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Get What You Give (Rights and Revenue in Comics)

Added on by Gamal Hennessy.

by Gamal Hennessy

A contract is an agreement between one or more groups for the exchange of resources. The exchange could be time for money, goods for services, property for future gains or any combination of those things. The best agreements exchange roughly equal resources. The worst ones have one side trading large amounts of resources for little or nothing in return.

This is the problem that artists run into with many of the contracts that I see. The most important service I provide is showing my clients what they are giving up in comparison to what they are getting. I’d like to provide an overview of the different types of rights and revenue streams as a general overview for creators looking to get their projects into the market.

Types of Rights                               

Comics and publishing are governed by a branch of the law called intellectual property. Copyright law is a specific type of intellectual property. A copyright gives the creator of an original work (like a comic) the right to benefit from the sale and distribution of that work. There are various types of ways currently available for comic creators to benefit from their creativity. Some of the major distribution methods include:

  • Publishing (Traditional printing, digital printing, novels, audiobooks, etc.)
  • Public Display (gallery displays of artwork)
  • Theatrical (Movies whether live action or animated)
  • Television (including network, basic cable, premium cable, PPV whether live action or animated)
  • Home Video (including DVD, Blu-Ray, etc.)
  • Live Performance (including Broadway performances and theme park performances)
  • Interactive (including console computer or mobile video games)
  • Merchandise
  • Sponsorships or product placement

As new forms of media distribution are created, new rights are created for the artists. These rights are universal, but they can be divided or carved out by geographic area, time frame, distribution channel, language and other factors. (This division can be complicated, so I’m going to save that for another post)

Types of revenue

Just as there are different rights that creators can use to get their work into the world, there are various ways that they can be paid. Comic creators need to focus on four ideas:

  • A royalty is a percentage that the artist earns for every finished unit that is sold. For example, an artist might receive 30% of every one of their comics that is sold to the public.
  • An advance is paid before the work is finished. For example, a writer of a novel might receive money up for her novel based on the proposal not the finished product.
  • A minimum guarantee (MG) is money paid up before the work is finished, based on anticipated sales. For example, if a toy company plans to sell a new licensed toy for $10 and the creator gets 10% of that sale, then the creator gets $1 per unit sold. If the company expects to sell 100,000 units, then the MG that the artist gets for this deal is $100,000.
  • A page rate is a flat fee paid to the artist for every page accepted by the client or publisher. For example, a penciler with a $300 page rate deal gets $9,600 for a 32 page book, not counting the cover.
  • These are broad revenue concepts. They are often altered and refined by concepts like gross, net, recoupment, offsets and other variables. (This is another complicated subject that I’ll can talk about later.)

Choices that Artists Must Make

In certain comic deals, the types and amounts of revenue are fairly straight forward, like the work for hire page rate. There is more confusion for creators pursuing creator owned deals. There is often no advance, no MG, and a blanket royalty rate for all forms of distribution. This puts them creators in a dangerous position since the lack of upfront money and the uncertainty of any profitable sales in the future means that the creators are really working on spec while at the same time giving up all their rights to their property.

From the publisher’s perspective, it is understandable why they would do this in their contracts. Publishers protect themselves from risk by limiting exposure to projects that might not be financially viable. At the same time, they maximize their potential gain by securing as many rights as possible for projects that are financially viable. Artists need learn the same lesson. They need to counter the publisher’s position by attempting to limit the rights that a publisher gets for projects that are financially viable and maximizing revenue for every project they do.

I know negotiating power is often limited for artists. But having a clear understanding of the relationship between revenue and rights and clear goal of where they want to go can help maximize their limited negotiating power and increase their chances of success.

Best

Gamal

Success in the comics industry requires an understanding of the business, creative, and legal aspects of the medium.

Sign up for The Professional Comics Creator to get monthly e-mail news, tips and advice on how to get the most from your characters and stories

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 ATgamalhennessy@gmail.com FOR A FREE CONSULTATION.

David v.s. Goliath: Negotiating Power in Creative Contracts

Added on by Gamal Hennessy.

By Gamal Hennessy

When I analyze contracts for my clients, I point out all the language in the agreement that has been written to favor the publisher. I point out all the ways that contract clauses are used to limit their control over their work and their ability to make money. I offer them suggestions on how to make the contracts more equal and level the playing field. But I am aware that the terms of most of these deals will never be changed. As a comic book creator, you often must deal with the reality that you have little or no negotiating power relative to a publisher. Taking this fact into account will help you make decisions about what deals you will or will not get into and help you understand how they will impact your career.

Scarcity Breeds Power         

Publishers have to take the financial risk of releasing an unknown and unproven book. In order to mitigate this loss and to give themselves the potential for substantial revenue and control on the back end, many of them incorporate biased language into their contracts. Many creators sign those contracts because of their lack of influence.

It is easy to understand why comic creators normally have very little negotiating power. It boils down to supply and demand and market scarcity.

The publishers currently corner the market on supply. They control the means of production (printing) and direct distribution (comic shops, bookstores, online and digital) and often control secondary distribution (merchandise and media licensing)

The number of comic creators who want to gain access to the publishers supply is massive compared to the number of publishers. Who knows how many potential artists and writers are out there dreaming of getting their books in print, movies and games?

The scarcity of publishers relative to the abundance of creators produces a situation where publishers can afford to offer one sided deals. Every unknown creator who demands a superior deal can be rejected by the publisher because there are ten or twenty other creators willing to accept an inferior deal. Since the publisher is primarily looking for books to fill their publishing plan, one unknown book is just as valuable as any other from their perspective.

Options for Creators

In light of the reduced negotiating power that undiscovered creators have, does it make sense to push for a bigger deal for a creator owned project or page rate? Yes and no. While you might not be able to wrestle a six figure advance out of Marvel, there are options you can pursue to make the most of your work.

  • Establish your reputation in the industry by taking on work for hire projects that will get you exposure for your skill without exposing the characters and story lines that you are saving for a creator owned work.
  • Find a more flexible small press that will offer more reasonable terms for new creators.
  • Explore self-publishing if only to increase your name recognition in the market.
  • Accept the biased deal as a means of name recognition.

While none of these methods is a quick road to fame and fortune, they can boost your negotiating power over time. An unknown creator has almost no leverage with a publisher. A creator with a following who represents tens of thousands of copies sold per month can command lucrative exclusive contracts, back end participation deals and creator owned contracts that give them considerable revenue and control potential. The best analogy is the contract situation in professional football. As a player, you may not make very much on your first deal but once you prove yourself as a marquee player, your subsequent contracts can be huge.

Need to Understand Your Agreements

Whether you make the choice to accept a one sided deal, negotiate better term or walk away, you need to understand what the terms are for the deal you are being given. It might make sense to take a bad deal now if it will boost your career later. The key is making an informed decision about what you are doing. Whether you decide to use a service like mine or not, knowing what you are signing and why is key to building and leveraging your negotiating power.

Best

Gamal Hennessy

Success in the comics industry requires an understanding of the business, creative, and legal aspects of the medium.

Sign up for The Professional Comics Creator to get monthly e-mail news, tips and advice on how to get the most from your characters and stories.

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 at gamalhennessy@gmail.com FOR A FREE CONSULTATION.

Letters of Intent: Uses and Abuses

Added on by Gamal Hennessy.

By Gamal Hennessy

            Contracts come in a variety of flavors. Some are simple one page affairs. Others run dozens of pages. They can be unchanging boilerplate or fluid documents with several amendments and changes overtime. Even a verbal agreement can be enforceable as a contract under certain circumstances. Every contract is a different animal. Being familiar with the variations can save you a lot of headaches in your business.

            A letter of intent (LOI) is a very curious beast. It is often used in major deals like business acquisitions or investments, but they are also used frequently in entertainment and media contracts. Sometimes they are called deal memos, short form agreements or memorandums of understanding. Each one has their own nuances and weight in a legal sense, but the basic concept behind each one is a sort of pre-contract; a meeting of the minds before a more formal agreement is negotiated.

            In some instances, an LOI is helpful, even vital (See Forbes: The First Step in a Big Deal). In other situations it can signal a dead deal or deceptive maneuvers by the potential partner. Here are some of the pros and cons of LOI’s and what you should look for if they come up in your freelance or small business.

Uses:

A LOI can help you close a deal in several ways, including:

  • Wrapping Your Head Around the Deal: It can help you figure out what you’re getting and what you’re giving up. If you don’t understand the economics of your contract in a few pages, you probably won’t understand it in a few dozen pages. (See Considering Consideration)
  • Understanding the Economics: A LOI is a good place to figure out who gets paid, how much they get and when they get it. (See Your Slice of the Pie)
  • Getting a Feel for Your Negotiation Partner: Contract negotiation can be stressful or easy. A LOI can give you a sense of how hard it will be to both close the actual contract and work with the person once the deal is done. Someone who is easy to deal with for a LOI won’t always be the best business partner, but a difficult LOI negotiation can be a red flag for the road ahead.
  • Creating Something Each Side Can Bring to Their Respective Camps: If you have partners, investors, attorneys or anyone else who has input on your business, it can be helpful to hammer out a LOI to get their sign off before slogging through a contract. One document with all the major deal points is a useful tool for getting buy in and advice on both sides.
  • Creating Momentum: A LOI can generate a sense of inevitability in a business deal. Once everyone agrees on the major points, there can be more motivation to work together and close the deal. This psychological impact isn’t guaranteed and it might be fleeting, but it’s useful if you can get it.
  • Space to Shop: Unless there is a specific prohibition in the LOI, both sides have the ability to continue negotiating with other parties while the deal terms are being laid out. Either side might feel jilted if the other partner decides to leave in the middle of the dance, but a LOI often gives both sides room to maneuver.
  • Due Diligence: Related to the ability to shop around for a better deal and feeling out the other side, negotiating a LOI gives each side time to investigate and research the other side before the contract is negotiated. Potential problems and issues revealed in this stage can be corrected or avoided without much loss on either side.
  • Savings: A LOI can be negotiated at a lower cost in terms of time and money than a formal contract. So if the deal breaks down at the LOI stage, both sides can often walk away without much loss.

Abuses:

There are also several ways a LOI can be used as a weapon, including:

  • Contract Replacement: There are circumstances where one party might negotiate a LOI without any intention of executing a more comprehensive agreement. There have been several court cases where a LOI has been found to be an enforceable contract. If there are aspects of the deal one side was planning to negotiate in the main contract, they’ll never get the chance if the main deal never comes.
  • Creating Confusion: A LOI often focuses on the business and economic aspects of the deal without much attention to the legal considerations. If this LOI is the only thing the parties have signed, many questions about the deal could go unanswered.
  • An Inducement to Act: One side can use a LOI to pressure the other side to pay for something or perform some action before the final deal is in place. Once one side acts, their ability to negotiate might be hampered because they’ve already invested in a deal that may or may not exist. The other side can take advantage of this weakness and force a deal they couldn’t otherwise get.
  • A Delaying Tactic: This is related to the Space to Shop benefit described above. If one side isn’t really looking to make a deal with you, a LOI might give them the space they need to find another partner and waste your time. In addition, if your LOI negotiations are not bound by a confidentiality agreement, the terms of your LOI could be used by your alleged partner as a negotiation tool to close a deal with someone else.

Considerations:

            When faced with the prospect of negotiating a LOI instead of a full contract, how will you know whether the document is being used or abused? Every situation is different, but consider these questions when analyzing the situation:

  • Is a LOI necessary for this deal? Does it make sense to have a LOI given the nature of the agreement or the parties involved? If not, the other side could have ulterior motives. Keep in mind, the larger or more complicated the deal, the more a LOI can make sense.
  • Can you get some specific benefit from the LOI? If you aren’t exactly clear on the terms or economics, a LOI might be what you need to get comfortable with the process.
  • Do you see the potential for abuses from the other side? If you don’t see an upside to drafting a LOI, ask for clarification and don’t be afraid to walk away. (See How to Reject a Bad Contract)

If you do decide to move forward with a LOI for any deal, be sure to compare the terms in the main contract to the terms you agreed to in the LOI. It does you no good to make a good LOI and then sign a bad contract.

Have fun.

Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU NEED A CONTRACT WRITTEN, OR YOU HAVE A CONTRACT YOU NEED EXPLAINED TO YOU, CONTACT ME ATgamalhennessy@gmail.com FOR A FREE CONSULTATION OR VISIT C3 athttp://www.creativecontractconsulting.com/ FOR MORE INFORMATION ABOUT MY SERVICES.

Are You Working for Free? (Considering Consideration)

Added on by Gamal Hennessy.

by Gamal Hennessy

Consideration is one of the most important aspects of commercial contracts, especially for freelance professionals and small business owners. In a legal context, consideration is not about being thoughtful. It’s about an exchange of value between you and the other side.

In most cases, a contract is an agreement between two or more parties who trade something of value. A lot of things can be thought of as valuable in these situations: money, goods, services and even promises can be used as consideration under certain circumstances. As an independent artist, freelancer or small business owner, there are four types of consideration you should look for in your contracts. If you don’t find any of them in a particular deal, then the deal might not have any value to you.

The Four Types of Consideration

·         Delivery Based ConsiderationYou get something specific once you deliver the agreed upon material. For example, if you design a website for $300 per hour and you spend 22 hours on the project, then you get $6,600 upon delivery of the site. This type of consideration could be defined as a flat fee, based on some measure of performance. This type of payment is typical of work for hire agreements where you are hired to perform a specific task for a limited amount of time (See Contracts 101: Creator Owned vs. Work for Hire)

·         Performance Based ConsiderationYou get something specific once the project begins to generate some sort of profit. For example, if you are entitled to 20% of the gross revenue of a book, then you make money if and when revenue comes in from the sale of the book. This is a common form of consideration for collaboration agreements, self-publishing platforms like Kobo, KDP and creator owned agreements with certain publishers.

·         Combined ConsiderationYou get paid coming and going. In an extreme example, Robert Downey Jr. allegedly pulls in up to fifty million dollars in direct salary, box office bonuses and back end participation for playing Iron Man in the Marvel cinematic universe (See RDJ Pay Set to Hit Fifty Million). While you might never make as much as RDJ, these can be the most lucrative types of deals because they give the artists both protection against a poor performing project and the benefits of a successful project.

·         Production ConsiderationYou get someone else to pay for the cost of your project. For example, if you have a story you want to publish, but can’t cover the production and distribution costs of the release, someone else can pay those upfront costs to get your work out into the world. Sometimes this comes from single sources, like a production company or publishing house. Crowdfunding is another variation on production consideration. This can be the least lucrative kind of consideration. With a single source, the creator can lose all the rights to their characters and stories for a few thousand dollars that they never receive directly. With crowdfunding, all the revenue might go into the project or you may fail to reach your funding goals altogether. While many of these deals can provide exposure and ego gratification, many people regret signing these deals, especially if the project becomes successful and they have no ability to share in the financial windfall.

One of the first things you need to ask yourself when looking at a contract is ‘what am I giving up and what am I getting for it? Giving up your time and effort for cash is a way to make a living. Giving up your inspiration and creativity for the chance at future success is also a decent idea. Giving up everything for nothing is no way to manage your career. Always try to get some consideration in your contracts, even if the other side isn’t being considerate.

Have fun

Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU NEED A CONTRACT WRITTEN, OR YOU HAVE A CONTRACT YOU NEED EXPLAINED TO YOU, CONTACT ME AT gamalhennessy@gmail.com FOR A FREE CONSULTATION OR VISIT C3 at http://www.creativecontractconsulting.com/ FOR MORE INFORMATION ABOUT MY SERVICES.

Get What You Give (Rights and Revenue in Creative Contracts)

Added on by Gamal Hennessy.

By Gamal Hennessy

At its most basic, a contract is an agreement between one or more groups for the exchange of resources. The exchange could be time and skill for money, goods for services, property for future gains or any combination of those things. The best agreements exchange roughly equal resources. The worst ones have one side trading large amounts of resources for little or nothing in return.

This is the problem that freelance professionals run into with many of the contracts that I see. The most important service I provide is showing my clients what they are giving up in comparison to what they are getting. I’d like to provide an overview of the different types of rights and revenue streams as a general overview for creators looking to get their projects into the market. While independent artists will benefit most from this discussion, elements of it will be applicable to small business owners of all types.  

Types of Rights

As discussed in an earlier post, copyright law gives the creator of an original work the right to benefit from the distribution of that work (See Image and Story, Copyright and Trademark). There are various types of ways available for creators to exploit their work. Some of the major distribution methods include:

  • Publishing (Print, novelization and Digital)
  • Public Display (gallery displays and public performances of some of the methods listed here)
  • Theatrical (Movies whether live action or animated)
  • Television (including network, basic cable, premium cable, subscription, and PPV whether live action or animated)
  • Home Video (including DVD, Blu-Ray, etc)
  • Live Performance (including Broadway performances and theme park performances)
  • Interactive (including console computer or mobile video games)
  • Merchandise (as discussed in last week’s post)
  • Audio (soundtracks and audio novelizations)

As new forms of distribution are created, new rights are created for the artists. These rights are universal, but they can be divided or carved out by geographic area, time frame, distribution channel, language and other factors.

Types of revenue

Just as there are different rights that creators can use to get their work into the market, there are various ways that they can be paid. Creators need to focus on four ideas:

  1. A flat fee is a one-time payment that the artist earns upon the delivery of the finished work. For example, a copywriter might get a flat fee for work she does for a website or blog.
  2. A royalty is a percentage that the artist earns for every finished unit that is sold. For example, an artist might receive 30% of every one of their comics that is sold to the public.
  3. An advance is paid before the work is finished. For example, a writer of a novel might receive money up front for her novel based on the proposal not the finished product.
  4. A minimum guarantee (MG) is money paid up before the work is finished, based on anticipated sales. For example, if a toy company plans to sell a new licensed toy for $10 and the creator gets 10% of that sale, then the creator gets $1 per unit sold. If the company expects to sell 100,000 units, then the MG that the artist gets for this deal is $100,000.

These are broad revenue concepts. They are often altered and refined by concepts like gross, net, recoupment, offsets and other variables. (This is a complicated subject that I can talk about later.)

Choices that Artists Must Make

In certain creative circles, the types and amounts of revenue are fairly straight forward. Writers for some mediums often get an advance. A work for hire artist (See Creator Owned vs. Work for Hire) for comics often gets a page rate. There is more confusion for creators pursuing creator owned deals or multimedia works. There is often no advance, no MG and a blanket royalty rate for all forms of distribution. This puts creators in a dangerous position since the lack of upfront money and the uncertainty of any profitable sales in the future means that the creators are really working on spec while at the same time giving up all their rights to their property.

It is understandable why a publisher or other distributor would take this stance in their contracts. Publishers protect themselves from risk by limiting exposure to projects that might not be financially viable. At the same time, they maximize their potential gain by securing as many rights as possible for projects that could be financially viable. Artists need to learn the same lesson. They need to counter the publisher’s position by attempting to limit the rights that a publisher gets for projects that are financially viable and maximizing revenue for every project they do.

I know negotiating power is often limited for artists (See David vs. Goliath in Contract Negotiations). But having a clear understanding of the relationship between revenue and rights and clear goals of where they want to go can help maximize their limited negotiating power and increase their chances of success.

Best

Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 ATgamalhennessy@gmail.com FOR A FREE CONSULTATION.

Freelancer’s Union Endorses the C3 Contract Negotiation Concepts!

Added on by Gamal Hennessy.

by Gamal Hennessy

The Freelancer’s Union is a non-profit organization created to advocate the rights of freelancers, consultants and independent contractors. It has more than 200,000 members across the United States and provides health care to more than 10% percent of its membership. Freelancers Union also maintains a blog called the Freelance Broadcasting Network to discuss issues and topics related to the freelance life.

A couple of weeks ago, I posted an article entitled Twelve Tips for Contract Negotiation. Early this week, Freelancer’s Union found my article and asked for permission to repost it to all its members. I’m always looking for ways to get the word out, so of course I agreed. I wanted to share the new post with you and suggest if you need support, ideas or networking opportunities for your freelance or small business, get involved with Freelancer’s Union if you haven’t done so already.                                          

Click Here to Read the Creative Contract Consulting Article on the Freelance Broadcasting Network

And if you want more advice on freelance and small business contracts,

sign up for the C3 Newsletter

Have fun.

Gamal

Twelve Tips for Contract Negotiation

Added on by Gamal Hennessy.

By Gamal Hennessy

There are a lot of tactics you can use to negotiate a contract, but the best move might be walking away.

Negotiating contract terms is often a source of anxiety for freelance professionals, independent artists and small business professionals. Many feel that any attempts at trying to get a better deal could lead to losing the business completely. Others are confused or intimidated by the obtuse legalese of contract language. Either way, many detrimental contracts are signed every day, leading to lost revenue, lost control and increased stress on the business.

If you want more advice on freelance and small business contracts,
sign up for the free C3 Newsletter

Eleven (Plus One) Tips for Contract Negotiation

The site Business 2 Community posted a piece this week entitled “Eleven Tips for Negotiating a Contract Like a Pro”. The unknown author lays out a broad strategy applicable to salary negotiations, sales negotiations and other kinds of contract discussions. His tips include:

1)    Make the effort to negotiate

2)    Know the basis for your negotiations

3)    Search for previous similar contracts

4)    Back up your claims

5)    Write your arguments down

6)    Ask questions

7)    Know who you’re dealing with

8)    Abandon your inhibitions

9)    Be Nice

10) Know your worth

11) Set the precedent

Each one of these points is useful as an element of contract negotiation strategy, although not all of them will be applicable or helpful all the time. I’d like to offer one more tip that will make all the others on this list more powerful.

If you want more advice on freelance and small business contracts,
sign up for the free C3 Newsletter

Your Breaking Point

You don’t need to do every deal.

Not every contract needs to be signed.

Some business isn’t worth the headache or the potential loss.

Knowing when to walk away from a negotiation will often help you close better deals in the long run.

Late last year I wrote a post about walking away from a bad deal (See How to Reject a Bad Contract). I offered five steps on how to leave a negotiation with grace and preserve your reputation in your industry. What I failed to point out in the earlier post was the inherent power that comes with setting limits. If you know what you are and are not willing to accept before discussions start, you’ll:

1)    Have a measuring stick to you can use to compare the other sides offers

2)    Display a sense of professional power by not looking desperate to take any deal on the table

3)    Gain the freedom to pursue a better deal later

Of course, there will be times when you’re not in a position for aggressive negotiations (See Negotiating Power in Creative Contracts). And some deals will be just fine right out of the box and you won’t need to engage in protracted negotiations at all. But knowing how to push back and when to walk away are powerful skills for freelance professionals and business owners of all types.

Have fun.
Gamal

PLEASE NOTE: THIS BLOG POST IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE SPECIFIC CONTRACT ISSUES OR QUESTIONS, DISCUSS THEM WITH YOUR LEGAL ADVISOR OR CONTACT C3 AT gamalhennessy@gmail.com FOR A FREE CONSULTATION.

If you want more advice on freelance and small business contracts,
sign up for the free C3 Newsletter

How a Lawyer Beat Darth Vader

Added on by Gamal Hennessy.

By Gamal Hennessy

Star Wars is one of the most well-known franchises in modern entertainment. Return of the Jedi holds a special place in the mythology of the Jedi saga. But the film that gave us Darth Vader’s last moment of redemption is also the film that continues to disappoint at least one actor.

Several news sites reported on a recent interview with David Prowse, the actor inside the Darth Vader suit for Return. According to letters received from Lucasfilm to Mr. Prowse, Return of the Jedi has never made enough money to trigger a net royalty payment for his performance. In spite of the film making more than five hundred and seventy million dollars in the box office since its initial release over thirty years ago, Mr. Prowse, and actors like him, are not in a position to get paid beyond their initial salary for the project.

Gross vs Net

While the story is notable for the popularity of the character and the prestige of the film, the elements of it are fairly common in contracts of all types, not just entertainment related ones. The difference between gross and net in the calculation of revenues can be the difference between being paid indefinitely and not being paid at all.

A while back, I wrote a piece about the difference between gross and net payments in creative contracts (See Your Slice of the Pie: Part 1). I explained Gross revenue or gross profits as the pure income that a product or service generates while Net revenue or net profits is the income that a product or service generates minus certain expenses. Taking a very simple example, if you acted in a film and were promised a cut of the gross revenue, you’d get paid based on how much money the movie made. If you agree to take a cut of the net revenue, you get paid based on how much is left after all the expenses for the film are paid. If the expenses of the film are never paid off, then you never get any royalty, even if you are the most dread Sith in the galaxy.

Hollywood Accounting

The film industry is often blamed for manipulating accounting methods to avoid paying artists. The term “Hollywood accounting” refers to concepts like using net profits instead of gross to pay creatives and then extending expenses out forever to ensure a film never gets to a stage where royalties need to be paid. Hollywood might use these tactics in the most spectacular ways, but they are by no means the only entertainment industry with this practice. In fact, it is not just the entertainment industry. Any type of contract where payments are based on future earnings can be manipulated by the gross vs. net concept.

Eyes Wide Shut

People may mock actors like Mr. Prowse who agree to net profits, but these deals have to be considered in context to be understood. In many cases, a creative person is so eager to cash in on his big break that they agree to bad terms just to get the deal done (See You Signed the Contract, but Do You Know What It Says?). In other instances, an artist often doesn’t have the negotiating power to push for the best terms. (See David and Goliath in Contract Negotiations) Sometimes, an artist doesn’t have any legal advice when signing a contract. This often leads to situations far worse than Mr. Prowse (See Why Artists Need Lawyers)

One word or concept can make a world of difference to a contract. If you’re not trained to find it, not even The Force will be able to help you.

Sign up for the Creative Contract Newsletter to learn about the legal issues facing artists, writers and creative professionals everywhere. It's free, it's monthly and it can help protect your dreams.

PLEASE NOTE: THIS EMAIL IS NOT A SUBSTITUTE FOR LEGAL ADVICE. IF YOU HAVE A LICENSEING OR INTELLECTUAL PROPERTY ISSUE, DISCUSS IT WITH YOUR LEGAL ADVISOR OR CONTACT C3 AT  gamalhennessy@gmail.com FOR A FREE CONSULTATION.

Have fun.

Gamal