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Ginuwine Concerns for Management Contracts

[We proudly offer a guest post authored by esteemed colleague and articling student Ben Iscoe, with an assist from yours truly. I’m proud to say that I actually knew Ginuwine’s real first name before I read this article.]

Elgin Baylor Lumpkin (the performing artist better known as “Ginuwine”) is being sued by his former manager.  For those familiar with the R&B star, one could make the (terrible) pun that he is being asked to “Pony” up dough for outstanding royalties.[1]  But how did this lawsuit come about?  It is unlikely that Ginuwine and his manager entered into their artist/manager relationship with the expectation that it would culminate in litigation.  What went wrong?  Could Ginuwine have done anything differently to avoid this costly and time consuming ordeal?

Musicians, generally speaking, are not business people; they are musicians.  Elvis, “The King”, may be one of the most iconic musicians of all time, but behind the scenes Colonel Tom Parker was managing his way (in the extreme case) to half of The King’s earnings.  Was this a good deal for the King?  The answer depends on one’s point of view.   Elvis himself said “I don’t think I’d have ever been very big if it wasn’t for [Parker]” reminding one of the adage “50% of something is better than 100% of nothing.”

So how does an artist know if they are entering into a favourable, or even equitable, manager/performer relationship?  How do future Ginuwines minimize their risk of litigation or more generally, entering into an unfair agreement?  Artists spend their time composing that addicting hook coming out of the bridge; Business 101 is likely on the backburner.

Below are general guidelines for artists when contemplating whether to enter into a management agreement.  This list is not exhaustive, but merely meant to be a helpful tool and should not be interpreted as a substitute for obtaining legal advice.

1. Defining Expectations

Almost all artists will say that they want their manager to help them grow/make a livelihood performing their art.  What does this mean?  Vague terminology is a recipe for future tension.  For instance, does the artist want to handle their own merchandise or have the manager handle this?[2]  Does the artist want to plan their own tours and just have their manager shop their album?  It is impossible to include every detail, but artists should be as specific as possible to ensure that all parties are of the same understanding.  It is better to disagree on specifics up front (when there is little or no commitment) as opposed to when the relationship is long established.

2. Duration

How long do you want the artist/manager relationship to last?  It is probably advantageous for the artist to enter into a short term contract, and then renew if the manager is delivering to the artist’s satisfaction.  However, if the artist is unknown, it is unlikely that much income will be generated in the first couple of years.  Therefore, the manager will want a longer contract as they would find it unjust (and a horrendous commercial practice) to allow another manager to reap the fruits of their labour (i.e. they spend the first couple of years helping the artist establish themselves only to have another manager start collecting 20% once the artist begins generating significant revenue).

This is an area where the artist, especially an unknown artist, will have to give the manager some slack.  Whatever the case, specify a period of time.

3. Exclusivity

Does the artist expect to be the manager’s sole client?  If so, it is important to specify.  For an unknown artist, this is an unrealistic ask.  As mentioned above, it will likely be a while until an unknown artist will start to generate significant revenue.  Asking a manager to rely on a percentage of a minimal (or perhaps non-existent) income for any period of time is unreasonable.

4. Territory

Where does the manager have connections?  Are they a mover and shaker locally, but not nationally?  Perhaps they have every domestic record exec on speed dial, but have no international connections.  In a smaller market, Canada being a prime example, artists may have interests in growing outside their national borders (i.e. in the US).  In such a situation, the artist may want to be mindful to specify what areas are covered by the management agreement?  For instance, emphasize that one manager will be the artist’s exclusive representative in Canada, but not the US.

Keep in mind, people respond to incentives.  If an artist wants to penetrate the US market and their manager will not generate any revenue from the artist’s activity there, why would the manager make any efforts south of the border?  Carving up territories should be used if the artist believes that they can establish themselves in a specified market without the manager’s assistance.  This may be accomplished by either (a) the artist’s own connections to the market; or (b) another manager who will have exclusive responsibility to that other market (i.e. the artist will have multiple managers to cover multiple markets).

5. Expenses

As mentioned above (and to be reiterated throughout), a manager is unlikely to be making much money off of the artist in the artist’s early days.  Despite this lack of revenue, the manager may need to spend money to assist the artist’s career.  If the manager is going to survey a venue, s/he will need to drive to the venue and park; who should pay for their gas and parking?  If the artist is hoping to have their manager arrange a tour, the manager will likely need to call a plethora of out of town venues; who should pay for their long distance calls?

These trivial sounding expenses may rapidly culminate in a bill the artist is ill equipped to pay.  At the start of the relationship the artist and the manager should specify what expenses the artist will cover.  It is not feasible to cover all possible scenarios, but a management agreement should attempt to cover general categories (like those identified above) to avoid future disagreements.  The artist may also consider creating caps for certain categories.  For example, in a given month, if long distance costs exceed ‘x’ dollars, then additional permission from the artist is required.  It is important to consider how much discretion or oversight the parties want built into the relationship.

Whatever your arrangement, it is crucial that any expenses require receipts.

6. Compensation

The days of Colonel Parker and managers receiving 50% are over.  Seemingly, a manager’s commission floats between 15-20% of the artist’s gross income.  This may seem significant, but in the early stages of the artists career 20% of nothing is still nothing.  This number may only lead to significant income for the manager once the artist has made it big, and there is likely a direct correlation between the rise in the manager’s income and the value the manager has added to the artist’s career.

There is no reason for a manager to receive any payments upfront.  A manager’s revenue should derive from the fruits of their labour, not an artist’s vain desire to say “I have a manager.”  Artists should be mindful of indirect attempts for managers to elicit money up front.  For example, artists should be wary of the manager who has a financial interest in the studio where (a) s/he wants the artist to record their next album; or (b) have promotional photography done.  That is not to say that these facilities should never be used, but rather that artists should be cautious to ensure that the rates at which they are being charged remain competitive with the industry norm.  If in doubt, artists may be wise to use other facilities (and see if their manager maintains their interest in representation).

Compensation should also specify for what activities the manager should collect a commission.  What about merchandise?  What if the artist begins writing with or producing for other artists?  What if the artist gets into acting?  What about the artist’s pre-existing revenue streams (e.g. endorsement deals)?  Or as in the case of Ginuwine, how should royalties be determined?

7. Option/Exiting

A management agreement will likely contain a provision that allows a manager to extend the relationship.  Such a provision is somewhat standard, but the nature of the option to extend must be clearly defined.  The option should specify (a) how often the option may be extended; and (b) for how long the relationship may be extended with each option.

Conversely, the management agreement should state how either party may exit the relationship.  The desire to exit the relationship may be difficult to visualize at the time of formation; at this time the manager and the artist should be enthusiastic about one another (if not why enter such a trusting relationship).  The terms of the agreement should address what happens when this relationship is no longer harmonious, more specifically what are each parties’ obligations when either party wants to end the relationship.

What compensation will the manager be entitled to once the artist/manager relationship has concluded?  The manager will argue that a portion of the artist’s revenue received after the artist and manager have parted ways derives from the labour of the manager (e.g. the manager secured the recording contract that continues after the conclusion of the artist/manager agreement).  Consequently, the artist and manager should consider sunset provisions.  These provisions entitle the manager to a certain declining percentage of the artist’s revenue in the years following the conclusion of the contract (e.g. 15% for the first year after the conclusion of the contract; 10% in the 2nd year; 5% in the 3rd year; and no compensation going forward).

8. Power of Attorney

Does the artist want the manager to be able to sign on their behalf, or only after checking with the artist first?  Can the manager sign on the artist’s behalf when it comes to certain contracts, but not others?  Include in any management agreement a power of attorney that clearly demonstrates under what circumstances the manager may sign on the artist’s behalf.  For logistical reasons, this type of provision may prove helpful; sending an email to a manager to give them permission to sign a document on the artist’s behalf could save valuable time and money.



[1] For those unfamiliar with the R&B Star, 1996’s “Pony” was the name of arguably Ginuwine’s most well-known single.

Ginuwine Concerns for Management Contracts

Canada’s Anti-Spam Law – New Guidance on Offering Apps, Software

Canada’s Anti-Spam Law (CASL) targets more than just email and text messages 

CASL also prohibits installing a “computer program” – including an app, widget, software, or other executable data – on a computer system (e.g. computer, device) unless the program is installed with consent and complies with disclosure requirements.  The provisions in CASL related to the installation of computer programs will come into force on January 15, 2015.

Application outside Canada

Like CASL’s email and text message provisions, the Act’s “computer program” installation provisions apply to persons outside Canada.  A person contravenes the computer program provisions if the computer system (computer, device) is located in Canada at the relevant time (or if the person is in Canada or is acting under the direction of a person in Canada).

Penalties

The maximum penalty under CASL is $10 million for a violation of the Act by a corporation.  In certain circumstances, a person may enter into an “undertaking” to avoid a Notice of Violation.  Moreover, a private right of action is available to individuals as of July 1, 2017.

CASL’s broad scope leads to fundamental questions – how does it apply?

The broad legal terms “computer program”, “computer system” “install or cause to be installed” have raised many fundamental questions with industry stakeholders.  The CRTC – the Canadian authority charged with administering this new regime – seems to have gotten the message.  The first part of the CRTC’s response to FAQ #1 in its interpretation document CASL Requirements for Installing Computer Programs is “First off, don’t panic”.

New CRTC Guidance 

The CRTC has clarified some, but not all of the questions that industry stakeholders have raised.  CRTC Guidance does clarify the following.

  • Self-installed software is not covered under CASL.  CASL does not apply to owners or authorized users who are installing software on their own computer systems – for example, personal devices such as computers, mobile devices or tablets.
  • CASL does not apply to “offline installations“, for example, where a person installs a CD or DVD that is purchased at a store.
  • Where consent is required, it may be obtained from an employee (in an employment context); from the lessee of a computer (in a lease context); or from an individual (e.g. in a family context) where that individual has the “sole use” of the computer.
  • An “update or upgrade” – which benefits from blanket consent in certain cases under CASL – is “generally a replacement of software with a newer or better version”, or a version change.
  • Grandfathering – if a program (software, app, etc.) was installed on a person’s computer system before January 15, 2015, then you have implied consent until January 15, 2018 – unless the person opts out of future updates or upgrades.

Who is liable?

CRTC staff have clarified that as between the software developer and the software vendor (the “platform”), both may be liable under CASL.  To determine liability, the CRTC proposes to examine the following factors, on a case-by-case basis:

  • was their action a necessary cause leading to the installation?
  • was their action reasonably proximate to the installation?
  • was their action sufficiently important toward the end result of causing the installation of the computer program?

CRTC and Industry Canada staff have indicated that they will be publishing additional FAQs, in response to ongoing industry stakeholder questions.

See:  fightspam.gc.ca  and consider signing up for information updates through the site.

 

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Canada’s Anti-Spam Law – New Guidance on Offering Apps, Software

Leuthold v CBC: “Industry Practice” in Interpreting Contracts

When, if ever, can “industry practice” be used in interpreting contracts? That question is of particular relevance in the entertainment industries, as each facet of those industries (such as film, TV, music, book publishing, videogames, etc.) has their own jargon, standards and conventions, some of which are, if not contradictory, at least not obviously compatible (as an example, the term “publishing” has very different connotations as between the “worlds” of music, book publishing and film). If the parties to a contract come to the contract from different “worlds”, and they have different understandings of what a term in a contract means, whose understanding should prevail?

A couple of years ago, in a post entitled Leuthold v CBC: Damages for Copyright Infringement, I noted the Federal Court decision in Leuthold v CBC (2012 FC 748). As the title of that post indicated, the post focused on how the court in that case calculated the damages payable for copyright infringement when the CBC made unauthorized use of photographs in a documentary. I wrote at the time that the “decision goes into great detail about the various negotiations and conflicting understandings of the parties – potentially interesting in their own right but of limited application beyond the bounds of these particular disputants.” I think I got that wrong, and I’d like to re-visit the case now with particular reference to the issue of industry standards. A couple of weeks ago the Federal Court of Appeal released its decision in the appeal of the matter (2014 FCA 173) (spoiler alert: the CBC won again), and in reading the decision of the appeals court, I was struck by the fact that a portion of the decision seems to turn in large part on how to handle “industry practice” when interpreting contracts.

To refresh our memories, here are the relevant facts in the case (taken from the 2012 post):

The CBC commissioned a documentary entitled As the Towers Fell, about the September 11, 2001 terrorist attacks on New York City’s World Trade Center. Four different versions of the documentary were aired multiple times on the CBC main network and on the CBC Newsworld channel (since re-branded as CBC News Network). In most of the versions which were aired, still photographs which had been taken by and which were owned by the plaintiff appeared on-screen for a total of 18 seconds. Efforts had been made by CBC employees to “clear” (i.e., obtain permission to use) the photographs in the documentary – which is where the dispute arose.  The plaintiff originally faxed a short letter indicating authorization to use the photos – but the parties disagreed on the scope of the authorization and whether any conditions attached to it.  Eventually, following further discussions between the plaintiff and various CBC representatives, a license agreement was signed by the plaintiff.  Critically, the documentary had been broadcast on a number of occasions throughout the discussion/negotiation process (including at least one broadcast which occurred before the first faxed authorization had been received from the plaintiff).  Of relevance to the plaintiff’s position, the broadcasts took place on both the CBC main network and the Newsworld channel and was broadcast in all Canadian time zones, at the applicable local time, directly by the CBC or through affiliated stations.

Thus far, here is the nub of the case: a photographer gave authorization to the CBC to make use of her photographs in a documentary – but when the CBC broadcast the documentary on its “main” network and also on the CBC”s “Newsworld” channel, they did so in a way which did not accord with the photographer’s understanding of the scope of authorization she had given. Here is the relevant language of the license agreement:

[Plaintiff] hereby grants to CBC the non-exclusive and limited right to incorporate the Stills in the Production. CBC shall have the right (but not the obligation) to broadcast the Stills on Canadian television for one broadcast on CBC’s Network & Regional TV stations. [emphasis added]

The evidence at trial indicated that the plaintiff/photographer did not know about CBC’s Newsworld channel, and did not think that her license entitled the CBC to broadcast the documentary (containing her photographs) on the Newsworld channel. The CBC, by contrast, did think that the words “CBC’s Network & Regional TV stations” included both the CBC’s “main” channel and the Newsworld channel. How to resolve this disconnect?

The trial court decided in favour of the CBC, and provided the following reasons:

  1. “when clearing rights, the CBC always included Newsworld”
  2. the plaintiff’s expert evidence (to the effect that for purposes of the CRTC’s regulatory regime, Newsworld was indeed a separate “network” from the CBC’s main channel) was irrelevant because it spoke to regulatory matters, not copyright matters
  3. “industry usage clearly favors the defendants” and “in considering what is commercially sensible, the Court cannot accept Miss Leuthold’s interpretation whereby the CBC would have agreed to terms that ran against their normal usage, that is to exclude Newsworld and affiliated stations”
  4. the contra proferentum rule of contractual interpretation (roughly, that ambiguous wording in a contract should be construed against the party that drafted it) did not apply because there was no need to apply it

Taken together, those four points really distill down to two points – we can discard 2 and 4 because they are negative arguments for not accepting the plaintiff’s position, not positive arguments for why we should accept the defendant’s position. Points 1 and 3 really boil down to something which is quite a bit different than “industry practice”: instead, 1 and 3 are effectively “the CBC normally conducts itself in a certain way, and how the CBC ‘normally’ conducts its business should be determinative when there is a dispute between CBC and another party over how to interpret the CBC’s contracts”. Really, “industry practice” in this decision meant “CBC practice” (although the court used the phrase “industry usage” in point 3, the court did not identify any producer or broadcaster other than the CBC who made use of language in a similar fashion).

The Court of Appeal affirmed the decision of the trial judge, but not because the trial judge was correct on this point: rather, the Court of Appeal declined to overturn the lower court’s conclusion because it was not a “palpable and overriding error” – rather, the trial judge’s decision, even if wrong, was “reasonably open to him” based on the evidence before him.

If we are to take the Leuthold decision at face value, then, it’s not necessarily the practice of the “industry” which can be determinative in a contract dispute, but rather the past practices of one of the contracting parties which can be determinative. In Leuthold, because the CBC was of the view that the phrase “CBC’s Network & Regional TV stations” included the CBC main network plus Newsworld, and because, in other situations, the CBC had always taken pains to “clear” materials for use on both the CBC main network and Newsworld (though it had not done so here) that was sufficient – irrespective of what the other party to the contract thought she was agreeing to and irrespective of the fact that the point was clearly an open one given the ambiguity of the contract’s wording.

So what is the importance of all of this? It means that it is much riskier to enter into short-form contracts in the entertainment industries which contain “terms of art” or terms which carry some kind of “industry accepted” meaning. It is critical that terms in contracts either be defined with specificity or, failing that, be illustrated with examples; failure to do so could mean that one party to the contract will be subject to the greater contractual interpretational “weight” accorded to the practices of the “institutional” party. Here’s an example: a film producer and a distributor enter into a distribution agreement under which the producer grants the distributor the exclusive right to distribute the producer’s file “by means of home video and the internet”. The producer thinks that means  that the producer has retained the rights to exploit the film by means of, for example, digital downloads on iTunes and by means of streaming via Netflix. The distributor thinks otherwise. Who wins in a dispute? On the basis of Leuthold, it seems that the controlling factor may be what the distributor has done in the past – has the distributor historically conducted its business such that in contracts with that wording (or similar wording!) it has exploited the films on iTunes and Netflix? That might be all that is required – it doesn’t appear that anything more than that decided the point in Leuthold.

In short: resist short-hand in contract drafting; insist on specificity when describing the scope of rights which have been granted; avoid ambiguity or assurances that “everyone knows what this means”; otherwise, contracting parties may find themselves giving up much more than they (thought they) bargained for.

Leuthold v CBC: “Industry Practice” in Interpreting Contracts

How Many Pieces of Flair Do You Have? Obtaining Merchandising Rights from Actors

A recent decision from the US federal courts offers a timely reminder of the importance for producers of specifically spelling out that they are obtaining “merchandising” rights from all actors performing in their film or TV project – including from their “non-star” cast.

Eriq Gardner, reporting at THR, Esq. (‘Office Space’ Actor Loses Lawsuit Over ‘Flair’), describes the factual background to the recent decision in Duffey v Twentieth Century Fox Film Corporation (the full decision is available here):

Todd Duffey, who portrayed the minor character of “Chotchkie’s Waiter” in Office Space, sued 20th Century Fox Film over a licensing deal that ushered in an odd piece of merchandise — a box set called the Office Space Box of Flair, which included a 32-page book and 15 “flair” buttons. … Duffey was upset that the company … had used his face on both the book’s cover and one of the buttons.

 


Though he occupies relatively little screen time in it, fans of the movie Office Space should remember Duffey’s appearances in the movie – Duffey’s character earns Jennifer Aniston’s character’s ire because he wears thirty-seven pieces of “flair” (well in excess of the minimum fifteen required by the restaurant where the two characters work). As can be seen from the images for the “Box of Flair” at the Barnes & Noble website, Duffey’s image appears fairly prominently on the outside of the Box, and his image occupies the entirety of one of the buttons contained in the Box.

Duffey was a “day player” in Office Space – an actor whose role was not a “lead” role and who likely only rendered a few days of services in connection with the film. He signed a “Day Player Agreement” with the production company which produced the film, an agreement which in all likelihood was not the subject of much, if any, negotiation. Critically, for purposes of this lawsuit, Duffey’s Day Player Agreement contained the following language, which granted to the production company:

“all rights throughout the universe in and/or to all results and proceeds of [Duffey’s] services rendered [in connection with the film] … including, but not limited to, the rights to … exploit, in any manner … whatsoever now known or hereafter devised in perpetuity, any pictures, likeness or representations made hereunder, of [Duffey], including but not limited to his … poses … performances and appearances … together with the right to use and display [Duffey’s] … likeness for commercial … purposes in connection therewith.”

 


On the basis of that language, the court dismissed Duffey’s claim, concluding that the “terms admit of only one reasonable interpretation: that Duffey granted [the production company] the right to use images of his performance on Office Space merchandise”. (For my money, I would have been even more satisfied if the agreement specifically mentioned “merchandise” or “merchandising”, but you get to the same place in either event.)

The case is a useful reminder that, in the absence of express language which grants the right to use an actor’s image in merchandising, there might be a cognizable claim on the part of the actor if their image is used – and as Duffey’s situation shows, it can be difficult, if not impossible, to predict ahead of time which actors a producer will want to use in merchandising (I’m happy to wager that no one, at the time of shooting the movie, would have guessed that a day player who probably had less than ten lines of dialogue in the film would end up on a piece of merchandise created nearly a decade after the film’s original theatrical release).

For Canadian producers, the matter is of even more acute importance: unlike the SAG/AFTRA collective  bargaining agreements, which contain explicit language granting to producers certain rights in the performances rendered by SAG actors (e.g., Section 36 of the SAG Theatrical Agreement), the collective bargaining agreements for actors in English Canada (whether ACTRA or UBCP) are completely silent on the nature and scope of rights which actors grant to producers. In short, without a written agreement (for “day players”, the agreement is often attached as a “rider” to their ACTRA standard form agreement), the producer is functionally in danger of not having acquired any rights to use the performer’s image or the copyright in their performance. Various arguments might be constructed that the performer granted some kind of an implied license to the producer, but everyone’s life is going to be simpler if there’s a written agreement that everyone can point to – a written agreement which includes the right to make use of the actor’s image and likeness not only in the film/TV project itself (and advertising related to it), but also in merchandising based on it.

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How Many Pieces of Flair Do You Have? Obtaining Merchandising Rights from Actors

Optioning Film or TV Rights in a Book – A Checklist

As Torontonians know, we are in the midst of a mayoral election campaign; in all the excitement surrounding the candidate debates, it may have slipped into the rearview mirror that last month it was announced that the film rights for Crazytown: the Rob Ford Story, Robin Doolittle’s bestselling book about Toronto’s current mayor, had been sold to a Toronto-based production company. What are some of the considerations to be taken into account when structuring and negotiating an agreement to make a movie based on a book?

  • Option vs Purchase. Most often, the deal to make a movie based on a book takes the form of an exclusive “option” agreement. What that means is that the producer has acquired not the exclusive right to make the movie, but has acquired the exclusive right to purchase the right to make the movie. In other words, there are usually some conditions precedent which the producer needs to satisfy before they can actually go ahead and make the movie, the most important condition (from the author’s perspective) being the payment of a “purchase” price. Why are agreements structured as options? Because the producer usually needs time to make arrangements to actually finance the making of the movie – and while the producer is running around trying to gather the money to make the movie, they need to “secure” the exclusive rights in the book, so that the author doesn’t go and give the rights to some other producer. By entering into an option agreement, the producer is basically acquiring the right to go to potential investors and financiers of the movie and say “hey, I’ve got the exclusive right to make a movie based on this book – want to be a part of it?”
  • Who Owns the Rights?  For the film producer, it is critical to ascertain who actually controls the right to make an audio-visual project based on the book (what I’ll refer to throughout this post as the “AV rights”). Often the publisher of the book will have acquired the AV rights in their publishing contract with the author – but it certainly is not unusual for an author to have retained the AV rights. Even if a producer is able to satisfy themselves that the author has the AV rights, it will be prudent to obtain from the publisher a quitclaim or release wherein the publisher confirms that they do not control the AV rights.
  • Option Fee. The option fee is the amount which the producer pays to acquire the exclusive option. This fee is usually paid on signing of the option agreement (or very soon thereafter), and is often a relatively nominal amount – but is entirely open to negotiation. Only blockbuster bestsellers will see an option fee in the high five- or (even more rarely) six-figure range. An ancillary issue is whether the option fee is “applicable” against the purchase price – in other words, when the producer has to make payment of the purchase price (which we’ll discuss below) do they get to reduce the amount of the purchase price by the amount of the option fee (and any payments for extensions, also discussed below) which they have already paid? It is often the case that the initial option fee is “applied” against (i.e., reduces) the purchase price, but subsequent payments to extend the option period beyond its initial duration are not – again, however, the point is really a function of the negotiations between the parties.
  • Option Period and Payments for Extensions. How long the initial option period lasts for is likewise subject to negotiation, though there are some general parameters: producers will usually be reluctant to enter into an option period which is less than one year, and authors will usually be reluctant to agreement to an option period which is longer than two years – so an initial option period of 12-18th months is fairly common. Given the vagaries of the film/TV production process, however, the “initial” option period is usually just a starting point: producers will often want the ability to extend the option period beyond its initial duration – but it will cost them, and they will not be able to extend the option period indefinitely. The amount of any extension payment is usually a multiple of the initial option fee.
  • Purchase Price – Amount and Form. Here’s where things get funky. The purchase price is the amount which the producer has to pay in order to actually obtain the exclusive right to make the movie – payment of the purchase price is what converts the producer’s right from an option to an actual conveyance of rights. The amount of the purchase price is often related to its form: Is the purchase price simply a flat dollar amount which is pre-agreed by the parties at the time of entering into the contract? Or will the amount of the purchase price be determined by reference to a formula which takes into account the budget of the film or TV project? Authors will often want the purchase price to be determined by reference to a formula: the producer making a $3 million movie based on the book is a very different proposition than the producer making a $30 million movie based on the book. By contrast, the producer will often want to place some restrictions on the size of the purchase price they need to pay – and so the purchase price often is expressed as a percentage (usually somewhere between 1.5-4%) of the budget of the film/TV show, subject to a floor and ceiling on the amount. That way, the author knows they won’t get less than $x, and the producer knows they won’t have to pay more than $y. Easy enough, but which budget will be used as the reference point? The “in-going” budget which is used at the start of principal photography, or the “final” budget after all costs have actually been expended? Will there be any exclusions from the budget which is used to calculate the purchase price (such as deferred payments owing to cast and crew who agreed to forego an upfront payment in an effort to get the movie made)?
  • Purchase Price – Timing and Process. How the purchase price gets paid and how the option actually gets exercised should be the subject of close attention when drafting an option agreement. The process and payment mechanic (e.g., in order to exercise the option, the producer has to deliver a written notice to this particular person at this particular address, along with payment of the purchase price in this particular way (such as by money order or wire transfer)) should be spelled out in detail. Where the purchase price is to be determined by reference to the budget, there should also be a mechanism which allows for a portion of the purchase price to be paid “up-front” upon exercise of the option (because the relevant amount of the budget might not be known at the time of exercise of the option) with a “catch-up” payment to be made later on, once the final amount of the budget can be determined. Authors will want the option agreement to include a mechanism which makes it clear that the commencement of principal photography is deemed to be an automatic exercise of the option, necessitating payment of the purchase price.
  • Contingent Compensation. Another oft-contentious area – the possibilities for contingent compensation are limited only by the parties’ imaginations and tolerance for drawn-out negotiations. Contingent compensation might take the form of box office bonuses, net profit participation, additional payments to the author if the book achieves “bestseller” status on one chart or another, etc. Don’t forget audit and reporting language!
  • Subsequent Productions. If the producer is granted rights to produce more than one audio-visual project based on the author’s book, the agreement will need to spell out what sorts of payments (if any) the author is entitled to for such subsequent productions (which can include sequels, prequels, remakes, spin-offs, TV-series-based-on-movies, etc.).
  • Scope of Rights Granted. What exactly are the rights being granted to the producer? Is it the right to make a single audio-visual production? Or multiple productions? Can they make sequels? Prequels? Spin-offs? Remakes? Can they create merchandise based on the movie? Can they publish the movie’s screenplay as a stand-alone work? Can they create a theme park ride based on their movie? What about a videogame? Specificity in the wording of the nature of rights being granted will be rewarded down the road.
  • Credit. The precise form of the author’s credit will need to be determined. This can take multiple forms, whether on-screen or in promotional materials for the AV project. Some examples: the on-screen credit might read “Based on the book [insert title] written by [insert author name]” – but will that be a main title credit on a separate card, or just a credit in the end credit roll? Is the author going to get credit in paid advertising? Does the paid ad credit get included just in the “billing block” or does the credit get included in the “artwork” so that it is plainly visible to viewers of the ad? In really exceptional cases, the credit obligation might include the right/obligation to use the author’s name as part of the title of the movie (e.g., “John Grisham’s The Firm“). Oh, the contortions we go through in specifying these things…
  • Consultation/Approval/Participation. For the most part, unless the author is a J.K. Rowling or John Grisham calibre superstar, most producers are going to be loathe to give any sort of consultation or approval right to an author – the producer just wants to go off and get their movie made without interference from an author who thinks that their character would never say the lines in the screenplay. But, hey, it never hurts to try and ask for the right to approve or be consulted about things like the title, the casting, the screenplay, the promotional campaign, etc. If an author is feeling particularly bold, they might want to argue for a small role in the picture (non-speaking!), or to be engaged as a paid consultant on the project.
  • Reserved Rights. Properly drafted grants of rights should make it clear precisely what rights are being granted from the author to the producer – but it can be helpful to have just-as-clearly-drafted provisions which set out what rights are being retained (or “reserved”) by the author. This is often a jumble of “non-core” rights, but ones which can prove lucrative: radio rights, live stage rights, print publication (e.g., graphic novels), etc. Authors will want to make it clear that the author has the right to create “author-written” sequels to their own book.
  • Ownership of Development Materials. The producer will inevitably create what are referred to as “development” materials while they, er, “develop” their audio-visual project – things like draft screenplays or character designs if the project will be an animated one. Who gets to keep those materials if the option is not exercised should be addressed.
  • Reversion. Sometimes the producer will exercise their option, pay the purchase price and then… the movie/TV show never actually gets made. For the author, that’s a terrible position to be in: they have conveyed the AV rights in their book, and those AV rights are just sitting on a shelf, unexploited. In order to ensure that doesn’t happen, agreements will include a “reversion” clause, which stipulates that, even after exercise of the option, if the audio-visual project has not been commercially released within a certain number of years (usually somewhere between 4-7 years), the AV rights revert back to the author. The producer will try to make such reversion subject to the producer’s right to be repaid any costs which the producer expended in purchasing the rights and developing the project.

The foregoing list does not address provisions which are not specific to option agreements, such as representations and warranties, “no injunctive relief” clauses, dispute resolution, etc.; nor does it address extra-contractual matters such as the need for conducting a chain of title review on the project.

A final thought: perhaps moreso than other film/TV-related contracts, option agreements require significant input from author’s agents, who can advise on what is “market” for certain elements of the agreement with reference to the particular book being optioned, particularly those relating to payment and credit.

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Optioning Film or TV Rights in a Book – A Checklist