Indie Law: Make Your Feature’s Development Less Dicey With Loyal Legal Counsel and Financing Foresight

Development is the time when your indie’s budget needs to be put to the test. It’s also the time when you may need to properly secure your rights to the literary work or works that serve as the foundation for the film you’ll ultimately produce. And, of course, the development phase is when the money for your film is raised. 

It’s always cheaper to do things right the first time around than to have to mop up legal messes later. Consulting with a production attorney early and often during development can save you a lot in legal fees down the line. Plus, an experienced production attorney can help you in a number of ways well before that “day out of days” production schedule is even established. 

Getting On the Rights Track

No story is fully developed unless someone has clearly identified and acquired the rights to it. A production attorney can help you strategize to either outright buy a script, or to simply option it while you further develop it via re-writes and polishes, depending on which route you decide is best for your project to take.

 you’ll need to transfer it to the entity that’s producing the film. The question in this case becomes: Should that occur right away, through an assignment directly from you to your production entity? Or should you simply give your production entity an option to acquire it from you? Depending on how your financing is set up and who your producing partners are, the answer may be circumstantially different.

You’ll also need to decide when the script purchase will occur. If you’re the writer and producer, you may decide to defer your payment and place it as part of the first money back from the sale of the film ahead of your investors. By deferring payment to yourself, you’ll allow more money to be “put on the screen” and free up your production budget. By properly crafting the placement of the deferment among the priority of others who participate in the revenue proceeds (such as investors or other profit participants), you’ll stand a better chance of actually getting paid.

Any payment structure and rights acquisition information must be thoroughly laid out in investment documents. One result of this essential step: The film’s investors will understand that the writer’s deferred fee sits ahead of their return on their investment. If your investment documents are not properly crafted, or if conflicting promises are made, you, as the producer, will soon find yourself getting a lot of headaches. Coordinating all of this in advance, on the other hand, will save you time and money. 

During the development phase, you’ll need to decide what reserved rights you may want to hold back for yourself if you’re the original creator of your production. Now more than ever, even the most obscure film has a greater chance of becoming the source material for a musical, graphic novel, or other major production. Moviemakers shouldn’t overlook the option to hold back some of those rights from the very beginning. In fact, it may be the only time when those rights can be separated without a bigger producing partner or distributor insisting on taking them. 

The acquisition documents that are drafted and negotiated during development serve as the beginning links of the chain of title that show all the world who actually owns what will become your finished film. Further, these documents will explain to E&O (Errors and Omissions) insurance carriers and distributors how ownership changed hands during the life of the project. If additional screenwriters are brought on, those individuals need work-for-hire contracts. And even at this very early stage, you’ll need to consider what type of profit participation those writers may receive, and how those profits will be calculated and determined. As an independent making and selling a film on your own, these decisions will likely be more consequential than if you were selling your film to a major studio or teaming up with a more established production house.

When those initial acquisition documents come into play, consider: What is your long-term planning strategy? Are you prepared for all the possible “what if” scenarios that may arise immediately following the development phase? (These questions bear even more weight if you happen to be unsure how the hell you’re going to fund and produce your film.)

The Best-Paid Plans

Being in development also means it’s time for producers to chart out their strategy for financing the film. Don’t rush through the learning curve that comes with fully understanding different methods of financing and how they work together. Almost all films today rely to some extent on tax incentive money. Accordingly, smart producers recognize the development phase as an opportune moment to research ever-changing state tax incentive systems.

Just because you produced a feature two years ago in one state doesn’t mean that state’s tax incentive program remains the same today. Far too many new moviemakers fail to know the difference between tax credits and tax rebates—and how those two vastly different types of tax incentives are paid out, and when—until it’s too late. (A 25 percent tax rebate from Alabama, for instance, will actually put more money in the producer’s pocket than a 35 percent tax credit from Georgia.)

Planning on raising money from passive investors with deep pockets? The time to understand the workings of private placement offerings needs to occur before you take their money, not after. Will those investors demand a completion bond? If so, do you know how much to allocate for that bond, and what legal documents the bond company will demand to review before issuing one?

A seasoned film finance attorney can answer these and other questions for you, introduce you to other experts who’ll help you monetize those tax incentives when you most need the cash flow, and ensure that all transactions are done in compliance with the law. In the long run, this kind of foresight not only saves money, but earns it, too.

Nipping Your Budget In the Bud

Most line producers exit a production when principal photography ends. An unfortunate result of this is that cost overruns and unforeseen budget expenditures often don’t reveal themselves until well into the post-production and delivery phases of a feature’s life. This allows the line producer to proclaim to both the film’s producers and future prospective employers, “The film was entirely on time and on budget while I was in charge!” 

Sometimes this happens because line producers are simply unfamiliar with all of the true costs tied with delivery, since they’re often working on another production long before post is completed and may not comprehend what a distributor may require for delivery. Other times it can be for less innocent reasons—if, say, the line producer wants to impress his bosses by delivering a budget within their strict dollar range limitations, despite knowing all too well that the numbers just won’t work. In those situations, there can be a real incentive for line producers to do the most drastic and unrealistic shaving of lines on the budget from the post-production and delivery phases. Cheating on the music budget is a classic way of meeting the bosses’ dictates: When a music supervisor attempts to secure that coveted Bruce Springsteen song for the film’s most pivotal scene, the line producer will be far gone just as that under-budgeted item rears its head. 

A sophisticated production counsel can consult with you early on and share some of the blunders and horror stories of other producers who failed to properly consider all of the budget needs that exist long after production wraps. They can also share strategies for avoiding money shortages that arise from unforeseen deliverable requirements.

One such technique is to employ a post-production supervisor to carefully and critically review your line item budget during your film’s development, while your overall budget is still being crafted. A good post-production supervisor should be able to spot flaws quickly and you need only pay her perhaps the equivalent of a day’s pay, provided that she’s guaranteed to return as the official post-production supervisor if and when the film can move forward with secured financing. 

Another technique is to obtain a full set of deliverable requirements early on in the development phase. A friendly distributor will provide that list even without any promised involvement as the ultimate distributor of your film. (If you don’t know a friendly distributor, your attorney probably does.) There’s a good chance your attorney will also have a few different sets of deliverable requirements that were previously used for projects similar to your own that he or she can share with you. 

Delivery requirements consist of a complete checklist of essential items which your film’s distributor will demand before you get paid your promised advance, and before the film is deemed ready to exhibit. These items include “technical deliverables,” which account for the way in which the master must be delivered, digital format, required sound quality, and the type of M&E (Music and Effects) tracks required, etc.; and “legal deliverables,” which account for the types of insurance you must have, minimum duration and amounts of insurance coverage needed, copyright and title reports, music licenses, cue sheets, cast and crew contracts, and paid advertising obligations. Once you’ve carefully reviewed these two lists to understand how much each item on the list will cost to create and deliver, your practical budget requirements will soon seem obvious, and no—or, at least far fewer—surprises will arise. 

Dogged Development

As they say in politics, if you want a true friend, get a dog. In independent moviemaking, if you want a true friend, get a trusted attorney. The attorney is your watchdog, guard dog, attack dog, and loyal companion. The more they know about you, your needs, and your objectives, the better they can loyally serve you. While every crew member is essential, and many are bona fide artistic geniuses, the one member of your production who’ll most often stand by your side—from development to distribution and beyond—is your attorney. Woof! MM

 David Albert Pierce is MovieMaker’s resident legal guru. He is Managing Member of Pierce Law Group LLP in Beverly Hills and proud owner of two adorable rescue dogs.

1 Comment

  1. Ryan Paige

    November 25, 2018 at 12:09 pm

    And don’y forget the impact of Section 199A when putting together your proforma financials.

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