6.
Compensation
In full and complete consideration for the rights granted herein and for the representations and warranties of Owner hereunder, Purchaser shall pay to Owner:
Purchase Price: ______________ percent (__%) of One Hundred (100%) percent of the Direct "Going-In" Budget of the Picture, but in no event less than __________________ Dollars (_______) and in no event more than _____________________ Dollars ($________________), less the Initial Option Payment. The Direct "Going-In" Budget shall be defined as the total Budget of the Picture excluding financing costs and interest, insurance, completion bond fees, contingency and producers' and/or financiers' overhead directly charged to the Picture, if any, at the commencement of principal photography. The Purchase Price shall be payable upon exercise of the Option described herein, but in no event later than the date of commencement of principal photography of the Picture.
Contingent Compensation: In addition, Owner shall be entitled to sums equal to ____________ percent (__) of One Hundred (100%) Percent of Purchaser's share of the Picture's Profits (or such other term instead of net profits), to be defined, calculated, accounted for and paid in a manner no less favorable than for the Purchaser.
- For a Theatrical Picture, anywhere between 2.5%-5% of 100% of Net Proceeds (which shall be defined, computed, paid and accounted for according to the then-current standard definition of said term (or the equivalent term) used by the distributor of the Motion Picture) would be appropriate.
- For a Streaming Picture, it depends upon how the project is set up. If the film will be financed through a particular platform, there is usually a "Producer's Premium" or "Buyout Fee" that the producer negotiates directly with the streamer, which is then reallocated by them to third parties (including the Owner). This can be either a percentage or a flat fee. When it would be payable and how it is defined will depend upon the individual platform, but it should be tied to what other participants (including the producer) receive. If the film is independently financed and subsequently sold or licensed to a streamer, then a Subscription Video On Demand (SVOD) bonus should be negotiated. Sometimes the Purchaser may object to this and, if so, the parties will need to clarify if Owner participation that is based on either the Net Proceeds or the MAGR includes a participation in this license fee as well.
- If the initial production is a television production, a royalty of somewhere between $2,500-$10,000 for each new episode would be appropriate. Sometimes this bonus will come with a cap on the number of new episodes eligible for the bonus (for example, 5-12 episodes, which usually excludes the pilot episode).
- Best Seller Bonuses: This is really for a property that is quite competitive. It would call for an additional payment of around $30,000-$50,000 if the book was on the New York Times best sellers list (or you can tie a bonus to another specified list) for six weeks or more prior to the commencement of principal photography. The Producer may counter by asking the network to assume this obligation, or have the bonus only apply if the show is set up with a major network.
- Broadcast Bonus: usually $10,000-$35,000 depending on the competitiveness of the property.
Profit Participation:
In today's day and age, calculating backend compensation can be tricky, so it is important to properly negotiate all potential types of exploitation scenarios from the outset.
If the initial production is going to be a TV series, the owner should receive a percentage of Modified Adjusted Gross Receipts (MAGR). Exactly how MAGR is defined needs to be reviewed and negotiated to make sure the Owner is profiting fairly. Usually anywhere between 2.5%-5% should be given to the Owner.
If the initial production will be a motion picture, the question of whether or not it will be a streaming feature or a theatrical feature still needs to be asked and accounted for, so an appropriate level of compensation can be agreed upon.
It is also important to make sure to cover a "day and date" scenario as well as an awards release scenario, both of which studios will push back on. Meaning that in the event of a "day and date" release (a theatrical and streaming release that occurs simultaneously) or a theatrical release solely for awards purposes (to be nominated for an Academy Award, the film must be released in theatres for a set period of time), the Owner would get to benefit from the "Net Proceeds" received.
Bonus Compensation:
Owners should be entitled to receive bonuses in the following situations:
Services Fees:
Depending upon the type of property and the expected involvement of the Owner, it may be appropriate to negotiate an executive producer fee or consultant fee, which would be on an episodic basis if for TV/streaming, and on a flat-fee basis if for film. Exactly what the matching onscreen credit would be should also be discussed and stated in that situation.
Passive Payments:
These are payments the Owner would receive for subsequent productions (which would only be owed if a subsequent production actually occurs), and they are usually limited to film and TV derivatives. For film derivatives, a percentage of the purchase price and backend participation is usually given and is dependent upon the type of derivative production (such as sequels, prequels and remakes). For a TV derivative, an episodic fee is given which is dependent upon the length of each new episode and whether or not the derivative is a planted spinoff or generic spinoff, and will include payments for reruns, as well as for a limited series.
The right to obtain an accounting and audit rights are just as vital in the film and TV context as they are in the publishing context. These rights need to be negotiated and incorporated into the Option Agreement.
Usually, the Purchase Price will depend upon the type of the initial production intended. If the parties know that the initial production will be for TV, the Purchase Price is often a flat fee. If the initial production is a motion picture, the Purchase Price is often a percentage of the in-going production budget, usually in the 2.5%-5% range of the in-going production budget of the motion picture to be produced, with a floor and cap (based upon projected high and low budget ranges of the motion picture to be produced). The definition of "in-going production budget" should be negotiated within the long form: Here is some sample language (which is often times thoroughly negotiated):
Generally, the Purchase Price is at least $100,000 (less the initial option fee). If the parties don't know at the start what the initial production will be, then a Purchase Price for both scenarios should be negotiated up front.