In order to make the allocation and distribution of revenues manageable, each independent film and TV production has a recoupment schedule. The recoupment schedule combines all the single deal terms negotiated between producer on the one hand, and financiers, talent, sales agents, co-producers and service providers on the other hand. As each film and TV series is different in set-up, with different production terms and its own independent financing coming often from several sources, each recoupment schedule is essentially unique.
However, having said that, there are a couple of entitlements payable from the recoupment schedule which can be categorized. Also, there are certain rules of thumb and commonly accepted practices in putting a recoupment schedule together, and guidelines for manner and priority of allocation and disbursement of entitlements.
Recoupment of Loans and Investments
Independent films usually get partial or full financing from external sources, like equity investments from film investors or production loans provided by a bank or private lenders. Without going into detail as to the several forms of financing a film or TV production, they all have in common that the financial contribution is recoupable by the financiers from the revenues of the project, together with interest or a return on investment, as applicable.
Talent: Deferred Compensations and Profit Participations
Individual producers, directors, writers and actors are commonly referred to as talent. Talent generally is, apart from fixed compensations payable out of the production budget, entitled to a deferred compensation out of the revenues. Deferred compensations can include fees and bonuses. Also, talent shares in the net profits of the film or TV series.
Distribution of the Film & TV Project: the Sales Agent
International distribution of an independent film or TV series is traditionally done through a sales agent. The sales agent sells the project to its buyers, the local distributors, and makes sure that the film is delivered and distributors pay the agreed royalties (minimum garantees or overages). Such royalties are, together with domestic distribution or any other sources, if applicable, the revenues.
Guild-Members: dealing with Payment of Residuals
If any of the actors, directors or writers involved in the project is a member of respectively the Screen Actors Guild (SAG-AFTRA), the Directors Guild of America (DGA) or the Writers Guild of America (WGA), collectively referred to as the Guilds, then Residuals are payable by the production company. If not paid from the budget and not assumed directly by a so called qualified distributor, Residuals are payable out of the revenues.
Sharing Revenues amongst Co-Producers
Sometimes, several independent productions companies are involved in a film or TV production. They may have put equity in the project, or have otherwise contributed to the project. Each of these production companies or individual producers may be entitled to receive deferred producer fees from the revenues, or they participate in the net profits of the project.
Recoupment schedule: Allocation and Disbursement of Revenues
All these single rights to a share of the revenues, are combined in the project’s recoupment schedule. In the recoupment schedule, the parties jointly point out the manner and order of the entitlements payable from the revenues.
Priority of Entitlements in the Recoupment Schedule
The manner and order of payment of entitlements under the recoupment schedule depend on what the producers and the other parties of interest negotiated amongst each other.
Although each recoupment schedule is unique and tailor-made for that specific project, there is a certain common practice as to how entitlements are prioritized. Below is a rough and generalized example of how a recoupment schedule may work:
- First, the collection account manager (CAM), is paid its commission and expenses for administering the revenues on behalf of the beneficiaries;
- Second, residuals are due to the guild members, on behalf of the guilds;
- Third, the international sales agent and domestic sales representatives are paid their sales commissions and the recouped their expenses incurred;
- Forth, equity investors and private lenders recoup respectively their equity investments or loans;
- Sixth, producers and talent are paid deferred fees and bonuses;
- Seventh, if the film is bonded by a completion guarantor, the guarantor recoups any amounts advanced towards the production;
- Eighth: once the production costs of the project is recouped in full, the project reached net profits and at this point, producers, financiers and talent are paid their profit participations.
If a bank provided the production loan, the bank recoups in first position and all revenues (except for maybe a corridor payable to the sales agent) go straight to the bank until the production loan is fully recouped. Other production lenders, not being banking institutions, might require a similar recoupment position.
Then, depending on the project’s specifics, there might be sub-recoupment schedules per set of territories, or source of revenues.
It is essential that the recoupment schedule does not leave any room for interpretation, that the schedule is executable and that all parties who are due an entitlement under the recoupment schedule, have the same understanding.
The Collection Account Management Agreement
For the recoupment schedule to have effect, you should execute a collection account management agreement (CAM Agreement) with the parties that have a major financial interest in the revenues of the film or TV project, signing. The recoupment schedule is included in the CAM Agreement. It is furthermore important that the CAM Agreement, at least with respect to the allocation and disbursement of revenues supersedes all other agreements so that it becomes the only and binding legal instrument. This way, the parties safeguard to the highest extent possible each beneficiary’s financial position. Please see for further reading and related subject my previous post about Collection Account Management for Film Productions.
If you would like to know more about preparing and drafting recoupment schedules for independent film and TV projects, let’s connect through Linked-In or Twitter.