Business, financing and deal
making
The business strategy-savvy lawyer can make a world of difference at the outset,
during distribution planning. They've seen enough of the business that they
can offer pragmatic advice to help publishers avoid missteps now that could
result in misery later "The best distribution deal is not always the one with
the highest guarantees or the highest prices for the publisher's product," warns
Diane Golden, a partner at Silverberg, Katz, Thompson and Golden in Los Angeles.
"It's more important to get a distributor who can move the product than to wring
the last dollar out of the deal." Don Karl, a partner at Rosenfeld, Meyer &
Susman in Beverly Hills, Calif., cautions publishers and authors to consider
the content of their title, not just the distribution strategy for getting it
into buyers' hands. "Retain control over creative decisions and make sure that
you receive proper credit for creative work," Karl said. "Though dollars are
important, most reputations will be built by the buzz over `cool' titles rather
than the revenues that some (but not all) of those titles may generate. This
year's sought after stars are those who had a successful product last year."
With the variety of business cultures involved in a new media deal come a great
mix of expectations. Silicon Valley and Hollywood, cable companies, online services
and book publishers all have very different ideas of what constitutes an acceptable
deal, which can confuse the early stages of negotiation. What is an acceptable
advance in one industry (for example, the pre-selling distribution rights, based
on a script, to gain the funding to create the film, a standard practice in
the film industry) is considered vaporware in the software industry. Bundling,
which software companies consider a preview mechanism and revenue generator,
is considered "early-remaindering" to a book publisher, who would normally remainder
a book at the end of its shelf life. "Since much of the new media deal making
is without precedent, deal terms and structures vary considerably. It's often
hard to determine what is a good deal or a bad deal," said Karl. "Though it
is desirable to get as much as you can and give up as little as possible, in
new media it is probably more important to close the deal and get your product
out in the marketplace."
Rights of every description
Title developers must deal with protection of original work, the licensing of
others' content, and their right to sequels and merchandising licenses. They
must also gain clearance from their staff and contractors to publish and to
rent the finished product. Richard Thompson, a partner at Silverberg, Katz,
Thompson and Golden, recommends that publishers "focus on [creating] original
content . . . [it] allows the publisher to avoid the expense of hiring an attorney
to negotiate licensing deals and the onerous conditions which most licensers
will impose, [like high royalties, limited rights terms and lots of approval
rights]." An attorney should "ensure that the developer understands the rights
and clearances which he needs to complete the project and the costs to obtain
these rights," said Mark Radcliffe, a partner at Gray Cary Ware & Freidenrich
in Palo Alto, Calif. "Developers are frequently too optimistic (even naive)
about the cost of licensing rights and the transaction costs of obtaining the
rights. The publisher should stay actively involved in this process or costs
can skyrocket," he added. In addition to the raw content of a title, developers
should take care to protect the tools and engines they develop. "Developers
and publishers should make sure that their exploitation rights include all configurations
for digital/electronic technology/systems, whether currently known or subsequently
developed, including other computer disc formats -- whether sold
on a per unit basis or through transmission to a personal computer or other
monitor for interactive television, or other telecommunications use, " said
Lois Scali, a partner at Irell & Manella in Los Angeles. Temper caution
with reason. There is a limit to the protections a developer or publisher can
demand during a negotiation, said Roberta Cairney, a partner at Mandel, Buder
& Jacobsen in San Francisco. "Blind insistence by either side that it own
the copyright can needlessly complicate and delay negotiations." When both parties
insist on copyright ownership, a carefully crafted array of exclusive licenses
and reserved rights can solve the problem."
Follow-up rights
A distributor or publisher will want a guaranteed part of the sequel to, and
merchandising of, a hit title. After all, they help build the franchise.
Likewise, developers need to get their employees and contractors in line for
merchandising rights or a sequel, even as they begin work on a new title. "The
original Batman film made more through merchandising than through theater performance,"
said Radcliffe. "If the product involves new characters, ensure that you obtain
rights to exploit the characters and settings in sequels and spin-offs --
Star Trek spun off Star Trek the Next Generation and Deep Space
Nine -- and ancillary rights, such as merchandising and film."
It is essential for a developer or publisher to protect the company's merchandising
rights in both publishing deals and distribution deals. As film-industry giants
become more active in multimedia, they will expect merchandising and other ancillary
rights as part of the development or publishing package. If they own the characters,
the story or the source material of an adapted work, they will already have
tied up the rights to merchandising for all ancillary products. However, if
the work is original, and developed originally for multimedia, ancillary products
such as hats,
t-shirts, mugs and other licensed merchandise, as well as comic books, figurines,
toys and so on, must be protected as carefully as sequel rights, since these
products can generate a great deal of revenue.
Choosing an attorney
How do you find multimedia attorneys? You can meet many on the speaking circuit
at major trade shows and seminars. Ask your network of colleagues for referrals
and recommendations. You may even try calling the local bar association or your
favorite trade group. Selecting an attorney is not a process you should play
by ear. Understand what you want want, prepare your questions and interview
several to see which has the right skill mix and experience for your company
before you pick one. Most lawyers are glad to spend about 45 minutes on an introductory
interview with potential clients. But be sure to ask for these interviews. "Developers
and publishers should make sure their advisors are equally familiar with industry
custom in each of the entertainment and technology industries [they will handle],"
said Scali. "A familiarity not only with legal concepts, but also the different
cultures of those industries, is essential to successful negotiations." Cairney
added,"The best lawyers for new media projects are lawyers who have broad experience
in several old media fields. A lawyer experienced with book publishing, film,
television, merchandising, and software has many more templates at hand for
solving the challenges posed by new media transactions." In the best of worlds,
your attorney should have a background in multiple fields. But always choose
one who specializes in multimedia. "Lawyers who insist on using outmoded deal
structures for new media transactions perform a real disservice to their clients,
and to the industry overall," Cairney said. "New technology transactions require
that lawyers bring the same imagination and innovation to their contracts that
their clients bring to their business projects. Clients should not tolerate
lawyers who insist that there is only one way to make a transaction work." It
will take several more years for multimedia to settle into its own hybrid culture,
with unique deal structures, expectations and a concomitant business environment.
This is the excitement, the challenge and the risk of pioneering a new industry.
Joey
Tamer refines the vision, strategy and success of companies --
Fortune 1000, capitalized start-ups and investment fund.
www.joeytamer.com
(310) 245 5310 joey @ joeytamer.com