Below is the second of two excerpts from Filmmaking, the Hard Way by Josh Folan. A cynical case study of the feature film production of All God’s Creatures, Filmmaking, the Hard Way puts low budget filmmaking under the microscope by analyzing the process of making a film from top to bottom.
So all the blood, sweat and tears that have went into making this film of yours has just careened into the brick wall of an offer for a distribution deal? That’s it! We’ve done it! The Holy Grail of a small independent film is within our grasp! Get my mom on the phone while I pick out what shade of laser red Lamborghini I’m gonna buy, where do I sign?!?!
Hold your horses, cowboy. A PDF contract in your inbox that you don’t really understand is no reason to get mom on the horn. Assuming you’ve already done your homework and you know whether the company is worth their salt based on an aggregate opinion of filmmakers they have worked with, past and present, there are still a number of factors that need to be weighed and negotiated before jumping on board with a distributor. Major deal points you need to be concerned with at this level are listed below, and by “this level” I mean you need to understand a micro-budget feature with no large talent draw has virtually no profit potential in a theatrical release, and that the old filmmaker adage that theatrical play will drive ancillary sales is also a pipe dream. We’re talking DVD, television and VOD dollars here, you dreamer, you.
:: Term. The low side you’ll likely find here is seven years, standards fall anywhere in between there and ten years, and perpetuity is not out of the question. Whatever the length you settle on, understand it’s going to be a long time and that you will have to work with this company (barring their bankruptcy – not uncommon in the distribution industry) and, more importantly, the people running it for the life of the contract. Tensions tend to arise in even the best of filmmaker-distributor dynamics, so if you don’t like who you’re dealing with from the get-go, you’ll really hate them when all that red starts rolling in on those quarterly statements.
:: Territory. The world is divided up into a slew of distribution territories, and you don’t necessarily need to sign them all away on any one deal. The most simplistic of divisions on a US deal is domestic and foreign, the combined of which is termed worldwide. What’s appropriate for you and your film is dependent on your situation. If your film, for any number of potential reasons (cast, producer relationships, subject matter), has strong prospects in a particular territory, it might be wise to negotiate that out of a worldwide deal offer. If the company you’re dealing with doesn’t seem to have much global reach, maybe you should only be discussing domestic terms – vice versa if their acumen lies in foreign sales. As with everything, your strategy here is only as sound as the research you do.
:: Format. Rights can also be broken up into the various mediums of distribution – DVD, television, television VOD, digital VOD, merchandising, and any other mode of monetization that can be dreamt up. The toughest one to accurately value here is digital VOD, which is completely wide-open territory at present. I also feel a lot of smaller distributors are still of an old school mindset that doesn’t pay much attention to this profit sector. If you can hold onto these rights for your own private exploitation, or to repurpose them with someone who specializes in the field, I’d recommend you do so.
:: Marketing Expenses. These are the recoupable dollars the distributor can spend (without additional filmmaker approval) before the filmmaker starts seeing their share of profits; A.K.A. the reason many a filmmaker never sees a back-end dime out of their distribution deal. On the founded side, these are the expenses the distributor incurs while out selling your film to buyers – screeners, one sheets, posters, film market booths/rooms, travel attributed to your film’s sales, etc. The gray area here is that a distributor has a vast catalogue of films they are selling at any one time, so if your distributor takes their 12-film catalogue to a market and their room there costs $12k, it should incur a $1000 charge against your film’s sales, no? Well, what if the market is Berlin and it’s a known fact your film is not of interest to the buyers your distributor will be talking to, and the sales results for your film reflect that at the close of said market? Should your title be charged the same figure as those that were passionately pushed? Arguable either way really, and these accounting appropriations come up a lot in a distributor’s normal business practice. It is imperative that you have the marketing expenses cap in your contract defined at a reasonable level. Standards here are all over the place, $25-100k, but for a small title there isn’t much reason to allow this to balloon past $40k. Keep it as low as possible, as there is always the option of granting approval for going above and beyond the figure for a viable reason.
:: Revenue Share. The overall profit split between the filmmaker and distributor, after expenses are deducted. You’ll see a lot of 50-50 offers here, all of which are unreasonable and an attempt to take advantage of the business inexperience many distributors expect filmmakers to suffer from. You should be aiming for 25/75 to 35/65%, in your favor.
:: Cash Advance. The biggy. This is the sum you receive just for signing the contract and delivering the film in accordance with it. It is not an easy thing to convince a distributor to ante up at this budget tier. A company offering up-front cash wants to see some assurance that the film will have returns that make that outlay worthwhile – and there isn’t much in the way of assurance about a film with no marquee talent on the poster. This is also very often the only money a filmmaker ever sees from their distribution deal, hence it being such a sought after deal point. There is no such thing as a standard here, but understand that it is recoupable – so whatever they give up here will come off the top of revenues as they start to come in, as long as those revenues are in fact collected. What that means is if they’re not offering up an advance of any kind then they have assumed no risk on this joint venture you are supposedly partnering with them for, which isn’t much of a vote of confidence in that venture. A distributor with no cash outlay can basically toss your film against the wall to see if it sticks – great if it does, if it doesn’t then onto the next title. If a company isn’t willing to offer up something here, you have to question their commitment to really going all out in selling your film. Also to be weighed is the fact it will cost you money to fulfill a distribution deal. At the bare minimum, you can expect to spend $1000 for a letter of opinion from a lawyer about your film’s clearances, $3000-4000 on errors and omissions insurance, and anywhere from $500-2000 on deliverable formats and QC reporting (assuming your film does not need any serious video or sound correction to meet those QC expectations). With no advance on the table, you have to ask yourself if it may end up costing you money in the long run, should creative accounting never show any profits for the filmmaker side of the revenue split. Even if there is an advance, you should be aware that the bulk of it will likely not be in your hands until well AFTER all these delivery expenses are incurred.
:: Deliverable Requirements. None of the research I did before working out the deal on All God’s Creatures made any mention of this being something you should concern yourself with in the negotiations, but after my experience I would absolutely recommend you talk about paring these down from what are no doubt above and beyond the necessary delivery formats for your film. We had an HD film, as most any is these days, yet our contract required that we deliver 16×9 and 4×3 versions in both NTSC and PAL formats, on digital betacam tapes (a standard definition format) and HDCAM. Additionally, we had to provide an uncompressed Apple ProRes 422 digital file on a hard drive. Each one of the tapes needed to have a QC report conducted on them by a reputable third party post production house, which runs upwards of a $100 per report. While I’m not blaming the distributor entirely for our difficulties in delivery – we had a very hard time procuring a lot of this stuff because of inexperience and lack of funding – they ultimately only needed that ProRes. All the tape-based stuff we dealt with turned out to be a complete waste of time and money, and on my next deal I will absolutely steer the ship towards only having to deliver that medium.
:: Distribution Deal Profit Formula. Let’s say you secure a deal where the terms are a 65-35 revenue split, in favor of the filmmaker, with a $40k marketing expense cap and a $25k advance. You get your full $25k within 45 days of the street (release) date of the film. For the sake of simplicity, we’ll say your distributor accounts on an annual basis (though quarterly is the least frequent accounting method you should be tolerant of in an actual deal), and the annual statement you get a month after the one year anniversary reports that they did $65k in sales, and spent $22k on marketing.
Sales – Distributor Revenue Split – Expenses – Advance = Filmmaker Revenue
65,000 – (65,000*0.35) – 22,000 – 25,000 = -4750
So that means you still have $4750 left of your advance to pay back before you see a dime from the revenue share, and next year there will surely be more expenses to deduct before profits are split. Hopefully you see how things could never make it into the black on these deals.
Everything is negotiable; nothing in the deal is unable to be augmented. If you feel you or another company than the one you are working out a deal with is more suited to monetize an aspect of your film, fight to exclude those rights from the agreement. We felt we had assembled a particularly strong soundtrack for the film, and our distributor’s track record didn’t seem to imply that accompanying soundtrack marketing and sales were something they had dealt much with, so we asked to keep our soundtrack rights and they didn’t have the slightest qualm with us doing so. Another company we were speaking to about distributing the film itself, Phase One Communications, had a strong music division, so we went back to them letting them know we were going another direction with the film but would like to work out a soundtrack deal – you can find it on iTunes at http://itunes.apple.com/us/album/all-gods-creatures/id544417636, an indicator of a mission accomplished.
A word on confidence in your ability to negotiate: the natural inclination, as the poor impoverished filmmaker, when a decent distribution deal finally comes down the pipe is that you are lucky to have it, and there were individuals in our brain trust on AGC that absolutely wanted to take whatever was presented to us. I fought tooth and nail to maximize the deal, increasing our advance and lowering our market expense cap from the initial offer. No rationale businessman is going to walk away from a deal just because you counteroffer – as long as it’s a reasonable counter – so don’t be afraid to ask for more if you feel it’s warranted…or even if it’s not, for that matter.
Josh Folan is a producer, writer, director and actor with professional credits dating back to 2005. His first feature-length film venture, the romantic thriller All God’s Creatures, was released through Osiris Entertainment in May of 2012. Folan wrote, produced and starred in the film, which premiered at the 2011 Hoboken International Film Festival where it was nominated for best screenplay and best actress (Jessica Kaye). His second feature, a slacker buddy comedy titled What Would Bear Do?, was released in August. Folan wrote, produced and starred in it as well, in addition to taking on directorial duties for the first time. Filmmaking, the Hard Way is his first crack at writing a book, and you can follow him (@joshfolan) and his production company, NYEH Entertainment (@nyehentertains :: www.nyehentertainment.com), on twitter and facebook if you’d like to keep up with his meanderings.
