«Rights, Camera, Action! IP Rights and the Film-Making Process Creative industries – Booklet No. 2 Rights, Camera, Action! IP Rights and the ...»
5.iii The Producer – Sales Agent Agreement All international rights entrusted to a sales company are backed up by a legallybinding agreement. There are a few salient points to which both parties will be
particularly required to pay attention:
– The agreement will specify the rights the agent is licensed to sell and the designated territories – this definition is all the more important as some of these rights may already have been assigned to a third party in a relevant territory against equity, co-production, etc, or may have been entirely pledged to a particular buyer in a specific territory.
Rights, Camera, Action! – IP Rights and the Film-Making Process – The term of licensing is also an important aspect – agency terms granted to a sales company may vary from the very short, to perpetuity (more rarely, and specifically if the sales agent has also put up most of the value of the budget as a guarantee). It is more typically a fixed initial term ranging from 1 to 25 years.
Separately, the parties will also negotiate a maximum term for the rights to be licensed by the sales agent to distributors and other media buyers in the territories designated in the agreement.
– Many contracts will contain a termination clause – i.e. the right for the producer to terminate the agreement without notice if sales revenues fail to meet a preagreed minimum target or if the sales company goes into receivership.
– As with the distributor’s agreement, expenses required to market and promote the film at international events (festivals, film markets, etc.), will be specified within the agreement and initially capped at a mutually-agreed level. Should the sales agent wish to spend in excess of the cap, he will have to seek permission from the producer. This is a strategic matter for producers because those costs are deducted “off the top” from the value of rights’ licensing deals in the relevant territories.
Therefore the higher the expenses, the less likely it is that the producer will receive any overages from those sales.
– A similar negotiation occurs over the commission charged by the sales agent for his work. Typically, commission rates vary from 7 percent of the value of each sale,.5 to 25-30 percent. Commissions are higher in the case of successful pre-sales of an unfinished film because the revenue from this type of rights’ licensing may be more strategic to the producer who may be able to discount its value with a bank. The commission charges will also vary according to the perceived difficulty of specific territories. The table below shows a scale of sales agents’ commission for a recent
independent low-budget British film:
The sales agent is a pivotal player in the complex game of international film financing. It is important for producers with ambitions to make films for an international audience to cultivate relationships with those sales agents best able and willing to support the type of films that correspond to their creative and business vision. Such relationships will pay handsome dividends over time, helping to raise the profiles of the films in world markets and developing a producer’s own sense of what may be suitable for audiences outside his country.
5.iv Through the Pain Barrier – international co-productions The second method a producer may use to bring foreign rights into the equation of financing a film is through an international co-production.
What is co-production? In its purest form, a co-production takes place when two (or more) production companies in two (or more) different countries agree to join forces to make the film together. The approach typically entails each company sharing in the artistic, technical and financial resources necessary to make the film and sharing the resulting IP rights pro-rata of their respective contributions.
The strategic rationale behind co-production may vary: the principal motivation may be that the story requires it: a script developed in say, Britain by a British producer is set in the days of the Indian Raj, with a mix of characters and narrative developments requiring shooting the film in both countries with a mixed cast of British and Indian actors. In this instance, a co-production structure should in theory enable the producer developing the script to find a partner able to a) access a key Indian cast, b) raise joint finance in India for the project and c) to hire elements of a local shooting crew which offers the advantage of high-level skills and competitive wages, thereby helping to reduce costs.
The rationale may also, in some cases, be either financial or technical only: in the case of a purely financial co-production, the foreign co-producer has no direct involvement in the development of the script or the management of the production.
He confines himself to arranging financing from his country and – generally – very little of the film is shot in his country. Financial-only differs from a pre-sale in that a producer is involved and in some cases, may ensure the production meets the Rights, Camera, Action! – IP Rights and the Film-Making Process qualifying criteria to be granted nationality status in his country. If that is the case, the co-producer may then raise public sector subsidies or other benefits available to film production locally. When a co-production is technical only, the foreign coproducer may be unable to contribute a significant amount to the financing of the picture but is working in a country where the technical labor pool and film industry services are competitive, which may induce the lead producer to locate the majority of the production there in order to keep the budget down. In this case, the coproducer plays an important part in hiring a local crew and services and organizing production locally.
Europe is the region of the world where co-production is currently practiced the most. Many of the smaller countries there have insufficiently-sized domestic markets to sustain film production over and above the low-budget category in all but the most exceptional cases. Consequently, their producers look to other potential partners in neighboring countries to help them finance more ambitious projects. The larger film production countries, such as France, Germany or the UK, approach co-production with a variety of motivations: the French state actively encourages producers to coproduce films in the French language, as part of a consistent policy to uphold the standard of French culture and the French language in Europe. German is spoken outside Germany in some Eastern European countries as well as Austria and Switzerland, which are natural partners for co-productions in that language. UK producers, on the other hand, bank on European audiences being well-accustomed to watching films in the English language in the cinema, and the worldwide popularity of some British stars.
Whatever the European states’ respective strategies in relation to co-production, the producers always have the same objective: to obtain national production status for the film in each of the co-production countries, so that valuable film industry subsidies in those countries may be legitimately accessed and used to finance the film. And in most cases, the best way for the film to obtain the nationality of the coproducing state, is to go through an official co-production treaty.
Co-production treaties are bilateral agreements between two states: many of these link European countries. Other bilateral treaties cover co-production relationships between a European country and an extra-European country – e.g. France has Rights, Camera, Action! – IP Rights and the Film-Making Process bilateral treaties with approximately 23 non-European countries including Canada and India. Although these treaties vary in their expectations and demands, they all
broadly operate along the same principles:
– States want the co-production treaty to enable – over time – the use of labor and services (and the payment of related taxes) in their own country; they do not look too favorably on financial-only co-productions because these tend not to bring a broader benefit in the shape of increased economic activity.
– Treaties therefore encourage co-producing partners to ensure that a balance is struck as far as possible between their respective financial contributions.
– Treaties also require that co-producing partners strive to make their artistic and technical contribution to the film proportional to their financial contribution.
– Each bilateral co-production treaty specifies the minimum financial contribution required from each of the partners. These typically vary between 30 and 40 percent.
However, when a co-producer in a third country is involved (through the interplay of other bilateral treaties, or the use of the Council of Europe Co-production Convention), this minimum percentage may be as low as 20 or 10 percent.
If these conditions are fulfilled, the production may be given the go-ahead to qualify for national status in both (or more) countries, opening the door to production incentives which may help cover a significant proportion of the budget.
The co-production agreement between the parties involved is generally a complex and detailed document. We shall limit ourselves, within the scope of this publication, to the main issues surrounding the transaction of IP rights in the film and how these
are normally resolved:
Chain of title – the co-producers must obtain warranties from the lead producer who generated the project, that all underlying rights (books, theatrical plays, scripts, etc.) will have been cleared and that he has the necessary consents and assignments or licenses to make the film unimpeded.
Rights, Camera, Action! – IP Rights and the Film-Making Process Underlying rights – the most basic agreement will make the producer (or producers) responsible for the initial purchase of the underlying rights agree on the means to recover those costs pro-rata from other co-producers (either in advance or via an agreement for him to recover those costs from the budget or income from the film in first position before his colleagues). Thereafter, the rights to the underlying materials may be assigned to the special purpose vehicle (SPV) – i.e. the company established especially to manage the co-production, or they may be licensed to each co-producer for exploitation in his respective territory.
Copyright – The general approach is for the co-producers to share in the rights of the underlying material pro-rata to their contribution to the film. Copyright in these
materials may be held by the principal producer with consent from his co-producers:
this is more expedient in setting up bank financing of the distribution and sales agreements, because all banks will require a charge on the copyright as security against their loans.
As far as copyright in the film itself is concerned, the co-producers will normally share its ownership, to the effect that copyright and all related economic rights belong in perpetuity to co-producer A in country A, and ditto for co-producer B in country B. For the rest of the world, copyright will be shared, with all net profit from sales (overages) split between the co-production partners pro-rata to their financial contribution to the budget of the film.
Another possibility is that the copyright in the entire film may need to be the object of a temporary assignment to one or other co-producer who may require it in order to successfully apply for approval of tax incentive funding in his territory.
Soundtrack – all music used in the film must be provided to each co-producer after clearance and cue sheets supplied for use by the local distributor in the coproduction country (or countries).
Completion guarantor rights – Although the completion company’s rights are not stricto sensu IP rights, their full exercise amounts to a take-over of the film from the co-producers, which in turn will affect their ability to remain in charge of the exploitation rights on the finished film (if the guarantor manages to finish it).
Rights, Camera, Action! – IP Rights and the Film-Making Process The co-producers will include in their agreement an undertaking that the completion guarantor may take over the production and take any measure necessary thereafter, regarding completion, cost recovery and assignment of rights for security.
Co-Production Responsibilities Example: Ken Loach’s The Wind That Shakes The Barley A co-producer effectively splits responsibilities with the other co-producer and it is very useful in a co-production agreement to specify precisely what functions each co-producer will be required to carry out. The two producers entering into the coproduction agreement set out their respective functions and the basis of the financial transaction between them (i.e. the percentage of the cost of production to be found by each co-producer).
An interesting example of a co-production film is Ken Loach’s The Wind That Shakes The Barley, which won the Palme d’Or at the Cannes Film Festival in 2006. The film was a co-production between the UK, the Republic of Ireland, Germany, Italy and Spain. Notwithstanding the numerous countries, all five co-producers were able to co-produce the film under the terms of the European Cinematographic Convention of
1992. The budget of the film was a mid-sized budget for a European film and was
contributed to by the various co-producers and other financiers as follows:
their contribution. There was a production service arrangement between the Irish co-producer and an Irish service company to assist in this structure.
(iv) Germany – the German co-producer was able to enter into a finance only co-production. In return for a financial contribution the German coproducer was able to acquire the theatrical rights in the film in Germany, Austria and German-speaking Switzerland. The German co-producer also introduced subsidy funding from one of its regional film funds, the North Rhine Westphalia Film Fund, in exchange for a spend in that region.
(v) Spain – the Spanish co-producer acquired the rights in Spain and Andorra in return for a contribution to the budget as a finance-only co-producer.