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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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Digital piracy destroys markets – professional or amateur: those who duplicate and distribute films as physical copies or over broadband networks take advantage of the slow, sequential exploitation pattern of the old value chain. While the film is still in the movie theatres, illegal copies are already whirring through broadband Internet peer-to-peer networks and flooding the streets in the form of illegal DVD or VCD copies. By the time the film reaches the next segment in the legitimate value chain, severe commercial losses have already been sustained.

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The trend started in the US with the extraordinary explosion of the DVD “sellthrough” market in the mid-1990s. Major studios became anxious to rush the films out of the cinemas early in order to satisfy consumer demand for new DVD releases and reduce the length of time necessary fully to realize the value of those rights.

Today, in a response which addresses both piracy and consumer demand, some films are beginning to go day-and-date – i.e. being released simultaneously in various media. In 2005-06, one pioneering film company in the US tested a formula whereby a series of low-budget films to be directed in digital format by the reputable Hollywood director Steven Soderbergh were to be made available to the public on the same date in film theatres, on the company’s pay-TV network and on DVD.

On-line cinema (films through the Internet), whether pay-per-view rental, downloadto-buy or subscription, is beginning to compete with traditional DVD releasing – the most reliable prediction is that these windows will collapse into one single home entertainment set of rights, rationalizing this segment of the value chain.

In future, it is highly likely that a greater proportion of films will go day-and-date in several media at the same time. Alternatively, they will enter the rights’ value chain at different points, sometimes skipping the cinema altogether to be offered straightto-home through on-line cinema services, pay-television and packaged DVDs. In the old days, it was mostly films perceived as failures which distributors would take straight to DVD, avoiding the high costs of a cinema release – in future this approach could become part of a positive strategy to release a good-quality film targeting a specific audience.

No one can accurately predict what is going to happen to the value chain and how each set of rights will be affected by the emergence of radically new business models for the commercial exploitation of films. In the Anglo-American film industry, which is still economically dominant, nervousness and uncertainty prevail, making negotiations over rights frequently unpredictable: the value of the home video/DVD is no longer increasing and may be going on a slow historic decline over the next few years. Meanwhile, on-line cinema is still largely untested, both in terms of technology and business models and has not become an obvious replacement market for DVD. And, as we discussed earlier, prices paid for films on television are Rights, Camera, Action! – IP Rights and the Film-Making Process on a steady decline. The result is a climate of insecurity and second-guessing which makes buyers more nervous and less ready to commit to licensing and acquisitions on all but the most sought-after films. Distributors are also more aggressive in acquiring all available rights in order to cover their risk.

In this time of mutation, it is difficult to offer the new producer a clear recipe for action: the first thing a new entrant to the production business needs to do is to turn himself into an avid consumer of information about the film industry worldwide and how rights’ markets are developing.

The developments presented and discussed above are at their most active within the Western film industries, in Europe and North America. It is undoubtedly the case that other film industries in different regions of the world often struggle with a different set of challenges. In West and East Africa, where many feature films are being made on very low budgets using digital video, the market is still predominantly video: producers either sell the film (sometimes on a non-exclusive basis) to marketeers or self-distribute through their own physical network. In either configuration, almost the only market outlet is in VHS and VCD physical copies. The local cinema exhibition infrastructure is still either non-existent or too limited to be able to support the financing of films. Television, meanwhile, struggles with budget shortages, with the result that producers are often expected to pay for the privilege of airing their films on a TV network. There are some pan-African satellite channels with deeper pockets, but these tend to select mostly non-African films to broadcast to middle-class African consumers with the means to install satellite dishes in their homes.

The basic map has been drawn; the time has now come to navigate the complex territory of rights’ transactions.

2.iv Into the Rights’ Jungle – the film distribution agreement The distribution agreement defines the terms of business agreed between a film distributor and the producer. In the process, the producer will license or assign rights acquired by him at the development stage, against remuneration and the prospect of the film being exploited in key markets.

Rights, Camera, Action! – IP Rights and the Film-Making Process It is an established convention that rights are roughly divided between primary rights and secondary rights – the latter are also described as ancillary rights. To make matters more complicated than they already are, the definition of these two sets of rights varies country by country: in the US, primary rights tend to be defined simply as those which relate to the primary market for films, – i.e. the cinema. Secondary (i.e. ancillary) rights are all those corresponding to the four main windows which follow the cinema release, namely video/DVD, pay-TV, National Network Television and the so-called syndication television channels, which are local broadcasters.

In Europe, the norm is generally to include the cinema and television broadcasting in the definition of primary rights, whereas the secondary rights will range from video/DVD, to pay-TV, video on demand, down to merchandising, theatre spin-offs, book adaptations, etc. This difference in approach also reveals the historic importance of television as a film medium in the European market.

There is no such thing as a standard deal and agreement with a distributor. A producer may be dealing with an integrated company able to release the film in cinemas locally, to release on VCD/DVD, license it to local television stations, sell it to foreign buyers at markets and festivals, etc. On the other hand, he may be dealing with different distributors, each active in one or two market segments (e.g. cinema or video) and may need to license those rights separately. Whatever the format, here are some of the key points which a negotiation will be likely to throw up.

1. Type and scope of rights sold or licensed

As a matter of course, most distributors will put pressure on the producer to assign or license all available rights. In this matter, the producer may not have the choice as he may be lacking in bargaining power, either because he desperately needs the distributor to provide an advance which will help move the film from script to production, or because he has a completed film whose investors are putting pressure on the producer to see a return on their investment.

As a matter of principle however, the producer may try as much as possible to keep to himself (reserve) those rights which are either less important to the distributor’s business and/or which the distributor has no solid expertise in exploiting but which Rights, Camera, Action! – IP Rights and the Film-Making Process can make a difference to the production company’s revenues over time. These include airline screening rights (now a lucrative set of rights due to the worldwide increase in air traffic) and extend to the so-called non-theatrical rights which include public performances of a non-commercial nature (educational institutions, conferences, etc) and which may help bring added visibility to the film in the long run.

2. The key strategic rights which the film distributor will generally insist

on obtaining are:

Theatrical – meaning the rights relating to the exploitation of the film in commercial cinemas. Theatrical is still seen as the strategic launch market for most films, the success or failure of the film in the cinemas having an important knock-on effect on performance (and therefore pricing) in subsequent windows of rights’ exploitation – however, as the table below illustrates, the theatrical market is almost always a lossleader for the distributor, which creates all the more pressure for his investment to

be recovered in subsequent segments of the value chain:

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Video rights (or video-gram rights) – refer to all rights of duplication (and exploitation thereafter) of the film on analog video cassettes and optical disks including compact disk, VCD and DVD;

Pay-television (also known as premium cable in the US) – refers to television offered to the public against subscription payments and requiring the use of a decoding device which protects the signal from unauthorized uses. Coming before the Rights, Camera, Action! – IP Rights and the Film-Making Process explosion of the DVD in Western markets, pay TV has been a considerable force in the exploitation and financing of films over the past twenty years.

Satellite television – refers to television services available to the audience direct-tohome and requiring the installation of a satellite reception dish. These rights may sometimes replace or extend those of free-to-air television in countries where freeto-air broadcasting is limited due to geographic and/or economic factors.

Free-to-air television (or free television) – refers to television services received by the audience free of subscription charges and not normally requiring a decoding device to be viewed. These services are usually supported through income sources such as advertising, sponsorship and state aid or a specific annual tax or levy on each household with a capacity to receive those services.

Distributors’ agreements will generally contain clauses ensuring that they will have the legal right to make certain changes to the film for the purpose of distribution.

These may include changes to the title, cuts designed to comply with film classification/censorship requirements, dubbing and sub-titling, etc. The producer should therefore take care that all relevant consents have been obtained from the authors/creative contributors to the work as a misunderstanding may lay the film open to legal action by a right holder whose consent was not sought, for breach of exclusive rights or moral rights.

3. Advances and minimum guarantees

In an ideal world, mature film industries should be characterized by the capacity of local film distributors to participate fully in the financing of films by investing in them against future revenue projections. Today, Hollywood is generally seen as the most accomplished model for distributor-led financing and the overwhelming majority of high budget US films are financed through a studio distribution deal which covers anything between 40 and 100 percent of the cost of production. A Hollywood studio is essentially one large global distribution and marketing entity able to acquire a critical mass of intellectual property rights and exploit them on a worldwide scale and this model is held in high regard in other film industries (even if there is a healthy debate about its cultural impact across the world), because it ensures that Rights, Camera, Action! – IP Rights and the Film-Making Process film projects are selected by companies whose job consists almost entirely in trying to understand what audiences want to see.

In the rest of the world however, film distributors are typically smaller, less well financed and far less able therefore to contribute funds to film production in the form of advances or minimum guarantees. The UK and India are two examples of highly mature film industries where distributors are fragmented and all too seldom involved in the business of financing films. In India, the so-called hero films, i.e. those starring the most eminent male stars, can attract distributors’ advances sometimes equal to – or in excess of – the cost of production. In the latter case, this means the production may be in profit even before it starts! However, the overwhelming majority of the 1,000 films made in India each year start production without a distributor being involved in the financing. This means they start filming without a single intellectual property right sold to ensure the commercial exploitation of the film. Those that do receive distributor finance tend to come from established producers and known actors. Even then, unless a bankable hero is cast, the distributor’s advance will generally be well below half the budget and the producer will always struggle to cover the gap from other sources.

The table below illustrates a typical film financing structure for a South Indian film with no star.

Financing sources for a low-budget Telugu or Tamil film (India)

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In the UK, as in most of Europe, the leading local film distributors predominantly sustain their businesses through buying distribution rights to US films, through output deals with the major Hollywood companies. Local films are often seen as higher risk because they tend to have smaller budgets and cast actors who may be stars on television but whose ability to attract audiences to the cinema is seen as uncertain at the best of times.

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