Produced By: Profit Participations Are a “War for the Money,” Producer Says

Jonathan Handel
"Show Me the Money: Maximizing Value From Producer Share Participations" panel at Produced By

A producer on 'Manchester by the Sea,' lawyers and a CPA brought a cold dose of reality to the issue of backends.

A panel of undertakers might have had better news for producers than the profit participation experts who gathered Saturday afternoon at the Produced By conference on the Fox lot. Their consensus: For a variety of reasons, backend cash in the form of profit participations is becoming ever more scarce.

"Once upon a time," said producer Chris Moore (Manchester by the Sea, American Pie), "the contractual definitions of backend participations mattered, and it was possible to shake money loose from the studios by challenging their accounting statements. But today?"

“Definitions are so hard to enforce,” he added, that they are “almost irrelevant. Now it’s more about bonuses — things that are out of the studio’s control.”

Those bonuses are generally tied to objective, external factors, such as box-office performance or receipt of awards. On Manchester, which Amazon distributed, Moore said the producers received “a little bit” of box office and awards bonuses, but no backend — that is, no profit participation.

That’s par for the course at Netflix and Amazon, according to Johnson & Johnson litigator Neville Johnson.

Moore also noted that only two or three of his movies had delivered much of any backend, although he had audited about 10 pictures. That’s out of a total of 20-plus movie producing credits. Among those he audited was The Adjustment Bureau, which was part of a transaction between Media Rights Capital (MRC) and Universal.

“You just think in your head, ‘Our movie definitely got screwed in that deal,’” Moore noted glumly.

It wasn’t always thus. “We love the contracts from the '70s and '80s,” said Johnson. With the older contracts, the studios “had not figured out how to screw … or plug holes,” said his law partner, Douglas Johnson.

But from the 1990s onward, said Neville Johnson, “It’s as though they put in red bold, ‘You will never make any money’” on the backend. He added that more recent contracts are even tougher because the studios are all requiring that disputes be arbitrated by a provider called JAMS, which has a panel of just 14 arbitrators who handle such matters. Echoing a recent article the two Johnsons wrote for the Producers Guild of America, Neville Johnson suggested that this incentivizes arbitrators to rule in favor of studios or risk losing repeat business. Arbitration is also essentially unappealable.

“Arbitration is not a good thing,” said entertainment attorney Dinah Perez, who moderated the panel.

But what about those older deals? The first rule for any producer receiving a studio accounting statement, said Douglas Johnson, is to file an objection to the statement. “Object, object, object!” he said.

That’s because failing to do so in a timely fashion risks loss of rights — and money. Said CPA Sabrina Robinson of Robinson Granatt, “One hundred percent of the time, studios underreport.”

Of course, audits can be expensive: $30,000 to $60,000 for a feature ($20,000 for a library title), said Robinson, and $40,000 to $80,000 for a TV series. But there are ways of avoiding those upfront costs. A CPA can do a “desk audit,” looking just at the accounting statements and information available online, to see if a full audit is warranted.

Also, Robinson is one of the few auditors who will work on a contingent fee basis — but only if she finds “bankable issues” that are going to be rewarding for her and the producer or other profit participant.

“I’m looking for $500,000 and up recovery for the client,” she said.

Getting those sums often requires filing a lawsuit, the panelists agreed, and then conducting the audit with the help of a judge ordering studio compliance. Said Moore, “It’s waking up and realizing you are in a f—ing war for the money.”

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