Co-producer Pre-agreements Event 2017

CO-PRODUCER PRE-AGREEMENTS IN INTERNATIONAL CO-PRODUCTION – an event held at the 8th MMP during the 66th IFF Mannheim Heidelberg.
(Transcribed and edited.)

In the 8 years of existence of MMP there have been many stories of surprises due to unpreparedness for the strictures of international co-production – matters that might have been avoided with better foresight and preparation.

So the 2017 event (Nov 15th, Mannheim) looked at some such problems and ways of possibly preparing more fully for “the next time” - culled from the professional experience of participants at MMP 2017. JK

Additional Co-Development in Co-production – who pays?

JK: As opposed to a finished script looking for co-producers, surprises might arise when one or more co-producers might require script changes or extra co-development.

Leo Wurm: We can start with an example of a German majority co-production with the UK involving co-development with a writer in the UK. Obviously two legal and financing mechanisms are in play – these need harmonisation.

Rights and taxation issues will come up: a UK script-writer will normally face a work for hire situation for a defined amount of drafts whereas in Europe script-writing is more oriented towards retention of the author’s rights.

Stelios Ziannis: When paying a writer in such a case you come up against withholding tax administration, which takes it’s own time in solving itself. In the meantime the writer’s agent might have other ideas about when monies are due in return for delivery. A production company starting with limited development funding but a lot of ambition might run into some cash-flow discomfort and delays if unprepared.

Julian Friedmann: Some countries, even if there is a withholding tax agreement in place, still keep some tax. But a writer cannot legally demand full payment where there is no double taxation agreement in place. If different approaches in Europe make problems, wait until you work with China!

For myself (Blake Friedmann in London has sales of over 130 scripts to German TV- JK) the real problems will be under-development and that working in a co-production can enhance the chance of failure. Seeing it from a writer’s point of view: if a writer as a result has two or more failures in their CV – and that need not be due to bad writing but other forces pushing for a production which is not ready – their reputations can suffer.

JK: When a minority co-producer requests re-writes, who pays?

William Furnivall: Depends what was agreed among the co-producers and the position of the majority producer. The co-production agreement should clearly specify who’s controlling the writer, and in case of needed changes, show pre-agreement how to agree who pays for them – in a co-development agreement.

Claudia Landsberger: So if you both agree that the changes are necessary, you should share the costs?

William Furnivall: It depends on how your pre-agreements are set up. Here you need to agree on the writer and remuneration, and the level of re-write: you’re not talking about changing some text on paper, you’re agreeing a specific amount of drafts, comments and so on. Which also places the co-producer under a certain obligation, but that will be limited.

The question will be - have all amendments and changes the writer was obliged to deliver been used up? Because it is at that point that someone has to start paying more. Again, is there an agreement mechanism between the co-producers as to how to agree when changes are warranted, over and above already pre-agreed contractual changes included in the writer’s contract?

 

JK: Re-writes are not generally treated in model co-production agreements furnished by large funders and financiers. And quite often the question of re-write will come up due to one of the co-producer fundings being refused.

William Furnivall: one thing that is changing over the last decade is that you now have pre-co-production agreements for co-production development. A bit different in different countries due to local rules, of course, but they do exist.

Julian Friedmann: I can see what you are getting at, but when two co-producers can’t agree on changes, then one of them might start thinking this is a project they don’t want to make.

Rasa Miskinyte: I agree that co-development agreements are getting more and more important - development informs you how you co-relate with your co-producers and helps you understand how you will be even able to work with them or the director. Will it be possible to continue with the project into production?

So in my company we have a quite explicit pre-development agreement to define better the responsibilities of each partner, and to show up what still needs to be defined and understood correctly.

Michael Geidel: For us it starts with the stage at which we enter a co-production. If we co-develop a project with a co-producer of course we do a co-development agreement, covering the time and effort brought in – just like with any other contract.

But when we enter a co-production where a script we like is finished, and that

script then for whatever reason needs changing, then we would expect to first apply the principle of shared costs according to participation.

William Furnivall: which brings us to the point that any co-development agreement should include the main co-production deal terms to help cover potential disagreements and to avoid manipulation.

Stelios Ziannis: You also need to note that when partners need to share additional costs and one pays more than the others (irrespective of share levels) then participation in the project will rise for the one paying more – and diminish accordingly in the other shares.

Julian Friedmann: Rewrites can be requested by a director which are then rejected as unsuitable by (one of) the co-producers. The writer might be asked to go back to an earlier draft but incorporating further changes. This can sometimes mean unnecessary work being created – and it might be useful to determine who accepts responsibility for that. Of course what we are saying here also applies to writer-directors, let alone writer-director-(co-)producers.

JK: What should happen when a co-producer invests in a project then drops out half way? Is there a right to subsequent rights to anything involved?

William Furnivall: When a co-producer withdraws he should automatically lose all rights in the project. The original deal would have been that the co-producer would co-finance the picture.

Stelios Ziannis: Yes, divorce happens every day. Just a question of terms and conditions.

Michael Geidel: That’s the question – can you think of every situation that might come up? And remember there can be different reasons for opting out – it doesn’t have to be acrimonious; it can be that they can’t continue, or the money was not raised, or someone dropped out or a new person is brought in, and so on. In the last case, you need to pre-agree what happens later to shares etc. if one co-producer brings in an extra financial partner for example. That’s important for shares and credits, and to avoid any threatening situations for e.g. existing funding.

Intellectual (Story) Property Rights:

Freddy Olson: Another approach to dealing with rights is to separate financing from copyrights as far as possible. We can show this in the form of a present (2018) co-production project between Japan, France and Sweden:

Here, as Julian Friedmann suggested, we are dealing with different cultures – as far as scripts are concerned it is more the U.S.-U.K. idea. In this case, one of the European co-producers has bought the script outright. This stops the Japanese majority co-producer from inflicting changes, should they want to.

It is a way to protect the integrity of the script, which is thus also protected under European authors’ rights.

JK: So for the minority producer working closest with the director, final cut is thus also retained in a clear manner? – Yes.

Half way: E&O Insurance:

JK: One of the topics that comes up again and again in MMP projects is the question of insurance - whether it is insuring the director, key subject, actors,

materials etc, against damage and loss and so on, as well as E&O policies

Intellectual (Music) Property Rights:

JK. When one co-producer wants to clear e.g. music rights for limited amounts of time, for limited territories and terms , his fellow co-producers might end up in trouble, since co-producers typically own their home territory outright and in “perpetuity”

So rights should be pre-cleared world-wide in perpetuity by the lead producer – who also has to come up with the largest amount of money for them, and sometimes will want to wait “until they are needed” to pay.

(NB. Ditto for Film and TV material used in the co-production project. Is it really worth paying thousands for 35 seconds of Olympic material for a hugely limited term as part of a scene – not dramaturgically significant - when re-shooting using material showing a local TV programme would turn out to be infinitely cheaper?)

William Furnivall: Co-producers should be aware that anyone who submits a script with a definite piece of music tied to it is asking for trouble, unless correctly budgeted and with the required clearances set out, submitted for approval between all the co-producers.

Stelios Ziannis:

It will depends on the spread of obligations – normally the majority producer responsible for the main shooting should sign a policy . There are alternatives – it can for example be a minority producer who is signing for a part of

the production. It can normally be an investment of ca. or up to 20,000 Euro, adding E&O when required.

William Furnivall:

You should get a specialized lawyer dealing in E&O to check the script or even a rough cut of the film to see how viable a policy would be.

Leo Wurm: It should also be remembered that E&O policies are finite – once signed the clock is running.

Julian Friedmann: a writer has to give a warranty and indemnification that what’s written will not defame or otherwise attack people or laws.

Where an original idea but based on fact is concerned, the writer must guarantee to the producer that due diligence in veracity has been performed. Sometimes that will be difficult for a writer to do, so an E & O agreement should cover them as well, and it should be pre-agreed that any changes needed by co-producer in this area for their home territory must be agreed by the writer.

JK: So it is up to the extent of cover in an E&O policy whether co-producers

participate in cost for something that may practically only be needed for a North American deal, similar to other insurances applying locally.

Production practise - location changes during production:

JK: You are a co-producer, you are shooting and one of your partners switches a day’s shooting from another country to your location, and on your ticket, at the very last minute. A definite manipulation. Who pays?

Pavlina Jeleva: Well that would normally be the producer who initiated the change, but of course “it doesn’t always happen like this”.

Once you’ve started shooting of course changes can happen. I heard recently from the DoP of a European public-funded co-production where an international crew were in a week’s shooting in a foreign country and the local co-producer spent his time making sure the shooting was completed a day earlier than agreed,

You cannot fix such situations by agreements – both sides need to give and take and things can proceed on a gentleman’s agreement basis, because trying to solve acrimony in court usually doesn’t bring anything to either side in the end

And also special attention should be paid to: lack of group decision taking during production, dealing with budget overruns, contingency, cash-flow problems, verbal revisions.

Changing the Director:

Question: What are the contingencies when a director does not fulfil their obligations?

Answer: these are decided by the pre-agreement but not always.

Lukas Trimonis: A look at such obligations can be made in Lithuania : the law states once a director is attached to a project he cannot be removed. So he has to die?

We also had a co-production where the director really got into a wrong relationship with the producer, feeling very threatened, and the project naturally fell apart.

You need to read small print – especially with your funding bodies, and make sure that your co-producers are aware of each other’s situation as well.

Michael Geidel: Well any major change will require group agreement and usually that of the funding body. Changing a director – better it doesn’t have to happen, right?

Pavlina Jeleva: I had to change a director for a documentary in Bulgaria once, and the situation is similar to Lithuania - once the selection committee has given funding for a certain ensemble that includes the director. But it is also up to your agreement with that director : there are obligations the director is due to carry out, and if they are ignored then the producer can change the director.

In this case I finally had to write and send a registered letter to her and it came into effect when she received it. This was a stipulation from the original funding agreement conditions.

Materials approaches and Post in Co-production:

JK: materials standards can be different in different countries. How far can misunderstandings be avoided?

Stelios Ziannis: If bad material is shot and delivered from a foreign location, then you are stuck. In some cases you can reject some of the material and have it re-shot. And when a foreign lab screws up , what are you going to do? Salvage what you can.

We know of a case where the co-producer spent 2 weeks re-coding audio cues because the local co-producer gave the wrong information as to the local system they were using. Ourselves, we have learnt that paying extra for an expert sent by us on set makes a lot of sense for some projects.

Pavlina Jeleva: Yes once the milk is spilt it is difficult to drink. What is most important is strong partnerships that stand the test of stability over years.

It has to show that you can be sure without any agreement that things will be done.

Sven Schnell: For me in co-production it is also a big matter of price. A lot of co-production funding sources where the post-production comes from, where due to cost strategy you do it very late because it will be cheaper. You start to run out of money, so you have to ignore your old relationships to pick up with people who are cheaper, and that can end up being very scary. On one recent production the quality of the special effects was really sub-standard so we stopped and looked for another one. The truth is that the more expensive effects are always better. And going cheaper is something you can be forced into – it is not a matter of agreements but a production issue.

 

Festivals and their awards:

Pavlina Jeleva: Normally when a festival award is given it is written in whose name, and for a co-production if there is more than one name it has to be split.

If it is the name of the director on the award then there is no discussion.

But I can think of an occasion where a co-production got an award at an international event for post-production services, and the film had already been shot in 3 countries by co-producers.

So how do you split services between co-producers in several countries? Well, you start by updating your financial plan among the partners. Which won’t work if the other partners don’t all agree… and then it’s back to compromise.

JK: then it is situations in Europe for example where co-.producers can agree to sign Eurimages payments only when all outstanding matters between them have been solved.

Stelios Ziannis: the issue of award distribution is sometimes left unspecified in co-production agreements.

Cash awards such as Best Feature, Best production, Best Producer that come have to be exactly defined and separated from clearly defined awards such as for Actors, DoP’s, Directors and so on.

Sales & Income distribution:

JK: So who decides in a co-production what happens to the World Sales?

Christine Haupt: For me the lead producer searches out the sales agent,

but sometimes one of the co-producers has already good experiences and good relations. It should be a majority decision among the co-producers, with the lead producer retaining final say, though agreed, levels of knowledge about that side of the industry can sometimes be very limited among lead producers, too.

JK: Sometimes it happens that a smaller co-producer who retains all rights for his territory in perpetuity can upset a multi-regional deal which brings more cash to the others.

Pavlina Jeleva: well it’s in all the agreements – each partner retains their territory in perpetuity.

Sven Schnell: yes but all can be negotiated… But I don’t like it when a co-production partner comes and starts demanding shares from my own territory.

Michael Geidel: I was on a co-production project where a partner was asking 10% of all income just because he had brought the project. He was a small company and he brought in a lot of development that had never been paid for . Well, that’s tough, so initially I agreed to pay him something (not 10%) but we didn’t go into production in the end.

Christine Haupt: Once on a project we agreed on pari passu for the whole world. It worked.

JK. In fact it starts from the sales agents being approached at the right moment in the film’s production cycle – all else follows from that.

Then if a film is interesting enough and the sales agent of good standing one can also discuss direct disbursement of income to each co-producer as well,

And who among the co-producers will have the right of negotiating any second or subsequent sales term?

END CREDITS

Pavlina Jeleva: the difference between a co-producer and equal producer credit is important. For example if I apply to Media I expect a better way forward as a credited producer than as a co-producer.

As a Bulgarian producer, I also expect a digital master for domestic distribution where my credits are in Cyrillic.

JK: Obviously, sitting down to creating a pre-agreement before moving on the co-production agreement sets up both general principles and the exercise of a more solid base for a relationship.

Especially because that exercise pushes a whole set of takes on local realities into practise.

And the more true knowledge (& trust) that exists in the co-production relationship the better the apparent chances of positive compromise, and less waste of money, nerves and time.