You should always consult with an experienced entertainment attorney before signing a contract!

Accounting Provisions in Contracts

Studio accounting has always been tricky to understand, for just about everyone. That is why being knowledgeable about what contract terms say in regard to accounting can help writers, actors, directors, and producers ensure they are being paid the correct amount at the correct time.

First, let us look at the timeline for payments. Contracts governed by guilds such as WGA and SAG require productions to pay out any residuals or participation payments on a monthly or quarterly basis, depending on the type of production and where it is exhibited. The tricky part is that a fiscal quarter does not have to match up with a calendar year, so some companies may have their quarterly reports due at different times than other companies. For instance, Warner Bros. has a fiscal year that matches the calendar year, January to December, while Universal has a fiscal year that runs from April to March. Artists should make sure to understand when the company’s fiscal year begins so they do not accidentally think a late payment is one that came early.

When a profit participation or residual payment does come, and hopefully it does, it should be in the form of a check. Along with the check, the artist should always receive a statement detailing market usage, receipts, expenses, and other important information that allows the artist to verify the payment amount. Failure to provide these documents is a breach of the collective bargaining agreement and would need to be rectified. In the case of projects that are not governed by guilds, this failure may be a breach of the contract provisions governing accounting, which is why it is crucial to pay close attention to those clauses.

But what if a payment does not arrive, or what if the payment is incorrect? This is where an audit may be appropriate. Typically, an audit will have to be requested by the artist and will be made at their financial expense, which may not be cheap. However, if the audit uncovers that a large enough error has been made, the studio may be forced to cover the costs. Audits are usually limited to one per year from any single artist. Note that some contracts do not automatically include audit provisions, so this is something that is important to check every agreement for prior to signing.

The accounting provisions in a contract are usually buried deep down among other miscellaneous terms, but they are crucial in determining how and when an artist gets paid after the project has been released. While many major studios may be governed by guild rules that require the studios to abide by specific accounting provisions, independent productions may not be subject to those requirements. That is why artists should know what to look for in these often-overlooked provisions. Knowing these terms and understanding the rights artists should have will help when negotiating for work and allow the artist to prevent themselves from being taken advantage.