Thursday, June 11, 2020
Movie sets are empty, and theaters are closed. Blockbuster releases from every major studio have been pushed back, some by more than a year. Broadway’s curtains won’t rise all summer. And television production has ground to a halt.
Without a doubt, the COVID-19 pandemic has changed the entertainment industry for the short term. But what about the long term?
Several prominent attorneys—representing clients ranging from A-list actors and directors and producers to prolific writers, studios and financiers—have differing opinions on just how dramatically the industry—and the laws governing it—will change.
Lindsay Conner, the leader of the entertainment group at Manatt, Phelps & Phillips in Los Angeles, has represented film studios and television networks and brokered a $500 million, 50-film co-financing deal between China’s Perfect World Pictures and Universal. He thinks it’s easy to say nothing will ever be the same, but he believes that’s being dramatic.
“Production safety measures will change significantly, and the public may need other attractions to bring them back into closed spaces like theaters and arenas, but there will be a recovery and reversion to a new normal,” Conner says. “The challenge for entertainment lawyers is to protect our clients and help them shape and achieve their business goals in a rapidly changing environment.”
According to research firm Ampere Analysis, the global film and television industry is projected to lose an eye-popping $160 billion of growth over the next five years, with the biggest impact being felt in 2020 and throughout 2021. It’s a devastating figure for an industry that has seen record box office sales, streaming subscriptions and content options, and it’s anybody’s guess if the industry has the tools to fully recovery.
Are movie theaters going the way of the dodo?
The shift to streaming—think Netflix, Amazon Prime Video, Disney+—was happening before the pandemic, but it’s really accelerating now with the recent launch of HBO Max and the upcoming Peacock service from NBC, Conner says. It’s unlikely to be reversed as a younger generation comfortable with watching everything on phones and tablets fills the key demographic in the business.
Parallel to the rise of the streamers is the change in theatrical distribution, and the traditional model has nearly gone by the wayside since the COVID-19 outbreak shuttered movie theaters and cinemas across the globe. Movies like “Black Widow” and “Wonder Woman 1984” have been pushed to later in the year, while other films set for wide release, including “Trolls: World Tour” and Tom Hanks’ “Greyhound” are bypassing the theater and moving straight to video-on–demand.
Even before the coronavirus, independent films were struggling to find distributors willing to commit to meaningful theatrical releases, says Craig Emanuel, chairman of Paul Hastings’ global entertainment and media practice.
I think there will be a lot of pent-up demand for new content once production returns, which should help those content producers that survive the shutdown.
On one level, Emanuel says, streamers have been a savior to the independent film world because of the number of acquisitions made by platforms like Netflix and Amazon Prime, but it’s coming at the expense of movie theaters.
Last year, Hollywood set a new worldwide box office record with more than $42 billion in ticket sales, but this year, the U.S. box office is facing a 20-year low, according to an analysis by Wedbush. Ticket sales totaled $1.79 billion from January through March 2020, a 25 percent drop from the same period a year ago.
Studios, executives, actors and actresses, directors, producers, writers and everybody else will try to make up that money somewhere, somehow, but it won’t be easy, Emanuel says.
Despite challenges, entertainment opportunities exist
During the first several weeks of the stay-at-home order in California, there was a lot of uncertainty in the business, which translated to a temporary re-prioritization of projects while companies evaluated the situation, says Glen Mastroberte, counsel for Skadden, Arps, Slate, Meagher & Flom and Affiliates.
“After that initial period, we witnessed an uptick in business with clients realizing this was going to be ongoing for some time and attempting to re-engage their business wherever possible,” Mastroberte says.
Christine Cuddy, of Kleinberg Lange Cuddy & Carlo, represents rights owners and writers like “Game of Thrones” author George R.R. Martin, and says despite the stoppage of production, rights and writing agreements are still being negotiated and scripts are being written. Shows and movies might not be being made right now, but production will ramp back up eventually, and movies and TV shows need to be written.
Mastroberte recently repped Spotify in its acquisition of The Ringer and negotiated Spotify’s agreement with The Ringer founder Bill Simmons. He says companies that churn out content, like Simmons’ Ringer—which includes a podcast network and high-traffic website—have seen positive growth during an otherwise negative period for the industry.
“I think there will be a lot of pent-up demand for new content once production returns, which should help those content producers that survive the shutdown,” Mastroberte says.
Changing deal and contract terms
The decline in movie theater attendance not only impacts the bottom line of the studios that make the films and the companies that distribute them.
Directors, producers, writers and A-list talent that negotiates compensation arrangements often tied to box office success are also feeling a decline in income. Tom Hanks reportedly made $70 million for Forrest Gump when including backend compensation, and Bruce Willis took home $120 million for The Sixth Sense, including $14 million in base salary.
How attorneys structure these types of deals in the future, without knowing what domestic or global box office looks like, will take creativity and patience.
“An equivalent backend will need to be negotiated for those pictures who find themselves on a digital platform,” Emanuel says. “We should anticipate those who have leverage will continue to find new ways of being compensated, while those who don’t will continue to be treated as they have in the past.”
Emanuel also says the nature of financing deals will need to undergo a material change in the independent film world because it’ll become necessary to address the changing allocation of risk, which will be of material importance to completion guarantors, private equity and banks, who will need to find some protections against circumstances like a pandemic.
Attorneys, like Emanuel and Mastroberte, have taken the opportunity to work with their clients on force majeure—which forgive performance failures under certain circumstances—and new provisions dealing with the rights of the studios, networks and producers to impose certain criteria for compliance related to safety, social distancing and rights for medical examination during production.
Mastroberte says many companies are paying more attention to this contract language, but most importantly, he wants to see everybody in the industry working together.
“My hope is that this crisis causes reflection in the industry and that different constituencies, such as producers, distributors, agencies and guilds, will work in closer harmony to help the industry as a whole to recover for the good of everyone,” he says.