On August 16, 2022, the 12th Beijing International Film Festival "China Film Investment and Financing Summit" was recently held in Beijing. People from all walks of life held a focused discussion on topics such as how films and capital can go both ways and work together under the goal of becoming a powerful film country. This article takes the opportunity to conduct a preliminary introduction and discussion on the investment of film and television projects.

1、 The types of investment in film and television projects are divided into exclusive investment and joint investment

Film and television project investment is divided into exclusive investment and joint investment based on the number of investment entities.
Exclusive investment

Exclusive investment refers to a business mode in which the investor fully invests, with the property owned by the investor as a legal person or individual, and the investor assumes responsibility for the project debt with its property.

The advantage of exclusive investment lies in that when a film and television work is completed and generates profits, the investor can independently enjoy all the benefits brought by the investment, including the television broadcasting rights, audio and video copyright, network broadcast copyright, and related derivative product development rights such as literary books of scripts sold to television stations. At the same time, as the sole investor, during the production, management, and market operation of film and television works, we can handle relevant affairs with full authority, effectively avoiding issues such as differences of opinion and reduced executive power caused by multiple investors.

The disadvantage of exclusive investment is that compared to the diversification of investment entities, this investment method has a higher risk coefficient. The investor will face all the problems that arise during the investment process alone. If the film and television project fails, all the investment losses will be borne by the investor alone.

2. Joint investment

Joint investment refers to a business method in which two or more investors jointly invest, and the property is jointly owned by several investors. The investors bear different responsibilities for the project debt based on their personal property and investment shares.

The advantage of joint investment lies in that because the production and production of film and television works often require a large investment as a guarantee, joint investment can effectively alleviate the pressure of fund shortage caused by limited funds of one party; At the same time, when there is a failure in investment, it is not for one company to bear all losses alone, but for each investor to jointly bear corresponding responsibilities; In addition, it can also achieve a situation where multiple parties complement each other's advantages and share resources.

The disadvantage of joint investment is that when a film and television project is profitable, there will be multiple investment entities to share the profits, rather than one company alone. Moreover, in the production and distribution of film and television works, there are often issues of internal friction and reduced execution due to different opinions of investors. Of course, most joint ventures now choose the "main controller" to control the development direction of the film and television project and determine various matters related to the shooting, production, and distribution of specific film and television projects.

2、 The cooperation modes of joint investment include risk sharing, fixed return, and guaranteed minimum plus points

1. Risk sharing type

The risk sharing type is the most common investment method in film and television project joint investment and even in film and television project investment. Each investor invests in film and television works in a certain proportion, and enjoys the copyright and related rights of the film and television works in accordance with the investment proportion or agreed proportion, and shares the investment risks and benefits in accordance with the investment proportion or agreed proportion.
Generally speaking, risk sharing investors are those who have a relatively good understanding of the film and television industry, have relatively rich experience in film and television project investment, and have sufficient risk tolerance, so that all parties can have confidence and ability to successfully carry out investment cooperation in film and television projects.

2. Fixed return type

Fixed return type, as the name implies, means that investors obtain fixed income by investing in film and television projects. In this joint investment approach, there will generally be one or more main controlling investors (also known as "main controlling parties" in the industry) who bear the risks of film and television projects, while fixed return investors (also known as "participants" in the industry) do not bear the investment risks of film and television projects. The participants invest a certain amount of funds into the film and television project according to the agreement of the parties, and the main controller pays a fixed income to the participants according to the agreement of the parties.

The fixed return type of cooperation is more suitable for investors who have just entered the industry or whose main business is not in the film and television industry. However, in industry practice, it is difficult to reach agreement with the main controlling party on the demands of participants in the fixed return type of cooperation, and it is also easy to generate disputes.

The main reason why investors choose to become fixed return investors is that they lack confidence in the film and television projects they invest in and are afraid of taking risks in the film and television projects; At the same time, the investors want to obtain higher returns than other investment channels. The reason why the main controlling party accepts the investment of the participating party is based on its optimistic income prospects of the film and television project, and the cost of obtaining investment funds from the participating party is lower than that of obtaining investment funds from other channels. In other words, only when the main controlling party is optimistic about the profitability of the film and television project and is willing to pay higher financing costs than other channels, and the participating party is not optimistic about the profitability of the film and television project, and can obtain higher financing returns than other channels, can the two parties successfully conduct joint investment, which is a contradiction in itself. In judicial practice, there have also been many disputes about "fixed return". When the invested film and television project obtains high returns, the participating parties may require that the returns be obtained according to the investment proportion; When the invested film and television project loses money, the main controlling party may require it to bear the loss in proportion to the investment.

3. Bottom guaranteed plus point molding

In general, there is a joint investment agreement between the player and the producer for guaranteed bonus formation. The player does not only purchase the playback rights of the film and television works from the producer, but also participates in the investment and production stage of the film and television works in advance. The platform pays a fixed investment amount to the producer to obtain certain copyright rights in the film and television works, and the two parties share the profits based on the film and television works.

Guaranteed bottom plus score formation is a popular investment method after the rise of major video platforms and online film and television works. For producers, it reduces the financial pressure on film and television projects, without considering whether the film and television works can be released and broadcast smoothly. Good filming and broadcasting can also obtain revenue sharing; For platform parties, participating in the investment and production of film and television works in advance can control the voice of film and television works, control the quality of film and television works, better integrate their various resources in the industry, and obtain greater benefits. It has to be said that this new cooperation model is a win-win situation.

3、 Disputes over the nature of fixed return cooperation models

The fixed return cooperation model has always been highly controversial due to its inherent contradictions. As we all know, there are many uncertainties in the production and distribution of film and television works. There is a saying in the industry that 80% of film and television works are in a loss state. Under normal circumstances, all parties involved in the cooperation should jointly bear the risks of production and distribution of film and television works and bear the losses of film and television works. However, fixed return type investors are maverick, not only do not bear the losses, but also require a fixed investment income. This is tantamount to adding insult to injury to the main controller of investment losses. Therefore, the main controller will also refuse to return the investment funds and investment income for various reasons, and lawsuits may occasionally occur.

When adjudicating such fixed return investment cooperation contracts, judicial authorities generally first identify the nature of the contract in order to accurately apply relevant legal provisions. The author has compiled some relevant court cases and found that different courts have different qualitative opinions on this type of fixed return investment cooperation contract, and the judgments made are also vastly different.

1. Recognized as a lending relationship

If the main content of the contract is that the participant pays investment funds to the main controlling party, and the main controlling party returns the investment funds and fixed investment income upon maturity, the participant does not enjoy the copyright of the film and television works, nor participate in the production, promotion, and distribution of the film and television series, and each party has no other substantive rights and obligations. In this case, the court generally determines that the legal relationship between the parties is a legal relationship of loan.

There are many such cases. Before the Supreme People's Court's "Provisions on Several Issues Concerning the Application of Law to the Trial of Private Loan Cases" came into effect in 2015, the court generally ruled that such fixed return investment cooperation contracts were invalid and returned the principal.

For example, in the (2009) Sui Zhong Fa Min San Zhong Zi No. 17 case, the court held that the Joint Production Agreement for "Think Good and Marry Again" stipulated that Party B was responsible for the financing and production of the entire investment in the play, responsible for the application for the play, responsible for handling relevant procedures such as the shooting license and distribution license for the play, responsible for the composition of the main creators and crew, as well as the shooting and pre and post production work of the play, and Party A was responsible for the investment of 2 million yuan, Recover investment and return income on time; The entire investment risk of the play is borne by Party B, which has nothing to do with Party A. Therefore, the joint production agreement titled "Cooperation" is actually a loan, and the contract is invalid. Finally, the court decided to return the principal and pay interest at the bank loan interest rate for the same period.

Since 2015, when mutual borrowing between enterprises became legal and effective, courts have generally recognized this type of fixed return investment cooperation contract as a civil legal relationship for borrowing, ruling to return the principal and pay legitimate interest.

For example, in the (2017) Hu 0110 Min Chu Case No. 5113, the court held that although the "Contract for the Joint Production of the 30-episode TV Series

2. Recognized as a joint venture relationship

If the main content of the investment contract conforms to the main characteristics of a joint legal relationship, the parties jointly contribute to the production of film and television works, jointly negotiate to determine the shooting, production, and distribution of film and television dramas, and jointly enjoy the copyright of the film and television works. Although there are fixed return clauses, it may also be recognized as a joint legal relationship.

If the court determines that an investment contract is recognized as a joint venture legal relationship, the court will generally determine that the contract itself is valid in accordance with the provisions of the "Answers to Several Issues Concerning the Trial of Joint Venture Contract Disputes" issued and effective by the Supreme People's Court in 1990, but the fixed return clause is a minimum guarantee clause and is invalid.

For example, in the (2015) Zhehang Shang Zhong Zi No. 1566 case, the court held that, according to the agreement of the three parties in signing the "Joint Investment Contract for the TV Series Oriental", the relationship between the three parties is a partnership type joint venture that jointly contributes, shares profits, and shares risks. The relationship between the parties is a partnership type joint venture, and does not support the return of fixed investment costs. Finally, the court ruled to return the investment principal based on the investment proportion determined by the parties after deducting corresponding taxes and fees in combination with the actual issuance income.

3. Recognized as an investment cooperative shooting relationship

Although the fixed return cooperation model has been constantly debated, questioned, and overturned, it cannot be denied that this cooperation model is an objectively existing investment method for investors facing the unpredictable film and television industry, based on market needs. With the prosperity and development of the film and television industry and the improvement of China's legal system, there are increasing views that, on the premise of not violating social ethics, social public interests, and mandatory legal provisions, the law should respect the purpose and purpose of the parties signing the contract, respect the contractual freedom of the parties, and respect the special investment and cooperation patterns prevalent in the film and television industry.

In recent years, more and more courts have tried such cases in accordance with the characteristics and laws of the film and television industry, and are no longer limited to the legal relationship of lending and pooling to judge such fixed return contracts. As long as the contract is a true expression of intent by both parties, and does not violate social ethics, public interests, and mandatory legal provisions, the terms of the contract are effective, and both parties should perform their respective obligations as agreed in the contract.

For example, in the (2018) Jing 0108 Min Chu No. 12551 case, the court held that the signing of the "Film Joint Investment Contract" by both parties was a true expression of their intentions, and did not violate the mandatory provisions of national laws and administrative regulations on the effectiveness of the contract, which should be valid and binding on both parties. "Now that Party A has fulfilled its investment obligations in accordance with the contract, Party B shall fulfill the production, publicity, advertising, distribution, and other work of the film in accordance with the contract, and return the investment principal of 5 million yuan to Party A after the film is produced and released.". The agreement on Party B's commitment to return Party A's investment principal in the Contract is a voluntary disposition of the parties' rights and an internal sharing of investment risks between the parties. The court has no objection to this. The court does not support Party B's claim that the above agreement violates the principle of fairness or is invalid. Finally, the court ruled to return the investment principal.

Therefore, the investment in film and television projects is not a simple investment income cycle. Investors should choose appropriate investment methods based on their actual situation. When signing a cooperative investment contract, they should pay attention to the specific terms and contents of the cooperative investment contract. At the same time, they should actively participate in the production and distribution of film and television projects, strengthen control and supervision of film and television projects, and ensure the good operation of the film and television projects, with a view to obtaining the expected investment returns.