In the entertainment field, it is not uncommon for a producer to seek capital (i.e., financing) in order to produce one or a series of films, concerts, comedy shows, stage plays, musicals or other theatrical productions. Such financing can come from one or more individuals, financial institutions, (for- and non-profit) organizations and/or the like. As varied as these sources of financing are, so too can be their respective motivations. An individual or non-profit group may seek to finance a play, for example, for purely altruistic reasons and not expect any return on their investment. A financial institution or for-profit organization, however, may expect to front the producer a certain sum of money with the expectation that a multiple of such sum be returned from the profits of the production. Regardless of the financing source and their motivation, some common considerations should be taken into account when drafting a Production Finance Agreement. (And, yes, you need a written agreement!) These include:
- The Work. Be sure to clearly define the work (or series of works) being financed. The more detail as to format, title, medium, schedule, language(s), production schedule, talent line-up/casting, etc., the less chance of a dispute later on with respect to each party’s expectations and obligations.
- The Money. What is the amount being financed? What is the payment schedule? Will there be an escrow account? What are the payment arrangements?
- Exclusivity. Is this an exclusive or non-exclusive deal? That is, will the producer be allowed to raise funds from multiple financiers or is there a sole source of capital? If there are multiple sources of capital, what it the total amount being raised and how does each financier get their return on investment? Any preferences to such return?
- Artistic Independence. In exchange for receiving the capital, does the producer cede any artistic control to the financier? For example, what comments and suggestions can the financier provide to the producer during production of the work and does the producer have to listen? The artistic independence that the producer retains should be clearly spelled out to avoid the obvious fights that can occur.
- Distribution. The agreement should clearly spell out how, where and when the finished work will be distributed, exhibited, performed, etc. This will allow the “royalty base” to be clearly defined when calculating the financier’s return on investment (if any).
- Publicity. Does the financier want to be publicly acknowledged in the credits, advertising and other marketing collateral associated with the work? Do they want to make a speech during opening night or appear on the red carpet during the premier? Or, are they shy and want to be a silent investor?
- Comps. In addition to a return on their investment as a condition to providing capital, does the financier want certain “comps” (e.g., free tickets, premier reception passes, etc.)?
- Contingency Plans. What happens if there is a change (i.e., delay) to the production schedule? Or, costs overruns? Who is responsible? Who is penalized? Who decides how to mitigate and/or fix such schedule slips or cost overruns? The agreement should address these potential pitfalls that are part of the business. After all, no production goes 100% according to plan!
- Intellectual Property. The agreement should specify who owns or will own the copyright and other proprietary rights to the work and any derivative works. Also, the producer should warrant to the financier that all IP clearances (e.g., music synch rights, etc.) have or will be obtained in producing the work.
- General Provisions. Like all other agreements, a Production Finance Agreement should contain the following standard general provisions: representations/warranties (e.g., the right to enter into the agreement, producer will abide by all union work rules, etc.); indemnifications (for breaches of the representations); insurance (i.e., producer will carry all necessary and customary insurance coverage for all aspects of the production); disclaimers of liability; and severability, choice of law, dispute resolution, assignment, independent contractor, counterparts and integration clauses.
