BY:STEVEN C. BEER
This Q&A was originally published in the Winter 2019 issue of Documentary magazine, a publication of the International Documentary Association, a nonprofit media arts organization based in Los Angeles.
All too frequently, misunderstandings arise between documentary filmmakers and producers on the one hand, and investors on the other. The grounds for discord involve both creative and business matters. In most instances, however, these disputes are avoidable.
On the creative side, a filmmaker may bristle when financiers request changes to a film, and if the filmmaker is unresponsive, investors may become frustrated, uncooperative, and possibly litigious. The business side of producing, marketing and distributing documentary films also provides a fertile field for investor disputes. Disagreements may arise when decisions directly impact the investor’s potential return on investment. Resulting conflicts can be bitter, and may materially interfere with the progress of the project.
The common denominator in these potentially nettlesome disputes is the failure to communicate thoroughly about the parties’ respective expectations and priorities. Ironically, seeds of misunderstanding often are sown during development when relationships are harmonious. After an exhausting search for project financing, the enthusiastic producer is elated to receive the financing commitment and may be reluctant to raise potentially divisive issues. And the novice film investor may not have sufficient background or guidance to explore the filmmaker’s creative vision, the producer’s business direction, or the substantial risk inherent in these investments.
How can documentary filmmakers and producers sidestep conflict and preserve these important investor relationships? First and foremost, it is indispensable that filmmakers and producers clearly establish their project objectives and fully disclose the risks involved within comprehensive investment documents prepared by specialized legal counsel. Among other material elements, these agreements must address ownership and control over the project, decision making authority, and the revenue waterfall contributing to the investors’ prospective return on investment. These critical matters are usually embodied within an operating agreement if the production entity is a limited liability company. The LLC structure, however, deserves particular attention because, unlike an investor’s role in other legal entities, an LLC investor may serve as a co-manager with robust decision-making authority.
Additionally, as a means to avoid conflict, it is strongly recommended that the parties discuss their expectations and confirm their respective priorities in a mutually approved memorandum of understanding. This constructive exercise will help to clarify the investor’s aims and serve as a reference should the investor pivot to a different set of goals.
Another useful step is to urge investors to retain experienced film counsel to guide them on all legal aspects of the project. This will help identify and clarify potential misunderstandings from the beginning. Also, it may be helpful for producers to apprise the financier about project developments through regular written updates. Current information will facilitate a dialogue about the project’s path and exploit the best way to avoid conflict — provide regular communication.