Acing the Deal
The art of negotiating film distributionJuly 1st, 2005 | Fernando Ramirez, Esq
Distribution. The Deal. Thats the goal of any independent producer after finishing production within budget and on schedule. Ideally, a filmmaker would want to have the film or program distributed by a single company with a reputable track record that would handle distribution in every market. However, although major distribution companies deal in both the domestic and foreign markets, as well as all media (non-theatrical, television, DVD), independent or niche-market distributors usually wont handle both domestic and foreign markets, and sometimes even within specified territories they only deal with certain media.
Distribution and licensing agreements define domestic rights as the United States (including its territories, possessions and military bases) and Canada, and they define foreign rights as the rest of the world or specified countries or regions. Categories of media rights commonly granted or licensed include theatrical, video, television, and ancillary rights, which in turn can be separated further (television rights include Pay TV, Pay Per View TV, Video On Demand, and Basic Cable). If a filmmaker does not sell all distribution rights in the film to a single company, either because the filmmaker cannot or does not want to secure this type of deal, a filmmaker can split the rights, or in other words enter into more than one licensing arrangement according to specified countries and/or media.
Filmmakers should be aware that typically a small or niche market distributor working within domestic territories who is granted all rights (worldwide in any and all media) will enter into separate agreements with foreign subdistributors or foreign sales agents to handle licensing and sales outside of the domestic market, per country or region. Given the right set of circumstances, if filmmakers retain foreign rights, they can enter into these arrangements themselves. This could mean more money for the filmmaker (assuming any profits are made) in part because the domestic market distributor will have to pay the subdistributor or foreign sales agent a fee or commission for handling the film or program, after which the domestic distributor will keep its fee or percentage.
Territory, media, and additional terms by which these rights are transferred or licensed are spelled out in an agreement. As with domestic deals, the foreign agreement usually begins with a brief description of the film or program, including the title, genre, running time, and subjects. A filmmaker could enter into separate licensing deals territory by territory, in for example, Germany, Portugal, or Spain. A clause for every territory could read like this: Territory: The territory shall consist of the World or Territory: The territory shall consist of the Universe. However, a foreign market clause would define the market by country and/or languages spoken. For example:
Germany, and any and all German-speaking territories including without limitations Austria, Belgium, and Switzerland.
Portugal and any and all Portuguese-speaking territories.
Not only would this cover Portugal, but Brazil, Cape Verde, and even a few Portuguese-speaking countries in Africa such as Angola. Given this example, the filmmaker would have to do a little homework to determine if these additional territories outside of Portugal may not be of any consequences given the target consumer for the type of film being distributed. Clauses for all media could go on for several paragraphs (or one very long run-on sentence), beginning like this: The worldwide [or universewide] rights herein granted shall include any and all media, whether now known or hereafter discovered or devised, including without limitations . . . .
Although foreign licensing and distribution agreements will vary according to markets, the following is a review of some relevant terms and clauses filmmakers should be familiar with:
Term: The agreement is measured in years as low as five to seven years, and as high as 25 years. Years are measured from the date all deliverables are submitted to the foreign company, not from the date the agreement is signed by the filmmaker and the company.
Payment Obligations: A foreign distributor or sales agent will keep 20 percent to as high as 35 percent of net receipts of gross receipts earned from the exploitation of the film or program. Gross receipts are monies received by the distributor or agent earned from various uses of the film. Various deductions are made before giving the filmmaker his or her percentage (if any money is left after the deductions). These deductions depend on the territory and media rights granted, but generally include laboratory and duplication costs, marketing and advertising, securing regional licenses, currency conversion, wire transfer and bank costs, shipping charges, insurance costs, foreign duties and taxes, translation and subtitle costs, and even general operating and overhead costs. Payments to the filmmaker can be made via wire transfer, or a letter of credit payable to the filmmaker upon presenting it the filmmakers bank.
Release Requirements: To ensure that the film or program does not get shelved, the agreement should have a release or air date commitment. If there is to be a theatrical release throughout the territory it should stipulate how soon after the deliverables are submitted, and the number of cities and theaters. There should be a minimum advertising commitment in US dollars. These requirements can apply to video/DVD and to the television broadcast of a program with advance notification of the time and place of each telecast.
Cutting/Dubbing Rights & Censorship Clearances: To ensure that the film meets local censorship laws, and naturally if the film is in English, distributors will usually reserve the right to dub or subtitle as well as edit certain elements out of the film. The agreement should specify whether such decisions are subject to the filmmakers approval for creative purposes. Additionally, the agreement should stipulate that the filmmaker will own all dubbed and subtitled versions of the film.
Deliverables: In light of the fact that the term of the agreement and release of the film or broadcast of the program is contingent upon delivering certain items, the filmmaker should clearly stipulate and verify what those items and requirements are (format, licensing, etc.), and should request a signed acknowledgment from the company that the items have been submitted by a specified date. Additionally, filmmakers should try and retain possession of prints, masters, and any original materials such as releases and agreements. In the event of a dispute or bankruptcy, regaining possession of these deliverables can prove even more difficult in a foreign country.
Accounting and Audit Rights: Filmmakers should request a detailed itemization of all distribution expenses and costs. Under most agreements, domestic and foreign, the filmmaker may be deemed to have consented to the accuracy of statements unless he or she objects or initiates legal action within a year or two of receipt of each statement. Additionally, costs of arranging for auditing or inspection of books in another country can be higher, unless the distributor has offices in the United States. The agreement should provide that in the event an audit discloses that the filmmaker has been underpaid a certain amount ($1,000 or 5 percent, for example), the distributor is obligated to reimburse the filmmakers auditing costs.
Rights Reserved: If the filmmaker decides to split the rights, each agreement should stipulate what rights are reserved by the filmmaker, such as ancillary, subsidiary, and allied rights including dramatic (play), remake, sequel, prequel, television spin-off, radio, electronic publishing, licensing and merchandising, music publishing, soundtrack recording, comic books, video games, and print and literary publishing (such as novelizations, publication of screenplays and/or treatments, behind-the-scenes/making-of books), and any and all rights not specifically stipulated in the agreement.
Jurisdiction: The Governing Law provision of any agreement identifies which country or states law will be applied when interpreting and enforcing the agreement. US law and jurisdiction should govern. Some states such as California and New York, have established laws with precedence concerning film and media law issues, including international disputes. Additionally, agreeing to US jurisdiction will avoid extra expenses associated with traveling and hiring local counsel familiar with the film industry.
Given the right set of circumstances, a foreign distribution or licensing deal can generate income for and enhance the career of a filmmaker in certain markets. Although granting partial rights to multiple distributors can increase the possibility of generating revenues, if not managed carefully granting rights in one country (or several countries) could conflict or violate rights granted to a distributor or programmer in another country.
In addition to producing a great film, filmmakers should research the reputation, experience, and credits of foreign distributors and agents before signing. Without direct or backdoor access to programming or development executives, attending festivals and markets remains the most productive and effective way a for filmmaker to sell a film or program. All filmmakers want their films seen by the widest possible audience. To protect your interests, though, it helps to understand that the art of the distribution deal isnt necessarily just about art. Nthat has been developing for decades.