contracts 3:a - 1(20) entertainment and media: markets and economics contracts between talent and...

Contracts3:A - 1(20)

Entertainment and Media: Markets and Economics

Contracts Between Talent and Entertainment Producers


Bargaining Situations and Market Power

The bilateral monopoly

Downward sloping demand from the seller’s viewpoint (monopolist – the star)

Upward sloping supply from buyer’s viewpoint (monopsonist – the studio)

Ps

Pb

The bargaining range

?

The outcome depends on the bargaining strength of the two parties.


Who Are the Simpsons?Other Shows: Payment per episodeKelsey Grammer $2.0M/episode + %Ray Romano $1.5 + %Jason Alexander $0.6M perFriends $0.7M per

The Simpsons:Fox: Advt. + Syndication: $1.5B

Ebb and flow of bargaining powerJulie Kavner up to 1998 $ 30,000

up to 2004 $125,000* 2004-2008 $250,000 2008-2011 $400,000 2011-2014 $300,000

What is the bargaining situation? Who holds the stronger hand? Why?

*May, 2004 settlement for “fees,” and no percentage of earnings from the show.


Simpsons Redux? (2007)Video Game Voice Overs

Screen Actors Guild (strike?) Added value from big name actors Conventions in the movie business

Game Producers A game voice is less important It’s not Hollywood

Demand for additional fees for 400,000+ sales was a deal breaker.


Friends vs. Law&Order

Which is the more profitable show?

Moved to Tinseltown (LA)


Friends Capture the Value


The Essential Ingredient in the Profitability of Law and Order

The show is about police investigation and public prosecution, not character development. One downside of this approach is that, between cops and lawyers and suspect criminals, we have 30 or 40 speaking parts per episode, three to five times what most shows have." This is one of the advantages of filming in New York (“there are more really good actors you've never heardof than you'll find anywhere"), although it comes at a cost: an extra $75,000 to $80,000 per episode, mostly due to labor costs.

Luis Cabral, The Economics of Entertainment and Sports: Concepts and Cases, in process.


Bargaining

Reality television became a force because viewers liked it and because, without celebrities or big salaries, it was cheap. The shows can cost as little as $200,000 for a half-hour episode, compared with the $1 million or more typical for hourlong scripted shows. But now the genre is creating its own stars on shows like “Jersey Shore,” “The City” on MTV and the “Real Housewives” franchise on Bravo. With stars come demands for higher salaries, threatening the inexpensive economic model of reality TV. Are the shows falling victim to their own success?


It takes a while to establish the bargaining strength, but in these shows strongly identified with specific characters, eventually the lead actors capture the value. The Law and Order strategy is a defense. The NCIS cast has largely taken that advantage, though there is a small amount of churn in the characters – three female leads have been cycled out.


A Game Theory Connection

The outside option provides an agent with a credible threat.

This was not an element of the negotiations with the cast of Friends. Why not?

(A famous case in politics: The fall of Robert Moses at the hand of Nelson Rockefeller. Moses’ threat to leave was not credible. He considered himself indispensible. He wasn’t.)


Countervailing Market Power

Composers, Authors, Publishers of pieces of music own their copyrights

Do they have any market power? “Buyers?” Record labels, elevator operators

(muzak) websites, etc. “Sellers?” Cheryl Crow, Britney, 5 million

others Union organizers: ASCAP, BMI and

SESAC. What function do they play in the market?


The Music Market

In several segments it is not possible to have a “competitive” market.

A special court and a supervised market exist for performance royalties.

There is a “rulebook,” AFJ2 – Amended Final Judgment, 2 (2001) = US (Justice Dept) vs. ASCAP.


There is No Net Forrest Gump (1994) (Paramount Pictures)

US Box Office $330MForeign Box Office $350M Total, About $830MSoundtracks, etc. $150MNet profit -$ 62M (!) A disappearing act?

Box Office 50% to Exhibitors (Theaters)Paramount Receives Approx $191M

Distribution “Fee” = 32% $ 62M Distribution Cost $ 67M (Advt., Prints, Screening, etc.) Advt. Overhead $ 7M (10% of Distribution Cost) Production “Negative” Cost $112M

(Tom Hanks, Robert Zemekis, $ 20M (8% of GROSS, each) Studio Overhead $ 15M Interest on Negative Costs $ 6M

Net Profits from the Project -$62M Winston Groom, Author 19% of NET = 0 Eric Roth, Screenwriter 19% of NET = 0

Coming to America (1988) – The Art Buchwald Case vs. Paramount (1990) Hollywood accounting “Unconscionable” contracts

Contracts3:A - 15(20)http://io9.com/5747305/how-much-money-does-a-movie-need-to-make-to-be-profitable

Gross revenue $612M(Worldwide gross $938M)

Net after distribution $398M

Net net after expenses $206M

Production and other costs and interest $373M

Hollywood accounting net ($167M)

Harry Potter and the Order of the Phoenix, 2009


Profit Sharing Contracts (Weinstein)

Simple Risk Sharing by Bigger Stars Hanks/Zemekis: (Gump) Fixed % of Gross, no fixed

fee. Midler/Dreyfuss (Down and Out in Beverly Hills) All

fixed fee, $600,000. Low cost Currently, Cruise, Hanks, Julia Roberts work on

commission – they participate in the gross Why the participants in the “Net?”

Small bargaining strength Last residual claimant to output from production Least favorable position in risk chain.


That Tom Cruise Contract Box Office – Gross vs. Net.

Large participation in box office gross (20%+) Now only 1/3 of the story.

DVDs. Originally: 80% of total receipts kept by studios. 20% “Royalty” is the “gross”

Mission Impossible: 100% accounting; Gross is receipts after direct expenses. MI-1: 22% participation in the new gross. ($70M) MI-2: 30% of 40% royalty based on total gross (before

expenses) ($38.4M) MI-3: same deal. Smaller gross revenues)

Paramount (apparently) decided it could no longer afford huge budget actors like Tom Cruise.

http://www.edwardjayepstein.com/cruise.htm


Reshifting Risk in the New Movie Economy

Most of the three-dozen or so top-billed actors in the 10 films up for best picture in this Sunday’s Academy Awards ceremony, including blockbusters like “Up” and “Avatar” appear to have received relatively minuscule upfront payments for their work. When the estimated salaries of all 10 of the top acting nominees are combined, the total is only a little larger than the $20 million that went to Julia Roberts for her appearance in ‘Erin Brockovich” a best-picture nominee in 2001, or to Russell Crowe for “Master and Commander” nominated in 2004.

Once upon a time, the biggest stars were rewarded with deals that paid them a percentage of so-called first-dollar gross receipts; that is, they began sharing in the profits from the first ticket sale, not waiting until the studio turned a profit.

Now studios often insist that even top stars forgo large advance payments in return for a share of the profits after a studio has recouped its cash investment. The fashionable deal now is called “CB zero.” It stands for “cash-break zero,” and refers to an arrangement under which the star or filmmaker begins collecting a share of profits after the studio has reached the break-even point.

“For Movie Stars, the Big Money is Now Deferred,” NYT


Then and Now: Terminator 3Q. How much was that guaranteed “pay-or-play” fee?A. $29,250,000.Q. Plus bus fare...?A. Actually, yes, the contract did include a perk package to cover essentials. It provided a lump-sum payment of $1.5 million for private jets, a fully equipped gym trailer, three-bedroom deluxe suites on locations, round-the-clock limousines, personal bodyguards--that sort of thing.Q. So, let’s see--you made $30,750,000 on this film?A. Not including my contingent compensation. Q. And what is that contingent on?A. The movie reaching what is known as “cash break-even.” According to my contract, once the movie reaches cash break-even, I get a sum equal to 20 percent of the total adjusted gross receipts from every market in the world--including movie theaters, videos, DVDs, television licensing, in-flight entertainment, game licensing, and so forth.Q. But doesn’t Hollywood accounting famously use smoke and mirrors to make sure movies never reach “break-even”?A. Of course you hear about that happening to weaker players , but my contract--thanks to my lawyer, Jacob Bloom--is pretty tough. Take video and DVD sales, for example. Under the standard Hollywood contract, studios only credit the film with a video “royalty” equal to 20 percent of the sales. That means that if DVD sales total $20 million, only $4 million of that is counted towards reaching the break-even point.Q. And in your contract?A. The royalty is calculated at 100 percent of total video and DVD sales in determining my cash break-even. So if $20 million worth of DVDs are sold by Warner Brothers, $20 million is counted towards reaching the threshold where I begin collecting my 20 percent.

http://www.edwardjayepstein.com/x-rar1.htm

contracts 3:a - 1(20) entertainment and media: markets and economics contracts between talent and...

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