GROSS vs NET POINTS

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  When new writers set out to pitch a TV show, they often ask “How much do TV writers make?“, or “How much can I make from selling a TV show idea as a new producer or writer?” The answer is not one-size-fits-all. Also, how do TV production companies make money? There are a myriad of factors that determine how much one project delivers versus another, as well as what one writer or production company makes compared to another. Budgets determine fees, deals determine participation, and the success of a show influences everything.

  When a company commits to bringing your TV series pitch to market, they’ll propose an option agreement for negotiation that gives them the exclusive right to sell your TV series treatment or pilot script to a network for a limited period of time. More people from outside the TV industry break into the business from selling a concept for a show rather than an actual property (script, book, etc.), so it’s important for us to share what one may expect when selling a concept in order to strategize and prioritize your negotiations.

Option deals for scripted projects are structurally the same as for reality-based concepts, but fees and purchase prices are considerably higher in scripted. Budget and Network outlet play a large role in determining related fees. Financial participation as well as participation in the development and production is negotiable to a point, depending on your experience within the industry and what you bring to the table (Actors, Directors, etc.,) in terms of the marketing of your show.

As in any industry, there are a variety of forces and factors that give shape to the legal structure and content of any deal made. A television Writer or Producer who has an established track record is likely to receive a more lucrative deal than someone with little or no experience, and most often will be given more involvement in the actual production of the show. However, there are industry standards regardless of who you are. Entertainment Lawyers are a must.

How TV production companies make money:

  By traditional standards, production companies carry high risk with the overhead of a development team, in-house producers, administrative staff, and costs involved in securing and packaging projects. They must have a very specific path to deliver viable TV series to their Network executives, and the talent to develop and deliver compelling content that will connect with a buyer and convince them to commit to a budget and order for series. It’s important for new writers and producers to understand, “a production company typically doesn’t make their first dollar until production actually begins”. Production companies who get the green light are given that privilege because the Network or Studio knows they can deliver, and knows that their vision is the right approach for the story or format at hand.

When a production company is ordered to produce and deliver a TV series, or pilot for series, they’re given a budget from the Network or Studio. The fee for physically producing the show may be 10% of budget. So immediately you’ll understand that the bigger the show, the bigger the network, the bigger the fee for producing. Add to that, negotiated fees tied to specific talent producing the series per episode, and licensing fees as participation in the distribution of the series and any ancillary income from such, you can start seeing how a successful run of a TV series can pull in some serious revenue. Of course nobody is getting rich unless a series is a hit, and in that case a producing entity may have a right to renegotiate certain financial considerations depending on the deal they’ve secured. Some production companies are also tied into development deals with studios that cover development costs and other front-end expenditures in exchange for having first right of refusal to anything that production company develops.

If the production company doesn’t sell your show to a network then the show returns to you, the creator and owner. That’s called “Reversion“. You can continue to shop your show to other companies. Many writers have had shows never make it to production, but have made significant financial gain off of repetitive options. If the company does sell your show to a network, then you will be paid a “Purchase Price” or “Set-Up Bonus” that will have been pre-negotiated.

This is not always included in a deal, but may be negotiated. It is a fee paid to you, the creator of the show at the time of the production company “exercising your option”. In other words; you are paid this money as a bonus when the show is sold to a network. The amount varies greatly depending upon your negotiations with a buyer. At this point, the show no longer belongs to you and is the property of the Production Company who sold the show, and eventually the network or distributor who puts it into production.

This is the main source of revenue derived from a series. Typically a production company will offer the creator/producer a percentage or points of the locked per episode budget. Whatever the Networks sets as the budget per episode, you would receive a set percentage of that. Anywhere between 2 and 5% or points, is standard, and up for negotiation. Budgets vary greatly depending on the content of the series and the network producing the show. Major Networks and Prime Time shows pay more. However, when you’re looking at long-term financial gain, you hope for a successful series that runs multiple episodes for multiple seasons on any network or cable network at any budget.

Points mean that an investor receives a percentage of the film’s proceeds (each point is 1%).  If 1% equals 1point, than there can only be 100 points to a film. If all points are accounted for, then all funds are accounted for and there are no “unaccounted-for” or net profits.

Because of the studio’s ability to place arbitrary charges along the Value chain, net participation “points” (a percentage of the net income as opposed to a percentage of the gross income of a film) are sometimes referred to as “monkey points”. The term is attributed to Eddie Murphy, who is said to have also stated that only a fool would accept net points in their contract. Read More

Actress Lynda Carter on The Late Show with Joan Rivers commented;

“Don’t ever settle for net profits. It’s called ‘creative accounting’.”

GROSS POINTS

  Many insist on “gross points” (a percentage of some definition of gross revenue) rather than net revenue participation. This practice reduces the likelihood of a project showing a profit, as a production company will claim a portion of the reported box-office revenue was diverted directly to gross point participants. However, gross participation is a rare bargaining chip allowed by the studios and hence hard to obtain unless the person has considerable leverage in the deal – such as an A-list star, director or producer who is vital for a project.

EXAMPLE: According to Lucasfilm, Return of the Jedi, despite having earned $475 million at the box office against a budget of $32.5 million, “has never gone into profit. READ MORE

   Gross points is what you get if you are a big enough actor or producer to demand this. You get a percentage of proceeds based on the gross of the film – how much it makes before any costs. Therefore, you are guaranteed to get paid since the studio can’t hide anything.  Very few people can demand gross points. But if you have them and your film hits big, you make millions. In fact, this can be so profitable you will sometimes see big stars forgo any salary at all except union minimum just to get these points.

Unfortunately, this is almost universally the case with a net points clause. Studios almost never pay on this clause, as they claim nearly any and every expense possible to keep the film from showing any actual profit. Very few films have ever shown a net profit on the books.

How do they do this? Well first, imagine that George Lucas decided to go to New York tomorrow to talk about showing Return of the Jedi in 3D. And he stayed at the Ritz Carlton, ordered sushi at 3 a.m. from room service and used the hotel phone to call Bahrain to make prank calls.

Well, 26 years after the release of the film, the accountants at Lucasfilm are going to charge $86,000 to the costs of Return of the Jedi. I am NOT joking. This is what they do. If George Lucas utters the words Star Wars and he’s spending money, they’re putting it on the red line for one of those films.

Vet the Producer

These days it seems like anyone with a business card and a smooth pitch is willing to call themselves a producer. You must ask the producer what actual motion picture and/or television producing credits they have and then vet them by going to imdb.com (the Internet Movie Database) and checking under both their name and the individual production titles. While IMDB is fairly accurate, you should also do a Google search to check if the credits come up on other film sites.

There are exceptional cases where an individual has attained real prominence in another artistic field and can cross over into film production, but, in general, if the producer doesn’t have at least a few respectable motion picture and/or TV producer credits under their belt, you are likely better off waiting for another offer. A principle of Hollywood is that movies get made because someone with power wants to make them. You don’t want your rights tied up by someone who lacks the clout to produce the movie.

Reject the FREE Option

Independent producers sometimes seek to persuade the vulnerable author to grant them a “free” initial option period (usually 12-18 months) in exchange for the producer using good faith efforts to obtain a development deal for the picture. Don’t agree to this. First, you put your blood, sweat, and tears into your project and you deserve to get paid for the option. Second, you want the producer to demonstrate that they are committed enough, and financially solvent enough, to invest in this project and put their own “skin in the game”.

Condition option extensions on progress to production

Because raising financing for a film, or obtaining a production commitment from a studio or TV network, takes so long, producers will generally ask for the right to extend the option for at least a second 12-18 month period and sometimes a third 12-18 month period. I advise authors to require that, in addition to paying for the extensions, the producer must demonstrate “progress to production” in order to extend the option.

This means that they must achieve certain definite development goals by that point. Examples of such goals are having a completed screenplay, attaching (getting a written commitment from) a lead actor or director, or entering into a development agreement with independent financiers, a studio, or TV network. While it is best to limit the producer to one option extension, if you are willing to grant two extensions, you can condition the first extension on one development goal and the second extension on additional development goals.

Participation in Proceeds

As the creator of a show it is customary to retain an interest in proceeds derived from the production and distribution of that show. This is paid to you by the production company through your attorney and is usually a nominal percentage of the fees paid to the production company by the network or distributor as the show is produced and televised. Again, the amount of financial participation in this area varies and can often be negotiated as leverage against any purchase price you agree to.

Additionally, it is standard practice for your Entertainment Attorney to retain the right to “audit” the accounting of the company paying you to ensure that the percentage of proceeds you agreed to is the true percentage you are paid.

Tie the purchase price to the budget

The producer may offer a purchase price for the motion picture and television rights,  (the price they must pay if they exercise the option) that is one flat payment regardless of the budget of the picture. It is preferable for you to tie the purchase price to the budget of the picture. One common formula is that the purchase price will be equal to 2.5% of the final written approved budget of the picture (excluding contingency, completion bond fees, and financing fees).

However, it is customary to put both a “floor” and a “ceiling” on the price to protect both parties. For example, for a book at this level, you might state that the price will in no event be less than USD $75,000 (GBP £57,100) or more than USD $250,000 (GBP £190,325) (I’m an American so I’m used to dollar figures). These figures are negotiable.

Ask for Consultation Rights

Unless you are literally JK Rowling or E.L. James, no producer or studio is going to give you the right to approve the screenplay used for the picture, but you should be able to get the right to be consulted in good faith regarding the script as long all creative decisions rest with the producer. This should include the right to meet with the screenwriter and to read each draft of the script and give input. While you can’t entirely prevent the producer from mucking up your book, you can at least try to reduce the damage!

On Screen Credit

For reality-based projects, companies and networks will acknowledge the creator of a show produced, usually with a “Created by” and “Associate Producer” or “Consulting Producer” credit. For scripted projects it is more often a “Written by” or “Story by” credit in addition to a negotiated producer credit. As such, you should be able to negotiate a standard fee associated with your credit, paid per episode or week of production. These are all negotiable.

Overview

Here’s a quick overview of the process when landing a TV series deal at the TV Writers Vault:

– The Writer/Creator writes and develops an original concept, format, or story.
– They connect with a Production Company after their pitch was scouted in our marketplace.
– They engage in conversations to determine its potential and ideal direction for development.
– The Writer/Creator receives an “Option Agreement” proposal that would allow the company exclusive rights to develop and shop the project to networks.
– Negotiations for all terms are settled.
– The company develops and readies the project to pitch to Networks. A sizzle reel is often produced as a proof-of-concept.
– The production company sells the pitch to a Network and the Option is exercised.
– The series is produced, and the Writer/Creator is engaged and compensated as per the terms of the agreement.

[This is in no way provided as legal advice or guarantee of what may or may not be offered to you by any company or person you engage in negotiations with. We strongly advise that you have an entertainment attorney negotiate any offer made to you, as there are many variables and strategies for securing the best possible deal.]

History (Just for fun)

   The word points became Hollywood buzz in 1950 after Lew Wasserman, president of the MCA talent agency, negotiated a contract that made actor Jimmy Stewart a millionaire with one motion picture. In lieu of a salary to star in “Winchester ‘73” (1950), Universal Pictures agreed to pay Stewart 4 points (4 percent) of the film’s gross profits. Points became the rage in post studio system Hollywood where actors and directors were becoming free agents and able to leverage their popularity because studios, divested of theater ownership in 1948, could no longer afford box office flops.

Points would go on to figure prominently in controversies arising from “Hollywood accounting,” which became as creative as anything in Hollywood. In particular, deals involving “net points,” i.e. a share of a movie’s net profits, proved to be, as actor Eddie Murphy put it, “monkey points.” Those owed net points were often told their movies earned little or no net profits even though gross profits surpassed production costs two, three or more times. Cited as the reason were nebulous overhead charges for distribution, marketing, production and more.  

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