Abstract

Hollywood film projects involving significant capital investments regularly proceed on the basis of unsigned "deal memos" and draft agreements with uncertain legal enforceability. These "soft contracts" constitute a hybrid instrument adapted to the transactional hazards of an environment in which neither formal contract nor reputation effects can adequately specify and enforce parties' commitments at any reasonable cost. Uncertainly enforceable contracts embed an implicit termination-and-renegotiation option that provides flexibility to respond to changed circumstances while maintaining a threat of legal liability that provides some transactional security. Evidence collected from litigation records, trade-press coverage, and field interviews shows that parties select "softer" or "harder" contractual instruments following a marginal cost–benefit calculus that secures parties' commitments at the lowest transaction-cost burden. Observed differences in the formalization levels selected with respect to different stages, elements, and parties in a film production reflect underlying differences in reputational capital, transactional experience, specification costs, enforcement costs, and holdup risk. A survey of litigation records and trade-press coverage since the inception of the Hollywood motion-picture industry suggests that soft contracts emerged as a substitute for the long-term employment contracts that secured studios' and talent's commitments in the era of the "studio system."

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