Category Archives: Theatre law

Should School Theatre Programs Get A Free Pass?

Should School Theatre Programs Get A Free Pass?

 

Today, I read a blog post in which the author argues that production rights for plays and musicals should be licensed for free to schools that otherwise can't afford to pay.

This author, whom I respect greatly, correctly points out the value that arts education represents for schools, and makes the important point that the focus on STEM (Science, Technology, Engineering, Math), rather than STEAM (Science, Technology, Engineering, ARTS & Math) will do our students (and society) a disservice in the long run. With funding for the arts being cut at school after school, he proposes to give poorly funded school drama programs a break, calling on authors and licensing agents to waive fees for these programs.

It's certainly hard to argue against the need to preserve arts education in our public schools. It's hard to defend charging fees for the use of plays and musicals in the educational setting.

And yet I must. Here goes.

Arts education should include exploration of the business of art

Arts education is certainly important. But so, in my view, is a pragmatic education in the economic realities of art and culture in our society.

Stage with Curtain and Lights

To those educators and administrators who claim they can't afford to pay for the rights, I say this: If you're selling tickets, you've got a revenue stream. Shouldn't the authors of the show share in that? We buy or rent the sets, costumes, lights. We pay for electricity, etc. and the teachers/directors/choreographers get paid. Why should those who wrote the material waive their fees?

When you set out to construct a school building, you pay the architects and engineers for their work designing it. You pay the owners of the land on which the school is built, and you pay all of the vendors who supply the raw materials from which the building is constructed. If there's no viable way to fund all that construction, you don't build it.

In Theatre, the plays are the raw materials used to construct the learning experience. In academic classrooms, the books, lab equipment, supplies, and other learning materials come at a cost. Why should theatre be different?

Instead of looking for ways to avoid paying for the art we consume, we ought to encourage the search for ways to fund it.

We go to great lengths to see that students are given opportunities to create, perform, and display the fruits of their talents, but we pay little attention to the real-world economics of art. We need, I think, to involve students in the show-selection process, and to help them understand the costs, and that the materials they perform represent the creative efforts of bookwriters, composers, lyricists and others. These things, like most things of value and importance are not free. They are not something to which everyone is entitled. (Don't get me started on the entitlement mentality of many as regards music, film, etc.). This understanding will help them see the need for funding from multiple sources, and make them better citizens. the simple fact is, fundraising is a huge part of the theatre-making process, and the more we involve kids in that process, the better they'll understand and be able to participate in the arts throughout their lives. Isn't that what education is really about?

Royalties for plays are typically a fairly small part of the overall expense of putting on a show. (Though the author of the blog in question points to anecdotal evidence of rather high license fees for the most popular shows). In most cases licensors are mindful of budget, school size, etc. And in many cases, royalties are tied to ticket sales, so the cost stays relative.

Artists need to be able to earn from their work

Arts education is important. But it is equally important that those so educated have a chance at making a living by creating art. Without that, the arts will whither and die.

Bottom line: authors need to feed, clothe and shelter their families. They should be paid for their work. If they're not, they will be less inclined to create.

What do you think? Should schools be given a free pass on paying for stage rights?


 

How (and why) to set up a special purpose production entity for your film or show

In the fields of independent film and theatre, the use of Special Purpose Entities is very common. This article explains what these are, why they're used, and how to get started.

What is a Special Purpose Entity (or Vehicle)?

An SPE is a legal entity (usually a limited liability company of some type or, sometimes, a limited partnership) created to fulfill narrow, specific or temporary objectives. In the case of film and theatre projects, the SPE would be created to produce a single film or production.

In a common scenario, the producer of the company may have several projects in various stages of production at any given time. This producer or company would establish a single, umbrella company (a “holding company”) which would then create individual SPE's (subsidiaries, essentially) for each project. This allows projects to be developed as wholly-owned or Joint-ventures.

Why form a Special Purpose Entity?

Using a Special Purpose Entity for each project carries a number of benefits. First, it permits clarity as to administration, control, and ownership of the company. The Company's Bylaws, Operating Agreement or Limited Partnership Agreement can identify the ownership structure, voting rights, and other rights of the various owners, and afford important protections for investors and the hands-on producers as well.

Secondly, the SPE provides the structure through which to sell equity investment. Depending in the entity type, investors may purchase shares of corporate stock, limited partnership interests, or LLC membership interests.

Next, the use of the SPE allows for the separation of assets of the particular project from unrelated ones. This keeps accounting much simpler, and prevents the cross-Collateralization of revenues and expenses from multiple projects.

Finally, and possibly most importantly, the use of Special Purpose Entities affords important protection against liability. Owners of Corporations, LLCs and Limited Partnerships are protected from the company's exposure to claims, and each shareholder, member or partner (as the case may be) has his or her risk of loss limited only to the amount invested.

How to form an SPE/SPV

Determine the Entity Type

There are a number of possible entity types available, but the specifics of each, and the factors to be considered in the selection of the appropriate form are too numerous to be addressed in an article of this type. This is not a decision to be taken lightly, as it can have long-lasting and wide-ranging consequences. Seek professional advice from financial, tax and legal advisers.

Select the Jurisdiction

Where to form your company is also an important consideration. While many companies are formed in the home-state of the founders, many others opt to form in distant states to gain advantages offered there, or avoid unnecessary costs at home. Many companies elect to be organized under Delaware's law, which offers a number of provisions that favor the mangement of the company, while still protecting those who invest.

But ultimately, the size and scope of the project in question may influence this decision. Since companies will have to “qualify” as so-called “foreign” companies in all states where they do business, the cost and tax savings state-to-state may be illusory.

Prepare & File the Papers

Forming an Entity to operate as a SPE seems deceptively simple. In most jurisdictions, it's a simple matter of completing a form (often called “Articles” or “Certificate” of Organization), or preparing a document outlining a few basics, name, address, number of shares/units available, etc. But in this simplicity lie traps for the unwary. Inclusion of certain provisions can alter the application of certain “default” state-law provisions, or change the rights and obligations of officers, directors and shareholder/members.

Depending on the type of organization and the jurisdiction, there may be other governing documents that need to be filed with the government.

Draft governing Documents

Next, the company will need a set of Bylaws or an Operating Agreement to set forth the specifics of how the company will operate, be managed, and financed. While default rules might be suitable for your business, it's likely that variations will be desirable.

Once the company is formed, it becomes a separate “person” in the eyes of the government, particularly for tax purposes. The company will need to obtain a tax-identification number, and make certain tax-elections that will influence how the business will pay its taxes, as well as how (and when) the owners will be realize their share(s) of company profits and losses.

Still another consideration is whether the company, if held by a very small number of stakeholders, will be subject to any voting agreements, or a buy-sell agreement governing how, when, and to whom an owner may sell his or her interest in the company.

Obviously, custom-tailored professional advice is called for in making these determinations. It is unwise and risky to rely on hearsay, popular belief, and out-of-context research in deciding on such matters.

When to form an SPV

Ideally, the SPV should exist before any assets are acquired, liabilities incurred, or investment accepted. In practice, this is quite difficult to achieve, but it certainly makes sense to form the entity before taking in investors' funds. Assets can be transferred into the company by the founders (often called “promoters”), and liabilities can be addressed through insurance policies and indemnity agreements. But with only a few exceptions, investments must be made in an existing company.

Should I use an online filing bureau to start my SPV?

“Would you stick your head in a machine that promises to give you a perfect haircut?”

Well, maybe if your head was the exact same size and shape as everyone else… and your hair is the same texture, length, moisture content, and so on, and you want the same basic haircut as everyone else who uses this machine gets.. then yes, you might. But, you know that you're not exactly like every other person who comes along… so you're going to go to a professional. A trained hairstylist who can take a look at you, help you figure out what kind of cut is best, and then do it so you look great.

Well, your business isn't the same as every other one. Heck, one SPV will vary in some ways from the next. You really need more than a plain-vanilla set up. Especially because you're going to be conducting a round of financing to fund your project, right? So the “standard” operating agreement isn't going to cover the bases properly.

And, let's face it, producing films, plays and musicals is not like making widgets.. A cookie-cutter approach to setting up the company is not the way to go.

A bad haircut will grow out if it's messed up. A badly structured company will be around a lot longer, and give you a whole lot more grief.

You want the people that are helping you with the production to be tuned in to the company structure and financing setup… So they should be the ones putting together the SPE as well. It'll save you time, hassle and money. Plus, there is the added advantage of one-stop shopping, so you have one less thing to juggle.

Conclusion

So, if you are financing a film, play, musical or other media project by taking in investment, loans or Presales, setting up a Special Purpose Entity is just the first step on the road to getting things up and running. Consult your lawyer about what type of entity is best for your next project.

 

Is Equity Crowdfunding a game changer?

Is Equity Crowdfunding a Game Changer?

Equity Crowdfunding is finally a reality. Almost.

In a long-awaited move, on October 30, 2015 the Securities Exchange Commission (SEC) finally adopted a set of rules mandated by the 2012 JOBS act. These rules are designed to facilitate small businesses with capital formation through the use of a crowdfunding approach to sell securities. The rules are designed also to provide investors with additional protections.

The new rules are slated to go into effect around May1, 2016.

What Equity Crowdfunding is.

Crowdfunding is an evolving method of raising capital that has been used to raise funds through the internet for a wide variety of projects, including quite a few arts, media, and entertainment productions. Historically, these fundraising activities operated either under nonprofit donation-based models, or gift-based transactions, with the funders contributing without any expectation of seeing anything substantial in return.

Title III of the JOBS Act created a federal exemption under the Securities Law to allow companies to offer and sell securities through crowdfunding portals.

Under the new rules, individuals can invest in securities-based crowdfunding transactions, up to certain limits on investment. The limits are tied mostly to the investor's financial position. There are also limits on the amounts that can be raised using the new system and some fairly broad disclosure requirements on companies selling such securities. Finally the rules establish, a regulatory framework for the establishment of funding portals and broker-dealers involved in the transactions.

How does Equity Crowdfunding work?

Unfortunately, this new crowdfunding mechanism isn't likely to be a real game-changer for entertainment productions with budgets over about $1 MIllion. That's the annual limit on crowdfunding. Investors are also limited by how much they can invest through crowdfunding ($100,000 in the aggregate). For investors with a net worth or annual income of $100,000 or less, they can invest up to $2,000 or 5% of net worth / annual income (whichever is less). For investors having more financial resources (and presumably acumen), the limit is 10%.

So, crowdfunding isn't for big projects or big investors. It's intended for small offerings looking to large numbers of regular people who'd like to invest in and support them.

Will it work for you?

Like any crowdfunding project (equity or otherwise), much depends on the company's ability to reach a very large number of prospective backers, and convince them that the project is worthy of their support.

So, if you've got a small project (maybe a developmental production of a play, or a micro-budget film) and you've got a big email or social-media list of friends, fans, and supporters, equity crowdfunding might be worth a try. For larger projects, crowdfunding might be a useful tool in raising initial “seed” capital (“front money”) from a small handful of backers. Time will tell.

Beyond that, however, I think most independent films and theatre projects over $1,000,000 will still need to raise capital under the prior approaches of the “private offering” exemptions under Regulation D, Rule 506, and/or Regulation A.

So, for now, I'm not all that excited. When the new rules go into effect, and have been tested a bit, maybe I'll change my tune. Meanwhile, I wouldn't counsel anyone to wait for the new rules to go into effect. If you've got a project you're developing and financing, plan to fund it through the more traditional channels. Equity Crowdfunding isn't going to be a big game changer.

Transitioning from Kickstarting to Company Starting

The differences between contribution crowdfunding and equity funding Sites like Kickstarter and Indiegogo have been enormously successful in popularizing the new trend in fundraising, crowdfunding. As of the writing of this post, Kickstarter boasts nearly 11 million pledges on over 100,000 different projects. For those looking to create an independent film, theater production, video game,… Continue Reading

Entertainment Industry Insights Podcast #004: Nat Mundel

Entertainment Industry Insights Podcast #004: Nat Mundel

 Entertainment Industry Insights Podcast Episode 4:  Nat Mundel In this episode of Entertainment Industry Insights, I speak with Nat Mundel, Founder of Voyage Media, and Co-Founder of TODpix.Mr. Mundel’s vision is to streamline and democratize the entertainment industry by creating new business models, services and tools that help filmmakers more effectively develop, produce and distribute their… Continue Reading

Seeking investors for your film project?  Things just got a little easier (almost).

Seeking investors for your film project? Things just got a little easier (almost).

SEC Adopts Rules implementing [some] provisions of the JOBS Act of 2012 If you’re planning to finance your film, play, musical or other project by seeking investors, things may have just gotten a little bit easier for you. A few days ago, on July 10th, the Securities Exchange Commission finally took a long-awaited step toward… Continue Reading

4 reasons why receiving Producer Credit may not be all it’s cracked up to be.

4 reasons why receiving Producer Credit may not be all it’s cracked up to be. It’s a common practice in the entertainment industry. Producers operating on shoestring budgets will, in an effort to secure the property and/or services of talented individuals, ofer them some kind of producer credit in lieu of the usual compensation those… Continue Reading

Entertainment Industry Insights Podcast: Ken Davenport

 Entertainment Industry Insights Podcast Episode 3:  Ken Davenport    In this episode of Entertainment Industry Insights, I speak with Broadway Producer  Ken Davenport. Ken Davenport is a Broadway producer whose credits include Macbeth, Kinky Boots, Godspell, Chinglish, Oleanna starring Bill Pullman and Julia Stiles, Speed-the-Plow, Will Ferrell’s You’re Welcome America, Blithe Spirit starring Angela Lansbury,… Continue Reading

Jersey Boys’ use of Ed Sullivan Clip is fair use

Jersey Boys’ use of Ed Sullivan Clip is fair use Last week, in an interesting (and rare) theatre law case,  the 9th Circuit Court of Appeals affirmed a district court’s judgment in favor of the company producing the Broadway hit musical  Jersey Boys.  SOFA Entertainment, Inc., owner of the Ed Sullivan Show footage had sued… Continue Reading

The Royalty Pool

What is the Royalty Pool? Correction:  ( a typographic error in the mathematics has been corrected below since the original publication of this article) One of the most confusing terms in theatrical production agreements is the discussion of the “Royalty Pool”. This provision in most Broadway and Off-Broadway production contracts, and increasingly in other commercial… Continue Reading

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