What is a Pay or Play Contract
Pay or play contracts are agreements in which the contracting party agrees to pay another party either a participation in the net profits of the picture, or a set amount of money. The term "pay or play" can often be misunderstood and may include contractual clauses for an actor to come in as a service provider to an entertainment project (i.e., an actor’s paycheck for his/her participation in a film), but usually the contracting party wants to be legally obligated to hire the other party for a picture, regardless of whether or not that picture gets made, in the case of a talent deal, or regardless of whether or not that picture gets released in the case of a producer deal.
The pay or play contract has become a common contract in the industry because it gives the parties more control over the deal terms and limits the possibilities of either side trying to renegotiate a contract or claim that it has been terminated outside of the agreed upon terms of the contract itself. A pay or play contract adds value to a production in that there is a known level of expenditure on a film that is guaranteed . On the other hand, it is expensive for productions given the high salaries of many actors and/or producers involved in a deal.
In the context of an employment contract, "pay or play" generally means that if a producer employs an actor, the production must either pay the actor the promised salary or allow them to work on the project they were hired to work on. Whether the actor’s services are actually used in the film has no bearing on their entitlement to salary. The first studio offering a contract to an actor is usually the entity with a "pay or play" agreement. The way this type of contract works is that each actor is offered a contract and the contract carries an exclusivity period, during which time the film must be started. If the film does not start within the exclusivity period, provided the actor’s services have been secured for the project, the actor is entitled to compensation. In short, the actor makes the studio "play" – it has to proceed with or play that movie and "pay" the actor.
Main Elements of Pay or Play Contracts
Traditional pay or play agreements may be broad or narrow in scope, depending upon the nature of the project that the parties are entering into, but typically pay or play contracts contain the following components:
Rights and Obligations Pay or play contracts frequently include rights and obligations running from one party to another in addition to the compensation terms. For example, an Actor may have a right of approval over the Director of a film or television show, irrespective of the size of the Producer’s financing commitments, and the Director may in turn have a right of approval over the Actor’s co-stars, as a condition precedent to the Actor’s performance under the agreement. For example, in the case of a Producer hiring a Director via a Pay or Play Contract, the contract would provide that if Producer hired a Director who later became incapacitated after work on the project commenced, Producer would have to pay for the Director’s work to date and then engage another Director to complete the project. In exchange, the Producer would have the obligation to pay the Director based upon the Director’s employment. Many times, Producer will also want the Director to agree to waive his or her right to payment should his or her employment terminate prior to the start of principal photography by reason of the Producer’s default.
Termination Although some Pay or Play Agreements can only be terminated by mutual agreement of the parties, most grant either party the right to terminate the agreement for certain limited reasons. For example, the contract may toll in the event of force majeure, government action, private party rights, failure to receive financing, or prosecution of the project or a motion picture litigation. Furthermore, the parties can agree to a reduced fee if the reasons for termination are the result of an acquisition or sale of the company that has engaged the services of the parties. For example, if Producer receives financing in excess of a specified minimum amount, his obligation to pay the Actor might decrease in proportion to the level of financing received. "Termination for Cause" clauses within a Pay or Play Contract frequently set out the circumstances under which Producer can terminate the contract by reason of an "act of default".
Choice of Law, Dispute Resolution Pay or Play Contracts can also contain provisions specifying the governing law and venue for resolving disputes arising out of the parties relationship. Although some producers prefer to submit their disputes to binding arbitration, others may find themselves highly susceptible to public dispute resolution and litigation.
Advantages for Artists and Producers
From the artist’s perspective, pay or play is important because it ensures that he or she will be compensated – one way or the other – for their work on the project. If production is postponed or canceled for any reason, they will still be receiving the negotiated fee in exchange for acting in good faith. It protects the artist from the worry that material or character changes will push the movie out years into the future, and it protects the artist from scheduling conflicts and diminished negotiating power.
Pay or play contracts are important for producers as well. They are assurance that their project will be able to move forward when all of the pieces are in place, and without damaging the creative process. Pay or play contracts can also help to avoid a snowball effect when dealing with stars. Without a pay or play clause, an actor may request a large chunk of change to insure that he or she will be paid if the project falls through. That choice obviously has a potential impact on how much money is available for any one project, because raising the base salary of one element or team can potentially shrink the pool for other aspects. If the star and director are both pulling in pay or play contracts, that can be a significant gamble on the part of producers.
Risks and Troubles with Pay or Play Agreements
While pay or play contracts can provide actors and producers with valuable flexibility, they can also give rise to disputes over just what an actor may do or not do with their time after a pay or play entry into a contract. Listed below are some of the most common risks and challenges associated with such contracts, and tips on how to avoid them:
- What constitutes a "pay or play" contract? Once a pay or play contract is entered into, the actor or talent becomes entitled to compensation regardless of whether the project goes forward – so long as the failure of the project is not attributable to such actor’s conduct, this is generally the case, and the actor/talent is not required to mitigate his/her damages and accept other work unless there is an express provision in the pay or play contract requiring the actor to do so. However, not all contracts that are labeled as pay or play contracts are true pay or play contracts; in fact, many contracts that are labeled as such contain conditions precedent, and conditional pay or play contracts are not pay or pay contracts at all.
- Where do the parties "look back" to determine whether actor/talent has breached contract by accepting subsequent employment? Generally, notwithstanding an actor’s acceptance of work elsewhere, courts will look at the sanctity of the contract at issue in determining whether actor/talent has breached contract, and will apply the legal doctrine known as the "priority rule." Under this rule, should an actor/talent breach a contract by accepting work elsewhere, the parties will "look back" to the time prior to the breaching event, and, if work is available to the actor at that point in time but not thereafter, the actor will be denied recovery under the contract.
- What if the casting out is at the option of the producer? If the pay or play contract affords the producer a right to solely decide whether the project gets made, the actor/talent will not be entitled to his/her stated compensation if the producer opts not to proceed with the project, even if such producer’s right to decide is subject to an implied covenant of good faith and fair dealing. In such instance, the actor would be entitled to recover actual damages where, for example, the producer had actual knowledge of time constraints that would ultimately cause the project to be shut down and knew that there was no feasible way that the actor could have reconciled his/her other obligations and still been able to perform in the film.
- What are the shelf life terms? Regardless of what terms and conditions are memorialized in the contract, courts will not enforce contractual provisions that require the actor to sign away all rights if the project is ultimately not produced during a specified period of time. For example, courts will not enforce contractual provisions setting forth a two-year shelf life if, on its face, such provision would preclude the actor from appearing in any films for the two-year period. Rather, courts will permit an actor to work contemporaneously on other projects – notwithstanding the two-year strike in the contract – as long as the actor at all times makes himself/herself available to participate in the project at issue – even if it occurs after the expiration of the two-year period.
Negotiating Your Pay or Play Agreement
Both parties to the contract must think about the terms of the agreement before it is signed. For example, the producer or studio must consider what they will do in the event of a change in the role, such as replacing the actor with another actor or using archival footage of the actor. The actor should also consider what will happen in case the film goes under budget, over budget, or if the producer decides to reshoot scenes. All of these issues should be examined when trying to create a pay or play contract that serves both parties. In negotiating either a pay or play deal, it is important to balance the amount of risk undertaken by each party. If a producer is taking a chance on a filmmaker by hiring a star actor, the contract should reflect that risk by laying out an alternative deal should the actor depart. Likewise, if the actor stands to make millions of dollars from a contract , they should be mindful of the effect their departure will have on production and its outcome. Each party’s needs should be weighed carefully, and the gravity of any resulting decisions should be respected regardless of which side of the table they are on. While the industry may have its own standards for pay or play agreements, it is always wise to ensure that everything is spelled out within the contract. Just because two industry veterans are getting a deal done does not mean that each requirement of the agreement will be met. It is imperative that the deal be laid out in full before signing, so both parties can be certain that there will be no professional surprises ahead. Like any contract, pay or play agreements are difficult to turn back on once signed. But, the next time you sit down to negotiate a contract, it is important to make sure that both parties’ interests are taken into account. A well-drafted pay or play agreement can prevent misunderstandings and disappointment down the road.
Legal Insights and Case Law
When it comes to pay or play contracts, there are significant legal considerations in the drafting and negotiation stages. For example, the existing contract should be reviewed prior to entering into a pay or play contract to determine if it would conflict with the existing obligations. Also, clear definitions should be established for terms like "services" rendered, as that will determine what other projects may be pursued simultaneously. As with any contract, the language is key. Punctuation can matter. The Oxford Commission’s report discusses the common genre of "pay or play plus," where the compensation is the larger of either "x dollars" or "y percent of gross." Long-standing attorney Joshua S. Hargrove cites the example of a dispute between NBC Universal and NBC Studios, Inc., regarding the interpretation of a contract. NBC Universal paid out approximately $4 million to NBC Studios after misinterpreting the terms of its agreement. Deadlines become more important with pay or play contracts. If the actor fails to fulfill their obligations to commence principal photography, the studio is no longer obligated to produce the film and the pay or play term may become void. A strong and experienced entertainment lawyer can ensure the contract is watertight, leaving little to chance.
Classically, the pay or play contract was utilized by actors or filmmakers when the producers just weren’t able to secure financing. The actor would be guaranteed a minimum amount, but would have to play the project anyway in order to get the amount. The expectations now are that it will be played, but the obligations on the part of the studio are to then secure the funding. (Python Holdings, Inc. v. AEBI (1998) 66 Cal.App.4th 1377, 1383.) Pay or play contracts are also more frequently used in sponsorship agreements for beverages, equipment, airlines, and other products tied with film and television. (Pacific Federation of Muslim Lists v. Burger King Corp (2004) 129 Cal.App.4th 656,660.)
The Evolution of Pay or Play Contracts
As the entertainment landscape continues to evolve and change, so will the use of pay or play contracts. One likely trend that has already begun to emerge in the industry is a willingness from both parties to accept more flexible, less traditional agreements. Historically, both producers and artists have relied heavily on the structure of pay or play contracts to create certainty and avoid risk. However, as competition for talent increases, both parties have demonstrated a willingness to negotiate flexible terms that may rely on fixed schedules, measured performance, or even milestones that must be met in order to trigger payment.
Additionally, with the emergence of technology such as streaming services and digital content creation, pay or play agreements are likely to adapt to better accommodate these new forms of media. For example, streaming services have gained popularity with audiences and artists alike, as the lines between movies, television shows, and even documentaries become increasingly blurred . As a result of these changes in the market, pay or play agreements may become less tied to traditional forms of media. This shift may affect how pay or play agreements are structured and how those agreements are negotiated. Future agreements may begin to factor in more options for distribution or even contemplate different methods by which the producer may compensate an artist when a project reaches a certain measure of success.
While traditional pay or play contracts have historically safeguarded both producers and artists against uncertainty in the entertainment industry, the increasing popularity of digital content, combined with the corresponding rise of streaming services, have begun to transform the industry and redefine the traditional structures of pay or play contracts. Future agreements will be challenged to keep pace with these volatile changes in the entertainment industry.