Finally…Equity Crowdfunding!

 
 

Under the 2012 Jumpstart Our Business Startups Act (“JOBS Act”) the Securities and Exchange Commission (“SEC”) was required to adopt rules to allow equity Crowdfunding. The new rules promised an easier way for startup companies; and filmmakers in particular, to raise money to finance their projects. It took the SEC more than three years to adopt the rules to permit filmmakers to offer and sell securities because the SEC struggled to balance demands for fewer SEC requirements with warnings to protect investors from potential fraud.

Crowdfunding is using the internet to raise financing from the public for the purposes of financing projects. With the new rules, filmmakers can now use funding portal websites like Kickstarter and Indiegogo to find equity investors for their films.  

An equity investor is someone who invests money to make your film by buying equity shares and if the film is profitable they get their initial investment back and a percentage of the profits. The rationale is these new rules will likely encourage small investors to participate in film investments providing filmmakers with more money to make films.

$1 Million Limit

Equity Crowdfunding will be available to any investor regardless of their income or net worth. Investors with annual incomes or a net worth of less than $100,000 can contribute up to $5000 annually. Wealthier investors can contribute as much as 10 percent of their annual income or net worth, up to a maximum of $100,000 in one year. Filmmakers are limited to raise a maximum aggregate amount of $1 million through Crowdfunding offerings in a 12-month period.

Filmmakers

Filmmakers relying on the new Crowdfunding rules are required to, among other things:

offer the securities through a registered broker-dealer or SEC-registered Crowdfunding "portal"; use one Crowdfunding portal at a time; make significant disclosures about the production company including its founders, business plan, use of proceeds, financials, any related party transactions and other key information; and file an annual report with the SEC and provide it to the investors.

Funding Portals

A funding portal, like Kickstarter or Indiegogo, is required to register with the SEC on new Form Funding Portal, and become a member of a national securities association (currently, FINRA).  Additionally, under the new rules, to reduce the risk of fraud, the funding portal is required to provide financial information to investors about the investments being offered; and disclose the compensation the portal receives for selling the equity shares.

Rules In Effect

The new rules and forms will become effective 180 days after they are published in the Federal Register, except the forms enabling funding portals to register with the Commission, will become effective January 29, 2016. 

 

Contact my office if you need assistance. We will organize and file the proper forms with the Crowdfunding Portal on your behalf allowing you more time to focus on your film.

 

 

View Sample Theatrical Distribution Agreement

DISTRIBUTION AGREEMENT

*For Educational Purposes Only*
*Provided By Law Offices of Akua Boyenne *
310.858.5538 akua@boyennelaw.com
www.boyennelaw.com

THIS AGREEMENT made and entered into as of _________________, 2015 is made by and between _________________, (“Distributor”) and ________________ (“Producer”). In consideration of their respective covenants, warranties and representations, together with other good and valuable consideration, Distributor and Producer hereby agree as follow:

1. PICTURE: Producer will deliver to Distributor the documentation, advertising and physical materials (the “Materials”) set forth in the Delivery Schedule (see Exhibit A), relating to the motion picture, currently entitled:  ”_________________” (the “Picture”)

2. RIGHTS GRANTED: Producer hereby grants to Distributor the irrevocable, right, title and interest in and to the distribution of the Picture, its sound, and music in the territory (as hereinafter defined) including without limitation, the sole, exclusive, and irrevocable right and privilege, under Producer’s copyright and otherwise, to distribute, license and otherwise exploit the Picture, its image sound and music, for the term (as hereinafter defined) throughout the territory (as hereinafter defined) for Theatrical, Home Video/DVD, Television, Video On Demand(VOD), and Internet media.

Such rights do not include the rights to produce other motion Pictures, or sequels, or remakes of the Picture or any right to produce television series, mini series, or programs or other so-called ancillary rights (herein called “Reserved Rights”).

3. RESERVED RIGHTS: All other rights not expressly written herein, including but not limited to, electronic publishing, print publication, music publishing, live-television, radio and dramatic rights are reserved to the Producer.

 

4. TERRITORY:  The territory (herein “Territory”) for which rights are granted to Distributor consists of the United States, its territories, possessions & military bases, and English-speaking Canada.

5. TERM:  The rights granted to Distributor under this Agreement will commence on the date of this Agreement and continue thereafter for two years (the “Initial Term”). If Distributor pays Producer $100,000 or more in the Initial Term, Distributor shall automatically have the right to extend the term for another two year term “a Subsequent Term”). During this Subsequent Term (and additional subsequent terms if extended), Distributor shall have the option of extending the term for additional two year periods (up to a total term of no more than ten years) if the following thresholds are met:

a) Initial Term: If $100,000 has been paid to Producer, then Distributor may extend the term for another two years (the First Extended Term).

b) First Extended Term: If $200,000 cumulatively has been paid to Producer during the Initial and First Extended Term, then Distributor may extend the term another two years (Second Extended Term).

c) Second Extended Term:  If $300,000 cumulatively has been paid to Producer during the Initial, First and Second Extended Term, then Distributor may extend the term for another two years (the Third Extended Term).

d) Third Extended Term:  If $400,000 cumulatively has been paid to Producer during the Initial, and First through Third Extended Term, then Distributor may extend the term for another two years (the Fourth Extended Term).

6. DELIVERY MATERIALS:  The Picture will be delivered as follows:

a) On or before _________________ Producer will deliver to Distributor the materials specified in Exhibit A hereto, accompanied by a fully executed lab access letter (irrevocable for the term) for access to the Master materials.  If any said materials are not acceptable to Distributor, Distributor will notify the Producer of any technical problems or defects within (10) business days and Producer will promptly replace the defective materials at Producers’ sole expense. Distributor shall have no right to terminate this Agreement unless and until Producer has failed to cure any such defects within thirty (30) days after notice thereof from Distributor.  If no objection is made within ten business days of delivery of an item, the item will be deemed acceptable.

7.  ADVANCE/GUARANTEE: There shall be a non-refundable advance of $______________, payable on execution of this agreement.

8.  ALLOCATION OF GROSS RECEIPTS:  As to proceeds derived from Distributor’s exploitation of all rights outlined in Paragraph 2, division of the Gross receipts will be made, as follows:

a) From the Distributors exploitation of Theatrical, Television, Home Video/DVD, Video on Demand, Internet and any other Granted Rights, Distributor shall deduct and retain twenty percent (20%) of Gross receipts.

b) From the remaining revenues Distributor shall recoup all recoupable expenses related to the prints, marketing, advertising and sale of the Picture.

c) The net proceeds shall be paid to Producer.

d) Gross Receipts:  As used herein, the term “Gross Receipts” shall mean all monies actually received by and credited to Distributor less any refunds, returns, taxes, collection costs and manufacturing or duplication costs.

e) Deductions from Gross Receipts shall be taken in the following order:

1) Distribution fee (20%)

2) Recoupment of any advance and any recoupable Delivery Expenses incurred by Distributor

3) Recoupment of any recoupable Promotional Expenses incurred by Distributor.

4) Net Proceeds shall be paid to Producer.

9. RECOUPABLE EXPENSES:  As used herein, the term expenses and/or recoupable expenses shall mean all of Distributor’s actual expenses on behalf of the Picture limited as follows:

a) Promotional Expenses: These expenses include the cost of preparing posters, one-sheets, trailers and advertising. Distributor agrees to spend no less than $25,000 and no more than $40,000 on promotional expenses. These expenses are limited to direct out-of-pocket expenses actually spent on behalf of the Picture. At Producer’s request, Distributor shall provide receipts for each and every expense or forgo recoupment. Recoupable promotional expenses do not include any of Distributor’s general office, overhead, legal or staff expenses or any of the aforementioned Market Expenses. Distributor agrees to spend the minimum necessary to adequately promote the Picture, including preparation of a trailer, poster, one-sheet, videocassette and customary promotional material.

b) Delivery Expenses: Delivery Expenses are the direct out of pocket costs incurred by Distributor to manufacture any of the film or video deliverables (as listed on Exhibit A) which Producer did not supply. At Producer’s request, Distributor shall provide receipts for each and every expense or forgo recoupment. Recoupable Delivery Expenses do not include any of Distributor’s general office, overhead, legal or staff expenses or any of the aforementioned Promotional or Market Expenses.

10.  ARBITRATION AND JURISDICTION: Any controversy or claim arising out of or in relation to this Agreement or the validity, construction or performance of this Agreement, or the breach thereof, shall be resolved by arbitration in accordance with the rules and procedures of the Independent Film & Television Alliance (IFTA), said rules may be amended from time to time with rights of discovery if requested by the arbitrator. Such rules and procedures are incorporated and made a part of this Agreement by reference.

Paragraph headings in this Agreement are used for convenience only and will not be used to interpret or construe the provisions of this Agreement.

IN WITNESS WHEREOF, the parties have executed this agreement as of the date hereof.
By:_______________________________

Its:_______________________________

ACCEPTED AND AGREED:

__________________________________

_________________ on behalf of ______________

*For Educational Purposes Only*

*Provided By Law Offices of Akua Boyenne *

310.858.5538 akua@boyennelaw.com

 

EXHIBIT “A”

 

DELIVERY REQUIREMENTS

Delivery of the Picture shall consist of Producer making delivery, at Producer’s expense, to DISTRIBUTOR or to a reputable laboratory with lab access letter, all the items set forth below.

I. PICTURE ITEMS

1. Original Picture Negative.

2. Soundtrack Negative.

3. Answer Print

4. Videotape Master:  a videotape master of the original motion picture and television version thereof.

5. M & E Track: the music track and the effects track on separate channels.

6. Sound Tracks:  separate dialogue tracks, sound effects tracks, and music tracks.

7. Complete Materials to Create Trailer.

II. DOCUMENTATION

1. Continuity Script: two copies of the dialogue cutting continuity (in English), being an accurate transcript of dialogue, narration and song vocals.

2. Title Sheets: one typewritten list of all words appearing visually in the Picture suitable for use in translating such words into another language.

3. Music Cue Sheets: two copies of a music cue sheet showing the particulars of all music contained in the Picture, including the sound equipment used, the title of each composition, names of composers, publishers, and copyright owners.

4. Copyright Information:  information as to the copyright proprietor(s) of the Picture, as well as copies of all copyright registrations, assignments of copyrights, and/or copyright licenses in Producer’s possession (or in the possession of Producer’s agents or attorney).

5. Chain of Title:  copies of all certificates of authorship. Licenses, contracts, assignments and the written permissions from the proper parties interest, establishing Producer’s “Chain of Title” with respect to the Picture and all elements thereof and permitting Producer, and its assigns to use any musical, literary, dramatic and other material of whatever nature used by Producer in the Production of the Picture.

6. Screen Credit Obligations:  a copy of the screen credit obligations: for all individuals and entities affiliated with the Picture

7. Color Slides: at least 20 color slides (35 MM color transparencies) and any available prints of black and white still photographs and accompanying negatives, and at least 20 color still photographs and accompanying negatives depicting different scenes from the Picture, production activities, and informal poses, the majority of which depict the principle members of the cast.

8. Website materials: artwork, text, bios and any other background material needed by DISTRIBUTOR to market the Picture on its website.

9. Shooting Script

10. Copyright Certificate: two U.S. Copyrights (Stamped by the library of Congress). If the copyright application has not yet been received from the Library of Congress, then Producer shall deliver a copy of the Application PA form, along with a copy of the cover letter and two (2) copies of the Copyright Certificate to DISTRIBUTOR when received from the Library of Congress. If application has not been made DISTRIBUTOR shall apply for the U.S. copyright at Producers expense.

*For Educational Purposes Only*

*Provided By Law Offices of Akua Boyenne *

310.858.5538 akua@boyennelaw.com

Creative for Hire: Who Legally Owns The Work?

Have you ever hired someone to design a web page, write an article for publication, draw an illustration for a book, shoot photographs for your story or a wedding? Or has anyone contributed material to your new book, your new reality TV show, or your new musical composition? If so, have you asked yourself: Who legally owns the work?

Most people mistakenly assume that since they paid for someone to create the work, or since the other individual’s contribution was only relatively a small portion of the work, the person who paid for the work has exclusive copyright ownership. Copyright ownership is extremely important because it determines who receives credit for the work and who controls the use of the work.

The 1976 Copyright Act
According to the Copyright Act of 1976, the copyright ownership “vests initially in the author or authors of the work.” In general, the author is the person who actually creates the work. Therefore, should third parties such as a web designer, a writer, an illustrator or a photographer contribute to your work, under copyright law, they may be considered the copyright or co-copyright owner of the work.

Work Made For Hire (“Work For Hire”)
Although the general rule is that the author is the person who actually creates the work (i.e., the web page, the writing, the drawing, the photographs, etc.), the copyright act provides an important exception to the rule called “work made for hire.” That is, the employer (or the person who hires an independent contractor), rather than the employee is considered the author and owner of the copyright.

There are two distinct ways that a work will be classified as a “work made for hire.” They are the following: 1) the work is created by an employee within the scope of employment; or 2) the work is created by an independent contractor that falls within one of the nine statutory categories.

Works Created By An Employee
A work created by an “employee” within the scope of employment is considered a work for hire. To determine who is an “employee”, the Supreme Court in CCNV v. Reid identified certain factors that characterize an “employer-employee” relationship. Some of the factors include: 1) the employer controls how the work is done by the employee; 2) the employer controls the employee’s schedule in creating the work; 3) the employer is in the business to produce such works; and 4) the employer provides the employee with benefits and withholds taxes.

All or most of these factors characterize a regular, salaried employment relationship. Therefore, should an individual be deemed an employee, the employer is the rightful copyright owner of all the work created by the employee within the scope of employment.

Works Created By An Independent Contractor
Work for hire situations also occur when an independent contractor has been hired to create a specially ordered work. For such a work to qualify as a work for hire, the following conditions must be met: 1) there is a written agreement between the parties specifying that the work is a work made for hire, and 2) the work falls within one of the nine statutory categories: a contribution to a collective work, a part of a motion picture or other audiovisual work, a translation, a supplementary work, a compilation, an atlas, an instructional text, or as answer material for a test.

Therefore, the person who hired the independent contractor, will be deemed the copyright owner only if there is a written work made for hire agreement and the work falls within one of the statutory categories mentioned above.

Copyright Assignments
If the work does not fall clearly within one of the nine statutory categories, a basic work for hire agreement will not be legally sufficient to establish copyright ownership. In order to establish your copyright ownership, the work for hire agreement must also contain an assignment of the entire copyright.

Conclusion
Whether you are a business owner, musician, writer or producer, you spend a lot of time and/or money developing your work. Beware when other individuals contribute to your work, that are not employees or independent contractors whose work fall within one of the nine statutory categories, they may be deemed the copyright or co-copyright owners. Therefore, to avoid any potential copyright lawsuits, a well drafted work for hire agreement must be used to establish legal ownership and control of the work.

Negotiating Music for Films

Producers should always “clear” music before placing it in their film. To “clear” music means to obtain permission from the music owners to use their music in the film. If a producer fails to secure permission before placing the music in the film, the music owner(s) can have the court issue an injunction to prohibit distribution of the film or the music owner can charge exorbitant fees for the use of the music. At that point, the producer must then decide to either pay the inflated fees or remove the music from the film.

Generally, there are two ways to obtain music for a film. The first way is to hire someone (i.e. composer) to create music specifically for your film. The second way is to use pre-existing music (i.e. music not created for the film). The scope of this article is limited to the very basic issues affiliated with using pre-existing music in film.

Pre-Existing Music
Pre-existing music (not in public domain) has two separate copyrights: 1) the copyright in the song (the written lyrics and music); and 2) the copyright in the sound recording (an artist’s master of the song). For example, the song “(You make me Feel Like) A Natural Woman” was written by songwriter Carole King, but sung on a sound recording by performing artist Aretha Franklin. Therefore, if a producer wanted to use Aretha Franklin’s recording of Diane Warren’s song in a film, then that producer must negotiate with the copyright owners of both the song and the sound recording.

When a producer uses pre-existing music, he does not buy the copyright, but rather the producer obtains a “license” to use the song and/or sound recording. A license is written permission from the copyright owner(s) to use the music in the film. Consequently, the producer must obtain two licenses: a “synchronization license” for the song and a “master use license” for the sound recording of the song.

Synchronization License
In order to use the song, the producer must obtain a synchronization (“synch”) license. The synch license allows the producer to reproduce the music on the soundtrack of the movie in synchronization with the filmed images. Producers obtain synch licenses from the owners of the copyright. Sometimes, songwriters sell or assign their copyright in a song to a publisher. Therefore, the producer must locate the publisher of the song. However, if the songwriter does not have a publishing deal, than the songwriters themselves may license their own work and the producer will negotiate directly with the songwriter.

Many factors are taken into consideration when negotiating the fee for the synch license. For instance, an issue for negotiation may be how you intend to use the music: whether it is background music; whether it is performed in the movie; whether it is used as the title of the movie, etc. Also taken into consideration is: the length of the song; the popularity of the song; whether the song is an unknown song used for small budget independent film or a popular song used in a studio’s high budget film, etc. Accordingly, the fees for synch licenses vary greatly with the usage and the importance of the song.

Master Use License
A master use license must be obtained when a producer uses a pre-existing sound recording of music in the film. The license permits the use of the master of the song. Typically, the producer will obtain the master use license from the artist’s record company which usually owns the masters. However, if the artist is not under contract with a record company and still owns the master recordings, then the producer will deal directly with the artist.

The fee to use the master depends on: the popularity of the song, the stature of the artist, how the song is used in the film, the length of the song, etc. Therefore, fees to license the recording can range from several hundred dollars for an unknown artist to thousands of dollars for the work of a well-known artist.

When obtaining rights, the producer must also negotiate to obtain rights worldwide, for the full term of the copyright, and in all medias including: all television rights, home video, interactive and multimedia, etc.

Conclusion
Obtaining the necessary licenses for the use of pre-existing music in a movie’s soundtrack can be a very complex process. Producers must obtain the correct licenses according to the needs of their particular film production. Failure to clear music properly and up front will place the producer in a weak negotiating position and allow the music owner(s) to charge exorbitant fees and possibly delay or even prevent the exhibition of the film.

Hybrid Deals

Sundance Film Festival starts this week and the hot topic is “hybrid deals” – making a deal to open your film in theaters and on VOD the same day.

Everyone wants to repeat the recent success of “Margin Call” (starring Kevin Spacey) which was made for $3.4 million, opened “day and date” taking in $5.3 million in domestic box office and $5 million in VOD.

The filmmakers behind “Margin Call” turned down deals with higher upfront advances and higher P&A, instead making a hybrid deal in the belief that an all-platforms at once release would reach the largest audience and make the most money. It did.

Sundance is expected to be the beginning of “hybrid deals” being an essential part of an independent film’s distribution deal, according to Variety.

Some will say these deals have been around for several years, with IFC and Magnolia both doing day and date releases. But the big difference, as the LA Times reports, is that those distribution plans had films playing in only half a dozen theaters as well as VOD. The big change, as we saw with “Margin Call” in October, was opening in 56 theaters and then expanding to 199 theaters. This is what makes the hybrid deal suddenly exciting for independents.

The result for distributors Lionsgate and Roadside Attractions was a domestic box office gross of $5.3 million along with a much higher than expected take of $5 million from VOD. Research indicates that people who purchased movie tickets were unaware it was available at home from their cable companies. One strong source of VOD sales came from hotels where business travelers watched the story of a Wall Street firm’s collapse during the 2008 financial crisis. It’s believed that the business traveler audience would never have gone to see “Margin Call” in a movie theater. Also Kevin Spacey was a good draw.

We’ll be tracking the hybrid deals as they are made at Sundance, looking to see how big and how fast this new trend is taking off.

Why did SAG and AFTRA merge?

In a huge turnout, over 80% of the voters from SAG and AFTRA chose merger, when in 1999 and 2003 they couldn’t get 60%. So what changed? Why now? And what does it mean to you?

Clearly the two unions are stronger and more unified when combined. The New York Times described the merger as creating “the largest and most powerful union in the entertainment and media industries.”

The approval joined the Screen Actors Guild (SAG) — which represents actors in movies, television and commercials — with the American Federation of Radio and Television Artists (AFTRA), whose membership extends to journalists, talk show hosts, broadcasters, singers, dancers, announcers, and disc jockeys. The new union membership is over 150,000 people.
The Los Angeles Times said they merged to gain more leverage in contract negotiations with studios and to end a long history of jurisdictional disputes and feuding over negotiating strategy.

The Associated Press said the decision to negotiate the prime-time TV and movie contracts separately in 2008 and 2009 caused a rift that allowed the studios to play the unions off each other. That strategic mistake led SAG members to bring in new leaders, who made merging a top priority.

The merger also makes the unions financially stronger. SAG-AFTRA aims to build a reserve fund to enable members to strike for six months if necessary.

Variety sited other reasons for the union: solving the problem of performers not qualifying for coverage under separate SAG and AFTRA health and pension plans and a logical response to the trend of consolidation among entertainment conglomerates.

But fear was a critical factor that motivated the formation of SAG-AFTRA. Both unions have watched the rapid erosion of union power across the country. In states like Wisconsin, Ohio, Indiana, and Michigan, an anti-union battle has been waged by powerful interests that have set back the labor movement. It was time for SAG and AFTRA to set aside their differences and become a more powerful force against the studios.

New Online Era

Recent deals indicate movies on the Internet are ready to become a gold mine for film producers. For years, it seemed like Netflix and iTunes were the only providers of online movies; and unfortunately, they did not pay producers a lot of money.

But suddenly new Web-based services are appearing everywhere and are aggressively buying movies and television shows. Verizon and Redbox have teamed up to provide a movie streaming service. Google and YouTube are expanding their movie services. Also ramping up are iTunes, Hulu, Best Buy’s CinemaNow, and Walmart’s Vudu.

And as the New York Times reported, increased demand from these on-line services means higher prices for both studios and independent film producers. For this year alone, Netflix is paying producers a total of $1.8 billion for the rights to stream films.

And not only the studios, but also independent film producers, are seeing a robust, accelerating online market for their films. Low-budget films are getting revenues up to $500,000 from video-on-demand services. A new era is beginning in the film industry that will provide new sources of revenue for the independent producer.

It’s Official…Equity CrowdFunding!

If you recall, back in April 2012, Congress passed and the President signed theJOBS Act (Jumpstart Our Business Startups) into law.

The rationale behind the Act was to stimulate the economy by relaxing regulations on raising capital for startup companies. This was great news for filmmakers because the Act made it so much easier for filmmakers to raise financing for their films.

However, the Act did not go effect because the Securities and Exchange Commission (SEC) required additional fine-tuning of the rules and regulations in order to protect investors.

On March 25, 2015, after three years of prolong waiting, the SEC finally announced the final set of new rules, Regulation A+ offerings, which makes it easier for filmmakers to access equity finance through crowdfunding.

With the new rules taking effect within 60 days, filmmakers can now utilize crowdfunding to offer more than just t-shirts and coffee mugs for donations.

The New Regulation A+ offerings

Equity Crowdfunding Websites: Now filmmakers can use Regulation A+ offerings to raise equity finance on crowdfunding websites. Essentially, this means you can use the internet to find equity investors for your film. Unlike the donation paradigm, an equity investor is someone who gives you money to make the film by buying equity shares and if the film is profitable they get their initial investment back and a percentage of the profits.

All Investors: For the first time ever, filmmakers can solicit investments from allinvestors, not just accredited investors (net worth exceeds $200k), but the general public. In other words, you can raise money from the entire “crowd.” For the first time, unaccredited investors (net worth $200K or less) can invest up to 10% of their annual income or net worth (excluding their home).

Money raised: Since the SEC significantly increased the funding limits, now you can raise up to $50M in equity financing.

Advertisement and solicitation: You can publicly solicit, market, and advertise to investors anywhere, including all forms of social media.

Disclosure Documents

The new law is a game changer. It will change the landscape for film financing forever. However, you still must comply with the existing SEC rules that include: completing lengthy documentation, submitting detailed information to the SEC and waiting for approval before accepting money from investors.

Contact my office if you need assistance. We will organize and file the proper forms with the SEC on your behalf allowing you more time to focus on your film.

The Option-Purchase Agreement

Option-purchase agreements are used in many situations to acquire rights to literary property (i.e. books, screenplays, stage plays, magazine articles, etc.). For instance, producers (and studios) often use option-purchase agreements to obtain the right to make a movie based on a writer’s screenplay. That is, producers use this agreement to obtain permission from the writer to use the desired literary property.

A full discussion of optioning literary property is not within the scope of this article. However, this article will briefly address a few of the material terms negotiated in the option purchase agreement. In particular, the article will address: 1) The scope of rights 2) The option fee 3) The option period 4) The purchase price; and 5) The writer’s credit.

The Scope of Rights
Typically, when a producer seeks to obtain movie rights based on a writer’s screenplay, the producer will also negotiate television rights and the right to release it in ancillary markets such as home video and new media.

Experienced producers always attempt to acquire all the rights. In the event that the movie is successful, the producer wants the rights to also make sequel and remakes.

Conversely, smart writers reserve certain rights: publication rights, stage rights, radio rights, rights to characters (for a sequel book), music publishing rights, etc.

The Option Fee
The option fee is used to secure exclusive rights in the literary property for a specified period of time. The producer pays the writer a small down payment, the option fee, in exchange for the exclusive right to develop the property by attaching actors, finding a director and arranging financing.

At this point, the producer has not actually purchased the rights to the property, but rather, has secured the exclusive right to purchase the negotiated rights for a certain period into the future.

It is a smart way for the producer to secure rights in the property by paying a fraction of the purchase price while developing it and thereby avoiding having to pay the full purchase price until going into principal photography (shooting the film).

For example, let’s say you, the producer, read a screenplay written by the writer and you want to make a movie out of it. Rather than buying the rights by paying the full purchase price of let’s say $50,000 (before you are sure you have the actors, director and financing), you offer the writer a negotiated fee of $5,000 for a one year option to obtain exclusive rights to the property. Often the option fee is 10% of the purchase price and sometimes the option fee is free. Overall, the option fee is highly negotiable.

The Option Period
The initial option period is usually for one year (it could be more or less). Frequently, the producer wants an extension for two, or more additional one year options, allowing more time if needed to develop the project.

The option extension must be exercised before the proceeding option period expires. If the producer fails to extend the option or actually purchase the rights, the writer retains all the option money and all the negotiated rights.

The Purchase Price
When the producer is confident that the project is going into principal photography, the producer (or studio) exercises the option to buy the writer’s screenplay. This means that the producer pays the purchase price to the writer to transfer the negotiated rights to the producer.

The purchase price depends on whether the agreement is subject to WGA terms. A project is subject to WGA terms if the writer is a member of the WGA or if the producer is a signatory of the WGA (see www.wga.org).

If the agreement is not subject to WGA terms, the general practice is to pay 1.5%-5% of the budget of the film for all the rights needed to make the movie. Many times the purchase price will have a “floor” (the minimum amount) and a “cap” (the maximum amount) in order to keep the price within a reasonable range.

Writing Credit
If the agreement is a WGA deal, it’s simple, the WGA will determine the writer’s credit. The WGA agreement states that the writer’s credit will be the same size as the director’s credit on the screen. Furthermore, the writer’s credit will appear immediately before the director’s credit in the main titles and will appear in all paid ads except specific negotiated exclusions.

If the agreement is not subject to WGA terms, the writer’s credit is negotiable. Writers should negotiate a deal that parallels the terms and conditions in the WGA agreement, even if the writer is not a WGA member and the producer is not a signatory of the WGA, to protect the writer’s credit position.

Conclusion
This article is only a preliminary overview at the myriad of potential terms and issues triggered when negotiating an option-purchase agreement. It is essential that all the key terms and issues of the option-purchase deal be negotiated and put in writing. Therefore, it is important to seek advice and guidance from experienced legal counsel before negotiating and signing an option-purchase agreement.

The New Music Business Model: The 360 Deal

 

Due to the onslaught of the digital age and internet piracy, the traditional economic structures of the music industry have changed dramatically. As a result, CD sales have been plummeting for several years and major record companies such as Universal, Sony/BMG, Warner Music and EMI have been forced to create new business models in order to increase financial profits.

Old Approach
Prior to internet piracy cutting into their profits, major record companies generally made most of their money by selling CDs. The formula was typically the following: the record company paid a cash advance to sign an artist and then the company would make sure that their expenses were first recouped before they paid the artist a relatively small percentage (approximately a 15% royalty) of the record sales. The record companies kept the larger share and made out very handsomely. Since the record sales accounted for most of the profits, the record companies structured deals allowing the artist to keep monies in the once less profitable ancillary income streams of touring, merchandising, endorsements, etc.

Paradigm Shift
Over the last seven years the music industry’s paradigm has shifted tremendously. The major record companies are now realizing that the huge amounts of money invested in the marketing and promotion of CDs no longer results in hefty CD sales. They finally figured out that instead of increasing CD sales; and consequently more profits for the record companies, their investment actually is generating more money for the artist in the ancillary income streams. Music artists, rather than record companies, are making more money than ever from the ancillary markets. Accordingly, the record companies are structuring new deals to cash in on the profits in the emerging ancillary markets.

New Approach: The 360 deals
To address these new lucrative markets, the record companies have created a new business model called “The 360 Deal” (also known as “multiple rights” and “unified rights” deal). According to record companies, in general, they will provide the artist with greater artist development in exchange for the company sharing in both the traditional CD sales and in the new appreciating ancillary markets of touring, merchandise and endorsements, etc.

The record companies claim that “The 360 Deal” is a win-win situation for both parties since the record companies will provide: the financial strength for marketing and promotion; the relationships with third party entities for endorsements, merchandising, television and radio exposure, etc., and effective means for mass distribution.

Under this new business model, the record company still pays a cash advance to sign the artist. The artist still receives a royalty after expenses are recouped. However, under the new deal, some time after the first advance, the record company has the option to pay an additional cash advance in exchange for a percentage (around 30 percent or more) of the artist’s net income from all touring, merchandising and endorsements, etc.

Conclusion
Although it is too early to determine all the possible ramifications of this new business model, it is clear that under the 360 deal, the record company has a new vested interest in all of the artist’s ancillary markets. Consequently, the company has a tremendous incentive to generate larger profits for the artist in all the income streams. However, the artist must be aware that this also means the company will attempt to control not only the recording process, but also every aspect of the artist’s career: the artwork on the t-shirts, the brands of clothes the artist wears, the touring schedule, the type of products endorsed, etc. Such a trade-off of potentially larger profits for less creative control may not be right for some artists. The terms of the contract must be carefully considered before signing a 360 deal.

How to Protect Your Ideas, Treatments and Screenplays

 

Writers and Producers are always concerned that their work (i.e. ideas, treatments, and screenplays) will be stolen. Unfortunately, whenever you convey your idea to someone, there is really no one way to protect it. However, there are specific steps that you can take to increase legal control of your work. The following steps are not a guarantee against theft, but can be used as a deterrent or as a way to build evidence for trial, if necessary. A full discussion of this topic is not within the scope of this article; however, this article will provide writers and producers with the basic steps to control their work.

Writers Guild of America
Many writers are concerned about theft even before they write the first draft of the screenplay. They know that notes, outlines and general ideas are vulnerable to theft during the initial writing phase. To help address this concern the Writers Guild of America (WGA) provides a registration service to assist writers in the early phases of development. This is important since the U.S. Copyright office does not copyright notes, outlines or general ideas.

During the initial phases of developing your work, use the WGA to register outlines, notes and written ideas. Although filing with the WGA does not establish statutory ownership, it does provide a dated record of the writerÕs claim to authorship and possession of the material being registered. This can be very important because many legal disputes turn on who first possessed the idea. If necessary, WGA registration serves to provide evidence at trial. Registration fees are $20 for non-members and $10 for members. To register your work and receive more information go to www.wga.org or call the Writers Guild of America, West at (323) 951-4000 or (800) 548-4532.

Paper Trail
Whenever writers and producers are pitching ideas and submitting screenplays, they should protect themselves by creating a paper trail. For example, if you are pitching your project at meetings while your screenplay is still under development, follow-up with a thank you letter. The letter serves two purposes: it reemphasizes your project and it creates a record of various material facts such as: proof of the meeting, proof you pitched the idea, proof of the date you communicated the idea, etc. If you are submitting screenplays by mail or email always include a cover letter and follow up with an email to confirm they have received it. Paper trails are important because access to your material is crucial evidence at trial to prove copyright infringement.

Copyright Law
When you have completed your first draft of your screenplay, you should formalize protection by registering your work with the U.S. Copyright Office. Registering your screenplay is proof of ownership. The U.S. Copyright Act protects literary works, dramatic works, motion pictures, audio visual works, etc. when these original works of authorship are Òfixed in a tangible medium.Ó Fixed in tangible medium simply means written down or recorded (i.e. treatment, screenplay, video, film, etc.) In other words, you own the copyright in your work the moment you write it down or record it. Filing a copyright registration form with the U.S. copyright Office gives you protection not otherwise available. If you discover that someone has stolen your work, you can file a copyright infringement case where the court can stop the infringer from using your work and possibly award monetary damages. Currently, the filing fee is $30. To order forms and receive additional information on copyright registration go to www.copyright.gov or call the U.S. Copyright Office at 202.707.9100.

Conclusion
Every established writer and producer followed leads that ultimately culminated in their first option or sale. So, if you are an aspiring writer or producer, you should pursue all credible leads to get your script read by studios, production companies, investors, etc. Remember, there are no guarantees against theft; however, the prudent writer and producer, whether aspiring or established, should take important steps to protect their work. Use the WGA registration service for ideas, concepts and outlines that cannot be registered with the U.S. Copyright office. Create a paper trail while pitching your idea (and submitting your screenplay) for proof of access to your material. And finally, once you have completed your first draft of the screenplay, for the best protection, register your work with the U.S. Copyright office.

PROTECT YOUR LEGAL RIGHTS: Basic Copyright and Trademark Law

PROTECT YOUR LEGAL RIGHTS: Basic Copyright and Trademark Law

There are many steps an artist can take to protect their legal rights in their songs and their name that do not require the use of an attorney. In order to secure protection, an artist should obtain a copyright in their songs and a trademark in their name. A full discussion of copyright and trademark law is not within the scope of this article; however, this article will provide the artist with the basic concepts of copyright and trademark law.

Copyright
A copyright is a property right that provides protection to creators of artistic works such as songs and sound recordings. The Copyright Act gives the owner of copyright the exclusive rights and to authorize others: 1) to reproduce the work in copies or phonorecords 2) to prepare derivative works 3) to distribute copies or phonorecords of the work 4) to perform the work publicly , and; 5) to display the copyrighted work publicly.

Essentially, this means that the original copyright owner controls how their song will be exploited. A copyright is automatically created the moment your original expression of an idea is “fixed in a tangible medium.” In other words, a copyright is created in the song when you write it down or when you record the song on tape or on a device (e.g. CD player). When a song is created there are actually two copyrights: a copyright in the musical composition owned by the songwriter and a copyright in the sound recording owned by the recording artist (if artist is signed to a major record company, the label usually owns the sound recording copyright).

Many artists mistakenly believe that the filing of a Copyright Registration form in Washington, D.C. creates the copyright. However, the filing of a copyright registration gives the artist additional protection in the event of a lawsuit. There are two basic forms: the performing arts “PA” form is used if you are the copyright owner of the song. And the sound recording “SR” form is used if you are the copyright owner of the sound recording. To obtain forms go towww.loc.gov/copyright or call 202-707-3000.

Trademark
A trademark includes any name, word or symbol used in commerce to identify and distinguish the source of a product or service of one party from those of others. Trademark rights can be used by artists to prevent their name or symbol from being used by others. Accordingly, these rights are used by musical performers, groups and companies. Such rights are based on “use” of a name and are created when the owner of the name first uses the name in commerce in connection with goods or services.

Filing a Federal trademark registration application with the United States Patent and Trademark Office (USPTO) creates various rights in court; including the right to sue for trademark infringement. Nevertheless, before filing the application, a thorough search must be conducted to determine whether your name (or a confusingly similar name) is already in use. The search may be conducted by you at certain public libraries, by an attorney or by using a searching service.

Be aware that even if a performer does not file for Federal trademark registration, the use of the name creates rights in the area in which it is being used. Therefore, a limited search of just the Federal trademark registration may be insufficient. For example, if you file a federal registration after using your band name and subsequently learn that an unregistered group had already been using the name, in let’s say the Buffalo area in upstate New York, then under state law, that group (the unregistered group) could prevent you from releasing your record in that state which includes New York City and even sue for damages. Usually, the matter is settled when the registered group buys the rights to the unregistered group’s name.

Once a thorough search has been conducted, the next thing to do is file an application for trademark registration. Every application must include a clear representation of the trademark you want to register. There are two possible trademark formats: (1) standard character format; or (2) stylized or design format. Registration of a trademark in the standard character format provides broad rights, namely use in any manner of presentation. On the other hand, registration of the trademark in the stylized or design format is used to register a mark with a design element or word(s) or letter(s) having a particular stylized appearance.

To obtain forms go to www.uspto.gov or call 1-800-786-9199. You can file your application directly over the Internet or you may mail a paper application to the USPTO. Presently, the filing fee is $325.00 for an electronically-filed application and $375.00 if filed on paper.

Artists can protect certain basic rights by filing their own copyright and trademark applications. However, it is strongly advised that the artist use the expertise of an attorney should questions arise during the submission of the applications; and more importantly, before signing any legally binding agreements.udio or well-known performer.

Starting a Limited Liability Company

Starting a Limited Liability Company

Are you a business owner? Are you thinking about starting a business? Or, are you forming a business in which you may have investors? If you have answered “Yes” to any of these questions, a Limited Liability Company (LLC) may be the right legal form for you.

The LLC is a relatively new way of doing business in the United States. The LLC combines the best characteristics of corporations, partnerships and sole proprietorships and creates one of the most popular business structures in use today. It is ideal for the business owner who is looking for the limited liability aspects of a corporation and the partnership advantage of pass-through taxation. The LLC is the only business form which offers all the following benefits.

Limited Liability
Like the shareholders of a corporation, the owners (called “members”) of an LLC, are not liable for business debts and court judgments obtained against the business. Therefore, under an LLC, creditors cannot pursue your personal assets (i.e. homes or cars) to satisfy business debts.

Tax Simplicity
Like partnerships, LLCs typically, do not pay taxes at the business level. Instead, the LLCs profits and losses are “passed through” to the owners and are reported on the owner’s personal tax returns. Therefore, owners report their share of profits and losses of the LLC on their personal tax returns and no separate tax is assessed on the business itself.

Flexible Management Structure
LLCs have much more management flexibility than corporations. The owners of an LLC are referred to as “members” and act similarly to shareholders of a corporation. LLCs are run by their members unless they elect management by a management election group which may consist of some members and/or nonmembers. However, most small LLCs are usually member-managed where the owners are active participants in the LLC and are integral parts of the decision making process.

Investors
If you are forming a business in which you may have investors who will want to be paid back their investment before the owners receive anything, instead of being restricted to dividing up profits proportionate to the percentage of ownership (as in a corporation) an LLC allows owners to decide what share of the profits and losses each owner will receive.

Recordkeeping
LLCs, unlike corporations, are not required to hold annual meetings and draft meeting minutes. However, an LLC does need an operating agreement that specifies how and by whom the company will be managed, each owners name, the percentage of ownership interest held by each owner, and other rights and responsibilities of the owners and/or managers.

Flexible Distribution of Profits and Losses
An LLC allows you to decide what share of the LLC profits and losses each owner will receive. Unlike the basic legal rule for corporations, LLC owners may divide LLC profits and losses any way desired, rather than being restricted to dividing the profits proportionate to the owner’s capital contributions.

Forming an LLC is similar to forming a corporation. In California, articles of organization must be filed with the secretary of state. Also, LLCs should create a written operating agreement that addresses the rights and responsibilities of the members and/or managers of your LLC. Naturally, before forming a any business entity, you should consult a reputable and experienced attorney.

We here at The Law Offices of Akua Boyenne look forward to answering any and all of your questions and would be happy to assist you in getting your business started right away!

Negotiating Songs Created for Films

Negotiating Songs Created for Films

Generally, there are two ways to obtain songs for films: 1) hire a writer/recording artist to create original songs specifically for the film; or, 2) use pre-existing songs. While there are many legal points to consider, this article will be limited in scope and therefore only address some of the more basic issues associated with independent film producers using songs created specifically for film.

Many film producers would rather hire writer/artists to create songs for their films than go through the trouble of “clearing” and obtaining licenses for pre-existing songs. The producer must first determine whether the writer/artist is under contract with a record label or publisher. If so, then the producer must obtain permission to use the writer/artist’s services to avoid any potential legal problems.

In a typical publishing deal, half of the income is paid to the writer/artist (writer’s share) and the other half is paid to the publisher (publisher’s share). However, it would benefit the producer to hire the writer/artist on a “work for hire” basis. The reason for this is that when the writer/artist is employed as a “work for hire;” the producer steps into the shoes of the writer/creator and becomes the author of the work for copyright purposes. Therefore, the producer controls the publishing. For an independent producer who is involved in a low budget project, this is an extremely important bargaining chip. In order to keep upfront fees to a minimum, film producers can share their publishing income with the writer/artist as a source of payment to the writer/artist. Rather than pay the writer/artist huge fees on the front end, producers can split their publishing revenue 50/50 with the writer/artist and pay the writer/artist with back-end publishing royalties. As owners of the publishing rights, producers can negotiate with the writer/artist the following main sources of publishing income: performance royalties, record royalties (mechanicals) and synchronization income.

Compensation
Public Performance Royalties
When a song is played in a public setting (movie theaters [foreign territories], television, radio, etc.) it generates income for the song owner. Writer/artists and publishers are both represented by public performance societies (ASCAP, BMI and SESAC). These societies are responsible for licensing songs, collecting fees and paying writer/artists and publishers their public performance royalties. When negotiating the deal, producers should emphasize that this income is paid directly to the writer/artist from the public performance societies. Therefore, the writer/artist does not have to deal with the producer’s accounting practices or wait for the producer’s quarterly statements.

Movie Theatres
In the U.S., based on antitrust cases, there is no public performance income generated from movie theatres. However, in foreign territories, substantial revenue (2.5 to 5% of ticket price) can be generated from public performance in theaters. Even for a limited theatrical release, publishing income can be as high as $150,000. This income is not tied to the film’s profits, but is instead tied to the number of screenings.

Television
In the U.S. and foreign territories, public performance royalties are generated when the film plays on television (i.e. cable, pay, network and syndication). For all songs played on television, the public performance societies negotiate blanket royalties with television companies. Based on cue sheets, the television company pays royalties to the public performance societies (ASCAP, BMI or SESAC). The societies then pay the royalty directly to the writer/artist, thereby avoiding any delays caused by the film producer’s accounting practices.

Additional Compensation
Record Royalties (also known as Mechanicals)
Record royalties are generated when there are sales of a record. Overseas, record royalties are based on a percentage of the wholesale of retail price: whereas, in the U.S., the record royalties are based on a flat rate (currently 9.1 cents) per song. If the producer gives the writer/artist all of the publishing and the writer/artist has ten songs on the soundtrack album, the writer/artist can generate 91 cents per album sold (at full statutory rate). Therefore, if 100,000 albums are sold, the writer/artist can earn $91,000 from record sales alone.

Synchronization Income
Synchronization income is generated by use of the writer/artist’s songs in other motion pictures. The money is earned by way of a synchronization license (a “synch” license), which allows the entity licensing the composition from the producer to use it in another film, television program, commercial, songs video, etc. When the film producer owns the synchronization rights, the producer is entitled to all the money from this income. However, when negotiating the deal with the writer/artist, the producer can, if necessary, negotiate that the writer/artist will share this income, as well.

Other Major Contract Issues
Rights
In order to have unlimited ownership of all aspects of the songs, the film producer should seek to obtain the broadest nature of the rights from the artist/writer. If the producer hires the writer/artist as a “work for hire,” this is a given. When the film producer is the owner of the copyright, the producer is able to freely use the songs in other films. The producer can freely use the songs not only in the present film, but also in sequels, remakes, advertising, trailers, etc.

Credit
Another provision that is negotiated is the issue of credit. The most common form of credit is “Song By (Writer’s Name).” Most song credits appear buried in the film’s closing credits. However, as a bargaining tool, if the writer/artist has written most of the songs, the producer can grant the writer/artist a single-frame card credit of “Songs By” in the closing credits, separate from all of the other writer credits. Or, if necessary, the producer can give the writer/artist a spot in the film’s opening credits where the stars, producers and director are listed.

Conclusion
Frequently, by the time independent film producers reach post-production, the film budget has been exhausted. Therefore, when negotiating with writer/artist for songs in the film, producers must make the deal attractive based on back-end royalties and non-financial terms. The producer’s awareness of these potential sources of bargaining power can create the leverage to obtain the desired music for the film.

Writers Beware: Writing and Pitching

The 2007 Writer’s Strike marked a period of uncertainty and confusion for many writers to understand the Writer Guild of America (WGA) Rules. WGA writers are uncertain whether they could continue to write or pitch to non-WGA companies, while non-WGA writers questioned whether they could provide their services to WGA companies.

WGA Writers/ Non-WGA Companies
The WGA established rules for WGA writers during the strike. These rules state “you (and your agent or other representative on your behalf) may not pitch to or negotiate with a struck company, and you may not provide writing services, sell or option literary material to a struck company.”

The WGA rules are fairly simple. However, the rules beg the question as to what is a “struck” company? A struck company is a company with which the WGA has a signatory agreement. This means the companies have agreed to the terms of the WGA’s Basic Agreement. The WGA Basic Agreement addresses minimum pay rates, residuals, pension and health plan contributions, etc. In fact, all major studios and networks have signed the WGA agreement, assigning them as struck companies. For a list and further information regarding struck companies go to www.wga.com.

Conversely, many small companies operate independent of the WGA and have not signed the WGA Basic Agreement. Therefore, they are referred to as non-signatory companies. Since non-signatory companies are not struck companies, the WGA strike rules do not prohibit writers from writing or pitching to these companies. However, when in the slightest doubt, it is strongly recommended that writers consult with the WGA before writing or pitching to any company.

Non-WGA Writers/WGA Companies
Non-WGA members may write and pitch to WGA signatory companies. Yet, it is strongly discouraged. According to the 2007 Strike Rules “the guild does not have the authority to discipline non members for strike breaking and/ or scab writing. However, the Guild is eligible to bar non-WGA the writers from future Guild membership. This policy has been strictly enforced in the past and has resulted in convincing many would be strike breakers to refrain from seriously harming the Guild and its members during a strike.”

In fact, there are many production companies in which writers can pitch and sell their screenplay during the strike. But in doing so, writers must be certain not to violate the WGA rules. Should you have any questions concerning the strike, or information concerning companies you plan to conduct business, the Law Offices of Akua Boyenne are available for your assistance.