CHAPTER 9 SPELLMAN THE ACQUISITION AND DISTRIBUTION
AGREEMENT
The various ways for a studio to create a film are:
1. Develop ideas for story line
2. Obtain movie rights to an existing literary property
3. Studio hires a writer to create a script (studio development staff works with writer
to develop story). This is the riskiest venture because studio scripts rarely get
produced.
Some films begin outside of the studio:
1. A writer working on his own or hired by an indie producer, writes a screenplay.
Upon completion of script, it may be packaged with other key elements (star,
director, etc.) and presented to a studio for financing and distribution. THE 3 BIG
talent agencies are CAA (Creative Arts Agency), ICM and William Morris and
are responsible for assembling many packages.
Some fims are developed and produced away from the studio that ultimately distributes
them.
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These indie projects are dependent on investors or pre-sale distribution deals
(selling off various foreign-distribution rights) to finance production.
Next, the producer will enter into an acquisition agreement with a distributor for
release of the picture. This is called NEGATIVE PICK-UP DEAL – where the
distributor does not provide any financing until picture is delivered upon
completion.
Negative Pick up Deals:
 Distributor typically pays for all distribution, advertising and marketing.
 Studio and Producer share in profits.
 Producer has taken risk of financing project (as opposed to studio taking the risk)
and may be able to obtain a larger share of net revenue (50/50 net deal is the usual
split)
 However – The distributor could obtain the upperhand in this scenario by taking a
distribution fee of gross revenues, then recoup distribution expenses (marketing,
etc.) and then remit balance to filmmaker (to be split 50/50).
 In a negative pick up deal, the distributor will often give the producer an advance
of his share of revenue. Producer then repays investors.
 Producers want as much advance as possible because they understand that picture
may do poorly and no money would be made on the back end of the deal.
 Distributor naturally wants to pay as small an advance as possible – never more
than the cost of production.
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The ‘creative accounting’ tactics used by distributors cause profit participants to
rarely realize any actual share of return because of the way net profits is defined.
 Shrewd producers know this and will get as large of an advance as possible and
retain foreign rights and prevent them from being cross collateralized.
What is cross collaterization? Money from several markets are pooled into a single
pool. Read example at bottom of p. 116 – it’s excellent!
Indie Filmmakers often enter into agreements with multiple distributors for
each film – often licensing a film outside of North America by contracting with a
foreign sales agent who markets to local territory distributors around the globe. In
North American the filmmaker can enter into an agreement with ONE distributor for
all rights or into separate deals with a home video label and television channels.
Orchestrating a Distribution Deal
if you’re a filmmaker seeking distribution: DON’T BRAG ABOUT HOW LITTLE
MONEY YOU SPEND TO MAKE THE PICTURE!! You will find it much more
difficult to get a decent advance! Distributors have no legal right to examine your
books.
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An acquisition agreement can be made:
Before
During
or
After production is complete, as in the case of some films shown at Sundance
in hopes of picking up a distribution deal.
It isn’t rocket science or even difficult to get acquisition execs to view your
film – it’s the job of these acquisitors to find good films to acquire. Don’t be
surprised if one calls you before you film is complete so they can see it before
their competitors do!
Never, never, EVER show an uncompleted work to a prospective distributor
no matter what they say or promise! They are distributors, not film makers
and may not have the foresight to distinguish a good product from a terrible
one when seen unfinished.
From the filmmakers perspective:
It is natural to think that the more distributors interested in your project, the better
chances you have of playing them off of each other.
What happens when one offers a %500,000 advance and gives you 24 hours to make a
decision? If you pass you may not get a better deal, or what if you accept and risk
foreclosing the possibility of a more lucrative deal..
VERY IMPORTANT TO ORCHESTRATE THE RELEASE OF FIM TO
PROTENTIONAL DISTRIBUTORS TO MAXIMIZE YOUR LEVERAGE.
CASH FLOW FROM THEATRICAL DISTRIBUTION OF FEATURE FILM (U.S.)
(50/50 Net Deal p. 238
I.
II
Gross Box Office Receipts (Ticket Sales)
A. Minus exhibitor’s net receipt
B. Minus Gross Film Rental (paid to distributor)
C. Minus Cost of Prints (of movie), Trailer, Advertising, Promo, etc.
D. EQUALS Net Film Rental which is then split 50/50 between distributor
and filmmaker.
Distributors 50% is further reduced by
A. Operating costs
B. Final step: Distributors Profit
III Filmmaker’s 50% is reduce by:
A. Deferrals and other debts (any cost associated with production: cast, director,
location, equipment, music, etc., etc)
B. Investor obligations
C. Final Step: Filmmakers Profit
ORCHESTRATE THE RELEASE: