Thursday, March 01, 2007

LEGAL RAMIFICATIONS OF LOW-BUDGET MOVIE PRODUCTIONS

The below is an article I wrote for several clients back in 2004.

**UPDATE (August 5, 2013): Please note that I have written an updated version of this guide.  It can be reviewed at: Six Stages of Production Legal in Independent Motion Pictures

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Legal Ramifications of Low-Budget Movie Productions

Introduction
Any movie production is a large, detailed project no matter the size of the production’s budget. There are many different aspects involved with making a movie project at the production level and if these aspects are not all handled properly, then the entire project will fail. One of the most important and often overlooked aspects of filmmaking at the production level is the legal process. From the production contracts to securing the project’s underlying rights, there are legal questions to consider at each stage of the production in terms of minimizing risk to the production entity, allowing artistic expression for the project’s creators and maximizing commercial exploitation of the final product. Unfortunately, legal fees can be cost-prohibitive for smaller productions. If these productions want to have enough money to make their project, these productions are often required to lower the budget numbers allocated for legal services, and in some cases completely eliminate necessary legal aspects.

However by eliminating necessary legal aspects, the production entity opens itself up to potential liability. On major, studio projects with big budgets ($2.5 million or more), the budgets can afford expensive legal fees without negatively affecting the creative quality of the project. However on small, independent projects (less than $2.5 million), there is not a lot of room in these budgets to support expensive legal costs. Most filmmakers will not want money that can be used to enhance the filmmaker’s creative vision taken from non-legal areas. Therefore, the smaller production is faced with the choices of ignoring some legal issues to lower costs, paying the legal fees in lieu of other budget areas or standardizing the process so that it is more cost efficient for the independent production.

The first dilemma exposes the production entity to potential liability. With the money involved in filmmaking, it does not make sense to intentionally ignore legal issues, no matter how small these issues may be. The second dilemma is usually not feasible, because there is not a lot of flexibility in the budgets of independent projects. While legal is very important, the true filmmaker is not going to take money away from areas that will help enhance or improve the project’s creative vision. The third dilemma therefore presents the best solution to handle legal issues for an independent production in a cost-effective manner.

There are standard issues that occur on every production, so once the standard legal process is developed for any one production, it can be simply modified and used on subsequent productions without incurring the significant legal fees that would apply if the process was developed from scratch.

Each of the below headings describe the legal issues that apply for movie productions at the various stages of the production.

Development

During development, the first thing that must be handled is the acquisition of the underlying rights for the project. Usually by the time the project is greenlit for production, the rights have already been secured. Regardless, the production legal needs to ensure that all the necessary rights to make the picture have been secured. Either the production legal must secure these rights himself or the production legal must have in the production entity’s possession the documents securing said underlying rights. The production legal may help negotiate and draft some above-the-line contracts, but the production legal’s main duty is to the production itself and the duty lasts until the delivery of the project.

As soon as a distributor is secured, the production legal needs to be given a copy of the distributor’s agreement. The production legal will review the distributor’s agreement and determine what deliverables are required by the distributor. The deliverables will determine exactly what the production legal needs to have completed. If future productions have the same distributor, the process can be replicated, resulting in smaller legal fees.

Pre-Production

In pre-production, the production legal will form the desired corporate entity (corporation, LLC, etc.) in the appropriate jurisdiction (California, Delaware, New York, etc.). While production legal will not file taxes, the production legal will draft the operating agreements and get the entity’s tax ID number along with filing all the necessary classifications for tax purposes. In California, these costs alone can reach upwards of $1,000. However, these costs can be reduced by 50-60% once the process has been completed for one production, because it can be modified for subsequent productions.

After the production entity is formed, the bank accounts can be opened. Any financing for the production will be transferred to these accounts and the production entity is ready for business. A qualified and certified accountant needs to be hired as early in the process as possible. The accountant should be consulted when the initial budget is being constructed. The accountant will be vital to keeping the production on the projected budget by handling access to all production monies. To ensure that all paperwork is completed by the production crew, the accountant must not release any compensation payments until the production entity’s required and standard paperwork is received.

The production legal needs to have working relationships with the guilds (WGA, SAG and DGA) to make life for the production a little bit easier when dealing with union talent. Each union representative has the inherent power to change terms of the collective bargaining agreement so long as the change is not significant to the overall agreement. Therefore if a relationship has been established, the union representative will be more receptive to the requests of the production entity.

The production legal is not directly involved in casting. However, the production legal will draft and provide the contracts for the talent in the picture. In some cases, the production legal will negotiate the deal terms for the cast.

Production

The bulk of the work for the production legal occurs while the project is in principal photography. Once the project reaches production, all the union and underlying rights issues need to be resolved. Contracts and deal memos for all members of the crew need to be drafted and completed by the crew. These documents will be standard for each production. Location releases and permits need to be secured for the shoot as well. General liability and errors & omissions insurance will also need to be acquired by the production entity. If artwork and/or products are used, then the releases for these things need to also be drafted and completed. There can be over a hundred required contracts for any given production. Although entertainment contracts are fairly standard, the legal costs for drafting hundreds of contracts will be significant. However once a production is completed, these contracts will not have to be completely drafted again for later productions. They can be reused and modified, resulting in a much smaller legal cost to the production.

Post-Production

During the post-production, the production legal will help draft and help negotiate the deals for the music, composer, the editor and post-production suites. All of the required paperwork for delivery will be compiled and cross-checked for accuracy at this stage. Any missing paperwork from this stage and any previous stages will be completed.

Wrap/Delivery


Once everything has compiled and is in compliance with the distributor’s agreement, copies of the legal paperwork will be passed along to the distributor. The original copies will be given to the owner of the production entity. The production legal’s services cover only services up until the delivery of the project to the initial distributor. If the production legal is needed for additional services, then the production legal and the production entity will negotiate new terms for such services.

Conclusion

In today’s entertainment industry, the legal costs involved with a production of a movie can be cost-prohibitive to small, independent production entities with low budgets. However, the more the legal process for producing a film can be standardized, the cheaper the resulting legal costs will be. Instead of having to pay for everything being created from scratch on each picture, sample contracts, union relationships and service vendors can be utilized over and over. Similar to how it is cheaper to buy things in bulk, utilizing the standardized legal process for producing a film will make it cheaper overall to cover the necessary legal expenses on later films and projects.

2 comments:

katwillie said...

I appreciate this well written, practical approach to providing legal services to low budget filmmaking entities. It is consistent with how I practice law for independent artistic productions and enables producers of film and other arts handles matters with due diligence and with the help of an attorney. It has also helped me organize my strategy for helping my film clients. Thank you.
Kathleen Williamson
www.williamsonandyoung.com

The Moderator said...

Thanks for the comments. I am glad that it helped you out. Good luck with all your future film projects and clients.

Joseph Ford
www.legalelements.com