Class Handouts
Class Notes March 9, 1998
Operating Budgets
Taken by Amy Baldwin,
Thanks Amy!
New Location starting next week: 311 West 43rd Street Suite 409 Barry Burns' Photo Studio Call Julie to register for Tuesday's telecourse: 304-733-2949. She will give you the bridge number.
This week: Roger Gindi will discuss operating budgets.
This week's subject: Negotiating the option agreement with an author for the right to produce a property.
First, we have questions on individual projects. Everyone should choose a project to give this information a concrete basis from which to work. This will help to make it more understandable and realistic.
John's project is at the point of negotiating the option agreements. The author is concerned about exclusivity and barring regionally produced productions, a limitation that needs to be put into the agreement to give the producer exclusive rights. Bruce suggests that there can be advantages for the potential investors in advance productions. They can spark interest from the public, as well as providing a possible prefabricated production with a director, sets, and much of the leg work done for you. This is assuming that it is a high-end production with values that could be easily transferred to a NY venue. The author's reservations about limitations on his income and subsidiary rights should be tempered by the possibility of much greater income from your future interest.
Aviva is interested in a show that has had a 10-week run at a theater in LA. The author's manager has made a deal with the theater. They will not give out information about the specifics, but suggest that if she is interested, she will have to also deal with the theater. Bruce thinks that chances are that the theater just made an agreement to a percentage of the author's rights in future productions, claiming rights to future income as they have created the venue for the show to be seen and possibly picked up. If they took an option for a New York production, you would have to make a deal with them. They might want a percentage of the gross (1/2-1%) and /or a percentage of the net profits (negotiable).
Amy's show was produced as a showcase. She wants a deal with the original producers if she takes it to off-Broadway with the author and has had verbal conversations, but no documents have been exchanged. It is a first-time playwright.
Dimitria: When contracting for off-Broadway or Broadway, is there a set time to run a production: Bruce: A run of a commercial production is based on success of the show. It will run as long as it makes money. However, the amount of time the producer has to open the show is usually a year to 18 months with extensions depending on variables like theater availability and star availability, etc.
Maryanne: I have a project I need to acquire underlying rights for a novel and a film that went straight to video. The book was published only in France. What should I do?
Bruce: Do you want to use anything from the movie? Then acquire the rights. If you can do without, be sure the adapter doesn't use the film.
Maryanne: The stage rights are available but have not approached Miramax about production rights.
Bruce: There is a small problem since Miramax is owned by Disney, and they probably won't release rights to any play, since they are now in the theater business. You can ask, but it's not likely. Rights to the novel are the most important-then they can't do it without you. However, if they are interested they might be interested in becoming a partner. Another thing is that, they could open the movie across the street from you when you least expect it.
And now... What is in an author's agreement.
1. The producer negotiates for the exclusive rights for this play. - The author cannot have another production going on simultaneously with yours.
2. Where will it be done?
3. Rights to do developmental productions before coming to New York. This gives the chance for the authors and producers to work on the play, to make money, and opens the option for a step deal.
4. Author agrees up front to accept fixed payments from developmental theater. Not necessarily a percentage of the gross.
5. Set time frame to produce the play. One year option to go forward with the right to extend. This depends on the time needed to get it going.
6. Arrangements for advances and royalties. Advances are usually paid against the royalties. First royalties cover the amount paid out as the advance. Typical off-Broadway advances are $2000/$5000/$10,000 against a 5%, 6%, or 7% of gross weekly box office receipts after the amount is recouped (broken even). For musicals the minimum is 4 1/2%, at recoupment increasing to 6% for book, music, lyricist depending on the players involved.
7. Negotiate with the author for subsidiary rights. Rights shared after production for future productions. Stock, amateur performances, movie rights- the production company gets a percentage after a certain negotiated number of performances (vesting).
8. Minimum terms for the Broadway contract are laid out in the Dramatists' Guild Approved Production Contract (APC) with the League of American Theaters and Producers. There are 21 articles. Articles number 22 is for additional, negotiable terms to be approved and certified by the guild.
9. The off-Broadway Dramatists' Guild agreement is so ridiculous, no one uses their terms.
10. The producer now has vested interest in future subsidiary rights. For Broadway, they usually share in 50% of the movie rights, forever. Off-Broadway is 40% for 10 years.
11. APC additional territories, outside the U.S. This includes Britain, Australia, NZ. Not Germany and Japan which are negotiable.
12. Author's billing. Where it goes on the poster, program, marquee (if at all). Where do you want it excluded (advertisements, marquee, etc.).
13. Representations, warranties, and indemnities that material is original.
14. Guarantee of producer's billing in case of a movie production.
15. Rights to move to Broadway.
16. Author approvals of director, cast, etc.
17. Out of town transportation and per diem.
18. Right to use author's name, likeness, etc.
19. Musical cast album-how to divide royalties from a cast album. 60%-40% split after the cost of the album. Author's arrangement with a music publisher determining mechanical royalties at 75% of statutory rate for the use of the songs. Rights to use music in a move (synchronization rights).
20. Merger of book-music-lyrics-underlying rights to become a single property at a certain point. This is important for the producer to be able to share in property's future income.
21. Radio, television rights to do commercials for the production.
22. House seats for the author (paid).
23. Where is the money paid (agents, etc.). The author has the right to assign payments to anyone, but not the obligation of his services.
24. Arbitration clause: both parties agree to go to arbitration in the case of a dispute. They will abide by the decision rather than going to court. This is usually when parties are of equal strength.
25. Producer keeps books and records for two years. All financial information is available for the author to see during reasonable hours.
26. Producer gives stage manager a copy of the script including director's notes. There is a current debate over who has the rights to this version.
27. Force Majuere- Acts of God/ Government curfews, etc.
28. Merchandising. Commercial use products. Negotiate the percentages of the profits.
29. Per diems.
30. Agent clause. The producer acknowledges the agent and will pay money to the agent, agrees to pay agent's commission off of the top for subsidiary rights.
Now: Royalty Pools. Tuesday's Telecourse with Roger Gindi will be on this topic.
(Example) The participants:
off-Broadway/Broadway Director 2% / 3/4%
Author 5-7% / 4 1/2-6% Producer 3% / 2% (+!% if gives away some to investors)This is based on percentage of the gross weekly box office receipts. In a royalty pool, the participants get a portion of the weekly operating profits.
GWBOR $50,000 Running expenses: $40,000 Weekly Op. Profits $10,000
Investors: $6000 Royalty participants $4000 Divide by 10 points $400/point
The participants: Director 2 x $400 = $800/week Author 5x $400 = $2000/week Producer 3 x $400 = 1200/week
After investors have recouped then it goes to a 50-50 split.
If the show is not making money (or only marginally), the royalty pool requires a minimum guarantee of $150 per point. If the weekly operating profit is only $1000/wk, the points are only worth $40, so this guarantees their being paid. The production is then losing $500.
Director 2 x $150= $300/week Author 5 x $150= $750/week Producer 3 x $150 =$450/week $1500 All amounts are paid weekly.
Sometimes in lieu of a royalty pool there is a stop-loss clause. Royalties are paid out to the extent that it does not cause a loss, except for the minimums. All of these deals are done before raising money, if possible.
Don't forget-next week is at 311 West 43rd Street, suite 409. See you there.
Broadway UniversitySM and © Entertainment U, Inc. and its related entities. All rights reserved. Any reproduction, duplication, or distribution in any form is expressly prohibited.
Please read: Terms of Use Agreement