Column: How to negotiate a great deal with a U.S. company

Entertainment lawyer Lorraine P. D'Alessio offers up three tips to Canadian producers to negotiate better deals with American studios.

Lorraine D'Alessio headshotBy Lorraine P. D’Alessio, Esq. 

Canadian-U.S. partnerships are a staple of the North American industry. And with Canada’s major film hubs enjoying a remarkable boom in production, collaborations with U.S. studios have become more pervasive than ever. But because Canadian producers sometimes have smaller budgets or less extensive resources, they might feel they hold fewer cards at the negotiating table, especially when it comes to hammering out tricky details like rights ownership.

However, if you do your homework and know your strengths, you’ll be in an excellent position to demonstrate your value and achieve a more favorable deal. With that goal in mind, here are some tips for Canadian producers looking to partner with U.S. companies.

1. Know your incentives inside and out

Canada’s generous framework of tax credits has been crucial in establishing the country as a film and TV hotspot. Yet most U.S. filmmakers don’t have enough knowledge to understand which incentives their project might qualify for, let alone know how to secure them.

This is where you step in. To bolster your standing as a potential partner, make sure you have a firm understanding of Canadian tax credits well before you begin negotiations.

A good starting point is the Canada Revenue Agency. Here you can get the lowdown on basic eligibility requirements, along with guidelines on how to apply. Canada Film Capital provides another great resource. Their site breaks down incentives on a province-by-province basis, even providing a calculator to estimate your project’s overall credits. For more location-specific research, you can also try provincial agencies like British Columbia’s CreativeBC.

Use these resources to educate yourself on how certain incentives actually operate. For instance, to receive the Canadian Film or Video Production Tax Credit (CPTC), Canada’s core federal incentive program, your company must go through an intensive two-part application process. The first application, known as Part A, is filed at the beginning of the project, while the second (Part B) is submitted once filming is wrapped. After you’ve submitted both applications, you’ll receive a full Production Certificate from the Minister of Canadian Heritage, which must then be filed as part of your corporate tax return in order to complete the process.

I also recommend you connect with at least one experienced tax accountant who can help you work through the fine print. Look for someone who’s assisted entertainment clients in the past and has experience with cross-border projects, says Mo Ahmad, founder and partner at Westmark Tax in Vancouver.

Among other things, a good accountant can help demystify certain legal frameworks, such as bi-national treaties, which may play a role in determining your production’s tax status.

For example, a key requirement for Ontario’s Film and Television Tax Credit (OFTTC) is that the project’s individual producer must be an Ontario resident. However, this notion of residency is based on where you pay taxes – not your actual nationality. Under the U.S.-Canada tax treaty, U.S. citizens who earn income in Canada can be considered Canadian residents for tax purposes. As a result, a U.S. filmmaker could technically serve as producer on an OFTTC-eligible project, even if they spend much of their time in the States.

Armed with this information, you can make your tax know-how a key selling point when it comes time to draft a deal. 

2. Remember that copyright ownership isn’t everything 

U.S. studios are often reluctant to give up copyright, making this a common sticking point in negotiations. If your US partner insists on maintaining copyright ownership, you might worry you’ll lose out on long-term benefits, such as profits from adaptations and spinoffs. But while such concerns are justified, they shouldn’t necessarily get in the way of achieving a deal.

Instead of giving up on the project, consider seeking other rights that still provide streams of revenue, explains LuAnne Morrow, counsel at Borden Ladner Gervais LLP in Calgary, and Canadian entertainment law of counsel to D’Alessio Law Group.

“There are often instances where Canadian producers will need to let [copyright] go, and focus on other arrangements for rights that can also be lucrative, such as licensing, merchandising, and participation in profits,” Morrow says.

Distribution rights, for example, can be highly profitable, especially for regions like Asia where media-hungry consumers have driven up demand for quality content. Even securing distribution rights for Canada can be a major coup, Morrow says, so long as the project is of strong interest to Canadian viewers.

And while copyright is a key component of a project’s intellectual property (IP), there are other lucrative pieces of IP that could still be ripe for the picking, such as music rights or trademarks, which Canadian producers can own independently of the copyright for the production as a whole.

Because every negotiation is unique, it’s tough to predict whether a U.S. firm will give up certain rights in exchange for copyright ownership. That said, the more sophisticated your organization is, the more likely you are to win key concessions. If you have the network and connections in place to exploit rights such as merchandising or distribution, you’ll be able to make a stronger case for why you deserve a share of these privileges.

Further, it’s important to note that copyright owners still receive some compensation from merchandise sales, content distribution, and other related activities, even when a different party has primary ownership of these rights. As a result, U.S. firms may be willing to cede these ancillary rights to Canadian partners in exchange for copyright ownership, as they can still make financial gains from these various commercial transactions. 

3. Don’t shy away from conflict 

While it can often feel unpleasant, butting heads with your negotiation partner isn’t necessarily a bad thing. In fact, one of the best ways to ensure a project’s success is to stand your ground on the issues that are most important to you, even if you encounter resistance from the other side.

“In my experience, when a negotiating conversation seems to go really well, it usually results in an agreement that doesn’t actually work in the long-term, because someone hasn’t expressed what they really need,” says Morrow.

Instead of playing nice, Morrow advises producers to “know what you want, and be forthright in asking for it.” Otherwise, the issue is likely to crop up at a later point and create frustration within the partnership.

In other words, by allowing room for disagreement during negotiation, you can hash out the most sensitive issues right from the outset. This will ensure your business relationship remains amicable (and productive) throughout the production process and beyond.

Lorraine D’Alessio is an immigration lawyer with  D’Alessio Law Group.