Anatomy of a Distribution Deal

If I had a dollar for every poorly-written, ill-conceived and unfair distribution deal that came across my desk, I’d be producing films instead of writing about producing them! Too often, filmmakers are dazzled by the numbers that may result from an exceptional commercialization and so eager to land a deal that they leave common sense on the cutting room floor.

For those of you who are shopping your film project, here are some keys terms with which you should familiarize yourself. Understanding the acceptable parameters will prevent you from accepting a”bad” deal and improve the efficiency of your legal counsel.

DISTRIBUTION AGREEMENT

1. TERRITORY (usu. The World)

2. TERM (usu. Twenty (20) years)

3. RIGHTS

• exclusive/non-exclusive
• exhibit, distribute, sub-distribute, market, exploit, sell, perform, promote and otherwise exploit
• in any and all media, now known or hereinafter developed, including, but not limited to, theatrical, “non-theatrical” exhibition, broadcast television, pay/cable/satellite television, VOD, Internet, Download to burn and video cassette / video disc
• third party contracts
• Reversion?
• NOTE: Beware of contingent, lend/lease and “revenue share” arrangements with sub-distributors that look and sound like “sales” but may not be accounted for as such.

4. BEST EFFORTS (self-explanatory; can be tricky)

5. FEES AND EXPENSES (N.B. Be very careful when reviewing definitions of Gross Receipts, Net Proceeds and how commissions are calculated. Many traps for the unwary. Can result in a situation where Producer never actually receives a penny.)

• Sole right to collect all revenues and proceeds
• Money held in escrow
• Commission based on Gross Receipts/Net Proceeds (International/Domestic Rights (United States of America and Canada)(US Dollars, litigation recovery)
• Advance (recoupable)
• Distribution Expenses (itemized reasonable and necessary costs customarily deemed “distribution expenses” in the motion picture, television and video industries, including, but not limited to, trailers, artwork, advertising, market costs, non-market administration expenses, legal, accounting, transfer fees, etc. and such other expenses it may incur or deem it necessary to incur in its distribution); Limits: marketing, event attendance, out-of-pocket.
• Consider setting monthly/annual and “per sale” minimums if you can get them
• Distribution Fee. N.B. Be especially wary of a distribution fee. I am seeing this with increasing frequency. Essentially it is an up-front fee paid by the producer to the distributor for the “privilege” of receiving distribution. It is frequently very fuzzily defined and not set-off against revenues. In other words it is like a blank check to the distributor.

6. ACCOUNTING Monthly/Quarterly statements; Audit Rights; Penalties

7. DELIVERY

1. Where
2. When
3. Technical/Quality Standards
4. Format
5. Acceptance/Notice/Deficiencies (e.g. written notice of non-conformance/non-delivery; sole discretion;  time period to correct deficiencies; burden of cost and expense; recoupment)

8. WARRANTIES AND REPRESENTATIONS

• PRODUCER: ownership/control/authority; non-infringement; payments to third-parties related to production; music rights; valid copyright registration; Errors & Omissions insurance (thresholds/coverages/claims/certificates/additional insureds); No conflicts/restrictions.
• DISTRIBUTOR: no litigation; honor all restrictions; agrees not to delete or modify the copyright notice, screen credits afforded to cast, crew or other personnel as such credits now appear or any logo or trademark notice; not exploit any reserved rights; title to remain with PRODUCER; exercise due care safeguarding all materials and will assume risk for theft or damage while materials are in DISTRIBUTOR’s possession; no act or omission that might impair Producer’s rights; keep accurate and itemized records of all transactions; No conflicts/restrictions.

9. INDEMNIFICATION Mutuality; Notice of Claims

10. MANNER OF DISTRIBUTION No express or implied representation, warranty, guarantee or agreement as to the manner, extent, exploitation revenues.

11. NO GUARANTEE no guarantee of performance by any sub distributor, licensee or exhibitor.

12. NEW PRODUCTION Option to distribute next project; customary pre-requisites (financing, budget, cast, crew, bond, insurance, contingency).

13. Dispute Resolution Arbitration (Good for Distributor, BAD for Producer) (See, Rules for International Arbitration of the International Film and Television Alliance); Costs and Attorneys’ Fees

14. ASSIGNMENT Allowed? Consent? Unilateral? Bankruptcy? Insolvency? Change in Control?

15. GOVERNING LAW/VENUE

16. COMPLETE AGREEMENT Entire understanding; Integration;  No modifications.

17. PUBLICITY Contents/Approval/Reasonableness

18. CONFIDENTIALITY

Exhibit A.: Schedule of Delivery Items

Exhibit B.: Lab/Duplication Authorization

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