It is essential for the independent film producer to start thinking about film distribution at an early stage, while putting together the financing of the film and before production starts.
From a business perspective, the distribution of the film will generate the revenues needed to repay lenders, investors, and pay deferred fees to talent, producers, and, if and when the film “breaks even” (which is after recoupment of the production costs), to pay out to the profit participants.
In this article we will look at independent film distribution, and the management of distribution rights and revenues generated in connection therewith.
How To Define Independent Film Distribution
I would define independent film distribution as “the distribution of an (independently produced and / or financed) film through (multiple and / or independent) distribution channels”.
How does independent film distribution work? Globally, there are a couple of elements the producer should take into account. I will list seven of them:
- The distribution rights
- Who acquires the distribution rights?
- Distribution and sales channels
- Terms and conditions of the distribution deal
- Types of distribution deals
- The contracts involved in film distribution
- Management of revenues generated by distribution
The Distribution Rights
A film project is an asset. It is intellectual property. One set of rights in connection with the film are the distribution rights: the right to distribute the film. To distribute the film, it is important to have clear who the rightsholder is. As only the rightsholder can license and transfer the rights to someone else, for commercial exploitation of the film.
The rightsholder is often the film’s producer and can be an individual or a company, or several production companies together (which is often the case for an international co-production, for example). In the US, the distribution rights of a film are customarily stalled in a special purpose vehicle, exclusively set up for the production and exploitation of the film (in the film industry often referred to as the LLC).
Once distribution begins and the rightsholder licenses the distribution rights to someone, the rightsholder becomes the licensor of the film. The person or company that acquires the distribution rights from the licensor, will be the licensee.
Who Acquires The Distribution Rights?
The distribution rights of a film are acquired by companies that look to exploit the distribution rights commercially.
Nowadays, we can roughly define four categories of licensees of film distribution rights:
- The traditional studios or majors, who typically acquire worldwide distribution rights or the distribution rights for a specific set of countries, with the aim to release the film theatrically, and thereafter on television and through their digital platforms, often entirely within the studio’s own international distribution channels;
- The streamers (like Netflix, Amazon and Hulu),who will generally acquire worldwide distribution rights and often exclusively (save exceptions) release the film on their digital platforms;
- Independent distribution companies, who will require the distribution rights for specific territories and / or distribution windows they are specialized in. A territory is often a country, a geographical region (for example, Latin America, or Southeast Asia) or a linguistic region (for example, all German speaking countries). Distribution windows include theatrical (traditionally the most important window), pay TV, free TV, DVD (although the importance of DVD has decreased significantly), and digital (which has grown exponentially in only a few years’ time). One film can have many independent distributors. These distributors will further sub-license the film to exhibitors within their territory (theaters, TV channels, and digital platforms).
- Exhibitors, which are the theaters, TV channels and digital platforms. Sometimes the rightsholder licenses the film directly to exhibitors. This happens often in the home territory, for the so called domestic distribution rights, if there is an existing and direct relationship with the exhibitors.
Distribution And Sales Channels
To reach potential licensees that will acquire the film, the producer can make use of distribution or sales channels. I mention four of them:
- The producer can contract an international sales agent. A sales agent is specialized in the sale of independent films and may handle a specific genre (for example, horror, drama, or animation). If the producer engages a sales agent, then the distribution rights stay with the licensor. The sales agent negotiates and closes distribution deals with distributors (and / or streamers and sometimes exhibitors directly) on behalf of the producer. Once a distribution deal is closed, the producer as licensor of the film licenses the distribution rights directly to the distributor, who becomes the licensee;
- If the film generates sufficient traction, the producer may close a deal with a worldwide distributor. Such distributor acquires the worldwide distribution rights from the licensor and from thereon controls the distribution rights and is free to exploit or sub-distribute the film;
- The producer can also opt for direct distribution, if it has the necessary relations with independent distributors, studios, streamers and / or exhibitors and if the film has sufficient traction. In many countries, direct direction is common in the home country or home countries of the producer(s).
The Distribution Deal: Terms And Conditions
As set out above, under a distribution deal, (part of) the distribution rights of the film are transferred from the licensor (the rightsholder, producer), to the licensee (distributor, studio, streamer or exhibitor).
What should the producer focus on in the distribution deal? There are several elements, from which I will mention a couple:
- The description of the distribution windows for which the licensee acquires the distribution rights;
- The term of the license (for example 10, 15 or 20 years);
- The territory covered under the distribution deal (which can consist of several countries and / or linguistic regions);
- The payment terms for the royalties payable by the licensee to the licensor for the acquisition of the distribution rights;
- The delivery schedule and delivery items;
- The essential elements, which could be for example, a cut-off date for delivery, or the attachment to the film of a specific (A-list) actor, or director(which is especially important in (pre-sale) distribution deals for films that are not yet finished).
Types Of Distribution Deals
We can roughly make the distinction between two different types of distribution deals: distribution deals for which the licensee pays a minimum guarantee (MG) for the distribution rights, and straight distribution deals.
- MG distribution deals mean that the licensee pays an advance to the licensor for the exploitation of the distribution rights in its specific territory. The MG is typically paid in several installments, which are triggered by a specific moment, like execution of the distribution agreement, or upon receipt by the licensee of the delivery materials of the film. MG distribution deals are the most common type for deals with multiple independent distributors, and in such cases a studio, streamer or worldwide distributor acquires worldwide distribution rights;
- For straight distribution deals, there is no upfront advance from the licensor in exchange for the distribution rights. Rather, every dollar generated by the licensee in connection with the distribution or exploitation of the distribution rights, is split between licensee and licensor, after recoupment of the licensee of its distribution expenses and sometimes P&A costs. This type of distribution deal is less common, and often closed only with distributors in the producer’s home territory. There is more financial risk for the producers as revenues depend completely on the performance of the film.
Contracts Involved In Independent Film Distribution
To cover the full scope of distribution and distribution rights & revenues management, I would say that there are four main types of agreements involved in independent film distribution. These are the international sales agency agreement, the domestic sales agency agreement, the distribution agreements and the collection account management agreement.
- In the case an international sales agent is engaged: the International Sales Agency Agreement is the agreement signed between the rightsholder of the film (the producer) and the international sales agent, whereby the sales agent is granted the right to sell the distribution rights internationally on behalf of the producer;
- The Domestic Sales Agency (or Representation) Agreement is signed in case the producer engages a sales representative exclusively for its home territory. The domestic sales representative is granted the rights to exclusively sell the distribution rights in the domestic territory;
- The Distribution Agreement(s): each and every single agreement entered into by the licensor of the film (producer, rightsholder) with a licensee (independent distributors, studio, streamer, or worldwide distributor);
- The Collection Account Management (or CAM) Agreement, which is a multi-party agreement that deals with the allocation and distribution of the revenues received in connection with the (worldwide) distribution of the film, entered into by at least an appointed neutral, third party collection account manager (or CAM), the licensor (producer) and the sales agent (or worldwide distributor).
Revenues Management For Independent Film Distribution
Under the distribution (or license) agreements, the royalties generated in connection with the exploitation of the distribution rights are payable to the licensor. Such royalties constitute the revenues of the film.
To circle back to the financing and production of the film, generally these revenues are assigned by the producer, and will need to be paid to, lenders, investors, individual producers and talent (together, the beneficiaries of the film). The producer assigned the right to receive the revenues to the aforementioned parties, in order to make the film happen.
Often the producer is required by the beneficiaries to set up a collection account and enter into the previously mentioned CAM Agreement, even before financing, production and distribution can start. Via the collection account the revenues are distributed by the CAM to the film’s beneficiaries.
In this article we discussed independent film distribution. We highlighted the distribution rights, the licensing and acquisition of the distribution rights, distribution and sales channels, terms and conditions of a distribution deal, types of distribution deals, the contracts involved, and management of revenues generated by distribution.