Hollywood Deals: Soft Contracts for Hard Markets

66 Pages Posted: 29 Jul 2012 Last revised: 9 Jan 2016

Jonathan Barnett

USC Gould School of Law

Date Written: 2015

Abstract

Hollywood film studios, talent and other deal participants regularly commit to, and undertake production of, high-stakes film projects on the basis of unsigned “deal memos,” informal communications or draft agreements whose legal enforceability is uncertain. These “soft contracts” constitute a hybrid instrument that addresses a challenging transactional environment where neither formal contract nor reputation effects adequately protect parties against the holdup risk and project risk inherent to a film project. Parties negotiate the degree of contractual formality, which correlates with legal enforceability, as a proxy for allocating these risks at a transaction-cost savings relative to a fully formalized and specified instrument. Uncertainly enforceable contracts embed an implicit termination option that provides some protection against project risk while maintaining a threat of legal liability that provides some protection against holdup risk. Historical evidence suggests that soft contracts substitute for the vertically integrated structures that allocated these risks in the “studio system” era.

Suggested Citation

Barnett, Jonathan, Hollywood Deals: Soft Contracts for Hard Markets (2015). 64 Duke Law Journal 605, January 2015; USC Law Legal Studies Paper No. 12-15; USC CLASS Research Paper No. C12-9. Available at SSRN: https://ssrn.com/abstract=2118918 or http://dx.doi.org/10.2139/ssrn.2118918

Jonathan Barnett (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

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