The bill is viewed by some  as a way to sabotage the American creative dream machine by slipping in a little poison” and “the death knell of American leadership in the world.”

Specifically, three provisions are of significant concern to those who rely on so-called “angel” capital.  These provisions would:

1. increase the financial thresholds for qualification as “accredited investors,” who are, generally speaking, wealthy investors whose investments are not subject to significant federal securities regulation;
2. allow the Securities and Exchange Commission (“SEC”) to make certain angel financing transactions subject to state regulation (previously, all so-called “Rule 506 offerings,” which were commonly used for angel financings, were preempted from state regulation); and
3. require that those “Rule 506 offerings” that remain preempted from state regulation nonetheless be subject to a 120 day review process with the federal SEC.

Word on Capitol Hill is that the  bill will undergo significant changes, but now is the time to contact your Senators and Representatives to voice your opposition to the above provisions.

Currently, an investor qualifies as “accredited if he or she has a net worth of $1 Million or more, or has an annual income over $200,000 ($300,000 for married couples).  Under Rule 506, sales of securities to such investors are largely unregulated.  This new bill would change that dramatically, increasing these limits, thus making it harder than ever to find qualified investors for high-risk investments like films, theatre projects or start-up ventures.

Source:  Proposed financial regulatory reform bill will adjust accredited investor thresholds (WTN News).

Hat tip to my colleague Peter Levitan for bringing this to my attention.

I’m stunned that the city, historically home to the TV and Movie industries, hadn’t already had such a commission. in the last 13 years, according to statistics, production in the region has dropped by more than 50%, as producers sought more favorable labor rates, locations  and tax incentives.

Why, I wonder, has L.A. waited so long to take this step to deal with runaway production?  Most successful businesses know that existing customers are the most important asset there is. why hasn’t the city adopted this view toward one of its largest and most influential industries?

Better late than never, I suppose.
I just hope it’s not too late.

Q: Is it possible through an entertainment attorney, for the screenwriter to have control of rewriting, changing, adding or eliminating scenes, etc.?

Also, what advice do you offer if a studio picks up an option on a script?
I know the quandary of whether or not to accept $50,000 for all rights and if it never gets produced, the author is ahead, but if it becomes a blockbuster, the author gets nada, zilch, zip, rien.

A: While it is certainly possible for a screenwriter to retain control over rewrites, ‘cutting’ and adding scenes, in practice, it is very rare for a writer to wield such power in Hollywood.

Film is, by its very nature, a collaborative medium, in which many creative talents come together to develop and produce the final product. Writer, Producer, Director, Actors and Editor all contribute creatively to the process, and ultimately, it’s hoped that the end-product is the better for their efforts..

Screenwriters are (depending upon their bargaining power) often guaranteed one, or even two rewrites and/or polish drafts of the screenplay before the producer is free to hire another writer to work on the project. This protects not merely the creative integrity of the screenplay, but also the writer’s credit and, in many cases, the writer’s compensation. (The writer’s contingent compensation (the so-called “back-end”) usually is halved if the writer receives shared credit.)

Beyond guaranteed rewrites, even the most powerful screenwriters have difficulty negotiating for control (or even rights of consultation) regarding additions or cuts from the script as it moves toward and through production. Once a script is greenlit for production, it’s safe to say that the Director controls its content, subject to the Producer’s control of the purse-strings. Then, after the film is “in the can”, the editor and the director may decide that certain scenes or lines of dialogue don’t work, or don’t advance the story in a meaningful way. Sometimes, too, the producer or distributor(s) may feel that the film is too long, or needs editing to assure a desirable MPAA rating, etc.

So, you see, the Writer creates the foundation on which a greater work is built. Difficult as it may be to accept, the screenplay is but one of the raw materials used in making a motion picture. Ultimately, many hands will be involved in sculpting the finished product.

If a writer is unhappy with the finished product, and feels that it undermines his or her reputation, it is sometimes possible (if negotiated in the option/acquisition agreements) to require that the writer’s credit be removed from the Picture.

The answer to the second part of the question is simple: Try to negotiate the best possible deal for the option and sale of the screenplay. Success in negotiations depends on many factors, including the bargaining power or ‘clout’ of the writer, and the perceived demand for the material. In most cases, (particularly when the guaranteed compensation is small) it’s possible to negotiate for some kind of contingent compensation or box-office bonuses. Beware, however, that these back-end payments are carefully defined in the contracts. The help of an experienced entertainment lawyer is absolutely crucial to ensuring you’re not taken advantage of.

This is intended as general information only and does not establish an attorney-client relationship. It is not a substitute for a private, independent consultation with an attorney selected to advise you after a full investigation of the facts and law relevant to your matter. We will not be responsible for readers’ detrimental reliance upon the information appearing in this feature.

DON’T MISS OUT:  For a limited time, you can sign up for a FREE mini e-course on ” 6 Ways to finance your feature film”

Q: I am writing a musical with a talented writer and filmmaker. We have agreed to a  60%-40% split on the scriptwriting. Since I am the sole writer for the music and will pay for it’s production, we have mutally agreed that I keep 100% of the music rights. We plan to sell the script.

In part, the Writer Collaboration Agreement mentions that

“… all sequel remake and television spin-off rights, novelization, merchandising, play, radio
and audio rights to the screenplay be shared by…

How can we reword this to clarify our 60%-40% shared rights in the scriptwriting, and my 100% ownership of music?

A: Yes, it is possible, in a collaboration agreement, to separate rights in certain components of the work, so that a composer retains all rights in the songs, while the parties share equally (or according to some other formula) in the other components.  Unfortunately, each situation is different, so there’s no set ‘form’ or ‘standard’ way to handle this wording.

Split-rights collaborations are actually very common, just not in the film industry.  In the world of theatre, it’s usual that musicals are created by a team of collaborators.  Specifically, a book writer (libretist), a composer (who writes the score), and a lyricist.    Generally, they split things equally, but where a song is used outside the context of the show, the composer and lyricist retain the rights to their songs.

It’s important to be very specific about what IS and what IS NOT shared.  For example, in the question presented, what happens to the so-called ‘performance rights income’ collected by ASCAP, BMI or other performance rights societies, when that income is derived from exhibitions of the film?    What about the soundtrack album for the film?  Does the non-musical co-writer still get a percentage of the mechanical royalties?  After all, the album wouldn’t have happened if not for the film, right?

The best advice I can offer here is to prepare a new, comprehensive collaboration agreement that properly addresses this situation.  It’s not always appropriate to just ‘re-word’ an existing contract.  The help of a knowledgeable, experienced entertainment lawyer is essential in this kind of situation, so you can make sure all bases are covered.

One other thing: Since you plan to sell the script, you’ll need to be very careful in negotiating the option/rights agreement to ensure that the songs aren’t covered by the expansive ‘all rights, any media, in perpetuity’ language.    Don’t try to do this yourself.  Even if you have an agent, this situation absolutely requires an entertainment lawyer who ‘understands’ music rights, as well as film deals.

This is intended as general information only and does not establish an attorney-client relationship. It is not a substitute for a private, independent consultation with an attorney selected to advise you after a full investigation of the facts and law relevant to your matter. We will not be responsible for readers’ detrimental reliance upon the information appearing in this feature.

DON’T MISS OUT:  For a limited time, readers of this newsletter can sign up for my FREE mini e-course:  “6 ways to finance a feature film”

With an A-list star like Brad Pitt, and a well-known and respected Director, the film seemed a sure-thing to some, so this surprising decision, made by Columbia chief Amy Pascal, has had many Hollywood insiders asking “why?”

The answers may provide valuable insight  into how studios will make greenlighting decisions in the coming months and years, as the economic climate for the entertainment industry and the world as a whole, undergoes major shifts.

The stated reason for the shelving of Moneyball is the studio-chief’s receipt of a final draft screenplay that is reportedly very different from the script she’d originally supported.     Apparently, director Soderbergh’s vision of the film had departed wildly in recent weeks from the studio-head’s.

The baseball-themed script by Oscar winner Steve Zaillian was reportedly rewritten at Soderbergh’s direction to include real-people portraying themselves,  and to eliminate material that  hadn’t happened in real-life, leaving a story that studio executives felt lacked emotion and punch.

The limited turnaround gave Soderbergh a short window of time in which to set-up the project at another studio, but with a rumored budget of $56 Million, it’ll be a hard-sell, especially if Pitt’s deal is, as reported, a $20 Million pay-or-play.  The studio could also keep the picture in development, finding another director to help the project, but the delays may cost it the projects’ A-list star.

So, what lessons can producers, writers, and directors take away from this dramatic turn of events?

• If you’re making a studio picture, don’t expect their full support when you make major revisions at the eleventh-hour.
• An A-List star and a respected director do NOT guarantee  a green light.  The script still matters!
• The Golden Rule applies:  He who has the gold, makes the rules.  Experienced financiers, whether in the studios or the independent world, won’t invest in “trust me”.  They want to see all of the key elements in place, ready to go.  They don’t like surprises.
• Ego and Hubris, contrary to popular thinking, have no place in the business side of show-business.
• Knowing when to say “no” to a project is important… even if it looks like a freight train coming right at you.

More about pay-or-play clauses and turnaround deals  in a future post.

Unfortunately for these producers, their use of the internet as a tool in identifying and securing the financing for their projects may actually serve as an impediment to their efforts, making the sometimes improbable chances of raising funds virtually impossible.

Projects financed through the use of funds contributed by investors must comply with myriad laws and regulations governing the manner in which the investment opportunity is communicated and the transaction completed. First among these laws is the 1934 Securities Act, which established the Securities Exchange Commission, and gave that agency authority to regulate the offer and sale of securities.

What is a “security”?

Generally speaking, any sale of an investment in a venture where the investor’s role is “passive”, in that he or she does not share meaningfully in the right to control the day-to-day operations of the venture, and/or does not share the risk of loss with those in control, is likely to be considered a security, subject to the rules and regulations of the SEC.

The Registration Requirement

The general rule is that every offering or sale of securities must be registered with the SEC unless there is an available exemption on which the issuer relies. Registration of securities is a time-consuming and often cost-prohibitive option for low-budget filmmakers and producers of theatrical plays and musicals.

Exemptions from Registration: Advertising not permitted.

Although there are several exemptions from registration available, those that are most commonly available to producers of entertainment arise under SEC Regulation D. Unfortunately, these exemptions are intended for private, limited offerings, rather than offers made to the general public. As such, the regulations prohibit the use of advertising in the offer and sale of the securities.

Internet postings seeking investors ARE advertisements.

Lawyers are in agreement that any communication put on the internet for the purpose of raising money via sales of securities WILL be considered an advertisement, and thus, renders the Regulation D exemptions inapplicable. Therefore, by posting in an internet forum, chat room or social networking site, producers often make things much harder for themselves.

Solutions

So, how can a producer effectively use the internet in her efforts to finance her project?

One possible solution is to work outside the securities realm. By this I don’t mean to skirt the law, but rather to ensure that the offering being made does not involve securities, but instead, an opportunity to become an “active” investor and participant in the production. Typically, this is done by posting or offering prospects the chance to review the business plan for the project, and the chance to join as a partner, co-venturer or founder of an initial incorporation for the purpose of producing the project.

This drastically limits the universe of likely financing partners, since by being “active”, the partner shares in the downside (liability) as well as the possible upside from the profitable project.

Another viable approach (if executed carefully), is to use the internet as a tool for developing and building relationships with people whom you may later approach on a personal, private basis with the investment opportunity. Care should be taken, however, that this relationship building is in fact more than merely window-dressing. The common interests of those involved must go beyond the project being financed. The internet in such situation isn’t involved in making the offer, but merely in networking with like-minded individuals.

Finally, there ARE some internet based organizations that focus on attracting “accredited” investors and building a pool or network of people interested in investing in entertainment projects. By engaging the services of such an organization, (which has a pre-existing relationship with pre-qualified investors), some producers have succeeded in securing financing.

Ultimately, however, the internet should be thought of as simply another medium for communication. It cannot be used in ways that older, more traditional communication methods would be prohibited. Before starting any campaign to raise funding for a film or theatre project, producers should consult with a qualified and experienced entertainment lawyer (like the author), as the pitfalls for noncompliance with securities regulations are onerous.

NOTE: This article addresses U.S. Law only. Securities laws vary from one country to the next, and from state-to-state within the U.S. This article is not a substitute for legal advice obtained from an experienced entertainment attorney you’ve hired to counsel and represent you.

This move, comes in the form of an RFP (request for Proposals) written without any input from the film industry, one of the city’s largest employers. Interestingly, it also comes on the heels of recent announcements regarding city incentive programs designed to keep film production here.

Hat Tip: Nikki Finke’s Deadline Hollywood Daily » Location Managers Lobby LA City Council:

(Via Variety.com – Runaway Production.)

Meanwhile, I’ve had others tell me that investors are good to go.

What’s really going on?

I think that folks looking for money from investors are operating from fear, uncertainty and doubt, and basing their expectations on the news of the economy as a whole.  But I believe that the economic outlook for the entertainment industry is a bit less dire than that for other market segments.

Entertainment has historically performed reasonably well in weak economies.  Audiences need the escape of good entertainment, and divert their discretionary spending dollars from the big-ticket expenses like overseas travel in favor of movies, sporting events, and domestic vacationing.

Meanwhile, the kinds of risk-tolerant investors who’ve traditionally financed indie films and theatre projects  are, in many cases, STILL risk tolerant.  In fact, following the second half of 2008 in which many of us saw our  more conservative, “safe”  investments in the stock markets drop precipitously, less risk-averse investors may view entertainment as a reasonably good bet, all things considered.

Ultimately, a good project will attract the money needed… it may involve tougher negotiations or more time, but I believe the funding is there for the right material.

So… go out and find the right material…

Agree?  Disagree?  Let’s have your comments.

According to this piece at the Hollywood Reporter.. YouTube is taking things a step further… allowing users to REPLACE offending music in video soundtracks with pre-cleared music….  (automatically?)

I ask you again…  does this kind of filtering do any harm to Safe Harbor protections?

Did the RIAA just WIN the battle against Fair Use, and nobody noticed?