Media + Entertainment

It’s no secret that this is a turbulent time for media and entertainment. Among the many significant shifts is a reassessment of value and dealmaking practices around underlying rights, prompting by the emergence of video games, anime, manga, webtoons, and even online native brands (see, for example, Skibidi Toilet) as some of the most valuable available IP. 

Traditionally, most Hollywood rights deals have followed a straightforward template: the studio or production company takes ALL rights in the IP, except expressly delineated reserved rights. If it’s not expressly reserved, it’s granted. If compensation for a particular form of exploitation isn’t listed, then the revenues are either included in a heavily crossed backend definition, or the underlying rightsholder isn’t paid at all for that form of exploitation. This is not acceptable to owners of valuable IP, for reasons that should be obvious. 

Before we explore some current trends, it’s important to note that rights deals are not one-size-fits-all. Terms will depend on a variety of factors including the form of underlying property, its prominence and existing commercial success, existing forms of exploitation (if any), the geographic location of the rightsholder, whether it’s a competitive situation, and the interested/attached talent. That last piece remains key in Hollywood - while, with everything else being equal, a videogame is more valuable than any book not titled “Harry Potter,” it’s still hugely compelling to have directors and actors interested in committing to a project - and the recent blockbuster result for “The Perfect Couple” on Netflix demonstrates why. 

With that said, some trends:

1. Rights Grant Versus License

As noted above, the default in Hollywood is for the producer/studio to take the entire world of the IP, less solely what the rightsholder reserves (for authors, typically publishing, live recital, radio, and author-written sequel rights). By default, that means that videogame, theme park, location-based entertainment, merchandising, and other rights are granted, both in the new production and the original IP (meaning that, as between the parties, the TV/movie studio would be the party that has the right to produce merch or a videogame using the aesthetic of the underlying work). Moreover, any form of exploitation that was not expressly contemplated at the time would also be granted – meaning that by default the TV/movie studio would be the party who gets to exploit the IP in any new or emerging form of technology.

That's a nonstarter for most Japanese companies, and a lot of videogame companies (and thus, obviously, Japanese videogame companies). Instead, they may insist on a license structure, whereby the buyer is granted only a license to produce films and/or series, and exploit certain delineated ancillary rights in those productions. Put in simple terms, the onus is placed on the buyer to delineate the rights they want to acquire – and often, to have to justify why they want those rights to be granted, and what the rightsholder will be paid for their exploitation. While this is not a customary structure for film and TV studios, if they want access to manga, anime, and many videogames, this may be a non-negotiable. 

2. Splitting Animation Rights 

This is an interesting one. There is a lot of precedent historically for animation rights (especially TV animation rights) to be controlled and/or distributed by different parties than live action rights, and for the two to coexist. Many of those examples are toy-derived (e.g., Transformers, TMNT, Masters of the Universe, Barbie). Since the 1980s, it has not been uncommon to see live action movies and animated series live side-by-side in those certain limited circumstances. However, it is not the norm. Generally speaking, buyers will require all rights – both live action and animation – to be granted, either because they have present plans and capabilities to develop them simultaneously or, more often, “just in case.”

However, we are starting to see a greater push by rightsholders to reserve animation rights and/or split the live action and animation rights. This is most acute with Japanese companies, who will almost always want to reserve Japanese-language anime rights (with the right to subtitle/dub). Again, the onus is probably on Western buyers to acquiesce and let the two coexist, comfortable that an anime series will not cannibalize a live action adaptation (see, e.g., One Piece). We have even occasionally seen scenarios where there is a bifurcation between the animation rights, so that a Japanese company controls all original anime rights (originally in the Japanese language) and a US buyer controls all “Western” style animation rights (e.g., CGI).

As a side note, videogame companies will usually want the right - at minimum - to produce cinematic trailers and short form audiovisual content to promote their games. This requires careful and precise drafting to specify what precisely is permitted, as well as – probably – coordination between parties, particularly if the goal is to create a cohesive “story world” and narrative in a “transmedia” style.

3. Cross-Participations

We are increasingly entering a paradigm whereby the rights in an IP may be shared by two or more companies. For example, a buyer may control film, television and certain related merchandising and location-based entertainment rights (branded and associated with their productions), while the underlying rightsholder controls videogames, game-based merch, and publishing. Depending on the positioning of the parties and their respective plans, cross-participations may be appropriate, whereby each party participates in the success of the exploitations by the other.

This can take various forms. One is an “uptick,” whereby a party participates only in profits over and above a certain threshold. For example, a book author sells $X of merch in 2024, which increases to $Y in 2025 when the movie adaptation is announced. The difference is the “uptick,” and the studio receives a percentage of that uptick.

Alternatively, it may be a straight royalty or net revenue participation. In either instance, one typically has to negotiate the terms of the definitions – which may be complex and which will almost certainly be tailored by media. This is where these deals get extraordinarily tricky. The expertise of most television lawyers is limited specifically to television, and they may not be familiar with how a feature backend works (for studio and/or independent features) – let alone what would be appropriate for a podcast, manga, videogame, or soundtrack. There are also issues around accounting and audit, which may be moot in failure but will become extraordinarily important in success. Collaboration and communication therefore becomes key, in addition to knowledge and understanding of each separate form of media. This is one area where our firm excels and is one reason why we are a leader in this space.

4. Reversion Trends

While the first two trends above would seem to favor rightsholders, we are also seeing the emergence of some newer and generally very aggressive buyer-favorable trends in the area of reversion. 

As a prelude, it’s important to note that reversion as a concept has changed. By default, a film/TV buyer has a period of time (usually 1-3 years in TV, 5-7 years in film) to commence principal photography once the option has been exercised. Once the buyer has produced one movie or some number of seasons of TV (usually one or two), there is no reversion. That means the rightsholder has no contractual right to get the granted rights back, even if they are never exploited again. 

That concept has, understandably, come under some scrutiny recently. A videogame publisher or major toy brand should never agree to this - and I’d say it’s fair to say that rightsholders across the board are questioning the business sense of agreeing to a reversion cutoff. Let’s be clear: reversion cutoffs today are about increasing the “IP libraries” and book value of conglomerates. 

This has led to the rise of the “rolling reversion” (also known as “use it or lose it”). Under this structure, the buyer must keep making movies/shows or lose the right. Most laypeople are familiar with this concept via an understanding that Sony must keep making Spider-Man movies on a rolling basis every few years, or lose those rights. 

Accompanying the desire for rolling reversion has been a pushback against long reversion periods. Videogame companies in particular are especially wary of locking up their rights for extended periods without commitment to produce. Theoretically, a movie/film studio could keep an IP under option for three years under a standard structure, and then exercise the option and (under a normal movie structure) have another seven years to actually produce a movie. That’s a nonstarter - as it should be - for a high level rightsholder. They are looking for much shorter periods, often with some kind of “path to production” process whereby the buyer must hit certain development deadlines by specified dates. 

With that said, we’ve recently seen some egregious asks from buyers relating to reversion. The first is the concept of passives. This is the idea that the buyer gets paid (and sometimes credited) on every production based on that IP going forward, despite not being involved with it. While this might be justifiable if it’s an unknown IP that the buyer brought into the public consciousness, very often it’s an unjustifiable tax on the IP. Let’s imagine you have a video game, or anime series with an existing fan base. A buyer acquires the movie rights and makes a movie. That movie bombs and the buyer doesn’t make another. Now that buyer wants to get paid on every movie based on that game or anime going forward? Absolutely not. That’s an indefensible land grab, and a reward for failure. 

Fortunately, we don’t have to discuss this in the abstract. We can look at a very recent example: Borderlands. The Borderlands videogame has sold over 85 million copies across three mainline installments plus spinoffs. It is therefore, by any metric, a successful and valuation IP. By contrast, the recent Borderlands movie was critically panned and a financial disaster, grossing around $33m worldwide against a $130m budget – and certainly not delivering any kind of “backend” back to the rightsholders. Let’s imagine that the rights revert and at some point in the future, a new adaptation of the games is created by a third party studio. What possible justification could Lionsgate, the studio that produced the 2024 adaptation, have to participate in that new movie that goes “back to the source” and adapts the existing games without using any original or protectible element of the Lionsgate film? It’s simply indefensible.

The second concept is that of repayment. If a buyer exercises an option and pays a purchase price, but never makes anything, but then a subsequent buyer acquires the rights post-reversion and gets a production made, it’s customary and reasonable that buyer one is repaid from the budget of buyer two’s production. Now, many buyers also require interest on that purchase price, which is a topic for negotiation. 

Now, let’s imagine that instead, buyer one made four seasons of television, or three movies before the rights reverted. In that circumstance, the buyer should not be repaid the purchase price. The buyer has gotten the benefit of its bargain, and it has episodes/movies based upon (and embodying) the underlying rights that it can continue to exploit in perpetuity. By demanding repayment, the original buyer is effectively asking to get those rights for free - even though it is continuing to exploit the productions based on those rights. When I encounter this position, my initial reaction is that the other side is simply confused as to how reversion works (and indeed, most people drop it once it’s explained). However, it’s clear that some companies are taking the position intentionally, which is egregious and should not be accepted - unless, perhaps, the first buyer is prepared to let the rightsholder and all subsequent producers use all new elements created by that first buyer for its adaptation (which would not be the default). 

If there is a takeaway from all of this, it is this: the “standard” deal still prevails, but is becoming scarcer, especially for higher level IP. Every deal has its own nuances and complexities that must be looked at carefully - and we haven’t even looked at a lot issues of other germane issues such as trademark nuances, or approvals and controls (which we did discuss here). 

You can end up living with a rights deal for a long period of time – and often perpetuity – so it is worth careful thought and consideration.