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6/14/09 11:48 AMEasy Budget ArticlesPage 1 of 5http://www.easy-budget.com/articles/articles.asp?article=ultralow

Articles

Ten Things Every Producerand Director Should KnowTen

Things EveryProducer and Director ShouldKnowMaking the Tin Man:

Chapter 1Chapter 2Chapter 3Chapter 4Chapter 5Chapter 6Chapter 7Chapter 8Chapter 9Chapter 10It’s Just Some ExtraZeros...All About CompletionBonding CompaniesMoney Savers!The

Strange

Tale of PeterBorgAn honest look at filmfestivalsThe Death of the HollywoodDream Factory

The TRUTH about the SAG Ultra Low Budget Agreement

by John G. ThomasWe independent producers are the future of film and video entertainment.We break new ground every time we go to work while the major studiosturn out yet another Spiderman or Ironman with wall-to-wall effects and nodiscernable story.So, like many filmmakers I was excited when I first heard about SAG’sattempt to cross the street and work with us. Actors for a hundred bucks aday, relaxation of all those silly rules and regulations, no first class airplanetickets for actors and more – heck the Ultra Low Budget Agreement seemedlike a fantastic idea for productions budgeted less than 200K. “SAGIndie,” as they’ve chosen to re-cast themselves, has even gone so faras to stage monthly “contract workshops” to cleverly “explain” the wondersof this new agreement to all comers.With SAG, as always, the devil is in the details.Paragraph 1 of the Ultra Low Budget agreement says, in part:

“It, (the Ultra Low agreement) is not intended for pictures produced for television broadcast, cable use, video/DVD markets or otherwise produced primarily for commercial exploitation.”

Translation:

Go ahead and make your movie but you’re not supposed tosell it.Well, that’s just great, huh? (Unless you’re making movies only to give afree copy to Uncle Harvey.) It’s what SAG doesn’t tell you in those oh-soinformative workshops that’s most important.However, you

will

benefit from this agreement if you meet

all

of thefollowing conditions:1. Your production must cost less than $200,000.00.2. Must shoot entirely in the U.S.3. Cannot be animation.4. No music videos allowed.5. All the financing must come from the U.S.6. You can only distribute the picture, (sell tickets, make money) inmainstream “commercial” movie theaters.7. You’re not interested in

making money

from DVD, television, theInternet, foreign sales, etc.So, does any of this apply to your production?Ask yourself: When was the last time you heard about a film that cost lessthan 200K with no big stars that was picked up by a major studio and

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6/14/09 11:48 AMEasy Budget ArticlesPage 2 of 5http://www.easy-budget.com/articles/articles.asp?article=ultralow

The TRUTH about the SAGUltra Low Budget Agreement(

NEW!

)opened in 3,000 movie theaters?Sorry, the so called “art theaters” don’t count. SAG has a list! Go ahead, tryand convince a major theater chain to show your unheard of movie withouta hundred million in prints, PR and paid ads.Here’s more:

“Should the initial release not be in the theatrical market, the picture shall remain a ‘theatrical motion picture’ for all purposes of the Basic Agreement…”

Translation:

You must pay residuals to the actors, (before you or yourinvestors) from the very first dollar that comes in.Here’s how it

really

works:The Ultra Low Budget Agreement, (and all the other low budgetagreements) are simply

modifications

of the “Basic Agreement.” The BasicAgreement, (which you

must

sign in addition to the Low Budget Agreement)is a 2 to 3” thick, complex, conflicting and all but indecipherable rule bookthat was written years ago for the exclusive benefit of SAG and the majorstudios, (all the AMPTP members we’ve come to know and love). If you’vegot nothing better to do for a few days and you have plenty of strongcoffee, take a look at it.In the

Basic Agreement

, the producer or studio must first pay the actor fora days work.Okay, done.In exchange for the actor’s services that day the studio gets to make all themoney it can from

theatrical exhibition

, (i.e., movie theaters). Even movietheaters in foreign countries are included in the package! (That’s why somestudio films remain in

some

movie theater,

somewhere

, for a long, longtime.) All of the money they make in the movie theaters is “free money.” They don’t owe the actors a penny for those showings. This is called the

Initial Exploitation

.But after television came along and those old, previously worthless moviesstarting making money all over again, SAG came up with residuals. Theysaid, “Go ahead and make all the money you want in the theaters but nowwe want a piece of that tasty TV pie!” Everything

after

the initial theatricalshowing was now considered a secondary income source, or

residual income

.So, what’s this got to do with the Ultra Low Budget Agreement?It means that unless your low budget masterpiece has a genuine theatricalrelease, you owe them money for every TV or cable showing, every Internetdownload, every foreign sale and every DVD you ever hope to sell – fromday one.SAG owns a piece of your film forever – and the part that they now own issuperior to yours. Like the difference between preferred and common stockin a company. Only you've got the bad stuff.That’s why the Ultra Low Budget Agreement, (and the other low budgetagreements) say,

“…and shall not be reclassified as a ‘Made for Pay’ or ‘FreeTelevision’ motion picture.”

Otherwise, you’d be able to make some moneyfor all your hard work and the money you paid the actors because video

6/14/09 11:48 AMEasy Budget ArticlesPage 3 of 5http://www.easy-budget.com/articles/articles.asp?article=ultralow

would be your production’s initial, “free money” exposure.Of course, SAG would never want THAT to happen! Why? Because it wouldbenefit the independent producer at the expense of their most importantcustomers, the major studios. Remember, it was SAG and the AMPTP whowrote the book of rules we must all follow, (i,e., the "Basic Agreement").They never asked us and I doubt they ever will.The Ultra Low Budget Agreement has plenty of other “gotcha's,” someclearly written out, but most of them hidden where you can’t see them – onpurpose.While no residuals are due from the initial theatrical release, (which99.99999% of independent producers will not get) SAG members areentitled to residuals between 4.5% and 5.4% of the

gross revenue

fromvideo/DVD and 3.6% from pay and free television. Now, on the surface,even that doesn’t sound too bad. “Five percent, I can deal with that.” BillyMays might say, "But wait! There’s more!"SAG assumes that for international sales, 15% comes from theatrical, 65%from video/DV and 20% from pay/free television, (which is actually prettyaccurate). SAG, in effect, will want residuals from 85% of a film’sinternational

gross revenue

. That’s based on 85% of what the distributor inPoland made, not what they paid you or your investors as the “minimumguarantee.” (aka, all you’ll ever see anyhow) Because SAG wants a piece of the gross, it’s entirely possible that SAG will make good money from yourmovie and you’ll never make a cent. There are many cases of producerswho end up broke and

owe

SAG for residuals.Not so cool after all.SAG does many things to make sure they get

your

money before

you

do.First of all they will require a

residuals deposit

. That is, they require you topay them

up front

for money you

haven’t made yet

!What typically happens is this:A few days

before

principal photography begins, (when you’re the mostvulnerable!) SAG will suddenly demand a cash

residual deposit

of say,$20,000.00. You don’t have the money and SAG shuts you down. Later, if you’re lucky, maybe you and SAG negotiate an agreement and you can startall over again. Maybe your crew is still there, maybe not. What about thecast - who knows? SAG’s unwritten policy, (like any tough businessmanwould do) is to always wait until the filmmaker is weakest and then nailhim.SAG will also

require

that any distributor who sells your film sign a

Distributor’s Assumption Agreement

to bind the distributor to youragreement with SAG. The major studios always sign, but most independentsales agents will simply laugh in your face.Recently, SAG has begun to require yet another agreement be signed calledthe

Laboratory Pledgeholder Agreement.

This is just like a

Laboratory AccessLetter

, (which allows your distributor to make copies from your master tosell). Except with SAG, it's just the opposite! Nobody has access to yournegatives or digital master until SAG says okay.SAG also may require a

Collection Agreement

. All of your money goes intoan escrow account and you’re last in line - again. Remember, they get theirmoney from

gross

, while you get yours from

net,

. This is

in addition

towhat’s called the

UCC

, a sort of legally-binding mortgage on your film,