The Film Distribution Deal: Tactics and Strategy
By: Mark Litwak
1. READ YOUR CONTRACT carefully including any addendum of standard terms and conditions. Don't assume that the "standard" terms are either standard or non-negotiable.
2. REDUCE OR PLACE CAPS on expense items such as overhead and interest charges.
3. DEFINE PROFITS in terms of 100% of all profits. Remove any ambiguity as to whether you are sharing in the producer's share of net profits or a percentage of the whole.
4. AUDIT RIGHTS should provide the participant with a reasonable length of time to challenge statements. A participant will not want to incur the expense of an audit until he is reasonably certain the picture can be profitable. Since revenue from many markets dribbles in over a long time, the participant should not be forced to either audit early or waive his rights. Also, the agreement should provide for reimbursement of audit costs if the participant successfully recovers as a result of studio accounting errors.
5. ARBITRATION is always preferable to litigation especially when your opponent is better able to finance a protracted court struggle. Make sure the arbitration clause provides for binding arbitration and reimbursement of attorney fees and costs.
6. ELIMINATE OR REDUCE STUDIO DISTRIBUTION FEES especially when the studio is using a subsidiary company as a sub-distributor. For example, studios may distribute through a wholly-owned home video distributor. The home video distributor pays a 20% royalty on sales to the parent company. This revenue may then go into studio gross revenues and may be reduced further by the parent studio's distribution fee.
7. ADVERTISING EXPENSES should be carefully defined and should only include salaries for staffers assigned exclusively to the project for the time they actually worked on it. An overall cap on advertising expenses is also important to prevent the distributor from "buying the gross." It can be profitable for a studio to spend money to promote a picture yet be disadvantageous to profit participants. That is because the studio recoups its advertising expenses, and perhaps some overhead on it, before profits are available.
8. REDUCE INTEREST costs by the amount of interest earned by the studio on advances from exhibitors. It is not fair for the studio to earn interest on advances while charging the producer interest on the full outstanding negative cost.
9. SUB-DISTRIBUTION fees should be included in the studio's distribution fee. Distribution fees for outright sales to smaller territories should not exceed 15%. The contract needs to be carefully worded so that these sales are charged at the lower outright sale distribution fee even if the buyer is technically required to account to the studio for income.
10. TAXES should be deducted from gross revenues before the studio takes its distribution fee. Some countries assess a remittance tax on funds remitted to other countries. These taxes may be a tax credit for the distributor. Some distribution agreements allow the studio to deduct these taxes as a distribution expense. Copyright 1994, Mark Litwak. All Rights Reserved. Some of these materials are excerpts from "Dealmaking in the Film and Television Industry," by Mark Litwak (Silman-James Press 1994).
Additional information on this topic can be found in Risky Business, Financing & Distributing Independent Films.
Sample Acquisition and Distribution Agreement available in Contracts book.
2. REDUCE OR PLACE CAPS on expense items such as overhead and interest charges.
3. DEFINE PROFITS in terms of 100% of all profits. Remove any ambiguity as to whether you are sharing in the producer's share of net profits or a percentage of the whole.
4. AUDIT RIGHTS should provide the participant with a reasonable length of time to challenge statements. A participant will not want to incur the expense of an audit until he is reasonably certain the picture can be profitable. Since revenue from many markets dribbles in over a long time, the participant should not be forced to either audit early or waive his rights. Also, the agreement should provide for reimbursement of audit costs if the participant successfully recovers as a result of studio accounting errors.
5. ARBITRATION is always preferable to litigation especially when your opponent is better able to finance a protracted court struggle. Make sure the arbitration clause provides for binding arbitration and reimbursement of attorney fees and costs.
6. ELIMINATE OR REDUCE STUDIO DISTRIBUTION FEES especially when the studio is using a subsidiary company as a sub-distributor. For example, studios may distribute through a wholly-owned home video distributor. The home video distributor pays a 20% royalty on sales to the parent company. This revenue may then go into studio gross revenues and may be reduced further by the parent studio's distribution fee.
7. ADVERTISING EXPENSES should be carefully defined and should only include salaries for staffers assigned exclusively to the project for the time they actually worked on it. An overall cap on advertising expenses is also important to prevent the distributor from "buying the gross." It can be profitable for a studio to spend money to promote a picture yet be disadvantageous to profit participants. That is because the studio recoups its advertising expenses, and perhaps some overhead on it, before profits are available.
8. REDUCE INTEREST costs by the amount of interest earned by the studio on advances from exhibitors. It is not fair for the studio to earn interest on advances while charging the producer interest on the full outstanding negative cost.
9. SUB-DISTRIBUTION fees should be included in the studio's distribution fee. Distribution fees for outright sales to smaller territories should not exceed 15%. The contract needs to be carefully worded so that these sales are charged at the lower outright sale distribution fee even if the buyer is technically required to account to the studio for income.
10. TAXES should be deducted from gross revenues before the studio takes its distribution fee. Some countries assess a remittance tax on funds remitted to other countries. These taxes may be a tax credit for the distributor. Some distribution agreements allow the studio to deduct these taxes as a distribution expense. Copyright 1994, Mark Litwak. All Rights Reserved. Some of these materials are excerpts from "Dealmaking in the Film and Television Industry," by Mark Litwak (Silman-James Press 1994).
Additional information on this topic can be found in Risky Business, Financing & Distributing Independent Films.
Sample Acquisition and Distribution Agreement available in Contracts book.
