Royalty Reductions, Deferments and Caps

ROYALTY REDUCTIONS, DEFERMENTS AND CAPS

A Producer may not be able to persuade an Author (or their agent) to work within a Royalty Pool formula and almost certainly this will be the case with a small straight play. There are, however, other methods, frequently used to help the Producer either to reach Recoupment within a reasonable period of time or to assist the Producer to keep a show afloat during periods of low Box Office income. These include:-

Caps

A royalty cap can be pre-negotiated (requiring the agreement of all Royalty Participants) to allow the Producer only to pay Royalties up to a specific level of Box Office income. For example, the theatre at which the play is going to open may have a Net Box Office Potential of £100,000 at capacity, but an agreement could be reached so that the Royalty Participants will only be paid their royalties up to 70% of that figure, so that if the Producer really got lucky and played in excess of 70%, any box office income in excess of £70,000 would be Royalty free thus hastening the point of Recoupment. Such an agreement would only be until Recoupment is reached, at which point the Cap would be removed and Royalties paid on the actual Box Office figures.

Reductions and Waivers

When shows run into trouble at the Box Office and fail to meet the weekly running costs, the producer has three options:

1)  Close the production.

2)  Keep the show running and suffer the losses.

3)  Reduce the costs and try to keep the show alive.

Option 3 is normally the first to be tried. So what reductions are possible? Almost certainly the Producer will approach the theatre and seek a reduction on the rent, and unless the theatre has another show lined up to take over immediately, the owner will usually be helpful. The other main area of possible saving is of course the Royalties, and an approach at this stage to the Author’s Agent will generally elicit at least a temporary reduction. It is, after all, hardly ever in the Author’s best interest for the Producer to have to close the production. The Author will expect that all Royalty Participants accept the same formula for cuts and will always be more willing to help if the theatre has been accommodating.

A waiver is the best kind of Royalty reduction and simply allows the Producer to continue to run the play for a period paying little or no Royalties at all. It would only be in extreme circumstances and with a very understanding Author that such a waiver would last for long.

Deferments

Often the basis on which an Author’s Agent will accept a Royalty cut or waiver is that should the play get through the poor Box Office period and start to make a weekly profit paying normal Royalties, then any Royalties that have been reduced or deferred should start to be paid back to the Royalty Participants over a period of time. This is called Deferment and may be the price the Producer has to pay to get help when it is most needed. Take care, however, as Deferments over a long period can build up and make any possibility of future weekly profits very remote.

Part of a Producer’s skill must be to negotiate areas of possible savings when a production fails to sufficiently attract and, of course, to get the best possible production values within a finite budget. Producers now rarely open cold in the West End. Shows tend to open in the Provinces where good financial deals can be struck to reduce the Capital at risk. But while the risk is always present, if the Producer has done his/her homework diligently and has got his/her sums right, the risk is properly assessed, managed and minimized.

© Andrew Treagus