sign in sign up
<<
Home , Entertainment law

ALM500-2012-PA21:ALM500-2011-000MASTER.qxd 29/11/2011 7:52 AM Page 180

Entertainment R E C E N T D E V E L O P M E N T S O F I M P O R T A N C E

David Zitzerman* productions developed for and organizations with considerable economic Goodmans LLP commissioned by the Broadcasters. clout. This inequity in bargaining power has According to a recent CMPA update: been further exacerbated by the recent consolidation of broadcasters in the Terms of Trade Agreement: Dawn of The deal applies to the entire life Canadian English language market (e.g., the a New Era between Canadian cycle of a show — from first pitch, recent acquisitions of CTV by Bell Media, Producers and Broadcasters through to development, production Global by Shaw Media and City-TV by In April of 2011, after considerable and broadcast on all platforms. Key Rogers) which has created an oligopoly of cajoling by the Canadian Radio-television areas covered by the deal include: giant Canadian media conglomerates, often and Commission horizontally or vertically integrated, which (the “CRTC”), the Canadian Media • Development and evaluation effectively control much of the country’s Production Association (the “CMPA”) • Licensing conditions broadcast content. successfully concluded negotiations and • Editorial control The business model of Canadian entered into a Terms of Trade Agree ment • term independent producers is predicated on the (the “Agreement”) with five of Canada’s • Rights optimal commercial exploitation of their largest private television broadcasters, • programs across multiple formats and namely, Astral Television Networks, Bell • Super-license fees media. If Canadian broadcasters were able Media Inc. (CTV), Rogers Broadcasting - • Producer tax credits to use their tremendous bargaining power Limited, Shaw Media Inc. (Global) and • Time frame and administration to acquire rights to independent Corus Inc. (the productions on inequitable terms the “Broadcasters”). The Agreement came into The CMPA’s President and CEO, viability of many Canadian independent force as of June 1, 2011, with the exception Norm Bolen, described the importance of production companies could be threatened. of certain parts related to the financing of the Agreement as follows (Playback Daily, The idea behind the Agreement is to television programs which came into force July 8, 2011): restore a measure of balance in the on August 1, 2011. Technically, there are negotiating power between the really two Agreements, as there is one “This deal changes everything. It Broadcasters and the Canadian producers. Agreement between the CMPA and the forever redefines the relationship In effect, the CMPA is acting much like a Broadcasters other than Corus and a between producers and broad- guild or union in setting minimum “scale” separate Terms of Trade Agreement casters. But it isn’t worth the paper it provisions for Canadian producers. between the CMPA and Corus. However, is written on unless all independent Given this rationale, it is not surprising the Corus Agreement contains no producers show solidarity and that the focal points of the Agreement substantive differences from the strictly follow the terms of the include a maximum license term, a Agreement. A Terms of Trade Agreement agreement in their individual prohibition on producers deferring their is also contemplated with the CBC and negotiations with broadcasters.” fees and overhead, the retention by negotiations between the CMPA and the producers of a share of tax credit CBC will likely begin later in 2011. To ensure that Canadian producers monies and an efficient mechanism for fully understand and comply with the producers to license the Broadcasters Agreement is Historic Deal Agreement, the CMPA organized a programming distribution rights in The CMPA is a non-profit national national “road show” in July and August of multiple formats on terms that are fair to industry trade organization which 2011 to discuss and explain the Agreement both producers and the Broadcasters. represents Canada’s media companies that and CMPA senior staff met with are engaged in the production and Canadian producers across the country. The Role of the CRTC distribution of English language TV The CRTC has consistently exhorted programs, feature and interactive What are “Terms of Trade”? Canadian broadcasters to conclude Terms media content. The Agreement is a historic For years many independent Canadian of Trade Agreements with the CMPA. As deal that redefines the relationship producers have faced an imbalance in their time passed without any such agreements between Canadian producers (including bargaining power vis-a-vis Canadian being reached, the CRTC toughened its both CMPA members and the entire broadcasters. Most are privately owned stance and advised Canadian broadcasters Canadian independent media production corporations with limited capital. On the that it would not renew their respective sector) and the Broadcasters. It applies to other hand, Canadian broadcasters are broadcast unless Terms of Trade all independently produced Canadian almost all large publicly traded Agreements were first concluded. See, for

Reprinted with permission from The 2012 Lexpert®/American Guide to the Leading 500 in Canada © Thomson Reuters Canada Limited.

B–180 • 2 0 1 2 L E X P E R T ® / A M E R I C A N L A W Y E R ALM500-2012-PA21:ALM500-2011-000MASTER.qxd 29/11/2011 7:52 AM Page 181

Entertainment Law R E C E N T D E V E L O P M E N T S O F I M P O R T A N C E

example, the following statement by the productions that are unrelated to a is to be paid on the first day of principal CRTC (Broadcasting Regulatory Policy television program. photography or key animation. CRTC 2009-406, Policy Determination Once the final deliverables have been Resulting from the April 27, 2009 Public Development and Evaluation received, the Broadcaster has six months to Hearing, July 6, 2009, at Paragraph 84): The Agreement provides guidance for decide whether it wishes to license the the evaluation and development of project. At the end of this six month “The Commission recognizes the programs. period, the Agreement requires the importance of [terms of trade] The Broadcasters must make Broadcaster to either (i) order the project, agreements in this era of consoli - reasonable efforts to communicate with (ii) agree with the producer to continue to dation and of the new platforms producers across Canada about the types further develop the project, or (iii) release upon which content can be accessed. of projects in which they are interested. its interest in the project in writing. [It will] only consider [license] They must identify on their websites their renewal applications from the programming services and their personnel License Conditions [private corporate broadcast groups] in charge of responding to program When a project is greenlit by a for seven years with finalized Terms proposals with their applicable contact Broadcaster, it may then engage in of Trade Agreements in place.” information. negotiations with the producer to license The confidentiality of producers’ pro - the project. The CRTC was therefore instrumental gram proposals is safeguarded by the The Agreement provides the producer in creating a conducive environment for the Agreement and a Broadcaster cannot with a 90-day period, once the Broadcaster Broadcasters to enter into the Agreement. request a waiver of any existing rights that a agrees to order the project, to confirm all producer may have in its program proposal. other sources of financing for the Parties Subject to the Terms of Trade The rights to a program proposal are production, subject to any mutually agreed The Agreement applies to “all owned solely by the producer, unless there extension for funding deadlines and independent productions produced by is a signed development agreement to the “exigencies of production”. English-language Canadian independent contrary. A Broadcaster may not require a The Broadcaster must sign a broadcast television producers” for the producer to commence development before license agreement at least two weeks prior Broadcasters. For a producer to rely on a development agreement is executed. to the commencement of principal the Agreement, it must satisfy five However, once a development agreement is photography or key animation, provided indicators of “control” enumerated in signed, a Broadcaster’s financial participa - that the producer has submitted Section 4.10 of CAVCO’s Canadian Film tion entitles it to certain exclusive rights, “reasonable agreed-upon deliverables”.1 or Video Production Tax Credit Guidelines including the right to negotiate a license The Broadcaster must then broadcast the (March 31, 2010), namely: (i) control of agreement. The development agreement program on a CRTC-licensed platform development, (ii) control of all creative may not incorporate the terms of a license within 12 months of the commencement and financial elements, (iii) control over agree ment. These terms are only to be of the license term. If a Broadcaster wishes all aspects of production financing, (iv) negotiated once the project has been fully to order additional episodes of a program control over negotiation of initial developed or the Broadcaster has made an for a new season, the order must be made exploitation agreements, and (v) order. within six months of the first broadcast of reasonable and demonstrable monetary Where a Broadcaster expresses an the last commissioned episode of the participation in terms of budgeted fees interest, the Broadcaster and the producer preceding season. and overhead, and participation in must use best efforts to execute a A Broadcaster’s right of first revenues of exploitation. development agreement within 60 days. negotiation (“ROFN”) and right of last There are certain situations where the The Broadcaster has no more than 18 days refusal (“ROLR”) in both development Agreement does not apply. For example, following the receipt of development and license agreements is limited by the the Agreement does not apply to programs materials to inform the producer of whether terms of the Agreement. A ROFN produced in-house by a Broadcaster or by it approves the submitted development provides the Broadcaster with the first its affiliate or to Broadcaster “service materials. If the Broadcaster turns down the right to negotiate to develop or license a productions”, including productions where proposal, the Broadcaster is only entitled to program before the producer can enter into development is substantially undertaken by reimbursement from the producer of its cash negotiations with another Broadcaster. The a Broadcaster or where the format rights investment in the development of the Agreement requires that that a ROFN are exclusively acquired by a Broadcaster project. If the project is ultimately greenlit must be exercised by the Broadcaster by a and assigned to a producer or to digital by another Broadcaster, this reimbursement fixed start date or in reference to a clearly

Reprinted with permission from The 2012 Lexpert®/American Lawyer Guide to the Leading 500 Lawyers in Canada © Thomson Reuters Canada Limited.

G U I D E T O T H E L E A D I N G 5 0 0 L A W Y E R S I N C A N A D A • B–181 ALM500-2012-PA21:ALM500-2011-000MASTER.qxd 29/11/2011 7:52 AM Page 182

Entertainment Law R E C E N T D E V E L O P M E N T S O F I M P O R T A N C E

specified timeframe identified in the (subject to a possible ROFN and ROLF as There are circumstances where a development or license agreement. If no described below). This five-year term must Broadcaster may request changes to creative timeframe is provided, then the timing of commence no later than the earlier of (i) elements or propose additional creative the exercise of the ROFN will be at the six months from the delivery of the elements that were not contemplated at the sole discretion of the producer. If program (or the last episode of the time the license agreement was initially negotiations with the Broadcaster are program in the case of a series), or (ii) the entered into. To exercise this editorial entered into as a result of the exercise of the first telecast of the program (or any episode control, it must provide the producer with ROFN, the duration of the negotiation of the program in the case of a series). an enhanced license fee proportionate to will be the timeframe specified in the While previously, a Broadcaster could the scope of the new work required. This development or license agreement, but negotiate an automatic extension of the enhanced license fee is meant to cover the cannot exceed 45 days.2 original license term for the original season additional costs associated with the creative A ROLR provides the Broadcaster if additional seasons were ordered; this is changes that were not contemplated by the with the right to license a project that it no longer permitted by the Agreement. For original approved budget. The Broadcaster previously rejected by matching the terms example, a Broadcaster can no longer is also required to give the producer written offered by another Broadcaster. A ROLR automatically extend the term of Season notice of its requests for creative changes or can significantly limit the bargaining One once it orders Season Two to ensure additional creative elements as soon as power of the producer. As a result this type that the licenses for both Season One and possible. of right is limited by the provisions of the Two end simultaneously. This ensures that The Agreement also clarifies the screen Agreement. Specifically, a Broadcaster may producers do not lose the potential value of credits to which a Broadcaster and its only be granted a ROLR to (i) acquire exploiting earlier seasons as new seasons representatives may be entitled. While the exclusive exhibition rights for additional are produced and broadcast. Broadcaster and its personnel are entitled programs or (ii) to obtain an extension of A Broadcaster is permitted to have a to recognition in the screen credits of the the license term. ROFN and a ROLF in order to extend the program, credit placement and titles must The Agreement further addresses a original five year term of the license, but be in conformity with industry standards. Broadcaster’s entitlement to share in any only if a fair market value license fee is paid Broadcaster’s representatives are entitled to surplus financing proceeds beyond the to the producer for the extension. Each be accorded traditional screen credits such original approved financing plan and/or in subsequent license extension is for a as “ in Charge of Production”, any production underages. Where the maximum period of up to five years. The but not screen credits customarily reserved producer receives surplus funds for a project Broadcaster may exercise its right to extend for the producer such as “Producer” or after the Broadcaster has approved the the license as of the earlier of (i) six months “” credits. project’s financing plan, the Broadcaster and prior to the expiry of the third year of the the producer must give good faith original five year licence term, or (ii) three Broadcaster and Producer Rights consideration to whether the surplus funds months following the execution of the A Broadcaster is entitled to certain should form part of the financing of the licence agreement for a subsequent season exploitation rights in return for its payment production. The Agreement provides that of the program. to the producer of a fair market value under no circumstances will the surplus license fee. These rights are exclusive to entitle the Broadcaster to require a reduction Editorial Control Canada and are applicable to all languages in its licence fee. The Broadcaster is, The Agreement provides that, subject in which the Broadcaster is licensed to however, entitled to a share of the surplus to certain permitted customary operate. The primary right of exploitation is funds in proportion to any equity Broadcaster approval rights, it is the linear broadcast rights on all CRTC investment it has made. Further, where a producer that retains ultimate control over licensed television services owned or program is produced under budget, the a project. A Broadcaster, however, is affiliated with the Broadcaster. Broadcasters Broadcaster is entitled to a pro-rata share of entitled to exercise its standard creative, are also entitled to various additional the underages proportional to its investment financial and technical approvals, which exploitation rights that must all be in the financing. approvals must be published on the geoblocked to Canada, namely: (i) linear Broadcaster’s website. Consultations and streaming rights on all platforms that are License Term requests for approvals must be made in a simultaneous or non-simultaneous with the The Agreement provides for specific timely manner, so that both parties have broadcast channels, (ii) free-to-consumer limits on the term of a broadcast license. sufficient time to respond and there is no non-linear on-demand exhibition on all Specifically, a broadcast license can only unreasonable delay in the development or platforms, (iii) subscription-based non- have a maximum duration of five years production process. linear on-demand exhibition on all

Reprinted with permission from The 2012 Lexpert®/American Lawyer Guide to the Leading 500 Lawyers in Canada © Thomson Reuters Canada Limited.

B–182 • 2 0 1 2 L E X P E R T ® / A M E R I C A N L A W Y E R ALM500-2012-PA21:ALM500-2011-000MASTER.qxd 29/11/2011 7:52 AM Page 183

Entertainment Law R E C E N T D E V E L O P M E N T S O F I M P O R T A N C E

platforms, and (iv) the creation and these other rights that are exclusively then the recoupment terms must be operation of a program website, which retained by the producer is provided in the negotiated with the producer. If the equity includes the creation of original free-to- Agreement. For example, a Broadcaster may investment is C$500,000 or more and consumer or subscription-based content for not acquire rights in: French-language and constitutes less than 30 per cent of the the website.3 The foregoing rights are other language,6 format, theatrical, production budget, then the Broadcaster’s exclusive during the license term and the publishing, non-promotional games and equity investment will be recouped as Broadcaster is also granted a holdback merchandising, all other non-theatrical, provided in the CMF Guidelines. The against the “exploitation of the format” Canadian and international retransmission, CMF Guidelines require that recoupment during the license term. Canadian and international sublicensing is pari passu with all other equity investors, In addition to these basic exploitation and distribution, and publishing of books, including the producer’s provincial tax rights, a Broadcaster may also negotiate to e-books or similar materials. credit investment but excluding the acquire additional rights. However, the producer’s federal tax credit investment, acquisition of such additional rights is Recoupment of Broadcaster Equity following recoupment of any distribution normally subject to a 50/50 gross revenue Investments advance in the financial structure. share between the Broadcaster and the In order to encourage equity producer.4 The additional rights that a investment by a Broadcaster in producer- Super-License Fees Broadcaster may license are: (i) transaction created content, and to ensure that its The payment of a “super-license fee” based (meaning on a per episode or discrete recoupment of such an investment is fair, allows the Broadcaster to negotiate for program basis) non-linear on-demand the Agreement provides for the additional rights with the producer beyond exhibition on all platforms, where the circumstances where a Broadcaster may those otherwise permitted to be licensed consumer secures temporary or rental access recoup its equity investment in a project. under the Agreement. The Agreement to the content, as opposed to a permanent Two scenarios are contemplated by the defines a “super-license fee” as the lesser of copy, (ii) electronic sell through or download Agreement: (i) equity investments in (i) the then current combined CMF to own on all platforms where the consumer television programs other than “programs threshold license fee for the applicable secures a permanent copy of the content, of national interest” and (ii) equity genre plus the maximum licence fee top- (iii) in-flight and (iv) DVD and home video. investments in “programs of national up for that genre or (ii) a licence fee If a Broadcaster acquires any additional interest”.7 It should be noted that the representing at least 60 per cent of the rights, but does not exploit them within 12 Agreement does not apply to equity project’s production budget. months of the start of the license term, the investments in feature films. If a super-license fee is paid, the rights so acquired automatically revert to For television programs, other than Broadcaster may negotiate for a higher the producer. If the foregoing rights are “programs of national interest”, the revenue share of certain rights and for a retained by the producer, they are subject Broadcaster will recoup its equity share of the profits from the producer’s to a 12-month holdback commencing at investment pari passu with the producer exploitation of rights that are otherwise the start of the license term.5 and on a “most favored nations” basis with exclusively reserved for the producer. The In addition, a Broadcaster may acquire other equity investors. Broadcasters are Broadcaster may obtain a higher revenue rights in certain types of producer-created only entitled to recoup following the share, meaning its participation rate can be digital content, such as websites, webisodes recoupment of any distribution advance in increased from 50 per cent to a maximum and mobisodes, if it either pays an the financial structure. It should also be of 75 per cent, for the following rights: additional license fee or it and the producer noted that, for recoupment purposes, transaction-based non-linear on-demand participate in a 50/50 revenue split. For the Canadian film tax credits are treated as an exhibition on all platforms, electronic sell- additional license fee, the Broadcaster may equity investment of the producer. through or download-to-own platforms, in acquire Canadian rights to free-to- If a Broadcaster makes an equity flight, DVD and home video, and consumer original digital content produced investment in a “program of national producer-created revenue-generating by the producer. For the 50/50 revenue interest” and has also paid a license fee that original digital content. split, and at the discretion of the producer, is in excess of the Canadian Media Fund Broadcasters may also, upon payment the Broadcaster may also acquire Canadian (“CMF”) threshold license fee for the of a super-license fee, negotiate for a share rights to revenue-generating digital applicable genre, different rules apply with of the profits from the exploitation of the content produced by the producer. regard to the Broadcaster’s recoupment of rights that are exclusively reserved for the Broadcasters are precluded from its investment. If the equity investment is producer, such as the exploitation of non- acquiring or having a profit participation in C$500,0008 or more and constitutes 30 per promotional games and merchandising. A “any other rights”. A non-exhaustive list of cent or more of the production budget, Broadcaster’s profit participation in such

Reprinted with permission from The 2012 Lexpert®/American Lawyer Guide to the Leading 500 Lawyers in Canada © Thomson Reuters Canada Limited.

G U I D E T O T H E L E A D I N G 5 0 0 L A W Y E R S I N C A N A D A • B–183 ALM500-2012-PA21:ALM500-2011-000MASTER.qxd 29/11/2011 7:52 AM Page 184

Entertainment Law R E C E N T D E V E L O P M E N T S O F I M P O R T A N C E

reserved rights may not be greater than 1.5 provisions as of August 1, 2011. It remains “rules of the road” for both their legal and times its dollar investment expressed as a in force with respect to each Broadcaster business relationships. It provides clarity percentage of the budget that is over and until the expiry of the longest of the next regarding the rights which the above the combined CMF threshold issued license terms of the Broadcasters Broadcasters may acquire from Canadian license fee for the applicable genre plus the (excluding Astral). producers and the compensation which maximum license fee top-up for that genre, In terms of ongoing administration, the they must pay for those rights. to a maximum of 30 per cent. CMPA and the Broadcasters have agreed There will no doubt be some to meet on a semi-annual basis to discuss disagreements between the parties Other Key Areas of the Agreement new issues or current provisions of the regarding the Agreement and the need for The Agreement provides guidance as to Agreement which are no longer effective. further clarifications (for example, the a producer’s permitted fees and overhead, Canada Media Fund recently announced as well as its retention of a share of film tax that its eligibility rules would be revised in credits. Producer fees and overhead must be A Dispute Resolution Provision is order to conform to the Agreement as they industry standard, as accepted by Canada attached as Appendix “A” to the contradicted it in several respects). Revenue Agency (“CRA”).9 Further, Agreement. The parties must refer a matter However, ultimately, the Agreement producer fees and overhead may not be in dispute to a sole private mediator for benefits both Canadian producers and the deferred by the producer or invested. . If the mediation effort fails Broadcasters by establishing clear legal The Agreement similarly protects the after thirty days or, as an alternative to criteria and business terms for their producer by limiting its permitted mediation, the party initiating the dispute agreements. Most importantly, it investment of film tax credits. A Producer so desires, the matter will be referred to establishes a key framework for the may only invest up to a maximum of 75 per by a sole arbitrator. Canadian media industry to move forward cent of eligible film tax credits in a project. and prosper in the age of digital Conclusion distribution and multiple media formats Timeframe and Administration The Agreement represents a watershed and platforms. Finally, and as a bonus, it is As mentioned above, the Agreement is in the relations between Canadian good news for entertainment lawyers too in full effect with respect to all of its producers and the Broadcasters. It sets new (as new and complex rules always are). �

* With the assistance of Sondra Rebenchuk – Student-At-Law which the author gratefully acknowledges. 1. No definition is provided for “reasonable agreed-upon deliverables”. 2. The 45 day period does not apply to the decision to initially license (s. 3(k)), the decision to renew an order for a program (s. 4(i)), or the decision to extend a license term (s. 5(c)). 3. Note that the producer retains a ROFN to develop and produce the original, free-to-consumer content for the program website. 4. The Broadcaster may be entitled to more than 50 per cent of gross revenues if a “super-license fee” is paid to the producer. 5. A “holdback” allows a Broadcaster to restrict exploitation by the producer or its licensees during the applicable holdback period. Regarding the holdback for “the exploitation of the format”, there is no definition of “format” in the Agreement, but this presumably refers to a format based upon or derived from the licensed program which cannot be exploited by the producer in Canada during the applicable holdback period. 6. The Broadcaster may acquire these rights if the Broadcaster broadcasts in French or other languages. 7. The CRTC defines a “program of national interest” as including programs that belong to category 2(b) Long-form documentary (original works of non-fiction, primarily designed to inform but may also educate and entertain, providing an in-depth critical analysis of a specific subject or point of view over the course of at least 22 minutes) and category 7 Drama and Comedy (productions of a fictional nature, including dramatizations of real events that must be comprised primarily of dramatic performances), as well as award shows of national or regional scope that celebrate Canadian creative talent and/or cultural diversity and achievements in Canadian arts and culture. 8. The C$500,000 threshold can be met when more than one Broadcaster makes an equity investment and collectively they invest C$500,000. 9. The CRA Application Policy FAS 2009-01 states that producer fees for producers that have an ownership interest in the production company are generally considered reasonable if they are within the reference threshold of “10% of the actual B (production) + C (post-production) costs” (15 per cent for low-budget productions totalling C$500,000 or less).

David Zitzerman, Goodmans LLP Tel: (416) 597-4172 • Fax: (416) 979-1234 • E-mail: [email protected]

artner. Focuses on film, TV and new media industries in Canada and US. Represents independent pro- Pducers, Hollywood studios, broadcasters, distributors, cable and game companies, talent guilds, agen- cies, and performers. Co-author, Entertainment Law in Canada (LexisNexis Canada). Clients include MTV, CTV, Corus, SFA, Nelson, TNT, Insight, Discovery, Endemol, Disney ABC, CBS, E!, Starz, LOGO, Lagardere, Frantic, Fred Rogers Company, AMC, Distribution 360, Little Airplane, Pier 21, NBC Univer- sal, Tornante, VH1, Comcast, OMERS, Temple Street, NGS, Random House, Showtime, Scholastic, Nick- elodeon and the Writers Guild of Canada. Identified as a leading entertainment lawyer by Euromoney’s Best of the Best, 2002 and 2009 (top 25 entertainment lawyers in world); The Canadian Legal Lexpert® Directory; The Lexpert®/American Lawyer Guide to the Leading 500 Lawyers in Canada; PLC; and The Best Lawyers in Canada (2010 Toronto Entertainment Lawyer of the Year). Has lectured at University of Toronto and Osgoode Hall, CBA, ABA, UCLA and Cannes. Frequent speaker at industry events. Director of Canadian Film Centre. Member, Film Ontario, the CFTPA, Academy of Canadian Cinema and Television and TIFF Gold Patron. BA, Gold Medal, University of Manitoba, 1978. JD, University of Toronto, 1981.

Reprinted with permission from The 2012 Lexpert®/American Lawyer Guide to B–184 2 0 1 2 L E X P E R T ® / A M E R I C A N L A W Y E R the Leading• 500 Lawyers in Canada © Thomson Reuters Canada Limited.