Entertainment Law Series, Vol. 2: Film Production Legal Concerns
Filmmaking was my first love. I’ve always loved the impact that a good film has on society at large. However, filmmaking is also one of the most labor intensive and expensive expressions of art there is. For productions both large and small, it is important that the head producer(s) (i.e., those in charge of making sure the film is profitable, completed on time, and on budget) consult a competent attorney at the infancy of the project to ensure success and compliance throughout the endeavor.
This blog explores, at a macro level, common legal concerns during early stages of film production. Please keep in mind that smaller budget productions will look much different than large productions. For example, on major film productions you will have executive producers, co-producers, line producers, and associate/junior producers that do a variety of things both big and small for the film. However, despite the size there are some general legal concerns that all film producers should keep in mind.
First, I encourage film producers to look at their project, even on a small production, as a business endeavor. As such, it is wise to form legal business entities (i.e. a limited liability company or a corporation) with your state.
Many producers initially create an incubator entity, commonly referred to as a Development Company. The Development Company, which is controlled by the producer and develops one or more projects, does all the development work for the film project, such as acquiring the underlying literary work or screenplay on which the film is based. When the project is ready to be funded and produced, it is transferred to a separate LLC (the "Production LLC"). Having your development company transfer the rights to the film to the Production LLC insulates the producer's other projects from liability. The Development Company will often still be a manager of the Production LLC. This will provide even more protection to the producer. For example, Disney develops “The Lion King,” and once the film is ready to be produced, Disney transfers the rights to The Lion King, LLC.
By forming business entities, the producer will be able to complete their obligation to the film of controlling the rights and operations of the project, financing in the project, managing the liabilities of the project, and evaluating the tax considerations of the project effectively. Savvy producers will ensure the Production LLC owns/licenses all the rights of the project, maintains its own bank account, has its own insurance, and hires anyone working on the film.
Control of the intellectual property (IP) is the most important right that the production must hold. Producers cannot make a movie of a story they do not own or have the right to tell. As such, the Production LLC must own or license all the intellectual property associated with the film. Intellectual property includes: the right to use the screenplay, the music in the soundtrack, the title of the film, any brand names that appear in the film, ownership of the actors’ performances and many other issues. Distributors will want to avoid all copyright or trademark infringement claims so they will likely thoroughly inspect all the Production LLC’s paperwork to make sure that the Production LLC holds all necessary intellectual property rights.
I stress this because producing a film is usually a very collaborative process and several individuals or entities can bring something to the table and/or hold important IP rights. It is important to have a strong written agreement that sets out the expectations, responsibilities, and rights of each producer. Producers often come and go from productions so, producers should execute a Joint Venture, Collaboration or Joint Owner Agreement with anyone involved in the project at a material level. These documents will explain who is entitled to make decisions with respect to the project, who is responsible for each aspect or task, and what happens if one producer decides to leave the project.
As mentioned above, film production is an expensive endeavor, so financing the film is a leading factor in the success or failure of a project. Films are funded by debt and equity-based financing. Debt is as it sounds - you will be borrowing money from someone else to make the film and you will be liable to fully repay the loan with interest, often before the picture is complete.
For equity-based financing, the producer is looking for investors to join on the project to provide money or influence for a stake in the proceeds of the project. In return, investors will want to see a credible budget and production timeline. The most important and costly document relating to financing is the Private Placement Memorandum (PPM). The PPM is a document that discusses the business plan, the nature and structure of the investment, and the potential risks involved. A PPM is required by US securities law to raise money from investors outside of your family no matter how small the amount involved. The securities laws require full disclosure and notice filings to the federal Securities and Exchange Commission (the "SEC") and by the laws of each state in which investors reside (known as "Blue Sky Laws"). Violations of the SEC requirements and the applicable Blue Sky Laws carry both criminal and civil penalties.
The producer should also be aware of the potential liabilities of the film, meaning the obligations incurred by the film production and the producer’s personal liability for such obligations. It is very common for all those involved in the film to sign several waivers and releases to lower the risk of costly disputes and claims.
Lastly, the one thing that we can never avoid is Uncle Sam. As the film is a business endeavor, you must consider all your tax liabilities and explore any tax incentives that may be available to your film.
This blog is merely a note on things to take into consideration. It is encouraged that you contact a competent attorney to make sure you go over all the legal concerns specific to your project. As you can image, there are several contracts, waivers, and releases that you should have negotiated, prepared, and executed when producing a film that will ensure the viability of the project.
Contact me at Rolanzo@wro-law.com if you have any questions relating to this blog or any other legal concerns that you may have regarding business, entertainment, or technology law.