The Edge of the Cliff
"Never let the other side define the problem. Whoever frames the issue controls the outcome." - William Ury, Getting Past No.
Deals can collapse for numerous reasons, but what is often forgotten is that a deal is closer to the edge of the cliff if a party 1) doesn’t know the rules of engagement and 2) has a questionable character.
A client was approached with an opportunity for a new media project, which was to be pitched to a big exploitant. The media company directly contacted the client and what followed seemed to be a casual back and forth over the course of a few weeks, bouncing off ideas. Eventually, the contours of the project started to shape up, and the client was presented a ‘letter of intent’.
Transparency about the process
A letter of intent is generally used only to agree on the intention to negotiate a potential collaboration, but the parties remain free to walk away. Under Dutch law, letters of intent don’t have a fixed meaning. The arrangement can be binding, but it depends on the wording of the letter of intent. Upon review of this letter of intent, it seemed that the title of the document ‘LOI’ was a fully binding exploitation agreement. That was not what the client expected. At that moment, the media company started to chase the client directly, to ignore the chain of command they had set out: all conversations about the LOI were to go through the lawyer.
Basic legal knowledge
Upon discussing the LOI with the counterparty, I noticed that basic legal knowledge about legal frameworks and contracts was entirely absent. Instead of saying, I am new to this, the counterparty used passive-aggressive tactics and emotional arguments to convince me of their position. The previous sentence highlights four issues. If you lack basic legal knowledge but try to negotiate the contents of a legal document with a lawyer: that is a mistake. An exploitation agreement dressed as an LOI was the wrong document for the negotiation phase: the LOI was a hook to lock the client into the project. Active listening and having an open attitude are key. Passive-aggressive tactics only work on those that do not recognize the manipulation. Finally, unskilled negotiators will often try to convince through emotions and stick to positions: it was their LOI or nothing. The LOI was never resolved, and parties continued their talks with the big exploitant without an LOI.
The exploitation/collaboration agreement
As the talks resumed, the client was presented the main agreement. The media company tried to bypass the lawyer again, and the client redirected the process to the lawyer. Probably much to the dismay of the counterparty. The agreement was not adequate, not from an operational point of view and not from a legal point of view.
It’s like Lewis Hamilton turning up at the GP in a tractor and expecting pole position.
Additionally, in the entertainment industry, there are always parties with oversized egos who ignore trade practices and business standards.
The importance of alignment of character and values
Although the project seemed fun, the project manager’s character wasn’t aligned with my client’s. The old school thought of using pressure to fold creatives into compliance can only backfire, eventually. It breeds resentment and often even contempt.
When starting negotiations, it is important to do your due diligence about your potential future business partner. The tools to use are of course LinkedIn, socials, any official publications about your counterpart and your own network. Trust what you find: people don’t change overnight for you.
Rules of engagement
Before entering any negotiations, do your homework properly and prepare the negotiations. Winging it is disrespectful of anybody’s time and cost. With creatives, time is often used as a means of pressure to increase legal fees for the talent in the hope that the talent will instruct their lawyer to accept the deal anyway.
Negotiations are not a hostile takeover of the other party. It is an exchange of information. Pushing a narrative will be detrimental to the negotiation process, especially when dealing with experienced lawyers/negotiators. Weaponizing trust is a high stakes gamble. Trust is overrated in negotiations. Ultimately, parties want a workable collaboration where, ideally, all parties interests are met as much as possible.
If a party provides information about what they can or cannot do, it serves nobody to ignore that kind of information, as it will not change. You must find a way to adjust the parameters.
Negotiations take time: patience and perseverance are indispensable. Backchannel negotiations directly with the client and keeping the negotiations/lawyers out is a costly mistake. It diffuses the communication and frankly, busy creatives do not have time to manages different channels of communication. If a counterparty communicates the rules of engagement, respect them.
Set a timeline and communicate the key moments in the process. For example, if talks are happening between the exploitant and the media company, that the talent is not involved in, make sure communication about the desired input or actions and outcomes is timely and clear.
Understand how a redline contracting process works, if a lawyer on any side is absent. When a standard process is perceived as an attack, that creates an unnecessary bottleneck. The practical process of reviewing and amending agreements is unnecessarily complicated if a party doesn’t follow a standard redlining process.
Know when to retreat. If the deal doesn’t work and the data is stacked against a positive outcome, dare to walk away. The cost of the negotiation will be far less than the cost of cleaning up and untangling an unsuccessful collaboration.
Stated reasons for ending negotiations are often not the actual reasons
Creatives are not naïve. They know when they are being played. When a negotiation ends, be honest about the reasons for that failure. Sharing that information benefits all parties involved. Giving reasons that simply contradict the facts when the real bottleneck seems to be the protection of a party’s financial margin and passing the cost of the project to the talent, makes the actual reason more visible. Pre-contradicted reasons for termination do not increase the odds the talent accepts bad terms, out of fear of the loss of an opportunity. What lasts is reputational damage.
When the negotiations end in failure
When the negotiations end in failure, it is important to end the process in – at least - a polite manner. What happens after the failed negotiations is also interesting. As soon as the counterparty ends the negotiations, the client is entirely cut off contact with the big exploitant, and there is only silence. But that is an important piece of information about the counterparty’s initial intentions. Eventually, during a negotiation process, a party's intentions are revealed. That is the cliff.
Five key lessons:
1. Respect the chain of command
2. Pressure tactics are a no-go
3. Understand the process
4. Pre-contradicted reasons for termination
5. End the negotiations with courtesy.
