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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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(vi) Certain territories in the world were pre-sold, in particular Belgium and its associated territories and French territories (including France’s domestic territories and French-speaking North Africa). To add to the complication, certain UK individual investors contributed to the production cost and acquired the finished film as and when it was completed. A completion guarantee was supplied by Film Finances Inc and the discounting of the pre-sales was carried out by the Royal Bank of Scotland which took the usual security over the physical material of the film and the rights.

In the co-production agreement itself, as well as dealing with matters such as the budget and the various financial contributions which were being provided by the various co-producers, specific reference was made to the percentage of copyright and ownership of physical materials. The agreement further allocated the distribution rights between the various parties in accordance with the commercial arrangements as, effectively, a co-production means that distribution rights are owned on a joint basis. It is usual in a multi-party co-production for one party to be appointed as agent to enter into agreements for the rest of the world and to procure the engagement of a collection agent.

Rights, Camera, Action! – IP Rights and the Film-Making Process Each party permitted the other co-producers to have access to its accounts and there were strict time limits as to delivery of financial reports for adjudication purposes by the various authorities. Overspend and underspend were dealt with in detail. Overspend would normally have been dealt with by a payment from the coproducers in proportion to their respective financial contributions to the budget and underspend being returned also on a pro rata basis.

The co-production agreement laid out the arrangements for location, shooting at designated locations, together with editing, sound recording and post-production work, all in accordance with relevant local requirements and the Convention. The original negative of the film was kept at the chosen laboratory and the other coproducers had access to it.

The agreement also designated the identity, nationality and functions of the various parties to be engaged in the film. All principal decisions were to be made jointly by the co-producers in good faith but, in the event of a deadlock, the decision of the delegate producer prevailed. The consequences where the provision approval is refused by any of the authorities in which the co-production is to be registered were also laid out.

In this particular production, there were a number of matters which required

consideration, such as:

–  –  –

(iv) Credits – specific credits were required by the UK Film Council, the Irish Film Board and the North Rhine Westphalia Film Fund. These needed to be added in specific terms to the film. Media, which advanced certain sums to the production under the Information Society Media Programme through the European Commission, also required specific credit.

This chapter has aimed to provide newcomers to the business of film production with basic directions on how to navigate the complex array of opportunities in the international film market and how to utilize their IP rights strategically in this respect.

Today, by and large, these rights are still negotiated for use in a value chain that has varied little over the past 20 years. In the conclusions which follow, we explore how the advent of the Internet and digital distribution networks is in the process of redefining this old order and challenging film makers to invent new models for realizing the full value of IP rights.

Rights, Camera, Action! – IP Rights and the Film-Making Process The Great Film Bazaar in the Sky?

It is a little known fact that one of the most successful DVD releases of 2005 in the UK was an amateur film shot by a Southern England farmer, glorifying the sheepherding talent of a particular breed of dog. As readers may have gathered, the film’s success had nothing to do with a clever marketing campaign, smartly designed and expensively rolled out by a major video label. As a matter of fact, no one in the “real” video industry had even heard of the very existence of the modest home-made film until tales started emerging of record numbers of units shipped. So, how was this all achieved? Quite simply, though a website which enthusiastic farmers and dog lovers could visit and from which they could place their orders for a physical video copy. But wait till next year and these keen observers of working canines won’t even have to bother with waiting for a padded envelope to come through the letterbox. At a click of the mouse on their computer, they’ll be able to safely purchase-download a copy and keep it for as long as their over-the-net license with the rural video amateur will allow.

This story of how a very specialized video product became a bestseller at almost no marketing cost is an emblematic tale of the Internet video age. The mere fact that its bucolic author was able to bypass the traditionally expensive gateways to the market and speak straight to his constituency of special interest, suggests that – in the age of the Internet – the economic theory of the long tail is no longer an academic construct, but a description of current reality.

Long tail theory holds that as long as the cost of market access is high, the offer of an audiovisual product will tend to support primarily the “hit” products – i.e. those likely to be attractive to the largest possible number of consumers in the shortest period of time achievable. In traditional physical distribution of films, the cost of Rights, Camera, Action! – IP Rights and the Film-Making Process access to market is considerable. The average cost of marketing a Hollywood movie in its primary market (the cinema) today, is US$34.5 million (MPAA Figure, 2006) (i.e.

not including negative costs, which averaged US$65.8 million in 2006) just for the US theatrical release. Even for the low-budget independent films made throughout the world, the cost of a theatrical release is high and is rarely ever recovered entirely through the income generated at the box office. Similarly, the video/DVD market requires a bulk of pre-recorded units being shipped out to video stores at great cost, without any guarantee that the demand will meet or exceed the expense. When costs-to-market are such a tangible barrier, the relative cost of duplicating, storing and marketing even a small number of units of film titles which only appeal to a small, specialized segment of the audience, hardly makes economic sense. Thus, in the physical print infrastructure, it could be argued that a vast underlying demand for specialized fare from sections of the consumer market remains unmet.

With the advent of Internet broadband, everything begins to change: if all the distributor of the present – or near future – requires is a website with technology permitting digital downloads or video streaming straight to the consumer; storage costs virtually disappear, as do duplication costs. Marketing costs remain, but the relative cost of advertising through search engines (or negotiating hyperlinks with third parties) still compares favorably with the crippling rates of billboard advertising or the 30-second television spot. With this technology, it becomes possible for films likely to attract low levels of demand over long periods of time to make plenty of economic sense. The long tail has arrived.

In a broadband connected world, are we therefore going to see a new breed of producer? Will this new prototype not only be producing films but also be by-passing the distribution middlemen to license video-on-demand rights directly to web-savvy consumers? Perhaps the future will look like this. However, for producers new to this profound mutation and motivated to think strategically about the management of their IP rights, a number of issues need to be considered.

The theatrical window may be destined to co-exist quite dynamically with Internet VOD. This is due not only to the enduring appeal of the cinema as the “most immersive consumer experience” but also to radical changes in film theatre technology: the advent of the digital theatre will allow a reduction in print duplication Rights, Camera, Action! – IP Rights and the Film-Making Process and handling costs and – especially through the use of direct satellite transmission of films into secure servers in the cinemas – will make the movie theater both more piracy-proof and more able to adopt flexible programming to cater for a broader range of consumer taste.

In time, it is likely that the Internet VOD window will squeeze out most of the current home entertainment windows, in particular, rental DVD, the current pay-perview systems and encrypted pay-television. A possible outcome is that the value chain will become simpler, with theatrical, followed by video/DVD sell-through, (many consumers will still want to “own” films as they do books) Internet VOD, followed by free-to-air television.

With the theatrical release no longer an obligatory first window for all films, “dayand-date” releases of films simultaneously across several segments of the rights’ value chain may become more frequent. In this approach, price discrimination will replace sequential releases – e.g. agreements between distributors may be such that consumers would pay a premium to access the film on Internet VOD while the film was still in the cinemas, in order to give the cinema window a competitive edge, etc. However, the day-and-date approach may not allow as efficient an economic yield across the value chain as sequential windows have until now. The effect may nevertheless be mitigated by the fact that day-and-date is an efficient way of rolling out a new film before audiovisual pirates begin to compete.

This radical re-designing of the film rights’ value chain raises important transitional challenges: producers should ask themselves what unforeseen negative effect (even if temporary) a reduction of, say, the theatrical window, will have on the ability of traditional distributors to put money at risk into new productions. While Internet distribution is beginning to look like a potentially effective medium for reaching the consumer, the market is still in its infancy; the technology often unreliable and the income from such forms of distribution still extremely low. While threatening to compress other windows, with attendant negative impact on the value of advances for traditional rights, Internet movie-on-demand operators will not be – for a while yet – able to substitute their own investment for these declining sources of rights’ exploitation. This will leave the entire film industry in a vulnerable position.

Rights, Camera, Action! – IP Rights and the Film-Making Process As we come to the end of these general conclusions on future trends, we would like to leave readers with a short inventory of points they may want to consider when licensing rights to Internet operators at this unpredictable juncture in the re-shaping of the film value chain. We hope these will prove helpful to those producers willing to embark on the uncertain business of making their films available through this fastchanging and exciting technology.

The online window may need to be negotiated so that its placement does not hurt other rights’ licensees and their own rights’ exploitation windows. It may be advisable to locate it where traditional pay-per-view currently sits – i.e. a few months into the theatrical release window and before DVD rental and sell-through as well as all television windows (pay and free). This will ensure that the producer avoids locking himself out of possible licensing deals with licensees further down the value chain or seeing the value of those rights substantially curtailed.

The market for online rights is at a pioneering stage and changing at an extremely rapid pace. This means companies, business models and technologies currently in the market may not be there next year or the year after that. In this context, the producer may find it more rational to negotiate short licenses and resist the pressures from new VOD Internet operators who want to build up a catalogue and attempt to lock films into long licenses.

Exclusivity is sacrosanct in the old value chain. It does not need to be (as yet) in the Internet VOD link. This is because few services reach a significant market. On that basis, granting exclusivity may prevent a maximization of the exploitation of rights in this segment.

Unlike traditional satellite encrypted broadcasting, by now a proven and tested technology – the producer licensing rights to an Internet VOD service may need to exercise a degree of diligence over the technological system in place to license consumers over the ether and to guard against illegal copying and re-distribution.

Licensing to unsafe technologies may lead to unwanted “leakage” facilitating illegal, copying and circulation of the film.

Rights, Camera, Action! – IP Rights and the Film-Making Process A very important aspect of this novel type of licensing is to define just what uses the agreement will cover, and through which types of devices: does the agreement cover download-to-buy and download-to-rent? Does it cover video streaming, etc., or are only specific uses authorized? What is the consumer’s term of use (days, weeks, ownership)? Is the VOD licensor authorizing the consumer to playback on devices beyond the home PC or television set? Do these include downloads or streaming onto portable devices such as mobile phones, or players built-in to automobiles, etc.?

Is the subscriber home defined as the principal residence only, or does the content play to devices in a second home?

Clarity is also essential when dealing with payments from the licensee. Hardly anyone in the Internet VOD market pays advances on the exploitation of the rights, simply because revenues are still very limited. Producers may want to familiarize themselves with the detail of the operator’s pricing points to the consumer and negotiate a share of income on a royalty basis. If the operator is subscription-based rather than pay-per-view, producers will typically obtain a share of overall subscription revenue rather than a royalty on each use.

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