Film studios have been increasingly functioning as 'moneylenders' than as co-producers, stipulating stricter clauses in film agreements with producers, top law firms and producers told ET.

They are building in stiff terms in production deals – including a first-look clause that bypasses seed funding - after many films barely generated costs in their box office collections, putting focus on outsized efforts to recover costs or investments.

“There is a fundamental shift. Film studios are no longer functioning purely as distributors or co-producers. Using stricter clauses in agreements, studios are increasingly functioning as moneylenders focused on capital protection,” said Suniel Wadhwa, co-founder & Director, Karmic Films. “Producers now carry most of the downside while studios retain disproportionate control over a film and its IP,” he added.

A stricter clause which studios have been stipulating is: first-look deal.

“Earlier, studios were involved with a film right from the development stage. This provided seed funding to producers. Today, studios do not want to be involved in the development stage of a film. They put in a first-look rights clause in the agreement. In essence, they want producers to approach them with a full package which includes casting, budget and scripts,” explained Madhu Gadodia, deputy managing partner, Naik Naik & Company, a leading law firm in India.

Oddly enough, studios have been asking for personal guarantees from a key person representing a production house if they cannot recover their investments.

“There have been instances when studios are asking for personal guarantees from a key professional representing a production house in their agreements,” said Nitika Nagar Mohandas, Principal Associate at Naik Naik & Company.

In the past few years, studios have become more cautious about multiple film deals. They consider each film’s success in such deals. Consequently, they are insisting on a cross collateralization clause.

“In a multiple-film deal, through cross collateralization clauses, studios are recovering any loss on a film from the profits of the remaining films in the deal,” explained Nitika Nagar Mohandas of Naik Naik & Company.

Studios are also taking lien on future films of a producer if they fail to recover their investments. Taking a lien on future films essentially means that studios take ownership of Intellectual Property Rights (IPs) and revenues if they cannot recover their investments.

Also, studios have been coming on board on a film during the sale of rights stage post theatrical release.

“There are studios who come on board on most film projects during the licensing stage and not in the early production phase. They assess a film’s theatrical performance and then show interest in buying rights post release,” explained Madhu Gadodia of Naik Naik & Company.

Studios are also putting in a ‘takeover rights’ clause which means that in case a film is stalled due to its termination, a studio can take over the film and get it completed from other directors and producers.

The genesis of this stricter approach of studios can be attributed to new business dynamics.

“Today, there is no predictable formula for success. Satellite market has declined. Digital sales are inconsistent. And streamers have become more cautious. In this backdrop, studios are protecting their investments. This approach is manifested in increasingly one-sided agreements with clauses which may seek security beyond the current film,” explained Anushree Rauta, Equity Partner (Head of Media & Entertainment practice), ANM Global.