In today’s film industry, it is customary for independent film productions to have a collection account. Generally speaking, film project financiers, (international) production companies, sales agents, and lawyers representing any of these parties, require the establishment of a Collection Account before they step on board of, or have their client commit to, a film project.
Collection Accounts for Film Projects
What is exactly a Collection Account? A Collection Account is an account opened in the name of an independent, neutral, trusted third party, the so-called Collection Account Manager or simply the CAM. The CAM receives into the Collection Account the revenues generated by the worldwide exploitation of the film from the distributors on behalf of the beneficiaries of the film. This is called Collection Account Management. This ensures that each beneficiary of the film will receive its share of the revenues. Beneficiaries include the sales agent, the producers, (institutional) financiers, talent (writers, directors and actors) and equity investors in the film.
Collection Account Management: how does it work?
A Collection Account is set up in the name of the CAM. The film’s sales agent or worldwide distributor subsequently instructs the local distributors of the film, in each territory and for every media window, to pay into the Collection Account the royalties generated under the distribution agreements. To make sure distributors actually pay to the Collection Account, the sales agent will have to include the details of the Collection Account in the distribution agreements, the invoices it sends to the distributors, or by means of sending a notice of assignment to the distributors advising them of the existence of a Collection Account for the film.
Why using a Collection Account? Here some important benefits
There are several advantages of setting up a Collection Account for your film. Below I will mention four of the most important ones.
1. Protection of film revenues
With a Collection Account in place, none of the parties with a financial interest in the film controls the receipt, allocation and distribution of revenues. This job will instead be carried out by the CAM. As mentioned before, the CAM is an independent, neutral, trusted third party with no financial interest in the film – other than receipt of its fee and compensation for any expenses incurred. Key here is that the funds received in the Collection Account do not belong to the CAM and are therefore not part of the CAM’s assets. This is formalized in the so-called Collection Account Management Agreement or CAMA. This way the revenues – the film’s assets belonging to the beneficiaries of the film – are in a save place and protected from the usual financial risks of the audiovisual industry (like, for example, bankruptcy whereby the revenues received directly by a bankrupt party would be part of such party’s assets).
2. Avoidance of conflicts between parties of interest
The monies received by the CAM in the Collection Account are allocated and distributed in accordance with the film’s recoupment schedule, which is to be included in the CAMA. The CAMA is typically signed by all parties with a major financial interest in the worldwide revenues of the film. By having all the parties signing of on one single contract that supersedes all other agreements and individual deal terms (like the sales agency agreement, production agreements, finance agreements and talent agreements) with respect to the allocation and distribution of revenues, it reduces or eliminates the risk of disagreement and conflict between the parties of interest.
3. Creating transparency
The statements issued by the CAM typically include periodic and accumulative overviews of allocation of worldwide revenues, as per the recoupment schedule, as well as a gross receipts report, showing all sales closed with specific info on territories and distributors, and minimum guarantees payable in connection therewith, against the revenues actually received in the Collection Account. This creates transparency with respect to the allocation and distribution of the film’s revenues, which is essential to keep all beneficiaries properly informed. It provides them with key information about payment of their entitlements and recoupment of their equity investments, fees, expenses, bonuses and profit participations.
4. Outsourcing of the film’s administration
A complete administration of the film’s sales, exploitation and revenue management is created through clear and periodic reporting. The CAM’s reports can be used by the parties for accounting and audit purposes. The parties involved in the film project may not have the back office to properly administer this themselves and by outsourcing this task to the CAM, an administrative burden for the parties is taken away.
Today, it is customary for production companies to set up a collection account for an independently produced film projects. There are several benefits of having a Collection Account in place, of which the most important ones are: protection of worldwide revenues, avoidance of conflicts between the parties of interest, transparency on receipt, allocation and distribution of revenues, and outsourcing of the production’s administration.
If you like to know more about Collection Account Management, let’s connect through Linked-In or Twitter, or feel free to drop me an email. We would love to discuss Collection Account Management in more detail!
David Zannoni