In the first part of this article, I gave some pointers and practical tips on how to position your film before distributors and generate and maintain interest from these. Once you’ve done your homework and secured the interest of the distributor, the next step is to agree, and sign, a sound and profitable commercial deal. Whereas deals are often structured during shows/festivals, if you are new to the industry, it is probably best to understand the nature of deals and what goes into a distribution agreement beforehand.
Some of the important provisions to pay attention to include the following:
The Territory
The territory is the country or region where the distributor may exploit the film. Worldwide rights include any country in the world. Independent filmmakers frequently enter into more than one distribution deal with rights divided over more than one territory. A common division may be a division between ‘domestic’ (i.e. home of the production) and ‘foreign’ (anywhere else). In this region, there may be different divisions including by region, and for example, one that would include the GCC countries or the Middle East region strictly (defined by the different language – Arabic – and/or different social and cultural norms/requirements). Generally, filmmakers should look at granting a distributor rights to territories it directly services. However, in many instances, and including for example where the distributors are taking on the risk of production, these will try to acquire as much territory and media as they can, giving rights to sub distributors against the payment of a fee. Sometimes, such arrangements are more practical for indie filmmakers or first time filmmakers as they appoint one distributor with the network of distributors in other countries to ensure higher exposure for the film. If you are contracting with more than one distributor in one territory, attention should be given to the scope of the rights granted to each distributor.
The Media
Media is the means of exploitation of a film and there are several, including theatrical (release in theaters), television (all forms including pay TV, cable TV and broadcast), and home video (distribution by videocassette, laser disc and DVD). Whereas many motion pictures are meant for initial exhibition in theaters (theatrical media), this very much depends on how well the film is received, and how long it stays on the movie screens. Distributors will often decline to take strictly theatrical release rights and will negotiate to take all possible rights, including multimedia and interactive. As the filmmaker, you should look at retaining rights to media the distributor will not actively exploit. It is quite common for filmmakers to give distributors the theatrical, television and home video rights, but they generally must retain all other rights including dramatic (play), radio, electronic publishing, merchandising etc.
The Term
Distributors will often drive for long terms (10 years and above) in order to ensure profitability and return on their investment. However, a distributor’s enthusiasm for a film may fade with the years and you should have the ability to terminate the agreement for poor performance, if you give a long term agreement. If you are granting the distributor sub-distribution or sub-licensing rights under the agreement, special provisions must be put in to ensure that these do not survive the term of the main distribution agreement.
The Fee
Distributors generally take a distribution fee based on a percentage of the gross revenues generated from distribution, before deducting distribution expenses. This can be quite hefty and may leave nothing in the pot for the filmmaker to share in once the distribution expenses are deducted. Therefore, special attention must be given to how the distribution fee actually works (and whether an advance – see below – is required). Distribution fees also vary by territory and media. For a domestic theatrical release, this can be 35% of gross revenues. For domestic home video, there are two basic approaches: either the distributor deducts his expenses from the gross revenues and the remaining balance is split equally between the distributor and the filmmaker (a 50/50 net deal), or the filmmaker is paid a royalty on the sale of each cassette (this could be anywhere between 10-25% depending on the sale price of the cassette – some movies bring in more than others). The royalty approach’s advantage is that it offers a guaranteed fee on each sale, whereas the 50/50 net deal may result in higher revenues if the film sells well. For a domestic television license, the fee varies between 10-40%. For foreign distribution, where a filmmaker appoints a single distributor who then sub-distributes in other territories, the distribution fee is in the range of 20-25% of gross revenues. The international distributor will be allowed to recover certain distribution expenses after deducting its fee and the balance is paid to the filmmaker.
Distribution, Marketing and Ad Expenses
The distribution agreement should clearly set out the expenses the distributor is entitled to recover from the revenues generated. If not, the filmmaker might discover that his film paid the distributor an all expenses paid trip to the Cannes Film Festival and there is little left in the revenues pot after the distributor recovers his expenses. Marketing and advertising approaches and expenses should also be carefully agreed and set out in the agreement to ensure that these do not drain the distribution revenues. Expenses usually fall into three categories: a) market expenses (e.g. costs of attending film festivals and markets e.g. air ticket, hotel accommodation, shipping etc.), b) promotional and advertising expenses, and c) direct expenses (the actual costs of distributing and selling the production or film e.g. shipping and courier charges, clearance, warehouse and handling charges, insurance, telephone charges, photocopying etc.).
Advances
Advances (on revenues generated from film distribution) are often sought by filmmakers as they are a means of recovering fast some of the funds expended in the production of the movie and paying off debts incurred in that respect. Revenues from distribution may take some time before they start coming in and including where the agreement provides for the distributor to recover his expenses from the revenues generated first. The distributor usually recovers the advance payment from the distribution revenues. Many distributors however may decline to pay advances for low-budget films or films without name actors and other deal structures will need to be negotiated and agreed.
Consultation Rights
Distributors may grant filmmakers consultation rights or rights to consult the filmmaker about the advertising and promotion activities, including providing opinion on the artwork, the type of advertising purchased etc. However, such opinion is not binding on the distributor and new filmmakers often do not have enough knowledge or experience in film distribution and would rely on the distributors’.
Warranties and Representations
It is normal for distributors to request warranties relating to various aspects of the movie, including for example that all releases required have been obtained (e.g. film rights to the script, releases from the actors) all exploitation rights secured, and secure services agreements have been put in place with the director, editor, cinematographer and any other party that makes a creative contribution. The distributor will also ask for a warranty to the effect that the film does not violate any third party rights, including copyright and intellectual property rights and, depending on the jurisdiction, rights of privacy and publicity.
Accounting
Unless a filmmaker is selling all his rights in and to the movie for a lump sum fee, he generally must retain the right to inspect the distributor’s records (within reasonable measures) to ensure that he is receiving full payment from all distribution revenues generated. The distributor is usually required to maintain accurate books and records of all sales made and send the filmmaker monthly or quarterly statements of account. These statements should reflect a breakdown of revenues generated and received by territory and media, as well as a detailed breakdown of all distribution expenses.
Termination
If the distributor is performing well and the revenues are coming in, the relationship between you and the distributor carries on well. However, if the distributor is not meeting performance targets (i.e. not achieving required levels of distribution for the film) or not making the payments due under the agreement, you should have the ability to terminate the agreement on short notice. Distributors will try to resist onerous termination provisions or provisions giving the filmmaker the right to early termination for non-performance as they would have expended fees towards marketing and advertising the film, and may have already entered into sub-distribution or sub-licensing agreements. One way of overcoming this is by putting in provisions for a notice on poor performance and an opportunity for the distributor to remedy the same within a reasonable timeframe.
Return of Materials
Upon termination of the agreement for whatever reason, all film materials in the possession of the distributor should be returned to the filmmaker. This includes any artwork, and promotional material and items that would have been created by the distributor during the term of the agreement. To ensure that this provision is watertight, filmmakers should ensure that all intellectual property rights in any promotional material created by the distributor vest in the filmmaker. There are other provisions to look at, including intellectual property rights, insurance, security interests, governing law and dispute resolution (whether you go to court or arbitration and in either case, where) etc. and some of these may be relevant to the practices of the country where your distributor is located, and careful consideration should be given to these provisions and their implications before you sign on any contract you are handed. So, if you are at a film festival and all excited to sign on a distributor, take a moment to review the contract, or get proper advice on the same before putting ink to paper.
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