The Matador starring Pierce Brosnan, Greg Kinnear and Hope Davis premieres in New York and Los Angeles on December 23. Written and Directed by our client Richard Shepard, the film was acquired at last year's Sundance Film Festival by Miramax.
The film will be released in other cities in January.
The Matador website: http://www.miramax.com/matador/
Tactics and Strategy in Negotiating the Distribution Deal
By Mark Litwak
Attorney At Law
Many independent filmmakers are surprised at the amount of effort and skill required to secure an equitable distribution agreement. With the dramatic increase in independent production, it is apparent that many filmmakers have mastered the skills needed to secure the money and equipment needed to produce a film. The major obstacle facing many filmmakers is how to secure distribution for their motion picture.
This article explores the tactics and strategies that can be used to obtain a favorable distribution deal for the indie filmmaker.
In negotiating the distribution deal, the relative bargaining power of the parties is determined by the perceived desirability of the film and how much risk each party is willing to take. With a major studio project, the studio has often borne most, if not all, the financial risk. Typically, the studio pays for development, production and distribution. The director/producer is employed by the studio, receives a fee for his services, and may be entitled to a small share of net profits. "Net Profits," however, are defined so that there is little likelihood the employee will ever realize anything from this "back-end" compensation.
On the other hand, when a film is developed and produced by an independent Filmmaker, as an entrepreneur the filmmaker bears the risk of failure. Often the distributor will not have any involvement in the development of the script, or the production of the film. Since the distributor screens a completed work before deciding whether to acquire it, the distributor assumes less risk. The distributor knows exactly what it is obtaining. Consequently, if the Filmmaker has skillfully made a script into an appealing film, the filmmaker may be able to obtain a better deal. Under such a film acquisition agreement, the distributor may agree to share revenue according to a formula that will actually generate monies on the back end, assuming the distributor accounts fairly. If the filmmaker stumbles and creates a film with little appeal, however, no distributor may acquire it, and the loss will be borne entirely by the filmmaker and his investors.
INCREASING YOUR LEVERAGE
When a distributor negotiates to acquire film rights, the distributor often has more clout than the filmmaker. This is a vulnerable position for the filmmaker. The filmmaker, or his representative, must know how to orchestrate the release of the film into the marketplace to achieve maximum leverage. This may entail generating competition through positive word of mouth within the industry. Such "buzz" or "heat" can be encouraged by filmmakers who work the festival circuit and mount a campaign on behalf of their film.
From the filmmaker's point of view, one will obtain a better deal if there is more than one distributor competing for the film. It is not difficult to alert acquisition executives to the existence of a film. Once a start date has been announced, filmmakers begin receiving calls. Acquisition executives track the progress of each film so that they can try to view it as soon as it is completed, and before their competitors see it.
To ensure that acquisition executives are aware of a film, one can send a press release announcing the project to the trade papers and magazines (Hollywood Reporter: (213) 525-2000, Daily Variety: (213) 857-6600, FILM MAKER: 213-932-6060, Moviemaker: 310-234-9234, The Independent: 212-807-1400). These publications will include your film in their listings of motion pictures in development, pre-production and production. Likewise, one should alert Film Finders at (310) 657-6397, a company that tracks films for many distributors.
Here are some other ways to create competition and maximize your leverage:
1) NO SNEAK PREVIEWS: Do not show your film to distributors until it is complete. Executives may ask to view a rough cut. They will assure the filmmaker, "Do not worry. We are professionals, we can extrapolate and envision what the film will look like with sound and titles." Do not believe them. Most people cannot extrapolate. They will view an unfinished film and think it amateurish. First impressions last. The community of acquisition executives is small, and they frequently mingle at screenings and festivals where they compare notes. One acquisition executive bad-mouthing your film, can cause a lot of damage.
The only reason to show an unfinished is if one is desperate to raise funds to complete it. The terms one can secure under these circumstances will be less advantageous than what could obtain for a finished film. If you must show a work-in-progress, exhibit it on a Moviola or flatbed editing table. People have lower expectations watching a film on an editing console than when it is projected in a theater. If you must send out cassettes of an unfinished film, prominently label it so that your viewers are reminded that they are seeing a work-in-progress.
2) SCREEN IT BEFORE A CROWD: It is usually better to invite executives to a screening than to send them a videocassette. If you send a tape to a busy executive, he will pop it in his VCR. Ten minutes later the phone rings and he hits the pause button. Then he watches another ten minutes until his secretary interrupts. After numerous distractions, he passes on the film because it is "too choppy."
You want the executive to view the film in a dark room, away from distractions, surrounded by a live audience enjoying the film. You can rent a screening room at Paramount or other convenient locations, invite all the acquisition executives you can, and pack the rest of the theater with friends and relatives.
Perhaps the best venue to exhibit a picture is at an important film festival. If the film is warmly received, your bargaining position will be enhanced. Another benefit of a festival showing is that it may generate positive reviews. Most publications have a policy of only reviewing films about to be released theatrically. Films seeking distribution are not reviewed. But trade papers and selected publications review films exhibited at major festivals. A positive review can influence distributors.
When you prepare an invitation list, include only those distributors appropriate for the film. If foreign rights are taken, there is no reason to invite foreign sales companies. You are being inconsiderate by wasting their time. Likewise, do not invite an art house distributor to view a beach blanket bingo movie. As soon as the acquisition executive realizes that your film is not for him, he will depart. Do you think a stream of people leaving might adversely affect the perceptions of the rest of the audience?
3) MAKE THE BUYERS COMPETE AGAINST EACH OTHER: Screen the film at the same time for all distributors. Some executives will attempt to get an early look -- that is their job. The filmmaker's goal is to keep potential distributors intrigued. You can promise to let each see it "as soon as it is finished." They may be annoyed to see their competitors at the first screening. But this will get their competitive juices flowing.
Some diplomacy is required to orchestrate a bidding war and not alienate the bidders. You want to firmly push each potential buyer to offer their best terms while maintaining cordial relations with all. Remember, you may want to produce your next project with one of the losers.
4) DO NOT GIVE AWAY YOUR FESTIVAL PREMIER LIGHTLY: Carefully plan a festival strategy. I have seen filmmakers give away their premier to minor festivals and thereby disqualify themselves from participating in major ones. You can participate in lesser festivals later. There is little reason not to apply to a festival if you think you have a chance to participate. If you are not accepted, the buyers will not know unless you tell them.
5) SELL YOUR FILM WHEN BUYERS ARE HUNGRY FOR PRODUCT: Distributors that acquire films for foreign distribution plan their activities around a market calendar. The major film markets are 1) AFM in the fall, 2) Berlin in February, and 3) Cannes in May in Cannes, France. In addition there are a number of important television markets including NATPE in the U.S., and MIP and MIP-COM in France.
Distributors are hungriest for product before a rapidly approaching market when they do not have enough new inventory. A distributor may spend $90,000 or more to attend Cannes, and if it appears the company will have nothing new to sell, panic sets in.. This is the best time to approach a distributor. Do not wait until a week before a market, however, because you need to give distributors enough time to prepare for it. They may need to create a trailer, one-sheet, poster, screeners and advertising. The bumper editions of the trade papers have an ad deadline that is 3-4 weeks before a market. These expanded editions contain product listings by distributor, as well as extensive advertising. The best time to approach distributors is 60-90 days before a market. Assuming a distributor wants your film, it may take a month or more to negotiate the deal.
PROTECTING YOUR INTERESTS
Investigate the Distributor
Always check the track record and experience of potential distributors. Industry insiders know the reputations of executives and their companies. It is newcomers who are most likely to be taken advantage of.
Ask a prospective distributor to send you their press kit. It will likely contain one-sheets from the films they have distributed. Examine the credits. Track down the filmmakers. If you cannot find them, simply ask the distributor for a list of all the filmmakers they have done business with over the past two years. Call the filmmakers. Ask them specific questions: Did they receive timely producer reports? Have they been paid what they are due? Did the distributor spend the promotional dollars promised?
I have established the Filmmaker's Clearinghouse on my website (www.marklitwak.com). The Clearinghouse provides filmmakers with information on distributors similar to what the Better Business Bureau reports on merchants.
PRINCIPAL TERMS OF A DISTRIBUTION AGREEMENT
Territory
The territory is the country or region where the distributor may exploit the film. Worldwide rights mean that the distributor has the right to distribute the film in any country in the world. Some distributors go further and seek rights throughout the "Universe." To my knowledge, no sales have been made to moviegoers on other planets. I once kidded a distribution executive that it was silly to ask for such rights. He conceded that it was unlikely his company would ever need rights beyond Earth. Several weeks later, however, he showed me a fax he had received from NASA asking for permission to exhibit one of his films on the Space Shuttle.
Independent filmmakers frequently enter into more than one distribution deal.
Rights are typically divided into two territories: Domestic and Foreign. Domestic is the United States and English-speaking Canada. Sometimes it may include all of Canada. It may include U.S. territories, possession's & military bases. Foreign rights are usually defined as the rest of the world.
As a general rule, filmmakers should only grant a distributor rights to territories they directly service. Few distributors, other than major studios, serve both the foreign and domestic market. Even the majors use sub distributors in smaller territories. Nevertheless, distributors often try to acquire as much territory and media as they can. They will lay off rights on sub distributors, and take a fee for serving as the middle man.
Most companies that distribute domestically do not participate in international film markets. If you grant such a distributor worldwide rights, they will make a deal with a foreign distributor to handle international sales. This foreign sales company will deduct a distribution fee for its services, and from the remaining amount, the domestic distributor may take a fee as well.
This is not to say that you should never allow a distributor to use sub-distributors. But one needs to understand the kind of distributor you are dealing with, and how it plans to exploit your film. Filmmakers should always determine which media and territories a distributor handles itself, and which it lays off on other companies. Labels can be confusing. Some distributors who sell films internationally call themselves "foreign sales agents." Others prefer to be known as "international distributors." The problem of double-distribution fees can be ameliorated by placing caps on the total fees the distributor and sub-distributors may take.
Most indie filmmakers contract with a foreign sales agent, or international distributor, to take their film to the major international markets. The filmmaker will also contract with one or more domestic companies. If the film does not have any name-actors in the cast, the filmmaker may not be able to obtain a domestic theatrical release. In such a situation, the filmmaker will contract with companies that serve the television and home video markets. Care must be taken in structuring these deals so that their terms do not conflict.
Filmmakers may benefit by contracting with more than one distributor. First, the filmmaker is not putting all his eggs in one basket. If he has one distributor, and it goes bankrupt, all potential revenue is affected. Second, by using different distributors, expenses in one territory will not be cross-collateralized against revenues from another.
When expenses are cross-collateralized, expenses and revenue from different territories are pooled. For example, suppose a film generates revenue of one million dollars abroad. The distributor has incurred $100,000 in recoupable expenses. The distributor is entitled to retain 20% of gross revenues, or $200,000, as a distribution fee. The remaining $700,000 is the filmmaker's share of revenue.
But suppose that in the domestic territory, this film generated 1 million dollars in revenue, and incurred expenses and distribution fees of $1.5 million. So on the domestic side of the ledger, the distributor has a net loss. If the filmmaker has a single distributor for foreign and domestic territories, the distributor can recoup its $500,000 domestic loss from the foreign profit.
Not only can expenses from one territory be crossed against others, but expenses in one media can be crossed against revenues from another. In many instances, a distributor will lose money on a picture's theatrical release and will want to recoup those losses from revenue generated from home video and television.
The remainder of this articles is posted on the Entertainment Law Resources website: www.marklitwak.com
Full Article: http://www.marklitwak.com/articles/film/indie_filmmaker.html
