DOMESTIC DISTRIBUTION PART I

In my last article I discussed foreign sales agents and their role in the distribution of independent films. Now let's turn to domestic deals. "Domestic" is usually defined as North America, which is comprised of the USA and Canada, as well as their possessions, territories, commonwealths, protectorates and trusteeships. For the United States, these include the U.S. Virgin Islands, Saipan American Samoa, Guam, Wake Island and Puerto Rico. However, many domestic deals also encompass the Bahamas, Bermuda, Saba Island, St. Eustatius Island, St. Kitts Island and St. Maarten Island. These are not affiliated with either the USA or Canada. Bermuda, a British colony in the middle of the Atlantic Ocean, has never been part of Canada or the USA. St. Kitts Island's sovereignty is shared by France and the Netherlands.Why are these entities considered part of the Domestic territory? Simply because certain television channels have satellite footprints that cover these areas, and they demand these rights be included in any deal.

Consequently, producers need to be careful in defining the scope of territories granted to distributors. It is customary for independent producers to enter into separate foreign and domestic deals. If, for example, the filmmaker assigns Bermuda to an international distributor, that could prevent their domestic distributor from making a lucrative deal with HBO. Indeed, it may deter a domestic distributor from acquiring the title. Thus, to maximize revenues a producer has to make sure they don't sacrifice a beneficial deal because they thoughtlessly assigned away rights to a small territory.

The term "distributor" is so broad that it encompasses many different types of companies. The major studios such as Paramount and Sony typically distribute pictures directly to theaters, license them to television channels like Showtime, and manufacture their own packaged media (i.e. DVDs) for sale to mass merchants and video rental outlets. Many majors studios may also distribute their pictures in selected foreign territories and contract with local distributors elsewhere.

Smaller independent distributors exploit movies in a variety of different ways. Some book films into theaters and then assign television and home video rights to third parties for licensing in those media. Others are basically home video labels that manufacture and market DVD's. Some of these companies license directly to television while others use intermediaries. However, sometimes home video labels decide to release some of their films in theaters to build awareness for the picture. They may pay a third party to book the title into theaters. A filmmaker seeing such theatrical releases may perceive the company as a theatrical company when they are not. So it can be difficult to tell what kind of distributor they are dealing with.

A theatrical release, even if perfunctory, may help the distributor persuade filmmakers to make a deal even if it is unprofitable by itself. If a smaller distributor attempts to theatrically release an indie film, they face stiff competition from the majors. Because the major distributors have a steady flow of desirable movies, they have the clout to demand the best theaters and dates, often relegating independents to whatever dates and venues are left.

Complicating matters further, some home video companies deal directly with mass merchants like Wal-Mart, while the others have to go through intermediaries like Anderson Merchandisers, that ship and pack product from numerous companies for delivery to mass merchants.

All this is to say that distributors operate differently and filmmakers need to do their homework before making commitments so they understand exactly how each distributor proposes to release their film and how the revenue stream will be divvied up. If multiple companies in the chain of distribution deduct significant fees and expenses, the revenue stream that goes to the filmmaker/investors can become a trickle. So when a distributor says they distribute to theatrical, home video and television media, you should ask: "O.K. Exactly how you do that? What intermediary companies do you use, and what kind of fees and expenses do they deduct?"

One type of home video deal is known as a sub-label deal. Here two companies split the responsibilities for acquiring, marketing and distributing titles. Typically one company, such as Lionsgate, handles the physical distribution of titles and collection of revenue from its buyers. The other company, the sub-label, is responsible for acquiring titles and creating the key art and marketing materials. The two share revenue.

There is nothing inherently wrong with a sub-label deal, provided the filmmaker understands how distribution fees are collected and expenses are recouped, and the amounts are reasonable. However, I have seen many of these deals where the filmmaker thinks they are sharing in the wholesale price remitted by buyers like Blockbuster or Wal-Mart. The filmmaker is unaware that he/she is really receiving just a share of what is remitted to the sub-label from the parent company.

In these deals, "Gross Receipts" has been defined and calculated on the revenue received by the sub-label after the parent company has deducted its fees and expenses. The cumulative effect may be that little or no revenue flows down to the filmmaker. The filmmaker thinks he/she is receiving 25% of the wholesale price of each DVD sold but actually is receiving 25% of the funds remitted from the parent company to the sub-label. A well-drawn contract will carefully define "Gross Receipts" as the wholesale price which is the amount remitted from the home video buyers, and not the amount remitted to the sub-label. Filmmakers need to ask specific questions when selecting a distributor in order to avoid unpleasant surprises.

Almost all distributors nowadays try to acquire so-called ancillary and new media rights so they can license movies to such companies as iTunes, Netflix, Hulu and Amazon. Many of these new media buyers don't like to acquire individual titles and prefer to deal with aggregators who can license them bunches of films at a time.

  

Book Recommendation:

 The Reel Truth: Everything you didn't know you need to know about making an independent film. By Reed Martin 

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Table of Contents

Introduction
Basic Elements of Contract Law
Common Provisions of Entertainment Contracts

Depiction and Copyright Releases
Depiction Release, Grant with Reversion
Depiction Release, Option/Purchase Format
Depiction Release, Documentary Short Form
Guestbook Release
Crowd Release
Talk Show Appearance Agreement
Film Clip License
Still Photo Release
Artwork Release

Literary Submission and Sale
Submission Release
Non-Disclosure Agreement
Option and Literary Purchase Agreement (Long Form)
Option and Literary Purchase Agreement (Short Form)
Quitclaim Release

Artist Employment
Conversion Agreement
Actor Offer Letter
Actor Employment Agreement (Loan-out Format to Employ SAG Actor)
Actor Employment Agreement )Low-Budget, Non-Union Day Player)
Nudity Rider to Player Agreement
Rider to Day Player Agreement
Extra Agreement
Extra Release
Series Regular Actor Contract (AFTRA)
Minor Release
Parental Consent
Stunt Performer's Agreement
Television Host Agreement
Television Performer Employment Agreement
Writer Employment Agreement (Low-Budget, Non-union)
Writer Employment Agreement (Theatrical WGA Writer)
Television Writer's Contract (WGA, Loan-out)
Director Agreement (Theatrical, Loan-Out)
Director Employment Agreement (Non-Union)
Director's Television Series Employment Agreement (to Employ a DGA Director)
Consultant Agreement
Certificate of Engagement

Collaboration
Writer Collaboration Agreement
Joint Venture Agreement
Agreement to Dissolve
Co-Production Agreement

Music
Composer Agreement (Low-Budget Feature)
TV Music Rights License
Synchronization/Performing/Master Use and Mechanical License
Synchronization License TV Series
Master Use License, Television
Soundtrack Recording Agreement (Loan-Out Format)

Financing
Finder Agreement
Promissory Note
Promissory Note with Guarantee
Guarantee

Production
Production Services Agreement
Cable TV Production Agreement
Casting Director Employment Agreement (Independent Contractor)
Crew Deal Memo (Salaried On-Call)
Producer Employment Agreement
Television Series Producer Agreement
Makeup and Special Effects Agreement
Location Agreement
Studio Rental Agreement

Distribution and Exhibition
International Sales Agency Agreement (Filmmaker Friendly)
International Sales Agency Agreement (Distributor Friendly)
Certificate of Authorship
Certificate of Origin
Short Form Assignment
Definition of Gross Receipts After Break-even
Net Profit Definition
Television Distribution Agreement
International TV Distribution Agreement
Security Agreement
Short Form Security Agreement
SAG Buyer's Assumption Agreement Theatrical
Home Video Licensing Agreement
Internet Acquisition Distribution Agreement
Website Content Provider Agreement
Video on Demand Agreement
Exhibition Agreement

Merchandising
Merchandising Agreement
Product Release
Product Placement Agreement

Retainer
Attorney-Client Retainer Agreement
SAG Agency Motion Picture/Television Agency Contract
Representative Agreement

Glossary of Terms

Appendix