124. Floor--A lower limit. In the context of a distributor/exhibitor agreement, the minimum percentage of box office gross the distributor is entitled to receive regardless of the exhibitor's operating expenses, (i.e., a minimum weekly percentage of a film's gross box office receipts which the film's lease agreement guarantees the distributor will receive as film rental regardless of the theatre's house allowance). Floors may be subject to adjustment, (i.e., reduced over the course of the film's engagement, and may range from 70% to 25%). Also, in negotiating with a bank for a loan, a producer may seek a floor and a ceiling on interest rates to fix the financing costs within a certain range. Producers may also seek to negotiate a gross floor in the distribution agreement or if third party participations are being deducted from net profits (or the producer's share), the producer may want to insert a floor to keep such participations from falling below a specified percentage.

125. Foreign Receipts--Monies earned by exploitation of a film outside the U.S. and received by the distributor. It is important for the producer and other profit participants to clarify at what point foreign receipts are to be included as part of the distributor's gross receipts, (i.e., when profit participants will receive the benefit of the collection of foreign receipts which could but have not been remitted to the U.S.).

126. Foreign Tax Credits--Dollar for dollar deductions from an individual or entity's U.S. income tax for the payment of foreign taxes levied by countries as a remittance or gross receipts tax. Foreign taxes generally represent the largest part of the distribution expense item "taxes". Distributors often pay such taxes, then deduct such payments from their gross receipts as a distribution expense (meaning that the producer and other net profit participants have actually paid the taxes) while the distributors still claim the foreign tax credit against their U.S. tax liability. Producers may want to see that the distribution agreement provides that either the distributor should not deduct the payment from gross receipts or the foreign tax credit should be passed on to the producer group ("Creative Accounting", "Fraud" and "Unethical Business Practices").

127. Formula Deal--A film licensing agreement between a distributor and a circuit of theatres in which the license fee of a given feature is determined, for the theatres covered by the agreement, by a specified percentage of that feature's national box office gross. This in effect cross-collateralizes the financial performance of the film among the various theatres at which it is exhibited. The results of film formula deals have been found to be an unreasonable restraint of trade. If the major studio/distributors also own certain exhibitors what's tokeep them from effectively utilizing formula deals as between their internally controlled distributor and exhibitor (see "Anti-Trust Law Violations", "Cross-Collateralization", "Major Exhibition Chains", "Paramount Consent Decree of 1948", "TriStar Case" and "Vertical Integration").

128. Franchise Agreements--A film licensing agreement, or series of licensing agreements, entered into as part of the same transaction, in effect for more than one motion picture season and covering the exhibition of features released by one distributor during the entire period of the agreement. Such agreements typically protect the exhibitor by prohibiting the exhibition of that distributor's films within the geographical market of the exhibitor and protect the distributor by committing the exhibitor to book the distributor's films. In recent court hearings relating to the requests of certain distributors to be relieved of the Paramount consent decree conduct provisions in dealings with exhibitors, the U.S. Justice Department has taken the position that franchise agreements are not necessarily anti-competitive in the current marketplace (see "Anti-Trust Law Violations", "Conduct Restrictions", "Paramount Consent Decree of 1948" and "TriStar Case").

129. Fraud--Intentional deception resulting in injury to another. Elements of fraud are (1) a false and material misrepresentation made by one who either knows it is false or is ignorant of its truth, (2) the maker's intent that the representation be relied on by another and in a manner reasonably contemplated, (3) the recipient's ignorance of the falsity of the representation, (4) the recipient's rightful or justified reliance, and (5) proximate injury to the recipient. Fraud usually consists of a misrepresentation, concealment or nondisclosure of a material fact, or at least misleading conduct, devices or contrivance. If in fact, a given distributor engages in a significant amount of the conduct described in this monograph, it is likely that such distributor has intentionally deceived and caused an injury to all of the profit participants involved in the deal, thus, such distributor may well have committed some form of actionable fraud (see "Racketeering").

130. Free Enterprise System--An economy structured around unfettered choice, (i.e., businesses are free to choose what products they will make, consumers are free to choose what they will buy and prices are generally left to fluctuate with supply and demand in an openly competitive market). Free enterprise has traditionally been one of the basic underlying economic principles of the U.S. economy. Unfortunately, some businesses, if not limited by government, will use predatory practices, unfair business practices, anti-competitive practices, unethical practices, etc. to gain a competitive edge over some competitors, often to the detriment of the consuming public (see "Anti-Competitive Practices", "Anti-Trust Law Violations", "Greed", "Combination in Restraint of Trade", "Law of Supply and Demand", "Marketplace of Ideas", "Predatory Practices", "Unethical Business Practices" and "Unfair Competition").

131. Frequency of Payments--How often compensation is disbursed. Frequency of payments can be an important issue as between producers and distributors when the distributor or its studio affiliate provides financing for a motion picture project and is thus charging interest on the negative cost of the film, particularly since the distributors typically deduct their distribution fees and distribution expenses from gross receipts, then deduct interest payments from the revenue stream before the negative costs start to be recouped (see "Interest").

132. Front End Load--The sales charge applied to an investment at the time of initial purchase; that portion of the capital contributed by investors in a film limited partnership that is absorbed by certain costs or fees such as management fees, syndication costs (offering selling costs), legal fees, accounting fees, disclosure document printing and binding, etc. As a general rule of thumb, such costs should not exceed approximately 15% of the offering proceeds, since the larger front-end load reduces the amount that ultimately may be available to produce the film, (i.e., the asset that may result in income or gain). The concept of front end loading also describes the efforts of stars, directors, producers and other creative personnel, in studio, bank or investor financed films, who demand higher compensation to be paid at earlier stages of production or at earlier stages of the revenue stream, thus making less revenue available for subsequent profit participants (see "Creative Accounting", "Gross Participations" and "Leverage".

133. Generally Accepted Accounting Principles (GAAP)--Conventions, rules and procedures that define accepted accounting practice. Financial statements included in a securities registration statement must be prepared in accordance with GAAP, as well as the SEC's own accounting standards. Major studio/distributors generally do not restrict themselves to the use of generally accepted accounting principles (see "Contractually Defined Terms" and "Creative Accounting").

134. Glamour Industry--A business which is considered to be fascinating and exciting to the public. The film industry is such a business and this factor is often cited as an underlying reason for investor interest in the industry, at least for individual investors, (i.e., some of these investors are partially motivated to invest in movies because of the so-called "cocktail chatter" value of such investments).

135. Good Faith--Being faithful to one's duty or obligation, (i.e., a total absence of any intention to seek an unfair advantage or to defraud another party); an honest and sincere intention to fulfill one's obligations. Film distribution agreements often turn to this rather vague standard which can only be applied after the fact. When possible, such terms should be replaced in the distribution agreement with a more precisely defined standard of conduct.

136. Grant of Rights--The awarding of power or privilege to which one is justly entitled. In a motion picture context, grant of rights refers to the power or privilege of developing, producing and exploiting a literary property, screenplay and movie. Such rights are granted to producers in the acquisition of literary properties, to distributors by producers through the distribution agreement and to sub-distributors and others through various licensing agreements. The phrase "grant of rights" also refers to the provision in such agreement which sets out what rights are being granted. Generally, in a film distribution deal, such rights will cover markets, changes to the title, the use of music on a soundtrack, dubbed versions and trailers, re-editing, advertising and publicizing the picture, use of excerpts, use of the names and likenesses of cast members, commercials, publishing a novelization, adding the name and trademark of the distributor, merchandizing, music, publishing and radio rights, remakes and sequels, assignment of producer's rights and warranties from the producer not to encumber the rights granted nor grant the same rights to others. The producer must confirm that this provision accurately sets out the grant actually being made.

137. Graylisting--A form of discrimination based on age, (i.e., age bias). Screenwriters have recently complained about the youth-driven agents and executives who run the U.S. television and film companies saying such persons have an obsession with youth and that it has become a factor in deciding whether a scriptwriter can write (see "Blacklist" and "Discrimination").

138. Greed--Inordinate or reprehensible acquisitiveness. Although no scientifically conducted study is cited to support the statement, it would appear that there is adequate informal evidence to support a conclusion that greed is a motivation which seems to occur frequently in the film business. When a motion picture like "Coming to America" grosses more than $300 million worldwide but does not reach net profits it may be fair to assume that "greed" was involved in the negotiation or implementation of that distribution deal somewhere along the line. When the number one box office hit of all time for Warner Bros. ("Batman") achieves $253.4 million in distributor gross receipts as of September, 1990 but based on the distributor accounting still shows a deficit of $35.8 million it may be fair to conclude that someone taking off-the-top was being greedy in that deal. In that specific situation, the movie's star Jack Nicholson reportedly received $50 million. Now for the poor and working people of this country, that may appear obscene. It would not be unreasonable for them to boycott every movie Jack Nicholson makes in the future because his $50 million is enough for a life time and it came out of somebody's else's share. In the meantime the movie-goers have to pay for all of this greed. The motion picture "Rain Man" reportedly grossed more than $400 million, but according to an MGM/Pathe accounting statement for the period from November 1990 to February 1991 it was still more than $27 million away from breaking even (see "Breakeven", "Buchwald Case", "Creative Accounting", "Gross Receipts", "Leverage" and "Market Power").

139. Gross Floor--A negotiated minimum level of backend participation in a movie's revenue stream regardless of the number or amount of distributor or other deductions from gross rentals. This device permits a producer or other person relying on a percentage participation in net profits to receive at least this minimum, (i.e., gross floor regardless of how many gross points are awarded to others or distributor deductions are otherwise made from gross receipts). It may be necessary to include such a gross floor to preserve some profit participation for the producer and others participating in the producer's share. In light of the reported figure that only about 5% of movies using the major studio/distributor net profits formula ever reach breakeven, (i.e., generate net profits), it would seem to be quite essential for every producer to insist on at least some small percentage of a gross floor until distribution deals begin resulting in more films that generate net profits (see "Floor", "Gross Participants" and "Gross Receipts").

140. Gross Points or Participants--Persons or entities who are able to negotiate a percentage interest in a motion picture distributor's gross receipts. Generally, only a very few high-powered actors, directors and producers have the kind of leverage which will permit such participations. Without a gross floor being negotiated by a net profit participant, too many gross participants may eliminate the possibility of a movie's revenue stream ever generating net profits. It would be better for the producer to stand up for the interests of all net profit participants at the time of negotiating for high priced star talent and refuse to grant gross points. For example, it would be difficult to believe that every net profit participant on the all-time box office champfor Warner Bros. "Batman" would not resent the fact that Jack Nicholson, in addition to a reported up front fee advance of $6 million, was successful in negotiating one of the richest deals in Hollywood history: 15% of the gross with an escalator clause that boosted his take to as high as 20% the more money the film took in. Thus, Nicholson's earnings alone accounted for more than $50 million of "Batman's" production costs according to industry sources and along with the distributor's fees and expense reimbursement provisions pretty well eliminated all possibilities that net profit participants on that film will ever see another dime. In another example, when Richard Dreyfuss and his agent reportedly asked for gross points in the film "Close Encounters of the Third Kind" producer Julia Phillips reportedly refused to cave in and thus gave all net profit participants on that film a better shot at realizing additional compensation. Also, in the context of split rights deals (where the domestic and international markets are separate transactions for the producer) the question arises with respect to what happens to the interests of gross participants in such situations? Domestically in such deals, the producer will collect gross revenues minus the distributor's fee, so presumably the gross participants will participate in the producer's gross. But, in the international market, licensing rights are often sold for a minimum guarantee against fees in the territories, thus the producer would either have to negotiate with gross participants to limit their international participations in return for larger up-front cash compensation or in the alternative, structure the deal with international buyers so that they are responsible for accounting to the producer and other gross participants and for covering such participations, but this latter approach is unlikely (see "Average Negative Cost", "Gross Participations" and "Split Rights Deals").

141. Gross Participants--Persons or entities who have negotiated or are awarded a percentage participation in a movie's gross rentals or other defined level of a movie's revenue stream at some stage of gross and prior to net receipts or net profits. Without a gross floor being negotiated by a net profit participant, too many gross participants may eliminate the possibility of a movie's revenue stream ever generating net receipts or net profits (see "Gross Floor").

142. Gross Receipts--A contractually defined term in motion picture distribution agreements, generally referring to all monies actually received by the distributor (or its subsidiaries or affiliates) from the exploitation of any rights granted pursuant to the distribution agreement, from all sources, stated in U. S. dollars, and not subject to forfeiture or return, including non-returnable advances and guarantees. The major areas from which gross receipts are derived include home video, theatrical revenue or "film rental", non-theatrical, pay television, network television, television syndication and ancillary rights. Producers must be careful to clarify whether and to what extent any advance and/or guarantee is to be included in gross receipts. The studio/distributors will generally take the position that advances should not be included in gross receipts until earned, in other words, the distributor will want to deduct an amount equal to any advance that has been paid to the producer from monies received by the distributor and will not want to consider such amounts as part of gross receipts for any calculations based on gross receipts (see "Contractually Defined Term").

143. Hard to Audit Expenses--Costs that are difficult to verify. Many of the film distributor distribution expenses deducted from the distributor's gross receipts in order to arrive at net profits are difficult to verify or judge as to reasonableness. For this reason alone, it might better serve the overall film community for the entire system relating to the deduction of distribution expenses to be abandoned in favor of negotiated across-the- board gross participations for all participants (see "Direct Distribution Expenses").

144. Hidden Agendas--Plans of things to be done or intentions that are not apparent or divulged. Filmmakers make movies for many reasons. Making money, becoming famous, earning the respect of professional peers, providing entertainment and communicating important ideas would seem to be high on anyone's list of the typical reasons why movies are made, although the order of importance certainly may differ amongst individuals. The feature film, as a communications medium, with its large screen, color technology, special effects, lighting techniques, exquisite photography, incredible sound, excellent talent on and off the screen, is also, without question, one of the most effective forms of communicating ideas that the world has yet devised. It would indeed be naive for anyone to assume that the communication of ideas is not an important motive for any serious filmmaker or filmmaking concern. A feature film also affords a unique opportunity for those who control or dominate the process of decision-making as to which movies or ideas are included in motion pictures, to insert such ideas or select and actively promote the movies which best express the views held by those decision-makers.

145. Holdback Periods--If the distributor is given a broad grant of rights in the distribution agreement, the distributor will want to makes its own internal decisions regarding appropriate sequential distribution in various media in the territory. The producer, on the other hand, may want to seek a holdback schedule in order to ensure that the picture has an opportunity for maximum revenues in each medium of exploitation. If the producer has reserved certain rights, the distributor may seek holdback provisions. Typical holdback periods might include: videocassette rights: 9-12 months after initial theatrical release; cable and pay tv: 3 months after start of videocassette distribution; free television: 2 years after initial theatrical release.

146. Home Video Royalty--A share of the proceeds from the sale or rental of motion picture videocassettes paid by the video wholesaler to the distributor. In contrast to feature film sub-distribution in other media, film distributors handling the distribution of motion pictures on videocassettes accept mere royalties from the wholesalers instead of the balance of the wholesale proceeds minus a modest sub-distribution fee. Royalty payments are traditionally much smaller than other forms of percentage participations. Before this rapidly diminishing revenue stream generated by home video reaches the producer, the distributor will also typically deduct its negotiated distribution fee. This system was designed by the major studio/distributors who, in many instances, own significant and/or controlling interests in the video wholesalers, thus these major studio/distributors get to participate twice in the videocassette revenue stream and are able to minimize the dollars that ultimately flow past the distributors to the producer and other net profit participants (also called "Royalty on Home Video"; see "Conflicts of Interest", "Fiduciary", "Twenty Percent Rule", "Unethical Business Practices" and "Videocassette Revenue Reporting").

147. Homogenous Films--Motion pictures that are the same or similar. During the early years of the motion picture industry, the major studio/distributors produced a large volume of films that were very similar, (i.e., they were designed to and did appeal to the same mass audience), thus exhibitors had little need to pre-screen each motion picture offered. With today's more fractionalized audiences and film's of widely varying quality which appeal to separate but more narrow audiences there is a greater need for exhibitors to pre-screen the product they are asked to exhibit (see "Blind Bidding").

148. Horizontal Price Fixing--Price fixing engaged in by those in competition with each other at the same level in an industry. For example, if distributors conspired to fix prices at a certain level that would be an example of horizontal price fixing. On the other hand, if an exhibitor and a distributor conspired to fix prices, that would be an example of vertical price fixing (see "Anti-Trust Law Violations", "Price Fixing" and "Vertical Price Fixing").

149. Improperly Claimed Expenses--One of the wrongful studio accounting practices often complained about by producers in which the studio wrongfully or unfairly allocates certain of its incidental expenses or costs to a film. Such expenses must be closely monitored (see "Direct Distribution Expenses"). 150. House Nut--A negotiated dollar amount as between a film's distributor and its exhibitor which represents the estimated expenses during the course of a week for the film exhibitor, (i.e., the amount it supposedly costs an exhibitor to operate a theatre for a week). In a typical exhibitor/distributor agreement the distributor would split the balance of the box-office gross (in accordance with the agreed upon percentages between them) after the house nut has been deducted by the exhibitor, (i.e., the exhibitor deducts the amount of the "house nut" before the distributor/exhibitor split of the balance). This negotiated figure may range from $5,000 a week to $35,000 a week depending on the theatre (same as "Contractual Theatre Overhead", "Weekly House Allowance" and "Weekly House Expense"; see "Controlled Theatre").

151. Idea--A formulated thought or opinion; a mental image or formulation of something seen or known or imagined; a pure abstraction, or something assumed or vaguely sensed. In theory and in filmmaking, the idea is more narrow in scope than a concept, thus the concept is considered the initial step in creating a movie. Many persons both in and out of the film business recognize that ideas are the film industry's most important article of commerce and that the motion picture is one of the most powerful methods for communicating ideas that human beings have yet to devise (see "Marketplace of Ideas").

152. Illegal Combination--Two or more persons or entities who join together to commit an illegal act, e.g., the joining together of two competing companies in an industry to alter the competitive balance in their favor is an illegal combination in restraint of trade (see "Combination in Restraint of Trade").

153. Illegal Trade Practice--A custom in a business that is against the law, e.g., the fixing as between competitors of film licensing terms, runs, clearances and minimum admission prices (see "Anti-Trust Law Violations", "Price Fixing" and "Reciprocal Preferences").

154. Illusory Promise--A promise so indefinite that it cannot be enforced or which, by virtue of provisions or conditions contained in the promise itself, is one whose fulfillment is optional or entirely discretionary on the part of the promisor. Since such a promise does not constitute a legally binding obligation, it is not sufficient as consideration for a reciprocal promise and thus cannot create a valid contract (see "Contract of Adhesion").

155. Improperly Claimed Expenses--A distributor accounting practice in which the distributor wrongfully or unfairly allocates certain of its incidental expenses or costs to a film, or completely fabricates distribution expenses that are allocated to a film (see "Creative Accounting", "Overreported Travel", "Studio Accounting Practices" and "Unethical Business Practices").

156. Incestuous Share Dealing--The buying and selling of the corporate stock of one company by another company and vice versa for the purpose of creating tax or other financial advantages (see "Reciprocal Preferences").

157. Independent Audit Rights--The authority to conduct an examination of the books and records separate from an authorized entity, e.g., in a film distribution agreement, the distributor will undertake the responsibility for paying directly to third party participants any portion of the production company's share of gross or net proceeds as assigned by the production company, provided that no such third party has an audit right other than that granted to the production company (see "Audit Rights").

158. Independent Checking Company--A business that can be hired by a producer or distributor to verify the number of paid ticket purchasing moviegoers in attendance at showings of a given movie and which is not the checking service normally used by the major studio/distributors (see "Attendance Checking", "Checker", "Checking and Collection Costs", "Puffed Numbers" and "Skimming").

159. Independent Feature Project (IFP)--A non-profit membership organization dedicated to promoting quality American independent feature filmmaking and supporting the efforts of individual filmmakers through educational programs, publications, services and awards. Members include producers, directors, writers, crafts people, distributors and movie industry executives. The IFP is not an advocacy group and even if it modified its charter and status as a not-for-profit educational organization, it would probably have difficulty obtaining a consensus relating to a single important advocacy issue from its diverse membership and corporate sponsors (see "Conflicts of Interest").

160. Industry Assessments--The prorated dues, fees or other costs required of member companies to support the activities of industry trade groups such as the MPAA, MPEAA, AFMA, etc. Such costs are typically included in the definition of distribution expenses in a distribution agreement (see "Distribution Expenses" and "Dues and Assessments").

161. Inferior Bargaining Position--Economic and other circumstances that result in less leverage for one party when negotiating a transaction. With few exceptions, independent feature film producers in the current industry environment have little or no real negotiating power when it comes to determining the terms of the distribution deal. In the first place the basic economic law of supply and demand is working against the independent producers, (i.e., there are too many films being produced each year). More films are being produced than there are available distributors who are willing to distribute and even though many of the films being produced, arguably do not deserve to be released, there are still too few distributors that are both capable and willing to distribute the worthy films. Thus, even though the available distributors may be willing to negotiate on certain aspects of the distribution deal, as to any given issue, distributors pretty much have the power to say "take it or leave it". Of course, many independent producers foolishly believe that by producing a "great" film all of their problems associated with their inherent "inferior bargaining position" will go away. Unfortunately, by concentrating most if not all of their time, energy and skill on the creative side of the film business equation as opposed to the business side of the business, many independent producers end up winning the "film" but losing the "deal" (see "Creative Accounting", "Contract of Adhesion", "Law of Supply and Demand" and "Leverage").

162. Initial Actual Breakeven--Another contractually defined breakeven point in the revenue stream of a motion picture, which commonly means that point at which net proceeds are reached (see "Actual Breakeven", "Artificial Breakeven", "Breakeven", "Cash Breakeven" and "Rolling Breakeven").

163. Insider's Game--A competitive industry viewed as a contest between rival factions and run by a restricted inner circle of people, admission into which may be limited by arbitrary considerations. These so- called "insiders" in the film industry are also sometimes referred to as being "members of the club". Although different people may use varying criteria for defining who or how many people are actually "members of the club", in a general sense these "club members" are the top level owner/executives of the major studio/distributors and the top actors, actresses, producers and directors in the industry along with their agents and attorneys (see "Level Playing Field", "Member of the Club" and "Reciprocal Preferences").

164. Interest--Consideration or compensation paid for the use of money loaned; the cost of using money, expressed as a rate per period of time, usually one year, in which case it is called an annual rate of interest. In studio financing, interest is typically deducted from the net profit calculation. The interest issue creates problems for independent producers at several levels: (a) Interest Plus Profit Participation--Distribution agreements involving at least partial studio or distributor financing of the negative cost of a film often allow the distributor to charge interest on its unrecouped negative cost in addition to permitting the studio or affiliated distributor to retain a substantial if not overwhelming interest in any profit participation. If a distributor is being paid a fair rate of interest on its borrowed funds, it should not also be permitted to participate in a motion picture's net profits or other defined level of the film's revenue stream beyond the deduction of its distribution fee and direct expenses; (b) Interest Rates That Are Excessive--The interest rate charged by the studio is often not in proportion to the actual cost of funds. Studios have been known to charge interest rates of 20% to 30%. If anything, since the studio affiliated distribution company is also able to obtain compensation in the form of its distribution fees, the affiliated studio acting as a financier should charge less than the market rate for interest on the borrowed funds; (c) Interest on Advances--The studio/distributors may take the position that advances should not be included in gross receipts until earned, in other words, the distributor will want to deduct an amount equal to any advance that has been paid to the producer from monies received by the distributor and will not want to consider such amounts as part of gross receipts for any profit participation calculations which start with a gross receipts figure. At the same time, the studio/distributor may seek to charge interest on such advances. The producer and other profit participants may want to take the position that if advances are excluded from gross receipts, no interest should be charged on such amounts; (d) Interest on Monies Not Spent--Interest is sometimes charged on monies not yet spent by the distributor, e.g., in preparing an earnings statement for a film, the distributor may accrue the print and advertising costs incurred but not yet paid so that an interim participation statement will not show a profit. This accrual of expenses also reduces gross receipts which could be used to reduce negative costs and thereby also reduce interest charges. In other words, the studio may seek to calculate interest on negative costs from the point at which such expenses are incurred (as an accounting entry), whereas the producer may prefer to have such interest calculated as of the time such expenses are actually paid by the studio; (e) When Interest Charges Stop--Studios may also seek to continue charging interest on the negative costs of a film until the end of the accounting period in which payments reducing the negative cost total and/or interest are received by the studio, whereas the producer and other net profit participants may insist that interest charges stop when such payments are actually received by the studio and not wait until the end of the accounting period, however many months that might involve; (f) Interest on Negative Cost Balances--In calculating this interest on the studio's unrecouped negative costs, all direct distribution costs and fees are typically first deducted from gross receipts as expenses of distribution, thus significantly decreasing the amount of gross receipts, if any, which may apply toward recoupment of the studio's contribution toward production costs. Thus, at many early stages of earnings statements, no recoupment of negative costs is achieved and the interest charges simply continue to accrue. In contrast, with a bank financed motion picture production, the bank will recoup its loaned amount (including the negative cost, plus interest and fees) before the distributor deducts its distribution fee and expenses. If a studio wants to act like a bank and charge interest on borrowed funds, then it ought to also allow a priority position for the recoupment of negative costs so as not to unfairly extend the repayment of the loaned amount thus increasing the total interest charges. In such situations, the studio/bank is guilty of self-dealing; (g) Interest on Overhead--In many instances, even some or all of the indirect distribution costs, the normal costs of doing business as a distributor which are not specifically tied to a particular film being distributed (overhead), are also deducted from gross receipts as distribution expenses and again, are not available for recoupment of the negative cost. Other items of overhead may be inappropriately characterized as production costs, thus interest may also be charged by a studio or distributor on some of these indirect distribution expenses; (h) Simple vs Exact Interest--Studio/distributors also may use a form of simple interest, based on a 360 day year, instead of exact interest (based on a 365 day year) and that practice, particularly when dealing with substantial amounts of money in the form of negative costs, will result in the payment of a greater amount of interest to the studio/distributor for that final partial interest bearing term and (i) Interest on Gross Participations--A variation on the practice of charging interest on monies not actually spent in which the distributor for a distributor financed motion picture categorizes gross participations as production costs (as opposed to distribution expenses) and thus charges interest and overhead on such participations (see "Contract of Adhesion", "Creative Accounting", "Greed", "Overhead" and "Usury").

165. Interlocking Directorates--Corporate boards of directors whose members serve as directors on more than one corporate board.

166. International Film Importers and Distributors of America (IFIDA)--An assembly of independent producers and distributors which was listed in the MPAA publication about the history of the MPAA Ratings Board, as one of the three industry organization partners in the creation of the movie rating system. The rating system replaced its predecessor the Production Code Administration in November of 1968. Unfortunately, after numerous inquires, this author has been unable to find anyone at the MPAA, MPEAA or NATO who knows anything about this organization. It is also not listed in the Los Angeles or area telephone listings. Thus, it appears likely that the organization no longer exists, in which case its current status should be noted in the above referenced MPAA publication because otherwise it is misleading to suggest that any association of independent producers is currently supporting the MPAA Ratings Board (see "Industry Groups", "MPAA" and "Production Code Administration").

167. Internationally Competitive--Able to vie for business throughout the world. On the one hand it appears reasonable for the major studio/distributors to use their political influence to persuade the U.S. government to relax its enforcement of the anti-trust laws in the entertainment industry in an effort to free the these entities from restrictions that impair their ability to compete in a global marketplace. On the other hand, if such relaxed enforcement increases the competitive strangle hold of the major studio/distributors on the domestic industry and makes it even more difficult for the many thousands of independent, small business persons to survive (whether they be production companies, distributors, exhibitors or otherwise), then there needs to be a better balancing of interests in this industry. Also, certain domestic film industry organizations have traditionally worked together in the foreign distribution of films anyway, thus there may be no need to permit vertical integration in the domestic marketplace in order to create more strength for U.S. companies in the foreign marketplace (see "Anti-Trust Law Violations", "Paramount Consent Decree of 1948" and "TriStar Case").

168. Inter-Party Agreement--An agreement among the lending entity, the film distributor and the producer which among other things provides that the distributor's interest in the revenues generated from the exploitation of the film is subordinated to the interest of the bank in repayment of the bank's loan and the payment of its interest charges. Is there any good reason why if a limited partnership financed the production costs of a motion picture that the limited partnership would not be granted a similar first position by the film's distributor?

169. It's Only Money--A rationalization that some distributors use when excusing the business practices described herein. They're expressing the view that the film business is merely a game, that many of the disputes that occur only relate to money and that's not important. The truth is that in most instances, the money being squabbled over represents several years of people's lives, expertise and efforts as well as their dreams and that many of the film industry professionals whose rights are trampled because "it's only money" end up with a drinking problem or some other dysfunction due to the dilemma they find themselves, (i.e., they don't feel they can sue the distributor and still be able to get another job in this town). Again, it is extremely important for producers and others to check the credits on other films distributed by a prospective distributor and inquire as the distributor's attitude toward such things as fairness and honesty business transactions.

170. Japanese Money--In recent years, many billions of dollars have been invested in the American film industry by Japanese owned concerns. A great deal of speculation has occurred relating to the questions of how such investments might impact on the domestic film industry and how such investments might turn out for the investors. If the distributor and/or industry practices described herein become or continue to be prevalent, it would be surprising if the investment of Japanese monies in the domestic film industry had any significant impact whatsoever on the domestic industry and equally surprising for the Japanese investors to fare any more favorably than other groups which have invested in the American entertainment industry in the past.

171. Kickbacks--The practice of a seller of goods or services paying the purchasing agent of those goods or services a portion of the purchase price in order to induce the agent to enter into the transaction. In most commercial transactions, kickbacks are illegal and prohibited by criminal commercial bribery statutes. The principal of the purchasing agent may also have a cause of action against the agent to recover the amount of the bribery. Also for tax purposes, amounts paid as kickbacks or bribes generally are not deductible. Producers have to watch for indications of such arrangements in all of the distributor's relationships with the providers of services which the distributor pays for and deducts the cost as distribution expenses, e.g., outside advertising agencies, film labs, trailer production firms, exhibitors in co-operative advertising arrangements, distributor employees and facilities, distributor editing, censorship approvals, checking services, screening expenses, industry assessments, residuals and banking costs.

172. Larceny--The taking of another's property unlawfully with the intention of depriving the owner of its use (same as "Theft"; see "Racketeering" and "RICO").

173. Latitude--Freedom of action or choice. Most of the film distribution agreements offered in the current marketplace give the distributor a great deal of latitude with respect to matters relating to the distribution of the film and in the distributor's handling of monies resulting from the exploitation of such film (see "Creative Accounting", "Contract of Adhesion", "Contractually Defined Terms" and "Discretion").

174. Law of Supply and Demand--A basic economic principle which provides that to the extent the supply of goods or services is greater than the demand for such goods and services, all other things being equal, the market price for such goods and services will be lower than if the demand was greater than the supply. In the film industry, this law is always at work. For example, there are clearly more talented actors, actresses and directors available for work on motion pictures than there are motion pictures produced in a given year, thus without the support of their respective unions, the compensation for the working actors, actresses and directors would likely be significantly less than it is. In addition, since there are more motion pictures produced each year than there are capable distributors willing to distribute such films, the distributors are in the stronger bargaining position with respect to the terms of the distribution agreements. In the U.S., the exhibitors have also built so many theatre screens that the distributors tend to have the advantage in negotiating the terms of their exhibition agreements, although a significant fluctuation in the number of films distributed in any given year may have an impact on the bargaining power between such parties. Also, as mentioned elsewhere in this book, some distributors are entering or re-entering the exhibition arena, thus eliminating any question of arm's length negotiation, disparity of bargaining power or the impact of the law of supply and demand as between the distributor and exhibitor in such situations. This presentation of the concept is, of course, an over- simplification, but the law of supply and demand does underlie and influence most of the negotiations between the parties named in this paragraph and many others in the film industry. It would also appear, however, that based on the compilation of reported industry and distributor practices contained herein, certain distributors may have leveraged this basic economic advantage into an abusive dominance which could under certain circumstances be criminal. As indicated above, the disparity in bargaining power between distributors and others in the industry is partly based on this law of supply and demand, however, industry interest groups, such as unions, guilds, professional or trade associations, or even film schools, seem to be either unaware of the critical need to take steps to reduce this great disparity and unaware of the impact such legitimate action might have on the economic fortunes of the smaller numbers remaining in the field, or in the alternative, they are unwilling to take such actions. It is important to note that the anti-trust laws do apply to the activities of such groups and that any measures taken to reduce the numbers of available suppliers of specified services in given field must comply with such laws (see "Anti-Trust Law Violations", "Inferior Bargaining Position" and "Predatory Practices").

175. Laziness--A human affliction described as a disinclination to work. When it comes to negotiating a custom film distribution agreement that actually fits the interests and needs of two individual parties (the distributor and producer), laziness sometimes plays a part, particularly with the smaller, understaffed film distribution companies. Working through a 20 or 30 page film distribution agreement and making changes requested by a producer is quite tedious. As with the production of any lengthy and complicated document distribution agreements are often primarily based on some prior distribution agreement either previously used by the present distributor or some other distributor, and as such, may contain numerous provisions that simply do not apply to the transaction being negotiated currently. The term laziness may also apply to producers who allow the financial prospects of their film and all who share in the transactions as profit participants to be controlled by a document whose provisions went largely unnegotiated.

176. Level Playing Field--An expression which when used with respect to a particular industry, such as the film industry, refers to whether the rules of the game are the same for all of the players, or whether the environment ("field") in which the business is conducted provides a fair opportunity for all to participate on an equal basis. Some industry observers suggest that the primary reason for most of the failures of the independent production and distribution companies in recent years relates to this issue of the "level playing field" and not "lack of hits" or "poor financial management" (see "Anti-Competitive Practices", "Anti-Trust Law Violations", "Blind Bidding", "Contract of Adhesion", "Creative Accounting", "Financial Management", "Leverage", "Reciprocal Preferences" and "Unethical Business Practices").

177. Leverage--In the context of film industry negotiations, the power to control or influence others. The concept is extremely important in determining the outcome of negotiations as between film distributors and producers. Without sufficient leverage, a film producer is not likely to be able to negotiate many of the contractual provisions described in this monograph in a manner that is favorable to the producer. A different form of leverage, financial leverage refers to the amount of debt a company has in relation to its equity. The more long-term debt the company has, the greater the financial leverage. Some industry observers point out that the extensive use of financial leverage was not part of the business culture prior to the 1970's and suggest that most failures of feature film production companies are associated with excessive use of financial leverage (see "Contract of Adhesion", "Financial Management", "Law of Supply and Demand", "Level Playing Field" and "Power").

178. Liability Limitation--If a distributor assumes the burden of protecting a film's copyright against infringement, it may also incur some potential liability if it fails to act conscientiously in the protection of such copyright. Thus, the distributor may seek a provision in the distribution agreement which limits its liability for its own conduct in attempting to protect the film's copyright. The producer, particularly if the distribution rights granted are limited, should see that such limits do not protect the distributor against willful misconduct or gross negligence and possibly even negligent conduct, because such limits may not provide enough incentive for the distributor to act conscientiously to protect the copyright.

179. Licensing Process--The activities engaged in, the procedures used and the negotiations involved while a feature film distributor is contracting with exhibitor's and sub-distributors for the exploitation of a film. Typically, the final print of a film is not available for screening at the beginning of this process (as between the distributor and exhibitor) thus, the exhibitors often have to make their offers based on a very sketchy information provided by a distributor. Such information usually only includes the names of the principals involved in the film and a brief synopsis of the plot. Some exhibitors complain that such a small amount of disclosure relating to a film does not allow them to adequately assess a film's potential profitability or its suitability for their particular patrons (see "Blind Bidding").

180. Lie, Cheat and Steal Syndrome--The signs and symptoms of a pattern of business practices and behavior which seem to occur regularly in the film industry and can be characterized by a lack of basic honesty or ethics and motivated by greed. Producers should always check with other producers that have done business with a distributor in the past before going forward with a distribution agreement (see "Greed").

181. Limits on Dividends--In bank lending, barriers imposed by the lending bank on a corporation's ability to pay dividends to its shareholders. However, such a limit or barrier on dividends in a loan agreement may help a company avoid an IRS tax imposed on the unreasonable accumulation of retained earnings (see "Dividend").

182. Litigation Budget--The monies required to initiate, maintain and pursue a lawsuit. Such budget may include filing fees and other court costs, investigatory expenses and attorney fees. In addition to auditing funds, an independent producer may need to set aside some funds to cover litigation costs in the event a dispute arises with respect to a film's distribution (see "Audit" and "Sue Us").

183. Litigation Disclaimer--This clause, among the producer warranties in the distribution agreement, is a general disclaimer by the producer that there is any litigation pending which could impair distribution of the picture. The producer should obtain corresponding representations and warranties from the distributor along with indemnification.

184. Loan Sharking--The practice of loaning money at usurious rates of interest. Many states have laws that render usurious interest, and in some instances even the underlying debt, uncollectible (see "Extortion" and "Usury").

185. Lobbying--Activities engaged in by persons (lobbyists) in an attempt to persuade legislators (and in some cases government regulators) to pass or vigorously enforce laws or regulations that are favorable to their interests or the interests of their clients, or to defeat, amend or not vigorously enforce those laws or regulations that are unfavorable. The activities of lobbyists are generally regulated by statute, and contrary to what is often suggested in the press, there is nothing wrong with lobbying per se. Lobbyists merely represent the interests of organized interest groups and most significant interests are represented by lobbyists. If a significant interest is not represented by lobbyists, it should be. In the motion picture industry some segments of the industry (e.g., major motion picture producers and distributors) are well represented by their trade associations which vigorously lobby on behalf of the interests of their member companies while other segments of the same industry (e.g., independent producers) are not organized at the industry level in a manner which will permit the effective advocacy of their interests with respect to important issues. Thus, certain laws, government regulations and/or the enforcement of such laws and regulations are not likely to be favorable to the interests of the unrepresented group. That in fact may be the case with respect to questions relating to the enforcement of the federal anti-trust laws, (specifically vertical integration), blind bidding, block booking, the motion picture rating system, the membership policies of certain industry associations, controlled theatres, etc. Some in the industry consider it foolish for independent producers to try to function in an industry without an effective advocacy group representing their interests at the industry level and that the circumstances for the independent producer will continue to deteriorate without such representation (see "Anti-Trust Law Violations", "Contract of Adhesion", "Creative Accounting", "Major Exhibition Chains", "Marketplace of Ideas", "Market Share", "Number of Screens" and "Political Influence").

186. Long Form Agreement--Contracts which are fully negotiated and contain all of the terms and provisions intended by the parties thereto. Long form film distribution agreements, for example, relating to the licensing of feature films, are negotiated by and between the film's producer and a distributor (or their legal representatives) and usually include long lists of delivery items, detailed lists of what will be considered distribution expenses, extensive producer warranties, the laboratory access letter and an instrument of transfer. Sometimes, negotiators will opt for a letter agreement, deal memo or short form agreement in order to save time, although such a tactic involves certain risks if a dispute on a question not covered by the shorter form of agreement arises before the long form agreement is signed (see "Deal Memo").

187. Mafia--Originally, a Sicilian secret criminal society, but a term which is sometimes currently used to describe a secret organization composed chiefly of criminal elements engaged in controlling racketeering, peddling of narcotics, gambling, prostitution and other typically illicit activities throughout the world. Although, members of the Mafia allegedly first appeared in the U.S. along with the influx of immigrants from European countries, including Italy in the late 1800's or early 1900's the so-called Chicago Mafia was apparently formed during World War I when an old world Sicilian racketeer named Jim Colosimo organized a network of Italian/Sicilian criminals to protect his houses of prostitution and other illegal businesses. Another individual, Johnny Torrio has been identified as being a member of that group and he supposedly recruited Al Capone into the Chicago mob in 1919. Torrio then reportedly contracted with Capone to murder Colosimo in 1920, after which Torrio became the head of the Chicago Mafia. Torrio continued to utilize the services of Capone to eliminate rival Irish and Sicilian gangs and during the prohibition years, Torrio began to admit criminals from other ethnic backgrounds into what had theretofore been a traditional Italian/Sicilian crime group. The ambitious Capone tried to have Torrio executed, but even though Torrio survived he stepped aside to let Capone assume leadership of the Mafia. By 1931, the Mafia had become "Americanized" in the sense that the last old world first-generation leaders of the American-Sicilian underworld were killed in September of that year. Subsequently a national crime syndicate was created to stop the infighting among Mafia families which was interfering with the mob's primary goal of making money. With increased stability, mob financiers were free to continue and expand both their illegal and legal ventures, raise the required financing from participating crime families, launder funds through "friendly" banks and businesses, buy political protection and oversee the distribution of profits from such activities. Some writer/researchers have alleged that significant Mafia connections and influence have long existed in the capital intensive motion picture industry, but as with anti-trust law violations, such allegations have been difficult to prove (source: Dan E. Moldea's book "Dark Victory"; see "Anti-Trust Law Violations", "Extortion", "Mob Controlled Distribution Company", "Money Laundering", "Movies With a Message", "Organized Crime", "Political Influence", "Racketeering", "RICO", "Theft" and "White Collar Crime").

188. Major Exhibition Chains--The largest theatre owners who control the most theatres and screens in the best locations. Although, ownership interests have changed often in the last several years, one recent report (source: Paul Kagan Associates, Inc. Motion Picture Investor) listed the top ten exhibitors (with the number of sites and screens shown after) as: (1) UA Communications--543/2517, (2) AMC Entertainment--263/1604, (3) General Cinema--312/1504, (4) Cineplex Odeon--277/1120, (5) Carmike--260/960, (6) Loews--203/835, (7) Cinemark--135/839, (8) National Amusements--75/568, (9) Act III--122-544 and (10) Cineamerica-- 112/488. Following the Reagan administration easing of regulatory restraints, the major studio/distributors have regained a certain level of control over these major exhibition chains, e.g., MCA, the parent of Universal has a substantial ownership interest in Cineplex Odeon, Columbia and Tri-Star have an ownership affiliation with the Loews theatre chain and Paramount and Warner have ownership interests in Cinemerica. Paramount also operates Famous Players, one of the largest Canadian exhibition circuits (see "Number of Screens", "Paramount Consent Decree of 1948", "TriStar Case" and "Vertical Integration").

189. Management--The combined areas of policy and administration for a business. Also the people who make the decisions and provide the supervision necessary to implement the business owners' objectives. In some instances when a major studio/distributor has been acquired by a corporate conglomerate in recent years the studio's management team has pretty much stayed in place (see "Dividend" and "Financial Management").

190. Manipulation--The buying or selling of a security to create a false appearance of active trading and thus influence other investors to buy or sell shares. Both civil and criminal penalties may apply to this activity (see "Dividend" and "Insider Trading").

191. Marketplace of Ideas--The worldwide environment in which formulated thoughts or opinions may be expressed. Because of the presumed (or well-established) importance of the motion picture as a vehicle for the expression of ideas, the obvious power of this form of communication and the fact that movies are often exhibited worldwide, it is vitally important that all significant human interests whether based on race, culture, religion, economic systems, forms of government, national identities or other factors be concerned about the use and abuse of the motion picture medium as a means for advocating such interests. In other words, all of these interest groups should be concerned as to whether their views are consistently portrayed in a positive or negative fashion through feature films. Thus, to the extent that an industry such as the motion picture business is dominated by a particular interest group that consistently espouses a slanted view on numerous issues that are presented in films, and to the extent that such an interest group utilizes the practices described in this monograph to perpetuate its dominance of the industry, the other interest groups, including government, should be outraged and they should take action which is both designed to "level the playing field" and to broaden the points of view expressed in the motion picture medium (see "Hidden Agendas").

192. Market Power--The ability to control or dominate a specific level of an industry (e.g., wholesale or retail). Generally, in the application of the anti-trust laws to the film business market power may be presumed from the fact that the product involved, (i.e., motion pictures is copyrighted). However, in recent years, the U.S. Justice Department has taken the position that if a market is not otherwise susceptible to market power wielded by a single firm or a coordinated group of companies even significant increases in barriers to entry in that market are unlikely to adversely affect competition in the marketplace (see "Anti-Trust Law Violations", "Barriers to Entry", "Merger Guidelines", "Paramount Consent Decree of 1948", "Political Influence", "TriStar Case" and "Vertical Merger").

193. Market Share--The percentage of industry sales of a particular company, product or segment of an industry, e.g., for the period from 1984 through 1990 independently distributed feature films only generated a yearly average of approximately 8.1% of the domestic theatrical box office gross. That means the MPAA company distributed films (some of which were produced by independent producers) generated an average of 91.9% of the domestic box office gross. One of the more puzzling of motion picture industry phenomena is the rather common occurrence at the annual Academy Awards for independently produced films to win a disproportionate share of the more important awards, e.g., best picture, best director, best actor, best actress, best screenplay, etc., particularly since many of those same award-winning films are not as commercially successful as many of the films produced by the major studio/distributors. Some industry observers would quickly dismiss that anomaly as the result of differences between movies that are targeted for the large mass audience (commercial product) and those that are designed to be small films tailored for a limited but more discriminating audience (not commercial). Another factor in how well these two categories of films are received at the box office may have nothing to do with whether such pictures are quality award winners or merely commercial, but have more to do with which distributors have the market power to get their films shown at theatres, to spend the money to advertise and promote their pictures and the leverage to collect film rentals from exhibitors. Besides, the more artistic award-winning independently produced films, after receiving all of the free publicity and promotion associated with the Academy Awards, are suddenly now more "commercial" and those distributed by the major/studio distributors before the awards can be re-released (or continued in release) to take advantage of their new profit-making potential (see "Blind Bidding", "Cartel", "Controlled Theatre", "Major Exhibition Chains", "Market Power", "Oligopoly", "Political Influence" and "Settlement").

194. Merger Guidelines--A six-part analytical framework set forth by the U.S. Justice Department in 1984 for use as a guide in analyzing the competitive effects of a proposed vertical merger in the motion picture business which is based on the U.S. Justice Department's analysis of Clayton Act cases. The guidelines are summarized below: (1) Does the contemplated merger significantly foreclose other competitors (e.g., exhibitors) from access to motion pictures or access on competitive terms? (2) Does the proposed merger significantly foreclose other competitors (e.g., distributors) from access to theatres or a substantial portion of theatres? (3) If actual competitors are not likely to be foreclosed from access to motion pictures on competitive terms, does the proposed action nonetheless effectively force actual or potential competitors to enter or continue in the distribution or exhibition business on a vertically integrated basis? (4) If vertical integration is effectively required in order to enter or continue in the business, how difficult is to it to achieve vertical integration? (5) If vertical integration is required, and if there are significant barriers to such integration, is the market otherwise conducive to (i.e., will it allow) non-competitive performance? and (6) Does the proposed vertical merger have offsetting positive benefits for the economy by creating efficiencies? (see "Anti-Trust Law Violations", "Barriers to Entry", "Internationally Competitive", "Market Share", "Paramount Consent Decree of 1948", "Political Influence", "TriStar Case" and "Vertical Integration").

195. Minimum Admission Prices--A specified amount below which motion picture theatre ticket prices may not fall. One of the conduct restrictions of the Paramount consent decree was designed to prevent the major studio/distributors from conspiring to fix minimum admission prices among the theatres they either owned or controlled (see "Controlled Theatre", "Paramount Consent Decree of 1948" and "Price Fixing")

196. Minimum Rating--A commitment made by a feature film producer to a distributor and/or financiers that the film being produced will receive an MPAA rating not worse than a specific rating, e.g., an "R" rating. Such commitments are often required in film distribution agreements and if the producer fails to deliver the agreed upon rating, the distributor may be relieved of its obligation to pay monies or release the picture. Such situations which involve an MPAA member distributor and an independent producer may raise the question relating to the inherent conflict of interest involved in rating films through the facilities of an MPAA sponsored organization.

197. Mob-Controlled Distribution Company--A film distribution company controlled by organized crime. Occasionally, reports will surface that a particular distribution company was formed by organized crime interests solely for the purpose of distributing one or more feature films, manipulating the books and then at some point going into bankruptcy, leaving all profit participants high and dry. It is interesting to note that in any given year more than 50% of U.S. feature film distributors only distribute one film and approximately 15 to 30 feature film distribution companies cease distributing films for one reason or the other. Even the possibility that this may occur makes it imperative that producers investigate the distributors with whom they do business (see "Mafia", "Money Laundering", "Racketeering", "RICO" and "White Collar Crime").

198. Model Agreement--A sample contract which may be drafted by an industry organization for educational purposes. Unlike the unions and guilds, professional and trade association are not allowed to bargain collectively on behalf of their members, but there is no reason that seminars and other educational programs cannot be properly conducted (in compliance with the anti-trust laws that apply to such association activities) so as to meet the needs of association members with respect to the study and understanding of certain key industry agreements which significantly effect their livelihood. For example, the AFMA reportedly has model distribution agreements with terms and provisions from which its members may choose when drafting their own distribution agreements for the distribution of feature films. It has also long been recognized in the film industry that the terms and provisions of the film distribution agreements used by the major studio/distributors are remarkably similar regardless of whether their association (the MPAA) was actively involved in that phenomenon or not. Since many of the terms and provisions of the feature film distribution agreements being used today are not favorable to the independent feature film producers, there may be some value for such producers to organize their own association and include the development of a model distribution agreement, the terms of which are more favorable to independent producers, among the projects which such association undertakes (see "Conscious Parallelism", "Contract of Adhesion", "Lobbying" and "Standard Contract").

199. Money Laundering--The funneling of money obtained by illegal means through an apparently or previously legitimate operation. For example, consider this reported scenario in the film industry. A drug dealer agrees to pay the production costs of a feature film in exchange for the rights to distribute that film in a single foreign territory where that drug dealer controls a number of theatres. It is then possible for the drug dealer to inflate the attendance figures and send what appears to be legitimate but inflated distributor's share of the box office gross back into the U.S. as laundered money. Question: In any given year in which 400 to 500 feature films are produced in the U.S., with the source of the production financing for many of such films unknown or difficult to determine, do such practices occur? Answer: Probably yes.

200. Monopoly--Control of the production and distribution of a product or service by one firm or a group of firms acting in concert; a market condition where all or nearly all of an article of trade or commerce within a community or district is brought within the single control of one person or company, thereby excluding competition or free traffic in that article. Monopolization is prohibited by the federal U.S. statute called the Sherman Act. Conviction can lead to criminal penalties and divesture. The offense of monopoly has two elements: (1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen or historical accident (see "Anti-Trust Law Violations" and "Oligopoly").

201. Most Favored Nations Clause--A contractual clause by which each signatory grants to the other the broadest rights and privileges which it accords to any other entity with which it deals. In entertainment agreements the clause may be used to denote a level of profit participation, the size and placement of billing, the calibre of dressing rooms or motor homes on location and other such matters. Producers and other profit participants also need such a provision to protect their interests. In film contracts with multiple percentage participants, this provision insures that one participant's terms will be no less favorable than those of any other participant of like standing. Thus, this clause is crucial to those participants who find themselves in the same category, e.g., net profit participants. If two such participants are supposed to be paid a specified percentage of net profits, but the definitions of net profits in their respective agreements differ, without the most favored nations clause, one may prevent the other from being paid at that level or at all.

202. Motion Picture Association of America (MPAA)--A movie industry association organized to promote the international dissemination of American films and to upgrade imported films. The organization was founded in 1922 as the trade association for the American film industry but has evolved into an advocate for major producers and distributors as opposed to the independent producers and distributors. Its members include Columbia Pictures (now Sony Pictures), the Walt Disney Company, MGM/Pathe (formerly MGM/UA), Orion, Paramount, Twentieth Century Fox, MCA/Universal and Warner Bros. These are the so- called "majors" studio/distributors in the film industry. One of the MPAA's functions is the assigning of audience ratings. The MPAA also maintains a strong lobbying arm which constantly monitors both the federal and state legislative branches for proposed bills or provisions in bills that are considered unfavorable to the interests of the MPAA companies. The MPAA also monitors and works to eliminate certain alleged exhibitor practices, e.g., product splitting, piracy and the illegal use of motion pictures. MPAA company activities involving vertical integration, block booking, tying arrangements, dominance of market share, association membership policies and anti-competitive practices may raise questions regarding how these companies came to dominate the industry (see "Anti-Trust Law Violations", "Contract of Adhesion", "Creative Accounting", "Lobbying" and "Ratings").

203. Movies With a Message--Motion pictures in which a moral, social or other statement predominates over the entertainment value of the movie. All movies have one or more messages and financiers, producers, screenwriters, directors, actors and others in the industry have long recognized and used the medium as one of the most effective means yet devised by humanity for the communication of all sorts of ideas. However, if the message is too strong or seems out of place, it may be resented by and distracting to the audience which generally goes to the movies primarily to be entertained. The Oliver Stone movie "JFK" could be considered an example of a strong "message movie". Some might even suggest that the real message coming out of that motion picture was not designed to convince the movie-going audiences that a conspiracy was involved in the assassination of a U.S. President (which many people already believed anyway), but instead to divert attention from one suspect group (the mob) and direct it toward others (the CIA and the highest levels of the U.S. government), while simultaneously suggesting that the same conspiracy was also involved in the killings of Bobby Kennedy and Martin Luther King. If allegations that elements of the mob were really the moving force behind the killings of the Kennedy brothers and that the mob has connections with the motion picture industry are true, this might help to explain why the motion picture took that particular editorial slant (see "Final Cut", "Hidden Agenda", "Mafia", "Marketplace of Ideas", "Pattern of Bias" and "Unfavorable Portrayal").

204. MPAA Cartel--A tongue-in-cheek reference to the extraordinary influence that the member companies of the Motion Picture Association of America exert over the film industry, in addition to their dominance of the industry in terms of market share (see "Anti-Trust Law Violations", "Barriers to Entry", "Bidding War", "Cartel", "Conscious Parallelism", "Major Exhibition Chains", "Market Power", "Market Share", "MPAA", "Paramount Consent Decree of 1948", "Transnational Cartelization", "TriStar Case" and "Vertical Integration").

205. MPAA Rating and Certificate--The certificate for a film's designated rating issued by the MPAA's Code and Rating Administration. The rating of a movie may significantly affect the number of people who may see a given movie. Since the MPAA rating is provided by a board of MPAA employees, there is an unethical built- in conflict of interest in the rating of films produced by non-MPAA member production companies. This conflict of interest should not be tolerated by independent producers. A professional association of independent feature film producers and the existing AFMA, which represents independent distributors should start an alternative and improved movie rating system or become partners with the MPAA in sponsoring the movie rating system. Also, a movie's distribution agreement may provide for a specified MPAA rating, and if that rating is not obtained, the obligation on the part of the distributor to distribute the film may have been eliminated. Thus, the producer must be careful not to commit to producing a movie that cannot achieve the rating called for in the distribution agreement.

206. Multi-Cultural Society--A community, nation or other broadly defined group of people in which a variety of distinctive traditions, institutions, relationship patterns, collective activities and interests co-exist. The United States is clearly a multi-cultural society. Given that ideas are the most important commodity of the motion picture business and that the feature film is one of the most effective, if not the most effective means of communication yet devised by human beings, it is of critical importance to a multi-cultural society that all significant cultural and other interest groups within that society have a fair opportunity to express their most important commodity (their ideas) through our most effective means of communication (the feature film). To this end, both the federal and state governments in the U.S. have an obligation to its multi-cultural citizenry to assure such fairness and equal opportunity in the marketplace of ideas (see "Idea", "Marketplace of Ideas", "Movies With a Message" and "Propaganda").

207. Name-Dropping--Including the names of very important people in a conversation or other communication for the purpose of impressing the person receiving the communication. A technique financial analysts suggest has been successfully used by the large public feature film limited partnership offerings in recent years which raised monies for films produced and distributed by major studio/distributors with well- known stars. Investors appeared to be more willing to invest in such vehicles even though the performance record of such large major-studio offerings has not been impressive from an investment perspective. The disappointing performance of such film partnerships from the investor perspective has also contributed to the perception that feature film limited partnerships are not useful financing vehicles for certain types of motion pictures.

208. NC-17--The new copyrighted MPAA rating established in September of 1990 to replace the X-rating (which was not copyrighted by the MPAA and was therefore available for use by anyone) and indicating that no children under the age of 17 should be admitted. The NC-17 rating does solve the problem of unauthorized use of the "X" rating by pornographers, but some states or local communities will still not admit persons under twenty-one to such films and some newspapers will still not carry advertising for an NC-17 rated film. This rating change also does not address the concerns of parents and independent producers relating to a more detailed rating system which distinguishes between violence, sex and language. Nor does this rating change deal with the inherent conflicts of interest in having an MPAA sponsored organization rating the films produced by non-MPAA member production companies (see "MPAA Rating" and "Certificate" above).

209. Negative Costs--The total of all of the various costs, charges, and expenses incurred in the acquisition and production of a motion picture, in all its aspects prior to release, (i.e., to produce the final negative). These include such items as facilities (sound stage, film lab, editing room, etc.) and raw material (set construction, raw-film stock, etc.). Typically segregated as pre-production, above-the-line production-period costs and below-the-line costs and post-production-period costs. Negative costs are also distinguished from distribution, sub-distribution and exhibition costs. When a studio/distributor finances the production costs of a film, there may be a tendency for the distributor to characterize some of what are actually distribution costs as production costs, with the result that interest being incurred by the production cost side is inflated. The term "negative cost" for a studio/distributor not only may include the out-of-pocket production expenses but also a non- allocated overhead percentage charge which may range from 10% to 15% (see "Distribution Expenses", "Interest", "Overhead", "Production Costs" and "Rising Production Costs").

210. Negotiated Contractual Definitions--A phrase which refers to terms used in certain motion picture industry agreements, such as film distribution contracts, whose meanings have been specifically bargained for or settled on after some discussion between the parties to the contract. Some spokespersons for the major studio/distributors are fond of explaining that most if not all of these alleged "creative accounting" practices are really the result of disappointed net profit participants who did not understand the effect of the contractually defined terms in their agreement. It is probably more accurate to observe that most of these terms, whose defined meanings in film industry contracts sometimes vary considerably from the meanings of the same terms as used in the agreements of other industries, are not negotiated at all, and if they are negotiated, the negotiations are between parties with such a disparity in bargaining power that there is an absence of any meaningful choice on the part of the weaker party (see "Contract of Adhesion", "Contractually Defined Terms", "Creative Accounting", "Inferior Bargaining Position" and "Unconscionable Contract").

211. Negotiated Deal--As between exhibitors and distributors, an agreement which is negotiated as opposed to one which was accepted on bid. In the event that a distributor rejects all bid offers submitted by exhibitors for the right to license a film for exhibition within a market, the branch office of the distributor will in turn either re-bid the picture suggesting different terms or send out a notice to all exhibitors by which it offers to negotiate openly in an effort to award the film to the theatre that offers the most attractive negotiated terms. Such negotiations between film distributors and exhibitors may have the same negative results on prospective net profit participants as the settlement transactions between the same distributors and exhibitors (see "Blind Bidding", "Five O'Clock Look" and "Settlement Transactions").

212. Nepotism--Favoritism shown to a relative or in the broadest sense, on the basis of some other relationship, e.g., hiring an employee because of his or her relationship to the employer instead of on merits (see "Discrimination", "Insider's Game" and "Reciprocal Preferences").

213. Net Profit Participation--A form of percentage participation in a motion picture's revenue stream that has been characterized by some as "the customary form of participation" although it has not always been so, nor is it likely to continue to be, since more and more prospective net profit participants within the industry understand how unlikely it is for a film to generate net profits.

214. Number of Screens--The total count of the whitish, matte, beaded or metallic surfaces on which the motion picture is projected in theatres in the United States or other jurisdictions. The number of screens in the United States in 1980 was approximately 17,600. The U.S. screen count has now increased to approximately 23,600 (or slightly more). Thus, hypothetically assuming the major studio/distributors in the aggregate have 20 films in release (on average) in any given week and average 866 prints per film, that means those films being distributed by the major studio/distributors would take up 17,320 screens in the U.S. or 73.38% of the available screens), thus preventing the films being distributed by independent distributors from exhibiting their films on those same screens. Also, interestingly enough, this hypothetical 73.38% of screens is very close to the percentage of screens reported at the entry "Market Share" herein which points out that it only takes a selected 75% of the theatres in the U.S. to generate more than 90% of the box office gross. In addition, as also pointed out at the entry "Market Share" herein, for the last decade or so, the MPAA companies (i.e., the major studio/distributors) have succeeded in grabbing off a 92% plus market share of U.S. theatrical box office receipts (see "Blind Bidding", "Controlled Theatre", "Major Exhibition Chains", "Market Power", "Market Share" and "Reciprocal Preferences").

215. Objective Delivery Requirements--Quantifiable and time-specific standards which must be met by a film's producer in delivering various elements of a completed feature film to a distributor. Such delivery requirements should not be based on some subjective approval of the distributor, thus producers should avoid language in the distribution agreement that calls for an artistic judgment by the distributor.

216. Offset Rights--The authority to adjust accounting records to compensate for a credit or loss incurred by a second party. In the producer/distributor agreement the distributor may seek offset rights to adjust the accounts between the two parties. Also, if a distributor/exhibitor agreement provides for offset rights the exhibitor is able to deduct co-op advertising or other expenses owed to the exhibitor by the distributor from distributor rentals which would have otherwise been paid to the distributor. In both situations, a reasonable limit on the discretion of such party to offset should be included in the offset rights provision to prevent the offsetting party from abusing its discretion to make such deductions. Lending banks will typically require that the distributor's offset rights as to the producer be waived so as to better insure more rapid payment to the bank.

217. Off-the-Bottom Expenses--Another contractually defined term sometimes used in feature film distribution agreements to describe another category of distributor expense deductions that are taken by the distributor after payment of gross participations, if any, but before net profits. For example, in a distribution arrangement where production costs are provided by a limited partnership or a third party financier (other than a bank/lender) the distributor may want to first deduct from gross receipts its distribution fee, then any off-the- top expenses, then gross participations, if any, then off-the-bottom expenses and remit all of the balance to the producer's group which is responsible for providing the partnership or financier with recoupment of the negative costs plus whatever return they contracted for and responsible for dividing up the balance of the net profits as between deferrals, net profit participations and the producer's share. On the other hand, if a bank or lender were involved in a negative pickup situation, the negative costs plus interest and fees would be paid to the bank or lender first out of the distributor's gross receipts, then the distributor might take its distribution fees, off-the- top expenses, pay gross participations, if any, take off-the-bottom costs and remit the balance to the producer's group as net profits. In the studio financed production-financing/distribution arrangement, the distributor typically takes its distribution fees first, then off-the-top expenses, pays gross participants, if any, takes off-the- bottom costs, deducts interest payments, then recoups the negative costs and finally, if anything is left, remits the balance to the producer group as net profits.

208. Off-the-Top Expenses--Contractually defined feature film distribution costs that represent the first group of expenses deducted by the distributor from the distributor's gross receipts. Off-the-top expenses typically may include licenses and taxes, checking and collection costs, any expenses associated with converting foreign currency into U.S. dollars, residual payments, trade dues, assessments and local advertising. The major studio/distributors rather uniformly deduct their distribution fees first, (i.e., they base the percentage calculation on the largest pool of money received by the distributor, 100% of the distributor's gross receipts), then they deduct off-the-top expenses, if any, before paying any contractual gross participations out of this remaining fund which may be labeled "accountable gross" or "adjusted gross". Some independent distributors may deduct certain distribution expenses off-the-top before computing their distribution fee. Note that a lower distribution fee percentage is most likely to result in higher distribution fees if the fee calculation is applied to the larger pool of money, (i.e., before the off-the-top expenses are deducted). Other distributors may want to deduct all distribution expenses off-the-top and then divide up the balance between participants pursuant to pre-agreed percentages.

209. Oligopoly--An industry in which a few large sellers of substantially identical products dominate the market; a market situation in which a small number of selling firms control the market supply of a particular good or service and are therefore able to control the market price. An oligopolistic industry is more concentrated than a competitive one but is less concentrated than a monopoly (see "Anti-Trust Law Violations", "Cartel", "Market Share" and "Monopoly").

210. Ongoing Costs--Expenses that continue to accrue. For example, in the context of a film distribution deal any of the distributor expenses that are based on some percentage of a defined portion of the film's revenue stream would be considered ongoing costs, so long as there was no ceiling on such expenses. Thus, residuals, taxes, trade association dues, gross profit participations and even interest up to a point all might be considered ongoing costs. This concept helps to explain why after a motion picture achieves net profits for one accounting period, it may not be in net profits as of the next accounting statement, (i.e., these ongoing costs may have increased substantially during the next accounting period) [see "Gross Receipts" and "Net Profits"].

211. Oral Representations--Spoken statements as opposed to written. A common problem in the negotiation of all contracts. In film distribution situations, statements regarding the manner in which the distributor intends to distribute a given film are often made orally in various conversations between a film producer and representatives of the distributor. The problem occurs when such statements are not included in the written memorialization of the parties' negotiations, (i.e., the written distribution agreement). The problem is made worse because most film distribution agreements contain a so-called "entire agreement" clause (see "Contract of Adhesion", "Entire Agreement Clause" and "Good Faith").

212. Ordinary Course of Business--According to the common practices and customs of commercial transactions; the usual and necessary activity that is normal and incidental to a business. Occasional isolated or casual transactions are not frequent or continuous enough to constitute the ordinary course of business. A phrase which is commonly seen in feature film distribution agreements when the parties have failed to negotiate more specific language. The phrase "ordinary course of business" is a very vague standard of conduct for business practices. It is not a precise standard that can be applied in advance. It is merely a standard that can be applied after the fact, in arbitration or litigation, by bringing in various persons with expertise in the industry to explain what is usual and customary with respect to such practices. Thus, the distributor using this language in its distribution agreement has a lot of leeway pursuant to such language to do whatever it desires, on a given issue, knowing that it may take a complaint from the other party and either an arbitration proceeding or a trial and court judgment to firm up the standard of conduct. The distributor knows that the producer is not likely to sue anyway and it the producer sues, the distributor will most likely settle out of court for a smaller amount. Producers may want to consider negotiating such language out of the distribution deal wherever possible and replacing it with a more clear standard of conduct (see "Contract of Adhesion", "Inferior Bargaining Position", "Market Power" and "Sue Us").

213. Ordinary Interest--Simple interest based on a 360-day year, unlike exact interest which is calculated using a 365-day year. Film distributors charging simple interest on the negative cost of a film will collect more interest for that final partial accounting period than if exact interest were being charged. Such amounts could be substantial in light of the recent increases in film production costs (see "Interest").

214. Outright Sales--A term defined in some distribution agreements as a license to any person, by the distributor or any franchised sub-distributor, to distribute the film for theatrical exhibition, in a particular geographic area and for a particular period of time (other than any such license for a period of less than one year for theatrical exhibition in a part of any country), without any obligation of such person to account for or report to the distributor or such franchised sub-distributor the amount of any proceeds or expenses of such distribution or sub-licensing. Thus, in the motion picture industry, an "outright sale" does not refer to a true sale, but instead to the license of a right for a flat fee instead of a percentage. Flat fee arrangements are commonly employed with certain territories and particular media, e.g., some foreign territories. The outright sale provides a lump-sum payment or payments and minimizes the distributor's expenses since it will not have to monitor sub-distribution and provide periodic accounting statements for those territories. The producer should seek limits on the distributor as to the territories and media in which such types of sales may be made. The producer should insert language in the distribution agreement which prohibits outright sales by the distributor in the major foreign territories including France, the United Kingdom, Germany, Australia, Japan, Spain and Italy.

215. Outstandings--Among film distributors and exhibitors, the money for advertising expenses or film rentals that the distributor owes the exhibitor or the exhibitor owes the distributor. If the distributor and exhibitor disagree as to the correct amount due on a given film or several films from the same distributor, such amounts may remain unsettled for a period of time and may have to be settled on the basis of a compromise figure relating to more than one film. This practice can have an adverse impact on a movie's other profit participants (see "Creative Accounting" and "Settlement").

216. Over-Budget Penalty--A form of financial punishment or forfeiture imposed by a studio when a producer of a studio financed film goes over budget. While the terms forfeiture and penalty are often used interchangeably, the generic term "penalty" includes forfeiture and the term "forfeiture" in a more narrow sense relates to a loss of real or personal property, while a penalty most often relates to the loss of money. In either case, the major studio/distributors will try to avoid the use of these particular words in describing their over- budget policy relating to the production of a motion picture, since contract law may not allow unreasonable penalties to be enforced in commercial transactions (see "Double Add-Back").

217. Overhead or Overhead Costs--Generally, the costs of operating a business that are not directly associated with the production or sale of goods or services; also called indirect costs and expenses or production overhead; (i.e., a charge typically levied by a motion picture studio, generally within the range of 10% to 25% of the movie's production costs or budget, which is designed to cover the studio's overhead). Such overhead costs are attributed to accountants, lawyers, studio executive salaries and their expenses, rental of sound stages or other studio facilities such as dressing facilities, vehicles, telephones, office space and equipment, secretaries salaries, story-abandonment costs and general administrative costs relating to the production area or other costs of doing business which are all absorbed by the production. The actual accounting entry for such costs is referred to as the overhead surcharge. Since it is expressed as a flat percentage, it has no relation to actual costs. Interest is usually charged on the overhead surcharge and the overhead surcharge amount is generally deducted prior to the calculation of net profit participations, thus adding significantly to the amount that must be recouped by the studio before a motion picture can realize net profits. Studios have also been known to charge an overhead fee on other expenses which are in themselves overhead. Producers may be able to avoid some overhead costs by avoiding the studio/distributors or by negotiating a smaller percentage for such charges, by specifically listing the deductible charges or in the alternative, by closely monitoring such charges for reasonableness.

218. Overreaching--In commercial law, taking an unfair advantage over another through fraudulent practices or abuse of superior bargaining power; synonymous with fraud. Contracts that are the product of overreaching in an unequal bargaining context may be unenforceable today under modern concepts of fraud or the unconscionability doctrine (see "Unconscionable Contracts").

219. Over-Reported Travel--Another of the alleged wrongful studio accounting practices sometimes complained about by producers in which the studio inflates the travel expenses associated with the production of a film being produced in conjunction with the studio. The producer's auditor must review such expenses and check for receipts (also see "Kickbacks").

220. Package Sales--Distributor's sometimes will seek to make outright sales of a picture in certain territories as part of package of several films for a lump sum price. Films may also be licensed as part of a package for television (network or syndication). The producer should seek to impose reasonable limits on the distributor's ability to sell or license a producer's picture as a package unless a mechanism is established for providing a fair valuation of such picture compared to the others in the package (also see "Outright Sales" and "Sub- Distributor").

221. Parallel Business Behavior--The similar conduct of businesses with respect to specific business practices. In the film business, for example, exhibitors have sometimes alleged that the practice of blind bidding, which is engaged in by most of the major studio/distributors, is a conspiracy in restraint of trade, a violation of the federal Sherman Anti-Trust Act. However, U.S. courts have never held that a showing of parallel business behavior alone conclusively establishes a conspiracy. In order to prove conspiracy, the plaintiff exhibitors would have to show conscious parallel business behavior to infer an agreement, but they need to show additional circumstances which logically suggest joint agreement, as distinguished from individual action which happens to be the same (see "Blind Bidding", "Conscious Parallelism" and "Twenty Percent Rule").

222. Paramount Consent Decree of 1948--The popular name for the final judgments handed down by the U.S. District Court for the Southern District of New York, with respect to each studio/distributor or motion picture related defendant (Loew's, Paramount, Columbia Pictures, United Artists, Universal, American Theatres, Warner Bros., 20th Century Fox and RKO) in the U.S. v. Paramount Pictures case. A separate judgment was issued for each of the nine defendants, and although similar, the judgments were not identical. Generally, the decrees prohibited certain trade practices (e.g., block booking, unreasonable clearances), and with respect to some of the defendants, but not all, the decrees mandated that the defendants divest themselves of all motion-picture theatre holdings and prohibited the acquisition of theatres in the future. The decrees sought to put an end to so-called vertical integration, through which the motion-picture companies produced, distributed, and exhibited their film products to the public. The intention was to afford competitive theatres an equal opportunity to license motion pictures for commercial presentation. Since the Reagan Presidency, however, and partly due to the effective lobbying effort of the MPAA, the U.S. Justice Department has appeared to relax its enforcement of the anti-trust laws as applied to the major movie studios and vertical integration seems once again to be on the rise. Independent producers must organize a permanent professional association and seek to protect their long term economic interests by making sure the current administration, the Justice Department and Congress is aware of the impact of the major studio/distributors' re-entry into movie exhibition, (i.e., vertical integration has on independent producers) [see "Anti-Trust Law Violations", "Block Booking", "Clearance" and "Vertical Integration"].

223. Perpetuity--Until the end of time, (i.e., forever). Feature film distributors, particularly in situations where a studio/distributor provides funding for both the production costs of a motion picture and the distribution expenses will want to obtain a grant of distribution rights in perpetuity, effectively adding that film to its library of films even though copyright ownership stays with an independent production company.

224. Per Se Violations--An infraction of the law which does not require extraneous evidence or support to establish the existence of the infraction. In anti-trust law, certain types of business practices are considered per se restraints of trade. Since proof of the conduct alone proves a violation of the Sherman Anti-Trust Act, there is no need to prove any injury to competitors, which would otherwise be a necessary element in an anti- trust action. Price fixing, for example, is a per se violation of the federal anti-trust laws (see "Anti-Trust Law Violations", "Conduct Restrictions", "Minimum Admission Prices", "Paramount Consent Decree of 1948" and "Price Fixing").

225. Polarization--A separation of parts into opposite extremes. Some film industry observers have expressed concern that the industry has become more polarized in recent years, meaning that the differences between the "haves" and the "have nots" have widened. For producers and production companies this means that as compared to independent producers, the resources, capabilities, leverage, market power and market share of the major studios has increased, (i.e., the barriers to entry in that level of the industry have increased). It also appears that the same is true for the distribution level of the industry as well as exhibition, (i.e., the larger organizations have distanced themselves from their competitors) [see "Barriers to Entry", "Market Power", "Major Exhibition Chains", "Paramount Consent Decree of 1948" and "TriStar Case"].

226. Political Influence--The ability to persuade governmental decision-makers. The most powerful group of companies in the motion picture business, the MPAA, finally realized a long-term goal with the installation of its friend, Ronald Reagan, in the U.S. Presidency during the decade of the 1980s. Reagan did not disappoint the MPAA when he adopted a policy of relaxed federal anti-trust law enforcement for the entertainment industry. That policy change made it possible for some of the MPAA companies to re-enter the exhibition arena, become even more vertically integrated than they had been since the 1940's and regain the additional clout in the market place that would allow them to exert even greater control over the exhibition, distribution and production of feature films and generally at the expense of the independent producers and independent distributors (see "Anti-Trust Law Violations", "Lobbying", "Market Power", "Paramount Consent Decree of 1948" and "TriStar Case").

227. Power--The possession of control or influence over others (see "Major Exhibition Chains", "Market Power", "Market Share", "Merger Guidelines", "Number of Screens", "Predatory Practices" and "Reciprocal Preference").

228. Predatory Practices--An aggressive manner of conducting business which is designed to exploit or destroy others for the gain of the business (see "Adhesion Contract", "Cartel", "Conduct Restrictions", "Inferior Bargaining Position", "Polarization" and "Reciprocal Preferences").

229. Prejudice--Preconceived judgment or opinion; an irrational attitude of hostility directed against an individual, a group, a race or their supposed characteristics (see "Discrimination", "Insider's Game" and "Nepotism").

230. Price Discrimination--The practice of charging different persons different prices for the same goods or services. When price discrimination is engaged in for the purpose of lessening competition, for instance, through tying the lower prices to the purchase of their goods or services, it constitutes a violation of the Sherman Anti-Trust Act. Unlawful price discrimination is also specifically covered by the Clayton Act and by the Robinson-Patman Act.

231. Price Fixing--Under the federal anti-trust laws, a combination or conspiracy formed for the purpose and with the effect of raising, depressing, fixing, pegging or stabilizing the price of a commodity in interstate commerce. The test is not what the actual effect is on prices, but whether such agreements interfere with the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment (see "Horizontal Price Fixing" and "Vertical Price Fixing").

232. Print Costs--The expenses incurred in making a film's release prints for theatrical exhibition. The cost of a single print may be in the $2,000 range, thus if a distributor were to effect a 2,000 print release, its print costs would equal $4,000,000. Clearly then, print costs are one of the major distribution expenses (advertising being the other) and present a significant opportunity for overstating the amount or for possible kickback arrangements (see "Audit", "Discounts", "Kickbacks" and "Rebates").

233. Problem Producer--A term used to describe a producerconsidered by the person applying the label to be difficult to work with as a film producer or who does not play along with some of the inequities in the studio/distributor dominated U.S. film industry (see "Blacklist" and "Discrimination").

234. Producer Guild of America (PGA)--An organization created partly for the purpose of correcting the use of inappropriate screen credits for executive producers, producers and associate producers. However, the PGA, unlike the Writers Guild or the Directors Guild, is not recognized as a collective bargaining agency and has no specific legal jurisdiction over the dispensation of credits. In 1983, when the PGA tried to gain such status, the National Labor Relations Board ruled that producers cannot be a union because their jobs are essentially managerial. That appears to be true for independent producers but not necessarily the case with producers who are employees of the major/studio distributors. As a result of the NLRB's decision and the PGA's own narrow focus, independent producers are left without any industry organization which is exclusively devoted to the vigorous advocacy of the interests of independent producers in whatever forum such interests arise. Independent producers must organize some form of association of independent feature film producers (much like the American Film Marketing Association--the trade group representing the interests of independent distributors) in order to protect their interests at the industry level (see "IFP" and "Model Agreement").

235. Producer's Share--A term defined in some distribution agreements as the accountable gross remaining after the deduction, on a continuing basis, of the aggregate of the distributor's distribution fees, distribution expenses and gross participations, if any. Some distribution agreements provide that third party participations, if any, be deducted from the producer's share. The reasoning used to support this position is that the producer, to a greater or lesser extent, is responsible for the production of the motion picture, including all of the associated costs, (i.e., the producer is responsible for negotiating and allowing such third party participations-- including talent participations since talent is not a party to the distribution agreement between the producer and distributor). Thus, logically (from the distributor's point of view) the producer should pay the costs of these contingent commitments to talent out of the producer's portion of the film's revenue stream, (i.e., out of net profits). The producer may readily agree with this analysis since the producer and all other net profit participants are likely to fare better if they are paid on a pari passu basis with the talent as opposed to allowing talent to receive gross participations. On the other hand, in the studio/distributor financed films, gross participations are sometimes also defined as a production cost and thus the studio/distributor collects interest and overhead charges on these "expenses" which were never actually paid out by the studio/distributor (see "Accountable Gross", "Creative Accounting", "Gross Participations" and "Interest").

236. Production Costs--The costs of producing a film, (i.e., the expenses incurred in the production of a film negative). Such costs are generally incurred in four stages: story rights acquisition, pre-production, principal photography and post-production and the complete production process can take a year to 18 months. Production expenses may include the cost of the story, salaries of cast, directors, producers, etc., set construction and operations, wardrobe, sound synchronization, editing and any other costs necessary to create a finished film negative. Other components of movie production costs might include (depending on the form of film finance used) residuals, participations, allocated studio overhead, abandonment costs and capitalized interest. Production costs may also include contractual overheads and contractual facility and equipment charges in excess of actual costs, rebates and receipts from sales of props and sets, provision for self-insurance, a completion bond charge, participations before break-even and overhead there-on and deferments, along with actual or imputed interest. The production cost for studio financed films does not mean the studio's cost in providing a certain service or product but what it arbitrarily decides to charge the film for such service or product and the studio markup for such items is often extremely high. It is also very important to clearly define in any production-financing distribution agreement the distinction between production costs and distribution expenses (and to vigorously monitor the studio's classification of expenses), since a studio financier will typically seek to charge interest on the cost of producing the negative (production expenses) as well as apply the overhead percentage against the production cost total. The producer and other profit participants, therefore, must insist that no expenses which are actually distribution costs be classified by the studio as production costs since such a practice would tend to delay any net profit participation (see "Creative Accounting", "Direct Distribution Expenses", "Gross Participations", "Interest", "Negative Costs" and "Rising Production Costs").

Copyright 1992 John W. Cones All rights Reserved