Knowing and understanding industry terminology is vital to negotiating and working in the theatre. From time to time, we will be highlighting terminology that is important for all dramatists to understand.
An advance is a sum of money paid to an author upfront by a producer securing the rights to produce the author’s work. Such a sum is payable when a show goes into rehearsal or gets fully financed (whichever comes first), or upon execution of the production agreement. Determining the amount of an advance depends on a number of factors such as the average ticket price, the size of the house, the royalty paid to the author, and the level of production. Many smaller productions, such as black box theaters in remote locations, might pay a flat fee or per-performance fee. Even in those situations, it’s customary for an author to receive some or all payment in advance.
Advances are not returnable, even if the producer ultimately does not produce the work. Advances are, however, typically recoupable by the producer from the author’s royalties or a portion of the author’s royalties.
A Commission fee is a payment to a dramatist to create or adapt a new work. Commissions may be paid by non-profit theaters in order to establish a relationship with a particular author, or to produce a play on a particular subject or theme. Commissions are also paid by commercial producers who have licensed an underlying work that needs to be adapted to the stage.
A commission is a fee for the author’s services; it is NOT a purchase of the play, so the copyright for a commissioned work remains with the dramatist. Nor is it a royalty, or an advance or option fee applicable against an author’s royalties, payable to the author for licensing the live performance rights in the commissioned work. While the commission and live performance license may be contracted for in the same document, they remain two separate transactions.
There is no standard commission fee. The amount is generally negotiable and dictated by the reputation and experience of the author, as well as the standard practices and financial means of the commissioning theatre or producer. View the Guild’s Commission Agreement for both plays and musicals.
Gross weekly box office receipts
“Gross Weekly Box Office Receipts” or “GWBOR” is the is the revenue from ticket sales that is commonly used to calculate an author’s royalties.
The DG agreements define GWBOR as all sums received by the producer from all ticket sales allocable to performances given in a performance week, less specific “Allowable Deductions,” including:
• documented federal, state, or local taxes that are imposed upon the admission and are printed on the ticket;
• documented credit card (AmEx, Visa, MC, etc.) fees or discounts taken from the in-house sales of the theatre (not to exceed [XX%]);
• documented fees or discounts paid in connection with the theatre’s in-house subscriptions (i.e., if tickets for the Play are sold on a subscription basis for which the Producer receives less than the full price that would be received if the ticket were sold at the box office, GWBOR for the Play shall be calculated by multiplying the number of subscription tickets sold for the Play times the full price of the ticket, calculated using the undiscounted box office price and then subtracting any discounts received by subscribers for such tickets);
• documented fees or discounts paid in connection with the theatre’s group sales (not to exceed [XX%] of the price of the ticket);
• documented fees or discounts paid in connection with third-party off-site Internet sales (e.g., Groupon, Goldstar) (not to exceed [XX%] of the price of the ticket);
• documented Ticketmaster or similar fees applied on a per ticket basis;
• documented sums included as GWBOR in a prior performance week which were included in author’s royalty calculation, but which sums subsequently are refunded or uncollectible due to dishonored checks, invalidated credit card receipts, or for any other such similar reason; and
• “restoration” or “historic preservation” fees printed on the ticket (not to exceed any cap then pertaining that may have been imposed on such fees by any theatrical union), provided such fees are retained by the venue and not paid over to the producer.
No other deductions of any kind whatsoever are allowable, such as surcharges and/or operation costs connected with telephone and/or Internet sales; agency commissions and ticket broker fees; ticket printing expenses; mailing fees; telephone expenses; theater maintenance or “restoration” fees paid to a producer, and any other expenses or fees not specified above as Allowable Deductions. Significantly, Allowable Deductions from the GWBOR come only from third-party expenses. For instance, if a theater sells its own tickets through its own website, it cannot pay itself its own “Internet Fee” and deduct that from the gross when determining an author’s royalty.
Generally, net profits earned from any enterprise are calculated as the gross revenues earned from the activity, less the approved expenses incurred. In the theater industry, a producer earns two types of Net Profits: the net profits earned after a production reaches “Recoupment” (see Glossary definition) and the weekly net operating profits of a production, earned either before or after Recoupment.
A production’s net profits are defined in the documents provided to the producer’s investors. Meanwhile, a production’s “Weekly Net Operating Profits” (or “WNOP,” or “Weekly Profits”) are defined in a DG production agreement as the GWBOR less that week’s Operating Expenses (See Glossary definitions of GWBOR and Operating Expenses). WNOP is defined in the APC as “the amount by which Gross Weekly Box Office Receipts for a particular Performance Week exceed the Weekly Breakeven for such week.” When there is no WNOP for a performance week, then it is a “Losing Week” and there are provisions which deal with how royalties are calculated under these circumstances.
An author may be paid a royalty based on Weekly Profits rather than on GWBOR. This is usually calculated in a “Royalty Pool” (i.e., a percentage of the Weekly Profits allocated to all the royalty holders, which generally includes the author, director, choreographer, producer, designers and underlying rights owners), with the remaining Weekly Profits paid to the investors. An author may also be paid a percentage of the production’s Net Profits as an additional form of compensation.
An “Option Payment” or “Option Fee” is a portion of an author’s royalty paid by a producer to an author in advance of a production to secure for producer the exclusive live performance rights in a work for a limited time (i.e., the “Option Period”). A producer secures these exclusive but limited rights before approaching potential investors or, if producer is a non-profit theater, to plan an upcoming season. For example, a theatre may pay an Option Fee to maintain exclusive rights in a work for six months. If, within that time, the producer secures funding to produce the work, then it will exercise the option to produce the play, with the terms negotiated with the author in a production contract.
There may be an initial option and subsequent, additional options. For all first class productions under the APC, authors receive option payments for consecutive Option Periods and then are paid an additional advance when the show goes into rehearsal or is fully capitalized (whichever comes first). Other types of productions, however (off-Broadway, LORT, etc.) may pay an Option Fee that also serves as an advance (and then the author would receive additional royalties once the Option Fee is recouped).
Like advances, Option Fees are not returnable, even if the producer ultimately does not produce the work. Also like advances, Option Fees are typically recoupable by the producer from the author’s royalties or a portion of the author’s royalties.
A “per diem” is a payment or stipend paid to an author by a producer to cover an author’s living expenses (e.g., meals, local transportation, etc.) incurred while the author is away from home while working on a production, including the periods of a production’s casting, rehearsals, previews and the official press opening. These payments may be paid on a daily or weekly basis and are often calculated and payable based on Per Diems payable to other creative personnel working on the production, such as the director or actors. Per Diems are paid in addition to reimbursements of an author’s expenses incurred for travel and housing.
Production expenses/Operating Expenses
A statement of Production Expenses describes how the capital raised by a producer for a production has been spent up to and including a production’s official press opening; this also includes the expenses related to the closing of the production. Production Expenses include such amounts as the costs of sets, premiums for bonds and insurance, advance advertising, salaries, and fees for designers, directors and company managers.
A statement of Operating Expenses, on the other hand, details the weekly expenses a show incurs after it opens, up to its closing. Operating Expenses include such amounts as: compensation for the cast, director, managers, press agents, stage personnel; advertising; rent, legal and accounting expenses; and rentals. While an author’s weekly compensation is an Operating Expense, it is not included as such until after the author’s royalties are calculated.
No amounts charged as Production Expenses should be charged again as Operating Expenses, or vice versa. However, sometimes a fixed amount or percentage of the Production Expenses are charged as an Operating Expense. This is called “Amortization” and the terms of Amortization are a negotiated point of a production agreement.
Financial statements detailing both Production Expenses and Operating Expenses customarily accompany the payment of royalties for either the run of the show, a particular performance week, or a group of performance weeks.
To recoup something means to recover an equivalent amount. In the theatre industry, Recoupment refers to the recovery of all costs incurred in presenting a production after payment or accrual (but not pre-payment) of all Production Expenses for that production (See Glossary definition of Production Expenses). Often, the author’s royalty will increase once Recoupment occurs because the production has recovered its initial capital investment. After Recoupment, the producer can earn additional Weekly Net Operating Profits from the production. (See Glossary definition of Net Profits).
If a producer is presenting multiple productions, then Recoupment is calculated separately for each production. Further, once Recoupment has been attained, it may not be reversed.
Royalties are the licensing fees that a producer pays authors for the use of their intellectual property, including live stage productions, merchandise, and cast albums. Royalties are generally paid as a percentage of the gross revenues earned from such uses.
Sometimes, if all the royalty owners agree, Royalties may be paid based upon Weekly Net Operating Profits (“WNOP”) instead of on GWBOR. A Royalty structure that utilizes the WNOP instead of the GWBOR generally requires all of the royalty owners to share a fixed percentage of the show’s WNOP, with this fixed percentage called a “Profit Pool.” Whether based on GWBOR or WNOP, Royalties often have at least some minimum weekly guaranteed payment (a “MWG”).
Under certain conditions, an author may receive either a flat fee or a “per performance” fee in lieu of receiving Royalties based on either the GWBOR or the WNOP. This is generally only applicable to amateur productions (schools, camps, etc.), or otherwise when admission to a performance is free.
For licenses brokered through agents (including theatrical publishers), there are well established sales commissions deductible from the author’s royalties and retained by such agents, such as 10% of the license fee for stock (i.e., professional non-profit) productions and 20% for amateur productions. Theatrical publishers may also pay a variety of other Royalties to their authors for sale of trade editions, actors editions, and for uses in different markets.
The Weekly Breakeven is the amount of money a production needs to make from ticket sales in a given performance week to cover the Operating Expenses for such performance week. Under the APC, the Weekly Breakeven is necessary in determining the royalty owed to the author for each performance week. If the GWBOR is below the Weekly Breakeven, then the author’s royalty is at least a fixed Minimum Weekly Guarantee with any royalty adjustments depending on whether it was a preview performance week or a week of regular performances, touring performances, etc. For first class productions under an APC, when royalties payable to the author are based on the GWBOR, then the calculation of Weekly Breakeven includes the author’s applicable MWG. In contrast, however, if royalties are based on WNOP, then the MWG is excluded from the calculation of Weekly Breakeven.
Related: DG Glossary: Small Rights & Grand Rights, DG Glossary: Collective Bargaining, DG Glossary: Work for Hire