6
Distribution: Theatrical and the Changing Landscape

We all know that the film home video/ancillary business is going through a major paradigm shift. The question still exists—where is it going and how soon? Theoretically, everything will be streamed and downloaded some day; but that specific day is unknown. Before the audience can buy a movie ticket, rent a disc, or order a digital download, the movie has to get off the filmmaker’s desk and into the movie theaters. This method of circulation is called distribution. Simply put, it is the business of selling the film to various media.

This chapter looks at distribution strategies in general, glances briefly at studio distribution, and examines independent distribution in more depth. Nevertheless, it is not intended to replace the many books on film distribution that you can read for more detailed knowledge. While we will look at types of deals, I am not a distributor or a lawyer. When making any deal, you need one of each.

What is Distribution?

When writing your business plan, you will need to explain the distribution system in general. As with other elements of the plan, you should proceed on the assumption that your reader does not know how the system works. Wrong assumptions on either side could block the progress of your films.

The “rights” of a film stem from the ownership of the copyright, which endows the legal use of the film to the copyright holder. Having secured a formal copyright, the producer contractually licenses, or rents, the film to a distributor for a specific length of time. The producer can relinquish all control of the film by shifting the entire copyright to the distributor in perpetuity, or she can license a specific right such as domestic, foreign, home video (DVD/Blu-ray, streaming), television/cable, satellite, tablet, cell phone, and wrist watch (or any other device brought to market since the book was published) to the distributor for a specific length of time. In return, the distributor collects the rental monies or ancillary fees and remits the producer’s share.

The following is from a sample domestic distribution contract. Although it is boilerplate (the starting point for negotiations), the following section is not likely to change. Pay attention to the phrase in parenthesis.

What is a Distributor?

Long before Carl Laemmle produced his first maverick film, middlemen existed (as did agents, attorneys, and litigation). These intermediaries bought low and sold high even then. Among the most maligned of all entrepreneurs, middlemen are still harshly criticized for doing their job.

History does not tell us when the term distributor began to be used. All industries have intermediaries. In other industries, they buy inventory at discount prices, add a price markup, and resell at a higher price. In this sense, these intermediaries are considered just another one of the channels for getting the product to the market. Unlike film distributors, they are not involved in making artistic decisions about the product, changing the name for better marketing, or obtaining premanufacturing financing.

Motion picture distributors also are middlemen, and they are a curious lot. They are viewed either as people of tremendous skill, nourishing the growth of business, or as flimflam artists reaping obscene profits. Like politicians, distributors are sometimes seen as a necessary evil. On the other hand, they perform an important function without which the average filmmaker would not thrive.

Distributors have tremendous power, and in independent film, their impact is magnified. Studios normally have committees and different levels of people making a decision. In an independent distribution company, one person, with no one to answer to, may determine the entire course of your film. The distributor has the ability to influence script changes, casting decisions, final edits, and marketing strategies; in addition, distributors often are intimately involved in the financing of the film.

They have this power by virtue of the distribution agreement. The specifics of the distribution deal and the timing of all money disbursements depend on the agreement that is finally negotiated. As a new filmmaker, you have little or no leverage for changing this agreement. Even an experienced filmmaker seldom can exact any substantive changes in the standard contract. One can debate fees. In the end, however, even though each deal is different, the basic contents stay the same. The distributor must be a salesperson, an entrepreneur, a skillful negotiator, and a raconteur and must have a sixth sense about matching the buyer with the product.

Armed with the rights, distributors go about the business of relicensing the film to the various media. The U.S. theatrical box office is the backbone in the chain of revenues for a film. All ancillary results theoretically are driven by the domestic theatrical release. Some products are designed to skip that step and go directly to home video or foreign markets, but the value of a film in any other media and territories is generally greater with a good theatrical release. Even a small theatrical release can increase the value to buyers of an otherwise unknown film.

Studio Distribution

How It Works

The major studios (and the larger production companies) each have their own distribution divisions. They not only release their own films, but also occasionally acquire other films. All the marketing and other distribution decisions are made in-house. The distribution division sends out promotional and advertising materials, arranges screenings of films, and makes deals with domestic and foreign distributors. Because of their size and the box office capability of their films, the studios naturally have a lot of clout in getting their films onto theater screens.

When it comes to foreign markets, studios have offices around the world, either singly or with other studios, to distribute their films in other countries. Often, a studio will partner with a local distributor and the release will bear the names of both companies. The studio always retains the copyright, which it licenses to the foreign distributor for a specific length of time.

Based on the share formulas we saw in Table 4.1 that the studio’s distribution arm receives its share of the box office grosses from the exhibitor and passes them through the in-house accounting system. The studio charges distribution fees back against the film as if its distribution division were a separate company. These fees can range from 45 to 65 percent of the total film rentals. In addition, the studio takes the entire fixed cost of the distribution division (overhead) and applies a portion of it to each film. Overhead fees pay for running the division and cover expenses that are not covered by other fees. Before the accountants are done, the studio will also take a portion of the overhead from the production side of the studio and add it to the total cost of the film.

The formula in Table 4.1 in Chapter 4 shows a “net profit” model for a studio film. Each studio has a standard method in its contracts for determining revenues, expenses, and profits. These formulas are nearly impossible to change, even by influential filmmakers. Typically, the producer is paid a percentage of the net profits in addition to receiving a salary. With studio films, it is fair to say that the chances of the net profit being greater than zero are rarer than with independent films. The studios have more films to cross-collateralize (using the profits from one film to offset the losses from another) and more places to bury unreasonable costs, although many contracts now prohibit films from being cross-collateralized.

The Advantages

There are many advantages to studio distribution. The studio has the ability to put 4,000-plus prints of a film in circulation on the opening weekend. Its own channels of publicity and advertising are manifold. The studio has the financial resources to inundate television and the press with ads, and it has significant clout in getting placements for producers, directors, and actors on early-morning and late-night national interview television shows. For example, the Walt Disney Company owns its eponymous cable network (consisting of ESPN, ABC Family Channel, Disney Channel, Toon Disney, and SOAPNet), the ABC network (talk shows, such as The View and Jimmy Kimmel), as well as the ABC television stations. In addition, the studio is able to negotiate a deal with its own affiliate at a value on paper that is less than free market value.

As noted earlier, the studios have been able to monopolize the chain movie theaters in the past. Some have moved back into theater ownership. Be that as it may, with the success of independent films, exhibitors insist that they do not bow to studio pressure. They can only afford to have films in their houses that fill theater seats. If the audience does not come to see a particular film, the exhibitor must look for another that will be more popular. Consequently, more screens become available to independent films. As small films have received acclaim, they have continually one into wider distribution (for example, expanding from 500 to 1,200 theaters) and gotten bookings in major chains that would not have played them previously.

Independent Distribution

The Players, They are a-Changin'

In 1994, neither this author nor Bob Dylan, or probably even Harvey Weinstein for that matter, could have foreseen what would be going on now. Many would-be seers at that time thought the independents would disappear, even though the first edition of this book said that it wasn’t true. The intervening years have shown a total change in which studios tried to emulate the success of independents with lower-budgeted films.

The Majors acquired independent companies and made them into specialty divisions as the quickest way into the lower-budget market. Most of the specialty divisions of the studios—Focus Features, Paramount Vantage (the former Paramount Classics is a division), and Warner Independent Pictures—eventually were closed and/or became labels. Warner Bros. absorbed Picturehouse and New Line with Picturehouse disappearing and New Line becoming merely a studio brand. Fox Searchlight is no longer independent producer. Sony Classics remains the lone specialty division with autonomous control over its product. Still an independent film picked up for distribution by a studio remains a film that was independently made. Meanwhile, new independent companies continued to appear.

Independent Companies

Similar to our definition for independent films, the independent distributor is one that releases a film independent of one of the major studios. As we know, studios and their divisions pick up indie films. Some larger companies, such as DreamWorks and DreamWorks Animation, have had distribution deals with studios. There are a myriad of other companies, both U.S. based and foreign based with a U.S. office, that distribute films.

Even independent companies that are highly capitalized and making successful films come and go. In the 1990s, Artisan Entertainment is a good example. At the same time that they were buying October Films in 1997, a consortium headed by investment firms Bain Capital and Richland, Gordon and Company bought Live Entertainment, which had one of the largest independent film libraries (2,000 titles) in the world, for $93 million. The new company became Artisan Entertainment. Then Boston-based Audax Group along with other investment companies bought a controlling share. Artisan slowly grew until 1999, when the success of The Blair Witch Project single-handedly moved the company into the front ranks of independent distribution. At that time, Bain was interested in purchasing Trimark Pictures (originally the motion picture arm of one-time video major Vidmark), but the sale did not happen. Meanwhile, an investor purchased Cinepix Film Properties and changed the name to Lionsgate Films. In 2000, Lionsgate bought Trimark Pictures for approximately $50 million. At least two of Artisan’s investors wanted to cash out, and in a bidding war, Lionsgate bought the company. Lionsgate bought Summit Entertainment in 2001. With the merging of the distribution divisions, one potential acquirer of independent films was taken off the market.

Why do you care about all these financial machinations? First of all, you should know the history and personnel of the company with which you want to do business. How have they acted in the past? Are they likely to be dealmakers who are more interested in selling the company for a profit than being distributors for your film, or are they hands-on film lovers who are likely to be around for the long haul? Remember that the length of time that a company takes to negotiate a merger or buyout can hurt any film in its library. My favorite film from Sundance 2000, Songcatcher, was acquired by Trimark. By the time the Lionsgate/Trimark merger was complete, the film was in the library of the new company, which may not have had the same regard for its potential success as the original buyers. In addition, the film’s resulting release in June 2001 may have been too late for the buzz press from its Sundance screenings to be meaningful.

THINKFilm, which had become a notable producer and distributor of documentaries and other films, became a victim, along with the U.K.’s Capitol Films, of their parent company’s financial troubles, Pergasus Entertainment Group. Also gone are Fox/ Walden Media, which was shuttered and absorbed into Twentieth Century Fox, longtime indie New Yorker Films, and Rogue, which was repurposed by Relativity Media. In 2010, FilmDistrict was formed. It is still in business, but Bob Berney—arguably the smartest indie marketer of the last three decades—is no longer involved.

Among some of the companies new to theatrical distribution are the new producers, such as Megan Ellison’s Annapurna Pictures and Joe Drake’s Good Universe, African-American Film Festival Releasing Movement, FilmDistrict, Red Granite Pictures, Red Flag Releasing, Open Road films (formed by AMC Entertainment and Regal Entertainment), and Talking Drum Entertainment. Other indie distributors are Anchor Bay, Peach Arch Entertainment, Oscilloscope Pictures, Music Box Films, Gold Circle Films, IDP/ Samuel Goldwyn, Magnolia Pictures (and its offshoot for genre films, Magnet Releasing), Palm Pictures, Zeitgeist Films, Roadside Attractions, Rocky Mountain Pictures, and First Run. This list is not meant to include everyone. I always say that I should put the date (July 2012) on the list, as there will be companies being formed, purchased, or just giving up the ghost by the time you read this book. It is particularly important during the current economic challenges. The overall picture for the past 20 years has continued to be true. As one company merges, becomes a studio brand, or just disappears altogether, others quickly come in to fill the distribution void. Did someone say independent distributors were dead? They did, but they were wrong.

Do your own research to see who is doing what. Since the landscape is constantly changing in this dynamic industry, the independent filmmaker must function in a fluid environment. The small independent of today could be the Weinstein Company of tomorrow. It is also important to keep in mind that some companies specialize. For example, Eros Entertainment and Yash Raj Films specialize in distributing films from India in the United States. Strand Releasing and Regent Releasing specialize in the distribution of gay-and lesbian-themed films. Interestingly, in 2008, Regent also made a point of expanding into foreign-language films. According to Regent co-founder Stephen Jarchow, “Gay and lesbian people represent one third of the audience that goes to foreign movies. They are three times more likely to go and see a foreign-language film.” He also pointed out that a small independent distributor considers a film that generates $2 million to $3 million at the box office to be a success.

Always look at how your potential distributor tends to distribute a film. The larger producer-distributors, such as Lionsgate or the Weinstein Company, have the ability to put a film on 1,000-plus screens. Of course, that doesn’t mean they will. On the other hand, some of the smaller companies prefer to put a film on only one to three theatrical screens as a prelude to a home video. It is always important to have an attorney carefully read your contract. Some filmmakers have found that, after being picked up at a festival, their contract didn’t require a theatrical release.

Too Many Films?

The theatrical marketplace is crowded. In 2011, studio members of the Motion Picture Association of America (MPAA) and their subsidiaries released 141 films and nonmembers released another 469. That 610 total “includes all titles that opened in 2011 that earned any domestic box office in the year,” according to Rentrak Corporation’s Box Office Essentials. Checking my database of independent film revenues for 2011 and taking out films released by studios (47), I came up with the same 469 number. However, those other 47 films are counted in my annual independent film box office total. As you recall, the definition does not include what company distributes a film but the sources of financing and control of production.

The idea that too many filmmakers are making too many bad films and have a 90 to 99 percent chance of failure has been around since I entered the business in 1988 and surely before. Every year Sundance and other large festivals have more than 3,000 films entered. Clearly, there are many more films made than will ever see the light of day in a theater or make back their production costs. We don’t even know the profit/loss results for all the films distributed. For one thing, we don’t even have an estimated budget for many of the smaller films released. In addition, we can track all the potential revenue sources. Will this information stop you from making a film? Probably not.

How It Works

Watching an independent distributor bring a film to its audience is seeing a true master of multitasking at work. More than just a functionary for getting your picture out, the independent distributor can perform one or more additional roles, including participating in creative decisions and contributing to the film’s financial resources. For most independent filmmakers, the independent distributor is the only game in town and deserves an extensive look.

Domestic Versus Foreign

The domestic territory generally comprises just the United States, but it might also be considered to include Canada and, many times, Puerto Rico and other Caribbean islands. Many of the independent distributors consider the United States and Canada to be one North American package and prefer not to have them separated beforehand. For one thing, the distributor may have output deals with Canada. If the opportunity for Canadian financing arises, therefore, producers must be careful. If the Canadian investors are going to take some or all of the Canadian territory for themselves, the producer might have a problem finding a distributor for the U.S. market.

Domestic rights refer not only to theatrical distribution but also to all other media, such as DVD, cable, and the Internet. A producer who secures an advance from one of these media for production financing makes the deal a little less attractive to the distributor, because the rights have been fractionalized, or split up. Any source of future revenue taken out of the potential money pie before a distributor is found makes an eventual distribution deal tougher for the producer to close. Most distributors make a substantial investment in print and advertising (P&A) costs. Although they may recoup these amounts from the theatrical marketplace, it is not likely to cover their distribution fees. Therefore, they prefer that other revenue sources be available to them.

Being a domestic distributor may mean that a company does not sell foreign rights itself. However, no rule says that a domestic distributor cannot venture into foreign waters. While distributors at the festivals used to pick up films for North American distribution only, they often now include all English-speaking territories. Or they pick up worldwide rights and sell off the other territories to subdistributors.

There are also U.S.-based distributors that specialize in foreign only. These companies deal with networks of subdistributors all around the world. It is sometimes confusing for producers to distinguish between a distributor and a foreign sales agent. If a distribution company is granted the rights to the film for the foreign markets, that company, whether it is 1 person or 20, is the distributor. The company may be referred to as a foreign sales agent also. There is no fundamental difference, just one of semantics. Independent Film and Television Alliance publishes an annual directory of their members. In addition, there are sources on the Web.

Internet rights are a question. How big this business will become is still unknown. What you have to know is that you do not want to license your film to anyone on the Internet before you have a contract with traditional domestic and international distributors. Whether or not they will do anything with those rights, the distributors want them available. Of course, that doesn’t mean you have to include those rights. Generally, the producer retains ownership of the copyright and only grants someone a percentage of the receipts for obtaining distribution contracts for a particular territory and/or medium. A typical term for granted rights is seven years, although some distributors will want 10 years.

To Video On Demand or Not

With the growth of new releasing platforms, the paradigm for releasing is changing. For example, a day-and-date release on Video on Demand (VOD) at the same time as a theatrical release or even before it is starting to gain traction. There has been a lot of discussion about Margin Call’s $4 million VOD revenue total, as reported by distributor Magnolia Pictures. While other anecdotal reports on VOD have been made, there isn’t enough data to make predictions for investors. There are too many factors we don’t know and unanswered questions about the new media distribution systems. For example, how much does this type of pretheatrical release affect the box office revenue? For the same number of audience views, are we exchanging the price of the ticket for the lesser revenue from a download? Magnolia Pictures co-owner Mark Cuban told thewrap.com in December 2011, “In reality, for most independent movies, VOD will be far and away the largest source of revenue in the future…more than theatrical and far more than streaming.” The opposite opinion came from Tom Bernard, Co-President of Sony Pictures Classics, who told thewrap.com at the same time, “It’s a more complicated situation than what Mark Cuban is trying to sell. If your movie can play through all the windows that start with the theatrical release, nine times out of 10 it will be much more successful than the VOD/theater box office.”

The important concept in all of this is the word “future.” Cuban’s future isn’t here yet. I don’t feel it will be here for the next four to five years. Whether or not I am right, currently, we have to hope that films receive at least a small theatrical release before going to the aftermarket. Of course, a big theatrical release is always better!

A Deal Is a Deal

What is a typical deal? There is no such animal; no two deals are ever exactly the same. Distributors will take as much as they can get, and it is the producer’s job to give away as little as possible. Do not under any circumstances enter into one of these agreements without the advice of an entertainment attorney experienced in film. Some distributors will try to get you to sign an agreement before their fees are specified or without any agreement for theatrical distribution. Their business is to be persuasive, and they are good at it. The attorney knows what needs to be in the agreement before you sign it. She can be equally persuasive.

The attorney’s film experience is important. When I was first advising filmmakers, I would tell them to get an entertainment attorney. Sometimes they would find someone who worked in another area of entertainment but not film. Distribution deals in this business are different from other areas of the entertainment industry, however, and you want your attorney to be familiar with it. The other mistake that filmmakers often make is using their father’s corporate attorney to negotiate their film contract. The filmmaker has to pay for the attorney’s learning curve (lawyers charge by the hour) and ends up with a bad deal, or, worst case, no deal at all.

The distributor’s fees vary from territory to territory or medium. This amount can be as low as 15 percent (for a “hired gun”) or as high as 50 percent of the revenues from the film. Although most contracts treat domestic and foreign revenues separately, general wisdom says that the overall average for an indie distributor’s fees is 35 percent or under. Take time to add up the total fees. If they come to more than 35 percent, you probably don’t want to sign. How much the distributor wants to take depends on the company’s participation in the entire film package. The distributor may do the following:

• Get a finished picture.
• Provide P&A money.
• Be rented.
• Raise equity or presale financing.
• Provide a minimum guarantee.
• Pay an advance.

There are no hard-and-fast rules. A lot depends on how much risk the distribution company is taking, whether or not it puts in production money, and how badly it wants the film. The amount of risk is primarily related to the amount of money the distribution company pays out of its pocket. The more upfront expenses it has to assume, the greater the percentage of incoming revenues it will seek. These percentages apply only to the revenues generated by the distributor’s own deals; if that company is only making foreign sales for you, then it takes a percentage of foreign revenues only.

Do not assume knowledge about another film’s agreement and promise the same deal to your investor. Often clients want me to give examples of purchase prices in their business plans. In that case, it is important to note for the investors that the prices announced in the press may be advances against future revenue streams or total buyout prices with no further remuneration to the filmmakers and their investors. For example, an article may say that a film was picked up for $8 million. However, there may be a small or no advance, with the rest contingent on a percentage of the U.S. box office. If the box office is low, then the producers and investors will never see the full $8 million. Always remember the words of John Pierson, a longtime filmmaker and producer’s rep, who said, “Get it up front. That’s your bond.”

The good news is that, with the caveat noted above, there are good stories to tell as a hook for the investors. Sometimes a producer, director, or producer’s representative will give useful financial details in an interview. At the 2004, the $400,000 Napoleon Dynamite was of fered $3 to $4 million in advance with a guarantee of a 1,200-screen release. At the 2005 fest, Paramount paid a total of $9 million for Hustle & Flow, which was budgeted at $3.5 million. Then the big prize went to Little Miss Sunshine which sold for $10.5 million in 2006. However, the brakes were put on buying sprees in 2009 and 2010 after several big purchases with upfront fees of $8 to $10 million in 2007 and 2008 failed to deliver profits. The business, along with the rest of the world, was going through the beginning of a recession.

Surprisingly, distributors did a total 180 and went on a buying frenzy in 2011. The number of films picked up by the last day of the festival was 51, including 20 picked up after the films were announced but prior to the start of the festival. In comparison, the total in 2010 was 29 and 30 in 2009. The economy appeared to be picking up, distributor’s inventories were low and/or they just plain liked the films. The Weinstein Company paid $6 to $7 million for Our Idiot Brother, and Fox Searchlight offered $4 million for Homework.

Buyers evidently continued to believe in the strength of the indie market at the 2012 Sundance. This year’s total of 39 sales was the second highest in the last six years. The biggest change for 2012 was caution in terms of price. All buyers kept the purse strings a bitter tighter remembering that the 2011 Sundance films that failed to light up the box office. The highest price reported was $6 million for The Sessions (Fox Searchlight), but the majority were between $1 and $3 million. Perhaps of more significance was an increase in the number of films announced as day-and-date for theatrical and VOD.

Print and Ad Money

The first step in distributing a film used to be printing copies made from the master negative. If you are buying this book in 2015, you could be saying “What is a print?” The answer is that at one time all films were shipped to theaters on reels of film stock. A high-profile studio film opening on as many as 3,000 to 4,000 screens in multiple markets (a “wide” release) could have an initial marketing expense of $3.5 million to $6 million, accompanied by a very high advertising program. The smaller independent distributors would start with anywhere from 1 to 50 prints and move the prints from city to city.

The business has been going through a changeover between screens that play the 35-mm prints and those that accept digital, which makes a major difference in cost. The studios helped subsidize the conversion to digital of a majority of the theater screens and projectors. Fully outfitting a single screen with the necessary equipment costs a minimum of $70,000 with more for 3D. Middlemen called “integrators” helped with the cost and established a Virtual “Print” Fee (VPF) for each film played on a digital screen. For a studio, the $800 to $900 per engagement VPF is actually a saving compared to the number of prints they used to make. And, yes, they still refer to the digital copies as “prints.” (Refer to an article by Ira Deutchman of Emerging Pictures in indiewire.com, March 8, 2012, for more details.)

By contrast, independent films typically have a “platform” release. In this case, the film is given a buildup by opening initially in a few regional or limited local theaters to build positive movie patron awareness throughout the country. The time between a limited opening and its release in the balance of the country may be several weeks. This kept the cost of striking 35-mm prints to a minimum. Using this strategy, smaller films can be successful at the box office with as few as two or three prints that are moved from theater to theater. In the new digital system, each time the film hits a new screen, the fee mounts. With a successful film on an escalating number of screens, the distribution cost could run $1 and $2 million.

All screens have not been converted. The U. S. studios haven’t had enthusiasm for smaller venues. The question is how many screens are left? In recent interviews, distributors have said that they can’t get a good count. I have seen estimates that by the end of 2012 year over 80 percent of theaters in the United States will be digital. Recently, U.S. distributors have told me that there were at least 1,000 screens that have not been converted. In addition, various speakers at a European training program in Venice (Italy) in September 2012 said that 60 percent of Europe’s screens were digital and that 80 percent of the screens in the “major” markets in European would be digital by the end of 2012. Concerns were voiced that distributors would stop handling 35-mm prints in 2013. Whatever the numbers, you know that many independent films still will be going to the nondigital screens.

Distributors plan their release schedules not only with certain target audiences in mind, but also with awareness of which theaters—specialty or multiplex—will draw that audience. If a film is going to a multiplex, there probably isn’t a question about digital versus 35 mm. Each reader should follow the latest technical news on one of the many free Internet sites. With a two-year lag in being able to obtain distribution costs, in mid-2012, there is no way to know how the digital change has affected the print and ad costs. When the 2011 revenue and cost data become available, we may be able to get a feel for it.

Distributor's Fees

Many distributors encourage producers to provide the P&A money, because this limits their risk even more. Producers who do provide the P&A can negotiate a lower distribution fee, often ranging from 10 to 22.5 percent, with the most common fees being 15 to 17.5 percent. These deals—often informally called “rent-a-distributor” or “hired gun”—usually have an escalator clause to give the distributor an incentive. For example, the fee might be 15 percent until net revenues to the producer equal the cost of the film or some multiple of the cost of the film, at which time the distribution fees escalate to 17.5 percent. On the other hand, some distributors just negotiate a flat fee for working this way.

There are varied opinions as to whether it is practical for a producer to pay P&A costs. By putting up the money, the producer lessens the amount that the distributor will receive from the total revenues. On the other hand, many believe that the greater the distributor’s share of the incoming revenues, the harder the company will work to maximize them. The producer may also be cast in the role of monitoring the value of the distribution process; without experience, how will you be able to judge? How to handle the P&A question is one issue you have to decide for yourself. In the end, however, having to ask an investor for several million dollars in addition to the production costs may help you decide to forgo this choice.

Distributor As Financier

Chapter 9, “Financing,” discusses financing in detail, but let’s look here at the situation that arises when the distribution company is the provider of funds. If the distribution company produces a minimum guarantee, it is taking on greater risk, and therefore the fees are higher. Sometimes the deal may give the distributor an equity participation in the film on the back end. The distribution fee is taken off the top, expense reimbursements are second, and then the revenues are split on some percentage basis. The distributor is now on the hook for providing a minimum amount of money no matter what the film does. If the company has provided a bankable guarantee for the producer, the distributor has to make good on the bank loan.

Distributor Strategies

The marketing of the film to the general public is the distributor’s job. He makes decisions regarding the representation of the film in terms of genre, the placement of advertisements in various media, the sales approach for exhibitors and foreign buyers, and the “hype” (word-of-mouth, promotional events, alliances with special-interest groups, and so on), all of which are critical to a film’s success. Because marketing is part of the distribution company’s area of expertise, it usually is unwilling to give the filmmaker a say in the sales strategy, the poster design, or how the film is portrayed.

This comes as a shock to many filmmakers, who assume that they are going to have significant input or even a vote on how the posters look and where the film is opened. Many producers and directors expect a studio to ignore them, but they are under the impression that small distributors run their businesses as cooperative ventures.

Look at this from the distributor’s point of view. Too many people involved in the decision-making process could be a nightmare. Formulating a marketing plan by committee could result in the proverbial camel. Artistic people tend to feel that they know the best way to present their project. After all, it is their baby, and they know it more intimately than anyone else. And how hard could advertising really be?

Franklin Delano Roosevelt once said, “If I were starting life all over again, I would go into the advertising business; it has risen with ever-growing rapidity to the dignity of an art.” We are all specialists, and marketing is the forte of the distributor. The filmmaker’s task is to check out the distributor by researching other films the company has sold and the methods they used in the process. It is hoped that the distributor and the filmmaker will meet each other’s standards and that a marriage will be made. Doing your own research to find the best distributor for you should head off a divorce later down the line.

What the Distributor Looks For

In acquiring a project, the distributor looks at many of the same elements discussed in Chapter 3, “The Films”:

• Uniqueness of storyline.
• Genre.
• Ability of the cast members to attract audiences or buyers on their names alone.
• Past successes of the producers or director.
• Name tie-in from another medium, such as a best-selling novel.
• Special audience segment for the type, or genre, of film.
• Attached money.

Being able to sell a film involves a mix of elements, although the story is always the first concern. The people to whom the distributors sell must see something in the film that will appeal to their audiences. This varies from country to country and depends on the perspective of the buyer. No two buyers necessarily think the same. It is difficult to define why one distributor will buy a particular film, yet the distributor in the next room at the American Film Market (AFM) will not. It often boils down to a gut feeling—a notion that the distributor knows how to sell and profit from the movie. Every company operates in its own particular niche, but on any given day, some distributors are likely to find your film appealing.

As a producer, you cannot count on miracles or on someone’s gut feelings, however. Your best bet is to make your product and your approach as strong as possible. The more components that you bring to the table with the film, the more ammunition your distributor has. Negotiating is their business, but they need something to bargain with.

To complicate your life even more, the definition of a saleable commodity can change from year to year or from market to market. While distributors are in the thick of the battle getting the latest information, the rest of us might be a year behind. This situation makes meeting and talking to distributors crucial. One year, when I was new to this business, I arrived at the AFM with a client to promote his already finished film. The director had convinced a well-known actress to do a 15-minute wraparound (inserting a well-known person into the film purely to make it more saleable). She had been popular at previous markets. Unfortunately, the most recent European market had seen a glut of films with this person, and when we arrived at AFM to make our pitch, there were yawns all around. The distributors knew she was old news, because it is their business. We had not thought to check beforehand to see if the star’s popularity had changed.

Approaching a distribution company with a finished film has advantages. The distributor knows what you can do and how it will look on the screen. The company’s risk level is lowered and its financial output is less. A finished film also puts you in a stronger negotiating position. Many distributors say that they prefer even partially completed films to scripts because they can see the film’s quality.

Festivals are another way to secure distribution. If you can get your film accepted at one of the primary festivals (Sundance, Tribeca, Toronto, and Cannes), you have a chance of attracting distribution. Individually, those festivals tend to attract more distributors than other festivals. Being at a competitive festival is good. You will find the psychology of the herd at work. If an audience likes a film or if one distributor becomes interested, all of a sudden a distributor feeding frenzy can start and prices will go up.

Methods for Releasing Films

Few people invent new release strategies; they just refine the old tried-and-true ones over time. Some are in fashion, and some are out of fashion. When I first started in the business, the late Peter Myers, then Senior Vice President of Twentieth Century Fox Entertainment, told me that there were essentially two ways to distribute a film—fast and slow. That says it in a nutshell. All of the distribution books that you read (and you should learn as much as you can) will give names to procedures that are variations of fast and slow. I’ve added another speed, moderate, for our discussion.

Fast

The fastest way to release a film is to release it wide. Studios use this strategy for releasing many of their films by opening on thousands of screens simultaneously around the country. The wide release allows for a big opening weekend, which could have one of two outcomes.

First, suppose a lot of people go to see the film, like it, and tell their friends. Assume the film opens on 4,000-plus screens. The average mall theater seats around 500 people, and the film shows six times a day. You have 5 to 12 million people leaving the theater on a Saturday and telling their friends to see the film. The film develops excellent “legs,” which means that it runs for a long time with good box office. The studios often use the results of the opening weekend as a measure of how much effort to put into promoting the film in the ensuing weeks.

For a tentpole film, there is often a worldwide opening to limit the possibility of piracy. In 2012, for example, The Amazing Spider-Man opened on 4,318 screens in North America earning $144.6 million. The same weekend it opened in 15 countries earning an additional $201.6 million for a total of $346.2 million. Keeping everything in perspective, the budget for the film was $230 million.

The second possible result of a big weekend is that the same people tweet to their friends while still watching the movie, “Terrible film. Stay home.” (In the old days prior to March 2006, you didn’t get that news until coffee on Monday.) The film doesn’t have legs or doesn’t get extensive promotion. However, it does have that crowd of people who came opening weekend to see the star. The studio can use that in whatever advertising they do to lure more moviegoers into the theaters, before they hear any bad word-of-mouth. The film Bruno is the poster child for such an event.

Moderate

There is no standard definition for this type. It used to be that a moderate opening for an indie film would be around 1,000 screens. Looking at films with budgets between $20 million and $60 million released in the first half of 2012, the average opening appears to be 2,500 screens. Films with budgets less than $10 million generally follow more of the old platform release pattern. The film starts in a 10 to 20 selected theaters and moves on in some sort of pattern. A particular film may work best in one market because of the makeup of the population or because the film was shot there. On the other hand, the distributor may use a pattern of 10 to 12 theaters across the country to get a feel for his next moves if the film is doing well.

Films with difficult themes or at least an unknown audience usually open in New York City or Los Angeles. The cosmopolitan nature and the size of the population in those cities are an advantage. With good reviews, a film will continue to move through the country in one of several fashions. It might move to contiguous states, open in successive theaters based on a certain schedule, or cascade into the markets that are most likely to produce revenue. Whatever method is used, the film will continue to open in more and more theaters. Eventually, the number of theaters will decrease, but the film will remain in distribution as long as it attracts audience. These methods have several advantages. They give unique films special handling, and they allow a popular genre, small-budget film to move at the limit of its advertising budget. For example, if your film has a Native American theme, you can open in a moderately large city that also has a significant Native American population, such as Seattle or Albuquerque. In this instance, the film plays to a special-interest audience in a town where the initial box office dollars probably will give you a good start.

The goal of moderate-speed distribution is to realize sizeable opening audience (relative to the budget and theme of the film) and good reviews and then use the money and reviews to continue distribution. Clearly, no one expects a $3 million film to sell $17 or $20 million in tickets during the first weekend. The distributor may start with a few screens and fund additional releases more out of the revenues from the first few theaters. Advertising works the same way. Ads in a major city newspaper can run anywhere from $1,000 to $10,000. As a moderately budgeted film earns money, it finances the advertising in the cities to follow. For example, Juno, made for $7.5 million, opened on seven screens on December 5, 2007. In mid-December, it received nomination for both the Critics’ Choice Award and for three Golden Globes. By December 25, the film was on more than 1,000 screens. When it arrived at the Academy Awards, the film had grossed over $130 million in the United States alone. By the end of its run, the film grossed over $200 million worldwide. Had the initial audience not liked Juno, it would have been pulled early and rereleased after the nominations.

Slow

The difference between slow- and moderate-speed distribution is not necessarily the type of sequencing but the budget of the distributor. A very small distribution company may be able to afford only one print. Therefore, the film will start in one theater and the distributor will “bicycle” it from theater to theater. Low-budget and “no-budget” films are promoted with this kind of marketing budget—exceedingly small. If a film attracts a larger audience than expected, they may sell the distribution rights to another independent with greater funds. I’ve seen a small company pick up a film at the Sundance festival and “flip” it to a larger company for a profit before the week is over.

“Four-walling” is another tactic that sometimes works with lower-budget films. In this case, the distributor rents a theater for a flat weekly fee and takes all the receipts. The gamble is that the total box office dollars will be significantly greater than the guaranteed minimum to the exhibitor. To double-check the receipts, you may have to stand at the box office and count the “house” as people buy tickets. Four-walling is used infrequently now, although occasionally a producer will self-distribute and revive this strategy.

Over the past six years, numerous alternative distributors have come into the market. Rather than mention the individual companies, many of whom may not be in business by the time you are reading the book, I’m just going to speak briefly about their methods. Companies will scour the various festivals looking for films that are not picked up. Some are trying direct-to-DVD at the same time that they do a small theatrical distribution. Whether you or the company pays for the distribution costs varies. They take the same rights retentions as traditional distributors, and there is no standard back end for the filmmaker. A for-hire company may give the filmmaker total control over where the film plays, how many screens it hits, marketing, and press screenings. In this case, there is a significant upfront cost to the filmmaker; however, you are still getting professional advice and guidance on what to do.

Self-Distribution

When no distributor wants your product, there is self-distribution. I generally advise clients against self-distribution. Many don’t have enough (or often any) previous business expertise to understand the dynamics. Sometimes filmmakers have no choice. No distributor wants the film. The filmmaker wants to gain better ancillary deals by exhibiting the film in a few theaters. Occasionally, the distributor runs out of money and can’t afford to live up to an agreement for theatrical distribution. Investors will be very upset if the film is never seen anywhere. However, even a small theatrical distribution usually will mollify them.

There are several ways to approach self-distribution. Many filmmakers will put extra money into their budgets for marketing. If any of these funds haven’t been spent, they can be used to get the film out. If the film is appropriate for a specialty theater, you may be able to screen the film for very little cost during one of the theater’s down times. Localized publicity, such as flyers or the theater’s newsletter, may get enough people into the theater to interest another distributor in picking it up. Or the original distributor may suddenly find that money is available that hadn’t been accessible before.

Be aware. The exhibitors have been in business a long time and are experienced negotiators. You are not. Trying to work with them yourself puts you at a disadvantage. They are going to offer you a deal that benefits them, not you. Distributors may be difficult, but they know what the best deal is and how to negotiate it. If you want to do this yourself, learn the rules first.

Do not confuse self-distribution with self-marketing as described in Chapter 5, “The Markets.” When no one picked up What the Bleep Do We Know?, the film’s investor paid for initial releasing. Once it was clear that there was a substantial audience for the film, the Samuel Goldwyn Company picked it up. The free screenings that were done for spiritual groups helped build word-of-month for the film. Putting it in theaters yourself costs money; there are many free ways to promote the film.

In 2012, Kevin Smith formed the Kevin Smith and SModcast Pictures Presents label to self-distribute his film Red State . The reported U.S. box office for the $4 million film was $1.1 million, although more will be known when the total revenues are reported by Baseline. Before you say that you want to do what he did, keep in mind that Smith, in addition to being a well-known, successful filmmaker for 17 years, had 1.8 million Twitter followers and 700,000 Facebook friends.

If you are determined from the beginning to distribute a film yourself and are raising money from investors, you must tell them. Either they or someone else will have to put up the print and ad money. If you make the film first without the distribution funds, you may not find other investors for the additional money. The other problem is forecasting the revenues, as all of your comps for profitable films are going to be ones that have been distributed by professionals.

Filmmaker Strategies

David Versus Goliath

Many filmmakers let fate determine which way they will go in terms of distribution: studio or independent. This decision has no right or wrong answers, only options. The studio brings with it deep pockets, backup advice from experienced producers, strong marketing, and the ability to retain screens. Independent distributors bring an intimate knowledge of the low-budget market, the ability to disseminate films carefully over time, and a willingness to take a chance. Weigh your options carefully before making a decision.

There is wisdom to the thought, “Just get the film made.” Over the years, though, I have come to believe that raising money and making the film may actually be the easy part. Getting a good distribution deal for the film and financial deal for yourself and your investors is where the real work begins.

One filmmaker’s meat is another’s poison. Before going into any negotiations, be clear on your goals. The distribution decision is the major reason that you went through the exercise of listing

your wants and desires in Chapter 2, “The Company.” You may seek advice and counsel from others, but in the end, you must make your own decisions. Table 6.1 helps you identify the pros and cons of studio and independent distribution.

The studio’s backup system is a safety net for the new filmmaker. There are experienced producers on the lot, and executives are often dispatched to location to solve problems. This might be an advantage or a disadvantage. The independent filmmaker, on the other hand, usually completes the film before finding a distributor and thus has far more freedom during the filmmaking process. Distributors generally do not have extra people to hang around the set and tell you how to direct or produce.

The nature of independent distribution supports smaller-budget films. In the studios, it is hard to make a film with a smaller budget. They’ve got union salaries, overhead, and extra costs galore. Independent distributors have to run a tighter ship. Certainly, when looking for financing, their goal is a small budget. The size of the budgets for studio films usually leads to less imaginative and less chancy films being made. The independent system, meanwhile, embraces new and eclectic films. Studios maintain large bureaucracies, which make reaching a decision very difficult and time consuming. The less cumbersome independent process enables quicker decisions because there are fewer chefs in the kitchen.

The studio’s financial resources generally favor generous salaries for producers, directors, and cast. With independent films, above-the-line money is often cut to lower the budget to make it doable. Most studios assume a certain level of budget overrun with pictures and have the resources to support it. Conversely, private equity investors expect the budget you give them to be the final number. Underestimating can be dangerous because investors may not make up the shortfall. (More on this subject in Chapter 9.)

Studio distribution, as we have seen, is generally “get ‘em out fast and wide.” Historically, the studios have had neither the time nor the inclination to pamper a film through its release. It goes out everywhere with a lot of publicity. In addition, the studios have a short attention span. Films that fail to find their audiences quickly enough are pulled to make room for other titles that might have broader appeal. Independent distributors, on the other hand, often have the knowledge and patience to give special care to eclectic films. Many are geared to let a film find its audience slowly and methodically. Of course, there are some independent distributors whose forte is the mass-appeal genres. Most independents, though, have an expertise for releasing films with smaller budgets and lesser-known names.

Historically, the studios’ desire to share in the small-film market used to last for only a brief time. Studios have gone through cycles of acquiring smaller films, then forgetting about them. By buying indie companies, the studios manage to keep a hand in the niche market. Many of these specialty divisions have become labels, however. For independent companies, the niche markets are their business.

Earlier, we noted that your chances of a net profit on a studio film are low. There is a greater chance of having a real net profit at the end of the day with an independent film, although it is not guaranteed. The best policy in the movie business usually is to get what you can in the beginning—just in case.

The Control Factor

Filmmakers are well aware of the fact that studios retain the right to change anything they please—title, director’s cut, and so on— and sometimes they assume that independent distributors will not want control over these things. Wrong! All distributors want to control the title and the cut. The only way to have total control over your film is to finance and distribute it yourself.

With the studios, the filmmaker’s lack of control over projects is the stuff of which legends are made. Once your project goes into the system, it may be the last time you recognize it. If you are the writer, the finished picture may bear little resemblance to your original. Normally, there is far more control in independent filmmaking, but absolute control is a myth. An independent distributor will not allow you to have your way with everything. Novice filmmakers often are surprised at their lack of control. If only to protect themselves, distributors feel that they need these rights. Their biggest concern is to have a salable product, and, especially with neophyte producers and directors, they have no idea what they may be getting. A film that is too long, that drags in various places, or that includes scenes that were not approved in the original script will be a problem. Most independent distributors would rather deal with a finished film. That way, they know what they are getting before making an agreement, and they can request certain changes before obtaining the film. The latter is why turning over a finished film is no guarantee for the filmmaker of retaining the elusive “final cut.”

Be Aware

When going into a distribution negotiation meeting, know what items are important to you. Talk to your attorney and get a feel for your deal-breakers—that is, the points on which you will not negotiate. No matter what someone says to you verbally, written agreements are what count. For example, if having a hand in the marketing is important to you, try to have it included in the contract. Be advised that many distributors will not concede this item. They may listen to what you have to say, but they want the final decision.

Learn from the experiences of others. One novice filmmaker sent his distributor 40 minutes of finished film and 45 minutes of dailies. Although the distributor had said that they wouldn’t change a frame, they used the dailies to change the film to meet their standards. In addition, they took a frame from a scene that was not in the finished film to use for the poster. This allowed the distributor to promote the film as belonging to a different genre than it actually did. Will the average distributor do this? Probably not, but it is your responsibility to check out the people you will be dealing with to see how they have handled other filmmakers’ projects.

In the final analysis, you must enter into the distribution agreement with care. Make sure your rights are spelled out. If you see the term standard agreement, ask for a definition. Finally—and I cannot say this often—get the advice of an attorney who specializes in independent film distribution before signing anything.

Deliverables

While there isn’t room in this book to go into all the aspects of distribution, I want to mention the delivery items. When you see the initial distribution contract and a small advance, remain calm. You have additional expenses. The filmmaker is responsible for delivering certain items to the distributor—another reason for having that detail-oriented attorney. Your lawyer will know whether or not those items are normally the expense of the filmmaker. They will include such things as type of print, M&E (music and effects) tracks, music cue sheets, continuity script, MPAA rating certificate, E&O (errors and omissions) insurance policy copyright certificate, still photographs, and copies of all contracts and agreements. This is not a complete list but gives you an example. Refer to Robert Seigel’s “Distribution Deal Points” download on the book’s companion website.

What do you tell Investors?

The salient facts are here, but you must decide how much explanation to include in your plan. Always keep your description short and to the point. The Distribution section of your business plan should run two or three pages at most.

On the other hand, do say something useful. Unless they are professional movie investors, your investors know even less than you do about distribution; as with other subjects, you have to dispel any wrong impressions they might have. Many investors think that their production financing gives them control of the distributor, too. In addition, some have been known to assume that the distributor will repay them all the production costs upfront before the film is released. These notions may prevent you from finding a distributor; in that case, no one will ever see your film.

Before you propose to take charge of all the marketing and promotional strategies yourself or decide to self-distribute your films, ask yourself a question: Who is going to make decisions? The idea may sound great—it will give you control—but there may well be pitfalls. Remember: If you do not know how to drive a car, you’re either not going to get far or crash.

Getting a distribution deal is never a given. I make a point of saying that the specifics of the distribution deal and the timing of all money disbursements depend on the agreement that is finally negotiated. In addition, the timing of the revenue and the percentage amount of the distributor’s fees differ depending on the revenue source. You must always remind investors that you are making estimates based on general industry formulas.

If you leave investors with the impression that distribution automatically comes with making the film, you may end up with a bigger problem than you ever imagined. I have seen many business plans that have a single statement—“We will get a distributor”—as the entire Distribution section. As you should realize by now, this approach is not the best. Never leave your investors in the dark, but don’t attempt to talk about something you haven’t looked into yourself. Do your research before writing your plan and explain the essentials.

By the way, attorneys will warn you that a phrase like “We expect to negotiate with a distributor” can create some difficulties for you down the road. Instead of “expect to” (or, worst of all, “will”), say that you “aim” or “intend” to get distribution. Then you will be in good shape to give investors confidence while shielding yourself from later legal problems.