BY:Neil J. Rosini, Michael I. Rudell
(Originally published in the Entertainment Law column of the New York Law Journal, June 26, 2009)
Anyone following summer motion picture releases will note the seasonal prevalence of big budget sequels to successful films. In some instances, sequels are derived solely from the scripts of previously produced motion pictures (e.g., Terminator, Night at the Museum). In other instances, they connect with books or book series that were made into one or more prior films (e.g.,Harry Potter and the Half Blood Prince, Angels & Demons). Mindful of the vast rewards that can flow from these so-called “franchises” (e.g. the James Bond franchise), Hollywood studios structure their agreements with book authors to maximize their chances of creating one.
The Studio Sequel
The agreement by which a financier/distributor (referred to herein as a “studio”) obtains exclusive rights to a literary property, typically defines the “Work” as something broader than the book alone. The acquired “Work,” as described, also includes characters, themes, and plots found in the book. Not only may the studio utilize those elements in the first motion picture it produces, but also may include them in any subsequent motion pictures it makes in the form of sequels, prequels or remakes. (A sequel usually places one or more of the characters from the original story in new and different situations; a prequel does the same but it’s set in a time before the original story takes place; a remake retells the original story, sometimes with changes in time or place.)
Should a writer engaged by a studio create a new storyline for a sequel that it produces (“studio sequel”), the contract may provide that an additional rights payment be paid to the author of the original book for each new production. This is a passive payment; the author need not write any additional material to earn it. For a studio sequel or prequel, the studio typically offers to pay 50% of the base compensation and contingent compensation originally paid to the author. In the case of a remake, it typically offers to pay 33% of that compensation. Both percentages often are negotiable.
The Author-Written Sequel
From the author’s perspective, it is essential to preserve the right to use characters, themes, and plots contained in the original work in subsequent literary works. The studio contract refers to those subsequent literary works as “author-written sequels” and typically makes clear that the author is free to write and publish them. Although an author also may wish the right to sell the motion picture rights in that author-written sequel without encumbrance to another studio if she chooses, the original studio erects barriers to inhibit the author’s ability to do so.
These barriers enable a studio to preserve for itself a substantial head start in the race among competitors to make films of author-written sequels. Having extended tens of millions of dollars for production and distribution of the original film, including advertising and promotion (the average production cost of a film produced by a major studio exceed 60 million dollars and the average marketing costs exceed 40 million dollars), the studio considers itself a substantial investor in filmgoers’ awareness of key characters and continuing plot elements — at least in their cinematic incarnations. It is a form of goodwill that they want to be able to exploit again, and they are not eager to allow a rival studio to take advantage of that platform to launch a succeeding franchise of its own.
Consistent with these goals, the first studio draft customarily presented to the author defines “author-written sequel” as a new work in which any of the characters in the original work appears, with no distinction drawn between major characters and peripheral ones in either the original literary work or the author-written sequel.
If the studio is willing to allow the possibility of another entity producing a motion picture based on an author-written sequel, the first draft also will contain a definition of “equivalent rights” — rights that are the same as or similar to the rights that are being granted to the studio in the author’s book, including the right to produce a theatrical motion picture, television movie of the week, or television series. That phrase is a key part of a holdback provision, which prevents the author from granting to a third party any equivalent rights in an author-written sequel for a specified time. Following the holdback period, the studio agreement typically will provide for a right of first negotiation and last refusal that allows the studio to match any offer made to the author for equivalent rights in the author-written sequel.
Accordingly, after the holdback period, an author who wants to dispose of any equivalent rights in an author-written sequel must first approach the studio, and if the studio elects, negotiate during a specified period of time. If the parties are not able to agree on terms for the acquisition of the equivalent rights by the studio, then the author customarily is allowed to negotiate with third parties and to accept an offer that is higher than the last offer the author proposed.
Even if the author travels down this road and obtains an offer from a third party that exceeds the threshold, the first studio likely will benefit from a contractual clause worth noting. It specifies that any audiovisual work created by the purchaser of equivalent rights in the author-written sequel may not use any characters or elements that were contained in either the original literary work or in any motion picture that the first studio created. Under this provision, the author is able to grant the purchaser of motion picture rights in the author-written sequel little more than a new story line, and some brand new characters; the main characters (at least) and other key elements found in the original literary work and any prior productions produced by the studio, would be off limits.
These limitations, needless to say, provide substantial protection to the first studio by significantly diluting the marketability of the author-written sequel. Further, even if the author were successful in licensing rights to a second studio with characters intact, that studio could be hamstrung by the first studio’s ability to produce studio sequels and remakes of its own based on the author’s original literary work and any prior motion picture derived from it. By that means, the first studio could capitalize on the second studio’s multi-million dollar franchise-building effort and compete with it.
The Existing Book Series
If an author has written a popular series of books with a continuing main character (e.g. Lee Child, author of 13 books in the Jack Reacher series), he possesses an existing “franchise” of his own. This ordinarily gives him more literary assets to protect, and consequently, more bargaining power in a negotiation with a studio.
For example, if the studio obtains rights in an entire series of stories from which to select, the author may seek to prevent a studio sequel from being made until at least a designated number of films based on books in the series first is produced. Studios also may want the liberty to use the storyline contained in not just one book, but to combine stories from more than one book in a single film. This can raise complicated issues — involving titles, payments, and exclusivity, for example — that can lengthen a negotiation considerably.
Although one or more successful motion pictures can give an enormous boost to sales of books in which the same characters appear, they also pose risks. Many authors will want to ensure against having their main characters depicted inconsistently with the public’s expectations, or even worse, seriously disfigured or killed. Because even the most successful authors rarely have approval rights over the motion picture script, they may seek to find mutually agreeable means of protecting their literary offspring – including remedies in the event of a breach — while still allowing the studio creative breathing space.
As often is the case, the negotiability of the provisions discussed above depends on the relative leverage of the parties involved. The studios, aware of the huge rewards that franchises can yield, are reluctant to negotiate away key protections for themselves that they perceive to be of value, even with high-profile authors. And in these difficult economic times, as studios profess to exercise ever greater fiscal responsibility, they appear to be more focused than ever on preserving all opportunities to create a profitable franchise. However, they also are aware of the branding opportunities presented by high-profile literary works. These competing interests often lend themselves to protracted negotiations.
Eric S. Brown, a partner in the firm, assisted in the preparation of this article.