One’s leverage in negotiating a distribution deal depends on whether distributors perceive your film as desirable. Of course, films can’t be appraised like real estate since every picture is unique, plus there are no sure-fire criteria to determine a film’s commercial worth. The major studios, despite all their market research and expertise, frequently release big-budget flops.While no one can accurately predict the commercial worth of a film, there are certain techniques and strategies that can improve one’s prospects. Even filmmakers with low-budget pictures and limited commercial appeal can usually improve upon the initial offer, if they’re savvy.
An experienced negotiator can obtain many concessions just by knowing what to ask for, and they can avoid making demands that can doom a possible deal—such as asking for final approval over marketing and distribution decisions. In a typical deal, the distributor secures the right to distribute the movie in one or more media (e.g., theatrical, home video, television). The distributor advances all distribution, advertising and marketing costs, and both parties share revenue derived from the film.
When a distributor acquires a desirable independent film, they may agree to give the producer an advance on their share of revenue. The producer can then use this money to repay investors. Producers will want to obtain as large an advance as possible, realizing the possibility of never seeing anything on the back end.
The distributor wants to pay as small an advance as possible, and usually resists giving an amount that’s more than the cost of production. Its executives will propose, “We’ll be partners’ put up all the money for advertising and promotion. If the picture is successful, we’ll share in its success!”
Sound good? Not really, as the filmmaker has paid to produce the motion picture. Without the movie, the distributor has nothing to sell. In seeking an advance, producers shouldn’t disclose their modest budgets until all deals are signed. Bragging about how little money you spent on the production isn’t going to enhance your negotiating position.
Keep in mind that distributors get to recoup their distribution fee and marketing costs first, plus other distributors may engage in creative accounting. Profit participants rarely see any return on their share of “net profits,” because of the way that term is defined. Consequently, the shrewd producer tries to get as large an advance as possible.
Filmmakers often enter into agreements with multiple distributors for their films. When licensing films, the world is divided into “Domestic” and “Foreign” territories. North America (Canada and the U.S.A) is referred to as the “Domestic” territory while the rest of the world is referred to as the “foreign” territory.
American filmmakers typically contract with an international distributor, also known as a sales agent, to license their films abroad. Foreign sales shouldn’t be just an afterthought for indie filmmakers, as more revenue is often generated abroad than from exploitation in North America.
For distribution domestically, the filmmaker may enter into an agreement with one distributor for all rights, Or, if the film isn’t going to be exhibited theatrically, there may be separate deals with a home video label and one or more television channels.
The domestic distributor will often act as an aggregator, licensing the films to iTunes, Netflix and other new media outlets. Many of these outlets will only license multiple titles from distributors, and won’t negotiate individual deals directly with filmmakers.
In order to maximize revenues, it’s important to control and orchestrate the release of your film to potential buyers to enhance competition and increase your leverage. Here are some guidelines.
No Sneak Previews
It’s best not to screen your film for distributors until it’s complete. Executives may even beg to see a rough cut and assure you they’re professionals and can imagine what the film will look like with sound and titles.
Don’t believe them. Most people can’t extrapolate. They will view your unfinished film and perceive it as amateurish. First impressions last, and giving one distributor an early peek at your film is usually a bad idea. If the distributor passes on the film, word will get around, and other acquisition executives may not bother to watch your film. On the other hand, if the distributor likes the film, a preemptive bid is likely and you may only have a day or two to decide whether to accept the offer.
If you decline the offer you may be rejecting the best deal you’ll ever receive. If you accept, you foreclose the possibility of a better deal tomorrow from a different distributor. Thus, you’ll be forced to make a decision without knowing where you stand in the marketplace and what other companies might offer.
Screen It Before A Crowd
It’s usually better to invite executives to a screening than to send them a DVD. A busy executive will pop it in his machine and hit the pause button as soon as the phone rings, then watch a few minutes more until his secretary interrupts. After numerous distractions he’ll decide to pass on the film because it’s “too choppy.”
You want an executive away from distractions to see your film in a dark room with a live audience, so rent a screening room at a convenient location and invite all the acquisition executives you feel appropriate. Also, pack the rest of the theater with your friends and relatives, especially Uncle Bob with his infectious laugh.
Perhaps the best venue for exhibiting a picture is at a top film festival. If the film is warmly received, your bargaining position will be strengthened. If a studio executive views your film surrounded by an appreciative audience, it will also boost his perception of the film.
Moreover, festivals can generate favorable publicity. Most publications only review films about to be released theatrically in their community. Films seeking distribution aren’t reviewed, but entertainment trade papers and selected publications will cover pictures exhibited at major festivals.
When arranging a screening, book a theater large enough to hold everyone expected to attend, but not so spacious that your audience settles amid a sea of empty seats. Fill out the audience with cast, crew and friends, as these people are likely to respond positively. Also have someone collecting business cards at the door or taking names of those attending to determine which companies have seen the film, and those that have not.
Do Not Give Away Your Festival Premiere Lightly
Carefully plan a festival strategy. I’ve seen filmmakers give their premiere to minor festivals and thereby disqualify themselves from participating in more significant ones. You can participate in lesser festivals later. If you’re turned down by an important festival, the worst that can happen is a small delay in seeking distribution. After all, no one knows which festivals passed on your film unless you inform them.
Timing Is Everything
You should sell your film when buyers are hungry for product. Distributors that acquire films for international distribution plan their activities around the market calendar. The major film markets are: AFM in the fall in Santa Monica, California; Berlin in February in Germany, and; Cannes in May in Cannes, France. There are also television markets including NATPE in the U.S.A., and MIP and MIPCOM in France.
Sales agents are hungriest for product when a market is rapidly approaching and they don’t have much fresh inventory. A sales agent could spend $90,000 or more to attend Cannes, and if they have nothing new to sell, they may begin to panic. This is the best time to approach them. Give your distributor enough time to include your film in their marketing efforts. A movie acquired at the last moment will often receive rushed and slipshod treatment. As a result, the film may sell poorly at the first market, probably is the most critical market for a picture. At subsequent markets, the film is no longer new product. The best time to approach a distributor is 60 to 90 days before a market. Assuming a distributor wants to acquire rights to your film, it may take a month or longer to negotiate a deal.
Investigate The Distributor
Always check the track record and experience of potential distributors. As an entertainment attorney who represents many independent filmmakers, I often find myself in the position of trying to get unscrupulous distributors to live up to their contracts.
I’m amazed at how many distributors refuse to abide by the clear terms of their own distribution agreements. I have won multimillion-dollar awards against distributors that have refused to pay filmmakers their dues.
I’m not just talking here about the major studios; while they may engage in creative accounting by interpreting ambiguous clauses in their favor, they often feel obliged to comply with the terms of their contracts. I’m talking about the many small independent distributors who flagrantly breach contracts and take unconscionable advantage of inexperienced filmmakers.
Their attitude seems to be: Promise anything to get the film, then defraud, deceive and fleece with abandon. If the victim has the audacity to complain, the distributor usually: 1) lies; 2) claims the film wasn’t any good and, therefore, its obligations are terminated; or 3) offers to settle for 10 cents on the dollar. The savvy filmmaker will carefully investigate potential distributors by calling filmmakers who have contracted with them before.
I recently read a Standard & Poor’s report on a distributor and was shocked to learn that the company was $2.3 million in arrears on royalty payments. One can also check the Superior Court dockets in Los Angeles to see if a company has been sued.
Finally, summaries of IFTA arbitration awards are also now available online at ifta-online.org/recent-awards.
Mark Litwak is a veteran entertainment attorney and producer’s rep based in Los Angeles, California. He’s the author of six books, including “Dealmaking in the Film & Television Industry,” “Contracts for the Film & Television Industry” and “Risky Business: Financing & Distributing Independent Films.” He’s an adjunct professor at the USC Gould School of Law and creator of Entertainment Law Resources. You can reach Mark at [email protected]; visit marklitwak.com.