The trouble with TV commercial production contracts

This post is by Clive Duncan a Senior Consultant at TrinityP3. As a Director and DOP he has an appreciation for the value of great creative and outstanding production values, while also recognising the importance of delivering value for money solutions to the advertiser.

Management of the process of TV commercial production can cause major headaches and financial problems for advertisers. Previously, I have talked about the best remuneration models for producers in order to help you identify the pitfalls and benefits of the various models.

This time I’d like to look at the two most common contracts used  for TVC production and the risks that are involved with using either of these.

TVC production contract

The SPAA Contract

The SPAA (Screen Producers Association of Australia) contract is often thought to be the mandatory contract when engaging a production house to produce a TV commercial.

This is not the case.

There is no “ mandatory” contract between the production company, the client or the agency. The SPAA contract, due to inaction by both the agencies and the advertisers, has by default filled this void, but it is not mandatory to use it.

The SPAA contract was drafted by TV commercial producers years ago. And as one would expect is heavily weighted to the advantage of the producer. Since the 1980s when money sloshed around on the deck of the good ship Advertising many things have changed, unfortunately the SPAA contract is not one of them.

Usually the agency signs the SPAA contract on behalf of the client.

What’s in the SPAA contract?

Most clauses in the SPAA contract are fair and reasonable and pertain to terms of payment and compensation for cancellation or postponement of a production.

But there is one clause in the contract that I find bemusing to say the least, and that is the clause pertaining to the contract being a fixed price contract. It states that once the contract is signed, if the scope of the contract is diminished then the cost will remain the same but if the scope of the contract is increased then of course the cost will go up.

The clause goes on to state that the fixed price is an estimate not a quote and the cost included are assumptions by which the agreed or estimated cost is calculated…

It then goes on to say that the producer has the right to re-allocate funds from one cost center to another if the estimated funds required in the initial cost center are not required in full.

Now this seems fair enough at first glance but when you realise that every cost center (in the contract) has been calculated to worst-case scenario parameters then it is obvious the extra funds will not be required in any-other cost center as all cost centers have been calculated to the maximum required.

So where do these unused funds go? Into the profit margin of course.

I know this because in a past life I was a production house producer.

No production house producer I know has any pangs of guilt regarding this loophole they exploit, as they believe that  “the signatory of the contract must see how the contract actually works”. But as I have stated above, usually the agency signs the SPAA contract on behalf of the client. Most advertisers don’t know what is in the SPAA contract until something goes wrong.

The clause pertaining to the re-allocation of funds within the various costs centers in the contract is the one that has the most obvious impact on the actual cost of the production. There are several other clauses in the SPAA contract that are vague and heavily weighted in favour of the production house.

I suggest that you get a copy of the SPAA contract from your agency, read it and draw your own conclusions.

Also as I have stated above the SPAA fixed price contract is not a mandatory or even industry approved contract, yes it is “favoured” by the production houses but they are only part of the industry.

Recently (and I mean in the last few months) another production house / agency / client contract has entered the scene, this contract has been formulated by a group called the Commercial Producers Council (CPC). This is a sub group of The Communications Council (TCC) an association of advertising professionals drawing from a wide range of disciplines from TVC producers to PR practitioners and every one else in between.

The CPC is a group of mostly Sydney based production houses whose prime motivation is the formulation of a contract to replace the SPAA contract industry-wide, or just for the CPC members to use instead of the SPAA contract.

As those formulating this contract are TV commercial producers it is easy to see why the contract is skewed in the production house’s favour just like the SPAA contract.

What’s in the CPC contract?

The CPC contract has several clauses which would allow the production house to make a claim for extra funds should the TVC(s) be rolled over, or exhibited outside the territories stated on the original contract – similar to the roll over and foreign use clauses in actors’ or musicians’ contracts.

The CPC contract does not state that the production houses will actually make a claim should the TVC(s) be rolled over, but the actual media specifications being included in the contract will make it easy for them to make such a claim should they wish to do so.

I have heard many production house producers bemoan the fact that they are not included along with actors and musicians in their roll-over remuneration. This of course brings up the intellectual property rights of an entity that commissions a work that contains creative elements and their rights to the work over and above those of the individuals that were commissioned in the first place.

The CPC contract does have some clauses pertaining to insurances that I consider worthwhile, but there is no explanation in the contract (as there is in the SPAA contract) pertaining to the allocation of funds within the cost centers in the contract, should the scope of work be diminished after the contract is signed.

There are both good and bad clauses for a commissioning advertiser in both the SPAA and CPC contracts. I believe that a fair contract for all parties would be a mixture of the SPAA and CPC contracts and of course the advertisers’ terms and conditions. The big problem is that usually advertisers don’t have their own set of terms and conditions pertaining to the production of TVCs and this is what seriously needs to be addressed.

As my colleague Darren Woolley often states when discussing contracts, the “golden rule” should apply i.e. the person with the gold makes the rules.

If your annual production budget is over $5 million it’s time you looked at formulating your own production house contract and addressed the discrepancies between what you should be paying and what you are actually paying.

How effective is your TVC production contract? Are you paying too much?

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About Clive Duncan

Clive has spent all his working life in the film and television industry and was invited to join the TrinityP3 team as their TV production senior consultant. Clive has the unique advantage of having hands on experience at almost every level of TVC production and understands the complex relationships required to produce creative and cost effective TVCs. View Clive's full bio here
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3 Responses to The trouble with TV commercial production contracts

  1. Anne Miles says:

    A good agency producer will be on top of this from the beginning and make sure any suppliers are working within guidelines that don’t conflict from with the clients. Most producers I know issue terms of their own that supercede these anyway, so the CPC and SPAA agreement are voided on issueing an order anyway. Agreements can be mutually agreeable however and at least be clear terms of engagement. The real key is in making sure both parties are protected creatively – clients are getting what they expect and suppliers are protected from needless subjectivity. That’s both in term setting but more so in the project management.

    • TrinityP3 says:

      So Anne, are you saying that it is okay for the agency to enter into an agreement with a third party on behalf of their client, without the client being aware of the term of that agreement? And what if the agency is a subcontractor to the client and not an agent, where the agency has no rights to bind a client to a third party agreement without their written approval? Is this okay? How often did you as an agency producer made sure you client saw the production contract and asked them for specific written permission to accept the terms of that contract?

  2. Anne Miles says:

    Agree that the agency needs to make deals consistent with their terms of trading with their clients – I didn’t say otherwise. Raising this in an article like this is useful for those without experienced producers on board but my point was that a good one makes the deal in a way that supersedes these terms anyway. Like with photographic rights – they don’t apply across the board if negotiated with the client’s needs in mind up front.

    Like you say – some relationships are not agent based and the client needs to make the deal directly. Not sure why you’re jumping on me about this as nothing I’ve said disagrees. The point I made was purely that a good producer manages this process, as s given, and supercedes the terms Clive mentions with terms that fit the client as part of the breif or on issuing Orders. Not once did I offer the supplier contract to the client in fact because the negotiation always had the terms set consistent with the client’s needs and was enforceable by the agency agreements in place. Any terms that applied were approved in advance and transferred through agreements both ways. There are many that don’t know how to manage this process which is why this article exists and will be of value of course but having clients go over supplier terms that are null and void may be pointless too. The key here is in getting the right producers to manage the process that’s all. I’m sure you can’t disagree with the value a good producer brings to a client.

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