A PATHWAY TO RESTART PRODUCTION

In our previous article we identified a significant new challenge to getting shows greenlit - the lack of insurance for future covid-19 related incidents – and we started looking at some potential solutions. Since then, a number of industry taskforces have been set up to formulate proposals for the government to support the screen sector, including most critically increased state support to help cover the costs of return-to-work protocols and to assist in the reintroduction of insurance coverage.

In the meantime, some producers are looking to start production in the absence of that government intervention. That carries dangers. Here, we look at how to manage them.

The need for government intervention

Now that the government has confirmed that socially-distanced film and TV production can resume, there are two critical problems facing producers:

1.   The increased costs of the new covid-19 production protocols, which are estimated to add between 10-20% on to production budgets, and

2.   The lack of insurance for covid-19.

Adding 10-20% to a budget will render many productions commercially unviable. State support, possibly in the form of a more generous and wider ranging tax credit, is desperately needed to shore up these costs. Without it, we face a large drop in activity across the sector.   

Commercial insurance for covid-19 will almost certainly be absent for the foreseeable future. To understand why, look at the risk. Risk is measured as the likelihood of something happening multiplied by its impact. Insurance generally covers low likelihood events that have high impacts – think buildings cover or car insurance. But that is not what currently faces the sector. The likelihood of a covid-19 related event causing additional cost to any production is impossible to quantify, but may be higher than 50%. Insurance products are not designed for that. As a result, the government needs to step in to act as insurer of last resort. That will give buyers confidence to buy, banks confidence to lend, and producers confidence to get production activity back to previous levels.

Pressing ahead

Understandably, some producers and buyers will not be content to wait and see. They are looking for viable production models that can exist in a world prior to any state intervention. This approach has clear and present dangers, but there is a way they can be managed. This will not work for many productions, including most independent film or high-end TV drama, but by starting small and building up, a framework could emerge.

There is no one-size-fits-all solution – the risks and the actions to address them will be unique to each production. Instead, producers need to apply a three-step approach:

1.   Identify the risks to the production

2.   Take every step to reduce those risks

3.   Prepare a funded contingency plan for those that remain

1. Identifying the risks

In general, the risks will span:

• Further government-imposed shutdowns or tighter restrictions being imposed
• An individual testing positive, and the cast and crew having to isolate
• A cast member becoming sick and being unable to complete filming

In addition to the potentially grave human impact, these risks would cause increased costs, and may lead to delayed delivery, and at worst an abandoned production.

Once the risks have been defined, we need to look at how to reduce both the likelihood and the impact.

2, Part I. Reducing the likelihood of a covid-19 event happening

First and foremost, this is achieved by protecting cast and crew by introducing and rigidly following effective health and safety protocols. The British Film Commission circulated their draft production guidelines last week, and doubtless these will evolve as we better understand how to combat the virus.

Some productions may be able to go further still - for example, by adopting remote working practices for pre- and post-production, and isolating the entire cast and crew during principal photography.

2, Part II: Reducing the impact of a covid-19 event

Having reduced the likelihood of a covid-19 event, producers can then reduce the impact if one occurs, by building in as much flexibility as possible in their contracts for goods and services. They need the ability to suspend and then resume production for as little cost as possible. That will not be easy, and will require overhauling many standard terms of business. Each production will be different, but for illustration this could be achieved by:

• Negotiating exceptions to any pay-or-play provisions to allow the suspension of production for covid-19 reasons at no extra cost, and to pay for services rendered only to the point of abandonment, rather than the full fee 
• Amending traditional payment terms so that, for example, rights fees are paid on the last day of principal photography, rather than the first
• Negotiating a measure of flexibility into cast shoot dates
• Negotiating an option to extend studio time at a reduced rate if required as a result of a covid-19 suspension
• Maintaining existing flexibility in freelancer contracts, but reviewing arrangements to ensure that freelancers can benefit from any future furlough entitlements or other forms of support
• Shooting scenes first that will be harder to pick up after the scheduled shoot dates, such as those featuring multiple key cast in single shots

3. Prepare a funded contingency plan for those risks that remain

Once everything has been done to reduce the risk, a plan is needed for those risks that remain. Again, this has to be bespoke for every production, but it might include:

• Addressing the risk of delayed delivery by building flexibility into the production schedule and agreeing with buyers that any delay arising from any covid-19 event will not be a breach of contract
• Similarly, agreeing that a buyer cannot reject delivery if an essential element taken ill with covid-19 is replaced with one of a pre-agreed list of alternatives
• Amending the cashflow to allow banks to lend against the UK tax credit. The tax credit is based on money spent, whether or not the production is completed. Carefully constructing the cashflow reduces the risk of abandonment for the bank and allows them to lend
• Modelling the suspension/resumption costs at different stages of production to establish an informed estimate of the worst case cost exposure
• Finally and most importantly, agreeing between the producer and the buyer how the cost exposure will be funded. In a producer-for-hire scenario, the buyer would be expected to pick up 100%. Where the producer retains ownership, control and the lion’s share of the equity, there will be a good argument for the producer to share part of the cost. For example, covid-19 overages could be dealt with:

1. Firstly, out of the contingency,
2. Then, borne by the producer and buyer equally up to an amount equal to 50% of the then-earned production fee each,
3. And thereafter, the buyer funds 100%, but can choose to abandon production at any time,

Anything incurred under lines 2 and 3 being recouped from sales revenues. This will be a negotiation in each case, and where buyers bear most of the risk they may feel – not unreasonably - that they should get something in return, like perhaps an uplift in their share of back-end profits. If covid-19 insurance becomes available at a reasonable cost during production, it can be obtained and these backstop provisions can fall away. A final point to note here is that, regardless of who funds the costs, the producer must retain the right to approve whether and how production resumes.

Inevitably, there will be some things that cannot be addressed in advance, such as rescheduling shoot dates for key cast, and this approach will not work for every production. But narrowing the uncertainty as much as possible will give buyers confidence and provide a pathway to getting shows greenlit in what we hope is a short period before the government intervenes.

This requires a novel approach and we do not yet have all the answers, but there is light at the end of the tunnel, and the whole industry is coming together and working incredibly hard to make it a little brighter each day.

Author’s Note: Although these articles focus on the business aspects of the UK screen sector’s recovery, the human impact of the pandemic is never far from our minds. Our thoughts go out to those who have lost friends or family members – including some of our dearest friends and colleagues - and to those whose livelihoods have been affected by the shutdown.

JEREMY ROBERTS is a partner specialising in the television sector, and is head of the firm’s broadcasting and content distribution practice. He is on PACT's production insurance working group looking at ways to help the sector’s recovery.

SHERIDANS is a law firm specialising in media, entertainment, sport and technology. sheridans.co.uk