There can be no doubt that collecting residuals is big business for the DGA's membership, especially now, as new exhibition outlets and new ways to assign rights are flourishing. Without question, the most powerful tool in the Guild's residuals collection tool kit is the possession of a security interest.
As its name implies, the leverage that this formidable collection device wields has provided a lot of financial "security" for DGA members. And its importance will only grow over time.
In a nutshell, a security interest is like a promissory note on a motion picture that's held by the Guild. It secures the payment of all of a producer's obligations, including residuals, when the picture is distributed. The security agreement is the contract between the producer and the Guild that sets forth the actual terms of the security interest itself and lays out what the collateral is - usually the motion picture itself.
"It's sort of like the mortgage on a house," explained Miriam Lopez, a partner at Geffner & Bush, the law firm that represents the DGA and SAG. "We're taking a mortgage on the motion picture. And we define what it is that we will have a lien on.
"[Security interests] are very powerful tools to ensure performance of the obligations," she continued, "Especially in the motion picture industry, where there's a lot of sales and assignments of rights with pictures. The security interest travels with the collateral, with the motion picture itself."
As a result, Lopez, who specializes in security agreements, explained, "We're able to enforce the security interest against not only the original owner, but any subsequent transferee of the rights. "For example," she illustrated, "One of the remedies that we have is to foreclose against the motion picture, and sell those rights to get ourselves re-paid."
This leverage was especially helpful in a case like Carolco (see accompanying story, page 18), where a company is trying to sell the rights to its library. In order for the transaction to move forward, she said, all security interests need to be resolved.
Collecting residuals from the major companies, however, usually isn't a problem, according to Robert Bush, senior partner at Geffner & Bush. It's the one-shot, stand-alone production companies, the ones that only exist for the life of a project, that frequently wind up short-changing guilds and pension plans, he explained.
"Long after the company has produced the picture and collected the money, it's dissolved," Bush continued. "The production company is gone, and then you realize it owes you a million dollars in residuals payments. Who do you collect that from?" he asked rhetorically. This is why the mortgages are so important.
Lopez estimated that the DGA and SAG are the only two guilds in the industry that are enforcing residual payments through security interests.
Bush added, "One of the things that [DGA national executive director] Jay Roth has done is to make sure that we are aggressively pursuing security interests for the DGA. We have three lawyers who work non-stop on it. The collections have been tremendous. If you have a security agreement and you can't get the money, you go to that company and say, 'Pay us or we'll take your picture.' And," he said, "they pay."
Another reason the Guild's attorneys are busy working on security agreements is because, as Roth stated, "We get security interests from all companies that do not meet a rigorous financial test." The only exemptions are a small handful of companies "with whom we've done business over a period of time and who we believe are not substantial risks."
Roth's motivation is straightforward. "The security interest program, as proven by the Carolco experience, is an essential part of the Guild's efforts to protect and collect residuals for our membership. It is for this reason," he emphasized, "that we devote substantial resources to obtaining security interests in motion pictures."
Neal Yonover is a freelance writer based in Southern California.