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Film Distribution Basics:

An overview of domestic/foreign distribution deals

By Brandon A. Blake, Entertainment Lawyer

The moviegoer’s ticket price flows a long way before a producer sees his share. The initial flow of theatrical revenues of a motion picture comes from the box office receipts of a theater or exhibitor. The exhibitor takes its "house nut," or its theater expenses, along with its exhibitor fee and passes the remainder of the box office receipts, or "film rentals," to the distributor. These rentals are referred to as the "gross receipts" in a distribution contract and are used to determine the revenue shares of the producer and distributor in a percentage fee structure. The distributor then takes its fees and reimburses its expenses according to the contract and leaves the producer with the remainder of the rentals.

Motion Picture Distribution Deals

Flat Fees. Distribution deals can be set up as a flat fee or percentage agreement deal. In a flat fee sale, a distributor will pay a specific sum of money for all rights granted to the distributor in the territory. Flat fees are used in smaller countries or territories where tracking of revenues or collection of fees would be difficult in the territory.

Percentage Fees. On the other hand, in prime markets like Japan or England, distribution agreements usually provide for royalty payments and are based on a percentage of revenues in addition to a minimum guarantee. The delivery of an "acceptable" film triggers the minimum guarantee and what is "acceptable" is a hotly contested issue if the term is not clearly defined in the contract. The distributor fee in percentage agreements range widely. If a subdistributor is used, the distributor may charge an additional percentage override fee for the subdistributor’s fees.

DISTRIBUTION

Widely used is the net deal that allows for the distributor to deduct his distribution fees off the top then recoup all expenses before sharing the remainder of the revenues with the producer. The net deal delays the point at which the producer sees any revenue, although it potentially provides a producer with a high return on a very successful film.

Distribution fee percentages vary from studio to independent distributors and between territories. Studio distributors charge a lower rate in the United States and Canada and slightly higher rates in Europe and other territories. Independent distributors usually charge a lower fee in the United States and Canada, and a slightly higher percentage for all other territories. Thus, an independent producer may be better off with an independent distributor because of lower distribution fees. Moreover, independent distributors with distribution rights in one territory will try very hard to sell the film regardless of how the film did in other territories.

Studio distributors that usually own all foreign rights to a movie may write-off a film in other territories if it did not do well in one territory. Even worse, the studio could put its efforts in distributing studio films rather than independent films. With that said, studio distribution does have its advantages due to the studios’ prominence abroad. Studio distributors have the financial power and influence over foreign exhibitors due to the exhibitor’s need for Hollywood blockbusters. With the wide variation in distribution methods and fees in foreign distribution, it is crucial for the independent producer to assess the benefits and costs of using an independent versus a studio distributor to exploit his or her film abroad.

Author acknowledges the contributions of Donald C. Farber; and David Nochimson.

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