Confronting conunundrums in contracts

Final steps of filmmaking filled with key players

As the production of a film enters its final phase and embarks on its journey to exhibitors, many new players step into the game, including clearance attorneys, corporate counsel, insurers, bonding companies, banks, royalty trackers, music consultants and others who tie up all the loose ends to ensure a seamless distribution experience.

But not all films are treated equally. In this cost-conscious climate, notes producer Richard Gladstein, a film’s final steps are often highly scrutinized on an indie project, whereas with a studio feature the financier is usually the distrib, and any last-minute scrambling conveniently takes place under one roof.

Failure to obtain clearances or rights permissions is the chief reason some indie films never get picked up — even after a bruited-about showing at Sundance or Cannes, according to Stephanie Weier, founder of clearances research firm Clearance Domain.

For studio pictures, she says, trouble spots that need ironing out might include a desire for more product placement or abiding by clearance agreements that, for example, prohibit any derogatory inferences or situations involving an advertiser, who can file an injunction to prevent a film from being released if a conflict can’t be resolved.

Some of the most common missing documents on a film include clearance on copyrighted material, releases from people who appear in the project and the occasional contract with a key crew member, according to Michael Donaldson, a clearance attorney with Donaldson & Callif and author of “Clearance and Copyright.”

Other critical pacts involve scribes and underlying rights. “Essentially, you want a very good clean chain of title for the lender’s counsel to review,” says Fred Milstein, managing director of AON/Albert G. Ruben Insurance Services, the world’s largest entertainment insurance broker.

Any slip-up could needlessly prolong the nail-biting period far beyond the time a picture is locked. Weier, for instance, notes that the statute of limitations for any litigation on a film is 10 years.

Once the underwriting process is wrapped and cost of coverage is determined, then certificates of insurance are issued and bonding is secured for interested parties, which include anyone from venues and rental houses to private investors who want assurances that any coin they plunked down on a project is safe.

Other such coverage includes errors and omissions (E&O), which covers legal liability and defense for the production company against lawsuits alleging unauthorized use of title, format, ideas, characters, plots, plagiarism and unfair competish.

The cost of insuring a pic shot up after 9/11 in a climate of fear and extreme caution, but it has since declined sharply in a softened and overcrowded entertainment insurance market.

For example, a standard $1 million to $3 million E&O policy on an indie product used to cost up to $13,000, but it’s now in the $3,000 to $8,000 range, according to Kent Hamilton, exec veep of Truman Van Dyke Co., a leading entertainment industry insurance brokerage. Also, there are about 10 insurance companies that provide competitive rates for basic cast and production insurance, which have fallen to less than 1% from 1.5%, Milstein reports.

Some feature distribs struggling to stay afloat in this economy have tried to renegotiate their minimum-guarantee terms, says Steven Leib, an attorney and senior veep of business affairs for International Film Guarantors, a subsidiary of Fireman’s Fund Insurance Co. He adds that some distributors have nixed delivery or refused to pay the full value of their contracts, and that under this scenario, the parties run the risk of incurring “hundreds of thousands” in legal and other fees during arbitration.

Leib says that with the 2009 demise of cineFinance, there are now just two completion guarantors in the industry that insure that a feature will be completed and delivered. The number was about half a dozen 10 years ago.

Other key issues include negative-and-faulty insurance for film stock or cameras, as well as a “protection print” whereby two copies of the pic are kept in different locations in case either one is destroyed. In addition, a collection-management agreement tracks royalty payments and stipulates where the funds should be disbursed. The mostly European-based firms that specialize in this area include Vintage House and Freeway, Milstein says.

Hamilton notes that recently there has been a breakthrough for documentarians in obtaining E&O insurance when courts allowed “fair use” as a defense in court for using copyrighted material without permission.

One way to secure the rights to music clearance and licensing — a complex area that’s often overlooked — is to make sure the screenplay doesn’t mention any specific songs, especially if they’re critical to a given scene. Otherwise, Gladstein says, music publishers can use the citation to negotiate a larger fee.

But the music snafus that can arise are legion. James Gibb of the Cutting Edge Group, which acts as a consulting music supervisor on films, recalls how the threat of copyright-infringement litigation inflated to about 10 times the fee a major studio had to pay on a song because permission wasn’t secured until after the film was released.

He also remembers singer-songwriter Prince deep-sixing an 11th-hour plea involving a scene where one of his songs was used by the characters in a comedy to speak in code. Rights weren’t secured early on because of a mistaken assumption that such a move wasn’t necessary, since the song wasn’t actually sung.

The bond company on another project Gibb worked on discovered that the author of a gangsta rap song that was about to be mixed into the film was locked up in the L.A. County Jail, where a last-minute meeting was arranged to secure clearance.

Another concern is liability associated with a topliner who’s unable to wrap the project because of an injury, medical condition, arrest, stint in rehab or even death during production. “I don’t want to say that cameramen are disposable, but it’s a lot easier to replace the director of photography if something were to happen then it would be, say, Tom Cruise,” says David Karubian, owner of MovieInsure.com, which is owned by Brilliant Insurance.