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Show Business

The unreasonable expansion of the Right of First Refusal Clause in entertainment contracts.

The unreasonable expansion of the Right of First Refusal Clause in entertainment contracts.

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The unreasonable expansion of the Right of First Refusal Clause in entertainment contracts.Get Your Head around the movie biz

After practicing entertainment law for nearly 25 years, I've noticed a disconcerting trend in deals with major studios and networks. That trend is toward expanding the scope of a Right of First Refusal and First Negotiation clause(s) in such a way as to unreasonably encumber things, even after the studio or network has “passed” on a project.

What is a Right of First Refusal?

A Right of first refusal (ROFR or RFR) is a contractual right that gives its holder the option to enter a business transaction with the owner of something, according to specified terms, before the owner is entitled to enter into that transaction with a third party.

What is Right of First Negotiation?

Sometimes called a “Right of First Offer”,  a Right of First Negotiation  means that the  owner must undergo exclusive good faith negotiations with the network or studio before negotiating with other parties.

So, for example, when selling rights for a screen adaptation of a novel, the author of the book might wish to reserve rights for audiobooks, an author-written sequel, or a stage adaptation. Often, studios will grant such reservations of rights, but insist on a Right of First Refusal or First Negotiation.

Under such a clause, before selling or licensing a reserved right a third party, the author would be required to first offer the right to the studio. Then, if the studio doesn't accept the proposed terms, the author is free to sell to (or negotiate with, as the case may be) others.

But, over the past few decades, studios and networks have apparently decided that Rights of First Negotiation and First Refusal aren't sufficient to secure their stranglehold on content. As a result, they have increasingly insisted on also including similar, but more onerous Right of Last Refusal clauses.

What is a Right of Last Refusal?

A right of last refusal gives one party to a contract the right to accept any bona fide offer made by a third party for some right.

So, in the aforementioned example, the book author might decide she'd like to see a stage play of her novel. Because of the Right of First Negotiation, she is obliged first to approach the film studio, and to negotiate for a period of time. Then, if that time, expires and the parties haven't reached any agreement, she's free to offer the stage rights to others. But  with the Last Refusal in place, after negotiating a stage rights deal with a Broadway producer, our book author must first go back to the film studio, and allow them to match the terms.

How a Right of Last Refusal unreasonably encumbers a property.

Such Rights of Last Refusal are an unreasonable encumbrance on creators' property rights. They effectively, deny the holder of reserved rights any meaningful opportunity to exercise those rights,  and that renders the reservation of rights essentially void. As you might imagine, it can be difficult for a rights holder to interest any third party in a property, if that party knows that, after lengthy negotiations, the best deal to be struck can simply be matched by the film studio. As a consequence, the studio (or network) effectively holds a free, perpetual option to acquire the reserved rights. In my view, this is patently unfair, and should be avoided.

Of course, if the financial terms justify such an encumbrance, then so be it, but parties should understand the consequences of the provisions to which they agree.

When negotiating contracts with reservations of rights, it is of utmost importance that rights holders resist the use of clauses granting rights of last refusal.  Unfortunately, the only way to accomplish may involve saying “no” to an otherwise attractive deal.

5 people every producer needs to have on the team.

5 people every producer needs to have on the team.

Producing films is exciting, rewarding, and sometimes very frustrating work. Saavy film producers know that the job isn’t a solitary one. They can’t do everything themselves, even in the earliest days of a project. Smart producers assemble a team to support them, and then concentrate their efforts on the most important tasks, the ones that only they can perform. Some of these folks will be on the team permanentlyHere’s a list (in no particular order) of the folks every producer needs on his or her team:

Producing Partner

It’s no mystery why so few films are produced by an individual producer. It’s hard work, and it’s a little like juggling, keeping dozens of balls in the air.

No producer can keep up with it all on his or her own. Bringing on a partner, or two, or three, helps spread not just the workload, but also the risk. It’s also a wise move because those extra sets of eyes and ears can help to shape the creative and business direction the project takes. It’s too easy when going it alone to get so attached to the material, or to particular goals that we lose sight of the “big picture” (pun intended). A diversified producing team can dramatically improve the quality of the finished product. But, care should be taken that someone remains in the lead position. Creativity by committee can also be a pitfall.

Assistant

Every producer needs an assistant. There are some tasks that we shouldn’t perform for ourselves. Is picking up supplies for the office, or taking out the trash really the best use of your time? Are you really being productive when you’re scheduling your own meetings, fielding calls from vendors who just need a billing address, and opening the masses of mail that come into any business?

In business, there’s a principle that every task should be performed by the lowest-cost person who is competent to do it. Even if you don’t have a staff of lower paid employees, you can still implement this. Virtual Assistants are readily accessible. Just as there are gardeners who will mow your lawn weekly, and housekeepers who’ll clean house for you,, there are virtual butlers, personal chefs, errand-running services, and more. Virtually any task under the sun can be outsourced, and it’s surprisingly inexpensive.

Bookkeeper and Accountant

I’m a firm believer that financial management is a job in and of itself. And, unless you just LOVE looking at balance sheets, expense journals, etc., you shouldn’t be doing this stuff yourself. Bookkeeping can consume inordinate amounts of time, and distract from the higher-level tasks that a producer should be attending to.

Bookkeepers can be hired on the freelance market. they’ll come to your office once a week (or more often), do the data entry, and balance things, so you know at a glance where the project finances stand.

It also makes sense to have an accountant available to help with quarterly reporting, payroll, taxes and long range planning. Find someone whose advice you can trust, and spend the time to bring them “on-board” with your goals and intentions. The better your team understands the context of things, the better they’ll be able to help you achieve your goals.

You may want to consider hiring a business manager. Essentially, a business manager is a financial professional who will handle your accounting matters on a percentage-based fee, instead of hourly. Most business managers take on a broader role than that of a “regular” accountant. Often they are given authority to manage investment accounts, receive and make payments, etc. Obviously, this is a position of extreme trust, so caution should be taken to interview and vet prospective business managers carefully.

Development coordinator.

If you have a personal assistant, you may be able to off-load some of the development work (such as pre-screening scripts) to him or her, but a more experienced development person can help identify the ideal projects to take into development, and manage that process by identifying writers, recommending talent attachments, and maintaining a generalized “situational awareness” of the business. These people move up the food chain quickly, so this is an opportunity to train your future co production partners and develop lasting relationships.

Casting Director

Obviously, strong relationships with the casting community can be invaluable as you package your projects, seek financing, etc.

Sales Agent

A lawyer I met at a film festival a few years ago laid this quote on me, and though it’s crude, it’s true:

“Making movies that don’t get distributed is a little bit like masturbation. After you’re done, nobody but you remembers.”

the point, I think, is that making movies is nice. It’s fun, it’s artistically satisfying. But unless audiences get to see it, that satsifaction is short-lived.

Getting your film into distribution is how you get audiences to see it. But the sales process shouldn’t wait until the film is in the can. I think it should start at the development phase.

Having a strong sales agent (or a few strong sales agents) on your team can help you determine what will appeal to audiences in two-, three- or four-years’ time, when your film comes out. they’ll help you select scripts, creative team, and casting. If you ask.

Entertainment Lawyer

If you’re going to be doing business in entertainment, you’re going to need a lawyer who understands the business you’re in. This is just as true for someone who’s just getting started, when your lawyer will guide you in your dealings, as for a longer-established and experienced industry “player” with bigger, more complex deals that involve real legal heavy-lifting.

We entertainment lawyers are in the trenches of this industry every day. As a result, we see many more deals, in all of their flavors and varieties than even the busiest, most seasoned producers. This gives us an intimate knowledge of what’s going on in the business. We are aware of how deals are changing, structures evolving, and long-established norms being abandoned.

More importantly, your entertainment attorney is your sworn protector. Our oath as attorneys is to put our clients’ interests above our own; to advocate with the utmost zeal on behalf of our clients, and notwithstanding the multitude of lawyer-jokes suggesting otherwise, to approach our work with the utmost of integrity and ethics. Your entertainment lawyer should be someone you have on speed-dial, ready to call at the first sign of a new deal, or of trouble brewing.

We can help you analyze and evaluate almost any situation. We’ll help identify the benefits, and the potential pitfalls. We will strategize, plan, and implement, all with an eye toward advancing your interests.

It’s true, lawyers can be expensive. Especially when you’re paying by the hour. But many of us offer flexible fee arrangements. Ask about percentage fees, Monthly retainers, blended hourly/percentage structures, and other approaches that can help make legal expense predictable. And let’s not forget, legal expenses are tax-deductible.

Conclusion

Whether you’re new to the business or well-established; an actor, director or writer crossing over into the producing realm, or a true, creative, dyed-in-the-wool producer, having a capable, competent and professional team in place will support what you’re doing and increase your success.

 

 

Cheating people shouldn’t be the way you succeed.

As you know, I am sometimes led to rant a bit about the state of the entertainment business, or more particularly, the mental state(s) of some of the people IN the industry.

Rant of the month

In recent weeks, I've been asked to negotiate deals for a handful of relatively new artists, and I've been disheartened by what seems to have become the norm for deals with these kinds of folks.

They're getting screwed, and everybody knows it.

It's one thing to get a low-ball offer from an independent producer. This isn't news. It's been happening for decades. In my representation of indies, I've drafted enough of these offers to know. But usually, the low-ball front-end of the deal was offset by fair and reasonable terms later in the development and production cycle, and of course on the back-end. So, where a first-time screenwriter might have given a producer a free option for a year or two, the renewal payments and purchase price would, generally, be fair, and if the writer were expected to prepare rewrites, there'd be some reasonable compensation for that work at some point in the deal.

The up-and-coming talent was being asked to share some of the risk that the project would fail to receive funding, or founder for some other reason, but they'd get to share in the up-side if the project got made. Fair? Reasonable? Probably.

Well, apparently those days are gone.

Just because you can take advantage doesn't mean you should.

It seems that some producers and financiers have decided that, simply because they can get away with offering lousy deal terms from beginning to end, they should.

“Business is Business”, they say.

“Bull!” I say.

Taking advantage of people is not good business. Ultimately, in fact, it is the opposite, since it sets up the project on a foundation of intimidation and distrust. And that is bad for the quality of the work.

Moreover, paying creatives too little leads them to deliver poor-quality work. It's a fact. They want to do great work; make great art, but if a writer can't pay his rent on the option money, he's got to go to a day-job to make ends meet. That leaves his “off-hours” for the writing. When a writer is tired, frustrated, and burnt-out from a day (or night) at work waiting tables, tending bar, driving a cab, or whatever, do you really think the written material he creates is going to be his best?

The same is true across all of the entertainment trades. Directors, Editors, Composers, Actors all need to earn a decent, living wage from the work they do, so they can remain focused on that work. Isn't that focus an essential ingredient in producing good material?

Appropriate Pay is good for the business.

Paying people a fair and reasonable price for their property, or fee for their services, on the other hand, sets everything up to go forward in a way that satisfies both the artistic and the business needs of the project. Happy people do better work.

Besides, if you can't afford the raw materials, the labor, etc., isn't that a sign that you're either not serious about the project in the first place, or you don't have the funds needed to do it right?

It's time for us all to draw the line. No more bottom feeders. Who's with me?

 

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