| The
Money Flow |
| By
Victor Knapp and Ralph Sevush |
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A while back, we received a letter from a member who felt
confused by the "money flow" suggested by our standard Small
Theater/99-Seat/Equity Showcase Contract. That is, he wanted
clarification on how the money flowed to the author and how it
flowed out again, via the option and royalty provisions and
the subsidiary rights section of our agreements and other
similar contracts. We've been asked, too, about how this
agreement could be modified for use as a commercial
Off-Broadway agreement. |
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While we've discussed these issues in various places at
various times, either at seminars or here in the pages of The
Newsletter, we've attempted to put all the information in one
place, to the extent possible. The following then is a survey
of sorts that attempts to present the data about current
standards and practices regarding "The Money Flow" and how
they impact on the provisions of our contracts. Where
possible, we've also added some notes on how to revise the
Small Theater Contract to make it applicable and appropriate
for commercial Off-Broadway productions as well. |
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Be aware that the following article is not meant to be
prescriptive but merely descriptive of the industry as we
understand it and of the way our standard Small Theater
Contract is designed to work within it. Neither this article
nor the contracts described herein are intended to serve as
"legal advice" nor to be considered as an adequate substitute
for advice of counsel or of the Guild regarding any particular
issue or contract. |
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This article deals with the income streams available to
authors for various uses of their works as described by the
Guild's Small Theater/99-seat/Equity Showcase Contract. This
form contract is available for use by Guild members for
premiere productions of their work. While written specifically
for an "Off-Off-Broadway" Equity Showcase-type production, the
form and structure of the Small Theater Contract provides a
good model for Guild members for a commercial Off-Broadway
production or any other non-First-Class or non-LORT-type stage
production, with only minor modifications to be necessarily
negotiated with a producer. |
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The Small Theater Contract, in addition to describing an
author's rights, describes subsequent obligations to the
producer who has presented the premiere stage performance.
These obligations, called "subsidiary rights," would only come
into play if the producer has negotiated a subsidiary rights
clause in its production contract with the author and if these
rights have "vested" by virtue of the play having been
presented for a specified number and type of performances.
[Subsidiary rights include dispositions that are made after
the production contracted, for example motion picture and
television rights or stock and amateur licensing.] You should
remember that an author should not automatically grant
subsidiary rights participation to the initial producer. In
fact, the Small Theater Contract has a subsidiary rights
provision attached at the end of the document as an "optional
provision" that the author can choose to include, or not, at
their discretion and subject to negotiation. For a more
thorough discussion of what factors underlay an author's
decision to grant a producer subsidiary rights and the extent
of such rights, read "Understanding Subsidiary Rights" in the
February 1997 Newsletter. |
| I. MONEY FLOWING IN |
| Commission Fees |
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An author receives commission fees only where the producer or
theater has commissioned the author to create a new work.
Generally, commissions are paid by resident theaters or other
nonprofit institutions to allow them to either establish a
relationship with a particular writer or to produce a play on
a particular subject or theme. Commercial producers rarely
commission new works for commercial production. |
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Commission fees represent payment for the work involved in
writing a play and are nonrefundable. Also, they rarely are
treated as advances against royalties, because the commission
is designed to compensate an author for the time and effort in
creating the work and is not necessarily intended to also
function as the "licensing fee" or "royalty" payable for the
license to present the work. The author retains the copyright
in the work and usually will grant the producer or theater the
exclusive right to present the premiere production of the
piece and, perhaps, future nonexclusive rights to revive the
production, subject to the payment of royalties. |
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A commissioning party may earn a share of an author's
subsidiary rights, but such future participation is generally
based on the commissioning party actually producing the play,
not merely paying a commission. Otherwise, a commission would
be the equivalent of buying shares in a company, thereby
owning a percentage of future revenues purely for having paid
the author a fee for having written the play in the first
instance. |
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While there is no discussion of commission fees in the Small
Theater Contract, the Guild has a Model Form Commission
Agreement available to members (as well as an explanatory
article about the Commission Agreement). While there is no
standard, predetermined commission fee (as the amount is
generally negotiable and dictated by who the producer is and
what the bargaining power of the author is), the Model
Commission Agreement describes a range of commissions from
$1,000 to $10,000. |
| Fees from the Small
Theater Contract |
|
Option Fees (Paragraph 3.1): The option fee received by
the author is for the grant of the right to the producer to
present the play within a specified time and in a specified
venue. It is not unusual for there to be an automatic
extension granted to the producer upon the expiration of the
initial option period, provided there is a payment of an
additional fee to the author. For the Off-Off-Broadway
production, it is not unusual for an author to suggest a fee
that is at least as much as that received by anyone else on
the production. Usually, this means a fee no less than that
paid to the director. The current Off-Broadway option price is
generally in the $1,000-$5,000 range, with a $2,500-$3,000
option most typical for a play and more for musicals (where
there may be two or three authors). |
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Advances: While the Small Theater Contract treats the
option payment to the author as an advance against the
author's royalties, an Off-Broadway contract might provide for
an additional "advance" (nonreturnable but recoupable) against
royalties, payable to the author when the producer
"capitalizes" (raises the financing for) the production. Such
additional "advances" are required for First Class productions
under the Guild's Approved Production Contract (APC). |
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Future Options (Paragraph 13): If the author wishes to
grant a "future option" to the producer to either extend the
run of the play beyond the contracted number of performances,
to move the play subsequently to another venue, or to produce
it in other productions, additional fees are negotiated. A
prior Newsletter article ("Future Options: A Primer,"
September 1993) contains a discussion regarding an author's
considerations in granting future options. |
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The range of "future" options may include Off-Broadway,
regional/nonprofit theaters, second-class "sit downs"
(non-touring), second-class touring, and UK productions.
Option payments for such future options are usually considered
advances against royalties and deducted from the first
royalties earned by the author. An author might also grant a
right to present First Class productions, but such grant is
pursuant to a negotiated APC, which is of no force or effect
unless and until certified by the Dramatists Guild. |
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Production Royalties (Paragraph 4): Subject to the
nature of the production and the parties, the Small Theater
Contract suggests a range of 5% to 7% of gross weekly box
office receipts (GWBOR) as an appropriate production royalty
for the author. [It might be appropriate for some small
theaters to pay a lower than normal royalty percentage or even
a flat fee per performance instead.] The royalty rate then
increases to 6% to 8% upon the producer's recoupment of
production costs. The current Off-Broadway standard authorial
royalty seems to be 6%, increasing to 7% upon recoupment. The
APC provides a Broadway rate of 5% going to 10% for plays and
4.5% going to 6% for musicals. Institutional nonprofit
producers typically pay something around a 5% royalty. |
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Sometimes, instead of a royalty based on GWBOR, a "royalty
pool" is negotiated to allow investors to recoup their
investment more quickly, providing an incentive to invest.
Originally created for Broadway musicals, due to their
drastically increased cost and risk, "pools" have spilled over
into other levels of production, often to the author's
continuing detriment and generally for no logically defensible
reason. They base the author's royalty on a percentage of
weekly net profits (instead of gross box office receipts) and,
therefore, rely on the producer to accurately, honestly, and
fairly report such weekly profits to all the pool
participants. You will find no provision regarding royalty
pools in any Guild production contract but pools have been
discussed in a previous Newsletter article ("An Analysis of
Royalty Pools," April 1994). |
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Commercial Use Products: While not specifically
mentioned in the Small Theater Contract, the author will often
grant the producer the exclusive right to prepare and sell
products (souvenir brochures, wearing apparel, toys, games,
figurines, or novelties) that incorporate or represent the
name, characters, or title of the play and/or the author. The
producer will enjoy such rights during the time that it
retains any rights to present the play. In such case, the
Guild has suggested that the author receive 10% of the gross
proceeds from the sales of such products in the theater, up to
50% of the producer's such net proceeds, as required for First
Class productions in the APC. |
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Cast Albums: Also not mentioned in the Small Theater
Contract, authors of a musical will generally grant the
producer a right to make a cast album of the show. Authors
commonly get the larger split of advances and royalties that a
producer receives from the record company (on a 60/40 basis),
and the songwriters will also be entitled to "mechanical
royalties" for their separate rights in the songs (see
Newsletter article "Life of a Song," March/April 2000, for
further discussion of revenues to a songwriter derived from
individual songs). |
| Subsidiary Rights Income |
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Other Subsequent Theater Productions: Similar to the
initial production contract, the author will receive option
fees, possibly additional advances, and royalties (based upon
GWBOR, unless a royalty pool is employed for such a subsequent
production) from subsequent productions produced by other
producers, in the US and around the world. |
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Publishing: The scope of publishing income payable to
authors has been previously covered in Newsletter articles ("A
Guide to Publishing and Licensing Contracts," September 1994;
"To Print or Not To Print," January 1999). The author may
receive an advance, depending upon the size of the publisher
and the bargaining power of an author. With respect to
royalties, they are derived from sales of the "book" of your
play (the grant of publication rights to the publisher) and
from fees generated from licensing your play (the grant of
performance rights to the publisher). As to the former, it is
common for the author to receive 10% of the retail sales price
of the play. As to the latter, the author normally will
receive between 50% to 90% of the licensing fees for stock and
other professional productions and 50% to 80% for amateur
productions. |
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Motion Pictures/TV: When an author options the film and
TV rights in the work, several potential income sources come
into play that have previously been discussed in more detail
in a Newsletter article ("A Primer on Film Options," May
1997). If the author is hired to write the screenplay for the
film, a separate deal for writing services is then negotiated,
subject to the Writers Guild Agreement (WGA), if applicable.
These fees for the personal services of the author are
excluded from the definition of "subsidiary income" in which
the initial producer may share. |
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The separate deal between the author and film or TV producer
for the licensing of the play's underlying rights will
generally involve: an option fee (typically 10% of the
purchase price); fees for extensions of the option; a purchase
price (typically 2½% of the overall film budget); additional
"contingent compensation" (2½% to 5% of "net profits," as
defined and received by the screenwriter and/or producer); and
passive payments for ancillary exploitations (motion picture
sequels, remakes, television series, and residual fees from
reruns on cable, ancillary network, and non-network channels). |
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Commercial-Use Products, Subsequent Cast Albums:
Similar to the terms of the initial production contract, the
author will grant the subsequent producer the sale and
exclusive right to create, manufacturer, and sell
commercial-use products during the time the producer retains
any rights to present the play and, where applicable, the
right to produce subsequent cast albums for musicals. The
terms are the same as those provided in the initial production
agreement. |
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Electronic Rights: While we have offered a number of
articles on this topic (see "Caught in the Net," January 1998,
and "Electronic Publishing," October 1995), it is hard to know
at this point what the market is for CD-ROMs, downloadable
music and manuscripts, and other new forms of electronic and
Internet distribution of plays, musicals, and songs. Though a
play's basic nature as a "live" experience would seem
antithetical to its use in the new digital landscape,
electronic rights are not granted customarily, and it would
not be advisable to do so until a marketplace for those rights
has been more clearly defined. |
| II. MONEY FLOWING OUT |
| The Initial Producer |
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Subsidiary Rights (Paragraph 12): Pursuant to the
optional "subsidiary rights" provision of the Small Theater
Contract, the author may share with the initial producing
entity a suggested 3% percent of the author's net proceeds
from future dispositions of the play made within a suggested
period of two years from the close of the initial
Off-Off-Broadway/99-seat/Equity Showcase-type production. |
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This provision would be revised for a commercial Off-Broadway
production, where a sliding scale of subsidiary rights
participation for the producer is more common. There is
usually something negotiated along the following lines: 21
performances equals 10%; 32 performances equals 20%; 48
performances equals 30%; 64 performances equals 40%. This
presumes the producer has presented at least 21 paid public
performances in an Off-Broadway commercial run, with an
official press opening and no more than eight preview
performances. The producer would then participate in those
dispositions of the author's subsidiary rights described
above, including revenues from worldwide motion picture
rights, and from dispositions in the US and Canada, revenues
from all stage rights, commercial use products, radio, TV, and
all other audiovisual rights. |
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Please note that the initial producer's right to participate
in the author's subsidiary rights income does NOT apply to any
subsequent theatrical production (First Class, Second Class,
or otherwise) produced, co-produced, presented or licensed by
or under the authority of the initial producer. |
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Sometimes, the initial producer will also have negotiated a
clause in the original production contract requiring a
subsequent producer to pay the initial producer a royalty,
provided the subsequent production begins within a short time
after the close of the initial production (usually no more
than two years) and/or substantial elements from such
production (for example, the same director, designers,
principal cast, etc.) are used in the subsequent production. |
| Other Subsidiary Rights
Participants |
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In addition to subsidiary rights income payable to the initial
producer, there may be other monies "flowing out" from the
author. If the play or musical is based on an underlying work,
the author will owe a percentage to the underlying rights
holder. Also, orchestrators and arrangers may get reuse fees
for their work out of subsidiary income generated by their
contributions (see "Your Arrangements with Orchestrators,"
September 1999). In addition, directors are becoming more
aggressive in seeking compensation not only from the producers
who hire them but also from the authors themselves. We have
many articles available on the subject ("Directors at the
Gates," November 1993; "Directors at the Gates II," September
1995; and "The Director-Dramatist Relationship," May/June
2000). |
| Conclusion |
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As the owners of their copyrights, playwrights are, in effect,
sole proprietors of businesses based solely on the cash flows
from each of their plays. A sole proprietor of such a business
needs to understand those cash flows to function effectively
as a professional in the theater industry. We hope this
analysis of the "money flow" based on the Guild's Small
Theater Contract is instructive in that regard, and helpful in
considering modifications of the agreement for larger
Off-Broadway venues. |
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