With the start of the
Festival De Cannes and accompanying Marche Du Film, one is reminded that film
is both an art form and a business. The festival will exhibit approximately 22 feature
films in competition, another 20 in Un Certain Regard, 6 Out of Competition and
10 in Special Screenings. Then there are the parallel sections or sidebars that
are not officially part of the festival, but exhibit at the same time. Director’s Fortnight, which was created by the
French Director’s Guild, will exhibit 19 features. International Critics' Week (la
Semaine de la Critique) run by the French Union of Film Critics, will show another
10 features. Add these up and you have 87 feature films in the festival and its
sidebars. Only a relative handful of these films are from filmmakers based in the
USA. On the other hand, the market
(Marche Du Film) will screen 1465 feature films, and many of these are from the
USA. Few of the market films are also in the festival. Many are more commercial
fare that festivals often ignore. However, they generate substantial revenue.
With that in mind,
filmmakers fortunate enough to receive distribution offers for their films are
often confronted with complex deals to distribute their films. These can
bewilder those unfamiliar with the customs and practices of the industry. Let’s begin with a discussion of
international film sales.
International sales
agents are distributors, although they usually do not own a single theater,
home video label or television outlet. They are essentially distributors that
license films to territory distributors ("buyers"). Territory
distributors acquire rights to exhibit a film within their country although
sometimes they may license rights for several different countries. They often
find out about films from sales agents whom they meet at various markets held
throughout the year. Sales agents and buyers typically attend the three major
film markets, which are at Cannes, Berlin and Santa Monica (AFM) as well as TV
markets such as Mip and MipCom. The May 2012 edition of the Cannes Market will
have more than 1100 sales agents and 10,000 participants from almost one
hundred different countries.
The sales agent not
only licenses the films they represent, but also services their buyers by
providing them with various materials and elements, including film and video masters,
key art, photos and trailers. An honest and competent sales agent can be
extremely helpful to a filmmaker. Most filmmakers have no clue how to go about
licensing their film, for instance, to a Turkish buyer, and what terms would be
acceptable. Moreover, they don’t even know who the buyers are in most
territories.
According to the latest
2011 Box Office statistics, two-thirds of all film revenue now comes from
abroad. International sales (those outside of North America) grew 35% from 2007
to 2011. Revenue in North America, by comparison, increased a mere 6%. So while
foreign sales have been expanding quickly, domestic sales have grown modestly. Over the past four years, the number of
screens in China has doubled to more than 6,200, a number that's expected to
double again by 2015. Chinese box-office
receipts hit a record $1.5 billion last year, according to their State
Administration of Radio, Film and Television. With China and other
rapidly developing countries building thousands of new theaters, this trend is
expected to continue. Indeed, for many
independent filmmakers, even today, 90% or more of their revenue is derived from
foreign sales. That is because the North American market is by far the toughest
market to crack for a low budget indie film without stars.
It can be difficult to
select a sales agent. Reputable sales agents should be willing to accept terms in
their contract with filmmakers that protect their interests. Many such
provisions do not cost the sales agent anything, as long as the sales agent
lives up to the terms of its contract. A requirement for interest on late
payments, for example, costs the sales agent nothing as long as payments are made
on time. Such a clause is important because it will encourage a sales agent to
live up to its commitments, and provide the filmmaker with a viable remedy in
case the sales agent defaults. While a competent sales agent provides valuable
services, one should always remember the importance of what the filmmaker
brings to the table. Without a good film, the sales agent has nothing to sell. Most
sales agents produce few if any movies themselves.
Here is a list of some
of the most critical ways for filmmakers to protect their interests in contracting
with sales agents. The following list should not be considered exhaustive.
There are other provisions a filmmaker may want to include such as clauses
dealing with advances, guarantees and reservation of rights.
NO CHANGES: The film
should not be edited, nor the title changed, without the filmmaker's approval.
Editing for censorship purposes, television broadcast and changes made for a
foreign language release, such as adding subtitles and translating the title
and dialogue, is permissible.
MINIMUM ADVERTISING
SPECIFIED: The contract should specify in writing the minimum amount the sales
agent will spend on advertising and promotion of the film. These expenses are
often incurred at various markets. They could include advertising in the trade
papers, a billboard on the Croissette or payment for a screening room for the
film. The sales agent should commit to payment for the creation of a poster,
one-sheet and trailer if these items do not exist.
EXPENSES LIMITED: There
should be a floor and a ceiling on expenses. Market expenses (the cost to
attend film and TV markets) should be limited to the first year of release and
capped per market. Promotional expenses should be limited to direct
out-of-pocket costs spent to promote the film, and should specifically exclude
the sales agent's general overhead and staff expenses.
TERM: The term should
be a reasonable length, perhaps five or even 10 years, but not in perpetuity.
The filmmaker should be able to regain rights to the film if the sales agent
gives up on it. Thus, it is best to have a short initial term of two or three years
and a series of automatic rollovers if the sales agent returns a certain amount
of revenue to the filmmaker. If the sales agent does not meet or exceed these
performance milestones, all rights should revert to the filmmaker. If the sales
agent is doing a good job and paying the filmmaker his share of revenue, there
is little reason to switch to another sales agent. Indeed, for movies that have
been out in the marketplace for a few years, it is very difficult to find a
sales agent willing to take on an older film.
INDEMNITY: Filmmaker
should be indemnified (receive reimbursement) for any losses incurred by
filmmaker as a result of the sales agent's breach of the terms of the
agreement, violation of third party rights, and for any unauthorized changes or
additions made to the film.
POSSESSION OF NEGATIVE:
The sales agent should receive a lab access letter rather than possession of
the original negative and other master elements. The sales agent should not be
permitted to remove masters from the laboratory.
ERRORS AND OMISSIONS
(E&O) POLICY: While it is generally the filmmaker's responsibility to
purchase an E & O insurance policy, sales agents sometimes may be willing
to advance the cost of this insurance and recoup it from film revenues. In such
an event, the filmmaker should be added as an additional named insured on the
policy, which is a minor cost.
TERMINATION CLAUSE: If
the sales agent defaults on its contractual obligations, the filmmaker should
have the right to terminate the contract, and regain rights to license the film
in unsold territories as well as obtain money damages for the default. It is
only fair for the filmmaker to give the sales agent reasonable prior notice of
default before exercising her right to terminate.
RIGHT TO INSPECT BOOKS
AND RECORDS: The sales agent should maintain complete and detailed books and
records with regard to all sales and rental of the film. Filmmakers should receive
quarterly (or monthly) producer statements accompanied by any payments due the filmmaker.
Filmmakers should have the right to examine the books and records of sales
agent during reasonable business hours, on 10 days’ notice.
LATE
PAYMENTS/LIEN: All monies due and payable to the filmmaker should be held in
trust by sales agent for the filmmaker. The filmmaker should be deemed to have
a lien on filmmaker's share of revenue. The sales agent should pay the filmmaker
interest on any late payments.
LIMITATION
ON ACTION: The filmmaker should have at least three years from receipt of any
financial statement, or discovery of any accounting irregularity, whichever is
later, to contest accounting errors and file a Demand for Arbitration.
ASSIGNMENT: It is best
to prohibit assignment unless filmmaker consents. If assignment is permitted, the
sales agent should not be relieved of its obligations under the original
contract.
FILMMAKER DEFAULT: The
sales agent should give the filmmaker 14 days written notice of any alleged
default by filmmaker, and an additional 10 days to cure such default, before
taking any action to enforce its rights.
WARRANTIES: The filmmaker's
warranties, in regard to infringement of third party rights, should be to the
best of the filmmaker's knowledge and belief, not absolute.
SCHEDULE OF MINIMUMS: Foreign
sales agents should agree to attach, to their contract, a schedule of minimum
acceptable license fees per territory. The sales agent is not permitted to
license the film in any territory for less than the minimum without the prior
approval of the filmmaker.
ARBITRATION CLAUSE:
Every contract should contain an IFTA arbitration clause ensuring that all
contractual disputes are subject to binding arbitration with the prevailing
party entitled to reimbursement of legal fees and costs. The arbitration award
should be final, binding and non-appealable. The IFTA personal guarantee Rider
can be used to bar a company's chief executive from attending future American
Film Markets if the company refuses to pay an arbitration award.
For a more detailed discussion of distribution deal
terms read my article at: Article
Mark Litwak will next be offering his Risky Business seminar
in San Francisco on June 16, 2012 through California Lawyers for the
Arts.Seminar
