SEIDEL, GONDA, GOLDHAMMER & ABBOTT, P. C,
PATENT AND TRADEMARK ATTORNEYS
SUITE I500 TWO PENN CENTER PLAZA
PHILADELPHIA, PA. 19IO2
June 25, 1987
Mr. Stanley Caterbone, President
FMG Advisory, Inc.
Eden Park II
1755 Oregon Avenue
Lancaster, PA 17601
RE: Power Station
Our File: 7351-G
I have now received the results of a search pertaining to the above subject. I have also reviewed the file forwarded with your letter of May 29. The following is my analysis and evaluation of the right to use “Power Station” as defined below.With kindest personal regards,
As I understand the situation, your business client, Power Station Studio, has, since 1977, operated a recording studio with a widely regarded reputation for providing high quality recording services using state of the art equipment. The enclosed report reveals that Power Station studio has registered the trademark "Power Station" for sound recording studios. (See Reg. No. 1,433,328 registered March 17, 1987.) You have asked me to investigate the possibility of Power Station expanding the use of its mark into men's and women's clothing including beachwear; and for audio and video electronics for consumers and professionals. I have assumed that this latter category includes radios, television receivers, video cassette recorders, audio recorders, compact disc players, turn tables, amplifiers, receivers, tuners, control panels, mixing boards and consoles, among other things.
Based upon the results of the enclosed search, it is my opinion that it would be inadvisable for Power Station, Inc. to use its mark for clothing as aforesaid. The basis for my opinion is Registration No. 1,431,242 registered March 3, 1987 for "Power Station". The registrant claims a first date of use of April 3, 1986 for women's clothing including swimwear and other goods as listed.
Although your client has a strong reputation, and although it has priority of use for the mark, this registrant has a strong position for arguing that it has superior rights for women's clothing. One would not ordinarily associate clothing in any way with recording, studio services. Thus, your client's rights in its mark do not appear to dominate those of the registrant's. Accordingly, use of the Power Station mark for women's (or men's) clothing would involve a significant risk of being accused of trademark infringement.
Use of the Power Station mark for consumer and professional audio and visual electronic equipment raises some issues, but on the whole I am of the opinion that it is permissible. Again, I assume, as I have been informed, that the Power Station studio is well known and does have a good reputation for its existing services. Given that, its movement into electronic equipment should be permissible. Here the good will associated with its current services can be more readily extended to audio visual electronic equipment.
The search reveals that Manville Corporation's Ken Caryl Ranch is the owner of the mark "Power Station" for battery operated emergency electrical power supply units. See Reg. No. 1,040,308 registered May 25, 1976 and claiming a first date of use of November 23, 1970. In my opinion/ audiovisual electronic equipment can be considered to be sufficiently unrelated to emergency electrical power supply units to avoid a likelihood of confusion even though the marks are identical.
I reach the same conclusion regarding the pending application by Electrical Conductors, Inc. for a multiple outlet power strip. A closer question is raised by Gould's Supplemental Register registration for Power Station for mini and microcomputers. Gould's mark is registered on the Supplemental Register undoubtedly because "Power Station" as applied to computer equipment is considered to be descriptive. A Supplemental Register registration has none of the procedural benefits of a Principle Register registration. Moreover, if Gould's use of the mark is limited to a particular market which Is distinct from your clients/ there does not appear to be a likelihood of confusion. Thus, Gould may be selling its computers into a specialized commercial market if it is presently selling computers at all.
Next I call your attention to the fact that several radio stations have adopted and are using the trademark "The Power Station" in various cities throughout the United States. Conceivably, these radio stations could object to the introduction of consumer electronics into their market area on the ground that the use 'of the same mark implies sponsorship by them. I note that all of these marks were recently registered, and I suspect that all of these radio stations are related or commonly owned. I also suspect that the adoption of this mark may be of recent vintage. Thus, your client in any negotiation with these people would have the advantage of being a prior user, and the relationship between recording services and electronic equipment on the one hand and radio station services and electronic equipment on the other hand is at least co-equal. Thus, your client should have the dominant position.
In view of the foregoing, it is my opinion that The Power Station should not adopt or use "Power Station" for men's and women's clothing, but it may adopt and use the mark for professional and consumer electronics as described above with the understanding that the matter is not entirely without doubt and issues could arise. It is, however, my opinion, based upon the facts presently available to me, that The Power Station, Inc. should prevail if those issues arise.
If you have any questions concerning the foregoing, please feel free to call me.
SEIDEL, GONDA, GOLDHAMMER & ABBOTT, P.C.
SONY CORPORATION DIGITAL MOVIEI, Scope of Project
JOINT VENTURE PROPOSAL
II. Marketing and Distribution
III. Financial Proposal
Tony Bongiovi and Power Station Studio is about to undertake one of the most interesting projects in the entertainment industry that the Business World has ever seen. His fascinating elements of this project are as follows:
A). Musical Overtones
C). Marketing and Distribution
D). Limited Downside Bisk Potential
When you put all of the above elements together in any business venture you have a very strong and powerful entity. Now, put the above elements in one of the largest and most visible industries available in the Entertainment Industry.
We want to position Sony as the printer manufacturer of Professional Recording Equipment in both the Record Industry and also the Theatrical and Video Industry as well as Television and Pay TV. In addition and even mare important we would like to credit Sony with contributing in the development of the Sony/PSDMS© Digital Recording System that will recognized throughout the World by way of several different medium exposures. This will have tremendous effects in the way of increased sales in both the Consumer/Retail level as well as the Professional Environment.
SCOPE OF PROJECT
In the following paragraphs I will address the above elements and prove to support the potential for this project. The Movie was developed to help Tony Bongiovi take his creative and genius talents in the music industry to capture other industry's that are complimentary - theatrical, television and cable, video, international film and now electronics manufacturing. Because of Tony’s -track record and accomplishments in both technology and musical production — Bon Jovi! The film already will have appeal through the feature of his latest band French Lick. Tony has used the same musical format for their first album as he used for Ben Jovi, which has sold nine ail lion albums thus far — no album has ever sold sore albums in its first six months in the history of the recording industry. Because of the timing of the album — which will dominate the musical score — the two should and will compliment one another very profitably! To further the marketability of the picture he wrapped this into a horror script — widest marketability due to international distribution — and an element that will prevent the "critics" from influencing the audiences!
To add further to the project, Tory will produce the first movie ever with a digital sound track from set to theatre and video. This technology alone would cost anyone else 190% of the total budget just for the sound production. This is when the project gets interesting as far as marketing and distribution is concerned. Because of the exclusivity of the technical elements and the "band", the marketing and distribution should be powerful alone in even the most conventional deals.
MARKETING AND DISTRIBUTION
Now lets take this project and look at it with regards to two elements:
a). Video Industry
b). Digital recording and playing
The video industry is a 56 billion dollar industry that is in need of product, when you look at the potential for a product that will be the first actual product that will compliment the fast paced VCR/Stereo Entertainment components with a Musical score that nay have enough merits of its own—you have an amazing potential for distribution!
The Digital and Disc Industry has proven to be the future standard for recording and playing in due time. Because of its newness, there are more people who have yet to hear the digital sound. Because of the visibility and exposure that will come from this project—this could be the first time ever people hear digital by way of theatre and video! As to how many people? 1-10 - 50 - 100 million?
Well, what win be their first reaction? I NEED TO BUY A DISC PLAYER!
Their second reaction will be I WANT TO HEAR THAT SOUND IN MY NEXT TV SHOW, VIDEO, MOVIE, ETC.,
We would like Sony to commit fifteen million fear three to four future products that will follow the same format as the Mutant Mania Project so that Tony and Sony will position themselves as the pioneer and leaders in the industry. This will not allow composition to gain assets to the marketplace until we are all firmly situated and profitable.
We will also assist in any way possible in the distribution of the theatrical and video distribution.
In a 60 second spot in the beginning of the video, we will do commentary on Sony and its contributions to the Digital Industry and the difference between conventional and digital recording.
I) The spot will be a commentary with music from French Lick in the background. The commentary will discuss the Sony/PSDMS© SOUND SYSTEM and the process by which the PURE SOUND Is developed. To send home our point the "Difference Test" will be used. The movie Mutant Mania will be promoted as the FIRST Feature Film to use this system.
II) Through a merchandizing campaign using the video, (similar to Top Gun"), We will market a full line of Sony will offer a low budget but profitable disc player to all purchasers of the video. The offer will be at wholesale prices. The reason for the low budget product is that we hope when people actually get to the store they will upgrade and buy at full retail!
For Sony it will automatically insinuate that Sony is responsible for Tony’s technical accomplishments — from the view of the audience — which Tory will not be concerned with. It will also promote all of Sony's entertainment products.
We will also develop a "60" second spot to be used on television to promote the (entire project for both Sony and Tony Bongiovi).
III) We will also include Sony Equipment in the PSDMS© System that will be needed to convert the Theaters to the New Sound System. We will convert the Theatres Free if the Theatre commits to showing the next THREE BONGIOVI PRODUCTIONS. This will give us a guaranteed continued exposure and will give us guaranteed distribution for both Sony Software and Bongiovi/Productions. We will recover the true costs of equipment from distribution profits from the films.
IV. We will produce a 60 second stand alone commercial for television, cable and theatre that will be used to promote the project before the release of Mutant Mania.
Eg: A 6O second spot utilizing the following elements:
a. French Lick
b. Rawer Station recording facility
c. Sony's contributions to the manufacturer of the equipment to produce the sound. This may show "'the difference".
A spot showing French Lick recording in Bower Station for the Mutant Mania movie.
We would like to introduce to you the Sony/PSDMS© — give input on what it is. "New sit back and let us know if you hear the difference."
What would you rather listed to when listening to feature films; video, cable or television.
Sony will private label a "Stony Bongiovi" or Power Station line of equipment:
b), Stereo Component
c). Disc Player
d). Video© Player
The above package will include a free video of Mutant Mania of which Sony will rebate full price back to distribution.
Tony and Stan will receive credits for complete line:
Total will be negotiated after we have an idea of Sony margins. We want to make money only if Sony makes money!
We will also provide a marketing package for all retail outlets that is now being developed.
POWER STATION DIGITAL MUSIC SYSTEM (PSDMS©)
Tony will include in Copyright Agreement that SONY EQUIPMENT must be used to be PSDMS©. SONY will receive "Credits” on all video, theatrical, television, and cable "PSDMS©/SONY System"
Tony and Stan will also receive credits en all systems using Sony equipment sold to other film studios — Also to be negotiated after margins are figured. We will arrange a deal where, we along with Sony, will cover exists to install the necessary equipment in all studios. We will provide a one-day seminar to all thirty operators of the largest theatre chains.
I. Sony will only pay for expenses to produce 60-second spots. SONY and Power Station will utilize any and all services to help produce the spot and will allow reimbursement for only true costs with no mark-up excluding all of Tony’s time, which will be free.
II. Power Station and Power Productions I will receive a negotiated percentage of profits from all profits generated from the merchandizing campaign of the Sony products and the sale that may result to other film studios utilizing Sony equipment in the DNS System.
III. We will receive three sets of a full entertainment system - Television, VCR, Stereo, Etc, that is top of the line to help during the production of the film to be utilized by Marcia, Stan and Scott.
IV. Sony will have first right and first refusal of all and any distribution contracts for theatrical, video, cable, and television syndications. We will promise not to even talk to anyone else until we feel that Sony is not going to offer a fair and reasonable deal. We will give Sony a 5% margin to gain a competitive edge.
The purpose of the above and all aspects of this Deal is to let the separate entities involved maximize their profits for their respective talents; Tory in film and music production and Sony in manufacturing and eventually distribution of both equipment and merchandise and later video and film distribution.
World wide marketing available after this picture through cinaworld and Marcia. Sony will be on credits of the film world wide PSDMS©? Power Station Digital to be shared with PSDMS©?
SONY JOINT VENTURE PROPOSAL FOR THE DIGITAL MOVIE
(May of 1987 by Stan J. Caterbone/Global Entertainment Group)
(PSDMS© - Power Station Digital Movie System by Stan J. Caterbone)
II. SONY'S ROLE
III. MARKETING AND DISTRIBUTION
IV. PRODUCT DEVELOPMENT
Tony Bongiovi and Power Station Studio are undertaking a project that has the potential of revolutionizing the entertainment industry. In the next few pages of this proposal, I will outline the elements involved and how Sony can participate in this landmark event.
The technology of the recording industry has been advancing by leaps and bounds. We have seen the advances from monaural long playing record to stereo record to compact disc. Now we are seeing tape systems that use digital rather than analog signals appear, matching the quality of compact discs. What has happened to the theatres? The audio portion of a film, is as responsible for the sensations one experiences at a motion picture as the visual, yet many theatre's are still equipped only for mono sound. Why is this? We feel there are two basic reasons.
1) The relative high cost of upgrading a theatre to be able to incorporate the advanced technologies of the audio industry.
2) The lack of proper equipment for the film industry to produce high quality digital audio tracks.
These two problems should not be addressed separately. There is little motivation for upgrading until the product is available and even less motivation to produce a product that cannot be heard.
Tony Bongiovi and Ed Evans at Power Station in New York, have now made it possible to address these problems simultaneously. Their creation of the new "Power Station Digital Movie Sound" (PSDMS), will not only enable the film industry to produce the highest quality audio tracks for film, but will also allow theatre's to upgrade their existing sound system at a minimal cost.
To introduce this revolutionary new sound, Bongiovi is in the process of producing a film entitled "Mutant Mania", which is a science fiction action horror film, shot in a small ocean resort town in New Jersey. This film has many elements that make it perfect for the introduction of PSDMS. The most prevalent of these being the heavy music score by Bongiovi's latest band "French Lick". Producing bands is definitely one of Bongiovi's fortes. Bongiovi was instrumental in creating "Bon Jovi" who is probably the strongest force in the rock and roll circuit today. "Bon Jovi's" third album "Slippery When Wet", has sold more copies in a short period of time than any other band in history.
Another is the fact that this is a horror film. The use of audio in horror films is important to create tension, fear, excitement etc. Using a horror film also lessens the influence the critics have on the audience.
By and large this film will stand on it's own merits. Now add PSDMS, and you have a potential block buster event. How does Sony fit into all of this?
II. SONY'S ROLE
What we are seeking to do is establish a distribution route in which the message of Sony's new technology and its benefits can be more easily and directly passed on to the consumer.
Picture a one or two minute commentary at the beginning of the movie and home video, demonstrating the difference between the quality of theatrical sound now and the new SONY/PSDMS sound. This does two things. First, by demonstrating the difference in quality of the new sound, you reinforce in the audiences mind that it is much better, which as you will hear, there is little doubt. Secondly it reinforces in the audience that Sony truly is a pioneer of advanced innovative technologies.
In addition to the commentary, Sony will receive credits on the film, ie. SONY/PSDMS©. We will include in the copyright agreement that Sony Equipment must be used to be SONY/PSDMS©.
Sony's name will also be strategically placed throughout the film. This may be done in the form of billboards, advertisements, or Sony equipment being utilized.
A commercial may be developed for TV promoting both the film and Sony's contributions to advanced audio techniques in the film industry. This could be done as a joint venture between Sony and the distribution company for the theatrical and video exhibition.
Inside every video tape that is sold, a coupon may be placed to promote Sony products.
A full line of quality equipment may be SONY/POWER STATION labeled for consumer use to enhance marketability of Sony entertainment products.
Sony Video Software Corporation will receive right of first refusal on all contracts for video and theatrical distribution. We will allow Sony a preferred 5% margin under any other distributor for a competitive edge.
Timing is crucial in a project that touch so many different areas.
III. MARKETING AND DISTRIBUTION
Most of the industry by their own admission is at least two years away from an effort to upgrade the sound in movie theatres. With the SONY/PSDMS system, other companies may adapt easily and economically to produce products with digital movie sound. With companies adapting to this process, the future should see the prominence of the SONY/PSDMS insignia much the same as you see the Dolby insignia today. This will act as a constant reminder to the public that Sony truly is a pioneer of advanced audio visual technologies.
Sony will receive exposure in the professional market place by having the SONY/POWER STATION equipment used in theatres and studios to produce the SONY/PSDMS© sound.
The video industry is a 56 billion dollar industry that is in need of product. When you look at the potential for a product that will be one of the first feature films to compliment the fast paced VCR/Stereo Entertainment components, with a musical score that may have enough merits of its own, you have an amazing potential for distribution.
The Digital and Disc Industry has proven to be the future standard for recording and playing. Because of the relative newness of the digital format, there are more people who have yet to experience the digital sound. With the high exposure that will come from this project, this could be the first time ever people hear digital. How many people? 1 - 10 - 50 - 100 million?
What will be their first reaction? I need to buy a Disc Player!
Who's name will they think of first? SONY/PSDMS©
IV. PRODUCT DEVELOPMENT
Bongiovi and Evans at Power Station have developed a revolutionary hybrid mixing console to penetrate the video post production market. This console was developed to enable engineers to produce high quality audio tracks for the film industry as well as the recording industry. This new console utilizes an automation system that can be used by both industries. This new console is especially attractive to the film industry, as it will greatly reduce production costs since mixing costs in a recording studio are much less. At present the console that is being used is a bastardized system that utilizes components from many different pieces of equipment, from a number of different companies, of which Sony is one. Because we already have a working model of this console, it would take very little time for a finished product to be manufactured that could carry the SONY name.
The other piece of equipment that is essential to the PSDMS© process, is the box that enables the laser disc to automatically read the synchronization track encoded on the film. This piece of equipment can be produced at an extremely low cost. It is this low cost and the fact that the theatres will not have to replace their present projectors that make digital movie sound a reality in 1988.
We feel that with consumers demanding the same quality audio at theatres, as they have become accustomed to with their home entertainment systems, theatre owners will have little problem investing the nominal amount of dollars involved, to upgrade their theatres for digital audio. This investment could be as low as $1000.
With the cost being so low, the distribution company may want to consider bearing the burden of this cost, if the theatre owners agree to show Bongiovi's next three films.
SONY will commit four million dollars for the production of Bongiovi's film to be released in 1988. We would like SONY to commit fifteen million for three to four future products that will follow the same format as the first, so that Bongiovi and SONY will position themselves as the pioneer and leaders in the industry. This will not allow competition to gain access to the marketplace until we are all firmly situated
Sony will only pay for expenses to produce 60 second spots. Tony and Power Station will utilize any and all services to help produce the spot and will allow reimbursement for only true costs with no mark up including all of Tony's time which will be Power Station and Power Productions I (Stan Caterbone - Power Productions I) will receive a negotiated percentage from all revenues generated from the merchandizing campaign of the SONY/POWER STATION products and the sale that may result to other film studios utilizing Sony/POWER STATION equipment in the PSDMS© System.
We will receive four deluxe entertainment systems - Television, VCR, Stereo, Etc. that is top of the line to help during the production of the film.
The purpose of the above and all aspects of this Proposal is to let the separate entities involved maximize their profits for their respective talents; Bongiovi in film and music production and Sony in manufacturing and distribution of equipment and merchandise and later video and film distribution. END
Power Station was formed in 1977, in partnership with Tony Bongiovi and Bob Walters. Power Station, within a short period of time established itself as the premiere recording facility in the world. The studios success to a large degree is due to Bongiovi's tremendous creative talents in the fields of studio design, production and entertainment. The ability to anticipate what the public at large wants to hear and to create a format that will produce a highly marketable product.
Bongiovi's creative genius became most evident with his recent success producing the band "Bon Jovi". After years of work developing their talent and structuring the format for their music, "Bon Jovi" rapidly became one of top bands in the world. Bongiovi's most recent project is a band called "French Lick", which he brought into the studio approximately two years ago. You may have heard French Lick's music in Ron Howard's production of Gung-Ho. French Lick's music and talent have been developed along the same format as "Bon Jovi" and have recently been showcased to the major recording labels. Contracts should be finalized with Quantum Medium in a few weeks. Quantum Medium is a division of MCA, owned by the same people that own MTV. French Lick is wholly owned by Power Station, along with their first album, which gives Bongiovi the ability to use any and all the songs from the album in the movie.
By placing the band in the movie and having the music score written by the band, we are able to take advantage of marketing potential normally not available to other productions. The music video for the band will be shot at the "same time as the movie and will primarily be scenes from the movie. The release of the video will be timed to promote the opening of the movie. The release of the songs off the first album will also be -coordinated to promote the movie. To fully understand the marketing potential the band brings to the project, picture what, gross receipts at the box office would look like if "Bon Jovi" were appearing in a movie this year (Any movie). If French Lick does one tenth as well as Bon Jovi, this movie is a guaranteed hit.
During Bongiovi's work on "Star Wars", "Apocalypse Now" and "Gung-ho", he was able to make many of the contacts necessary to form the extremely talented group of artists that are essential for a production to be successful.
Barbara Peters: Director/Writer/Producer
Barbara has directed many programs such as "Matt Houston", "Falcon Crest", "Cagney and Laoey", "Misfits", "Berrengers", and "Remington Steele" to name a few. The film Barbara directed that convinced Tony to hire her for this production was "Humanoids From The Deep". Humanoids was made in 1978 for $ 980,000 ($ 20,000 under budget and four days ahead of schedule) and grossed over $28 million in domestic and foreign theatrical Sales. This was during a period in time when the video market was in its early stages of development. A film released today that would gross $ 28 million in 1978 dollars has even greater potential for a much higher gross with the strong video market that is available now. What impressed Tony the most with Barbara's direction of Humanoids was her ability to bring a high degree of quality to a film on such a limited budget.
Peter Hock: Stunt Ooordiiator/Actor/Stuntman
Peter's credits include films such as, "Trading Places", "Stepford Wives", "To Kill A Cop", "Ghost Busters", "FX", and a host of other Films, Broadway, Musicals and Television Shows.
There are many factors, which contribute to a projects success. If you were to take a cross section of the movie industry to find which types of projects were most likely to succeed, you would find that movies in the two to four million dollar range have much greater chances of success than movies in the ten to fifteen million dollar range. The reasons for this are quite simple. A movie in the two to four million-dollar ranges is a high enough budget to produce a quality film but limiting the risk to the investor since it needs less of the market share to produce a profit.
Horror movies, from the investor’s point of view are the safest type of movie to finance. Horror movies have an almost cultist following. The type of audience that attend horror movies rarely wait to see what the critics have to say about the movie. There is a fascination with gore that this audience would rather see than have described to them. The overseas market for movies of this genre is tremendous. In almost all cases the gross revenues from the theatre, will be greater overseas than in the domestic (US and Canada) market. This especially holds true for horror movies.
Over the last few years, we have been seeing a trend for movies to have a much heavier music score than in the past. The feelings that can be invoked in an audience from audio are sometimes as great or greater than the visual aspects of a film. With Bongiovi's experience and past track record, we are assured of having one of the best quality sound tracks to a movie ever made. This production could very well revolutionize the movie industry in that this will be the first time that the sound track will be totally digitized from the set to the theatre or home video. What this means is that the quality of the sound, which is typically extremely poor in a movie theatre or home video cassette, will now be tremendously crisp. This new movie sound will be similar to the quality you would expect from a laser disc. Normally the costs involved to produce a movie with this type of sound track would greatly increase the budget to a point where the project would nave an increased element of risk. With Power Station, which already has in place state of the art equipment, some of which can be found in only one or two other studios in the world, this sound track can be produced for a fraction of the costs that another production company would have to pay. This greatly reduces the risk to the investor to be able to produce state of the art audio at a fraction of the costs.
It is a very natural progression for a recording studio such as Power Station to evolve into an entertainment complex, which includes the production of films. Power Station currently has financing in place for a $ 3.5 million video mix studio to be built next to the recording studio. Distribution companies are constantly looking for new sources of product to market. With Bongiovi's track record in the entertainment industry, any product that carries the Bongiovi label should create a bidding situation with the distributors.
Advanced public relations work is currently being done to set the stage for negotiations with the distribution companies. "Billboard11, "Variety", and "Box Office" have already agreed to do articles on Bongiovi and the movie. On April 30, ABC will be airing a radio talk show with Bongiovi that will air on 2300 stations to a total listening audience of over six million people. "Pame, Fortune, and Romance" have also agreed to give network TV coverage.
The home video market has rapidly been changing the potential movie profits for the industry. A Nightmare On Elm Street was made for well under two million dollars and has earned New Line Cinema more than $24 million at the domestic box office. In addition, after a short video release, this production has sold over 3 million cassettes. In the past videos were sold only to video rental stores for approximately $70 apiece. Recently the price has been lowered to expand the market to the general public. The video rental stores won't disappear, but they may become more like record stores that also rent their albums. All of this translates into more profit potential for producer and investor.
It is an extremely rare opportunity to be able to get in on the ground floor in an offshoot of an already well established entertainment company. Any investor willing to back this project will have first right of refusal on any future projects. The percentages will remain the same for at least the first two projects.
INVESTING IN MOTION PICTURES - Financing Forecast
Independently produced motion pictures are a better investment today than ever before.
1) Increased Markets: There is much wider distribution of motion pictures today than ever before (i.e. Pay TV,
Cable TV, videocassettes, satellite transmissions, etc.
2) Presale1 contracts which bind the buyers (i.e. networks, pay TV, foreign distributors, etc.) to specific payments
at a future date, this insuring return of capital and, in some cases, a profit before the film is released.
Breakeven for Limited Partners:
The producer and investor form a limited partnership for the purposes of producing one or more motion pictures. The investor receives 100% of the net profits until recoupment, after which the split is 50-50. Profit participation of others (actors, director, writer, etc.) comes out of the producer's end.Packaging:
The producer secures the services of a director, principal actors, and a writer.Presale Deals:
The producer can negotiate presale (preproduction) arrangements with distributors, networks, pay TV, merchandisers, etc. Whereas such arrangements can minimize the downside risk, they can also inhibit the eventual profitability of the film.Risk Factors:
It is very difficult to determine exactly how much of a risk one runs in financing a theatrical film. Adequate statistics are impossible to find. Sharmat Services of Los Angeles a four-year-old study which revealed that 60% of all films released make money. This study, however, did not include long range TV syndication (foreign and domestic) revenues, and was made before Pay TV and video cassettes became significant additional markets, chemical Bank of New York reports that they have never lost money on film financing.
Another risk is the possibility that no distributor will want to release the picture. That is why some independent producers include, a provision for distribution financing in their investment agreements. If worse comes to worst, producers can distribute the film themselves. (Notable examples are "Billy Jack" and "Benji".)
There may be production catastrophes that will delay or cancel production once it is under way. Producers will carry various forms of insurance (including completion bonds) to at least repay whatever funds have already been spent.Marketing:
If a distribution arrangement has not already been made, the producer now secures such an arrangement. If the picture is good, it is possible to negotiate a much better deal than could have been done earlier. On the other hand, the producer could have trouble securing the kind of distribution commitment wanted. The main factors here are how much money the distributor is willing to commit to selling the picture, how much influence the producer can have on the marketing campaign, and the distribution fee. Sometimes small distributors are able to give more time and attention to independent pictures and offer better terms, but the producer may have to provide some distribution expenses.
Out of gross domestic box office receipts, the exhibitor (retailer) usually subtracts his fixed costs and then receives 10%. Out of the remaining 90% gross film rentals received by the distributor (wholesaler), he usually recoups all or part of his costs plus a distribution fee of 20-35%, then passes the rest on to the producer/investor. Terms of distribution deals vary considerably.
Box office receipts, however, only account for a part of the producer/investor's revenues. As the enclosed figures show, the ancillary markets are at least as significant as the domestic theatre box office. TV syndication, for instance, can continue to bring in revenues for the next twenty years.Demand for Product:
Today's supply comes nowhere near to matching real demand. At the present time, there are over 18,000 theatres in the United States, it can readily be seen that roughly 400 films produced and rated last year did not begin to meet; their needs. Theatres are compelled to show any type of film they can obtain to keep their doors open.
To date, independent producers are responsible for 72% of all films made world-wide. The domestic figure is 62%. The independent producer has three primary options regarding distribution. These include the sale of the film outright to a major national distributor, their merchandising of the film by the production company itself, or the use of smaller regional sub-distributors who may promote the film in their respective geographical areas. Distribution of films often relies on all' three methods to one degree or another.
Another market, television, can consume nearly every film that has been, or is presently being produced. If each of the three networks would show only one film per night, they would need over 1,000 films per year. In Los Angeles area alone, there are nearly 10,000 films aired each year in a combination of local and network viewing time. Many films are shown time and time again because there are no new films to replace them.
Today, virtually every film of quality has residual value in television, either by outright sale or by term licensing. The latter is preferable since it allows the production company to retain ownership of the negative. The time lag between theatre release and TV sale has diminished from seven years to an average of 18 months. However, some major features such as "The Wiz" have been sold to TV before completing a full year in theatrical release. The trend seems to be toward purchase of 'fresh1 films, and the outlets appear willing to pay the higher costs involved.
Because of the great demand and the outrageously competitive attitude that pervades the networks, handsome deals are being consummated before the production has been completed and then, by prearrangement ' with the producers, hold the film until it has completed its theatrical run.
Based on gross revenues of $ 11,200,000 collected from 1st and 2nd theatrical runs
1st run ticket costs of $ 6.00 2nd run ticket costs of $ 5.00
50 people per show x $ 6.00
$ 300.00 per show X 1000 houses
$ 300,000 X 14 days
50 people per show X $ 5.00
$ 250.00 per show X 2000 houses
$ 500,000 X 14 days
Total 1st Run Total 2nd Run Total
$ 300.00 Gross per show $ 300,000 Gross $ 4,200,000 Gross
$ 250.00 Gross per show $ 500,000 Gross $ 7,000,000 Gross
$ 4,200,000 $ 7,000,000 $11,200,000
Total Box Office Gross $ 11,200,000
Less 15% For Theatres '• ; $ 1.680.000
Motion Picture Profits $ 9,520,000
Less 30% Distribution Fee $ 2,856,000
Less : Investors Capital $ 4,000,000
Net Profit $ 2,664,000
Producers Split @ 50% $ 1.332.000
Investment Company Return $ 1,332,000
less : General Partners Split @ 15% — $ 199.800
Investors Return $ 1,132,200
These are only projections and are for informational purposes only. Any investment made, based solely on these projections would be unadvisable as actual performance could vary greatly.
Forecast B is based on a total box office gross of $ 28 million
A film that produces a theatrical gross of $ 28 million can be expected to gross at least that much from TV, Cable and video markets. Depending on how distribution agreements are negotiated we can expect 50% to be net profits
Total Box Office Gross $ 28,000,000
Less 15% For Theatres '• $ 4,200,000
Motion Picture Profits $ 23,800,000
less 30% Distribution Fee $ 7,140,000
T.V., Cable and Video Net $ 14,000,000
Ttotal Net $ 25.340,000
Less : Investors Capital $ 4,000,000
Net Profit $ 21.340.000
Producers Split @ 50% $ 10,,670,000
Investment Companies' Return $ 10,670,000
Lsss :..General Partners Split @ 15% $ 1,600,500
Investors Return $ 9,069,500
These are only projections and are for informational purposes only. An investment made, based solely on these prxyiections would be unadvisable as actual performance could vary greatly.
POWER PRODUCTIONS I LETTER OF INTENT
JOINT VENTURE PARTICIPATION CONTRIBUTION
(May 20, 1987)
The undersigned, intending to be legally bound , in consideration of his admission as a participant in the j o i n t venture to be known a s "POWER PRODUCTIONS I" and receipt of a profit/loss distribution share of % of ___________ such joint venture, hereby declares and acknowledges his intent to participate in such joint venture and hereby covenants and agrees to contribute the sum of $_______________________ to the capital of such joint venture, which sum shall constitute his initial capital account in such joint venture.
This Letter of Intent is entered into by the undersigned upon the following general understanding:
Power Productions I will be a joint venture to be formed under the laws of Pennsylvania, having the specific purpose to invest (loan) its funds to MUTANIA PRODUCTIONS, INC. t o finance such corporation's production of a motion picture. The joint venture shall receive full repayment of its investment from MUTANIA PRODUCTIONS, INC. before the distribution of any profits to any party. Thereafter, the joint venture shall receive 50% of the profits from such motion picture of which 85% shall be distributed to the non-managing joint ventures (including the undersigned) and 15% shall be distributed to Stanley J. Caterbone as the Managing Joint Venturer of Power Productions I. The joint venture shall have a right of first refusal to finance the next movie production of MUTANIA PRODUCTIONS, INC. and/or TONY BONGIOVI.
The undersigned agrees that he will execute and deliver a counter-counterpart of the joint venture agreement (which shall be consistent with the above general understanding) and that he will execute and deliver all documents required for the joint venture to elect not to be taxed as s a partnership.
Contemporaneous with the execution of this letter of intent, the undersigned is contributing 10% of his total agreed contribution, or $__________________, within fifteen (15) days from the date hereof, time being of the essence, the undersigned shall contribute the 90% balance, or $_____________________ . Such contribution shall be held by Stanley J. Caterbone at interest pending completion of all negotiations and execution and delivery of all documents with MUTANIA PRODUCTIONS INC..
If such negotiations, delivery and execution are not completed within thirty (30) days after the full contribution is made, the entire contribution, with all interest earned thereon, shall be returned to the undersigned without demand. Stanley J. Caterbone shall be responsible for collection, receipt, interim investment and management, and ultimate investment or return of all funds contributed, and shall be the Managing Joint Venturer of the joint venture.
The undersigned hereby authorizes and empowers Stanley J. Caterbone to negotiate, execute, and deliver all documents necessary or required to implement the joint venture purpose and to take all other actions and negotiate, execute and deliver all other documents necessary or desirable to implement of effectuate the joint venture purpose.
NAME:_________________________(L.S.) Date: May ______,1987
CITY:____________________ STATE:_________ ZIP:_________
RICHARD C. FOX, PCRICHARD C. FOX*
ATTORNEYS AT LAW
1015 ROBERTS VALLEY ROAD
HARRISBURG, PENNSYLVANIA 17110
ADMITTED ALSO FLORIDA
May 20, 1987
Mr. Stanley J, Caterbone, President
FMG Advisory, Inc.
Eden Park II, 1755 Oregon Pike
Lancaster, PA 17601
For Professional Services rendered in connection with Power Productions Including conference, preparation of Letter of Intent, and express mailing, and follow-up telephone check.
Professional Fee 250.00
U.P.S. 8 .95
PAID RIA #117
May 23, 1987
Mr. Stan Caterbone
Financial Management Group
1755 Oregon Pike
Lancaster, Pa. 17601
At your request I’ve investigated the requirements of the Completion Bond. Bert Schneiderman of Worldwide Completion Services in New York has given me a figure of 5*5%, excluding contingencies, with a 50% No Claims Bonus, Since Bert also owns Bon Bon Payroll Service he has agreed to waive the payroll fee if we xise their bonding service.
Requirements: They need copies of the budget and/or production board revenues for the director and producers as well as copies of their contracts and any other production agreements which have been completed.
Further they need to know when we will commence principal photography, editing location and if we intend to have a distribution deal up front.I spoke to Jerry Vandersonde and Bill Hudson of DeWitt Stern Insurance in Los Angeles, who were recommended by Worldwide. Since I couldn't show him a budget or a script we did some educated guessing and came up with a figure of approximately $75,000. The Production Package policy should include: General liability, cast insurance* negative film, faulty stock and camera processing, props, sets, wardrobe, rented equipment, extra expenses, third party property damage, non-owned auto, Errors and Omissions including a one year bond and a minimum workmen's comp policy for anything that is not covered by workmen's comp.
I understand you're going to Wildwood this weekend. We need to house a crew of about 60-80, production offices, catering service, We'd like to get as many free extras as possible and need high quality promo type giveaways. For screen credit, of course. If you have any such contact we'll need mutant dolls (500?) and if you can help bring down location costs that would be great. I'm talking about beaches, amusements, the pier parking facilities. Probably we’ll handle that better next week when we can talk in person.
4334 STERN AVE., SHERMAN OAKS, CALIFORNIA (818} 995-3417
FLATBUSHMs. Ellen Libman
May 23, 1987
Power Station, Inc.
441 West 53rd Street
New York, N.Y. 10019
Barbara and I have mapped out a skeleton schedule for our trip to New York and I thought I'd send it off and see if it works for everyone else. By the way, we've decided to stay in New York until Tuesday instead of Monday as originally planned.
Arrive about 3:00PM. You have the exact time since you've booked our flights. Please let us know if someone will pick us up or if we should take a taxi, We'll come to Power Station and give you and Tony copies of the script and budget, which we'd like you to read Thursday night, Barbara and I have a dinner meeting with a Director of Photography.
Leave for .New Jersey in the morning. Discuss script and budget, Meet Mayor of Wildwood and bring him a synopsis of script which he has requested. , Meet with Steve Garelick, the Production Coordinator of the New Jersey Film Commission. Look at locations.
Stan Caterbone arrives in New Jersey. Meet the rep from Maury's Pier to discuss location costs. Check out hotels for crew and cast. Last minute details in New Jersey, Leave for New York around noon. Meetings at Power Station for final discussions About script, budget, contracts, etc.
Tuesday Afternoon - Leave New York approximately 4PM to arrive Los Angeles about 5 pm.
Cc: Stan Caterbone