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					Guideline To Co-Productions:
A Practitioner’s Checklist

Dr. Gregor Schmid, LL.M.
TaylorWessing, Berlin




Warsaw Film Festival
13 October 2006
Overview



1.   Why Co-Produce?
2.   „The“ Co-Production: Types of Co-Productions
3.   Co-Productions: A checklist
4.   Questions




                                                    2
1.   Why Co-Produce?
2.   „The“ Co-Production: Types of Co-Productions
3.   Co-Productions: A Checklist
4.   Questions




                                                    3
I. Why Co-Produce?


Variety of reasons:

   •   Artistic
   •   Financial
   •   Access to subsidies
   •   Risk sharing
   •   Know-how




                             4
1.   Why Co-Produce?
2.   „The“ Co-Production: Types of Co-Productions
3.   Co-Productions: A Checklist
4.   Questions




                                                    5
II. The Co-Production (1)

•   Note: There is no such thing as „The“ Co-Production
•   Def.: „Joint Production by two or more partners of a film“
•   Main factors:
     •    Decisions and organisation
     •    Economic risk
•   „Real“ co-production       „pseudo“ co-production / mere co-financing
     Co-Financing:
     •    Financial contribution
     •    Exploitation rights (e.g. theatrical distribution) - licence
     •    (Potentially) certain approval rights
     •    E.g.: negative pickup deal
•   Consequences of qualification as co-producer:
     •   Qualification for subsidies
     •   Copyright (German law: sec. 94 Copyright Act – „producer“ owns a „neighbouring
         right“ in the film; statutory presumptions in favour of the producer)
     •   Tax treatment




                                                                                          6
II. The Co-Production (2)


•   Main factors („ideal“ co-production):

     ♦   Decisions and organisation, e.g.: story, script, cast and
         crew
         - Co-decision
         - Influence on production
         - Control of photography, cutting & editing
         - Joint ownership of rights and materials (subsequent
            allocation to co-production partners common)

     ♦   Economic risk (esp. cost overruns)



                                                                     7
II. The Co-Production (3)


• Distinction: national / international / European Co-
  Production

   • Various consequences:

       • Applicabilty of bilateral/ mulitilateral co-
         production treaties (e.g. European Convention
         on Cinematographic Co-Production: 3 co-
         producers)
       • Subsidies: applicability of EURIMAGES scheme
       • Tax issues: permanent establishment
         („Betriebsstätte“)

                                                         8
1.   Why Co-Produce?
2.   „The“ Co-Production: Types of Co-Productions
3.   Co-Productions: A Checklist
4.   Questions




                                                    9
III. Co-Productions: A Checklist

•   As there is no such thing as „the“ co-production, the following
    checklist provides guidance for the main issues to be considered
    when drafting a co-production agreement – not all issues
    necessarily to be regulated in each contract
•   Basically: Covering all stages of production and explotation

    ♦   Development
    ♦   Pre-production
    ♦   Principal photography
    ♦   Post-production
    ♦   Exploitation (Copyright term!)



                                                                       10
III. Check List Co-Production Agreement (1)

1.   Legal status of co-production
     (“real” and “pseudo” co-production, tax law issues, “media decree”, co-
     production as partnership or “Gemeinschaft“ respectively, ”no partnership“
     clause)

4.   National/international/European co-production
     (structure of co-production, bilateral and European co-production treaties,
     preliminary and final certificate of origin)

3.   Essential elements
     (feature film, TV movie, series etc.; final screenplay, budget, director,
     cameraman, principle cast, nationalities of cast and crew, length, material,
     locations, PG (Parental Guidance) rating – e.g. prime time language version(s),
     time schedule – e.g. start of principal photography, delivery date)

4.   Chain of title, contribution of pre-existing rights and materials
     (story, script; “single picture license”/ remake right; contribution or retention of
     certain rights, different options of contribution and their consequences,
     evaluation and compensation of advances etc.)


                                                                                            11
III. Check List Co-Production Agreement (2)

5. Financing plan and budget
   (financing plan; preliminary budget, final/audited budget, final
   account, contingency reserve, producer´s fee and its allocation,
   evaluation of other goods on own account (“Eigenleistungen”)
   and supplies (“Beistellungen”))

6. Co-production contributions and financing
   (sources of financing: equity, reserves, subsidies, presales,
   minimum guaranties, gap financing,bank financing, funds or
   investors, securities in favour of banks/investors, evaluation of
   “reference funding” and other subsidies as co-production
   contributions, financing deadline and exit clause, safeguarding
   financial contributions (letter of credits etc.); sales estimates)

                                                                        12
III. Check List Co-Production Agreement (2a)

  Note re subsidies (1): German–Polish Co-Development Fund

  •   Funded by Polish Film Institute, Mitteldeutsche
      Medienförderung (MDM) and Medienboard
  •   Development of feature film, feature-length animation film,
      creative documentary, potentially TV productions
      (exception)
  •   150 k € per year in total, 30 k € per project
  •   Producers’ share of co-development-costs: at least 30%,
      subsidy not to exceed 70%
  •   Subsidies are allocated to Polish and German producer
      proportional to their respective share in the total co-
      development costs
  •   Paid as limited recourse loan in three instalments,
      repayable by start of pp or sale of rights


                                                                    13
III. Check List Co-Production Agreement (2b)

  … German–Polish Co-Development Fund (contd.)

  •   Application: joint application by at least one Polish and one German
      producer (having its seat in Saxony, Saxony-Anhalt, Thuringia, Berlin or
      Brandenburg) bound by a co-development-agreement. The share of each
      producer in the total development costs has to be at least 20%. One co-
      producer to be named as “responsible” partner.
  •   To be submitted (amongst others):
       •   Treatment and one elaborate dialogue
       •   Synopsis
       •   Detailed budget (calculation)
       •   Financing scheme
       •   Signed co-development agreement
  •   Application form:
      www.medienboard.de/WebObjects/Medienboard.woa/wa/CMSshow/10993
      38
  •   Recent decision (13 Sept. 2006) : 3 projects, total of ca. 70 k €




                                                                                 14
III. Check List Co-Production Agreement (2c)


  Note re subsidies (2): New German subsidy scheme
  2007 - “Incentive for the strengthening of film
  production in Germany”:

   • Necessary primarily due to change in tax law
     which changed the framework for media funds
     new sources of financing needed
   • 60 mio. € per year, starting in 2007
   • 15-20% refund on productions costs spent in
     Germany


                                                     15
III. Check List Co-Production Agreement (2d)

  … New German Subsidy Scheme (contd.):

  •   Criteria are currently being elaborated
      Presumably:
       • Feature film or documentary (not: TV)
       • Budget at least 1 mio. € (for feature film)
       • “Experienced” producer
       • German producer or co-producer (German co-
           producer to bear at least 20% of production cost)
       • Distribution agreement with “experienced” distribution
           company
  •   To be notified to European Commission (Art. 87 EC Treaty)
  •   Watch this space… www.kulturstaatsminister.de

                                                                  16
III. Check List Co-Production Agreement (3)

7.   Cash-flow
     (cash-flow plan, maturity of co-financing contributions, discounting of bank
     financing of total budget, avals; hedging against currency risks; separate
     accounting; book keeping and reporting obligations, audit rights;
     securities)

8.   Realisation of production
     (artistic, technical, organisational, financial aspects; respective role of co-
     producers, fixing of responsibilities, who is responsible for completion, who
     is liable for violation of (time) limits, consequences of liability, completion
     bonds, authority and power of attorney, co-producer in charge (“executive
     producer”), commissioning of a production service provider, powers of co-
     producers including decision right, co-decision process, avoidance of
     stalemate situations, contracts with third parties; responsibility for
     acquisition of rights; definition of rights)

9.   Completion and material to be supplied
     (production schedule, necessary material to be supplied, language
     versions, storage, laboratory access letter etc.)

                                                                                       17
III. Check List Co-Production Agreement (4)

10. Assignment / allocation of rights
   (copyrights and neighbouring rights, property and access rights, split
   between territories – e.g. of exclusive and/or joint exploitation, split of
   exploitation rights, definition of exploitation rights – e.g. theatrical,
   video/DVD, VoD, NVoD, database right, dubbing and right to make
   changes, merchandising, ancillary printing rights, advertising and tie-ins,
   theme park etc.; certain times of exploitation; language versions)

11. Ownership of material
    (master negative and other material, e.g. proportional to co-production
    share)

12. Distribution of proceeds and profits/ recoupment plan
   (definition of recoupable costs/investments/loans, sources of revenue,
   determination of waterfall, pro rata pari passu and other models,
   participation and recoupment by third parties and subsidizing institutions;
   definition of proceeds/net proceeds; allocation of proceeds, residuals, etc.;
   (mutual) auditing rights)


                                                                                   18
III. Check List Co-Production Agreement (5)

13. Awards, prizes, reference moneys
    (allocation of awards, prizes, reference moneys)

14. Credit obligations and marketing
    (crediting co-producers, different crediting in different territories in opening and
    end credits, press material and other media; presentation credits, consideration
    of obligation of crediting of third persons (e.g. author of novel), subsidizing,
    WGA-regulations etc.; coordination of marketing, confidentiality and non-
    disclosure)

15. Exploitation and exploitation agreements
    (theatrical distribution agreements, territorial/worldwide distribution
    agreements, broadcasting licence agreements, approval rights, caps, etc.,
    responsibility for repayment of subsidies)

16. Chain of exploitation
    (Holdback periods: Theatrical - Video/DVD – VoD/NVoD – pay TV – free TV;
    primary broadcasting rights, international video sales and distribution, on-
    demand and internet exploitation, territorial segmentation etc.)


                                                                                           19
III. Check List Co-Production Agreement (6)

17. Insurances/completion bond
   (necessary insurances – e.g. third party liability, E & O,
   responsibility for closing insurance contracts, inclusion of other
   co-producers, financiers and third parties as beneficiaries)

18. Collection agency
   (function, benefits and costs, examples of collection agencies)

19. Representations, warranties




                                                                        20
III. Check List Co-Production Agreement (7)

20. Termination of co-production
    (ordinary termination of co-production, e.g. by completion of
    master negative, automatical termination of partnership, consequences for tax purposes (trade
    income tax); exit of co-producer, early termination for cause, e.g. violation of contractual
    obligations, insolvency (valid?) etc.; consequences, e.g. automatic accrual of shares, call right for
    co-producer’s share; consequences for rights, ownership and proceeds; takeover of existing
    contracts)

21. Other provisions
    (assignment of agreement; no injunctive relief (valid?); notices; entire agreement, abrogation of
    deal memos and other preliminary agreements, „further documents-clause“, i.e. execution of
    further documents; written form clause; severability clause; execution of counterparts)

22. Applicable law
    (law of a country of a co-producer, fixing of “neutral” law (valid))

23. Jurisdiction, arbitration
    (exclusive/non-exclusive jurisdiction, arbitration – e.g. IFTA-(formerly AFMA) arbitration, Paris
    Chamber of Commerce – arbitration)




                                                                                                            21
III. Check List Co-Production Agreement (8)



 define your interests…




                                          22
1.   Why Co-Produce?
2.   „The“ Co-Production: Types of Co-Productions
3.   Co-Productions: A checklist
4.   Questions




                                                    23
IV. Questions




                ?


                    24
Thank you for your attention!




     Dr. Gregor Schmid, LL.M.
    g.schmid@taylorwessing.com

           TaylorWessing
           Jägerstraße 51
            10117 Berlin
      Tel: +49-30-88 56 36-0
     Fax: +40-30-88 56 36-100


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