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«Rights, Camera, Action! IP Rights and the Film-Making Process Creative industries – Booklet No. 2 Rights, Camera, Action! IP Rights and the ...»

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The other main form of collective management concerns private copying for the purpose of home viewing. This use is often mischaracterized as a “right” when it is in fact an exception to copyright. Another way of expressing this would be to say that private copying has had to be tolerated because the limits of technology did not permit consent to be given and individual payments to be collected. Under this exception, viewers at home may use recording devices such as VCRs and DVD recorders to make a copy of a film received through free television, strictly for the purpose of viewing the work again for themselves and/or the family circle. It does not grant the public the right to make further copies and release them outside the home.

Collective compensation for rights holders against home copying has been dependent on statutes developed in countries where private copying is formally recognized. In most jurisdictions, collecting societies representing the various sets of rights holders (directors, other authors, producers, actors, other performers) may collect their share of a centrally managed private copy levy entity: a set levy is collected by this entity on each blank video or recordable VCD/DVD unit sold and the revenue is re-apportioned to rights holders according to an elaborate weighing system. In some countries, levies also apply to the sale of video and digital video recording equipment.

Rights, Camera, Action! – IP Rights and the Film-Making Process This chapter sought to impart a sense of the basic dynamics of IP rights’ clearances and attendant negotiations which shape the two most important types of producer/talent relationships. Obtaining these rights and ensuring that these relationships are balanced and fair is an essential step on the ladder of film-making success: without a fluid dialogue between producer, director and leading actor, the film is more likely to be poor. This issue goes well beyond a matter of understanding the rights and obligations of each. From a producer’s perspective, yet again, it requires a willingness to subordinate everything to the overall goal of making a movie the audience will not forget. Intuitive people skills are as much a part of this equation as a firm grasp of copyright law or neighboring rights.

Rights, Camera, Action! – IP Rights and the Film-Making Process Managing the Risk of Production This chapter looks at the issues arising over the delivery risk in film production. At first glance, the issue and the means through which it is being addressed in the independent film industry may not appear immediately relevant to a publication chiefly concerned with the handling of IP rights in film production. In actual fact, as we shall see, they are extremely relevant.

Film making is a highly hazardous undertaking. Once filming has started the production may be vulnerable to anything from adverse weather conditions, the death of or accident to a lead actor (or the director), some of the financing failing to materialize because investor X has just filed for receivership, etc.

Most financing contracts provide for financiers to accept a measure of risk such as “acts of God” (e.g. catastrophic storms or unexpected political violence, coups d’état, etc.), which fall under standard insurance terms. However, films can fall apart at the production stage for reasons that have nothing to do with the standard risks covered by standard policies. The production team may be over-running budget and/or schedule, with the eventual result that the film’s completion cannot be covered out of the budget initially agreed by all investors and rights’ purchasers.

In the Hollywood system, typically, this type of delivery risk may sometimes be assumed entirely by the studio, which has complete ownership of the project and can supervise its production in minute detail, even if the film is made through an independent producer. The studio’s physical production expertise, combined with its extensive supervisory rights, means it may be able to anticipate budget overruns and impose drastic re-scheduling or agree to an extension of the budget, against a renegotiation of certain terms governing the sharing of profits with the producer.

Rights, Camera, Action! – IP Rights and the Film-Making Process In India, the risk is also assumed directly by the larger production companies, while the producers of lower budget films tend to attract investors who will accept the risk as inherent to the film-making process and charge interest rates or premiums commensurate to the perceived risk. In West and East Africa, no established mechanisms exist to manage the risk: most films are in the micro-budget bracket and made using deferred services and small scale individual investments, which are a more intuitive way of making films happen, even in the absence of a risk management structure.

In the international independent film industry however, few entities have the capacity to buy out all rights against 100 percent financing, monitor the production process for an ongoing assessment of the delivery risk and cover this risk by themselves. The overwhelming majority of independent films are made according to a “patchwork financing” model in which the pre-selling of certain domestic and foreign rights, combined with local incentives, television license fees, equity investment, gap financing and other contributions, eventually meet the budget necessary to make the film to the agreed standard and with the approved cast and principal artistic and technical contributors. In this situation, no single financier is in a position to guarantee the completion of the film in the event of the production over-running.





Additionally, producers will very often require bank financing in the shape of discounting of the rights’ licensing contracts in order to open up the cash-flow that will allow the production to start.

It is at this point that the completion guarantee generally comes in. The completion guarantee is simply a form of specialized insurance which covers banks and investors in the film against the risk of the production failing to complete. In most cases when the completion guarantee (or completion bond) company intervenes during the production process, it will either advise the producer on the ways of putting budgets and schedules back on track and avoiding disaster, or it will take over the production entirely and attempt to complete the film one way or another. There is however, a third scenario, one which happens relatively seldom because its consequences are negative for all involved: the completion guarantor takes over the production and finds he is unable to complete the film to the delivery criteria expected by the financiers. In this particular case, the guarantee will be called and the completion company will reimburse investors for the losses incurred. The completion guarantor Rights, Camera, Action! – IP Rights and the Film-Making Process will charge a premium for his services, generally equivalent to between 3 and 6 percent of the production budget. In most cases however, a rebate will be offered to the production in the event that the guarantee is not called. As a result, the real cost of the completion bond to most budgets is between 1.5 and 3 percent.

In order to perform its role satisfactorily the completion bond company will need to

have a number of tools at its disposal. These include:

– The power to make its own independent assessment of the producer’s budget, the production schedule and all the documentation relating to the pre-production of the film. If they find these wanting, they may advise the investors who will make demands for specific changes based on the guarantor’s assessment and recommendations, prior to giving the production the go-ahead.

– The power to make its own independent assessment of the personal competence (and emotional stability) of key technicians, production management personnel, artistic contributors and lead actors – again, if the completion bond company has reason to doubt the competence or reliability of any of these leading contributors, they may require changes before agreeing to a Letter of Intent signaling their intention to bond the film.

– Considerable in-house knowledge of the film production process in all its intricate technical and managerial details – all bond companies employ seasoned line producers or production managers with years of experience working across a whole range of productions.

– Extensive supervision powers – the guarantor often has a representative in the production office throughout the process. He has full access to call sheets, production account records, daily cost reports and any other document relevant to the day-to-day management of the production.

– Re-insurance structure – all guarantors cover their own risk through a re-insurer in order to reduce their own exposure.

– Power to take-over – this is an essential aspect of the completion guarantee contract. The completion company must be allowed to take over the production if, Rights, Camera, Action! – IP Rights and the Film-Making Process according to its judgment, the film is in clear danger of failing to complete within the parameters agreed with the financiers.

From all the above, it may be tempting to conclude that the completion bond company, whilst providing an essential guarantee without which no financier and bank finance may be forthcoming, creates an atmosphere of tension and suspicion on a film set. In most cases however, the producer’s experience is more complex and mitigated: completion guarantors are invariably people with considerable knowledge of the details of film production and their experience can be a boon to the producer by helping him anticipate problems and manage the production to obtain an optimal result.

Completion bonding is at its most generalized in the Anglo-Saxon film industries, where the overwhelming majority of films above the micro-budget level require a bond in order to clinch a final legal commitment from banks, distributors and other financing parties. It is undoubtedly a sign of the Indian film industry’s growing maturity that one of the leading international completion bond companies now has offices in Mumbai and is doing brisk business with the local film industry.

Although it has been increasing steadily over the years as international coproductions have increased in volume, European countries where droit d’auteur prevails have traditionally been more reluctant to adopt completion bonding as a means of oiling the mechanism of multi-party film financing. Initially, this was because the take-over and completion powers granted to the completion guarantor were perceived as necessarily adversarial to the exercise of the authors’ moral rights and, in particular, the right of the director to assert his paternity over the work by making the decision on the final shape, form and structure of the film. In practice, the droit d’auteur system has yet again been able to demonstrate its adaptability and flexibility by accommodating the exercise of those rights alongside the completion powers of the guarantor, and, though it is still far from being the norm in some countries, an increasing number of films are resorting to the guarantee in order to close their financing.

It is impossible for most film producers with international ambitions to embark on the adventure of co-production and foreign pre-sales without at least a passing Rights, Camera, Action! – IP Rights and the Film-Making Process acquaintance with the requirements of completion bonding in the mainstream independent film industry. Without a completion bond in place, most films cannot proceed to production, and the rights’ edifice painstakingly assembled by the producer over months or years, may crumble and scatter.

In the preceding chapter, we have opened up the producer’s basic tool kit and analyzed the different pathways he may follow in order to take the film from idea to production. In the next chapter, we shall highlight the strategic importance of foreign rights in the making of most films and impart some essential notions about the complex art of international co-production.

Rights, Camera, Action! – IP Rights and the Film-Making Process CHAPTER 5 Crossing Borders – The Art of Selling and Co-producing This chapter examines the strategic role of foreign distribution rights in the making of films. Broadly speaking, there are two different methods a producer may use to bring financing into his film through negotiating foreign rights: the first method consists in “pre-selling” the film’s rights to distributors abroad. The foreign buyer may then have a degree of approval on the completed script and the choice of the main actors, director, etc, if his contribution is substantive. However, the buyer will not have any responsibility for the production itself and will not participate in it fully, either technically or creatively.

The second method consists in the producer “co-producing” the film with production partners in one or several, other countries. In a co-production, the foreign partner will generally be responsible not only for pre-selling the film to local distributors, but also for organizing the part of the filming and/or post-production which will take place in his own country. Again, very broadly, international coproduction demands fully-fledged creative and technical cooperation between producer-partners, whereas pre-sales are mostly limited to the licensing of certain rights to the foreign distributor, against an advance or minimum guarantee.

5.i Weaving the Patchwork of International Pre-sales

There are over 300 international film festivals in the world, many of the countries involved also boasting a film market. These festivals range from the most basic to the most sophisticated and international film export companies will prioritize one over the other depending on the status of their catalogue of films, the time of year, the size of their annual sales and marketing budgets. Additionally, there is an unrecorded number of international film markets.

Rights, Camera, Action! – IP Rights and the Film-Making Process In the main these markets and festivals provide opportunities for companies to sell the rights to finished films. In keeping with the topic of this booklet, we shall limit our analysis to the pre-sales market, i.e. sales effected before the film is completed, allowing the producer to cash-flow the whole or a part of the value of the sales (either through advances or bank discounting) in order to complete the production of the film.



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