Out-Law Guide | 01 Mar 2008 | 5:57 pm | 6 min. read
Having put so much effort into creating a feature film or television programme, the next big task is to exploit that effort and make some money. Distribution deals are not always easy to secure, but with an increasing number of players in the marketplace it is essential that producers understand how these deals work.
The Communications Act changed the landscape for television producers by "unbundling" the rights in programmes. Now broadcasters get a licence to show programmes, but must pay separately for other rights such as international broadcast, merchandising, internet etc. This has created a huge opportunity for television producers to make more money from the programmes they create.
Television distribution is a growing industry. On the back of the Communications Act developments, more distributors are setting up to take advantage of the expected growth in available product. Distributors range from broadcaster-owned companies through larger independent companies to smaller niche players.
Securing a distribution deal prior to production of a feature film in advance is a major plus point when raising finance: it demonstrates that there is a route to market for the film. Feature film distribution differs from television in that often the best route to distributors is by appointing a sales agent, who then handles the distribution of the film in territories and liaises with the distributors in those territories. The sales agent will attend festivals and markets and sell the film in return for a commission based on a percentage of the money earned from the deal with distributors.
Choosing the correct distributor for your product is about weighing up the financial deal that is on the table with the likelihood that the distributor can deliver on making product available to meet demand, has good industry contacts (including, if appropriate international contacts) and generally has expertise. It is always worth asking to see the distributor's catalogue of programmes and "dropping in" on them at film and television markets to get a feel for the type of work that they deal with and how much of a presence they are. Remember that a smaller niche player may have just the contacts that you need for your particular programme, even if they do not have the general brand name.
Often the distributor will produce a standard form contract. The main issues to consider when reviewing it are the commission to be charged, the media covered, the territories that it is to cover and the duration of the licence.
Distributors tend to charge a commission on revenue generated from exploitation of the product. This is usually based on "gross revenues," which is the amount actually received by the distributor from the purchaser of the film or programme. However, the distributor will also want to deduct its costs before sending you any money. It is important to check carefully the deductions that the distributor can make to ensure that these are legitimate and that the distributor is not adding in matters such as general staff overhead, which it should be covering from its commission.
Usual deductible costs would include the cost of shipping the product to broadcasters or cinemas, advertising and marketing the product and creating additional prints/tapes.
With feature films, first time producers are often shocked by the tiny percentage of revenue they actually see from distribution. The exhibitors (cinemas) will deduct almost half of the revenue off the top and then from the balance comes off the distributor's commission and costs before any of the investors in the film start to recoup their investment. Only after the investors recoup does the producer see any profit. Most low-budget feature films in the UK never reach the stage of generating a profit.
Ensure that the distribution agreement contains obligations on the distributor to account to you for revenue earned, deductions made etc. on a regular basis (no less than six monthly). You should also insert provisions to allow you to have an independent person audit the figures you are given if you are doubtful as to whether they are accurate.
Most distributors would rather get a worldwide licence of a programme: it gives them more scope to earn revenue. However, if the distributor is only really known in the UK then their ability to make you money in international territories will be limited. Therefore you should weigh up the simplicity of dealing with only one distributor against the chance of making money from these territories. The main territories are Europe, North America, Asia, South America, Africa and Middle East.
The licence term is always negotiable. It is important to strike a balance between giving the distributor enough time to exploit the rights and not tying the rights up indefinitely with someone who is not performing. A compromise can be to extend the term, but negotiate in a "get out" clause if revenue fails to reach a certain target. It is also important that the licence contains explicit termination provisions if the distributor becomes insolvent or defaults on any of its obligations, such as the very important obligation to pay you.
To maximise revenue the distributor is likely to want the right to sell the full range of media. This will include standard TV, pay TV, interactive TV, online transmission and video/DVD. The distributor may also look for secondary rights in the programme or film, such as merchandising, soundtrack etc.
It is always worth questioning the distributor closely about the marketing planned for your programme or film and, if you can, enshrine this in the contract as a commitment. That way you can ensure that you and the distributor agree up-front about the direction that the marketing campaign is to take. Sometimes a distributor may look for an option to distribute any sequel to the work. For television programmes in particular it often makes sense to give them this since the distributor will then have the advantage in the marketplace of being able to negotiate with a package of programmes, which can get you better deals. However, always try to negotiate an additional financial benefit from the distributor in return for granting these additional tie-in rights and/or a "get out" if they have not performed against targets in the original deal.
Making a programme or a feature film is not the end of the story regarding rights exploitation: it is possible to make decent revenue from exploiting secondary rights, such as soundtracks, merchandising and tie-ins with complementary businesses. Good examples of this in television are Bob the Builder, Teletubbies and Who Wants to be a Millionaire. In films, Harry Potter, Star Wars and any of the recent Disney/Pixar releases are great examples of the power of secondary rights. Deciding how best to exploit these opportunities depends on how capable you feel and how much time you have. If either of these areas score low then it is better to employ a merchandising agent to negotiate deals on your behalf.
It is important that exploitation of secondary rights fits in with the primary programme or film: it makes sense to ensure that the programme or film establishes the name in the minds of the public to give the merchandise a better chance of selling. However it is also important to ensure that the merchandising material is available to meet demand when it is high.
You should also ensure that you have the right to exploit secondary rights. For example, when you acquired permission to use a song in your film, did you also get permission to include it in a soundtrack?
Common provisions in a secondary rights agreement will include approval rights over the material (it is important that this does not risk the primary product), territorial restrictions on where products can be sold and provisions obliging any agent to account for commissions earned.
Opportunities have never been greater for generating revenue from the exploitation of film and television rights. Producers have more media than ever over which to deliver content to consumers. It is important to get distribution deals right so that exploitation generates rewards for the producer as well as the "middle men."
If you are an individual in need of advice: please note that our law firm does not tend to act for individuals, only for organisations. You can contact the Law Society if you need help finding a solicitor.