4 Tools Everyone In The Feature Film Industry Should Be Using

Aug 12, 2016|Film and Television
Rodriques Law

The tools you use to develop, produce, acquire or distribute your feature film will depend on what role you play in the feature film industry. The term "feature film" encompasses a variety of film types, including, theatrical feature motion pictures, documentaries, movie of the week (M.O.W.) or made-for-TV movies, and original programming for cable networks, premium channels, and subscription-based streaming services.

Since film is not just art, but is also a business, no matter your role, you will have to get deals done and agreements drafted. As such, the four primary tools that everyone in the feature film industry should be using are: (1) the production company, (2) the talent, (3) the investor and (4) the distributor.

1. The Production Company

The guerrilla filmmaker may be fine without any business planning, but for most content producers a production company should be organized to anticipate the legal and business issues that they will face. All feature film productions should be implemented through a formal entity, whether as the parent company that holds the necessary underlying rights or through a single (or “special”) purpose vehicle (SPV) created to insulate the parent company and/or the financiers from operational liability. The filmmaker should select the type of business entity best suited to the project and the filmmaker’s short-term and long-term goals. The production company, will most often be in the form of a limited liability company (LLC), but occasionally a corporation is used.

Generally, the production company is the vehicle that is used to contract with the feature film director, actor, producer, screenwriter, engage the crew, and enter into the applicable guild and union signatory agreements. The production company will be largely responsible for finding investors for financing of the picture, complying with federal and state securities laws, and generally fund, produce and exploit the film. The production company’s responsibilities will also include obtaining a federal employer identification number; a chain of title review (including copyright report); conducting a title search; obtaining a script clearance report; music clearance; rent equipment; tax withholding; errors and omissions, workers’ compensation and general liability insurance; setting up the overall budget for any feature film; hiring an accountant; generating payroll for talent; pay federal and state taxes; and license copyrighted works.

The production company may also provide continuity for the film so that, if the film is successful, it’s licensing opportunities and obligations can continue for many years. A successful film can continue to earn revenue, make regular distribution of profits and distribution of revenue for unions or other gross income participants for decades. Therefore, the production company should be organized to anticipate this long-term commitment.

2. The Talent

Talent serves a cornerstone of any film, without which a film never gets made. They include actors, writers, directors, producers, and below-the-line crew.

The most common types of agreements you will have to deal with include, writer agreements, producer agreements, director agreements, performer agreements, location agreements, releases and financing agreements.

Almost every feature film project begins with a screenplay. The filmmaker either writes the script himself, hires a screenwriter to write the script, purchases or options an existing screenplay, or hires a writer to perform one or more rewrites or polishes. The Writers Guild of America (WGA) regulates most of the issues relating to the engagement of writers. Many non-guild writers choose to have various WGA MBA (Minimum Basic Agreement) minimums negotiated into their contract, whether or not the production company is a WGA signatory Employer. These minimums include credit, compensation, residuals, royalties, reacquisition of materials, and option and exclusivity provisions which create unreasonable barriers to employment. The WGA regulates writer agreements for theatrical, TV, original new media, and subscription video on demand (SVOD), including Netflix, Amazon and Hulu. New Media includes all writing of audio-visual production intended for the Internet, mobile devices, evolving technological devices such as the iPad, or any other platform thought of as “new media” by the industry as of the start of the 2008 MBA.

Once the project moves from the development stage, a producer, director and actors need to be employed.

The employment of producers is not regulated by a union. While there is the Producers Guild of America (PGA), it functions as a non-profit trade group. As such, every aspect of a producer’s deal is subject to negotiation. There are many different types of producers. However, most productions employ at least one “line producer.” A line producer, in general, is responsible for preparing budgets, securing locations, negotiating leases, supervising the accounting department, and managing the production.

Directors agreements are governed by the terms of the Directors Guild of America (DGA) Basic Agreement (BA). The Directors BA covers projects shot on film made under an agreement with the Association of Motion Picture and Television Producers (AMPTP). This contract applies to Directors, Assistant Directors and Unit Production Managers working in film and television. The DGA Agreement covers narrative and documentary films intended for theatrical or home video/DVD release, television shows and new media. Since not all directors are DGA members, nor do all productions fall within DGA jurisdiction, such nonunion deals will require added attention.

Before working with a producer or director to set up a production, the filmmaker should ensure that all proper copyrights, clearances and contracts are in place.

The key issue in all actor/performer agreements is whether the production will use professional actors who are members of the Screen Actors Guild and the American Federation of Television and Radio Artists (SAG-AFTRA) or will use nonunion actors. Actor agreements can vary dramatically from deal to deal, and often are most onerous to negotiate. The actor agreement will cover terms such as work term, screen credits, travel and accommodations arrangements, likeness approval, commercial endorsements, use of body doubles and nudity.

It would serve the filmmaker well to align himself with the key players in the feature film industry, such as, the talent representatives, including, talent agents, personal managers, and entertainment attorneys. Talent agents procure employment for their talent clients and negotiate their client’s employment agreement, generally in conjunction with an entertainment attorney. Talent managers (or “personal managers”), generally provide day-to-day and long term career advice for actors and liaison with the actor’s other representatives. The primary role of the entertainment attorney (also known as the “talent lawyer”) is to provide advice, counsel and representation to a talent client in the legal aspects of a deal. The entertainment attorney may also assist a client with obtaining representation, meeting key executives, procuring employment, obtaining work visas or tax and estate planning.

Obviously you have to have a good script, but, generally, as far as getting the feature film financed, having name talent is probably the most important tool you need to have.

3. The Investor

Without the investor a feature film never gets made. No matter how small the project, funds are going to be required to make the motion picture. There are two main sources of funds for film financing. They are equity investments (equity financing) and loans (debt financing).

Equity financing comes in two forms, (1) the sale of securities in the production company and (2) the sale of the film’s distribution rights (pre-sale). The sale of securities requires the filmmaker to offer for sale, interests in the production company, such as, stock in a corporation or membership interests in an LLC, in exchange for funding. On the other hand, pre-sale requires the filmmaker to sell the right to distribute and exhibit the film prior to the film’s creation, in exchange for a present payment or advance (minimum guarantee).

Equity financing may come from outsiders funding the production company or in exchange for financial participation in a particular film. They include, family and friends or angel investors; private equity funds; and studio financing. Equity financing serves to distribute the risk of the project because the investor only receives his money back if the film is successful or the production company makes a profit. On the other hand, if the film is a tremendous success, the investor will receive a return far more than a lender would have received.

In debt financing, a lender such as a bank gives the filmmaker money in exchange for a promise to repay the loan on time. The bank makes profit by charging interest on the loan. Loans place the risk of failure on the borrower because the lender expects to be repaid whether or not the film is successful. The lender does not participate in any profits above the interest. In general, the filmmaker stands to make significantly more profit if a successful film is debt financed rather than equity financed.

Since pre-sell agreements often require that the film be completed and delivered prior to any payment, in order to obtain the required funds to complete the film, the filmmaker has to borrow from a lender, using the distribution agreement as collateral for the loan. Loans that use pre-sale contracts as security are known as “senior loans”, and have a first lien on all exploitation revenue for a given film. When the completed film is delivered, the distributors make their purchase payments under the pre-sale agreements directly to the lender.

Independent U.S. filmmakers may find opportunities to collaborate or co-produce with production companies outside of the United States. Occasionally these co-productions will provide financing to the U.S. company, but more often the foreign company has subsidies for its local production and will provide services in exchange for the co-ownership of the project.

A typical film financing model can comprise of any one or a combination of loans, private equity, tax credits and equity/minimum guarantee (pre-sale). Private equity makes up 30%-50% of most feature film budgets. On some ultra and lower-budget projects, the financing may be 100% private equity since the costs of obtaining other financing components like pre-sales and debt are too high. In addition, if you plan to engage a sales agent, you ideally must already have some private equity, in order to expedite the process.

4. The Distributor

As talent and investor are key to getting the film made, the feature film buyer is essential to generating revenues. They include Hollywood studio executives and independent distributors. Of course, your feature film stands a greater chance of getting distribution if it has a great script, exceptional production quality and execution, big name talent or a major festival premiere.

Regardless of your planned distribution strategy (Self, All-rights or Hybrid), the production company should plan to earn revenue through the distribution of the completed film in both the domestic and international markets. In general, with the revenue from distribution of the film through exhibition in movie theaters, video sales and rentals, cable licensing deals, the internet, and other sources (such as soundtrack albums and merchandising), you are able to pay investors back, pay yourself, and be able to move on.

The major Hollywood motion picture studios have their own distribution divisions. Studios will either directly purchase stories or scripts, or enter into production and distribution deals with established production companies. Under those deals the production companies would package the script, develop the budget, and manage the production. Nowadays, Hollywood studios are increasingly sending representatives to major film festivals to purchase completed feature films. With their deeper pockets and the leverage that comes from having global marketing and distribution networks, all but the biggest independent distributors are finding it increasingly hard to compete with Hollywood studios for indie films at these festivals.

Sales Agents

A filmmaker may retain the services of sales agents or distributors to license the film in various media and territories. It can also be helpful to involve sales agents early on in the process of financing your film if you are looking to pre-sell.

A sales agent does not generally acquire distribution rights from the producer or owner of rights in the motion picture. Instead, he or she acts as an agent on behalf of the producer or rights owner to license distribution rights to distributors in exchange for a sales agency fee, typically computed as a percentage of gross revenues from licenses obtained by the sales agent. A sales agent should help you create marketing materials, as well as plan a film festival strategy (if one is needed for your film). A sales agent, in general, will brand you to the marketplace in all of the countries of the world via all media — theatrical, video, VOD, TV and other ancillary media.

If filmmakers are interested in separating rights and self-releasing theatrically, then regardless of the quality of the film, a sales agent may not even be necessary for the domestic sale of the film.

Self-Distribution

Sometimes it's 'cheaper' to fund your own release rather than getting a distributor do it, which in most cases means higher expenses and longer recoupment cycles.

In recent years, technology and independent bookers have made forms of self-releasing a more viable option. Nevertheless, If the movie is hidden or difficult for the customer to find, you have a serious problem. You must be able to drive your audience out to see your film in large numbers without a huge PR & Marketing budget.

The most important factors to a film’s success include:

  • Strategic Release Date. In general, you can achieve this by working closely with distributor partners, a sales team or by researching the competitive landscape and locking into the most optimal release date for your title;
  • Investing in Sales Materials, including, placing exclusive trailers and clips across targeted entertainment platforms, in order to build awareness and buzz;
  • Getting the stars out on publicity tours. The ability to organically leverage talent’s social media followings continues to be an effective way to reach fans and drive sales; and
  • Securing featured placement across digital and cable/satellite partners.

Depending on your film and or audience, you can do a limited theatrical run of your movie. In general, most theaters are willing to do a 50/50 split.

However, selling rights within territories outside of North America becomes more difficult, and we strongly recommend you do it by an international sales agent with a wide network of partners. DIY international sales will, in general, be costlier and will require more time and effort than orchestrating a basic domestic self-distribution.

Theatrical vs Direct-to-Digital Release

Theatrical release is, in general, a great commercial for your movie. The cost of a theatrical release, including distribution and spending on press and advertising, raises the threshold for achieving success. Even with limited theatrical release, your movie can qualify for Oscar consideration. Unfortunately, the economics of going the traditional theatrical release route are somewhat unfavorable for most filmmakers.

On the other hand, with more new digital media platforms there are more possibilities for how feature films can be distributed. A digital release is, in general, less costly for filmmakers and could offer a bigger payout if the movie is a big success. And even as movie theaters remain a favored debut venue for many indie films, digital platforms (such as Netflix, Amazon Prime, Hulu, Apple iTunes, Alibaba, Google Play, Facebook, Sky, YouTube Red, Vimeo, Verizon, AT&T, Snapchat, Twitter, and so on) offer the advantage of identifying and targeting a specific audience.

Netflix and Amazon are outspending Hollywood studios in acquiring feature films. The result is that many studios are hooking onto projects at the script stage. Similarly, independent distributors are increasingly preferring pre-sales over completed films. With increasing competition for content, indie buyers want to get in early on a project (before the film is completed and premiering at a major festival) so that they will get the best projects while also steering clear of the pricey acquisitions market.