Jennifer Sullivan, Senior Marketing Manager at GHJ sits down with Ben Sheppard to discuss the role of litigation in today's Entertainment Landscape.
SULLIVAN: What does the term “expert witness” mean for the entertainment sector?
SHEPPARD: The expert witness concept is about bringing actual industry experience and knowledge to bear on a case to help explain nuances. It is preferable when trying to either support or rebut a damages analysis.
SULLIVAN: In today’s landscape, are there some types of cases that come up more than others?
SHEPPARD: Breach of contract cases come up quite often. These can include profit participations when talent, for example, believes a studio is not complying with a contract.
SULLIVAN: In breach of contract cases, are the issues the same as they were five years ago or has it evolved?
SHEPPARD: The types of issues are definitely different from five years ago. One case I recently worked on looked at damages from a SVOD standpoint. I suspect we will see a lot more of that, meaning that as content distribution shifts to new modalities, contractual interpretations are more likely to be questioned.
SULLIVAN: Can you describe “slate financing” and how it differs from profit participation?
SHEPPARD: What changes is who the parties are at the table. Slate financing is where a studio finds an investor to help offset the studio’s production risks on a number of films. This has been going on since before I started 20 years ago. The money comes from a variety of sources like bank loans, insurance-backed bank loans, hedge funds and foreign financing — they all have separate revenue participation agreements. It is similar to profit participation, but these investors are typically in a junior position from actors, directors and producers — who will get their money first. As you might suspect, this is an atmosphere that generates disputes.
SULLIVAN: Can you tell us about a specific case you were involved with?
SHEPPARD: Here’s an interesting one. I worked on a pre-litigation case for a New Zealand-based feature film. By “pre-litigation,” I mean there were contractual questions, but no suit had been filed. The bank syndicate that provided the financing had funded a loan with the expectation that they would get their investment back plus a reasonable return.
SULLIVAN: Did they achieve that goal?
SHEPPARD: Partially. After the film’s release, they got their money back, but not the return. They were thinking of suing the studio, and they brought me in to look at their greenlight model. I looked at that and their revenue participation agreement to determine if the syndicate’s expectations were incorrect. The greenlight model was good, but the assumptions used were not likely to occur.
SULLIVAN: That is interesting. Can you tell us more about the assumptions?
SHEPPARD: It became apparent that they had not thoroughly researched the assumptions they were using to determine the film’s revenue. They did not ask the right question — they asked if the assumptions were possible, but not how likely the projections would be achieved.
SULLIVAN: That must have been a long, involved court case.
SHEPPARD: It could have been. The case was in New Zealand, and as part of negotiations, the syndicate’s Queen’s Counsel asked me if I would have made the deal knowing what I know when the deal was made, and I had to say it was doubtful. I soon heard they had settled.
SULLIVAN: That is not what I expected to hear!
SHEPPARD: We can set reasonable expectations — that is a quality I see lacking from a lot of experts, at least ones I have come up against. I am asked to base an opinion on certain assumptions and I give my opinion, but those assumptions can be wrong.
SULLIVAN: Any final words?
SHEPPARD: In this business, integrity is the only commodity we have. I am not here to find the highest answer or the lowest answer - I am here to find the right answer.
