GOING BIONIC: DISTRIBUTING INDEPENDENT FILMS INTERNATIONALLY – SEVEN TERMS OF ENGAGEMENT YOU NEED TO KNOW!

Greetings. I hope everyone had a wonderfully productive week. If not, I hope your week was at least less tragic than the week Greg Mortenson had. Greg is the author of “3 Cups of Tea,” who was caught lying about the facts in his best-selling book. That guy went from being a saint to a sinner in t-minus one exposé on 60 Minutes…

As for today, I’m focusing on seven distribution terms that every filmmaker needs to know. The world of film distribution is a game that can only be played well if you know the “terms of engagement.” Thus, knowing these terms will help you navigate your film through the distribution process. Don’t worry, there’s no test at the end of this article. These terms are merely meant to help you understand some of the lingo distributors will talk to you in during your conversations and (hopefully) negotiations with them.

So, without further ado, here are seven “Terms of Engagement.”

Negative Pickup Deal
This practice is when a film studio or a well-financed mini-major distributor agrees to buy a film before the film is made. This is not an easy deal to get for budding filmmakers who have little or no track record of box office success. But luckily, there are key “attachments” a filmmaker can make, which will to help secure the negative pickup. Namely, cast, cast and cast.

Thus, the best strategy is to meet with the distributor who is interested in providing a negative pickup, and to ask him or her to provide a list of actors whom they will approve. Once the “approved actors” are officially attached, and those actors agree to be directed by the director attached to the film (if that director is new and or relatively inexperienced) the film studio will give the film producer a letter that guarantees the studio will buy the picture once it’s completed.

The film producer then takes the studio’s negative pickup letter to a third party financier, bank, or investment group, to get a loan to make the film. Thus, although the film studio is not providing the loan for the film directly, it’s their purchase guarantee that allows the producer to get financing from a party other than the studio.

Pros:
The main benefit to getting a negative pickup deal is that the producer/filmmaker can entice investors with the purchase and distribution guarantee from a major studio. Producers and filmmakers can also maintain control of the production, as opposed to having the film be taken over by the studio.

Cons:
Producers and filmmakers must make sure that the credit worthiness of the film studio or distribution entity providing the negative pickup is strong enough for a third party financier and or bank, to want to give a loan or invest in the film. Thus, if the distributor giving the negative pickup deal is perceived to be too small or financially weak, nobody will invest based on the studios negative pickup letter.

Pre-Sales
Pre-sales are very similar to negative pickup deals, but they usually deal with specific territories and or regions throughout the world. The pre-sale market currently quite weak, because a) the financial value of actors has severely dropped worldwide (even for A list actors), and b) the pre-sale value is largely based on the actors attached.

Pros:
If the right actors are attached, and the film is made in a “bionic genre”, (i.e. action, thriller, sci-fi), pre-sales can be a healthy way to finance films.

Cons:
The pre-sale amount is at least 40% less than what the film is worth (so the entity who is providing the pre-sale can profit themselves). Another concern is pre-sales kill the financial upside for the film producer/filmmaker, because if the picture goes through the roof in the territory it was pre-sold to, then the person who bought if for that territory swims in the ridiculous profits, not the film’s producer or the filmmaker.

90/10 Distribution Deal
This distribution agreement between the exhibitors (theaters) and the distributors, allows for the distributor to keep 90% of the first week’s box office receipts, and gives the theaters the remaining 10%, minus the “theater nut.” This deal is usually reserved for large “tent pole” wide releases.

For example, 20th Century Fox just released Rio, which made over $36 million over the weekend. Assuming this picture was released on a 90/10 deal with theaters, the studio recouped a bit over $36 million in the first 3 days. Additionally, Rio has made over $169 million worldwide in 10 days of release. Not bad for an animated picture that cost $90 million.

Pros:
The distributor recoups a sick amount of money in the first week of release.

Cons:
The theaters have to hope the picture has “legs” and rakes in money week after week, because if it bombs after the first week of release, the theaters would miss out on huge profits (since the distributor took 90% of the first week).

Firm Term Distribution Deals
This distribution agreement between distributors and exhibitors (theaters) sets a firm percentage for how much of the box office the distributor will receive, for a specified period of time. The percentage is usually 70%, for about 4 weeks, with the percentage gradually flipping to favor the theaters, over the several weeks. Hence, the distributor waves the 90/10-deal structure for the opening week, in favor of getting 70% of the box office for between 4 to 7 weeks.

Pros:
In the event that a film performs well for several successive weeks, a distributor will make more money in this deal, rather than taking a killing on opening weekend under the 90/10-deal and earning less thereafter.

Cons:
In the event that the film bombs after the first week of release, and is gone from theaters quickly, distributors may not have the film in theaters long enough to recoup their money.

Theater “Nut”
The theater “nut” is the negotiated amount between theaters and distributors, that theaters will take off the top from incoming box office receipts, before they pay out on any film distribution deals (including 90/10 deals and “Firm Terms”). Obviously, the “nut” covers the theater’s entire overhead, and then some, in order to make sure they don’t lose money on their distribution deals.

Legs
This term refers to a theatrical motion picture performing well, week after week after week. A film has “legs” if it continues to do well at the box office.  For example, Titanic (1997) had some pretty beautiful “legs.” Its biggest day at the box office wasn’t it opening day, but rather day fifty-eight, and the film stayed in theaters for 38 weeks. Furthermore, it took 102 days for Titanic’s daily gross receipts to fall under $1 million per day.

The Hangover (2009) also had legs, as it remained in theaters for 28 weeks and took 53 days for the daily gross to fall under $1 million.

Of course, these performances are not typical. Titanic enjoyed the second greatest box office performance ever, with $600.8 million domestically and over $1.2 billion internationally, totaling over $1.8 billion worldwide. Secondly, The Hangover (2009) made over $277 million domestically and another $192 million internationally, totaling $469 million worldwide.

Cross Collateralization
This term means that distributors can take losses from one film and write it off against the financial gains of another film, ensuring that they never have to pay out on the film that made money. For example, if I made a film that lost $14 million and you made another film that profited $10 million, under the rules of cross collateralization, the studio would take your profits to pay themselves back for my film’s losses, even though my film has nothing to do with your film. Cross collateralizing is an ugly practice that serves nobody but the studio, so all filmmakers should try to keep this clause out of your distribution contract. Of course actually doing so is virtually impossible, but we all can dream!

While I may list more “key distribution terms” in a future article, these 7 terms will give everyone something to chew on for the time being. Remember, the best way to become a “player” in the game of the film industry is to obtain a mastery of the terms and concepts needed to thrive. The bottom line is, your distributor will be forced to treat you better if he or she thinks you know what the hell you’re talking about!

I hope everyone has an amazingly relaxing Easter and Passover. I thank you for lending me your eyes and I hope to borrow them again next week!