•
Ford recently created a dedicated department with the sole
task of stepping up Ford’s positioning in films, including,
of necessity, equity investments. Importantly, the new department
solves (at least for Ford) the current dilemma of getting
the marketing and financial departments within big companies
to talk to each other (no mean feat), which is necessary
for these transactions to work.
•
Pepsi is funding at least one producer’s overhead
and development, analogous to a studio “on the lot”
deal.
•
Proctor & Gamble in Europe announced that it was committing
equity investment for a slate of family oriented films to
be produced by an Italian producer.
•
Miramax offered the prime vehicle slot in “The Green
Hornet” up to the highest bidder, and was reportedly
asking $35 million.
•
Lego waded in early, developing and funding a made-for-video
film titled “Bionicle,” starring one of its
toy lines.
•
Some studios, such as Sony, recognizing the importance of
this development, have created a department with the sole
responsibility of tapping this source of financing.
• Management firms have entered the fray, with some
of them hiring people to broker these deals.
• As publicly reported, one film franchise, “Goal!,”
a trilogy about the trials and tribulations of a soccer
player, will have funding from adidas (we represented the
producers in this transaction, and yes, adidas starts with
a lower case letter).
Two years
ago, I wrote an article for legalelite.com (see http://www.legalelite.com/articles/a-smoore-adv.htm)
advocating this development, so I am thrilled that the time
has come.
Equity investment by advertisers raises a host of new business
and legal issues that need to be resolved to make the transactions
work. As with most transactions, the issues can be analyzed
in terms of money in, money out, and control. Closing these
transactions requires trail-blazing a new path through the
wilderness, including resolving the following issues:
•
Creative control. Depending
on the size of the investment and the sophistication of the
advertiser, the advertiser may feel entitled to exercise ultimate
creative control, including final cut. The difficulty is that
if left to its own devices, it might mangle the film, which
would be self-defeating, so a careful balance must be struck
to prevent the film from becoming a non-marketable commercial.
If done with creativity, products can be woven into the fabric
of a film in a way that strengthens it artistically (e.g,
“Castaway” was a two-hour subliminal Fed-Ex commercial).
The trick is putting into words a mechanism that assures the
advertiser the desired exposure yet gives the producer the
flexibility to make a compelling film. The solution may require
mutual script approval and guarantees of a certain amount
of on-screen product time according to pre-established guidelines.
• Funding. One
key question is determining the timing of funding. Producers
tend to view equity as at-risk money, which should be made
available during pre-production, even prior to closing any
production loan or obtaining a completion bond. While this
is unfamiliar territory for most advertisers, they naturally
want to fund shoulder-to-shoulder with other financiers under
the sheltering umbrella of a completion bond, although they
are more flexible on this issue than banks.
• Money Out. Don’t
assume that the return on an equity investment from an advertiser
must be structured the same as for other equity investments.
Advertisers have motivations that go far beyond economics,
so it is possible to work out creative financial structures
that reflect the trade-off of certain controls ceded to the
advertiser in exchange for enhanced economics to the producer.
These arrangements are limited only by the imagination.
• Adjacent Advertising. Given
the level of control that goes with a significant equity investment,
advertisers may ask for adjacent advertising, such as a brief
ad prior to the start of the film, inclusion of a short “special”
on the DVD, and even a promotional song on the soundtrack.
• Credits. The
advertiser may want inclusion of a credit or logo in the main-titles
on screen and in advertising.
• Special Events. The
advertiser may want the right to sponsor “special events”
for its customers prior to the premiere of the film.
• Distributors. One
of the most difficult aspects of these arrangements is that
many of the issues outlined above need the approval and cooperation
of distributors (including foreign distributors), but they
are not at the table. In addition, the advertiser may be insisting
on a minimum number of theaters or P&A in particular territories,
or it may be insisting on confirmation that the distributors
will not edit the film. In these cases, all or part of the
financing may be subject to the condition that the producer
obtains distribution agreements complying with these requirements.
The producer will then have to effectively impose these requirements
on the distributors, and the distributors may be disinclined
to acquiesce to these requests. “Oh, by the way, we
need you to guarantee to our advertiser a few things...”
• Actors. One
of the key issues that the advertiser will be looking for
is the right to use the images of actors from the film for
advertising products. Once again, the producer is in the bind
of having to promise to the advertiser certain rights that
the producer simply does not control at that time (the permission
of the actors). This can be a touchy subject, particularly
for top talent. All the more so when the advertising blurs
the distinction between cross-promotion for the film and outright
advertising for products. The actors may expect to be compensated
for this right, and the advertiser might reasonably be required
to pay any associated increase in compensation.
• Merchandising Royalty. If
the advertiser intends to create a particular product line
based on the film, such as a product line incorporating the
title or trademarks from the film, the producer may seek to
obtain a royalty from such sales.
• Competing Products. The
advertiser typically wants to make sure that there are no
competing products anywhere in sight, not just in the film
(no simple task in itself), but including at all publicity
events relating to the film. For example, if BMW finances
a film, they would not want the star driving up to the premiere
in a Mercedes. Thus, the actors’ contracts may have
some unique provisions on these issues.
• Approval of Other Sponsors. Similarly,
the advertiser may want to approve all other sponsors of the
film, to make sure that it is getting the exposure it is paying
for, and to make sure that others don’t free ride on
its financing of the film. This approval right may hinder
the producers from raising more equity from other advertisers.
Yes,
the going is tough, and the negotiations can take months,
at least until we get our sea legs on these transactions.
But the rewards are worth it – big time - since advertisers
have the unparalleled capacity to make a film happen. The
next big financing wave is hitting the shore - and it could
be a mother.
DISCLAIMER:
This discussion is general in nature and is not intended to and does not create
a lawyer/client relationship. This discussion should in no way be relied upon
or construed as legal advice, particularly since most legal outcomes are highly
dependent on the facts of a particular case or situation. This discussion is provided
on the condition that it cannot be referred to or quoted in any legal proceeding;
if this condition is unacceptable to you, immediately delete this email and do
not keep a copy of it in any form. The reader or recipient is strongly urged to
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information by someone who has not entered into a written retainer agreement with
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own risk.
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