Exit Stage Left, Enter Stage Right: Theatre Trends Over the Past 25 Years

By Jason Baruch

We have been asked to review legal and business trends in the commercial theater industry over the past 25 years, and to make some predictions of where the industry is heading in the 25 years to come. In undertaking this exercise, we find a few specific areas particularly worthy of discussion.

Theatrical productions are much more expensive to mount and maintain than they were in 1988, and the industry has had to adjust over the years to survive. Liberalization of fundraising practices has helped, as have ongoing negotiations with the various unions representing the many trades employed by Broadway producers and theaters, and also adjustments in the way royalty participants – such as the dramatists and directors – are paid. Producers recently have started embracing new technologies and marketing strategies to reach a wider target audience more efficiently, and they are experimenting with new pricing paradigms. Producers also are mitigating risk by engaging celebrities in both creative and non-creative roles, and they are adapting to the live stage readily recognizable properties such as films and music catalogues in greater numbers. We see these trends of tapping new sources of income, controlling costs and mitigating risks as continuing, hopefully with the result of continuing to both grow and maintain the accessibility and relevance of live theater for the next 25 years and beyond.

Fundraising.

Although the costs of professionally producing live theater have skyrocketed over the past 25 years, in some ways raising money for these productions has gotten less burdensome, at least from a legal and regulatory viewpoint.

When a producer sells an equity interest in a show to a passive investor, that producer is selling a security interest, requiring compliance with applicable state and federal securities laws. Most producers try to fit their theatrical offering into the federal Regulation D, Rule 506 “safe harbor” exemptions from registration for private offerings, which was promulgated in 1982 under Section 4(2) of the Securities Act of 1933. Prior to 1996, each state also had broad authority – through their respective “blue sky” laws – to regulate securities offerings with the stated goal of reducing fraud. New York was unique in that its Arts and Cultural Affairs Law set forth specific rules relating to the syndication of theatrical investments that provided for a full-fledged review of the theatrical documents by New York’s Department of Law (similar to the way public offerings are reviewed by the SEC). This substantive review was a time-consuming and costly burden on commercial producers, a burden that was alleviated in 1996 by the passage of the National Securities Markets Improvements Act (NSMIA). In an effort to lessen the regulatory burden of federal and state securities laws and promote greater uniformity in the patch-work of regulations, NSMIA created a new category of securities known as the “covered security” which would be exempt from state substantive regulation. Offerings made in compliance with Rule 506 (still the most widely used type of offering for commercial theater production entities), were included in that category. The result of NSMIA was that the substantive authority of the states to review and approve a theatrical offering was preempted, although the states may still require notice filings (and the payment of corresponding fees), which apprise them of the existence of offerings in such states. A copy of the Form D (required by the SEC) must also be provided once filed once a sale of securities is made in the applicable state.1 The enactment of NSMIA in 1996 and the preemption of substantive state review was a monumental improvement from the perspective of stage producers, allowing them to offer securities more quickly and efficiently to potential investors.

The theater industry finds itself once again in the midst of an equally groundbreaking moment with the dawn of Title III of the Jumpstart Our Business Startups Act of 2012, also known as the JOBS Act. Due to numerous regulatory hurdles, it has not been feasible to engage in “crowd-funding” (i.e., raising small amounts of money from a large number of people, principally via the Internet) on any widespread basis. The JOBS Act will open the door to this type of funding in the near future. It directs the SEC to create regulations allowing issuers of securities to sell up to $1,000,000 in securities over a 12-month period to any number of investors without registering their offering with the SEC. These securities will be “covered securities” exempt from state blue-sky regulations. Producers will have to meet a number of reporting and disclosure requirements in order to take advantage of the crowd-funding exemption, such as: the need to raise capital through an intermediary broker registered with the SEC or a so-called “funding portal”; capital raised in such a manner will be capped at $1,000,000; no individual may contribute more than 5% – 10% of his or her annual income or net worth; and each investor’s contribution will be capped at $100,000. In addition, given the current costs of producing a Broadway play or musical, or even an Off-Broadway musical, the $1,000,000 cap does not make crowd-funding practical for raising all of the required capital for most major commercial productions. However, for certain Off-Broadway plays, developmental productions, cast or concept albums and other less costly stage ventures, the JOBS Act will no doubt be seen as a boon to producers and a leap forward in the liberalization of fundraising techniques.

Perhaps more importantly, the JOBS Act directs the SEC to change its rules to end the long-standing “general solicitation and general advertising” ban under Rule 506 by which (i) only “accredited” (i.e., relatively wealthy) investors may purchase the securities being sold and (ii) the issuer must take “reasonable steps to verify” that all purchasers are in fact accredited according to the methods specified by the SEC. Currently, the SEC rules only permit producers to solicit investors with whom they (or a co-producer or finder) have a “substantive pre-existing relationship”, which makes it challenging to connect with a large swath of individuals and inhibits the flow of capital into theater projects. After the rules are changed, however, it is anticipated that theatrical producers will be able to advertise their investment opportunities on generally accessible websites, through e-mail blasts and via other technologies in an effort to reach previously unreachable investors around the world.2 The JOBS Act set an initial July 4, 2012 deadline for the SEC to end the advertising ban and promulgate other related rules but, as of the December 31, 2012, no changes have been made. As with all regulatory matters, the devil will be in the details of the new rules, but the lifting of the general solicitation ban is highly anticipated and has the potential to be very useful to theatrical producers in the near future.3

Unions.

The relationship between the stage producers and the various unions that represent everyone from the directors and choreographers ("Stage Directors and Choreographers Society" or "SDC") to the actors ("Actor’s Equity Association" or "AEA") to the musicians ("American Federation of Musicians, Local 802" or "AF of M") to the designers ("United Scenic Artists" or "USA") and others (such as the “International Alliance of Theatrical Stage Employees" or "IATSE") has been a rocky one over the past 25 years. Although the dramatists are not unionized (they are considered independent contractors rather than employees), almost everyone else is, from stagehands and hairstylists to the press agents and stage managers. There is a constant pressure on the part of producers to keep costs under control, counterbalanced by the steady insistence by the unions to maintain benefits or improve the conditions of their members. The result has been a number of high-profile strikes over the last 25 years, including the most recent 2003 AF of M strike and the 2007 IATSE (stagehands) strike.

Through prior negotiations, each Broadway theater had a pre-determined allocation of “seats” or places for musicians in the orchestra depending on the size of the venue. Producers had to either engage the minimum required number of musicians or pay the union the difference between the pre-determined sum and the actual amount hired if the producers elected to populate their production with fewer musicians. In 2003, the producers sought to eliminate this requirement. They claimed it created unnecessary expenses and interfered with creative freedom of the producers and dramatists (particularly for certain shows, like “rock and roll” musicals and chamber – or so-called “vest-pocket” musicals – which had lower budgets and/or did not require a full orchestra). The AF of M authorized a strike by its members, which lasted 4 days, after which the parties reached an agreement to reduce the number of musicians required at the largest Broadway theaters from 24-25 to 18-19. Although this provided a temporary resolution, we predict this issue will resurface as producers continue to relentlessly pursue cost-cutting measures, and as new technologies further evolve, such as “virtual orchestras” which attempt to replicate the fullness of an orchestra with far fewer players and more sophisticated musical reproduction equipment.

Similarly, in 2007, IATSE authorized a strike after three months of failing negotiations with The League of American Theaters and Producers (the “League”) which acts as the trade association and bargaining agent with all the unions representing the interests of Broadway producers and theater owners. As the League demanded more flexibility in hiring stagehands based on actual production needs as determined by the creative nature of the specific presentation, IATSE insisted on strict adherence to the pre-negotiated number of stagehands required to be employed for each production at a specific theater (e.g., the number of carpenters, electrician and property personnel) and the pre-set limitations on the activities that could be performed by each union member. Ultimately, a settlement was reached, although the terms were not disclosed to the public. By the time an agreement was reached, the strike had dragged on for 19 days and had cost the city nearly $40 million in lost revenue.

AEA, the union that represents actors, has over the years shown willingness to compromise in recognition of the economic realities of commercial theater producing. For example, when producers started complaining that the cost of engaging Equity performers for certain touring productions was becoming prohibitively expensive, AEA understood the real consequences in the prospect of producers electing to shift to non-Equity tours and avoiding the hiring of its Union members altogether. In the late 1990’s, AEA officials began creating special contracts with non-League producers, which allowed shows to go on the road with union actors performing at rates lower than established union rates. In 2004, Equity worked with the League on an experimental initiative to adapt a new tier system for touring productions that allowed League producers to compensate union actors based on various factors such as production scales and projected revenues. In 2009, Equity also adopted its Showcase Codes in order to provide an increase in the budgets of Equity showcase productions and more flexibility in their rehearsal time. The new experimental workshop “lab” contract, of which producers are now starting to avail themselves, is the latest example of how the AEA has strived to accommodate the needs of the producers with greater flexibility while protecting the interests of its members.

Obviously, the give-and-take between producers and unions will continue over the next 25 years as producers struggle reign in ever-rising costs, and the unions continue to press to retain the hard-fought past benefits they have obtained for their members, as well as to improve working and economic conditions going forward.

Royalties.

At the same time that producers continue to seek concessions from the theater unions to deal with the economic realities of producing live commercial theater, they have worked also with the creators of the stage productions to devise new ways to pay their royalties with sophisticated economically-based formulas. In a commercial production generally, there are percentage royalty participants, which include the dramatists, underlying rights owners (if the stage production is based on an underlying property), director and, often, choreographer, designers and others, including the producers themselves and regional or developmental theaters.4

Dramatists used to be paid on the basis of gross weekly box office receipts (GWBOR) (i.e., the ticket sales receipts less certain pre-established deductions such as taxes and credit card commissions). In the 1980’s the industry saw a shift away from paying royalty participants on the basis of GWBOR and towards so-called “royalty pools” by which a fixed portion (typically about 35% – 40%) of the weekly net operating profits of the production (i.e., gross receipts less weekly running costs) are set aside for the royalty participants. In this shift from GWBOR to WNOP, for example, dramatists who might have once received 4.5% of GWBOR increasing to 6% of GWBOR post-recoupment (e.g., $31,500 pre-recoupment on a show with a GWBOR of $700,000, irrespective of running costs) would instead receive 15.6% of WNOP increasing to 17.8% of WNOP post-recoupment (e.g., $23,400 pre-recoupment on a show with a GWBOR of $700,000 and running expenses of $550,000), with some minimum weekly guaranteed payment to the dramatists (e.g., $6,000) regardless of the total amount of WNOP generated that week and WNOP aggregated and averaged in royalty “cycles” of 4-5 weeks. The underpinning of royalty pools is that royalties paid to royalty participants should be tied to the economic health of a show, and the economic health of a show cannot be measured accurately by examining only the box office receipts; rather one needs to look at the weekly profits, if any, after all operating costs are taken into account. For instance, Spiderman: Turn Off the Dark on Broadway could gross $1,000,000 in a given week, a source of pride for most producers, but not necessarily for the producers of Spiderman, which is reported to have weekly expenses in excess of $1,000,000; so a gross of $1,000,000 in this instance would result in no or negative weekly profit. Paying on the basis of WNOP allows stage productions to remain open longer under most circumstances which, producers argue, ultimately inures to the benefit of the royalty participants even though in a given week they might receive less than they would have were they to be paid on GWBOR.

A more recent innovation to the royalty structure is the implementation of “amortization” factors, which allows producers to deduct “off the top”, and repay to their investors, a negotiated portion of the WNOP before the royalty participants’ shares of the pool are calculated. A typical amortization amount would be 2% of the production costs each week (e.g., $160,000 each week if the production costs of a musical are $8,000,000). This expedites recoupment of the investors. It also reduces the available pool of WNOP allocated to the pool participants on a weekly basis. Note however that the amount that would have been paid to the royalty participants but for the amortization mechanism is deferred and not waived, meaning the royalty participants are entitled to be repaid these amounts (plus some premium over and above the deferred amounts) from various sources including net profits of the production company (if the production recoups) and, in the case of the dramatists, from the subsidiary rights income that otherwise would have been paid to the production entity.5

Most sophisticated investors (or indeed anyone who bothers to read articles about investing in Broadway shows) are aware that the vast majority of shows on Broadway do not recoup and this fact, producers argue, makes it increasingly difficult to raise money and, in turn, increasingly more appropriate to negotiate adjustments in the royalty structure. As the last 25 years saw the advent of royalty pools and the introduction of amortization, should economic realities make fundraising a challenge in the next 25 years, we predict further innovations and adjustments to the methods by which royalties are calculated and paid. This includes further attempts on the part of producers to make the royalty participants more like “partners” who sacrifice some of their income up front in the hopes of a greater payday should the production recoup its costs.6

Marketing and Sales.

Theater productions are somewhat unique in that they need to brand themselves very quickly – and usually from a position of zero public recognition – before the funds raised run dry. Historically, producers relied on a campaign based on print advertising (such as an ad in the New York Times), radio spots and billboards – blunt instruments in today’s age of technology driven and targeting marketing.

One of the most radical trends in theatrical advertising and marketing over the past 25 years has been the dramatically escalating use of the Internet to generate advance buzz and (producers hope) increased ticket sales. Most significantly, nearly half (48.1%) of all theatergoers currently report “Personal Recommendation or Friend’s Facebook/ Twitter/ MySpace post” as the number one motivating factor in selecting a Broadway show.7 Traditional word-of-mouth has been increasingly replaced with virtual word-of mouth.

While print advertising, including expensive New York Times ads, would have represented an enormous portion of any Broadway show advertising budget 25 years ago, more shows are now relying heavily on electronic and new media marketing. Productions will likely expend advertising dollars on Google and Facebook ads in addition to employing innovative social media marketing strategies with the hope of creating a virtual community and active online presence, generating buzz and the invaluable word-of-mouth that is essential for a Broadway show to succeed. Word-of-mouth must translate into ticket sales rapidly in order for a show to survive the initial weeks or months following opening, but producers are attempting also to create significant anticipation for a show well in advance of its landing on the Great White Way via online activity. The producers hope that by increasing word-of-mouth and excitement in the potential fan-base through contests, videos, and other interactive features, the fans will feel part of the show community and purchase tickets when they become available. Because it remains a relatively new phenomenon, the jury is still out as to whether more gimmicky social media marketing efforts will actually translate into ticket sales.8 The producers of Next to Normal generated a lot of press through their “live tweet” performance. The production’s Twitter followers increased from 145,000 to 550,000 followers throughout the serialized performance.9 The show’s advertising budget was relatively modest and use of “free” word-of-mouth techniques like generating Twitter buzz may have translated into ticket sales. The show eventually recouped its initial capitalization. Other recent social media efforts such as End of the Rainbow’s Instagram meet-up event at the Belasco Theater, Ken Davenport’s Godspell blog (along with an associated website encouraging fans to upload “My Godspell Memory” videos), and a Facebook contest for tickets to a secret Jesus Christ Superstar concert performance may have been less successful in translating directly into sales, as those shows did not turn a profit during their Broadway runs.

One issue may be the ongoing challenge of convincing young people, the most active participants in these online activities, to purchase tickets. These online efforts often include ticket giveaways and discounts, but current older theatergoers still remain less likely to use these interactive sites and for now, they remain the primary Broadway ticket purchasing audience. Almost two-thirds of the Broadway audience during the most recent Broadway season was older than 35 years old; the largest age group of attendees is from 50-64. As young theatergoers age into more regular purchasers, these web-based activities may be valuable investments in cultivating the next generation of Broadway theatergoers.

Some other electronic forms of marketing include e-blasts to marketing lists, and free-to-join online discount “clubs” such as the Playbill Club and TheaterMania.com, often implementing carefully designed discounted pricing strategies for shows. More theatergoers now report receiving an email about the show as a stronger motivating selection factor than receiving a flyer or postcard in the mail, and approximately 9% cite receiving or finding a discount as the primary motivator. Currently, critics’ reviews in a newspaper, magazine, or on television collectively account for motivating show selection in 34% of theatergoers, although as Internet sources continue to become more relevant, such reviews may become less essential.

Not all marketing initiatives of recent years are electronic or Internet related. More Broadway producers have been turning to market research firms and focus groups, including post-show surveys, to develop the best advertising plan for their shows. Some producers continue to attempt to attract younger, less affluent, and minority audiences to Broadway. Many commercial producers, continuing a trend that made a splash with Rent, offer same-day box office rush ticket discount policies to make Broadway more affordable to students and others who cannot afford the full ticket price, with the goal of spreading word-of-mouth among younger people.

The exact reverse strategy to sophisticated discounting programs is so-called “premium” priced seating for the more popular shows (it started with Mel Brooks’ musical, The Producers), allowing producers to sell the best-located seats at a price substantially higher (sometimes as much as 300%) as the regularly priced top-price tickets. Thanks to this latest tool in the commercial producers’ toolbox, the producers of Wicked over the 2012 Christmas holiday 9-performance week were able to gross a whopping $2,947,172 in box office receipts at the 1809-seat Gershwin Theater, a venue with a published gross box office capacity of $1,891,268. This is the highest single-week gross of any show in Broadway history, and the $300 premium seats being sold for Wicked that week were second only in price to the $477 premium seats being sold to well-heeled audiences by the producers of Book of Mormon).10 The implementation of so-called “dynamic pricing” has allowed producers to be much more nimble at capitalizing on the peak moments and surviving the leaner times of the season.

Broadway shows are also more reliant than ever before on recognizable “brands” for marketing purposes. Other than the continued embrace of revivals – revisiting old shows that have proven popular in the past11 – the most obvious manifestation of this is the increasing reliance onstage adaptations of well-known film properties or music catalogues. A glance at the ABC directory ads in The New York Times quickly reveals the sheer quantity of Broadway musicals based on film properties. The reasons are no mystery: about a quarter of all theatergoers report that their primary motivating factor for seeing such musicals is that they saw the movie.

Equally worthy of note, however, is the widespread and proliferating use of celebrity stars and, more recently star producers. The use of film stars has been prevalent in Broadway productions for years. Of the roughly 900 productions that opened on Broadway between January 1, 1987 and December 31, 2012, approximately 160 (or 18%) featured at least one actor who had a prominent role in a film at some point in his or her career. From 1987-2000 (a span of 13 years), about 50 productions featured at least one film star, but during the next 12 years, from 2000-2012, the number of productions featuring a film star almost tripled.12 Recently, celebrities such as Oprah Winfrey, Bette Midler and Elton John have lent their names as “producers” in order to increase the publicity of Broadway musicals.

Other ways that producers have created broader awareness of their properties, thus increasing the recognition of their brand, include incorporation of Broadway shows in other media, such as television and DVDs. Broadway shows have recently found members of their cast through auditions produced and taped as part of a reality television series, including Grease and Legally Blonde (this trend has been more frequently used, to greater success, in London theater). Producers have also partnered with media companies, including Broadway Worldwide and NCM Fathom, to create television broadcasts, DVDs, and movie theater screenings (cinecasts) of filmed Broadway performances (Jekyll & Hyde, Memphis, Legally Blonde, Rent, Memphis). Film versions of certain long running Broadway shows, such as Chicago and Rock of Ages, have contributed additional box office income to already successful New York productions (notwithstanding the fact that the Rock of Ages film was a failure at the box office). In addition to generating new revenue streams for the production, these techniques may also contribute to generating interest in a show outside of New York, which may translate into Broadway ticket sales to tourists – if the show is still running – or ticket sales for touring productions and increased licensing interest.

In sum, over the past 25 years Broadway producers have used new technology, as well as marketing strategies from other disciplines, to support the advertising and marketing efforts of their shows, attempting to broaden the traditional theatergoing audience and develop a new generation of theatergoers. As online technology rapidly changes, developments will certainly lead to new and exciting innovations in methods of nurturing Broadway audiences and selling tickets.

Conclusion.

Producers are constantly seeking to tap new sources of fundraising. The enactment of NSMIA substantially liberalized the requirements for raising money for commercial productions, and the JOBS Act will provide a further step in that direction, increasing the pool of available investors and cutting through much of the red tape inherent in the process. Producers and unions will continue to strive for that happy medium that makes engaging all of the necessary staff economically feasible while protecting the rights of those employees. Producers will continue to fine-tune methods for paying royalties to the royalty participants, some of which may include positioning their royalty participants more like investing partners, reducing their weekly royalties in favor of a bigger pay-off should the show become successful. Producers will also tap into new technologies for marketing and promoting their projects and continue to experiment with dynamic pricing. They will also continue to mitigate risk by relying are pre-branded properties such as well-known films, music catalogues, and celebrity actors and producers. Many people have predicted the demise of Broadway theater specifically, and indeed, the relevance of live theater in general, for decades, now more so than ever with the ever-increasing array of alternative entertainments such as video games, on demand streaming and downloading of content and social media websites. Thus far, the naysayers have been proven wrong. In fact, Broadway annual grosses continue to increase to record-breaking levels.13 As long as producers and the creative talent and labor unions can continue to adapt, innovate and remain flexible in the face of an always-shifting landscape, we predict a bright future for the live commercial stage in the 25 years to come.

Jason Baruch (co-chairman of the Theater and Performing Arts Committee)

Diane Krausz (co-chair) and the research and writing committee:

Adam Rosen; Merlyne Jean-Louis, Ning Yu Wu and Jeffrey Lawhorn

1 Another recent innovation is the introduction of electronic filing of Form D, now mandatory since March 16, 2009, theoretically making it easier for issuers to file and amend, and also creating an interactive and searchable database on the SEC’s website of recent filings. Prior to 2008, all Form D filings were submitted on paper and essentially buried in a morass of filing paperwork that could not be readily accessed.
2 The perils of relying on investors with whom the producer has no pre-existing relationship at all were recently manifest in the collapse of a planned Broadway production of Rebecca in the Fall of 2012 when it turned out an investor living abroad who had committed to contributing millions of dollars toward the production’s capitalization did not, in fact, exist.
3 The SEC proposed rules on August 29, 2012. A link to the press release and proposed rules may be found at http://www.sec.gov/news/press/2012/2012-170.htm.
4 Another trend over the past 25 years is the increasing reliance by commercial producers on not-for-profit theaters to try-out material with a commercially "enhanced" developmental production and to reduce/share costs of development. One trade-off for this reliance is that the regional theaters for their time, effort and risk are entitled to an ongoing royalty from the commercial producers (and, often, a direct participation in the income derived by the dramatists).
5 If a production fails to recoup, then most royalty participants will not be able to recover sums deferred through amortization. Only the dramatists in such circumstances will have the opportunity to “claw-back” some of the remaining deferred amounts out of the subsidiary rights income that the dramatists otherwise would be required to pay the commercial production entity from future exploitations of the property, such as stock and amateur licensing income.
6 We also see further and continuing efforts on the part of directors, who are not copyright owners of the stage production and who typically receive remuneration only in connection with productions actually incorporating their direction, to seek participation in the income of the dramatists to ensure that they, too, are rewarded for the life of the show should their contributions help make the show a financial and durable success.
7 For all statistics regarding audience demographics, please see “The Broadway League: The Demographics of the Broadway Audience” (2011-2012). During the 2011-2012 Broadway season, 47% of all tickets were reported to have been purchased online, the largest proportion to date.
8 The flip side to the proliferation of social media and viral marketing is the premature critical drubbing a show can take before it is ready to be reviewed, which negative word of mouth can often kill a show that, in earlier days, could have quietly workshopped out of town outside the bright light of public scrutiny in preparation for its official opening.
9 “It’s Broadway Gone Viral, With Next to Normal via Twitter,” New York Times, August 17, 2009.

10 Daily Variety, January 3, 2013. Globally, Wicked has amassed almost $3 billion in ticket sales and has been seen by 36 million people.

11 A recent an increasingly prevalent trend among commercial producers attempting to capitalize on brand recognition of pre-existing theatrical works is the transfer of Broadway shows to Off-Broadway venues. Examples of this phenomenon include Rent, Avenue Q, The 39 Steps, Million Dollar Quartet and, most recently, Peter and the Starcatcher.

12 Analysis by Merlyne Jean-Louis using the Internet Broadway Database (www.ibdb.com).

13 The aggregate gross box office receipts for the 2011-12 season was $1.139 billion, the highest ever reported. Broadway League Research Database at http://www.broadwayleague.com

The Arranged Marriage Between Not-For-Profit Theater Companies and Commercial Producers

The Introduction

Jason P. Baruch

In my law practice, I have the privilege of representing successful commercial producers, brilliant playwrights (sometimes referred to as “authors” in this article) and resourceful not-for-profit theater companies (“NFPs”) all over the country. These clients all have different interests and needs, and I find myself wearing a number of different hats on a daily basis. I like to think that the broad range of my theater work has given me some measure of insight into the relationships among these different clients.

While a great deal of my time is spent negotiating production contracts between commercial producers and authors, I am also called upon frequently either to prepare (when I represent the NFP) or to negotiate (when I represent the author) developmental theater production agreements between authors and NFPs, as well as “enhancement” agreements between NFPs and commercial producers. It is this three-way dance among the author, NFP and commercial producer- and more specifically the tango between the NFP and commercial producer- that is the subject of this chapter.

The Set Up

In order to discuss the sometimes uneasy alliance between the for-profit and not-for-profit theater worlds, a little background about developmental theater agreements (that is, the agreement an author enters into with an NFP interested in developing the author’s piece), and how they are structured, will be helpful. The basic developmental theater agreement between the author and the NFP has the NFP bearing the costs of developing and mounting a new play or musical. The developmental process may involve staged or unstaged readings and, ultimately, fully staged performances before a paying audience, a portion of the audience for which may be comprised of subscribers of the NFP. In consideration for developing a new work, the NFP will ask that the author guarantee the NFP future billing credit plus some sort of ongoing financial participation.

The financial participation typically takes the form of a percentage of gross weekly box office receipts (“GWBOR”) from future commercial performances plus a percentage of the net profits of any commercial entity formed to produce the play. It would not be uncommon, for example, for a NFP to request one percent (1%) of GWBOR and five percent (5%) of the net profits. Some of the more influential NFPs, particularly what I will call the Manhattan-based “super-NFPs”, might demand as much as two percent (2%) of GWBOR and ten percent (10%) of the net profits in connection with third party commercial transfers of plays they have developed. The right of the NFP to share in future income usually “sunsets” if the author does not enter into a production contract with a commercial producer within a certain period of time, such as three years after the close of the NFP’s production. The theory here is if a commercial producer shows interest in the work, say, eight years after the close of the NFP’s production, that interest probably was not sparked by the NFP’s production, and the NFP should benefit financially only if its developmental efforts were the proximate cause of a commercial production. (A less common variation of the “gross/net” participation might have the NFP, instead of sharing in gross and net profits from a commercial production, simply being treated as an investor in the commercial production to the tune of the NFP’s developmental production costs. For example, if the NFP spends $400,000 to mount a new musical, which musical is then produced on Broadway for $8,000,000, the NFP will be deemed to have invested five percent (5%) of the capital of the commercial production.)

But what if there is no commercial production that results from the NFP’s presentation of the play? What if, for example, the play lives a vibrant (and possibly even profitable) life in regional productions, without the benefit of a commercial run? Most developmental theater agreements with authors have a built-in contingency plan along the following lines: If there is no commercial producer to assume the gross and net profit obligation to the NFP then, in lieu of the foregoing, the author agrees to pay the NFP a percentage of the income the author receives from all sources in connection with the author’s exploitation of rights in the play. This percentage might be as high as ten percent (10%) of the author’s income (generally net of agency commissions), but more typically around five percent (5%). Occasionally, a NFP will ask for both a gross/net participation from future commercial productions and a percentage of the author proceeds, although this is a point that is (or should be) vigorously debated by the author’s representatives. In addition, from the author’s perspective the developmental theater agreements should contain an additional clause whereby the NFP agrees to reduce its contractual share of gross and net profits by a certain amount, by as much as one-half, if a second developmental production is required and the second NFP requires an ongoing financial participation. In this case, the first developmental production yields a work that apparently is not “ready for prime time” and, in order to render the work suitable for commercial production, further development (capitalized by a new NFP) is required.

A different, and increasingly common, spin on the ongoing participation theme will have the NFP requesting the exclusive right to effectuate a commercial transfer of the play, by itself or with co-producers, within a certain period following the close of the developmental production. Ever since A Chorus Line was transferred from the Public Theater in 1975 to the Shubert (filling the theater’s coffers with more than $25 million), NFPs no doubt dream of a similar destiny, and many endeavor to provide for that right contractually in their agreements with authors. The terms of the commercial transfer will either be spelled out in the developmental theater agreement itself or negotiated in good faith if and when the NFP elects to exercise its commercial option. In this situation, where the NFP actually succeeds in mounting a commercial production, the terms set forth in the commercial production contract generally supersede the gross/net formula or the author proceeds formula set forth above. What is often vexing to authors, however, is that many of the NFPs requesting the right to transfer the play have little or no experience, and perhaps no interest or capability, in producing commercially. We are not talking about the super-NFPs like Manhattan Theatre Club, but rather the smaller NFPs, most with no track records for producing commercially. Often this negotiated exclusive right to transfer serves the primary function of putting the NFP in the driver’s seat in controlling the negotiation of commercial stage rights to third party producers and, consequently, cutting the best possible financial deal for the NFP if the play is a hit. If an NFP produces a phenomenal critical and financial success and producers are knocking down the doors to transfer the play to the commercial stage, the NFP that has carved out for itself the exclusive right to produce or co-produce the play commercially will find itself in a position of leverage.

Some of my clients have expressed to me their belief that it is inappropriate for NFPs to demand any ongoing financial stake, be it from the authors or from future producers. Their position is that NFPs are financed by public funding and tax-deductible contributions, and their mission is to help authors bring new works to the stage, not to exact a pound of flesh from authors or to financially encumber the property if the result of the developmental process is a commercially viable play. While I understand that point of view, in my experience a modest future participation by the NFP, particularly one that will be assumed by a third party commercial producer, is not out of line and does not create significant obstacles for future exploitation.

Assuming the propriety of an NFP asking for a future financial stake in a property, we must examine the myriad factors relevant to determining whether the financial participation requested is reasonable or not. One factor relates to the extent of the development by the NFP. It makes sense that a theater company which has nurtured a new work- from its moment of inception, through countless drafts, readings, workshops and stage productions- is deserving of a greater future financial interest than a theater which essentially was handed a finished product (perhaps already developed elsewhere). Another relevant question is the degree of the financial commitment by the NFP to the development of the work: from an author’s perspective, having to pay 5-10% of the author’s income from future exploitations of the author’s play is an easier pill to swallow when the theater company has invested hundreds and thousands of dollars from its annual budget on the production of a play as opposed to a theater company that has kicked $5,000 in to a small production. Similarly, the size and scope of the developmental production may be relevant: Needless to say, an 8-week subscription run of a play in a 400-seat theater will have more of an impact on the future value of a play than a 6-performance run of a play in a 49-seat theater, and it will be easier for a NFP to justify a greater ongoing participation in the former scenario. And, of course, the reputation of the developmental theater itself plays an important role, both in what is appropriate for the NFP to request and its ability to get what it wants. Some regional theaters with excellent reputations as Broadway “feeders” will have an easier time persuading an author to commit to a meaningful future participation than a wonderful but obscure theater company which has never presented a play that went on to be a commercial success.

Interestingly, many of the smaller NFP theater companies I represent are concerned more with billing than anything else. Financial participation takes a back seat to recognition to these organizations (which may explain while some are struggling to meet payroll on a weekly basis). Being credited as an originating home for a commercially successful project is an invaluable marketing tool for raising awareness of the NFP, as well as the NFP’s managing and artistic directors, who are often credited along with the theater company. In a perfect world, this broader recognition can increase the subscriber base and traffic to the theater and boost fund-raising potential. It might also attract higher profile artists interested in showcasing their work. The sort of credit negotiated depends on the nature of the NFP involvement. An eventual move to a commercial theater within a certain number of years following the close of the NFP production could result in a simple “Originally produced at ABC Theater Company” credit somewhere at the bottom of the title page, a fraction of the size of the credit accorded the commercial producers. If, however, the commercial production is essentially transferred en toto from the NFP, a more meaning credit might be negotiated, such as an above the title credit along the following lines: “X, Y and Z Commercial Producers present ABC Theater Company’s Production of…” In figuring out what sort of transfer merits such a prominent credit for the NFP, a typical rule of thumb is this: If the transferred production uses the same direction, at least two of the three principal designers and at least half the original cast, it is the developmental theater’s production of the work. In my experience, most authors and commercial producers do not begrudge the originating theater its credit, although size and placement of that credit can often be the subject of protracted negotiation.

The Third Side of the Triangle

The reality is that many plays developed by NFPs already have commercial producers “attached.” These commercial producers find it far less risky to develop a property in the relative safety of the not-for-profit world. They have, in most cases, already acquired commercial stage rights from the author pursuant to a production contract (which contract almost always requires the author to hold back or “freeze” non-commercial production rights while the commercial producer retains commercial production rights). The commercial producers then temporarily waive their exclusive stage rights for the purposes of allowing the NFP to premiere the play. For reasons relating to the not-for-profit status of the theater company (an area more dear to the accountants and not, therefore, a focus of this piece), the commercial theater producer can not be the producer of, or exert control over, the not-for-profit production. However, the commercial producer can and does “enhance” the NFP production financially.

A typical example of how this could work is as follows: A commercial producer acquires the rights to a new musical from an author. The estimated production budget for a Broadway production might be $12 million. A reasonably sophisticated pre-Broadway production could be presented at a NFP theater for $1.2 million. In addition to allowing the parties to see how the play goes over with audiences (some of whom may be subscribers, thereby ensuring at least minimal attendance), the NFP production will generate reusable tangible assets, such as set elements, costumes and props. The problem is the NFP theater in question has a maximum per-play production budget of $500,000. In this hypothetical, the commercial producer might “enhance” the developmental production by an additional $700,000. While this is still a substantial investment, it is an effective method of managing risk. Rather than being forced to raise $12,000,000 for an unproven show that could bomb on Broadway on opening night, the commercial producer has the opportunity, for the relative bargain price of $700,000, to give the work a test run before paying objective audiences (i.e., not an invited crowd of industry insiders and relatives of the cast). This would take the form of a polished professional production largely funded by the NFP and which will reap assets that can be used by the commercial producer should a commercial transfer be appropriate. The NFP, in turn, gets the advantage of premiering a high-profile show that will bring in audiences and, perhaps, increase the theater’s subscriber (and donation) base in the future. Moreover, as previously noted, the theater will strike a deal with the commercial producer that allows the theater to share in the gross box office and net profits generated by the commercial producer’s exploitation of rights in the play, including the Broadway production and future touring or sit-down productions.

Some commercial producers have “first look” deals with NFPs, domestically or abroad, where, in consideration of a financial contribution by the commercial producer to the theater company, the commercial producer has the first right to effectuate a commercial transfer. One major Broadway producer, for example, has a special relationship with the National Theatre of Great Britain which gives the commercial producer the right to move to Broadway plays presented by the National Theatre.

Whether all of foregoing effectively makes the NFP a research and development arm of the commercial producer and, if so, whether there is anything wrong with that sort of relationship, is what will be explored below.

The Gripes

Although most of my author clients are thrilled to have any theater companies interested in developing their plays, I hear a familiar refrain from others. NFPs, the authors argue (as do a few commercial producer clients), have a mandate to support playwrights and foster the art form. As previously noted, they are not commercial theater producers, and their mission is not to profit from their productions or transfer their productions to Broadway. They enjoy significant tax benefits and subsist on donations and grants. The gripe is that when an NFP requires a percentage of a playwright’s future income from subsequent productions for helping develop a piece, that theater company is betraying its mission. Similarly, I have heard on more than one occasion, when a theater festival demands a percentage of future box office and/or author income for what in most cases amounts to the furnishing of a venue and certain group marketing initiatives, it is not so much supporting new artists as investing in them with the hope of some financial return, while potentially making the now financially encumbered property less attractive to commercial producers (who, all things being equal, would rather not produce a work that arrives with substantial monetary obligations to third parties attached).

On the other side of the issue, most of the NFPs I represent survive, barely, on donations and grants, with annual budgets of far less than a million dollars. Their productions in general are not intended to turn a profit, indeed it is an impossibility for many to ever break even under a “perfect storm” of favorable circumstances (e.g., a renowned playwright, enjoying rave reviews and a standing room only run). What I hear from my NFP clients is this: “Why shouldn’t our struggling little theater company enjoy some contingent benefit from developing a new work should that work attain a measure of financial success? If we develop the next Avenue Q, Vagina Monologues or Rent, why shouldn’t we replenish our coffers and have the opportunity to reinvest this income into the theater company? In our shop, the successful works essentially subsidize the other good work we do which, in a world where donations and grants inadequately subsidize our enterprise, could be the difference between existence and insolvency. In any event, we generally are not assessing the playwrights, but rather asking that the future commercial producer bear the payment obligation to us.” I have a certain amount of empathy for this position. It is true that NFPs enjoy tax exempt status, the benefit of donations and the other perquisites of being a 501(c)(3) organization (e.g., less expensive postage, better deals with publications in connection with advertisements, etc.). But at the same time I have observed that fundraising itself, in the form of grant writing and outreach to private donors, is an excruciatingly time-consuming and expensive process. Many NFPs have staff members devoted solely to the task of grant writing and private fundraising, and this in an environment of diminishing governmental support. Of every dollar spent by a typical NFP, I am told, barely half comes from the box office. The majority of NFPs, according to the Theatre Communications Group, lose money.

I am also told by my NFP clients that it is particularly disheartening to nurture an artist and a project from infancy, at times even commissioning the artist to create the work in the first place (one theater company I have represented even experimented with giving their resident artists health insurance), only to hand over the reigns to another producer that will transfer the production and, inevitably, grab the glory. When a commercial success emerges from the developmental process and the NFP theater has not negotiated a financial participation, the potential for bad feelings is great. Not surprisingly, many of the NFPs I represent are so poorly funded, and sometimes inexperienced, that they really have no idea what to ask for in their author agreements (or, if applicable, enhancement agreements), and no counsel to guide them. My advice to the young NFPs is to make the investment in procuring professional representation in creating form agreements which can act as the template for future contracts. If you can get an experienced entertainment lawyer on your board of directors (which is really just code for “free legal advice”, of course), do it. The same goes for accountants and other professionals. If it means paying a representative to work through the basic structure of your various agreements, I believe (at the risk of sounding self-serving) that this is money well spent.

Finally, most of the commercial producers I represent do not begrudge a NFP a reasonable ongoing financial participation for having developed a work. The more the NFP requires, however, the more encumbered the property becomes and, therefore, the potentially less attractive it becomes to the commercial producer that, with its investors, ultimately will have to bear the financial burden to the NFP. Commercial theater producers by and large understand the invaluable service the NFPs provide in developing new product- and new product is the life blood of commercial theater. They also know that in a world of escalating production costs it often is not economically viable to nurture a new project from “square one” for the commercial stage. This explains why so many of the dramatic plays and musicals on Broadway have their origins in the not-for-profit world.

To be sure, some producers have bypassed the NFP route altogether. In the process they have sacrificed the risk (read: cost)-spreading benefits of having a NFP produce the initial production, but they have also reigned in creative control of the process and eliminated the continuing financial obligation to the NFP. This does not mean that these producers have elected to open cold on Broadway- this is rarely done, and almost always at the peril of the commercial producer. Instead, these commercial producers mount an out-of-town tryout, “four-walling” the production in a venue outside of New York before bringing it to the Great White Way. This was recently done with tremendous success by the producers of The Producers, Hairspray and Wicked at The Cadillac Theater, Fifth Avenue and The Curran Theater, respectively. This gave the producers an opportunity to see how the show works before a paying audience and gauge the impressions of some of the non-New York critics, and to tinker with the production before its Broadway transfer. The risk in this approach, however, is that a failure out-of-town could spell a financial disaster.

The State of Not-for-Profit Theater Today: A Marriage Born of Necessity

The relevance of NFP theater can not be understated. In the past 50 years, NFP resident theaters have grown from a modest collective of stages in big cities to a network of more than 1,200 theaters. All but three of the last 33 Pulitzer Prize-winners for Drama originated at regional theaters, nurtured in the not-for-profit community. Many of these plays had successful commercial runs (e.g., Doubt, Proof and Rent, to name a few), and most arguably would not have seen the commercial light of day if not nurtured through a NFP’s developmental process. It is this assumption that is used to justify coordination between NFPs and commercial producers: a mutually beneficial relationship is forged when two different communities with differing motivations and objectives can, together, accomplish what neither of them could accomplish on its own.

At the same time, as the embrace between the commercial producers and NFPs tightens, so too do concerns that the world of not-for-profit theater is losing its way, and forsaking its roots as a vital resource to support new and emerging artists and bring to audiences important- but not necessarily economically viable- works. By “getting into bed” with the commercial producers, the argument goes, the NFPs are encouraged to develop properties that have a possibility of financial reward, and these theater companies then fail in their purported mission to introduce challenging works of stage.

La Jolla Playhouse (“LJP”) in Southern California is an interesting example of the intersection. LJP was the birthplace of The Who’s Tommy, Big River, and the current Broadway hit Jersey Boys, among other wonderful projects. The artistic director of LJP is a founding member of an organization known as the Dodgers, a major commercial producer, as is the head of Jujamcyn, a major Broadway theater owner. All three musicals eventually were transferred by the Dodgers to Broadway houses owned by Jujamcyn, highlighting the choreographed dance that can take place between not-for-profit and commercial interests. And like the Old Globe Theatre’s production of The Full Monty (enhanced with funds from the film company Fox Searchlight), it is difficult to argue that these productions were anything other than Broadway tryouts. Whether this illustrates a disconcerting muddying of lines, or instead demonstrates an admirable, or at least necessary, cross-pollination of two worlds (a cross-pollination that has given bloom to a finely honed gem enjoyed by a wide swathe of theater-goers and which, in the process, has funded the operations of an NFP and has given financial nourishment to commercial theater producers arguably immersed in an economically irrational business), is a matter of debate. Whether this growing interconnectedness comes at the cost of the NFP theater developing other challenging and possibly non-commercial works is hard to say, but it is naïve to think an NFP theater has no interest (or should have no interest, for that matter) in benefiting from a financially successful and widely seen production.

Rocco Landesman, head of the aforementioned Jujamcyn, wrote an essay entitled “A Vital Movement Has Lost Its Way,” published in the June 4, 2000, Arts & Leisure section of the New York Times, which has been oft-repeated in the theater community. In the essay, Mr. Landesman talks about the Roundabout Theater, one of the super-NFPs I have referred to occasionally, and the success its artistic director Todd Haimes has had in bringing readily consumable quality theatrical fare to a broad audience: “It would, I suppose, be hyperbolic to say that Todd Haimes has had a more pernicious influence on the English-speaking theater than anyone since Oliver Cromwell (and it wouldn’t be nice, either, since Mr. Haimes is a personable and honorable man), but it can be reasonably argued that the forces of the marketplace through the years have been just as effective a censor as government edicts.” I view Mr. Landesman’s statement as a well-intentioned provocation- with perhaps a modest infusion of mea culpa- for those of us who care about theater to evaluate what effect this marriage of art (in theory, the province of the NFPs) and commerce (in theory, the province of the commercial producer) has had on the theater industry in general and the creative works (or product) it births in particular.

The Super-NFPs: Single and Lovin’ It

Which brings us, finally, to the super-NFPs like the Roundabout Theatre Company, Manhattan Theater Company (“MTC”) and Lincoln Center Theater (“LCT”). Up until now I have been devoting most of my attention to the hungry little NFPs (many of whom I represent and/or on whose boards I have sat). The super-NFPs are interesting hybrids. Like other NFPs, they are supported by government, foundation, and corporate funding. They have budgets in the tens of millions of dollars. They have the cushion of substantial subscriber bases of tens of thousands of theater-goers, which ensures a minimal attendance for their productions. They enjoy substantially lower operating costs during their subscription runs, and have further negotiated a number of concessions for the post-subscription commercial runs. They do not need to worry about repaying investors. And to top it off, they can earn additional revenue by selling corporate naming rights (so now you can watch a Tony Award-winning Roundabout production in the American Airlines Theater – formerly the Selwyn Theater – enjoying an agreeable Sauvignon Blanc and Oreo cookie in the Nabisco Lounge). All of this arguably puts the super-NFPs at a competitive advantage over commercial producers. Moreover, in their developmental theater agreements and enhancement agreement, they are able to exact the largest continuing financial participations (i.e., gross and net profits) of any NFPs should they not move forward with commercial production of a property developed by them.

What really sets the super-NFPs apart from their NFP brethren, however, is the fact that they also happen to operate out of Broadway houses: LCT out of the Vivian Beaumont Theater, the Roundabout out of the American Airlines Theater, and MTC out of the Biltmore Theater. The super-NFPs are unique because they actually compete with Broadway producers. Because they present their works in Broadway houses, they are eligible for Antoinette Perry (“Tony”) awards. LCT snatched the Best Musical Tony Award from commercial producers in 2000 with its production of Contact. Most recently, in the 2005 Tony Awards, LCT’s production of Light In The Piazza won six Tony Awards. This is not an academic matter- commercial producers are now vying for the most coveted theater awards, and audience dollars, with the super-NFPs. These are not struggling downtown theater companies with $300,000 budgets constantly behind on their rent founded by recent college graduates who also take tickets and serve beer out of a makeshift concession stand. These are huge organizations, run by wealthy and well connected boards. They have tens and thousands of subscribers, budgets of tens and millions of dollars. And they operate out of Broadway houses- not to mention on the road, with Roundabout having recently announced that it will produce its first national tour, its successful Tony-nominated New York production of Twelve Angry Men, commencing September 2006.

Whether these super-NFPs serve a critical function in producing high quality theater that would not otherwise have been produced by commercial producers who must answer to investors expecting a return, or act as merely a different type of commercial producer with certain features of a NFP, is the real question. What is not in question is the fact that these super-NFPs are a vital and likely permanent part of the Manhattan theater landscape.

Conclusion

The First American Congress of Theater (“FACT”), the brainchild of Broadway producer Alexander H. Cohen, took place at Princeton University from June 2 through June 5, 1974, for the purposes of resuscitating a very ill (terminally ill, some thought at the time) commercial theater industry. It was followed 26 years later by the Second American Congress of Theater- Act II (“ACT II”), which took place at Harvard University from June 16 through June 18, 2000, and explored the relationship between the for-profit and not-for-profit worlds of theater, and how they could help each other nurture an atmosphere in which new and exciting theatrical works could blossom, artistically and financially.

At FACT, Mr. Cohen warned in his keynote address: “Broadway, Off-Broadway, non-profit, professional, experimental – we all work under a sword of Damocles. The sword has different edges for all of us, but it is the same sword, and it is high time that we began to design a common shield.” In the intervening 26 years before ACT II, the for-profit and not-for-profit world have forged an alliance of sorts. The industry began to recognize that the commercial theater world and the NFP world together could achieve certain objectives that neither could achieve on its own. What came out of ACT II was the sense by some that the alliance requires further refinement in order to better protect both worlds from the edge of the sword, but a sense by others that the alliance had already become too strong, the ties between two worlds too entangled and the final product too compromised.

Most new dramas these days do not have a third act, perhaps an acknowledgment of our collective diminishing attention spans. If the theater community can continue to focus its attention on this complex interdependence between the commercial theater world and the not-for-profit theater world, it will be interesting to see what Act III brings. And hopefully we won’t have to wait another 26 years to find out.

ACQUIRING MUSIC COMPOSITION RIGHTS FOR STAGE PLAYS

Incorporate pre-existing musical compositions into new stage productions

Jason P. Baruch

Jan 1, 2005 — Many theater producers seek to incorporate pre-existing musical compositions in their new stage productions. This might include the incidental or background use of a recognizable tune (e.g., two lovers listen to “Strangers In The Night” on the radio and reflect on the first time they met), the actual performance by a character of a previously published song (e.g., a heart-broken inebriate stumbles through a rendition of “Yesterday” by the Beatles), or the performance of a song in a new “catalogue” show (e.g., the cast sings and dances through “It Don’t Mean A Thing (If It Ain’t Got That Swing)” in a staged musical history of swing dancing). Some producers may conclude that they need not obtain licenses from composition owners to use a song in a live stage production, assuming that their use will be covered by a blanket license issued to the venue by performing rights societies such as ASCAP, BMI or SESAC. But this is not always the case.

When pre-existing music is incorporated on stage in a non-dramatic fashion, reliance on a blanket public performance license from ASCAP, BMI or SESAC is appropriate. However, while the performing rights societies are empowered to grant these so-called “small” performing rights, they usually do not have the authority to license “dramatic performances.” In those instances, “grand” rights must be obtained directly from the owners of the composition, usually the publisher. What constitutes a “dramatic performance” has been the subject of debate and confusion, but typically it includes the use of the composition in venues that traditionally host stage plays in such a manner as to advance a story line or plot, accompanied by pantomime, dance, stage action, sets and costumes. In a simple cabaret act or concert, for example, performers and producers can rely on blanket licenses and need not secure rights directly from the owners; but the incorporation of music in a “dramatic” context is treated differently.

Frequently, a use will fall somewhere between dramatic and non-dramatic, leaving a producer to wonder whether grand rights are necessary. Even when a producer is convinced that a use truly is incidental and non-dramatic (e.g., music piped over the speakers as the audience mills about the lobby or during intermission, a use some publishers may nevertheless argue is dramatic), it must be verified that the venue actually holds a blanket public performance license. Certain theaters may have so little “small performance” activity that a blanket license is never obtained.

In some instances dramatists and producers may opt to take their chances and seek no separate license, even if the use arguably is dramatic. Their reasons are varied, ranging from a lack of time or money, or a belief that the use is so minimal or incidental that a grand rights license is not essential, or the hope that they will “fly below the radar” because their production is so low-profile or of such a limited duration that it likely will be gone before the publisher notices. In some cases, they expect to be confronted by the publisher at some point, at which time they will either cease using the compositions in question or attempt to make a deal (risking the possibility of a claim against them for intentional infringement of copyright and subjecting them to statutory damages, among other things). In some cases, producers believe that if a good faith argument can be made that a particular use is non-dramatic, asking for rights from the owner and being rejected is worse than not asking at all, and they therefore take a calculated risk by proceeding without grand rights.

Ignoring the music-clearance issue or deferring it until a problem arises can prove to be shortsighted, particularly with regard to any music that is important for the production, and an act of infringement is never the preferred route, no matter the temptation. So, for the risk-averse who wish to secure necessary licenses and avoid potential problems, we have some suggestions:

* Identify the publishers of the compositions you wish to use. Usually they can be found by searching the Internet, and they probably will be listed on the CD or album cover in which the subject songs appear. Although you are seeking a grand rights license and not a public performance license, a visit to websites of the performing societies also can yield results.

* Make your initial request for a license as complete as possible. Most publishers will require you to send them a written request for a license. The request should specify the compositions you wish to use, the production in which you wish to use them, the venue, the context in which the compositions will be used and the duration of use.

* Ask for everything you need at once. If you are producing a Broadway production, for example, do not ask simply for rights to use the compositions on Broadway. Try to secure rights to subsequent commercial productions as well (e.g., touring productions) and even stock and amateur productions. Generally this does not entail risk as the fees would not be triggered unless the subsequent uses are made, and it will save the time and expense of going back to request further rights later; or even worse, from being asked for a higher fee than might have been requested initially because the production has achieved some success and/or the composition has become pivotal to the production. Keep in mind, however, that different publishers may control rights to your desired compositions in different countries, so this aspect may indeed have to be deferred. If you will be creating a cast album of your production and want to pay a mechanical royalty below the statutory minimum rate, this would also be a good time to make that request.

* Consider the license fee structure. The range of possibilities vary – from flat fees to percentages of weekly box office receipts or net operating profits, with all sorts of adjustment and allocation formulae. This is where you would do well to consult a general manager or attorney familiar with this area.

* Give yourself plenty of lead time. Unless your sister is president of the publisher controlling the composition rights you are seeking, your project will not be a high priority to publishers. Owners could take weeks or months to respond, or they may never respond at all.

* Be careful when promising all publishers “most favored nations.” Although they will no doubt ask to be treated no less favorably than the owners of other songs to be used in the production, if one song is particularly important or used with disproportionate frequency, you may need to reserve the right to pay a higher fee to the owner of that song without having to raise every other owner to the same level. Conversely, another song may be so incidental and fungible as to merit a lower fee than that paid for other compositions.

* Try not to go too far along with plans or expenditures around the use of a composition you have not yet “locked up” for use. It is always possible that a publisher will ask for something outrageous, or simply say “No, I don’t like your play” or “I am saving this for another play coming out soon.” Have alternatives ready in the way of backup compositions, because you may not get your first choices. On the other hand, if a composition is so vital that the play cannot proceed without it, then obviously do not engage in substantial development of the project until you have that right secured. Needless to say, if you are able to make do with compositions in the public domain and for which a license need not be obtained, you will make your life much easier. As much as we hope these guidelines are helpful, it still would be prudent to obtain expert help not only to ascertain when a grand rights license is necessary but also the best way of obtaining one and what proposed terms should be included.