Acquisitions are an integral part of the motion picture business. It is the process by which Hollywood studio executives and independent adistributors buy or acquire content, such as movies, television shows, TV series, webisodes and documentaries. The buyer negotiates for the acquisition of the motion picture distribution rights in a specific territory (also known as, licensing), or the purchase of a motion picture (or multiple motion pictures) so that ownership of the copyright and all rights are transferred to the buyer. Before acquiring a film, the buyer will insist upon certain assurances that the film will be free and clear of liens and encumbrances and has clean chain of title.
“Chain of title” means the series of legal documents or agreements that establish proprietary (ownership) rights in a motion picture, including, documentary evidence of assignments to the production company, licensor or rights holder. A “clean” chain of title means the chain of title does not have any gaps in the chain in ownership or issues that raise doubts regarding ownership.
The work of seeking or sourcing films and television programming is primarily done by experienced acquisitions executives of a distribution company’s film acquisitions department. Acquisitions executives often attend film festivals (such as Sundance, Cannes and Toronto (TIFF)) and conferences to find the best films to buy. They also keep in touch with foreign sales agents and film distributors to learn of the latest offerings and to negotiate the acquisition of selected film or TV program.
When a film is being picked up for distribution, the buyer commences negotiations on an acquisition and distribution agreement with the production company (or licensor or rights holder) with the help of a producer’s rep or entertainment attorney (it can be dangerous for filmmakers to negotiate independent film distribution deals themselves). Film acquisitions deals can be negotiated before, during or after production. In the acquisition process, the buyer negotiates for the distribution rights in the film, which may include the acquisition of rights in any unique fictional characters.
During the film acquisition process, an experienced buyer will want assurances that it will be acquiring all necessary rights to enable it to proceed with distribution of the film without interference from any third party. As a result, the buyer will conduct its due diligence to ascertain the status of the production company’s (or rights holder’s) rights and obligations. Often, the distribution company’s satisfaction with the results of the due diligence investigation (that is, the film has a clean chain of title and all necessary rights have been cleared) is treated in the acquisition and distribution agreement with the production company as conditions precedent for the distribution agreement to become effective.
In the process of acquiring the film, a buyer will want to know whether the film has already been mortgaged, licensed, transferred or assigned and that the production company can legally grant the distribution rights in the picture, including, any literary or musical properties used in it. The distributor must also be satisfied that it can acquire the picture free and clear of any lawsuits, liens, encumbrances and adverse claims by a third party. In addition, a buyer may desire to obtain any information regarding, for example, a screenwriter, actor and director’s controversial past that could interrupt the distribution process.
A film buyer’s due diligence investigations typically include obtaining (1) a chain of title review, (2) a title report, (3) script clearance, and (4) errors and omissions (E&A) insurance.
1. Chain of Title Review
The process of reviewing the chain of title will involve the distributor obtaining (a) a copyright search report, (b) a UCC and tax liens search and (c) a review of contracts and other legal documents related to the creation, acquisition, license, transfer and assignments of rights relating to the film (the “chain of title documents”).
(a) Copyright Search Report
A distributor usually conducts a copyright search of the U.S. Copyright Office to verify that there are no conflicting copyright registrations or ownership claims concerning the picture. The report may also disclose any licenses, liens or mortgages concerning the film that have been recorded in the copyright office.
In the case of a foreign film, a check will be made of the central film registries in both France and Italy in order to learn what rights are outstanding, including any bank liens, distribution rights acquired by sub-distributors, and profit participations and deferments obtained by talent (such as, the principal cast, screenwriter and director).
(b) UCC and Tax Liens Search
A buyer will check for any UCC-1 (Uniform Commercial Code-1) financing statement filings to determine whether the motion picture has been pledged as security. For example, a bank may have a lien on the film for providing a production loan. A check may also be made for any tax warrants and/or tax liens against the production company, in each state in which the production company has its principal place of business and where reprint materials are located.
(c) Review of Contracts
A distributor will request and analyze various types of agreements. These usually include:
For purposes of copyright ownership and chain of title, a film buyer will want to confirm that the production company has executed agreements with all creative contributors to the film. This begins with a detailed analysis of the option/purchase agreement for the screenplay. If the screenplay is based on any pre-existing work (such as a novel, short story, movie, short film, documentary, TV program, web series, video game, comic book, cartoons, music, art, etc.), all the agreements for the assignment of the copyright to such underlying material as well.
Other agreements regarding creative contributions to the picture which will be analyzed include screenwriting services agreements (for adaptations and revisions of the script), principal cast, director, producer, executive producer, cinematographer, art director, production designer, film editor, unit production manager, associate producer, unit publicist, still photographer, composer, lyricist, conductor, music synchronization licenses, and agreements with anyone else who made a creative contribution to the film.
A film buyer will prefer that the production company owns all the results and proceeds of any creative contributions as “works made for hire,” and that these agreements are in full force and effect (such as, there is no term expiration and all obligations including guild/union obligations have been paid).
The distributor will review all security agreements relating to the film. A security agreement is usually required by entities which financed the film. It grants them a security interest, that is, a financial stake, in the revenues of the film until they are repaid. A security agreement is also required in the case of certain ongoing obligations, debts and duties relating to residual payments to SAG-AFTRA, WGA and other guilds, and possibly to profit participants.
- Profit Participations and Other Payment Obligations
The distributor will likely succeed in rejecting all provisions in agreements which deem to create any payment obligation or liability on the part of the distributor, such as deferments, profit participations and residuals to third parties. Therefore, if there are any lien holders or profit participants, the production company should obtain their agreement not to interfere with the distribution of the film, and only to enforce their rights against the production company.
The distributor will review all financing agreements in connection with development, production and distribution of the film, including any agreements for negative pickup, production loan, presale, gap/mezzanine, foreign co-production, private equity, prints and advertising (P&A) financing, and talent investments or deferrals.
The distributor will review all agreements regarding billing and credit obligations, such as the type of credit, when and where the credit is to be given, and size and location in relation to other credits of those who contributed services to the film. A distributor will expect to receive the credit requirements with respect to on-screen credits as well as for paid ad credits (since it may be creating marketing materials for paid advertising).
It will also be necessary for a film buyer to obtain a laboratory access letter from the distributor for each laboratory holding the film or video elements so that necessary film materials (such as prints as well as promotional materials) can be ordered by the distributor and others (such as licensees).
2. Title Report
A buyer will obtain a title report for the title of the film, to determine whether the title infringes on any other rights in films, books, songs and plays with the same or similar name or title. The issue is whether there’s a likelihood that the public will confuse the film being acquired with another work. if the distributor is a signatory of the Motion Picture Association of America (MPAA), it will be legally required to conduct a title search of the MPAA Title Registration Bureau (TRB) to verify that the movie title is available for use. Though the title of a film cannot be copyrighted, a certain number of Hollywood titles are protected by the TRB, to prevent public confusion over similarly titled films.
3. Script Clearance
Although the production company, licensor or rights holder may have all of the ownership rights necessary to enter into the distribution agreement, a buyer will want assurances that the picture and its elements do not violate the rights of third parties. As part of the materials to be provided by the production company, the distributor may require a script clearance. “Script clearance” means that an entertainment attorney or a clearance service will go through the script and create a report that flags potential legal problems relating to copyright, trademark, defamation, and right to publicity and privacy issues.
The production legal counsel for the production company would have read the screenplay to become familiar with it, to see if the work is original, that it does not violate copyright or trademark, and does not defame or invade the right of privacy/publicity of any party. The screenplay may identify persons by name, life story or likeness, may be set in specific locations (which may be real or fictional), may utilize a particular company’s brand, logo, slogan or product, as well as materials from various sources, such as clip, art or still photographs. In order to avoid subsequent legal claims, the “clearing” process may require the production company to obtain a release or releases to use the particular trademark or copyrighted work, or the name, story or likeness of an actual person (living or deceased), or location in the script.
(a) Name, Life Story and Likeness
The name, life story and likeness of third parties who can be identified in the film must be cleared. Pursuant to §§ 50-51 of the New York Civil Rights Law, a person has the right to keep her private life out of the public eye. Therefore, it is important to confirm that no elements of the film constitute an invasion of privacy or violation of the right of publicity of anyone. If the film uses someone’s name, phone number, picture or other personal details, the production company must get a written release from that person. Licensing someone’s “life story rights” usually means that she waives her right of privacy and right of publicity. In addition, even if the film is based on a true story, biography, or true events, such as a documentary or news report, if the depiction of someone, even a public figure, is false, then the distributor as well as the production company can be liable in a litigation for libel or defamation.
A distributor will also be concerned with any name and likeness provisions in the production company’s talent agreements, such as how the actors agree to be portrayed in posters, paid ads, publicity photos and other marketing materials for the film. Such provisions should allow the production company to be able grant to a distributor the unrestricted right to use the names and likenesses of the actors and other personnel for publicity purposes (other than for endorsement purposes) in the release or marketing and distribution of the film.
(b) Music Licenses and Clearances
Unless the music is created as a “work made for hire,” it must be cleared and licensed for use in the film, both for synchronization (or “synch”) rights and for master use rights. Synch right is the right to use the musical composition in synchronized relation to the images in the film. A synch license is usually obtained from the music publisher (including the original songwriters or composers). Master use right is the right to use the master recording of the music or song. A master use license is usually obtained from the record producer or label. However, both sync rights and master use rights may also be obtained from a specialized music publisher, such as Warner/Chappell Music or Sony Music Entertainment, or a production music library service, such as Associated Production Music (APM Music).
(c) Clip, Art and Still Photography Licenses
When a previously created audiovisual work, such as a video clip or stock footage, is used in the film, the production company must secure a film clip and stock footage license (including the use of any underlying music in the clip). Similarly, the use of any still photograph, design, artwork or a painting may also require a license, even if just seen in the background of a scene. Even a tattoo artist’s design on an actor’s body may need clearance, and in some cases, permission of the owner of a painting may also be required.
(d) Trademark Clearance
If any identifiable trademarked product, brand, logo, slogan or phrase is used in the film (other than in an incidental manner), it may need to be cleared and licensed for that specific use. In the case of a product placement, the production company will have an agreement to feature a company’s product (including its logos or packaging) in the film, in exchange for cash payments or in-kind contributions to the film.
If any of the filming takes place on any private property that is identifiable in the picture, specific releases should be obtained from the owner of such property.
4. Errors and Omissions (E&O) Insurance
In addition to obtaining assurances regarding proof of ownership (chain of title), and title and script clearance of the picture, a buyer will almost always require the production company to provide proof it has obtained an errors and omissions (E&O) insurance policy. The distributor may even require that it be named as an additional insured under this policy.
E&O insurance covers any problems with rights acquisition, such as the script, underlying rights, characters, trademarks, music, clips and stock footage, images of celebrities and artwork. E&O insurance provides protection from lawsuits that allege invasion of privacy, plagiarism or pirating of ideas, copyright infringement, defamation (libel or slander), trade libel (degrading or defamation of products), and trademark infringement (including infringement of slogan or film title).
Before the production company can be issued an E&O insurance policy, it must provide an insurance company or insurance broker with all of the same chain of title and clearance documents that a distributor would require in a content acquisition. As a result, if a film has obtained E&O insurance, a distributor may not be as concerned about doing the due diligence checks. However, if the production company is unable to produce all of the paperwork necessary to obtain an E&O insurance, it may be impossible for it to sell the film to a distributor.
E&O insurance is often expensive for an independent production, and many indie producers will not be able to secure it prior to securing distribution. However, From the production company’s viewpoint, it is wise to ensure that it will be ready to supply all of the paperwork necessary to convey unencumbered title, right or license in the film, when the time comes for the acquisition to complete.