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By Hammad Zaidi | September 17, 2013

Hey everybody! Welcome to Going Bionic #177! Today we’re going over four elements for you say “NO” to. As we all know, every single creative person in the entertainment industry hears the word “no” far more than he or she hear “yes.” Thus, my intension today is to provide you with situations where saying “no” is the best move for both you and your film.

So, without further ado, here are four situations where saying “no” to a contract clause, benefits your film’s financial success.

No Automatic Contract Extensions Without Performance
When going over your distribution offer, one key point to look for are any extensions mentioned in your license term. Many distributors will try to sneak in extension verbiage somewhere in your contract, which will be heavily beneficial toward them.  Of course, it’s your job as the filmmaker to protect your own interests, i.e. the interests of your film.

Here is what to look out for:

Your contract with your sales agent/distributor calls for five years, but due to an “automatic extension” clause, embedded somewhere in the contract, you could be signing your film away for 20 years or more, without even knowing it. They say “ignorance is bliss,” for a reason; meaning if you failed to read your contract thoroughly, or have it read by an entertainment attorney, then it’s your fault for not catching the distributor’s slight of hand when it comes to sneaking an automatic extension clause. I know how that must sound, but it’s true. It is never the distributor’s fault for trying to include contract clauses that are favorable to them. Our industry is flooded with shrewd negotiators who will always take as much as they can get. But, it is your fault for not knowing a) those clauses exists, and b) how they impact the financial future of your film.

Furthermore, if you complain after-the-fact about not being aware of the contract extension clause, then your distributor will just respond with, “you should have known, because the clause was in your contract and you signed the contract.”

Of course, it’s always smart to include a performance-based extension clause based on the amount of sales your distributor/sales agent generates.

No License Reassignment Without Approval
Another thing to look out for is giving your distributor or sales agent the ability to reassign your film without your approval, i.e. allowing them to sell it off to another company.

The main problems with this is, a) the company your sales agent/distributor sells it to has no relationship to you or your film, (because they’re probably receiving your film in a “bundle,” where several films are “fire-sold” together at a deep discount), and b) your film will have to adhere to the rules and regulations of a new contract from a company you may not have ever met or heard of.

Thus, your film should rest with the sales agent/distributor you originally signed with, until or unless you agree with the reassignment.

No Licensing Without Bankruptcy Protection
Demanding this clause as part of your contract will save you a tremendous amount of headache and heartache.  What you want is to protect your film’s future in the event your sales agent/distributor files for bankruptcy.

A smart move here would be to make sure your film couldn’t be included in the sales agent/distributor’s list of assets when they file bankruptcy. In fact, you may want to have your lawyer write a clause that says your film’s rights revert directly back to you upon the your distributor/sales agent files for bankruptcy.  If you fail to do this, your film will surely be tied up in bankruptcy court for one to two years or more.

No Percentage Based Administrative Costs Without Ceilings
Many contracts try to gather additional administrative fees through percentage clauses. This is never good for the filmmaker, unless reasonable “cost ceilings” are built into the contract.

For example, let’s say your distributor is asking for $50,000 in administrative fees, plus 20% of the sales they generate for your film, both of which are normal and acceptable).  But, if they want an additional 15% in advertising and marketing costs (or any additional costs for that matter) based on the sales they make, then you’re getting royally screwed if there is no “spending ceiling” on the deal.

Here’s why:

Assumption #1:  Your sales agent/distributor is signed to receive $50,000 in administrative fees  +20% of sales.

Assumption #2: They generate $500,000 in sales for your film.

  1. You are already paying them $50,000 for their admin fees and $100,000 more for their 20% sales fee (20% of $500,000 = $100,000). Thus, they are earning $150,000.
  2. If you allow them an additional 15% for marketing and advertising, you’d owe them $75,000 more (15% of $500,000 = $75,000).
  3. This totals $225,000 out of $500,000 for the distributor.
  4. Thus, the smart move would be to put a ceiling on the amount of marketing and advertising costs your distributor/sales agent can recoup off sales. Whether that number is $10,000, $25,000, $50,000 or more, you need to have a finite monetary amount on those “additional costs,” so that the distributor can’t drain you dry.

Okay, that’s what I have for you today. As always, I thank you for lending me your eyes, and I look forward to borrowing them again next Tuesday. Until then, have a tremendous week! I can be followed on Twitter @Lonelyseal.

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