Easy Budget Articles 6/14/09 11:48 AM

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The TRUTH about the SAG Ultra Low Budget Agreement

by John G. Thomas

We independent producers are the future of film and video entertainment.

We break new ground every time we go to work while the major studios
turn out yet another Spiderman or Ironman with wall-to-wall effects and no
discernable story.

So, like many filmmakers I was excited when I first heard about SAG’s
attempt to cross the street and work with us. Actors for a hundred bucks a
day, relaxation of all those silly rules and regulations, no first class airplane
tickets for actors and more – heck the Ultra Low Budget Agreement seemed
like a fantastic idea for productions budgeted less than 200K.

“SAGIndie,” as they’ve chosen to re-cast themselves, has even gone so far

as to stage monthly “contract workshops” to cleverly “explain” the wonders
Articles of this new agreement to all comers.
Ten Things Every Producer With SAG, as always, the devil is in the details.
and Director Should Know
Ten More Things Every Paragraph 1 of the Ultra Low Budget agreement says, in part:
Producer and Director Should
“It, (the Ultra Low agreement) is not intended for pictures produced for
Know
television broadcast, cable use, video/DVD markets or otherwise produced
Making the Tin Man: How I
primarily for commercial exploitation.”
Made My First Feature Film
Translation: Go ahead and make your movie but you’re not supposed to
Chapter 1
sell it.
Chapter 2
Chapter 3 Well, that’s just great, huh? (Unless you’re making movies only to give a
Chapter 4 free copy to Uncle Harvey.) It’s what SAG doesn’t tell you in those oh-so
Chapter 5 informative workshops that’s most important.
Chapter 6
Chapter 7 However, you will benefit from this agreement if you meet all of the
Chapter 8 following conditions:
Chapter 9
Chapter 10 1. Your production must cost less than $200,000.00.
2. Must shoot entirely in the U.S.
It’s Just Some Extra 3. Cannot be animation.
Zeros... 4. No music videos allowed.
All About Completion 5. All the financing must come from the U.S.
Bonding Companies 6. You can only distribute the picture, (sell tickets, make money) in
Money Savers! mainstream “commercial” movie theaters.
The Strange Tale of Peter 7. You’re not interested in making money from DVD, television, the
Borg Internet, foreign sales, etc.
An honest look at film So, does any of this apply to your production?
festivals
The Death of the Hollywood Ask yourself: When was the last time you heard about a film that cost less
Dream Factory than 200K with no big stars that was picked up by a major studio and
The TRUTH about the SAG

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Easy Budget Articles 6/14/09 11:48 AM

The TRUTH about the SAG opened in 3,000 movie theaters?

Ultra Low Budget Agreement
(NEW!) Sorry, the so called “art theaters” don’t count. SAG has a list! Go ahead, try
and convince a major theater chain to show your unheard of movie without
a 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 your
investors) from the very first dollar that comes in.

Here’s how it really works:

The Ultra Low Budget Agreement, (and all the other low budget
agreements) are simply modifications of the “Basic Agreement.” The Basic
Agreement, (which you must sign in addition to the Low Budget Agreement)
is a 2 to 3” thick, complex, conflicting and all but indecipherable rule book
that was written years ago for the exclusive benefit of SAG and the major
studios, (all the AMPTP members we’ve come to know and love). If you’ve
got nothing better to do for a few days and you have plenty of strong
coffee, take a look at it.

In the Basic Agreement, the producer or studio must first pay the actor for
a days work.

Okay, done.

In exchange for the actor’s services that day the studio gets to make all the
money it can from theatrical exhibition, (i.e., movie theaters). Even movie
theaters in foreign countries are included in the package! (That’s why some
studio films remain in some movie theater, somewhere, for a long, long
time.) 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 movies
starting making money all over again, SAG came up with residuals. They
said, “Go ahead and make all the money you want in the theaters but now
we want a piece of that tasty TV pie!” Everything after the initial theatrical
showing 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 theatrical
release, you owe them money for every TV or cable showing, every Internet
download, every foreign sale and every DVD you ever hope to sell – from
day one.

SAG owns a piece of your film forever – and the part that they now own is
superior to yours. Like the difference between preferred and common stock
in a company. Only you've got the bad stuff.

That’s why the Ultra Low Budget Agreement, (and the other low budget
agreements) say, “…and shall not be reclassified as a ‘Made for Pay’ or ‘Free
Television’ motion picture.” Otherwise, you’d be able to make some money
for all your hard work and the money you paid the actors because video

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would be your production’s initial, “free money” exposure.

Of course, SAG would never want THAT to happen! Why? Because it would
benefit the independent producer at the expense of their most important
customers, the major studios. Remember, it was SAG and the AMPTP who
wrote 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,” some
clearly written out, but most of them hidden where you can’t see them – on
purpose.

While no residuals are due from the initial theatrical release, (which
99.99999% of independent producers will not get) SAG members are
entitled to residuals between 4.5% and 5.4% of the gross revenue from
video/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.” Billy
Mays 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 pretty
accurate). SAG, in effect, will want residuals from 85% of a film’s
international gross revenue. That’s based on 85% of what the distributor in
Poland made, not what they paid you or your investors as the “minimum
guarantee.” (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 your
movie and you’ll never make a cent. There are many cases of producers
who 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 to
pay 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 most
vulnerable!) 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 start
all over again. Maybe your crew is still there, maybe not. What about the
cast - who knows? SAG’s unwritten policy, (like any tough businessman
would do) is to always wait until the filmmaker is weakest and then nail
him.

SAG will also require that any distributor who sells your film sign a
Distributor’s Assumption Agreement to bind the distributor to your
agreement with SAG. The major studios always sign, but most independent
sales agents will simply laugh in your face.

Recently, SAG has begun to require yet another agreement be signed called
the Laboratory Pledgeholder Agreement. This is just like a Laboratory Access
Letter, (which allows your distributor to make copies from your master to
sell). Except with SAG, it's just the opposite! Nobody has access to your
negatives or digital master until SAG says okay.

SAG also may require a Collection Agreement. All of your money goes into
an escrow account and you’re last in line - again. Remember, they get their
money from gross, while you get yours from net,. This is in addition to
what’s called the UCC, a sort of legally-binding mortgage on your film,

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(forever) which you must sign and is registered with the Secretary of State
for good measure. This is not negotiable.

Oops, don’t forget that you’ll always be required to make a cash Salary
Deposit in addition to what you’ll pay the actors – even if all of their
salaries are already placed in an escrow account or with a payroll company
for safe keeping. They know you’ll need this money later for post and they’ll
grab as much as possible and give you what’s left. The fun never stops with
SAG.

Don’t forget the other conditions of the Ultra Low Budget:

If an actor gets a better offer during your shoot, they can leave
any time they want.
Still have to pay pension & health, (about 15% additional)
payroll taxes, (17-20%) etc.

Must pay 3.6% of any Internet monies directly to the actors.

All the so-called “Alice in Wonderland” rules and penalties still

apply like: meal period violations, turn-around time rules,
assorted liquidated damages, rest period incursions, overtime,
travel time, stunt adjustments, etc., etc.

In general, you must follow all the other rules and regulations of
the Basic Agreement except those specifically excluded or
modified by the Ultra Low Budget Agreement.

In fact, if you put a pencil to it, SAG’s regular Television Agreement is a

better deal for even the low budget independent producer!

Of course, the SAGIndie folks will rarely ever mention any of this to you
during their helpful monthly “workshops.”

They know that if you knew the facts you’d never deal with SAG!

These loathsome agreements have been made to suit the major studios and
the way they do business. From a strictly administrative point-of-view, we
independents are a pain in the ass for SAG. I’m sure they wish we’d all just
shut up and go away.

Let’s face it, the independent producer of a film budgeted less than
$200,000.00 has nothing but the residual markets to look to for any
potential profit. If we can’t make a profit in these emerging markets we
won’t be making too many films in the future, will we?

To be fair, SAG is simply enforcing the existing rules and trying to make
sure their actors are paid the residuals they are guaranteed by their
contract. Sure, they’re aggressive and dysfunctional, but as long as they
believe they can get away with it, they have no motivation to change. Fact
is, if it weren't for the big name stars and familiar character actors there
would be no SAG at all. A good friend-of-mine who's a member of SAG said
that "If the members knew what their guild was really doing they'd be
marching with torches down Wilshire Boulevard to SAG headquarters!"

And please don’t assume that I’m anti-union! In fact, I’m 100% PRO-
union. ALL of the other entertainment unions actually want their members
to work, set high professional standards and will bend over backwards to
support and help you get your film made. They represent the BEST film
professionals in the world.

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But what does it say about a labor union when 97% of their members are
unemployed and “screw the independent producer” is their mantra? The
actors deserve much better than what they've got.

Just remember you can hire all the SAG and non-SAG actors you want with
Financial Core. AFTRA should be strongly considered as an option as well.

I welcome your rants, raves, questions and comments. Email: john at Easy-
Budget.Com

Additional information:

The Indies New Battle: SAG Residuals A Holdover From Old Hollywood (A
legal perspective)
http://www.rmslaw.com/articles/art80.htm

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Last Updated in May, 2009
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