1. UNIVERSAL LEGAL
ATTORNEYS AT LAW
“REEL BITES”
Sector Focus-
MEDIA & ENTERTAINMENT
Media & Entertainment Vol.2, January 2010
1. Film Financing in India - Part I of the Series
2. In the News
Entertainment Tax for IPL
Suspension on new applications for Broadcasting TV Channels
Comments to this newsletter may be addressed to: kavitha.vijay@universal-legal.com
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2. FINANCING OF A FILM
Part I of the Film Financing in India Series
Kavitha Vijay
In India, the total number of admissions (people attending movies) is almost over 3
billion, which is almost double the US markets and three times that of the rest of Asia.
Cinema first arrived in India in 1896 when six short films by the Lumiere Brothers were
screened in Mumbai for the very first time. The Indian Film industry is the world's biggest
film industry in terms of the number of movies produced and released in a year, with
some Oscar nominees, considered as the highest acclaim in the entertainment industry.
In the course of the years, productions of films have increasingly become more elaborate
and thereby the budgets of the films are slowly inching towards those of Hollywood
proportions.
In the past, the financing of a film was done solely by the producer or by the production
house, as the case may be on a private basis. However, with increasing budgets, the
burden on a sole producer and its potential risk becomes too immense to bear.
Film Finance
With the Indian film industry being conferred the status of an “Industry” in the year
2000, banks have also been able to provide funding to the film producer.
In India, with the entry of several corporate players, avenues of finance such as floating
on stock markets, both in India and abroad, forging partnerships with regional players in
India and foreign players abroad, etc are being explored. These players are steadily
moving towards the Hollywood practices of slate financing, co-financing with independent
producers and establishing multi-platform distribution networks.
Valuation of a Film
Film finance is based on determination of the potential value of a proposed film. The
main factors to determine the commercial success of a film would include
public taste
artistic merit
competition from other films released at the same time
the quality of the script
the quality of the cast
the quality of the director and other parties
Other considerations relevant to the period of release
However, even if a film looks like it will be a commercial success "on paper", there is still
no accurate method of determining the levels of revenue the film will generate.
Legal Perspectives to the Valuation Exercise
Contracts: From a legal perspective, the financiers would look at the underlying title to
the script, the screenplay and the film, insurance, completion guarantee contracts and
cast and crew contracts prior to extending financing.
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3. Title and Ownership Issues: Prior to extending finance, the financier will want to ensure
that the chain of title to the script, the screenplay and the film is clearly established in
favour of the producer.
Where the story of the film is written by a script writer (in certain cases, the director of
the film will be the script writer), the story can be bought by the producer by the
execution of a purchase agreement. In certain cases where the script writer is unwilling
to sell the script, a copyright license agreement can be executed for the producer to
license the rights to the script.
A script writer can also be employed by the Indian producer to write a script and his/her
employment agreement would need to capture assignment of all intellectual property
rights created in any “work product” from him/her in favour of the producer.
In some cases, the script of a book can be taken and adapted into a screenplay. In such
cases, publisher’s release agreement can be executed enabling the Indian producer to
adapt the book into a screenplay. Such agreement would also grant a license to the
producer to adapt the script into a screenplay. Similarly, a Hollywood or other foreign
production can become the storyline for an Indian production.
Whatever be the method adopted by the producer, the rights to the underlying storyline
has to be assigned (bought out) or licensed in favour of the producer by the owner of the
underlying intellectual property rights.
Each of the above agreements would need to cover the following critical aspects:
extent of the copyright license / copyright assignment rights;
duration and territory of the copyright license / assignment rights;
manner of credits to the original author/writer of the script/story;
waiver of the author’s/ writer’s moral rights and right of the producer to alter/
modify the storyline;
right of exploitation of the film by the producer including the right to make
derivative works;
consideration for the purchase/ assignment/ license and/or royalty payments as
negotiated between the parties;
Right to freely assign in favour of a third party (this is important for assignment in
favour of a financier as security);
Standard representation and warranties on the ownership of the intellectual
property; and
Indemnification for any damages/ losses sustained by either party.
The ownership of the underlying intellectual property rights by the producer is paramount
for any film financing transaction. A chain of title opinion letter is usually required by the
financier as a condition precedent for the financing of a film production. Use of an
experienced attorney may help parties immensely at this stage.
Case in Instance
The importance of securing the underlying intellectual property rights to any script was
recently highlighted when author Chetan Bhagat accused the makers of "3 Idiots" of not
giving him and his book enough credit. It is the contention of the writers in India that
they are often relegated to the background and not given their due credit. The Film
Writers Association of India is now working towards framing a "model contract" to ensure
writers get a fair deal.
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4. IN THE NEWS:
Introduction of Entertainment Tax Bar on new applications for
for IPL broadcasting TV channels
The Maharashtra Government has The information and broadcasting ministry,
declared cricket as an entertainment sport which formulates media policy, has suspended
forty-five years after it declared horse accepting applications to uplink television
racing as entertainment. Besides cricket, channels from India and to downlink channels
pubs, discotheques, internet protocol into the country as per a notice dated 18th
television (IPTV) and permit rooms with a January, 2010 with immediate effect. The
live orchestra (dance bars earlier) will also ministry was of the opinion that it was
attract a similar tax. The matches played necessary to revisit the present policy for
within the BMC’s jurisdiction will attract a uplinking and downlinking with respect to the
25% tax, in other civic bodies it will be approach towards grant of permission including
20% and in the rest of Maharashtra it will the eligibility criteria and the terms and
be 15%. Chief minister Mr. Ashok Chavan conditions of the permission. The
has said the tax will not be applicable to recommendations of Telecom Regulatory
In the News: Ranji trophy and school
Test matches, Authority of India (TRAI) have been sought by
cricket. The tax will be applicable to all the ministry in this regard. However, it is the
one-day international matches, IPL 20-20 industry’s contention that it is important for
cricket matches and any similar forms of the government to deviser stricter entry norms
the game in the future. rather than a suspension of applications.
Disclaimer
This document is intended as a news update and is not legal advice to any person or entity. Before acting on the
basis of information in this document please obtain specific legal advice that may vary per the facts and
circumstances presented. Universal Legal does not accept any responsibility for losses or damages arising to
any person using this information in a manner not intended by the firm.
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