- John Deane
- Updated: Mon, 21st Nov 2016
Note we are cost proportionate, i.e. we deliver a return on your investment in our services. We also provides cost estimates at every stage.
Our film services include:
Finance arrangements for each film differ. Typically, pre-production, development, and production require different finance agreements. However, finance arrangements depend on the:
- Commercial risks;
- Control investors desire; and
- Production duration.
Common film finance structures
A simple structure comprises an agreement between a production company, usually a joint venture, and a single distributor. The production company agrees to sell the film’s worldwide distribution rights to the distributor, for advance pre-royalties.
The advance pre-royalties equal the film’s production costs. Payment is when the production company delivers the film. Common terms in this agreement include:
The production company must usually provide the distributor with frequent production status updates.
The production company must budget for every expense. The distributor offsets any payments against the production company’s royalty entitlement. Often the contract specifies the accountant, who accounts for costs related to:
- Crew commitments.
Production company’s can obtain debt finance. However, debt financiers often require the production company’s directors to guarantee the production company’s debt. Ideally, directors should avoid this risk.
Since films are distributed worldwide, a new finance structure has emerged. The production company signs distribution agreements with multiple distributors. Each distributor has an exclusive territory.
Often, the production company qualifies for tax credits in the jurisdictions in which it incurs costs. Hence this structure is useful if production, e.g. shooting, occurs in multiple countries.
Film tax relief
The UK film tax relief entitles production companies to claim up to 100% relief on “qualifying” expenditure. However, it does not apply to partnerships or individuals. Hence production companies require bespoke articles and shareholders’ agreement to best protect their directors.
Production companies claim this relief in their corporation tax return. The production company must have:
- An active role in the production planning and decision making process; and
- A direct role in negotiating terms, e.g. with distributors.
For each film, only one company can claim this relief. If the structure involves a joint venture company, the joint venture company claims the relief pre-tax, and before dividend payments.
UK film tax relief requirements
We know the complexities. Essentially the production company must produce the film:
- For theatrical release;
- Within the UK, i.e. that the film is a “British film”;
- With minimum qualifying expenditure.
Hence, the production company must incur at least 10% of its core expenditure within the UK. However, different rules apply to co-producers, which we often navigate.
Merchanding option agreements
Here, the production company sells an option to a purchaser. The purchaser can, but is not obliged, to purchase the film rights for a specific purpose, e.g. for:
- Character merchandising: allows a purchaser use the film’s characters to create physical products e.g. plastic figures;
- Advertisements: allows an agency to use film’s contents in advertisements;
- Attractions: allows a theme park attraction to be based on the film’s story.
New uses for film rights are emerging. We research the latest developments.
Common option agreement terms
The option agreement is a commercial arrangement. We are experienced negotiators. Usually the production company must provide the purchaser with warranties that include e.g.:
- Copyright: that the production company is film’s original creator, i.e. the owner/creator of the film script;
- IP ownership: that the production company owns the intellectual property rights in and to the film, and
- The production company is unaware of any other individual or corporate with a claim to title.
Ancillary production documents
Production companies require the following agreements:
- Employment agreements: that also protect the film’s intellectual property rights;
- Location agreements: for the shooting locations;
- Film crew member’s agreements;
- Film producer’s agreement;
- Film directors’ agreement; and
- Actor’s agreements.
For instance, production companies usually commission a musician to compose the film’s music. This can be a tricky area, i.e. what if this music becomes popular.
Managing the process
We know the issues that often result in costly disputes. These agreements reduce the risks of costly disputes emerging. The commercial terms may differ, but the risks remain the same.
Film production track record
Our recent instructions include:
Tax-efficient joint venture
Effected joint venture arrangement for a producer that utilised available tax reliefs. We ensured our corporate documentation complied with relevant rules.
Option agreement portfolio
Prepared an option agreement portfolio to sell film rights to entities operating in the children’s toy, advertising, and property development sectors.
Film production: Ancillary documentation
Drafted and reviewed the ancillary production documents as and when required, from pre-production to delivery. We acted on a fixed retainer for the production company.
Production company’s finance arrangement with NASDAQ listed company’s
Ensured NASDAQ company could not back out of its obligation to pay the pre-royalty advance to our client, a production company. We reviewed and analysed the NASDAQ company’s pre-production financing arrangement, and tightened the terms.
Film production is a long and costly process. We know the risks and likely disputes for those involved in the production. We ensure your model is tax-efficient and risk adverse. We facilitate and smooth the process of pre-production to receipt of royalties.