of financing, thus he suggest transactions no matter how complex can be broken down into these three categories of questions. Money In Who is contributing money? What triggers the contribution? When do they contribute it? How much are they obligated to contribute? What if you need more? What is the legal mechanism for enforcing the contribution? Money Out what is the order and priority for distributions of money? Is anyone getting compensation? Are there tax distributions? Is there interest on capital contributions? Are capital contributions returned first? How are profits divided? Are the sources of distributions different for different parties? Control Who has control? Is it joint, so any party can lock up the others? Is it allocated (e.g., A has creative control and party B has financial control)? Does one party veto rights? Can control rights be transferred to a third party? X. Plague of the industry to use deal memos Deal memos or term sheets that graze the surface of an agreement are prominent due to the volatile nature of the business, however, the often leave out a lot of information that is necessary to formulate a well thought out and exhaustive memorialization of all the legal problems that can potentially occur. i. The solution to this is long-form contracts that exhaust all legal ideas while explaining each and every term. However, these are often cumbersome, thus a happy medium is preferred and more effective but is often non-existent in the entertainment industry. XI. Law of Ideas Theft of idea claims are so common that unsolicited submissions are routinely returned unopened by studios, networks and established producers. Only submissions from established agents, managers or lawyers working in the business are read and covered Sometimes as an accommodation (based on a persona; relationship for example), an unsolicited submission from a non-professional writer will be read if the submitting party signs a submission agreement. Lawyers are not entertainment agents, however a lot of the new comers try this because agents in the industry as well as mangers typically only want to work with established writers or industry personnel. Classic Theft of Idea Claim: Plaintiff seeks to protect and/or receive compensation for specific story elements, which Plaintiff allegedly conveyed to Defendant or their employees and which are alleged to have become the source of the defendants movie or TV show without permission of the Plaintiff. i. Elements of the claim might be story ideas or specific suggestions for a screenplay or production that was carried out. Property Right Theory: i. Can you own an idea? you cant own an idea (ideas are as free as the air). 1. In order to recover on a theft of idea claim you dont really need to own the idea in a proper case, Plaintiff can recover without asserting ownership over the idea, whether or not the idea is original with plaintiff or in the public domain and even if defendant already knows the idea. ii. In a theft idea case, the plaintiff recovers not because he owns the idea but rather because he is entitled to compensation for conveying the idea to the defendant. 1. Tough to litigate (many different theories for recovery/judges have wide latitude to fashion equitable relief. 2. Highly Fact dependent he said/she said 3. Unpredictable results esp with jury verdicts 4. Can be protracted/expensive Theories of Recovery most of these opinions arise from summary judgment granted by the trial court (opinions in which theft of ideas is central to the case). i. Express Contract oral or written ii. Tort Theories Conversion, Fraud, Misappropriation

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Summer 2011

iii. Equitable Theories Unjust Enrichment, Quantum Meruit, Implied-Law or Quasi-Contract, Promissory Estoppel Notions in which the judge permits the jury to award the plaintiff when there are sort of moral bases to an agreement between parties. iv. If special relationship exists Breach of confidence breach of fiduciary duty Agent may obtain an idea from one person and use it or transfer it to someone else or another writer in which both or one of them benefits from what was taken by the initial person. v. Implied in Fact Contract- actions by the parties. Implied in Fact Contract (Elements) i. The plaintiff must clearly condition his offer to convey the idea upon an obligation to pay for it if it is used by the person to whom the condition was promised to. ii. The producer must assent to the conditioned conveyance (realize that respondent superior exists as well Desny case). 1. No recover is possible for blurt outs by a person to a producer without there being a conditioned agreement of conveyance prior to the idea. XII. Copyrights Copyright Clause of the Constitution (Article I Section 8, Clause 8) Copyright Clause Built-in Conflict the purpose of copyright is to foster the common good not to reward individuals the progress of Science and useful Arts for the benefit of all citizens, not just creators. Since the common good is the ultimate end, Copyrights are of limited duration exclusive rights may exist for only a limited time per the Copyright Clause after which the work goes into the public domain becoming forever freely useable Defense of Copyright (Fair Use and the First Amendment may be successfully asserted for actions which would otherwise constitute infringement. ***The built-in conflict persist to this day The common good versus protection of a creators exclusive copyright Ex: The current conflict as to whether protection should be accorded Reality Show Formats show creators want protection while knock-off producers say protecting them would needlessly stifle the of the progress of the useful arts What can be protected by copyright? i. Original works of authorship ii. Fixed in any tangible medium of expression {fixation: means it can be seen, viewed, or communicated after the fact some sort of tangible record} iii. Now or later developed iv. From which they can be perceived, reproduced or otherwise communicated, either directly or with the aid of a machine or device What is a protectable work? i. Literary works ii. Musical works dramatic works iii. Motion picture iv. Graphics v. Sound recordings vi. Architectural works When does a Copyright protection attach? i. Upon creation ii. No registration, publication or other formality is needed iii. A work is created when it is fixed in a copy in a tangible form What is not protect by copyright? i. Works that have not been fixed in a tangible form ii. Titles, names, short phrases and slogans (ex: youre fired) iii. Symbols or designs; mere variations of typographic ornamentation, lettering or coloring, etc.

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Summer 2011

iv. Works created by the U.S. government v. Works for which copyright has expired vi. Concepts, procedures, methods, systems are not typically protected under copyright, however, they may be protected under patent law. vii. Works consisting entirely of information that are neutral or self-evident facts, containing no original authorship white pages of telephone books, standard calendars etc. viii. The abstractions Test Abies Irish Rose Case (look up) / Nichols v. Universal Pictures Corporation (Not sure what the difference is between these two cases but look it up) ix. The originality Requirement relatively low Work needs only minimal original expressive content and no artistic value judgment made. x. 106 review xi. 109 review xii. 101 defined derivative work: a work based upon one or more preexisting worksa work consisting of editorial revisions, annotations, elaborations, or other modifications, which as a whole, represent an original work of authorship, is a derivative work. 1. Work for Hire a. the Employer is considered the Author b. And owns the Copyright c. The employer is entitled to all rights and remedies of the author uunder copyright d. As if the employer created the work in the first place 2. Two types of Works for Hire a. (1) a work prepared by an employee within the scope of his or her employment (with or without a signed agreement) or b. (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual workif the parties expressly agree in a writing a signed by them that the work shall be a work made for hire. c. Standard to be Applied: Community for Creative Non-Violence v. Reid (look at this case) court in this case look at common law to figure out the bases of employment as well as the basis of scope of employment. take away from this case, is the basis in which entertainment lawyers need signed writings for works for hire. xiii. Transfers of Copyright Interest must be in writing 204(a) xiv. Term of Copyright 1. Individual author life of author plus 70 years, with right to terminate transfers after 35 years into copyright term 2. Works for Hire 95 years but no more than 120 years from creation. xv. 107 Fair Use No Clear Test xvi. Four non-exclusive factors to consider 1. The purpose and character of the use 2. The nature of the copyrighted work 3. The amount of the work taken 4. The effect of the use upon the potential market for or value of the copyrighted market for or value of the copyrights work xvii. Recognized/ Favored Fair Uses go back, read and take notes xviii. Infringement Claims 501 et seq plaintiff must show valid copyright and unauthorized use of the protected portions of the copyrighted work (Ed Montorro look this guy up)

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Life Cycle of a Major Studio Motion Picture Development, Abandonment or Greenlight, Preproduction, Principal Photography, Post-Production, Delivery and Distribution. ***Development/ Preproduction/Principal Photography/Post/ Delivery Underlying Rights Optioned; Deal made w/ Producer (1) Underlying Rights Optioned; Deal made w/ producer (2) If Greenlit, Start Date is set and Talent presses for Pay or Play If abandoned, Project goes into turnaround. (Pay or Play concept look up) Distribution Windows (1) Delivery Theatrical 4 mos/6mos (2) Hotels/Planes DVD/VOD/WEB 6 mos (3) Pay TV 12 mos (4) Free TV 18 mos (5) Cable TV, Syndication TV, Pay TV, Addle Runs Right of Publicity originated from the First Amendment, specifically the tortious basis of Appropriation (treated as their personal right to be left alone) rooted in the right of privacy. New York Law whenever you use someones name or likeness in an advertisement it is almost a guarantee that they can recover. unauthorized use of name or likeness in advertising remains the shot gun of the right of publicity as we know it. Four Basic Policy Jusitifications i. Extension of the Constituitonal Right of Privacy 1. Right to be let along Penumbra right under the First and Fourtenth Amendement. ii. Property Right Theory the new aged theory 1. Akin to a Copyright in your own identity. 2. Fully Transferable 3. Licensable 4. Outlives the Individual iii. The Equitable Theory 1. Serves individual/societal interest in Justice for its own sake 2. Prevents unjust enrichment by infringers iv. Public Interest Argument Consumer Protection Approach 1. Prevent passing off or similar deceptive trade practices 2. Trademark analysis value at stake is protection for consumers Infringement Elements of a Common Law Claim Prima Facie Case i. Defendants use of Plaintiffs Identity (name, likeness, voice ii. To the Defendants commercial advantage (advertising slam dunk when you move past that sweet spot it is harder to prove but you look at other things) iii. Without consent and/or a valid defense What constitutes identity name; voice (imitation, sound alikes); likeness; characteristic clothing (MJs glove); A distinctive aspect of grooming (Don Kings hair); a word or phrase Whether said by or identified with the Plaintiff (Johnny Carson Heres Johnny). i. Parody is a little different in that it is not profitable. Cal. Civil Code 3344. Reference California Statute as it relates to what is likeness and infringement i. Learn the Damages in the handout. ii. The Cal. Code makes the Publicity Right descendible the heirs inherit the right to control, exploit and/or prevent iii. Duration of the Right

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XVI.

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Term Like Copyright a. Subsists for 70 years after death of the individual. iv. Midler v. Ford look up the case Preemption Cases in relation to Copyright Laws v. Sony Music Entertainment, Inc, 448 F. 3d, 1134, 1145 (9 th Cir. 2006) Fleet v. CBS Inc, 50 Cal. Downing v. Abercrombie & Fitch (9th Cir. 2001) Two Part Test for Preemption look it up in Laws v. Sony Music Entertainment i. Whether the subject matter of right of the state law claims comes within the subject matter of Laws right of publicity claims comes within the subject matter. ii. Equivalent Rights Defenses to a claim of violation So called Fair Use This not Section 107 o Copyright Act/4 prong test Usually means Incidental Use Idea vs. Expression Defense Borrows concept from copyright Law Only the idea of the celebrity was used. Express of Implied Consent i. Celebrities in attendance appearing on the Oscar Publication of Public Facts i. Tabloids use of photos of celebrities in public. Akin to First Amendment First Amendment - Issues of Public Interest i. Zacchini v. Scripps Howard. Freedom of Artistic Expression i. Martin Luther King Estate v. American Heritage (11 Cir. Ga. 1982). ii. ETW Corp v. Jireh, 99 F. Supp. 2 nd 829 (N.D. 6th Circuit, 2000) 1. The Tiger Woods Painting Case Parody Defense (Vana White v. Samsung (9th Cir 1992) Robot version of Vana White parodying Vanas actions on Wheel of Fortune appeared in Samsung commercial i. Violation of Whites right of publicity First Amendment Parody Defense i. Usually no violation if performer parodying celebrity appears not in a commercial, but in a stage show ii. State of Nevada has a law permitting Legends In concert type stage productions iii. But Elvis estate still policies rights nationally. iv. If performance is not a parody but rather a straight-forward recreation, more exposure to a claim of violationBeatlemania Case. Literary Option Purchase Agreements Chain of Title Often the first document in the Chain of Title of a Production i. Rights in Properties on which movies are to be based books, scripts, articles, or life stories are rarely purchased outright. ii. The probability of a movie actually being produced is usually too low to justify the expense iii. Therefore, option agreements are the norm, 1. What is an option? a. A contractual grant b. Of the exclusive right to acquire c. Specified rights in a property name of the property, recite what rights d. For a pre-agreed consideration specify the consideration involved

1.

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Summer 2011

For a specified period of time i. Granted by the Optionor to the Optionee ii. There must be consideration for the option 2. Typical Conditions Precedent to an Option Agreement a. Approval of Chain of Title b. Closure of related deals life story rights, producer agreement c. Execution of the Contract, and the Short form Option and Assignment d. And if a book, the Publishers Release. 3. The Shopping Deal much less formal Arrangement than an option purchase contract a. Producer may acquire only the right to shop a property b. For a limited time period to studios, networks, or production companies c. IF project sells, producer is attached to produce iv. Formal Agreement Exclusive Option 1. Book/Script all versions and elements 2. Life Story may be limited to period/events 3. 12/18 month option / right to extend 4. Option extends during pendency of claims 5. Cap of 6 months on extension unless lawsuit a. Option holder has the right to develop the project during option period. i. Includes writing of scripts based on the property ii. If the option is unexercised, the studio keeps the script but cannot exploit it since it does not own the underlying rights iii. Many of such unexplainable scripts exist, some of which were written by gifted and famous writers and are considered quite brilliant. Option Payment and Purchase Price i. If property is a WGA covered existing script, minimum payment terms apply to the option payments and acquisition price. ii. Option Payments 1. 1st payment usually applicable to the purchase price iii. Extension payments are usually not applicable iv. Setup Bonus / Additional Payment 1. If producer options a property and then sets up the project at a studio / network 2. An additional payment is made to the property owner 3. The Option Period often resets tot eh beginning 4. Note the Importance of Assignment Rights v. Purchase Price 1. Cash Compensation Payable on exercise but not later than commencement of principal photography 2. In TV usually a fixed cash amount 3. In Features the purchase price is often expressed as a percent of the going in budget w/ floor/cap e.g. 2.5% of budget, floor of $250k/cap of $500k vi. Contingent Compensation 1. Unless the property is of exceptional value e.g. a best selling novel, the backend is often 5% of net profits. vii. Additional Compensation for Subsequent Exploitation of a Property 1. For Sequels / of Purchase Price

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2. For Remakes / 1/3 of Purchase Price Rights Typically Granted i. Motion picture, Television, and Allied/Incidental Rights and Subsidiary rights ii. Motion Picture and TV Rights Right to make theatrical movies and tv programs and to exploit them and all right in them in all media iii. Subsidiary rights iv. Includes right to change, adapt and modify v. Waiver of moral rights vi. Rights of publicity vii. Reserved Rights 1. Used to be live TV, radio, live stage and publishing but less so now; studios want all rights, esp live stage 2. Theres more, but I didnt get it he moved to fast. viii. Holdbacks 1. Where any rights are reserved, they will usually be subject to 5/7 year holdbacks which limit exploitation of the reserved rights until 5 years after picture is released or 7 years after option is exercised. ix. Credit Clause *** 1. Typically all contractually required credits relating to an underlying Property are both On screen and in paid ads 2. Contain a no injunctive relief clause 3. In the event that the credit is not accorded or accorded improperly, x. Buy / Sell Clause 1. Used where two parties equally co-own an asset or a bundle of rights 2. If one wants to produce the movie or otherwise exploit or dispose of the rights but cant reach agreement with the other 3. This clause used to break the deadlocksimilar to two kids forced to share a clause in the contract, which states that a party can buy and/or sell the item for a fee. Additional Terms The Boilerplate in short this is similar to the warranty of merchantability, in which the grantor warrants the fact that he is the sole originator of the work in question. i. The grantor often the author gives reps and warranties and indemnifies Buyer for claims re ii. Originality and infringement of third parties. Assignment Rights *** i. The Buyer must have right to assign since projects often change hands Reversion Rights After Option Exercise i. If the movie is unproduced after X years following option exercise, rights may revert they apply to sequels as well as any basis of the initial production. 1. Reversions are rare. No injunctive Relief Provision i. Common in all rights and all service agreements ii. If the Buyer breaches, this clause bars the grantor from seeking injunctive relief prohibit exploitation of the production iii. Requires the grantor of rights and/or the party rendering writing services to acknowledge that monetary compensation will be adequate relief for breach XVIII. Life Story Rights make sure to understand this from both someone granting these rights and the person receiving these rights once they have acquired the life story rights from a specific person. Not a grant under copyright but rather a bundle of contractual covenants Permitting an individuals life story to be depicted

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Waiver of rights of privacy/publicity/libel(?) Consult with writer, reveal facts truthfully Access to notes, journals, photos, etc Right to use name and likeness Right to fictionalize, embellish, exclude or include Life Story Rights: i. May be limited to specific period or events ii. Life Story rights are often acquired along with rights in a book or articles about the person and the same events Ex: Whistle Blower Stories Grantor must usually exert best efforts to secure releases from related 3 rd parties grantor theoretically may have to tell 3rd parties or try to get those 3rd parties who may inadvertently be apart of a life story, it is up to the grantor or the grantee to persuade the grantor to get their permission in an effort to avoid any sort of conflict in the future between 3 rd parties and the parties who have created it it is a balancing notion in which the grantee weighs the probability of a problem arising versus simple permission. i. Often includes consulting services or grantor ii. Buyer gests right to fictionalize issue of libel License Agreements When a celebrity licenses his right of publicity how does it work i. Term duration of license x years, often with options to extend ii. Territory where (Ex: Japan and not US.) iii. The scope iv. Media Licensed TV, Radio, Print, Internet v. Services Required Commercials, Photo shoots, personal appearances, voice-overs / Guild issues. vi. All of the above are some of the main ideas behind how publicity rights are given to people, but this is not an exhaustive list, but merely the main ideas behind licensing as it relates to rights of publicity. The Film Business / Studio versus Independent Production Distribution / Sources of Financing Major Studios are responsible for the majority of distribution i. The Paramount Consent Decree***look this uphistorical basis in which studios sold off their rights to theaters due to the fact that they monopolized everything. ii. Motions Pictures are produced by member of one of two groups 1. Major studios 2. Independent producers iii. Modern major studios are divisions of conglomerates, which finance, produce, and distribute motion pictures worldwide. Role of Producer i. The individual producer is in most cases the prime mover behind a motion picture the person who says this will be a good idea Sources of Cash and the Streams of that Income as it relates to Movies i. Box Office Admissions (Theaters) Studios do not own theaters 50% of gross receipts from theaters goes back to the major studios in exchange to show their movies (50% movie theater / 50% studios) ii. Rent/Download to Own(/DVDs Netflix) Video Revenue Wholesale per unit / Rental Revenue Split iii. Television Showings (they make money through the ads and commercials) TV companies purchase License Fees from the Studios

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Sources of Financing i. Major Studios loans, etc, they also partner with other studios at times use third party funds tis includes taking advantage of tax shelter schemes, both domestic and foreign 1. Banking Pre-Sales 2. Gap and Bridge Lending 3. State Tax Credits 4. Equity From Advertisers 5. China & Japan foreign corporate investors 6. Foreign Tax Shelters 7. Slate Financing 8. Betting the Box ii. Independent Feature Financing 1. Major Studios Pick Up Distribution Agreement 2. Foreign Presales Agent territory by territory % of Budget (ex: UK worth 10% of Budget $50 million budget/UK RTS. $5 million 3. Equity Investment SEC issues!! 4. Government Subsidies / Incentives (professor said Canada is a major player in terms of financing movies in reference to co-production) a. State Property in U.S. b. Outside U.S. country by country, co-production treaties, quotas/tv 5. Tax Shelter Deals permit high network people to invest in motion pictures and it has a very favorable tax basis. 6. Gap Financing cross between loans & equity, very expensive put together a 7. Independent Feature Finance a. The players [Distributor Major Studio / Producers LLC / Lender Bank b. The Independent Producer seeking financing for a picture about to go into production outside a major studio c. Source of the Financing a single Worldwide Distributor who wants to acquire all rights in the picture, but does not want to directly fund the production itself. 8. The Completion Guarantee The Bond Company agrees, to either: a. Cause completion and delivery of the picture per the distribution agreement, by the Producer or the Bond Company itself, triggering the Distributors legal obligation to pay the Advance. b. If the Bond Company 9. Completion Bonds look it upwe spent a lot of time on this 10. The Intercreditor Agreement signed by all parties around the table and by any financing parties. It sorts out the priorites among the parties Distribution process whereby a finished picture is exploited via commercial exhibition in various media and/or by the sale/rental of copies production is very risky as most development fails to produce a movie and most produced movies fail to recoup their cost of production Is it said that if studios could get someone else to finance and produce enough good pictures each year to fill their distribution pipeline, so they could just collect distribution fees i. Theatrical Distibution up top theaters revenue of 50% ii. Home Video Distribution look up similar to royalties studios contract with other streams for a portion of the profit per unit sold iii. Television Distribution license fee iv. How Major Studios Acquire Distribution Rights to Movies Five Approaches

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1.

2.

3.

4.

5.

In house development production a. Usually based on a project originated by a producer now just as likely to be a sequel of a studio owned franchise the studio finances development Studio has final say owns all rights pays third party expenses, etc. Acquisition of unproduced fully packaged pictures to be financed and produced inhouse a. Producer initiate development process and the financing of it i. Producer then takes the project to a studio with a fairly complete package (significant elements attached) ii. Studio Finances, produces and distributes iii. Morgan Freeman (Invictus example when he played Nelson Mandela in which he wanted to play already he fully developed the project on his own with the finished script etc) Negative Pick-up contract for rights to an unproduced picture with identified elements to be produced outside studio with payment on delivery. a. Producer develops picture and attaches the elements producer presents the package (script, major cast, director) i. Studio agrees to purchase distribution rights in the picture on delivery if the film meets specified requirements producer uses studio contract as collateral to borrow production funds. Typically a completion bond is involved other variation on the negative pickup structure. Acquisition of a finished picture, developed, financed and produced entirely outside the studio without and presale of rights to the studio ex: movie auction (studios go to an event and purchase a movie that was already created etc) Sundance Film Festival Rent-a-system deal Studio distributes a picture which was developed, financed, produced and owned by a third party for a percentage fee ex: 15% - studio does not own the picture. a. Big player produces movie and studio seeks to rent the movie.

Entities i. Sole Proprietorship an individual operating under a fictitious business name gives you no protection against liabilities. ii. General Partnership formed between two or more persons who combine in a business enterprise, aka joint-venture for tax purposes and other expenses it is split between the number of parties involved in the venture. no legal or official filing is made iii. Limited Partnership limited partnerships are like general partnerships except for these two exceptions: (1) a filing must be made with the Secretary of State in the state where the partnership is formed; (2) a limited partnership has two classes of partners: the general partners and the limited partners the limited partners do not have the right to manage or control the affairs of the partnership but they are liable for any of the debts of the partnership iv. C Corporation Ownership of a C corporation is evidenced by shares, and the owners are called shareholders v. S Corporation Limited Liability Company vi. In the entertainment business, the main issues in reference to this is how volatile are the formalities, the taxation issues involved as well as liability as it relates to the type of business as well as the number of owners. in terms of liability, if one party out of partnership has

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assets and the partnership is in jeopardy of liability for some reason the person who has assets will have to exhaust his assets to compensate any liabilities that the partnership created. The Fin-Syn Rules Imposed by the FCC / 1977 *** look up its on wikipedia i. Syndication the licensing of programs first produced by another company The portion of the production cost which the producing studio bears is referred to asDeficit Private Offerings in General these can be structured as a basis of equity, secured by property or any other basis, simply a loan or donation by a family or friend of the promoter. Securities Laws securities laws, provides redemption to investors who are wronged by misconduct or the wrong doings of a promoter: (1) failure to comply effectively gives the investors a right to sell their investment back to the promoter in exchange for repayment of their full investment. Thus, failure to comply with the securities laws effectively makes the promoter personally liable for repayment of the investment; (2) intentional failure to comply with the securities laws can be punished as a criminal offense. i. Under the case law, the definition of security includes every transaction where someone gives someone else money and expects to get money back, with the following exceptions: 1. Loans from banks 2. A general partnership interest in a partnership or a managing member interest in a limited liability company if the general partner or managing member has meaningful management and control rights; and 3. The sale of a profits interest to a single investor (see Marine Bank v. Weaver) a. When investors are issued stock in a corporation, limited partnership interests in a limited partnership, membership interests in a limited liability company, or profits interests in a film, the transactions are almost always treated as the issuance of securities. even a secured loan may be treated as a security (other than from a bank). Registration and Exemptions i. One requirement of the securities laws is that prior to the issuance of any securities, the proposed transaction must be registered with the Securities and Exchange Commission (SEC) exceptions to this rule are below: 1. Rule 504: the issues may raise up to $1 million without registration during any 12month period in reliance upon Rule 504. This rule contains prohibitions on both general solicitation of investors and on advertisements, but no requirements relating to the sophistication of the investors. 2. Rule 506: these offerings have no dollar amount limitations, but these are limited to accredited investors which are defined as follows: a. A natural person whose net worth exceeds $1 million b. A natural person who had an individual income in excess of $200,000 (or $300,000 if married) if single in each of the two most recent years, and who reasonably expects an income in excess of that amount in the current year. 3. Rule 147: intrastate exemption the issuer must be organized and doing business in the state in which it intends to offer the investment, the offerees and investors must be strictly limited to residents of that state, and the proceeds must be used only in that state. 4. State Securities Laws a. Every state has securities laws, commonly referred to as Blue Sky laws, controlling the offer, issuance, and sale of securities in that state many

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b.

states require some type of filing with their securities commission accordingly when an issuer contemplates offering securities in a particular state pursuant to a Rule 504 or Rule 147 exemption from federal registration, the Blue Sky laws of all states in which the offer is to be made must be consulted to avoid this complication all state Blue Sky laws with respect to federal Rule 506 offers as long as Form D is filed in each state where the securities are offered or sold and all applicable state filing fees are paid. If the offering is not made under federal Rule 506, the exemption most commonly relied on in California arises under California Corporations Code Section 25102(f) (in summary) i. The offering is limited to a maximum of 35 investors (excluding accredited investors defined above) ii. The investors or their advisors must be financially sophisticated or must have a pre-existing personal or business relationship with the promoter. iii. No advertising is permitted. iv. Form 25102f must be filed with the California Secretary of State.

Disclosure i. Even when an offering is exempt from federal or state registration, SEC Rule 10b-5 essentially obligates an issuer of securities to disclose all material information to offerees and investors. What information is material to a particular offering varies from transaction to transaction As a rule of thumb: the issuer must disclose all information an investor might reasonably need to make an intelligent decision with respect to the offer at a minimum, the private placement memorandum (PPM) should describe the offering, including: 1. The amount to be raised; 2. The structure of the company; 3. The relative priority of repayment of the investment, any third-party contracts; 4. A description of management and their compensation pachages; a. A synopsis of the film; b. A one-page budget for the picture; and c. The full text of the governing document (ex: the operating agreement for an LLC) Subscription Agreement i. Each investor should execute a subscription agreement, which is a short agreement subscribing to the investment and containing certain representations and warranties relating to the offer 1. If the promoter is relying on California Corporations Code Section 25102(f) the subscription agreement should state that the investors or their advisors are financially sophisticated or that they have a pre-existing personal or business relationship with the promoter the subscription agreement should recite that the investor is aware of the specific risks with the offering. Finders someone who finds and investor. i. A common question is whether a promoter can pay a finder for finding or soliciting investors it is permissible to pay a finder who does no more than simply give phone numbers of potential investors, this limitation is rarely adhered to in practice as soon as the finder makes any effort to describe or sell the investment, the finder will need to be licensed as a securities broker to receive a commission.

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XXI.

Distribution Agreements the monetary value of a film lies in the ability to exploit itsince no company has the ability to exploit films in all media territories the provisions of these distribution agreements are the lifeblood of all film companies, which live or die based on the provisions of their distribution agreements. Types of Distribution Agreements i. Production/Finance/Distribution Agreement (PFD agreement) a film company, typically a studio, hires a production company to produce a film, and the studio agrees to directly finance production of, and to distribute, the film. 1. The production company is simply an agent of the studio company, wherein the studio is the complete owner of the film the production company usually retains some sort of interest in the net profits of the film. 2. Development is per studio creative/business approvals 3. Certain established producers may have an overall deal or term deal or housekeeping deal (they all mean the same thing) 4. The drawback for the producer: the producer is much like an employee and not a creator contract is styled as an independent contractor. a. Advantages: i. the producer does not have to find funding to push the film ii. producer is guaranteed distribution in all media on a worldwide basis iii. with a high probability of a reasonable marketing effort/ad spend iv. major studios in business with tv networks, etc b. Advantages of Staying outside the major studio: i. Producer has a much bigger monetary upside in success producers backend is not determined by the studio definition ii. Creates the possibility of subject / content the major studios would not develop or produce but which may creatively appeal to talent - ex: directors and producers and garner awards studios typically have discretion for certain content if you are on your own you can create what you want. iii. More control iv. Not mandatory that all guilds be involved (probably SAG in any event) but other guilds are not mandatory much cheaper v. Possibility of lower budget but still involving big stars since an actors indie quotes are distinct from his major studio deals fewer amenities, lower fixed compensation, trick deals ii. Negative Pick Up similar to a PFD agreement, the studio finances the production of film, however, in this sense it is only when the film is tendered, thus in this case a production company is responsible for the initial financing of the film the lender will almost always require a completion guarantee to guarantee completion and delivery of the film to the studio in order to trigger payment because the studio indirectly finances the production it does not have the same latitude in controlling the production although once tendered to the studio they possess most of the rights, however, this isnt as clear cut as a PFD iii. Pre-Sale a limited distribution agreement for a particular country entered into prior to completion, and often even prior to commencement of production of the film most presales involve a foreign distributor committing to pay a fixed delivery of a film in exchange for specified rights in the film in a given country for a limited term.

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iv. Rent-a-system in a rent a system deal, a producer licenses certain film rights to a film company, typically a studio for a limited term but the studio is not required to pay an advance to the producer to either finance production or take delivery of the film, in some instances the producer may pay all distribution fees however, in exchange for this agreement, the studio agrees to a very low distribution fee, and the remaining revenues are remitted to the producer the studio avoids all risks with this system. v. License any limited grant of rights to a film (from a one-day pay per view television license to a grant of all worldwide rights for a term of 25 years.) 1. License Agreement a. Approval Rights i. Network has broad approval rights over all creative and business matters b. Rights Granted to Network i. Network acquires right to order production of the pilot for the program ii. Network has an option to order production by a designated date iii. And if the pilot is produced, Network can order additional episodes 2. Rights Retained by the Producing Studio a. Digital Rights Typically rights to exploit where user must pay to see/own the program 3. US Syndication Rights Right to license US TV exhibition on other networks/indie free stations 4. The License Fee Scripted Programs a. Network License Fee 2.1 / 2.2 million b. Cost of Production 3.8 / 3.9 million c. Studio bears Deficit of 1.6 to 1.8 m per program d. Over 13 episodes, Studio at risk for approx $20 to 23 m 5. Breakage term refers to breaking the agreed upon budget to include additional costs most often paid by the Network but not include additional costs most often paid by the Network but not included in the license fee as defined in the License Agreement major area of ongoing negotiation in every television series license fee agreement. vi. Distribution Agreement these agreements contain pivotal wording referring to a grant of rights resulting in such agreements being licenses, not sales agent agreements. vii. Output Agreement an output agreement commits a licensee to acquire particular rights to a specified number of films produced in the future by a production company. in effect, an output agreement is a pre-sale agreement for a number of unspecified films. viii. Co-Production any agreement between two or more film companies relating to the production and ownership of a film. XXII. Rights every type of license must c XXIII. Guilds consult the book The Entertainment Industry is heavily unionized What are the guilds: there are three look them up i. WGA writers guild of America ii. DGA Directors Guild of America DGA Agreement 1. Creative Rights Right to one cut without interference and to one preview

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2. 3. 4. iii. SAG

Credits No other credits are permitted using the word director except the credit to the Director and Ads (asst directors) e.g. casting director credit forbidden Rule Replacing the Director no one who has worked on the picture can be engaged to replace the DGA director Traditiona jurisdiction of the Guilds has been limited to US

XXIV. Credits Significance of Credits Generally i. Executive Producer Show Runner In charge, often with Created by credit ii. Co-Executive Producer iii. Supervising Producer iv. Producer v. Co-Producer vi. Executive Story Editor WGA covered job vii. Story Editor viii. Staff Writer Indicator of comparative strength in the marketplace with actors marketability Markers for Compensation A substitute for compensation Source of attribution / blame or praise / entitlement to awards and nominations. Producer Credits XXV. Services Deals Threshold Questions Condition Precedent What else has to happen for deal to be binding? acquiring rights from 3rd party. i. Clearing title ii. Closing title iii. Closing another deal re the projected iv. Dealing of I.9 v. Signature of Contract or Certificate Loan Out or Direct Employment i. If Loan Out, need more of corporation and tax ID number ii. Inducement Letter signed by the artist Guild Covered Services i. WGA Is writer a member? ii. Original Work or assigned material iii. Is producer a signatory? Firm Deal (Pay or Play) or Development Deal Producer, Director Option Deal Writer, Literary Property Step Deal Writer Deals XXVI. Loan Out Companies Loan out companies are used by established producers, writers, actors, and directors. A loan out company formed for the sole purpose of providing the services of an artist. Usually a C Corporation due to tax advantages. i. In a contract a Loan Out is referred to as Lender or Employer ii. The individual rendering services is referred to as Artist or Writer

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Loan-out companies are required to transfer copyrights and other intellectual property to the production company under production contracts, just as individuals are required to do Both the Lender and Artist join in the grant of rights Work for hire language is included. The Loan Out will usually agree and/or warrant: i. Lender has a valid and subsisting agreement with Artist under which Lender has the right to enter the Agreement and grant Producer any and all of the services and rights granted. The Loan Out will usually agree and/or warrant: Lender agrees that Lender shall pay Artist all compensation that woul have been payable to Artist and Producer shall not be obligated The Loan Out will usually agree and/or warrant: i. Artists services hereunder shall be rendered as Lenders employee and ii. Lender indemnifies Producer from all claims in connection with withholding iii. And/or payment of any sums required to be paid by an employer XXVII. The Inducement Letter Loan Out Company continued The Inducement refers to the typical initial sentence of the letter which usually states: i. As a material inducement to cause Producer to enter into an agreement with Lender to provide my services, I, the undersigned Artist hereby confirm and agree Artist acknowledges the underlying agreement between Producer and Loan Out Company Artist agrees payment/notice to Loan Out is payment/notice to Artist Artist joins in the Loan Outs grant of rights and reps and warranties If Artist breaches, Studio may proceed directly against Artist without exhausting remedies against Loan Out Artist agrees if Loan Out dissolves, or Artist/Loan Out agreement terminates Artist is personally bound. There also exist Inducement Clause or Short statements at the end of certain contractslook up