Michael T George
Updated 6 June 2018
Are you looking for distribution for a completed production?
Both the production and distribution of screen content take a lifetime to master. Unfortunately, the two areas have very little in common. So, most producers are ill equipped to negotiate their agreements–but this too rarely stops them from doing so.
1) Get help. You have several options. An entertainment lawyer may know the contracts, but doesn’t necessarily have good contacts with the distributors appropriate for your production. An experienced content distributor turned producer consultant probably has the necessary experience to deal with contacts and contracts.
You should decide at the outset whether you want a producer rep or a distributor to handle the distribution.
2) Producer Reps vs Distributors. Both should be skilled at placing screen content with buyers. But, there are three fundamental differences between the two
A Producer Rep is a hired contractor. The producer is the Licensor on the agreements. All revenues accrue to the account designated by the producer. The Rep works for a fee or fee plus a percentage of the revenues.
A Distributor is a third party. The distributor is the Licensor on all agreements. All revenues accrue to the account of the distributor. The distributor is compensated exclusively from the sales that it makes.
3) Fundamentals of the Producer/Distributor Agreement.
a) Length of the Term. Distributors usually want an agreement that will extend for at least three years, plus the ten years that the longest license agreements will comprise–so that they can continue to service and collect royalties from said licenses.
Consider this instead. Make the agreement for one year, with an automatic extension if a specified amount of money has been paid to the producer before the end of the term. (Or, alternately, an automatic extension if executed agreements worth a certain dollar value have been effected before the end of the term.)
b) Advances. Good luck. These are rare, but can be a bargaining chip.
c) Schedule of Minimums protect the producer from having the screen content licensed for significantly less than its worth. The schedule contains a list of the major territories and the minimum amount that the screen content can be licensed for in that territory. Doesn’t have to include all territories, as the top 17 territories represent 95% of the likely revenue for the film.
The distributor would not be authorized to make any agreement unless the up front paid by the Licensee met or exceeded this figure. (I will demonstrate the difference between “license fees” and “minimum guarantees” in the Distributor/Licensee segment that follows.)
d) Distribution Fees. Most distributors want an agreement where they receive a distribution fee (25% to 40%) from the total revenues received; are then allowed to reimburse themselves for expenses related to the content; and, they pay the balance–if there is any–to the producer.
Consider this instead. A distribution fee of 40% of the gross, inclusive of expenses is preferable. Is important that the term gross means the total revenues received. There is no such thing as a gross that allows deductions. Any such allowance make it a net deal. Not gross.
It has become the fashion for distributors to want to reimburse certain general marketing expenses from the first revenues received. Don’t fall for it.
e) Delivery materials. The Producer/Distributor agreement will require that the producer provide the distributor both with access to videomasters (containing music & effects tracks) and to copies of the artwork, dialog lists, etc. If these are not in proper order, it is only right that the distributor should be able to fix or create new materials at the producer’s expense.
Fundamentals of the Distributor/Licensee Agreement.
a) There are two types of Agreement: flat licenses and royalty agreements.
Flat licenses are utilized when a set fee is paid by the licensee, as in the case of most television agreements. The amount paid up front is all that the Licensor will receive (except in the case of some licenses with major program services, which are paid in installments over the term of the agreement.)
Royalty agreements apply whenever the Licensor participates in the actual revenues received by the Licensee, such as theatrical, DVD and VOD licenses. Generally, the Licensee pays a Minimum Guarantee, which is a non-refundable advance against the royalty. This way, the Licensor is guaranteed a certain amount no matter how the screen content performs in the marketplace.
While advances are standard for theatrical and DVD licenses, they are relatively rare for VOD only licenses. Times are changing. But, most VOD licenses are bundled with DVD rights.
Under both arrangements, the entirety of the license fee or minimum guarantee is paid in advance of the delivery of the necessary mastering materials. Generally, 20% is paid at the time of contract signature; 80% is paid upon the Licensor’s notification to the Licensee that the materials are ready for delivery.
b) The Term of the License varies according to media, but generally range from five to seven years.
c) Delivery Materials generally include the following:
Permission to create copies of the videomaster of the content.
Permission to create copies of the music & effects tracks
English language dialog list (regardless of the original language of the content)
High resolution jpgs of the poster artwork (in both text and non-text versions)
High resolution jpgs taken from the content
Thanks for reading.
Michael T George
Updated 2 September 2019
Preface. If you are impatient, skip ahead to the paragraph that begins: For anyone but the most established and well-backed producers…
Years ago, an Esquire magazine article featured the picture of a monkey at a typewriter and asked: “Is there anyone out there not writing a screenplay?” Good question then. Equally good question today.
Hundreds of thousands of original screenplays (“original” meaning not an adaptation of a previously produced play or published work) get written every year. Less than a thousand get made, even as low-budget features. Only a handful of original screenplays get made into feature films costing $10 million or more.
Most feature films are based upon source material that was commercially successful in other media. Why? Because $10 million plus is a lot of money. Not only do the investors want a higher probability on a financial return, but everyone in the production and distribution food chains wants reliable deniability if the project fails. (“Who would have thought that a hit novel like Two Nuns and a Vicar in a Taxi could be such a colossal failure?”)
So, what does it take to get an original screenplay produced?
First, be realistic. The odds are particularly long if the creative talent (screenwriter, producer or director) has never had a film produced that was either
a) a low-budget film that made a significant profit; or
b) an independent feature in the $2 million plus range that was a significant, critical success (and I don’t mean an almost positive review in the Minot Daily News.)
Lacking these, the best route is to either
a) find an angel (probably a relative) to finance the whole thing, Or
b) get off their butts and raise the development capital that will allow them to assemble the team necessary to put together a package that will attract actual production finance.
Uh, you ask ‘what about shopping the screenplay to big production companies and distributors? You’ve just disproved the notion that there is no such thing as a stupid question. Go back and read the third paragraph above. When you return to here, keep in mind the following.
You will be sending your screenplay to development executives. Keep in mind the following:
a) Most will return it unread, rather than risk a lawsuit for plagiarism should the screenplay be similar to something they might already have in development.
b) The objective of a development executive is neither there to help you nurture your creative potential nor to fast track your opus to fame and fortune
Their real objective of a development executive is threefold:
a) to keep having three square meals a day and roof over their head
b) to either retain that nice job of theirs until they can get a promotion (with more money and further opportunities for advancement) or a better job somewhere else.
They know that their company:
a) already has producers with projects of their own that will take precedence over anything you’ve got, and with whom they don’t want to make enemies (am reminded of Voltaire, who when asked while on his deathbed if he renounced Satan replied “Now isn’t the time to be making enemies.”) ; and
b) few people get fired for saying no or pushing the project upstairs with a maybe. the yes word would be verboten even if it were allowed to them–the only fear being that they might pass on some project that would be a big hit elsewhere, and they might be called on the carpet for it.
So, you are back to either self-producing or building a package that can attract the participation of credible co-production entity, such as a big production company or top twenty distributor that will invest a chunk of capital.
For anyone but the most established and well-backed producers, availability of development capital is the single greatest determinant in whether or not a film gets made.
I support this claim with the following contentions:
a) creative talents (will use the term producers heretofore) have to pay the bills while they try to bring their projects to fruition; thus, the part-time producers are competing with full time producers; and,
b) re-writes, casting directors, “name” screen talent and potential collaborators cost money.
The idea that a novice producer can send a screenplay to a top 500 screen talent and that they will allow you to attach their name to your project is fanciful at best and induces thoughts of clientcide on the part of agents at worse.
Actually–and this should be obvious–a commitment on the part of screen talent that have been consequential to films that have made money in the past is worth money, and can only be secured by even a credible casting agent if a paid up front option is secured.
Development capital is the source from which such options can be secured.
So, let us consider the key issues:
a) What are the expenses for which development capital will be used?
b) How much capital will be required?
c) How would the capital be compensated?
d) Would all of the development capital be paid up front?
e) What are the sources of development capital?
f) What are the necessary elements to attract development capital?
What are the expenses for which development capital will be used? Here is a checklist:
a) A salary for the producer(s) sufficient to allow their full time efforts to be devoted to bringing the project to fruition. Such must be low enough to suggest that the producer is willing to share risk with the investor, but high enough for the project not to be dismissed as a labor of love for which a ROI is immaterial.
b) Office rent, expenses and salaries in a commercial facility–preferably a production office in a building mostly containing other production offices.
c) Nominal travel and hospitality expenses.
d) Professional services, including accounting, legal and the retainer for a bona fide casting director.
e) Money to secure options on screen talent.
How much capital will be required? Depends upon the budget of the film. Wiggle room on each item up 20%
a) $5 million feature
screen talent costs of $3 million
development window of five months
advanced draft of screenplay
$500,000
b) $2 million feature
screen talent costs of $1.5 million
development window of three months
camera ready draft of screenplay
$250,000
Salary for the producer(s)
12%
Office rent, expenses and salaries
4%
Nominal travel and entertainment expenses.
2%
Professional services, including casting director.
10%
Money for talent options. (More on negotiating these later. Be patient.)
62%
How would the capital be compensated? For the sake of simplicity, we will go with the following assumptions:
a) The development capital is 10% of the total budget.
b) The producer will negotiate a distribution agreement in which 60% of the total revenues accrued by the distributor (“Distributor Gross”) with no further deductions whatsoever are paid to the producer (“Producer Gross”).
c) The investors of development capital would receive 100% of the Producer Gross between the moment that has received its “Initial Compensation” (defined hereafter) and the occasion in which they have been paid 120% of their investment. Thereafter, the producer and the investor of production capital shall equally share the profits.
The provider of development capital would receive:
a) 100% of the revenues Producer gross until 120% of the development capital has been repaid.
b) 20% of the Producer Gross thereafter.
c) 10% of the producer share of the profits
d) An exclusive first option to invest production capital for the project
e) Co-Executive Producer credit
Sounds generous, does it? By the above formula, if the $5 million feature had a Distributor Gross of only $500,000
a) $200,000 would go to the distributor.
b) $240,000 would go to the investor of development capital.
c) $60,000 would go to the investors of production capital. (an 87% loss!)
d) $0 would go to the producer.
How can this be justified? The investors of development capital are running a double risk:
a) That the feature will not be made at all
b) That it may commercially fail so miserably–or be defrauded–so as to not get any ROI.
Since development capital would likely be the difference between the feature getting made and not getting made it is worth such generous terms, which would unlikely deter investors in production capital from participating.
Would all of the development capital be paid up front? Kinda. If 500,000 in development capital was provided, of which 70% was to go to talent options:
a) $150,000 would be payable to the producer upon execution of the development capital agreement.
b) $350,000 would be in the form of an irrevocable letter of credit very clearly specifying that if the producer was able to secure an option with any of the talent listed on the L/C for a role specified in the screenplay (and the same for the other lead roles) in accordance with very clearly specified terms.
For those unfamiliar with letters of credit, I will summarize here. Those familiar with same can skip ahead to: “The options would constitute 10% to 20%…”
A letter of credit is a banking instrument between an issuer (e.g. investor) and a payee (e.g. producer) in which a variety of objective criteria are articulated. The issuer uses an issuing bank into which the amount of the L/C is irrevocably placed. (Once the L/C has been issued, there is no backing out on the part of the investor.) This is the good part.
If the payee meets the exact specifications of the criteria before the expiration date of the L/C the bank must pay the amount in full to the payee. (That’s the irrevocable part.). This is another good part.
So, if the L/C states that if– prior to a specified date–producer Stanley Schlub provides fully executed WGA or DGA documents demonstrating that he has for his the feature film project “Hey, Hey in the Hayloft”acquired a fully executed option on the services of:
a) Stanley Schlub or Morrie Magillah or Deborah Dweeb to serve as director; and
b) Seymour Schtup or Thomas Twineweed or Peter Pinhead to participate in the role of Phineas Thoroughgood: and,
c) Brenda Shiska or Michelle Mishugunah or Tara Temple for the role of Porcina Thoroughgood.
Upon presentation of the attendant documents described herein to the bank in advance of the expiration date of the L/C the bank will pay you the full value of the L/C. And, if it will be a comfort to the investor and/or the agents for the talent, the pay-out made directly to various parties (just in case the investor was fearful that you might use the funds for other purposes). This is also good.
There are a few downsides.
a) Bank fees and review procedures can be time-consuming and expensive.
b) To get the money, one has to follow the exact procedures. There is no flexibility. All names must be spelled exactly correctly. They are not fool-proof. I offer an example.
Some years ago, I was representing an American seller of a film package of six titles to a company in Spain. The buyer had wanted delivery in advance of payment (something no credible seller will never do to anyone but the likes of the BBC). In anger, the buyer claimed he didn’t trust me and wanted to do it by L/C. When all of the materials were assembled and placed with the freight forwarder, the buyer contacted the seller and asked that the materials be sent to a different office in Spain–and send the materials through Madrid instead of Barcelona.
The seller agreed and contacted the freight forwarder who, suspecting a rat, gave me a call. I made sure that the port of entry be as specified in the L/C. If not, when the seller provided shipping documents to the bank for payment: his payment claim would be rejected, the buyer would have the materials and his money back from the bank. The seller would probably have to take legal action to get his money. It was a close call.
The options would constitute 10% to 20% deposit on the total up-front compensation for the talent, and would require the remainder of their compensation to be paid prior to a negotiated date or the deposit paid by the investor of development capital would be forfeited. (According to industry practice, the agent for the talent would be legally required to hold the deposit in escrow so as to be refunded in the event of non-performance–basically meaning not showing up for duty on the specified first day of principal photography.)
With these options secured, raising the production capital would be made much, much easier as the contingencies that deter most investors would be obviated.
What are the sources of development capital?
Private investment is always the best. Any producer that does not have potential investors for development capital is at a distinct disadvantage. I cringe when I hear creative talents mutter the mantra that they are “creative types”, not “business types”. Well, if that is what you are, I hope you have:
a) A business type friend who is willing to invest their time on a long shot project.
b) A rich relative who believes you walk on water and will take the plunge.
Government finance is another possibility. Australia and Ireland have outstanding programs. Austria, Belgium and Canada (three countries who border on much larger same-speaking language countries that provide enough content that the entertainment needs of the forementioned three could be met without them producing a minute of content) have good programs. Almost every country other than the USA has some film promotion scheme in the form of tax subsidies or outright grants..
Why not the USA? The USA is perceived to produce enough content without help that government subsidies are considered unnecessary. And, unlike most countries in the world, the domestic market alone for most content is large enough to turn a profit. Can’t exactly say that about Iceland or Ireland or New Zealand, can you?
Crowd funding. I was slow to accept crowd funding as a means of raising development capital. Is not the perfect solution for many or most. But, you can see my assessment of possibilities at http://michaeltgeorgeonmedia.blogspot.hk/2014/05/crowdfunding-and-creative-community.html
What are the necessary elements to attract development capital? This is the even more subjective part of this missive.
a) A compelling treatment. You must convince a potential development capital investor that the project will keep the audience engaged from the very beginning to the very end. Thus, it must have elements that you can point to that are new and compelling without being so avant-garde that the audience will become alienated.
b) A business plan. You must clearly articulate what you want from the development capital investor, what same will receive as compensation. Your potential investor may not be saavy on the nuts and bolts of production and distribution. But, shall likely have people who have.
Virtually every investor has heard horror stories about movies that have grossed millions, but whose investors were wronged by producer criminality or negligence or robbed by distributors via “creative accounting”.
Be able to make a case for either your knowledge of negotiating distribution agreements or the expertise of your retained counsel that does. Wouldn’t hurt to look at the exalted essay entitled Fundamentals of Distribution for Producers at http://michaeltgeorgeonmedia.blogspot.hk/2014/05/the-fundamentals-of-distribution-for.html
c) A top sheet budget. The proportion of producer compensation to the remainder of the budget will be the first thing an investor will look at. Too big and you are asking the investor to bear too much of the risk. Too little and you won’t be taken seriously as a business person.
d) An advanced draft of the screenplay. Would not provide same to an investor if possible–and then only if you can judge the interest of same to be very serious. Everyone has an opinion. Invariably, an investor with enough capital to take a flutter on the risky prospect of providing development capital must be financially successful. Financially successful people think they can be successful in any trade, and that their creative input into a screenplay would be indispensable to your success.
That said, William Goldman is famous for saying “Nobody in this business knows anything”. Is probably the stupidest thing anyone has ever said in this business. Good screenplays actually have two things in common:
1) They are consistently engaging from beginning to end. To do so, they must be sufficiently innovative to lead the reader to terra incognita. Anything conspicuously derivative hurts.
2) The protagonists must inspire sympathy, amenity or empathy. Otherwise, we don’t care what happens to them, and lose interest. Never understood the appeal of Oliver Stone’s Midnight Express. Drug mule gets caught carry drugs and languishes in Turkish prison? Who gives a shit what happens to him?
Hemingway famously said that a story cannot be better than its villain. I would cite Iago (Othello), Frank Booth (Blue Velvet) and master-at-arms Claggart (Billy Budd) as my most compelling arguments in support of Papa.
e) A revenue forecast. By territory and media. Citing the high, low and most-likely grosses for the 17 largest territories (which constitute about 95% of worldwide revenue). Make sure that the “low” is below break even. I know someone who can help you with this.
f) Cash flow timetable. Quarterly. For five years.
g) Lastly, some appeal to the vanity of the investor is to be allowed. Their name will forever be on the credits of an important motion picture. The IMDB entry will immortalize them as a bona fide member of the entertainment media family.
Some last caveats. Don’t waste your time with investors that:
a) Only make blue chip investments. The project may appeal to the following remarkably common country club fantasy: “Well, Sam, you ask how my picture is coming along? Things were not going very well. But, I’m now taking a more active role, and things seem to have turned around for the better.”
Once they see the real risk involved, reality will dissipate the fantasy. Venture capitalists and successful real estate types understand risk/reward. Pursue investors of any stripe that understand these as well.
b) Confuse an investment with a loan–or want some kind of hybrid that will give them a guaranteed return with the hope that they may also make the big score. The laws of most countries–especially the USA–clearly define what constitutes each. An investor that is set on a guaranteed return is unlikely to be satisfied whatever arrangement you offer. Don’t waste your time.
Thanks for reading. Comments are welcome.
