Red Flags in Film Distribution Deals

What Producers Should Be Wary of in Distribution Contracts

For producers aiming to secure the best deals for their projects, navigating the world of distribution can feel like diving into uncharted waters. From unreasonably lengthy contract terms to distribution expenses, here are some contract terms to keep an eye out for in distribution deals, and our solutions to safeguarding your project's best interests.

1. Unreasonably Long Terms
   • Distribution Agreements will last for an agreed-upon term, which can be anywhere from 3 years, to eternity. During this Term, the Distributor has the (usually exclusive) right to market and distribute the film. 
   • It’s well known that movies generate the most excitement when they're brand new. As time passes, however, the hype dies down, and the audience’s interest fades. With that in mind, it’s important for producers to be cautious about agreeing to long terms, especially when working with a fairly new or unknown distributor. No producer wants to be stuck in an agreement with a distributor for years if the distributor hasn't been promoting the film effectively. Generally, Distributors prefer long contracts to ensure they can recover their costs, but one solution is to start with short terms and extend them automatically when certain goals are reached.
2. Uncapped Distribution Expenses
   • Distribution expenses are the costs that a distributor incurs in the process of distributing the film. Typically, a distributor will seek to recoup all of their expenses before any profit reaches the producer. These expenses can include film market expenses, promotional expenses, and direct distribution expenses.  It's smart to set a cap on these expenses, so the distributor doesn't keep adding more costs that they will want to recover.
   • If no cap can be placed, producers can try to restrict the types of expenses the distributor can recover. This can be done by specifying what kinds of expenses can be recouped, or clearly defining what a category of expenses will include.
3. Cross-Collateralization
   • Cross-collateralization happens when the distributor bundles a film with several others and pools all of the expenses together so that the profit generated by any one film may be applied to the pooled expenses, rather than to just the expenses incurred by the film alone. This allows distributors to greatly reduce their risk, but presents an issue for the producer.
   • For example, say a producer’s film does really well and generates revenue, while another in the bundle does poorly and costs the distributor money. Cross-collateralization would allow the distributor to use the producer’s film’s revenue to offset the others loss, leaving that producer with less money than it would have been entitled to.
   • Producers should try and specify that their film’s revenues will not be subject to the costs of other titles in the package.
4. Sub-Distributor Fees
   • Often times, Distributors will seek to engage sub-distributors to either promote the film for them, or to distribute in territories they are not active in. Distributors typically try to obtain worldwide distribution rights but will then subcontract a foreign distributor who is more familiar with the country or territory they are targeting. 
   • If the Distributor engages sub-distributors, the Distribution Agreement should make it clear that the distribution fee is inclusive of any and all sub-distributor fees. Otherwise, a producer could find themselves paying both the distribution fee, and the fee that the sub-distributor is charging.
5. No Termination Right
   • It's always important to have an escape plan, i.e., the right to terminate the agreement. Most distribution deals restrict a producer's ability to end the contract, but it's worth pushing for a right to terminate in the event the distributor fails to perform as promised or fails to pay on time. This gives the distributor extra motivation to market and distribute the film effectively.
   • If the contract is terminated, make sure it's clear that all rights granted go back to the producer.

Effectively managing the complexities of film distribution agreements demands careful attention and skillful negotiation. As your trusted entertainment attorneys in Beverly Hills, CA, Ameri Law emphasizes the importance of informed decision-making and negotiating fair terms so that you can confidently ensure the success of your projects.