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Entertainment Law

Unique Aspects Of Entertainment Industry Contracts

Complex Royalty and Payment Provisions Because entertainment companies often risk large losses, the contracts they use often contain clauses that artists may consider to be unnecessarily complex or one-sided. For example, film studios often base payments to talent in part on net profits. The calculations that are necessary to determine net profits, as defined in a typical contract, can be mystifying to those who represent the talent. A screenwriter or an actor who receives bonuses or royalties on net profits might be paid little or nothing on a film that has earned hundreds of millions of dollars but is still showing a loss according to the net-profits calculation. Net-profits clauses have resulted in several high-profile lawsuits, including Buchwald v. Paramount Pictures Corp. (13 U.S.P.Q.2d [BNA] 1497 [Cal. Super. Ct. 1990]), Garrison v. Warner Bros., Inc. (No. CV 95-8328 [C.D. Cal. filed Nov. 17, 1995]), and Batfilm Productions, Inc. v. Warner Bros. (Nos. B.C. 051653 & B.C 051654 [Cal. Super. Ct. Mar. 14, 1994]).

Record companies also use complex contractual formulas to determine royalty payments to their artists. Companies typically offer seemingly large royalty percentages to artists. Various clauses in the recording agreements then are used to reduce the royalty percentages, reduce the number of units on which royalties are paid, and delay payment for many months. Although a few small record companies have made some effort to simplify the structure of recording agreements, the major record companies and their smaller affiliates have fought to maintain the more complex, formula-based agreements.

Advances Many entertainment contracts are structured with advances. Advances are payments made to an artist before any actual income is received by the company that manufactures or delivers the artist's products or services. For example, an author might receive an advance of $50,000 when a manuscript is approved by the publisher. This advance is normally nonrefundable, even if the publisher never earns money from the publication of the author's work. However, the publisher will keep any royalties that would have been payable to the author, until the author's advance and other expenses have been recouped by the publisher.

Contracts with Minors Contract law in many states requires that specific steps be taken in, or clauses added to, a contract with a minor, to ensure that the contract is valid. Often, companies will require that the minor's parents execute a valid release, under which they guarantee the services of the child and agree to be held liable for damages if the child fails to perform under the terms of the contract.

Contracts with Intermediaries Successful artists are surrounded by many individuals who are responsible for enhancing and protecting their career. Unknown artists use the services of such intermediaries to help them become known to more powerful figures in the entertainment industry. Intermediaries have various names and functions, but all serve to promote an artist's visibility and success in the industry. For this service, they generally take a percentage of an artist's earnings or a portion of the artist's property rights in the artist's creations.

Agents Agents are individuals who procure employment and other opportunities for artists. In film production, agents find actors roles or pitch screenwriters' works to studios, producers, and actors. In music production, agents procure live engagements for musicians. In book publishing, agents attempt to secure publishing agreements for authors. For their services, agents often receive between five and 25 percent of an artist's revenues that are obtained through the agents' efforts. Agents nearly always require an artist to use only their services, while they usually serve many artists. Agents are strictly regulated in some states, especially states with large and successful entertainment enterprises. Agents have become powerful figures in the entertainment industry.

Personal Managers Personal managers are individuals who guide various aspects of an artist's career. In the early stages of an artist's career, the manager might act as agent, publicist, contract negotiator, and emotional counselor. As an artist gains in stature and income, the personal manager's primary tasks are to choose and to direct specialists to handle various aspects of the artist's career. For these services, personal managers often receive 10 to 20 percent of an artist's income from all sources.

Attorneys Attorneys in the entertainment industry perform many standard legal functions such as conducting litigation, giving business advice, protecting intellectual property, and negotiating contracts. Entertainment attorneys also serve as industry intermediaries, promoting their clients in order to procure contracts for the artists' products and services. For these services, entertainment attorneys are paid either an hourly fee or a percentage of an artist's income.

Entertainment attorneys often face difficult conflicts of interest. For example, an attorney who has represented a record company is often pursued by a recording artist to shop the artist's material to that company. The artist knows that the company will often trust the attorney's opinion of the artist's marketability, which gives the artist a better chance of obtaining a recording contract. The attorney, however, is often privy to confidential information about the record company, or still represents the company in related negotiations. Attorneys and artists have been involved in several high-profile disputes because of such conflicts of interest.

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