Business Affairs
Author: Jon Gumpert Vice Chairman and Head of Motion Picture Operations, Intermedia Films
The Role of Business Affairs
The two main tasks of business affairs executives are to negotiate the above the line deals for each film and ensure that the financing for the film is in place when it is required. In both of these areas, the business affairs executive has to be able to bring all of the pertinent facts together; keep an eye on the big picture of the movie as a whole; and juggle the various elements to ensure that they all stay together for however long it takes to complete the film.
Negotiating Above the Line Deals
Primarily, this consists of deals to:
Rights Acquisition: Acquiring the underlying rights to a speculative script or other source material is often the hardest task for business affairs because (unlike with talent and producer deals) there is generally no market price for the material or effective precedent that fits the particular circumstances of the project. Business affairs need to work out what the script might be worth in the context of the overall budget for the project, taking full account of exactly what rights are being acquired and what controls or limitations might be placed on the use of the material. The exact terms of any deal will depend on the leverage of the two parties - obviously an experienced screenwriter with a few successful films to their credit will command a greater fee and retain greater control than a debutant. Similarly, buying the rights to an established character will tend to be more expensive and will involve more controls by the seller who will want to ensure that the character's integrity is maintained. Rights in original material will generally revert to the seller if the film isn't made within a defined period of typically between five and seven years.
Producer Deals: Agreeing basic fees with producers is generally relatively straightforward. Far more difficult is negotiating how to split any profits that might accrue from the film. Intermedia base any profit participations on the "enterprise proceeds" that they have derived from the film, rather than offering shares of gross box office receipts that they do not control. The enterprise proceeds are a snapshot of Intermedia's financial position on the film at any given time, being derived from all the income that they have received from the film minus their costs incurred in producing and selling it. Using this as a proxy for other measures of the film's performance also means that they do not end up paying out shares of income that they have not received from international distributors who might be less reliable in accounting for, and remitting, their share of any proceeds. Negotiations also have to take place with producers over the order of their respective credits and who will qualify to receive an award as producer if the film is successful at any of the major awards ceremonies.
Talent Deals: The "quote" system (whereby producers share information about how much people have earned on their latest films) ensures that companies are able to find out how much talent is currently worth in the marketplace. Independent producers, however, often have to offer below their market rate (for example because they cannot offer first dollar gross points) and attract them to the project through the quality of the script, director, cast and other factors. Above the line talent deals almost always involve an element of contingent compensation related to how the film performs. As with producers, Intermedia base such participation on their enterprise proceeds rather than gross box office which lies outside their control. In some circumstances, talent will also be offered bonuses based on the film's performance at the US box office, with payments usually kicking in once the film has passed $100 million.
Financing Independent Films
Putting together the finance for an independent film in the US is not significantly different to the experience of producers in the UK or Europe, and is getting increasingly difficult. The essential first step is to secure a domestic distributor who will be willing to contribute a significant proportion of the film's budget in return for all North American rights. Such contributions have been falling in recent years - partly as a result of US television deals being squeezed - and are unlikely now to exceed 35% of the budget (at which level the producer is unlikely to be able to negotiate any upside into the deal). The next step will be to look for co-production partners in countries which are able to offer fiscal incentives or other budgetary contributions to attract productions. In the recent case of Alexander, Intermedia entered into deals with a UK and a French co-producer to access production support in both of those countries. They then pre-sell the film into every other international territory that they can in return for the highest possible minimum guarantees of the film's performance which they can take as collateral to secure bank loans to fund the production. In the case of a large budget production, even pre-selling all territories is unlikely to deliver the entire funding necessary. Any shortfall is made up from German private equity funds in return for a stake in the film and a share of any profits.
It is vitally important that the business affairs executive retains a complete picture of what rights have been pre-sold, on what terms and with what implications. They always try to ensure that the rights are only sold off for a specified limited term, typically 25 years in international markets and 35 years in the US (although some distributors still try to acquire the rights in perpetuity). They also negotiate hard to make the terms of the US distribution deal as beneficial as possible because most of the international deals will take their lead from the domestic terms. For example, it is important to ensure that the US distributor commits to a wide release and big advertising push as this will influence the confidence of the international distributors in taking the film on. It is also important to haggle over every percentage point on distribution fees and overheads as these can make a significant difference to the financial outcome from the film when all the accounting is done.
Top Tips
- The two main tasks of business affairs executives are to negotiate the above the line deals for each film and ensure that the financing for the film is in place when it is required.
- The business affairs executive has to be able to bring all the pertinent facts together; keep an eye on the big picture of the film as a whole; and juggle the various elements so that they all stay together until the film is completed.
- Independent producers should never commit to pay contingent compensation out of revenues over which they have no control. Any such deals should be based on the producer's share of revenues.
- The share of a film's costs that can be met from a North American distribution deal have fallen in recent years. Increasingly, US independent producers have to seek co-production deals with overseas producers with access to tax incentives and subsidies.
