Making the Deal: What you need to know before you make a deal

The first question you have to ask yourself is what do you want out of your film. Making revenue?  Bolstering your career?  Impacting your audience?  It’s not that you can’t have all of them but you need to know what is the most important factor because you’ll make your decisions based on that number one goal.You have to break up your rights fitting each right with the best possible distributor.  You will retain the most control over your film this way.  Don’t make all rights deals unless you have no other choice.  Most likely, one distributor won’t be the best at everything and most distributors cross collateralize, shrinking your profit margin substantially. You have to retain the right to sell your film online in both DVD and streaming formats and at screenings, no questions asked.

So here’s the breakdown of rights:

  • Theatrical
  • Semi theatrical/non theatrical
  • TV/ free VOD
  • Cable/VOD
  • Educational
  • Foreign
  • Retail
  • Direct Sales Digital
  • Internet retail

If a company has made you an offer, talk to other filmmakers who have distributed with them.  If most filmmakers say they aren’t happy with a given distributor, be warned.  Even if only some filmmakers aren’t satisfied, be careful.  Where’s there’s smoke, there’s fire.

Think about what you absolutely need from a deal, the absolute bottom line.  Then be strong enough not to settle for anything less than that.  If a distributor knows you are desperate, you will never get a good deal.  Remember that a good deal is a partnership between you and the distributor.  You have access to your core audience and can help market the film better than anyone else.

Offers come in three forms:  Email (which is nothing more than a boiler plate and a jumping off place) Short form and long form contracts.  Try to avoid the short form, which will cost you most money if you have an attorney helping you negotiate the contract. Speaking of attorneys, be careful!    The entire landscape has changed and many very good attorneys aren’t up to speed.

Deal points:

  • Title: Refers to the name of you film, but can also imply other versions, sequels, remakes, director’s cut, etc…  Make sure the contract refers only to this film and this version of the film.
  • Length of contract: Make it as short as possible.  Don’t sign your film away for 20 years.  And don’t have an auto renewal clause.  Renewal should be mutual and agreed upon at the end of the current contract.
  • Performance guarantees: This is particularly important for foreign sales.  Demand that a certain amount of sales must be made within a certain time frame or you have the right to terminate the contract.

There are three types of deals:

  1. A percentage of the gross revenues – You don’t pay expenses.  20% is normal.
  2. 50/50 – All costs are taken off the top then both parties split the profits equally.
  3. Distributor fee – Distributor takes a percentage off the top (average is 25%) then covers his expenses and the rest goes to the filmmaker.

Let’s do the math:  Your film grosses $100 and there is $30 in expenses:

  1. If you make $100, then you get 20% of that and make $20.
  2. Your distributor takes off the $30 in expenses, leaving $70 to split between the distributor and you.  That means you make $35.
  3. With the last deal, the distributor takes 25% off the top, which leaves $75.  After taking $30 for expenses, you make $45.

So it would seem that the third option is the better deal down the line.

Minimum guarantees:  Every filmmakers wants one because we usually need cash, But remember that the distributor has to make that up before you ever see another penny and distributors are pretty good about making sure you don’t see another penny after that so don’t be hurt if you don’t get one.  It’s more important to have a good distributor than cash up front.

Typical percentages distributors make in different markets are as follows:

  • Online exhibition (iTunes, Hulu, etc…) – 15-50%
  • VOD – 20-50%
  • T.V. – 15-30%
  • Educational – 25-35% but can escalate to 45% with higher volume sales
  • Foreign T.V. – 30%

Make your distributor define their expenses.  Expenses should only be 3rd party, out of pocket expenses.  They shouldn’t charge you for office, overhead or other in-house expenses.  It’s also smart of have a cap on all expenses or flat percentage of profit.  This will help insure that expense don’t keep getting higher and higher, year after year.  Also require that expenses over a certain amount, say $250, must get your approval, this way you know what they are spending money on and you aren’t surprised when you see the expense report.  Ask you distributor what they estimate the expenses are going to be.  It’s their business so they should know.  If your potential distributor can’t articulate what they will spend on your film that should be a red flag.  And be clear about how they charge you for going to festivals and markets.  Are they going with more than one film, would they go even if they weren’t taking your film?

Amazon:  Think before you put you film on Create Space of their VOD website.  They don’t give you access to who is buying your films which is very important in this new distribution model.

  • Amazon Store front takes 22% and you get customer data
  • Amazon VOD takes up to 60% and don’t provide customer data
  • Amazone Create Space takes 30% and have announced they will stop proving filmmakers with customer data

Get the right to approve any deals your distributor makes.  You should always have the final say.

Be clear about festival screening fees and prize money.  Some distributors will try to cash in on your success!

All warranties and indemnities should be mutual.

If your distributor goes bankrupt or merges with some other company, it should be stated that you have the right to take your film back.

Delivery:  Read your delivery schedule carefully.  Distributors don’t need to require materials they won’t use in the immediate future.  Some materials can be delivered later down the line, when the deals made require them.

Make sure you have a clause in the contract demanding voluntary mediation and binding arbitration.  This will help protect you against lawsuits.

For foreign sales, if your distributor gives your film to a sub agent, all percentages should be taken out of your distributor’s profits.  In other words, if your distributor takes 30%, then any sub agent would take a percentage from that 30%.  Your percentages should remain the same.

E/O Insurance: Don’t get it until you need it.  A distributor might require it before making the deal, but then not sell your film for a year.  Your E/O insurance is for a specific time.  No need to waste money on something until you need it.  Plus you don’t need it for foreign sales.

If you are buying DVDs from your distributor, it shouldn’t be at wholesale.  You should get them at cost or cost plus, meaning no more than $5.00.  And if you are buying them at cost plus, then the profit should go back into the waterfall of the deal, meaning you see that profit in the bigger picture.

And that’s the jist of making a deal.  I would highly recommend reading Think outside the Box Office by Jon Reiss.  It’s a treasure trove of good information that all indie filmmakers need.