Models in Film Distribution
Film distribution is a highly fragmented field, with new ways of screening films being added all the time. Add to it the nature of copyright laws and the result is highly confusing. For an example of the latter, relate to my other post here on Fair Use to get an idea of the fragmentation, confusion and fine print.
What’s so special about film rights?
I wasn’t aware of the special characteristics of film distribution and rights management myself, as I’ve been there most of my professional life (before that I was a linguist, where we don’t deal with distribution, except research of the distribution of words in a sentence-:)).
I was exposed to it as a digital film distributor and owner of a VOD platform for the educational market, where I often get requests from librarians to add a specific film to the collection.
In most cases, I have to sigh before answering, because I know I’d have to disappoint the librarian: Sorry Ms. White, we can’t get the rights for this film; Apologies Mr. Green, that film is not allowed in your country (we have clients worldwide).
The librarians don’t get it. And I can’t blame them! — Look at books, it’s so simple: once a book is out, you can order it, period.
But with films… the expression “it’s complicated” had never been more accurate.
Therefore, I will set distinct goals for this post and will try to adhere to them throughout my writing:
1. Describe the main models which exist today in film distribution. Covering all of them will be in my eyes be too much, as some differ form each other only slightly. Which brings me to the next goal:
2. Discuss the principles underlying film distribution. Understanding the logic and the principles behind film distribution allows one to adapt to any technological, commercial and legal change in the field.
3. State my own opinion on the existing norms and conventions. That’s the “added value” of this list. If you disagree, please state your opinion and arguments in the comments.
Main Film Distribution Models (for the time of writing)
Film distribution is divided to a few axes. Making them intersect harmonically is the key to an efficient distribution deal.
It might also be surprising to know that price or commercial terms are only one axis and not necessarily the most important in this labyrinth. If a distribution strategy relies solely on the price or revenue, without considering the other aspects which I will list below, it might be a failure.
The axes are:
- Revenue model.
- Platforms (mode of screening).
- Territories.
- Exclusivity.
- Period (term) of agreement.
Comic Relief (and a lesson)
As an early adaptor of technology, I was into streaming and digital distribution already as early as 2002 (!), although it was a hobby at that time, as I was still an active filmmaker.
When I was discussing distribution of films on the internet with filmmakers or distributors, I was always confronted with the question: “where and when will it be broadcast? And how many times?”
That was always a stressful point, where I knew I was going to either lose the guy or have him (or her) on board. I always tried to sound non-apologetic and as cheerful as I could when I said “there is no broadcast! — the viewer (“user” was not as frequent a term as today) decides when to watch!”
People were so trapped in the notion of airing (or screening ) time, that it was almost impossible to convince them that something could exist as a viable model without setting a screening time for it. It’s hard to believe it, but it was not so long ago.
Lesson: film distribution is a very conservative and slow to react industry. It also tends to roll in historical circles, reviving old models and describing them as new, by giving the old models new names. Ah well.
FILM ACQUISITION MODELS
- Purchase rights.
When a company offers to buy all the rights for a film (and takes over obligations to third party right-holders). Less frequent and a risk to all parties (buyer and seller) when it’s a new film. More frequent with older films. - License.
The preferred type of agreement, as both buyer and seller know exactly where they stand. There is also less bureaucracy involved, as reports are minimal during the license period. License entitles the licensee (TV channel, OTT platform etc.) to screen the film (under certain limitations) for a set amount of time. With a license, the licensee doesn’t have to report, pay or ask permission for any individual use of the film, as long as it is in the boundaries of the license. However, if the license is combined with other revenue models (i.e — revenue share), detailed reports will be issued. Netflix, for example, works with a license and during that period, has the right to screen the film an unlimited umber of times without reporting anything to the right-holders. - Minimum Guarantee.
Minimum guarantee (aka MG) is both a sign of trust in the film’s potential and a provision of some piece of mind to the right-holder. When a distributor offers MG, it means that as they believe in the film and its success, they are willing to pay upfront some fee, even before they have sold or screened it once. Usually, and as the distributor is risking some money, there is an expectation for exclusivity, which I will relate to later.
MG also serves as a way to block competitors, or competition in general. The distributor who pays upfront is not always committed to put efforts into the sale and might as well do nothing with it. Why should one do it, you’d ask? For that, please see the term Hostile Takeover. It’s taken for other fields, but sometimes stands behind MG deals.
Another useful term that comes with MG is recoupment: it is the right of person or entity which paid the MG to be the first payee (receiver) of the revenue the film is generating, until the MG amount was reached (recouped). After that, a revenue-share (see below) will start.
How high is the MG? — Well, the answer is the infamous - “it depends”.
It depends because it’s negotiable. But usually that would be around 10%-30% of the film budget, along with some estimations (combined with prayers and crossed fingers) about future revenue and sales.
As the word “minimum” implies, there should be more revenue for the right-holder to come, achieved by future sales. The terms for those future sales are determined by the royalty fees or revenue share, which are our next bullets: - Royalties
Royalty is a predetermined fee for any future use of the film (usually per screening). Royalties can also include other contributors to the film, such as musicians, scriptwriter, actors etc. — usually through general also called “blanket”) agreements with their respective guilds. - Revenue Share
Revenue share (aka Rev-Share) entitles the right-holder to a predetermined percentage of each deal. The RevShare contains both a risk and a chance to the right-holder. Why risk? — because sometimes right-holders are offered a higher MG and in return are required to give u the percentage of revenue share. Or receive a lower MG and a higher percentage or revenue share? To address that risk, we are now working on a new initiative, an AI assistant for a lower risk decision-making named DO.IT.RIGHT. I will elaborate on it in another post. - Commissioning
I (TV channel, OTT) order, you (production company) execute.
I completely own it and in certain agreements, I may even ask you to remove your name. Some of Netflix “original productions” are actually commissioned from its direct competitors (from their production arms, to be precise).
PLATFORMS
Unlike revenue models, which exist from the early days of film distribution, platforms (medium of screening) are evolving very quickly.
First was the cinema. For many years, the only way to show a film was with a projector. Then came television and “broadcast” was born. The advent of cable and satellite didn’t change much as the term ‘broadcast’ did not change, both as a basis for contracts and as a way to calculate royalties. The notion ‘programming’ (the broadcaster decides when to air the film) remained the same. The broadcast world was linear: if you were late. you missed the screening.
Then came the internet and the digital video
The big bang of the film distribution world was and still is, in many senses, caused by the internet and the digital video.
For many reasons, some of them cultural. Allow me to concentrate on two of them:
* A blurred line between personal and public screening
Quality is excellent (digital video) and it’s easy to use even a medium quality projector in order to conduct a public screening with a film rented for individual use. Some organizations don’t even know that they infringe copyright.
Edit: Reading this again, I believe this bullet requires some elaboration: in the theater, the maximum number of viewers is the amount of seats in the venue. With TV, it would usually be a household (cafés are an exception though). But with a digital local copy of a film or a film streamed with a projector, it is much easier to show a film in excellent quality to a lrge number of people, although it is not allowed (a copyright infringement). That breaks the distribution model. for years, right-holders profited from public screenings, now it’s harder.
* The number of broadcasts, or “runs”, became meaningless.
In the first film markets I attended, I was always asked that question, about runs and number of broadcasts. I had to explain again and again that users can watch as much as they want, whenever they want. Only after I thought I have made the message clear, I received the agreement draft, where I had to choose the number of runs. I came back to the distributors and reminded them that we just talked about the irrelevance of the number of runs. But usually it didn’t help. They either totally forgot our conversation or said that their CEO insisted that I fill this section anyway. I think that tendency began to change only in 2016, years after Netflix launched its streaming service. Film distributors are truly unbelievable people.
And this where we come to the next comic relief:
Another Comic Relief (though not funny)
The old among us remember that we used to record films on tapes. Since a tape is a physical medium, the term “copy” was relevant to it. In those old days, we used to talk about creating number of copies, limiting them of disallowing them altogether etc. — In the digital era, it is totally irrelevant to talk about copies anymore: one such “copy” can serve many people at once (unlike a cassette, which is borrowed from the library and therefore not available to others at the time). It is also impossible to prevent the creation of such copies.
Nevertheless, you can still find in distribution agreements the term “copy”. There are also some publishers which limit the number of users who can access the film (or e-book) at a time (limitation of concurrent users). The latter is a pathetic attempt to implement analog principles to a digital world. It just signifies that they haven’t switched their state of mind to digital and understood nothing about the changing norms. It’s not about technology (as limiting concurrent users is possible). It’s not about legality (as limiting concurrent users can be defined in a contract). It’s about CULTURE. We live in a digital era. Drop those copies and concurrent users limitations if you want to survive.
And no, I’m not speaking from a position. I myself am a digital distributor and supposed to be losing from unlimited concurrent users. But I try to adapt to out times.
TERRITORIES
Basically, dividing the distribution to territories should provide optimal outreach of the film assuming that distributors have expertise, know how and connections in some markets and not in others.
The terminology refers to ‘territories’ and not to ‘countries’ and for a reason: USA and Canada are not the same country but are sharing many cultural aspects (sorry patriots! I’m generalizing of course). Therefore, in distribution, Canada and the US will often be called “North America.”
Germany, Austria, Luxembourg and the German speaking part of Switzerland are different countries and in many extents, have different cultures, but having the German language shared between them makes them one market or one “territory” (DACH). The idea is pretty simple and straightforward.
Going back to the principle behind defining territories for a film, one might ask why we should stop there. Or in other world: is geography still the ultimate parameter is today’s global world?
Let me give an example: If a distributor is specializing in the academic sector, like me, he or she can quite surely declare that their ‘territory’ is Education!
The gap, content-wise, between a commercial TV broadcaster and my initiative in my own country is so huge, that we actually belong to different territories!
Therefore, PLATFORM IS THE NEW TERRITORY.
Territory in its geographical sense is another old fashioned term which obstructs efficient distribution: if a distributor who has rights for a territory doesn’t know how to promote a film in a platform unknown to them, and at the same time holds exclusive rights for a territory, they literally block the film.
So far we talked about types of licences and selling models, about platforms (where a film is screened) and about the importance of a territory (while challenging its geographic basis). Now let’s move to speak about exclusivity, another delicate topic.
EXCLUSIVITY
When my father passed away, my brothers and I tried to sell his house. A well known situation to many people. Many real estate agents came to us. they all demanded exclusivity, which means that only they will be allowed to sell the house or if it’s sold directly by us, they will still get their commission. They knew will be reluctant to the idea, so in order to strengthen their argument, they came up with the following story: “if you give exclusivity, I will have more motivation in marketing the house, as I know it’s secured to me. I will invest in ads, I will bring a photographer to take professional looking pictures of the house and I will invest time and effort in marketing it. On the other hand, if I know that other agents are also selling the house, I will have less motivation, as I know that while I’m paying for an ad, you might already be in the middle of a negotiation, run by anther agent.
On the one hand, it makes sense! On the other hand, why should I, as the seller, put my egg in one and single basket? How do I know that this agent is the best choice and that by the time he or she have the exclusivity, I don’t miss better and quicker deals?
To reduce our family’s risk, I asked the agents many questions about how they are going to sell our house and how they can ensure we get the best price. Then I asked them to sign on a agreement which details their effort….
Pretend you’re surprised: they all refused to sign such an agreement.
The reason is that they knew they can’t commit. Because when they pay for an ad, they also publish other houses (they always do. I checked it). And when they have better chances to sell another house, they’ll put more efforts in it, on the expense of the time they dedicate to our house.
And as for achieving the best price for us?… This is one of the big mistakes that people make, assuming that the realtor wants to sell the house in the best possible price. NO: the realtor wants to close a deal more than he or she want a higher price. They know that not closing a deal fast will cause them to work more. Their time is money, so they prefer the lower price at a shorter time. Besides, 20k less in the price doesn’t mean a lot of difference to them in terms of their revenue (only 600 difference, with a 3% commission), while for the house seller it means a lot.
Think I just made up a theory of my own? Watch this!
At the time we were selling the house, I was already deep into film distribution. Nevertheless, I was still shocked to see how similar the arguments (a better term is “tricks” ) are between realtors and film distributors, to justify their exclusivity.
By the way, I didn’t tell the real estate agents anything (if they asked what I do for a living, I said “filmmaker”).
But I advised my brothers NOT TO AGREE TO EXCLUSIVITY.
I was sure, then and now, it’s bad fo the seller.
If the analogy is still unclear, I will explain it here:
Exclusivity is good for the real estate agent (=film distributor) and bad for the seller of the house (=film producer).
So why do I, myself, sometimes agree to exclusivity? — Because I have no choice. There’s no way I would believe that the distributor would make more efforts because he or she have exclusivity.
So…
I wrote about types of licences, platforms, territories and exclusivity. All of them together are called availabilities or “avails” for short.
I did not write about how the distributors themselves make money (ticket sales, pay per view, subscription etc.). Not because it’s less important (it is very important), but because that concerns the relations between the distributor and his or her clients, usually the end-users (B2C), while this post concentrated on the relations between the right-holder (sales agent, producer, filmmaker) and the distributor, which is more B2B.
At a pretty early stage of my career as a VOD operator, I found that those discussions and negotiations (about license, territory and exclusivity) are so confusing to all sides, that I decided with my team to create a software which will facilitate it. We called it QuickRights, because it provides a quick overview, on the go, of all those parameters combined (“avails”) and allows the buyer and seller to concentrate on the terms rather than calculating the availability all the time.
