ENTERTAINMENT INDUSTRY & YOU GUESSED IT, COVID-19

Pandemic’s Impact on the Industry

The entire entertainment sector has been hit as devastating and fast as a tornado. Major festivals, like SXSW or Coachella have been either postponed or cancelled, the NBA suspended basketball games, and the summer Olympics in Tokyo already got delayed to 2021. Further, due to country-wide closures of movie theaters, film releases have been postponed or released digitally. Hundreds of TV productions have shut down and late night shows try to stay relevant by having them taped from the hosts’ homes, frankly, without a live audience. Hollywood, quite literally is closed down. All on-location filming in the City of Los Angeles was ordered to stop starting March 20, 2020. For now. How much longer this is sustainable is unclear, but the number of companies sending numerous employees into indefinite furloughs, is increasing by the day. While above-the-line talent compensation typically is protected by their contracts, below-the-line workers aren’t so fortunate. IATSE has reported that 120,000 of its 150,000 members have already lost their jobs. The longer production is down the more catastrophic the situation for the entertainment sector will be.

Another devastating consequence will be that productions that were either in the middle of principal photography or at least in the development pipeline are either postponed or will be cancelled due to the delayed schedule and preset commitments of talent which hinders producers to go forward with their projects, at least for the time being.

Box Office Outlook

The already low box office numbers in 2019 – 5% decline in per capita consumption – now are shattered completely with theater closures that have made it necessary to reschedule films. The consequence will be even shorter windows of theatrical releases which means that there are no revenues to be generated during the spring 2020 months. Gower Street Analytics has put together a figure showing the box office revenue could be only half compared to last year. See below:

Force Majeur & Completion Bonds

This certainly is the time to be grateful for having included those “Force Majeur” clauses, those parties typically don’t pay much attention to. Unforseen disastrous circumstances that are outside of the control of either party, such as a pandemic are considered “Acts of God” and provide for a valid excuse to breach a contract. Based on such a provision, a producer is able to shut down a production and consequently suspend or even terminate crew members without any further obligation of continued compensation. Likewise, the other party, such as a director or actor can’t be expected to appear on set if filming is prohibited by authorities.

Whether a production company may be reimbursed for occured losses is a different question. This is where completion bonds come into play. It is a contract that guarantees monetary compensation in case a production won’t be finished. This insurance guarantees completion if a production runs out of money or over budget by covering additional costs arising out of illness, death, or force majeur.

If contractual clauses are insufficient or negative for a party, one still can rely on common law precedents dealing with the contractual affirmative defense of impossibility/impracticability which excuses performance of either party: Performance must be impracticable due to an unforeseen intervening act which the parties reasonably didn’t think of (because the non-occurrence was a basic assumption of the agreement).

Another similar doctrine that might apply is the frustration of purpose when both parties fully understand the goal of the agreement at the time of formation but the underlying premise doesn’t come into existence (unless there is an express assumption of risk). It also excuses non-performance.

Quarantine And “At Home Entertainment”

With Stay At Home orders taking effect in states across the United States and time in quarantine has become one of creation and self-expression. There has been a cultural shift from mere binge-watching to “At-Home Entertainment” aka “pyjama entertainment” with seemingly everyone, including celebrities, putting up their own alternative content. Even though this new form of handmade, mostly amateur content doesn’t primarily lead to monetization, it certainly has a promotional value. Suddenly, we are seeing industry people in their very intimate setting of their own homes and that authenticity and rawness of the content becomes a mass phenomenon. This shows that customers are not only forgiving for not being fed the usual high quality audio-visual content, on the contrary they keep being hungry for videos where they are hearing how others are dealing with the quarantine situation.
Interestingly enough, apps are pretty much being used as de facto movie theaters as well as therapy sessions.

It remains to be seen whether such newly formed viewing habits will stick around even after this pandemic is overcome.